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Annual Report 2017 AVJennings Limited ABN 44 004 327 771
Contents
Chairman’s Report
FY17 Highlights
Chief Executive
Officer’s Report
Community
Property Portfolio
Project Pipeline
Directors’ Report
Consolidated Statement
of Comprehensive Income
Consolidated Statement
of Financial Position
Consolidated Statement
of Changes in Equity
Consolidated Statement
of Cash Flows
Notes to the Consolidated
Financial Statements
Directors’ Declaration
Independent Auditor’s
Report to the Members
of AVJennings Limited
Shareholder Information
Company Particulars
1
2
4
6
8
9
12
27
28
29
30
31
73
74
78
81
AVJENNINGS LIMITED · ANNUAL REPORT 2017 | 1
valuable commercial, industry and
financial expertise to the Company.
His joining couldn’t be more timely
especially in the current dynamic
market environment. Additionally,
we thank Mr David Tsang who left us
during the year for his service and
contributions to the Company.
Last year, we welcomed many new
shareholders and I am delighted to
be able to do the same this year.
AVJennings has been an integral part
of Australian housing for 85 years
and as the current custodians of this
great Company, with much pride
and pleasure, we will continue to
strengthen the platform and build
on strategies and initiatives to take
the Company to greater heights.
Thank you again for your
continued support.
Simon Cheong
Chairman
Chairman’s Report
Dear Fellow Shareholders,
On behalf of the Board of Directors I am pleased to present our
2017 Annual Report.
Our Company is entering one
of the most exciting periods
in its 85 year history. The Board
envisions that recent decisions by
the Board and Management will set
the Company up for sustainable
growth in the coming years.
The Company has delivered
considerable growth in both revenue
and profits since FY13. This was
achieved whilst maintaining a
sound balance sheet and a landbank
of around 10,000 lots. Gearing
continues at a conservative level
of approximately 23%.
In FY14, profit before tax was up
216%, in FY15, it was up 78.3% and
for FY16 it was up 22%. This year, our
Company reported profit before tax
at $51.0 million, in line with market
expectation though lower than the
prior year $58.8 million. This strong
performance has enabled us to
declare a final dividend of 3.5 cents,
bringing total dividends declared
for the year to 5.0 cents per share.
Entering the financial year just
ended, we knew it would be a year of
considerable activity and momentum,
driven by a number of new projects
that were about to commence or
reach new milestones. Two of these,
Waterline Place at Williamstown and
Lyndarum North at Wollert, both in
Victoria, are amongst the largest
projects of their type the Company
has ever undertaken. Both will provide
excellent opportunities for the years
to come, though the benefits to FY17
reported results were limited due to
timing aspects.
During the calendar year, the
Company continued with its active
acquisition strategy which included
development sites in Kogarah,
Sydney, Rochedale, Brisbane and
also taking up a 50% joint venture in
‘Riverton’, Jimboomba, Queensland,
yielding a total of 1,300 land lots and
apartments approximately.
We remain confident conditions will
remain positive for the foreseeable
future. This confidence is based
on both internal factors specific to
the Company and external market
fundamentals including population
growth, a low interest rate and stable
employment environment.
AVJennings’ 85-year brand is based
upon building great but affordable
housing and communities. This has
allowed us to attract, retain and
develop the highest calibre people
who have the same values for which
we are known (value, integrity and
reliability). The above factors will
continue to underpin and support
the future growth of the Company.
My fellow Directors and I acknowledge
and appreciate the work of our highly
motivated staff and thank them
for their efforts and achievements.
This could only be possible under
the leadership of our CEO, Peter
Summers. As Chairman, I would also
like to thank my fellow Directors for
their continued guidance and support.
They have balanced oversight and
guidance in the interests of all
stakeholders and I am grateful for the
commitment of all of the Directors who
served the Company with distinction.
I also want to take this opportunity to
introduce our newest Board member,
Mr Boon Leong Tan who brings
2 | AVJENNINGS LIMITED · ABN 44 004 327 771
FY17 Highlights
Solid financial outcomes and shareholder returns considering the timing of new projects and planned changes to our
production mix
STRENGTHENING THE BUSINESS
•
Revenue $401.6 million (-4.8%)
• Profit before Tax $51 million (-13.2%)
• Earnings per share 9.3 cents (-13.1%)
•
•
•
•
•
•
•
•
Maintaining total dividends of 5 cents fully franked (1.5 cents interim and 3.5 cents final)
Debt gearing at 23% of total assets remains comfortably in the middle of the targeted 15% to 35% range
Increase in net tangible assets per share to 99 cents (+4.3%)
Contract signings increased to 1,843 (+0.7%)
WIP lots 2,161 (+28.6%)
BUILDING MOMENTUM
STRONGER OUTLOOK
FY18 contract signings expected to be within the range of 1,900 to 2,100 lots
9 new projects commencing across calendar year 2017
Positive earnings momentum expected
FY17
FY16
% change
FY15
FY14
Revenue
$401.6m
$421.9m
(4.8%)
$317.9m
$250.6m
Statutory Profit before Tax
Statutory Profit after Tax
Gross Margins
Inventory Provision Write Back (After tax)
$51.0m
$35.7m
24.0%
$3.5m
$58.8m
$40.9m
25.2%
$2.6m
Net tangible assets (NTA)
$378.2m
$361.1m
NTA per share
EPS (cents per share)
Dividend fully franked (CPS)
$0.99
9.3
5
$0.95
10.7
5
(13.2%)
(12.7%)
(1.2pp)
+38%
+4.7%
+4.3%
(13.1%)
–
$48.2m
$34.4m
26.8%
$2.6m
$27.0m
$18.8m
21.9%
$3.6m
$334.5m
$313.0m
$0.88
$0.81
9
4
4.9
2
AVJENNINGS LIMITED · ANNUAL REPORT 2017 | 3
FY17 Highlights
Momentum continues
Work in progress (lots)
Contract signings (lots)
2,161
2,161
1,681
1,681
1,512
1,512
1,264
1,264
2,500
2,500
2,000
2,000
1,500
1,500
1,000
1,000
500
500
0
0
715
715
2,000
2,000
1,600
1,600
1,200
1,200
800
800
400
400
0
0
832
832
865
865
1,113
1,113
551
551
458
458
361
361
864
864
872
872
999
999
730
730
FY13
FY13
FY14
FY14
FY15
FY15
FY16
FY16
FY17
FY17
FY13
FY13
FY14
FY14
FY15
FY15
FY16
FY16
FY17
FY17
H1
H1
H2
H2
- 2 -
- 2 -
A proven track record
Revenue ($M)
Earnings and dividend growth (CPS)
421.9
421.9
401.6
401.6
DPS
DPS
EPS
EPS
10.7
10.7
9
9
9.3
9.3
317.9
317.9
250.6
250.6
4.9
4.9
4
4
2
2
5
5
5
5
FY14
FY14
FY15
FY15
FY16
FY16
FY17
FY17
FY14
FY14
FY15
FY15
FY16
FY16
FY17
FY17
Revenue linear trend
Revenue linear trend
EPS linear trend
EPS linear trend
4 | AVJENNINGS LIMITED · ABN 44 004 327 771
Chief Executive Officer’s Report
government policies impacting on
availability of land, the timing of
provision of relevant infrastructure
and costs to develop inventory,
especially in relation to tax imposts on
property by all levels of government.
On the demand side, cycles do occur
as fundamentals around population
growth, job creation, interest rates
and overall consumer confidence
impact on the level of demand both
short and long term.
All this might sound too hard or
too risky. But that would ignore or
discount the one major positive
about residential property – housing
is vital to not only a vibrant economy
but to everyone. So whilst there
are challenges operating within
residential property development,
there are enormous rewards as well.
Those rewards are both financial
and satisfying.
But to make the most of this you
need to be passionate about what
you do, you need to be strategic
and disciplined and you need to
ensure you are personally and
organisationally resilient.
So whilst I encourage you to read
all of the information in this Annual
Report, I would ask you to do so
against this background.
It all starts with our passion that
housing matters and community
matters to all. That is supported
by our values and culture and our
desire to be the best we can be.
It is documented through our
strategies and is executed through
the commitment to our vision,
adherence to strategy and through
our skilled staff.
This is all done with a sense of legacy.
This year we turned 85! That is an
enormous legacy and one to be proud
and respectful of. As well as feeling
a responsibility to that history, we
also know that our actions today as
custodians will impact the future of
the Company, its future employees
and customers as well as those of
key partners.
In writing this Chief Executive Officer’s
Report for the Annual Report, I am
proud to be doing so as a CEO of a
Company which I believe is committed
to our vision of why we exist. More
importantly, I am proud to do so on
behalf of a group of employees who
are talented and passionate about
what they do.
To my Chairman, Simon Cheong, and
all the Directors who have provided
support and guidance during the year,
may I offer my thanks. To my Executive
Team, your courage to lead has been
vital to what we have achieved to date
and will be just as vital to our future.
And to all the wonderful AVJennings
staff thank you for the belief you have
shown and the efforts you have made.
To our shareholders and other key
business partners I thank you for your
continued support, without which we
cannot achieve our goals. And finally
to all our very valued customers thank
you for handing us your trust in one of
the most important decisions you will
make in life.
Peter Summers
Chief Executive Officer
Set out in the Chairman’s Report, the
Review of Operations in the Directors’
Report and elsewhere in this Annual
Report is considerable detail. This
detail significantly relates to the
2017 financial year results but it also
covers some issues and opportunities,
both in that year and in previous
years. It also talks to the future in
terms of market conditions and how
we believe we are placed relative
to those conditions. I believe this
information gives the readers of this
Annual Report a great understanding
of the overall picture. So, my intention
is not to repeat that information here,
other than to say I agree with our
Chairman’s confidence in the future
of AVJennings Limited and I too am
proud of the results we have achieved.
Residential property is a unique
business to operate in. Our “factories”
are outdoors and subject to the
elements. These “factories” have
a finite life and we are constantly
searching for new projects to grow
the business and replace those that
are completing. These opportunities
can’t be found in a shop or acquired
online. They are sourced through
devoting capable resources to this
vital part of the business. The supply
side is significantly influenced by
AVJENNINGS LIMITED · ANNUAL REPORT 2017 | 5
6 | AVJENNINGS LIMITED · ABN 44 004 327 771
Committed to Creating
& Supporting Communities
As we celebrate our 85th year as a developer of communities, we are proud of the
inclusive, diverse business AVJennings has grown to become. Community of course means
all of us, regardless of gender, ability, age, sexuality and culture.
That’s just one reason we’re excited to continue our support for women’s sport by
joining the netball community and becoming a proud sponsor of the popular Queensland
Firebirds. We are also delighted to announce that netball legend and current Firebirds
player Laura Geitz has joined our team as an AVJennings ambassador alongside
Steve Waugh, AO.
The Firebirds join other celebrated sporting teams in the AVJennings family, including the
St Kilda Football Club in the AFL and the Melbourne Boomers in the WNBL. One aspect of
our partnership with the Melbourne Boomers we are especially proud of is our sponsorship
of their Volunteer award. So many communities around Australia and New Zealand rely
on volunteers and we are delighted to play a small part in ensuring generous and caring
people are recognised.
We also like to lend a hand to people in our community who really need it. AVJennings
is a major partner of the Steve Waugh Foundation, which supports children and young
people with diseases so rare they do not qualify for help from anyone else.
These associations are important to us because they help to show the kind of company
we are; a company that is genuinely committed to supporting and growing active and
healthy communities.
As important as these partnerships with these organisations are, it is what we do everyday
in terms of community that matters. It is why we have appointed a dedicated Community
Relations manager; it is why every project has separate community plans. Because we
know that “Housing Matters, Community Matters” to all. It is why at our very heart is our
purpose to create great neighbourhoods and places to live.
Proud sponsors of
AVJENNINGS LIMITED · ANNUAL REPORT 2017 | 7
8 | AVJENNINGS LIMITED · ABN 44 004 327 771
Property Portfolio
AVJennings continues to be one of the most recognised residential
property development companies in Australia
Number of lots at
30 June 2017
9,654
QLD
No. of lots:
1,802
NSW
No. of lots:
2,345
WA
No. of lots:
346
SA
No. of lots:
2,348
VIC
No. of lots:
2,563
NZ
No. of lots:
250
Number of Lots by NFE
17%
29%
34%
15%
1%
4%
QLD
VIC
NSW
SA
WA
NZ
AVJENNINGS LIMITED · ANNUAL REPORT 2017 | 9
Project Pipeline
As at 30 June 2017
Project Name
Halpine Lake, Mango Hill
Creekwood, Caloundra
Glenrowan, Mackay
Essington Rise, Leichhardt
Villaggio, Richlands
Bethania
Big Sky, Coomera
Bridgeman Downs
Kenmore
Bridgeman Downs 2
Jimboomba
Argyle, Elderslie
Magnolia, Hamlyn Terrace
Evergreen, Spring Farm (South)
Evergreen, Spring Farm (East)
Ravensworth Heights, Goulburn
Seacrest, Sandy Beach
Arcadian Hills, Cobbitty Stages 1–8
Arcadian Hills, Cobbitty Stages 9&10
Cobbitty Road, Cobbitty
Boundary Road, Schofields
Warnervale
Evergreen, Spring Farm PDA
Lyndarum, Wollert
Lyndarum North, Wollert JV (Options)
Arlington Rise, Portarlington
Hazelcroft, Doreen
Waterline, Williamstown
D
N
A
L
S
N
E
E
U
Q
S
E
L
A
W
H
T
U
O
S
W
E
N
I
A
R
O
T
C
V
I
A Pathways, Murray Bridge
H
T
U
O
S
I
L
A
R
T
S
U
A
River Breeze, Goolwa North
St Clair
Eyre at Penfield
Z
N
Hobsonville Point, Buckley B
N
R
E
T
S
E
W
A
I
L
A
R
T
S
U
A
Indigo China Green, Subiaco
Viridian China Green, Subiaco
The Heights Kardinya
Viveash
Parkview, Ferndale
TOTAL NO. OF REMAINING LOTS
• NSW includes 5 remnant lots and SA 10 remnant lots.
Remaining
# of Lots
Pre
FY 2018
FY 2019
FY 2020
FY 2021
FY 2022
Post
14
129
177
43
21
106
5
63
32
16
1,196
196
207
213
540
26
123
174
119
57
11
595
79
51
1,820
136
109
447
53
80
527
1,678
250
124
18
107
58
39
9,654
10 | AVJENNINGS LIMITED · ABN 44 004 327 771
Queensland
MACKAY
CALOUNDRA
MANGO HILL
BRIDGEMAN DOWNS
BRISBANE
KENMORE
RICHLANDS
LEICHHARDT
JIMBOOMBA
BETHANIA
COOMERA
Images: Creekwood at Caloundra
New South Wales
WARNERVALE
HAMLYN TERRACE
SANDY BEACH
CENTRAL COAST
SCHOFIELDS
COBBITTY
ELDERSLIE
SPRING FARM
SYDNEY
GOULBURN
WOLLONGONG
Images: Argyle at Elderslie
Victoria
WOLLERT
DOREEN
WILLIAMSTOWN
MELBOURNE
PORTARLINGTON
Artist Impression: Lysander Townhomes,
Waterline Place, Williamstown
AVJENNINGS LIMITED · ANNUAL REPORT 2017 | 11
South Australia
PENFIELD
ST CLAIR
ADELAIDE
MURRAY BRIDGE
GOOLWA NORTH
Artist Impression: Swan Townhomes, St Clair
Western Australia
VIVEASH
SUBIACO
PERTH
FERNDALE
KARDINYA
Artist Impression: The Heights, Kardinya
New Zealand
HOBSONVILLE POINT
AUCKLAND
Image: Hobsonville Point, Ferry Wharf
12 | AVJENNINGS LIMITED · ABN 44 004 327 771
The Directors of AVJennings Limited present their report together with the Financial Report of the Group (referred to
hereafter as “AVJennings” or “Group”) and the Auditor’s Report thereon for the year ended 30 June 2017. The Group
comprises AVJennings Limited (“Company” or “Parent”) and its controlled entities.
DIRECTORS
The Directors of AVJennings Limited during the financial year and up until the date of this Report are as follows.
Directors were in office for the entire period unless otherwise stated.
S Cheong
RJ Rowley
Non-Executive Chairman
Non-Executive Deputy Chairman
PK Summers
Managing Director and Chief Executive Officer
E Sam
B Chin
Non-Executive Director
Non-Executive Director
BG Hayman
Non-Executive Director
TP Lai
D Tsang
BL Tan
Non-Executive Director
Non-Executive Director (resigned 9 June 2017)
Non-Executive Director (appointed 9 June 2017)
PRINCIPAL ACTIVITY
The principal activity of the Group during the year was Residential Development.
OPERATING RESULTS
The consolidated profit after tax for the financial year was $35.7 million (2016: $40.9 million).
DIVIDENDS
Dividends paid to members during the financial year were as follows:
Cash dividends declared and paid
2015 final dividend of 3.0 cents per share,
paid 23 September 2015. Fully franked @ 30% tax
2016 interim dividend of 1.5 cent per share,
paid 15 April 2015. Fully franked @ 30% tax
2016 final dividend of 3.5 cents per share,
paid 23 September 2016. Fully franked @ 30% tax
2017 interim dividend of 1.5 cents per share,
paid 7 April 2017. Fully franked @ 30% tax
2017
$’000
2016
$’000
–
–
13,454
5,767
11,532
5,767
–
–
Total cash dividends declared and paid
19,221
17,299
In addition to the above, subsequent to the end of the financial year, the Directors have declared a fully franked final dividend
of 3.5 cents per share to be paid on 19 September 2017 (2016: 3.5 cents). The Dividend Reinvestment Plan remains suspended.
Directors’ Report AVJENNINGS LIMITED · ANNUAL REPORT 2017 | 13
per share fully franked. Profit before tax was 2.7% below
consensus earnings guidance of $52.4 million.
Contract signings of 1,843 lots were on par with last year
(1,832 lots), while settlements were moderately lower at
1,509 lots (30 June 2016: 1,596 lots). Full year revenue
decreased 4.8% to $401.6 million (30 June 2016: $421.9
million) due largely to production and lot titling delays in
part occasioned by protracted adverse weather events that
affected the eastern seaboard of Australia in the second half.
Approximately 98 lot equivalent settlements were delayed
across the June balance date into 1H-FY18.
Business Overview
Maturing levels of production and sales together with good
gross margins in New South Wales, Queensland and New
Zealand contributed to a good result for the year. Active
project and product mix changes continued to allow the
Company to capitalise on the differing strengths of each
location, although revenue recognition in New South Wales
and Queensland was held back by adverse weather-driven
production and titling delays. The impact of this is most
evident in a year-on-year comparison of settlement lots
statistics, which should be contrasted with the leading
indicator contract signing statistic in each period. The overall
result was also constrained by the South Australian business,
which performed below expectations due to slow sales and
margin erosion at the St Clair project. Corrective action
including further streamlining of overheads was taken and
management believes that the South Australian business’s
performance has bottomed, subject of course to the Adelaide
market not declining materially from its current subdued level.
Particularly good contributions were made by the ‘Arcadian
Hills’, ‘Evergreen’ and ‘Argyle’ (land only and built form)
projects in Sydney and ‘Magnolia’ (land only) on the
Central Coast of New South Wales. ‘Parkside’ (land only) in
Brisbane and ‘Big Sky’ (land only and built form) in Coomera
performed well for Queensland. The ‘Rosny’ apartments at
‘Waterline Place’ Williamstown demonstrated the ongoing
strength of the boutique, middle ring, medium density market
in Melbourne Victoria, while the Hobsonville Auckland project
continued its excellent performance in line with expectations.
Work in progress was up 28.6% year-on-year to 2,161 lots
(30 June 2016: 1,681 lots). The level of completed unsold
stock remained insignificant at only 6.1% by value of total
lots under control (30 June 2016: 2.8%).
Controlled land inventory fell moderately to 9,654 lots
(30 June 2016: 10,048 lots) with strong sales outstripping
acquisitions consummated during the year, which included
the purchase of a 50% share in the ‘Riverton’, Jimboomba
Queensland joint venture (approximately – 1,200 lots).
Post-balance date the Company announced the acquisition
of development sites in Kogarah, Sydney and Rochedale,
Brisbane that are anticipated to yield 67 apartments and
81 land only lots and townhouses, respectively. These
acquisitions further diversify the Company’s portfolio, with
additional purchases expected to be announced in the
second half of calendar 2017.
OPERATING AND FINANCIAL REVIEW
Summary
In recent years, the Company has seen its operations expand
in many key areas. Most directly, an increase in work in
progress levels saw profits rise substantially. In FY15 profit
was up 78.3% and in FY16 it was up 22.0%.
During the 2017 financial year, the Company continued to
increase activity levels, partly in response to continuing sound
market conditions but also in reflection of changing dynamics
within the business.
Essentially, the business entered a phase where there
were two significant influences on its operations: firstly,
the increased momentum generated in prior years that
underpinned profit growth from existing or older projects
reached maturity, and secondly the focus shifted to the
next stage of the Company’s development, which involved
the commencement of a number of new projects, many of
significant scale.
While similar levels of activity were generated in FY17 by
those older projects their contribution will progressively
diminish, although this will be more than offset as new
projects gradually reach the profit recognition stage. The
nature of residential land development is that new projects
take time to ramp up. Additionally, some of these projects
necessarily have a greater built form component that will
ultimately generate greater profitability due to the higher
value-capture from the work completed, albeit it takes longer
to achieve.
Pleasingly, the business made substantial progress in
this second phase of its evolution while at the same time
generating good results for FY17. Underlying contract
signings were approximately the same as last year. As
explained further below, bad weather on the eastern seaboard
during the months of March and April did create some
additional delays in getting contracts to profit recognition
stage. This affected around 98 contracts which, had they
settled in FY17, would have meant the result for FY17 would
have been similar to that for the previous year.
This, coupled with the value creation that occurred during the
year that has not yet flowed through to profit have enabled
the Directors to decide to declare a final dividend in respect
of FY17 at the same level as the prior year.
At a wider level, the Company continues to search for
improvement in all aspects of its business, investing in
product, people and brand and reviewing management
structures and costs. We also continue to monitor emerging
issues, trends and opportunities, both short and long term.
Financial Results
The Company recorded profit before tax of $51.0 million for
the year ended 30 June 2017, down 13.2% on the previous
year (30 June 2016: $58.8 million) and profit after tax of
$35.7 million (30 June 2016: $40.9 million).
Good contract signings in the second half of FY2017,
substantial post balance date cash inflows from the collection
of receivables and confidence in the outlook for FY2018
enabled the Directors to declare that a fully franked final
dividend of 3.5 cents per share be paid in September 2017,
taking total dividends declared for FY2017 to 5.0 cents
Directors’ Report 14 | AVJENNINGS LIMITED · ABN 44 004 327 771
OPERATING AND FINANCIAL REVIEW (continued)
Business Overview (continued)
Gearing remained low with net debt/total assets of only
23.0% (30 June 2016: 17.9%), given the component of
debt committed to work in progress, which will turn to cash
quickly once stock is completed. The Company extended
the termination date of its core $250 million ‘Club’ banking
facility by a further 12 months from 30 September 2018 to
30 September 2019.
Outlook
Over the past four years the Company has generated solid
growth in revenue and profitability and improved the quality
of its inventory, management and production processes,
enabling it to create substantial shareholder value through
payment of fully franked dividends, share price and NTA
growth. Fiscal 2017-18 is something of a transition period
as management focuses on closing out and optimising
the performance of a number of older projects, while
simultaneously working to ramp up exciting new, higher
margin projects that will help underpin the Company’s
performance for years to come.
This activity occurs against the backdrop of strong demand
drivers for residential property in the Company’s key markets.
Low interest rate and inflationary expectations combined
with positive population growth and continuing shortages of
detached and semi-detached houses and low rise apartments
in Sydney, Melbourne and Auckland will continue to stoke
demand from the owner-occupiers and local investors
targeted by the Company.
While price growth is still occurring at some estates in these
markets, it is likely to continue to be offset to a degree by
competition, trade cost increases and active product mix
decisions, although the moderate reduction in the Company’s
margins year-on-year was more heavily influenced by the
adverse impact of the South Australian business in fiscal 2017.
Sydney and the Central Coast of New South Wales continue
to experience strong demand driven by positive migration
and inadequate dwelling supply, which is largely a function
of lagging State and local government land release policy
and planning decisions, together with building delivery
constraints. Having said that, the Company believes that sale
rates are showing signs of reducing to more sustainable levels
as affordability declines further and bank credit appetite
tightens.
Auckland is a strong market and the high quality, master-
planned Hobsonville project continues to experience
significant demand with good sales and margins being
generated. The Company is actively exploring other suitable
opportunities in Auckland.
Activity continues at a steady pace in Brisbane, Caloundra
and Coomera in Queensland and the Company looks forward
to commencing construction at its newest project ‘Riverton’,
Jimboomba, late in calendar 2017.
The residential markets in Adelaide, South Australia and Perth,
Western Australia continue to experience challenges.
The outer Melbourne residential land market remains
unequivocally buoyant with the Company all but selling
out the first five stages at its new ‘Lyndarum North’ estate.
Sales in each of these stages were largely initiated through
online purchaser enquiry within hours of release of the stage.
Development of the first stage of Lyndarum North remains
on schedule to commence prior to Christmas and some
settlements are expected during 1H-2018. ‘Waterline Place’
Williamstown contributed strongly to the Victorian result with
the bulk of apartments in the ‘Rosny’ building settling in the
last week of June as expected. Remaining Rosny contracts
together with those for the ‘Ellery’ townhouses are expected
to settle in the second half of calendar 2017. Work on the next
phase of Waterline, which showcases the ‘Gem’ apartment
building is well underway and it should contribute positively
to results in FY2019.
The Company is confident that demand for its products is
sustainable given its focus on delivering traditional housing
solutions at affordable prices in well-planned communities
rather than participating in more volatile market segments.
The Company will continue to capitalise on the opportunities
presented by its diversified land portfolio by actively
managing product mix to best advantage. As one of the few
larger-scale integrated developer-builder groups operating
in Australia, AVJennings is extremely well-placed to quickly
respond to changes in local market conditions by varying the
rate and type of product that it chooses to deliver.
The Board and management of AVJennings look forward with
confidence. The Company expects to commence nine new
projects in key locations in Sydney and the central coast of
New South Wales, in Brisbane and Melbourne this calendar
year, which are anticipated to contribute to progressively
stronger results over the 2018-21 period. The usual bias of
results towards the second half of the financial year will
remain and contract signings in FY2018 are expected to
range from 1,900 to 2,100 lots.
SIGNIFICANT EVENTS AFTER THE BALANCE
SHEET DATE
No matter or circumstance has arisen since 30 June 2017
that has significantly affected, or may significantly affect:
a) the Group’s operations in future financial years; or
b) the results of those operations in future financial years; or
c) the Group’s state of affairs in future financial years.
FUTURE DEVELOPMENTS, PROSPECTS AND
BUSINESS STRATEGIES
The prospects and business strategies of the Group are
discussed on page 13 and 14 of this Report.
ENVIRONMENTAL REGULATION
The Group’s operations are subject to various environmental
regulations under both Commonwealth and State legislation,
particularly in relation to its property development activities.
The Group’s practice is to ensure that where operations
are subject to environmental regulations, those obligations
are identified and appropriately addressed. This includes
the obtaining of approvals, consents and requisite licences
from the relevant authorities and complying with their
requirements.
To the best of the Directors’ knowledge, property development
activities have and are being undertaken in compliance with
these requirements.
Directors’ Report AVJENNINGS LIMITED · ANNUAL REPORT 2017 | 15
INFORMATION ON THE DIRECTORS
Peter K Summers B.Ec. CA
Simon Cheong B.Civ.Eng. MBA
Director since 20 September 2001. Mr Cheong has over
34 years experience in real estate, banking and international
finance. He currently serves as Chairman and Chief Executive
Officer of SC Global Developments Pte Ltd. Mr Cheong has
formerly held positions with Citibank (Singapore) as their
Head of Real Estate Finance for Singapore as well as with
Credit Suisse First Boston as a Director and Regional Real
Estate Head for Asia (excluding Japan). In 1996, Mr Cheong
established his own firm, SC Global Pte Ltd, a real estate
and hotel advisory and direct investment group specialising
in structuring large and complex transactions worldwide.
He was twice elected President of the prestigious Real Estate
Developers’ Association of Singapore (REDAS) for 2 terms
from 2007 until 2010. He served on the Board of the Institute
of Real Estate Studies, National University of Singapore from
2008 to 2011 and was a board member of the Republic
Polytechnic Board of Governors from 2008 to 2011. He was
also a Council Member of the Singapore Business Federation,
a position he held from 2007 to 2010. On 1 June 2017,
Mr Cheong was appointed a non-executive Director of
Singapore Airlines Limited. Resident of Singapore.
Responsibilities:
Chairman of the Board, Non-Executive Director, Chairman
of Investments Committee, Member of Remuneration
Committee, Member of Nominations Committee.
Directorships held in other listed entities:
Singapore Airlines Limited from 1 June 2017.
Director since 27 August 1998. Mr Summers is a Chartered
Accountant and has been employed with the Company
and its related corporations since 1984, when he joined
the Jack Chia Australia Ltd Group from Price Waterhouse
(now PricewaterhouseCoopers). During Mr Summers’ early
period with the Group, he held various management and
directorship roles within the Group. Following the acquisition
of the AVJennings residential business in September 1995,
Mr Summers was appointed Chief Financial Officer,
becoming Finance Director of AVJennings in August 1998.
He was appointed Managing Director and Chief Executive
Officer of the Company on 19 February 2009. Mr Summers
has extensive experience in general and financial
management as well as mergers and acquisitions.
Resident of Melbourne.
Responsibilities:
Managing Director and Chief Executive Officer.
Directorships held in other listed entities:
None.
Elizabeth Sam B.A. Hons. (Economics)
Director since 20 September 2001. Mrs Sam has over
40 years experience in international banking and finance.
She has served on numerous high level Singaporean
government financial and banking review committees and
was the Chairman of the International Monetary Exchange
from 1987-1990 and 1993-1996. Mrs Sam is a Director of
SC Global Developments Pte Ltd, the Company’s major
shareholder. Resident of Singapore.
Jerome Rowley SF Fin, FAICD
Responsibilities:
Director since 22 March 2007. Mr Rowley has been a
career banker since the early 1970s with Citigroup, Morgan
Grenfell and ABN Amro. From 1992 until 2002, he served as
Managing Director and CEO of ABN Amro Australia and Head
of Relationship Management and Structured Finance for
ABN Amro, Asia Pacific. He has been active in both wholesale
and investment banking domestically and internationally.
During his career, Mr Rowley devoted considerable effort
towards the recognition, understanding and management
of risk as a means of profit optimization. Of particular
significance was his involvement in advising and funding
including debt, equity and hybrids, of infrastructure projects
in both Australia and Asia Pacific. Resident of Sydney.
Responsibilities:
Deputy Chairman of the Board, Non-Executive Director,
Chairman of Risk Management Committee, Member of
Audit Committee, Member of Investments Committee,
Member of Nominations Committee.
Directorships held in other listed entities:
None.
Non-Executive Director, Chairman of Nominations
Committee, Chairman of Remuneration Committee.
Directorships held in other listed entities:
Banyan Tree Holdings Limited, since 23 March 2004.
Bobby Chin CA (ICAEW) B.Acc.
Director since 18 October 2005. Mr Chin is currently the
Chairman of NTUC Fairprice Co-operative Limited, NTUC
Fairprice Foundation Limited and the Housing & Development
Board. He is the Deputy Chairman of NTUC Enterprise
Co-operative Limited and a Director of Singapore Labour
Foundation. He serves as a member of the Singapore Council
of Presidential Advisers. Mr Chin served 31 years with KPMG
Singapore and was its Managing Partner from 1992 until
September 2005. He is an Associate Member of the Institute
of Chartered Accountants in England and Wales. Resident
of Singapore.
Responsibilities:
Non-Executive Director, Chairman of Audit Committee.
Directorships held in other listed entities:
Yeo Hiap Seng Limited, since 15 May 2006.
Ho Bee Investment Limited, since 29 November 2006.
Singapore Telecommunications Limited, since 1 May 2012.
Other Directorships:
Temasek Holdings (Private) Limited, since 10 June 2014.
Directors’ Report 16 | AVJENNINGS LIMITED · ABN 44 004 327 771
INFORMATION ON THE DIRECTORS (continued)
Boon Leong Tan DipUrbVal (Auckland University, NZ)
Director since 9 June 2017. Mr Tan has over 35 years of
experience in real estate investment and asset management.
He is a non-executive Director of SC Global Developments
Pte Ltd, the Company’s major shareholder.
Mr Tan last held the position of Group Chief Operating
Officer cum Chief Executive Officer (Singapore Investments)
in Mapletree Investments Pte Ltd, a real estate company
wholly-owned by Temasek Holdings (Private) Limited. During
his service in Mapletree Investments from 2003 to 2010, the
company’s assets under management grew from US$2 billion
to US$10 billion with no equity injections from shareholders.
Prior to his career in Mapletree Investments, Mr Tan served
in Temasek Holdings (Private) Limited from 1995 to 2003
and held the position of Managing Director (Strategic
Investments). His portfolio included Temasek Holdings’
investments in real estate in Asia and Australia. His eight
year career in Temasek Holdings included stints in venture
capital investments in the IT sector, infrastructure investments
in the energy and transportation sectors, and investments
in financial services.
Mr Tan had also served in the Inland Revenue Authority of
Singapore (IRAS) from 1975 to 1995 where he last held the
position of Tax Director in the Superscale grade. In IRAS,
he handled property taxation, real estate valuation and
government land policy formulation & implementation.
Resident of Singapore.
Responsibilities:
Non-Executive Director, Member of Investments Committee.
Directorships held in other listed entities:
None.
INFORMATION ON THE COMPANY SECRETARY
Carl D Thompson LLB B. Comm
Company Secretary since 12 January 2009. Mr Thompson
previously held the company secretary and general counsel
role at Downer EDI Limited. Prior to that he was a partner at
national law firm Corrs Chambers Westgarth, practising in
corporate and commercial work. Resident of Melbourne.
Bruce G Hayman
Director since 18 October 2005. Mr Hayman has many
years commercial management experience with over 20 of
those at operational Chief Executive or General Manager
level. He is currently Chairman of Chartwell Management
Services where he brings his very wide business experience
to clients by way of the leadership, marketing, business
performance and coaching programs he offers. He has
fulfilled senior management roles both in Australia and
overseas for companies such as Nicholas Pharmaceutical
Group, Dairy Farm Group, Hong Kong Land and Seagram
Corporation. During his time in Singapore, he held the
position of Foundation President of the Singapore Australia
Business Council now known as AUSTCHAM Singapore.
He has also served as CEO of the Australian Rugby Union
and as Chairman of the Board of the Rugby Club Ltd.
He is Chairman of the Ella Foundation and a Director of
Diabetes NSW. Resident of Sydney.
Responsibilities:
Non-Executive Director, Member of Remuneration Committee,
Member of Nominations Committee, Member of Investments
Committee, Member of Risk Management Committee.
Directorships held in other listed entities:
None.
Teck Poh Lai B.A. Hons. (Economics)
Director since 18 November 2011. Mr Lai has been a career
banker since the late 1960s. He joined Citibank Singapore in
April 1968, rising through the ranks to become Vice President
and Head of the Corporate Banking Division. During his time
with Citibank, Mr Lai undertook international assignments
with Citibank in Jakarta, New York and London. His last
position with Citigroup was as Managing Director of Citicorp
Investment Banking Singapore Ltd (Corporate Finance and
Capital Market Activities) from 1986 to 1987. Mr Lai joined
Oversea-Chinese Banking Corporation (OCBC) in January
1988 as Executive Vice President and Division Head of
Corporate Banking. He moved on to various other senior
management positions in OCBC, such as Head of Information
Technology and Central Operations and Risk Management.
He was head of Group Audit prior to retiring in April 2010.
Resident of Singapore.
Responsibilities:
Non-Executive Director, Member of Audit Committee,
Member of Remuneration Committee, Member of
Investments Committee.
Directorships held in other listed entities:
PT Bank OCBC NISP Tbk (Commissioner) since
4 September 2008.
Oversea-Chinese Banking Corporation since 1 June 2010.
Directors’ Report REMUNERATION REPORT (Audited)
This Remuneration Report is provided in accordance with the
requirements of the Corporations Act 2001 (the Act) and has
been audited as required by section 308(3C) of the Act.
1. Key Management Personnel (KMP) defined
The name and position of each KMP whose remuneration
is disclosed in this report are set out below:
(i)
Directors
S Cheong
RJ Rowley
PK Summers
Non-Executive Chairman
Non-Executive Deputy Chairman
Managing Director and Chief
Executive Officer
E Sam
B Chin
Non-Executive Director
Non-Executive Director
BG Hayman
Non-Executive Director
TP Lai
D Tsang
BL Tan
(ii)
Executives
CD Thompson
L Mahaffy
SC Orlandi
L Hunt
Non-Executive Director
Non-Executive Director
(resigned 9 June 2017)
Non-Executive Director
(appointed 9 June 2017)
Company Secretary/
General Counsel
Chief Financial Officer
Chief Strategy Officer
General Manager,
Human Resources
2. Remuneration Framework
2.1 Remuneration Governance
The Board has established a Remuneration Committee which
comprises four Non-Executive Directors and is responsible for
determining and reviewing remuneration arrangements for
KMP and other senior management personnel.
The Committee is responsible for providing a remuneration
structure that attracts, retains and motivates staff, which is
aligned with shareholder interests and addresses market and
other stakeholder views.
2.2 External Advisers
No remuneration consultant made any remuneration
recommendation as defined in Section 9B of the Corporations
Act 2001 during the year ended 30 June 2017.
AVJENNINGS LIMITED · ANNUAL REPORT 2017 | 17
2.3 Non-Executive Director (NED) Remuneration
Arrangements
At the Annual General Meeting (AGM) in the year 2000,
shareholders approved a maximum annual aggregate fee
pool of $400,000 for NEDs. The allocation to individual
NEDs is determined after considering factors such as time
commitment, the size and scale of the Company’s operations,
skill sets, participation in committee work, in particular
chairmanship of committees and fees paid to directors of
comparable companies. NEDs do not receive any retirement
benefits or performance-based remuneration.
Three NEDs, Mr S Cheong, Mrs E Sam and Mr BL Tan do not
receive fees. However, AVJennings pays a consulting fee to
the Ultimate Parent Entity, SC Global Developments Pte Ltd.
The fees are paid pursuant to a consultancy and advisory
agreement for the provision of the following:
• Services of at least two directors on the Board;
• Assistance in sourcing and facilitating financial and
banking requirements particularly from Asian- based and
other institutions;
• Assistance in secretarial and administrative matters in
connection with the Company’s Singapore listing;
• Sourcing and facilitating business, commercial and
investment opportunities; and
• Ancillary advice.
The appropriateness of the agreement and the
reasonableness of the fees is assessed annually by the
Australian-based independent NEDs taking into account
the actual services provided, comparable market data for
similar services, the benefits to the Company and the likely
cost of replacement of the services provided. This review has
been undertaken annually over the past few years and the
Australian-based NEDs have, on each occasion, concluded
that the fee is appropriate in all the circumstances. The
annual fees payable are $600,000. The agreement may be
terminated by either party giving six months’ notice or by
the Company on 30 days’ notice for cause.
The remuneration of NEDs is detailed on page 23.
2.4 Executive Remuneration Arrangements
Executive remuneration includes a mix of fixed and variable
remuneration. Variable remuneration includes short term
incentives, long term incentives and retention components.
i) Fixed Remuneration
Fixed Remuneration is represented by Total Employment
Cost (TEC) which comprises base remuneration and
superannuation contributions.
TEC is reviewed annually or on promotion/appointment to the
role. TEC is benchmarked against market data for comparable
roles in the market. The Company sets TEC based on relevant
market analysis, the scope and nature of the role and the
individual’s performance, skills and responsibilities.
The fixed component of remuneration of other KMP’s is
detailed on page 24.
Directors’ Report 18 | AVJENNINGS LIMITED · ABN 44 004 327 771
REMUNERATION REPORT (Audited) (continued)
2.4 Executive Remuneration Arrangements (continued)
ii) Variable Remuneration
A) Short Term Incentive (STI)
Executives participate in a STI plan which assesses achievement against Key Performance Measures (KPM). Each executive
has KPMs that are aligned to company, business unit and individual performance. An STI payment is awarded to the extent
performance is achieved against the KPMs set at the beginning of the financial year, as appropriate, and with regards to
relevant business unit and company performance.
STI awards for the executive team in the 2017 financial year were based on the scorecard measures and weightings disclosed
below. These targets were set by the Remuneration Committee and align with the Group’s strategic and business objectives.
They are reviewed annually.
The CEO has a target STI opportunity of 35% of TEC and other Executives have a STI opportunity of 17% to 30% of TEC.
The variable “at risk” component of executive remuneration ensures that a proportion of remuneration varies with performance
(both of the individual and, as appropriate, the business unit and the Company as a whole).
Allocation of Overall Performance Incentive between Components (shown as % of TEC)
Position
CEO
Senior Executives
State General Managers
Total At Risk (%)
STI (%)
LTI (%)
Retention (%)
100
33
50
35
17
30
40
8
10
25
8
10
The proportions of STI, LTI and retention components take into account:
• Market practice;
•
•
The objectives that the Board seeks to achieve and the behaviours which support that outcome;
The desire for Senior Executives to have a shareholding as a proportion of remuneration in the event that equity rewards
have vested; and
The service period before executives can receive equity rewards.
•
The table below provides an overview of the STI against key financial and non-financial performance measures.
Financial and Business Performance
Underlying Profit
Performance
• Group profit before tax.
• Return on NFE (Net Funds Employed).
• Cost to income ratio.
• Appropriate and efficient capital management.
• Alignment of priorities and allocation of resources.
• Market conditions, in particular performance in the
Business
Performance
prevailing market.
• Implementation of Company strategy and improvement
in underlying health of the Company.
• Increase in the Group’s market share of residential
CEO
Senior
Executives
State
General
Managers
70%
30% to 40%
50%
Non-Financial
Customer and
Stakeholder
Performance
People
Safety and
Environment
property sector.
• Risk management.
• Customer Advocacy.
• Employee retention and engagement.
• Leadership.
• Providing a safe work environment.
• Minimise the impact of our activities on the environment.
30%
60% to 70%
50%
Directors’ Report AVJENNINGS LIMITED · ANNUAL REPORT 2017 | 19
REMUNERATION REPORT (Audited) (continued)
2.4 Executive Remuneration Arrangements (continued)
The Remuneration Committee determines the STI to be paid
based on an assessment of the extent to which the KPMs
are met. The STI payment is made within two months of the
year end. The Committee has the discretion to adjust STIs
upwards or downwards in light of unexpected or unintended
circumstances.
Based on achievements of the Group in the 2017 financial
year and performance against individual KPMs, the
Remuneration Committee determined that Executives
achieved between 85% and 100% of their target opportunity
(average 92%). In making this assessment, the Committee
considered the following factors:
• Performance in implementing Company strategy.
• Performance in the prevailing market.
•
•
•
• Performance against individual KPMs.
The financial result.
The level of contract signings.
The underlying health of the Company.
B) Long Term Incentive (LTI)
LTI awards are only made to executives who are in a position
to have an impact on the Group’s performance and the
creation of shareholder value over the longer term.
(i) LTI and Retention (FY15 and subsequent years)
With effect from FY15, LTI arrangements were varied and
remuneration is provided by the Issue of Rights (instead
of shares) and includes a retention component. The use of
Rights as an incentive reduces the upfront cash requirements
of the Company (as shares do not need to be acquired
for allocations) and because participants do not receive
dividends on Rights (as distinct from shares).
The Total Shareholder Return (TSR) hurdle of the LTI
component was replaced by a Return on Equity (ROE) hurdle
which uses market capitalisation as a proxy for equity,
and is more appropriate from a shareholders’ perspective
as the required rates of return do not vary with “market”
performance. The ROE hurdle operates such that 50% vesting
occurs at an average annual return of 12% with 100% vesting
at an average annual return of 18%. The Earnings Per Share
(EPS) hurdle remains unchanged and is consistent with
the FY14 and prior years’ LTI structure explained under LTI
(FY14 and prior years) below. The performance conditions
will be tested at the end of the three year vesting period and
the number of rights that may vest will depend on the level
of average annual returns achieved over that three year
period. The service rights are split into three tranches that
progressively vest each year subject to satisfaction of the
service condition. The CEO’s participation was determined
as 40% (LTI) and 25% (Retention component) of TEC
respectively.
The operation of the EPS, ROE and Retention hurdles are set
out below.
AVJennings’ EPS growth
rate over the three year
performance period
< 5%
5%
5% –10%
>=10%
Percentage of rights
vesting
Nil
50% of the allocation
for the hurdle
Pro-rata between
50% and 100%
100% of the allocation
for the hurdle
AVJennings’ ROE over the three
year performance period
Percentage of rights
vesting
<12%
12%
15%
>=18%
Nil
50%
75%
100% (Straight line
interpolation between
12% and 18%)
Retention component
– years of service
Percentage of rights
vesting
one year
two years
three years
33.33%
33.33%
33.34%
Rights have been granted to KMP as detailed in the table on
page 21.
The May 2015 Grant was delayed from 2014 whilst the
Remuneration Committee considered the changes to the plan
resulting in the Rights plan. The May 2015 Grant was made
for the FY15 year (with LTI testing in September 2018). The
September 2015 Grant was made in the FY16 year with LTI
testing in September 2018.
The September 2016 Grant was made in the FY17 year
with LTI testing in September 2019.
The fair value of the rights at the date of the grant is
determined using an appropriate valuation model. The
fair value is expensed over the period in which the
performance and/or service conditions are fulfilled with a
corresponding increase in share-based payment reserve in
equity. The cumulative expense recognised for equity-settled
transactions at each reporting date until the vesting date
reflects the extent to which the vesting period has expired
and the Group’s best estimate of the number of equity
instruments that will ultimately vest. The expense or credit
in the Consolidated Statement of Comprehensive Income
represents the movement in cumulative expense recognised
between the beginning and end of that period.
Directors’ Report 20 | AVJENNINGS LIMITED · ABN 44 004 327 771
REMUNERATION REPORT (Audited) (continued)
2.4 Executive Remuneration Arrangements (continued)
AVJennings’ EPS growth rate
over the performance period
Percentage
vesting
< 5%
5%
5% – 10%
>=10%
Nil
50% of the allocation
for the hurdle
Pro-rata between 50%
and 100%
100% of the allocation
for the hurdle
The original cost of equity-settled transactions was treated
as a reduction in share capital and the underlying shares
identified separately as treasury shares. The fair value at
the date when the grant was made was determined using an
appropriate valuation model. That fair value was expensed
over the period in which the performance and/or service
conditions were fulfilled with a corresponding increase in
share-based payment reserve in equity. The cumulative
expense recognised for equity-settled transactions at each
reporting date until the vesting date reflected the extent to
which the vesting period had expired and the Group’s best
estimate of the number of equity instruments that would
ultimately vest. The expense or credit in the Consolidated
Statement of Comprehensive Income represents the
movement in cumulative expense recognised between the
beginning and end of that period.
In respect of shares forfeited, no further amounts were
expensed. The cumulative amounts relating to non- market
based measures expensed to the date of forfeiture were
reversed.
There is no non-recourse financing provided to executives
in relation to any share-based payments.
(ii) LTI (FY 14 and prior years)
The AVJ Deferred Employee Share Plan (the LTI Plan)
administers employee share schemes under which shares
were purchased on-market by the LTI Plan Trustee on behalf
of employees. These shares vest to employees for no cash
consideration subject to certain conditions being satisfied.
Shares held by the LTI Plan’s trust and not yet allocated to
employees are shown as treasury shares in the Financial
Statements.
Vesting is subject to both service and performance conditions.
The service condition requires the executive to be employed
by the Company as at 30 September in the third year after
the grant date for each grant. The performance conditions
apply to each grant – as to 50% as measured by the TSR
hurdle and as to 50% by the EPS hurdle. The two performance
hurdles are tested differently. The EPS hurdle is tested as at
30 June in the test year (three years after grant). The TSR
hurdle is tested at 30 September of the third year after grant.
The following is the status of allocations made to KMP under
the LTI Plan:
FY14 Grant
On 25 September 2013, shares were granted to KMP. As
detailed in the table on page 21, all unvested shares vested
or were forfeited during the year.
The service vesting condition was that the employee must
be employed by AVJennings at 30 September 2016. In the
event of death, permanent disablement or retrenchment,
the shares may vest to the estate at the Board’s discretion.
If the employee resigned (in certain circumstances) or was
terminated, the unvested shares would be forfeited.
The performance vesting conditions were:
•
TSR performance measured against the ASX Small
Industrials Index; and
• EPS growth. AVJennings’ EPS growth must meet or exceed
10% p.a. for the three financial years to 30 June 2017.
Half of the allocation was assessed against each
performance condition. The vesting schedule for the TSR and
EPS performance conditions are set out in the tables below.
The holder of the shares was entitled to receive all dividends
paid between grant and vesting dates.
AVJennings’ TSR rank against
companies in the Index at
30 September
Percentage
vesting
< median
At the median
Nil
50%
> median but < 75th percentile
Pro-rata between 50th
and 75th percentiles
>=75th percentile
100%
Directors’ Report AVJENNINGS LIMITED · ANNUAL REPORT 2017 | 21
REMUNERATION REPORT (Audited) (continued)
2.4 Executive Remuneration Arrangements (continued)
The following is the status of shares granted to KMP under the FY14 LTI Plan:
KMP
Year of Grant
PK Summers
CD Thompson
L Mahaffy
SC Orlandi
L Hunt
Total
FY14
FY14
FY14
FY14
FY14
Fair Value at
grant date
$351,499
$62,286
$56,947
$50,407
$38,493
Shares at
beginning of
the year
666,349
118,078
107,957
95,558
72,973
Forfeited
(27,586)
(4,888)
(4,469)
(3,956)
(3,021)
Vested
(638,763)
(113,190)
(103,488)
(91,602)
(69,952)
$559,632
1,060,915
(43,920)
(1,016,995)
Shares at end
of the year
–
–
–
–
–
–
The following is the status of rights granted to KMP under the FY15 and subsequent year LTI Plans:
KMP
PK Summers
PK Summers
PK Summers
CD Thompson
CD Thompson
CD Thompson
L Mahaffy
L Mahaffy
L Mahaffy
SC Orlandi
SC Orlandi
SC Orlandi
L Hunt
L Hunt
L Hunt
Total
Year of
Grant
Fair Value at
grant date
FY15
FY16
FY17
FY15
FY16
FY17
FY15
FY16
FY17
FY15
FY16
FY17
FY15
FY16
FY17
$386,528
$341,129
$372,970
$51,035
$59,904
$65,649
$46,660
$54,769
$60,022
$41,301
$48,479
$53,129
$31,538
$37,021
$40,571
Rights at
beginning of
the year
582,414
564,868
–
73,111
94,343
–
66,843
86,256
–
59,166
76,350
–
45,180
58,304
–
Rights
granted
–
–
721,355
–
–
125,641
–
–
114,872
–
–
101,680
–
–
77,646
Rights
vested
(82,654)
(78,996)
–
(14,185)
(18,076)
–
(12,969)
(16,527)
–
(11,480)
(14,629)
–
(8,766)
(11,171)
–
Rights at end
of the year
499,760
485,872
721,355
58,926
76,267
125,641
53,874
69,729
114,872
47,686
61,721
101,680
36,414
47,133
77,646
$1,690,705
1,706,835
1,141,194
(269,453)
2,578,576
AVJennings prohibits executives from entering into arrangements to protect the value of unvested LTI awards. This prohibition
includes entering into hedging arrangements in relation to AVJennings shares.
3. Group Performance
The table below shows the Group’s earnings performance as well as the movement in the Group’s Earnings per Share (EPS),
Total Shareholder Return (TSR) and Market Capitalisation over the last 5 years.
Financial
Report
Date
30 June 2013
30 June 2014
30 June 2015
30 June 2016
30 June 2017
Profit/(Loss)
After Tax
$’000
(15,266)
18,782
34,385
40,912
35,717
Basic
EPS
Cents
(5.46)
4.94
9.03
10.71
9.31
TSR*
Cents
14.0
13.0
10.5
(4.0)
15.0
Market
Capitalisation
$’000
Return on Market
Capitalisation
%
167,666
216,715
245,694
213,968
253,164
(9.11)
8.67
14.00
19.12
14.11
* TSR is the aggregate of the movement in the share price and dividends paid during the year ended 30 June.
Directors’ Report 22 | AVJENNINGS LIMITED · ABN 44 004 327 771
REMUNERATION REPORT (Audited) (continued)
5. Remuneration of KMP
4. Employment Contracts
i) Chief Executive Officer
Mr Summers’ employment contract does not have a
termination date and does not stipulate a termination
payment. However, it specifies a six month notice period.
Details regarding the remuneration paid to Mr Summers are
contained in the table on page 24.
ii) Other Executives
The other executives are full time permanent employees with
employment contracts. The employment contracts do not
have termination dates or termination payments. However,
they specify a notice period of three months.
Details of the nature and amount of each element of
remuneration of Directors and executives are set out in the
tables on pages 23 and 24. The Directors are the same as
those identified in the Directors’ Report.
6.
Remuneration Options: Granted and
Vested During the Year
No options were either granted or exercised during the year.
There are currently no unexercised or outstanding options.
None of the Directors or executives hold any options.
7. Shareholdings of KMP
The number of shares in the Company held during the financial year by each KMP of the Group, including their related parties,
are set out below.
Opening
Balance
Vested as
Remuneration
On market
Purchase
Other (1)
Closing
Balance
For the year ended 30 June 2017
Directors
S Cheong
E Sam
PK Summers
RJ Rowley
D Tsang (1)
Executives
CD Thompson
L Mahaffy
SC Orlandi
L Hunt
192,318,030
209,349
3,119,775
252,000
837,396
1,227,106
49,463
249,720
149,186
–
–
800,413
–
–
145,451
132,984
117,711
89,889
11,500,000
–
–
–
–
–
–
–
–
–
–
–
–
(837,396)
203,818,030
209,349
3,920,188
252,000
–
–
–
–
–
1,372,557
182,447
367,431
239,075
Total
198,412,025
1,286,448
11,500,000
(837,396)
210,361,077
For the year ended 30 June 2016
Directors
S Cheong
E Sam
PK Summers
RJ Rowley
D Tsang (1)
Executives
CD Thompson
L Mahaffy
SC Orlandi
L Hunt
192,318,030
209,349
2,815,505
252,000
837,396
884,448
19,967
202,483
87,082
–
–
304,270
–
–
54,158
29,496
47,237
36,071
–
–
–
–
–
288,500
–
–
26,033
Total
(1) Resigned 9 June 2017.
197,626,260
471,232
314,533
–
–
–
–
–
–
–
–
–
–
192,318,030
209,349
3,119,775
252,000
837,396
1,227,106
49,463
249,720
149,186
198,412,025
Directors’ Report AVJENNINGS LIMITED · ANNUAL REPORT 2017 | 23
REMUNERATION REPORT (Audited) (continued)
8. Remuneration Tables
i) Non-Executive Directors
S Cheong(1)
RJ Rowley
E Sam(1)
B Chin
BG Hayman
TP Lai
D Tsang (1)
BL Tan (1)
Total
Total
Year
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
Short-Term
Fees
$
–
–
58,219
77,626
–
–
60,000
60,000
45,662
45,662
50,000
50,000
–
–
–
–
Post Employment
Superannuation(2)
$
–
–
26,781
7,374
–
–
–
–
4,338
4,338
–
–
–
–
–
–
Total
$
–
–
85,000
85,000
–
–
60,000
60,000
50,000
50,000
50,000
50,000
–
–
–
–
213,881
233,288
31,119
11,712
245,000
245,000
(1)
These Directors were not paid fees. A consulting fee of $50,000 per month was paid to the ultimate parent entity SC Global Developments Pte Ltd which
covers the services of these Directors. International airfares to attend meetings are paid for by a related entity.
(2) Payments to Defined Contribution Plans consist of Superannuation Guarantee Contribution payments as well as employee voluntary contributions.
(a)
Directors are also reimbursed for airfares (other than the international airfares for those Directors referred to in (1) above), and other expenses relating
to the provision of their services.
Directors’ Report
24 | AVJENNINGS LIMITED · ABN 44 004 327 771
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Directors’ Report
AVJENNINGS LIMITED · ANNUAL REPORT 2017 | 25
MEETINGS OF DIRECTORS AND DIRECTORS’ COMMITTEES
The number of meetings of Directors and Directors’ committees held during the year, for the period the Director was a Member
of the Board or a Committee, and the number of meetings attended by each Director are detailed below.
Full Meetings of
Directors
Audit
Held
6
6
6
6
6
6
6
5
1
Attended
6
6
6
5
5
6
6
5
1
Held
–
3
–
–
3
–
3
3
–
Attended
–
3
–
–
3
–
3
3
–
Meetings of Committees
Remuneration
Held
1
–
–
1
–
1
1
–
–
Attended
1
–
–
1
–
1
1
–
–
Nominations
Held
1
1
–
1
–
1
–
–
–
Attended
1
1
–
1
–
1
–
–
–
Risk Management
Attended
–
1
–
–
–
1
–
–
–
Held
–
1
–
–
–
1
–
–
–
S Cheong
RJ Rowley
PK Summers
E Sam
B Chin
BG Hayman
TP Lai
D Tsang(1)
BL Tan(2)
(1) Resigned 9 June 2017.
(2) Appointed 9 June 2017.
Investments Committee
The Investments Committee does not formally meet in person. It conducts physical inspections of certain major development
sites and receives detailed briefings from management on all major development sites prior to consideration of formal
acquisition proposals which are dealt with by way of circular resolution.
DIRECTORS’ INTERESTS
ROUNDING
The relevant interests of the Directors in the shares of the
Company at the date of this Report are:
Director
S Cheong
E Sam
PK Summers
RJ Rowley
Number
203,818,030
209,349
3,920,188
252,000
INDEMNIFYING OFFICERS
During the year, the Group paid a premium in respect of
a contract insuring its Directors and employees against
liabilities that may be incurred in defending civil or criminal
proceedings that may be brought against the Officers in their
capacity as Officers of entities in the Group. In accordance
with common practice, the insurance policy prohibits
disclosure of the nature of the liability insured against and
the amount of the premium.
INDEMNIFICATION OF AUDITORS
To the extent permitted by law, the Company has agreed to
indemnify its auditors, Ernst & Young, as part of the terms
of its audit engagement agreement against claims by third
parties arising from the audit (for an unspecified amount). No
payment has been made to indemnify Ernst & Young during or
since the financial year.
ASIC Corporations (Rounding in Financial/Directors’ Reports)
Instrument 2016/191 is applicable to the Group and in
accordance with that Instrument, amounts in the Financial
Report and the Directors’ Report are rounded to the nearest
thousand dollars, unless otherwise indicated.
EXTENSION OF ELIGIBILITY TERM OF AUDIT
PARTNER
In accordance with section 324DAA of the Act, and in
accordance with a recommendation of the Audit Committee,
the Directors granted approval for the Group’s audit partner
to play a significant role in the audit of the Group for a
further two successive financial years in addition to his
original five successive financial years, such that his term will
expire on 30 June 2018.
The Directors noted that the Committee was satisfied that
the extension would maintain the quality of the audit and
would not give rise to any conflicts of interest for the following
reasons:
•
the existing audit effectiveness protocols within the
Committee’s charter are sufficient to ensure that auditor
independence would not be diminished by such an
extension;
• extending the engagement period of the incumbent audit
partner would ensure the preservation of knowledge in
circumstance where the Company is both diversifying
its project mix (particularly with the introduction of the
Waterline project) and bringing a large number of new
projects to production; and
the Directors of the Group have the option to reassess the
auditor appointment at any time.
•
Directors’ Report 26 | AVJENNINGS LIMITED · ABN 44 004 327 771
AUDITOR’S INDEPENDENCE DECLARATION
We have obtained the following Independence Declaration from our auditors, Ernst & Young:
AUDITOR’S INDEPENDENCE DECLARATION TO THE DIRECTORS OF AVJENNINGS LIMITED
As lead auditor for the audit of AVJennings Limited for the financial year ended 30 June 2017, I declare to the best of my
knowledge and belief, there have been:
a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit ; and
b) no contraventions of any applicable code of professional conduct in relation to the audit.
This declaration is in respect of AVJennings Limited and the entities it controlled during the financial year.
Ernst & Young
4 September 2017
Mark Conroy
Partner
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
NON-AUDIT SERVICES
The Group’s auditor, Ernst & Young, has not provided any non-audit services during the year.
Signed in accordance with a resolution of the Directors.
Simon Cheong
Director
4 September 2017
Peter Summers
Director
Directors’ Report
Consolidated Statement of Comprehensive Income
AVJENNINGS LIMITED · ANNUAL REPORT 2017 | 27
Revenues
Cost of sales
Gross profit
Share of losses of associates and joint venture
entities accounted for using the equity method
Change in inventory loss provisions
Selling and marketing expenses
Employee expenses
Other operational expenses
Management and administration expenses
Depreciation expense
Finance costs
Profit before income tax
Income tax
Profit after income tax
Other comprehensive income (OCI)
Foreign currency translation
Other comprehensive (loss)/income for the year
Total comprehensive (loss)/income for the year
Profit for the year attributable to owners of the Company
Total comprehensive income for the year attributable to
owners of the Company
Earnings per share (cents per share):
Basic earnings per share
Diluted earnings per share
Note
2
22
2
2
2
3
2017
$’000
2016
$’000
401,632
(305,053)
96,579
421,884
(315,731)
106,153
(28)
5,057
(10,297)
(24,600)
(7,069)
(8,120)
(298)
(195)
51,029
(15,312)
35,717
(583)
3,665
(11,002)
(24,797)
(5,479)
(8,373)
(275)
(526)
58,783
(17,871)
40,912
(109)
(109)
2,042
2,042
35,608
42,954
35,717
40,912
35,608
42,954
30
30
9.31
9.31
10.71
10.71
28 | AVJENNINGS LIMITED · ABN 44 004 327 771
Consolidated Statement of Financial Position
CURRENT ASSETS
Cash and cash equivalents
Trade and other receivables
Inventories
Other assets
Total current assets
NON-CURRENT ASSETS
Trade and other receivables
Inventories
Equity accounted investments
Available-for-sale financial asset
Plant and equipment
Intangible assets
Total non-current assets
Total assets
CURRENT LIABILITIES
Trade and other payables
Interest-bearing loans and borrowings
Tax payable
Provisions
Total current liabilities
NON-CURRENT LIABILITIES
Trade and other payables
Interest-bearing loans and borrowings
Deferred tax liabilities
Provisions
Total non-current liabilities
Total liabilities
Net assets
EQUITY
Contributed equity
Reserves
Retained earnings
Total equity
Note
2017
$’000
2016
$’000
4
5
6
7
5
6
22
8
9
10
11
12
3(c)
13
11
12
3(d)
13
15,562
121,872
211,073
3,073
43,086
106,060
209,939
2,140
351,580
361,225
38,131
21,694
308,133
343,098
8,449
2,880
792
2,816
8,684
2,880
985
2,816
361,201
380,157
712,781
741,382
75,553
117,633
2,607
5,257
5,607
10,057
10,494
6,261
89,024
144,445
37,449
43,333
177,016
165,466
27,422
867
23,437
794
242,754
233,030
331,778
377,475
381,003
363,907
14
15(a)
15(c)
160,436
160,436
6,622
6,022
213,945
197,449
381,003
363,907
Consolidated Statement of Changes in Equity
AVJENNINGS LIMITED · ANNUAL REPORT 2017 | 29
Attributable to equity holders
of AVJennings Limited
Total
equity
Foreign
Currency
Translation
Reserve
Share-based
Payment
Reserve
Retained
Earnings
Contributed
Equity
Note
$’000
$’000
$’000
$’000
$’000
At 1 July 2015
160,436
1,791
1,283
173,836
337,346
Comprehensive income:
Profit for the year
Other comprehensive income
for the year
Total comprehensive income for the year
Transactions with owners in their
capacity as owners
- Share-based payment expense
reversed (forfeited shares)
- Share-based payment expense
- Dividends paid
Total transactions with owners
in their capacity as owners
28(a)
28(a)
16
–
–
–
–
–
–
–
2,042
2,042
–
–
–
40,912
40,912
–
2,042
40,912
42,954
–
–
–
(19)
925
–
–
–
(19)
925
(17,299)
(17,299)
–
–
906
(17,299)
(16,393)
At 30 June 2016
160,436
3,833
2,189
197,449
363,907
At 1 July 2016
Comprehensive income:
Profit for the year
Other comprehensive loss for the year
160,436
3,833
2,189
197,449
363,907
–
–
–
(109)
–
–
35,717
35,717
–
(109)
Total comprehensive income for the year
–
(109)
–
35,717
35,608
Transactions with owners in their
capacity as owners
- Share-based payment expense
reversed (forfeited shares)
- Share-based payment expense
- Dividends paid
Total transactions with owners
in their capacity as owners
28(a)
28(a)
16
–
–
–
–
–
–
–
(110)
819
–
–
(110)
819
–
(19,221)
(19,221)
–
709
(19,221)
(18,512)
At 30 June 2017
160,436
3,724
2,898
213,945
381,003
30 | AVJENNINGS LIMITED · ABN 44 004 327 771
Consolidated Statement of Cash Flows
CASH FLOW FROM OPERATING ACTIVITIES
Receipts from customers
Payments to suppliers and employees
Finance costs including interest paid
Income tax paid
Net cash used in operating activities
CASH FLOW FROM INVESTING ACTIVITIES
Proceeds from sale of plant and equipment
Payments for plant and equipment
Interest received
Dividends received from joint venture entity
Net cash from investing activities
CASH FLOW FROM FINANCING ACTIVITIES
Proceeds from borrowings
Repayment of borrowings
Dividends paid
Net cash (used in)/from financing activities
NET (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS
Cash and cash equivalents at beginning of year
Effects of exchange rate changes on cash and cash equivalents
Note
2017
$’000
2016
$’000
2
3(c)
17
9
2
22
16
408,600
417,922
(394,782)
(10,544)
(16,501)
(432,880)
(12,566)
(786)
(13,227)
(28,310)
–
(119)
860
208
949
2
(735)
526
1,400
1,193
230,975
454,482
(226,875)
(19,221)
(405,683)
(17,299)
(15,121)
31,500
(27,399)
43,086
(125)
4,383
37,812
891
CASH AND CASH EQUIVALENTS AT END OF YEAR
4
15,562
43,086
AVJENNINGS LIMITED · ANNUAL REPORT 2017 | 31
Section A – How the numbers are calculated
Section A1 Segment information
1. OPERATING SEGMENTS
AVJennings operates primarily in residential development.
The Group determines segments based on information that is provided to the Managing Director who is the chief operating
decision maker (CODM). The CODM assesses the performance and makes decisions about the resources to be allocated to the
segment. Each segment prepares a detailed finance report on a monthly basis which summaries the following:
• Historic results of the segment; and
• Forecast of the segment for the remainder of the year.
Reportable segments
Jurisdictions:
Include activities relating to Land Development, Integrated Housing and Apartments Development.
Other:
Include numerous low value items, amongst the most significant of which is interest.
Notes to the Consolidated Financial Statements 32 | AVJENNINGS LIMITED · ABN 44 004 327 771
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Notes to the Consolidated Financial Statements
AVJENNINGS LIMITED · ANNUAL REPORT 2017 | 33
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Notes to the Consolidated Financial Statements
34 | AVJENNINGS LIMITED · ABN 44 004 327 771
Section A2 Profit and loss information
2. REVENUES AND EXPENSES
Revenues
Sales of land and built form
Interest received
Management fees received/receivable
Other
Total revenues
Revenue recognition
2017
$’000
2016
$’000
399,450
420,203
860
1,084
238
526
785
370
401,632
421,884
Revenue is measured at the fair value of the consideration received or receivable. Revenue is recognised for the major business
activities as follows:
Development projects and land sales
Revenue from the sale of land, houses and apartments is recognised when the significant risks, rewards of ownership and
effective control have been transferred to the buyer. This has been determined to generally occur on settlement.
Revenue from land sales is recognised prior to settlement when a signed unconditional contract for sale exists, the significant
risks, rewards of ownership and effective control have been transferred to the buyer, and there is no management involvement
to the degree usually associated with ownership.
Interest revenue
Revenue is recognised as interest accrues using the effective interest rate method.
Management fees
Revenue is recognised upon performance of the services.
Dividends
Dividends are recognised as revenue when the right to receive payment is established.
Notes to the Consolidated Financial Statements 2. REVENUES AND EXPENSES (continued)
Expenses
AVJENNINGS LIMITED · ANNUAL REPORT 2017 | 35
Note
2017
$’000
2016
$’000
Cost of sales include:
Amortisation of finance costs capitalised to inventories
12,898
15,454
Depreciation expense
Leasehold improvements
Plant, equipment and motor vehicles
Total depreciation expense
Finance costs
Bank loans and overdraft
Less: Amount capitalised to inventories
Finance costs expensed
Impairment of assets
Net decrease in inventory loss provisions
Total net impairment reversed
9
9
29
269
298
8
267
275
10,544
(10,349)
12,566
(12,040)
195
526
5,057
3,665
5,057
3,665
For the year ended 30 June 2017, the movement in inventory loss provisions resulted from a realignment of future assumptions
with current market conditions predominantly driven by projects in New South Wales and South Australia.
Notes to the Consolidated Financial Statements 36 | AVJENNINGS LIMITED · ABN 44 004 327 771
3.
INCOME TAX
(a) Income tax expense
The major components of income tax are:
Current income tax
Current income tax charge
Adjustment for prior year
Deferred income tax
Current year temporary differences
Adjustment for prior year
Income tax reported in the Consolidated
Statement of Comprehensive Income
2017
$’000
2016
$’000
11,332
11,442
(7)
10
3,977
10
6,425
(6)
15,312
17,871
(b) Numerical reconciliation between aggregate tax recognised in the Consolidated Statement of Comprehensive
Income and tax calculated per the statutory income tax rate
Accounting profit before income tax
Tax at Australian income tax rate of 30% (2016 – 30%)
Non-deductible share of equity accounted Joint Venture losses
Other non-deductible items
Assessable foreign jurisdiction gains
Unused tax losses recognised and utilised
Effect of lower tax rate in foreign jurisdictions
Adjustment for prior year
Income tax expense
Effective tax rate
(c) Numerical reconciliation from income tax expense to income taxes paid
Income tax expense
Timing differences recognised in deferred tax
Adjustment for prior year
Exchange rate translation difference
Current year tax payable at year end
Prior year tax paid/(refunded) in current year
51,029
58,783
15,309
17,635
8
144
2
–
(154)
3
175
148
345
(193)
(243)
4
15,312
17,871
30%
30%
15,312
17,871
(3,987)
(6,419)
7
(45)
(5,257)
10,471
(10)
(19)
(10,494)
(143)
Cash taxes paid per Consolidated Statement of Cash Flows
16,501
786
Notes to the Consolidated Financial Statements
AVJENNINGS LIMITED · ANNUAL REPORT 2017 | 37
3.
INCOME TAX (continued)
(d) Recognised deferred tax assets and liabilities
Opening
balance
Expense
/(benefit)
Recognised
on
acquisition
Foreign
exchange
variance
Closing
balance
$’000
$’000
$’000
$’000
$’000
Deferred income tax movement for the
year ended 30 June 2017:
Deferred tax assets
– inventories
– prepayments and accruals
– provisions on employee entitlement
– other
Deferred tax assets
Deferred tax liabilities
– inventories
– unearned revenue
– prepayments and accruals
– provisions on employee entitlement
– brand name
– other
6,769
1,344
1,446
288
(2,518)
(180)
72
(74)
9,847
(2,700)
(22,190)
(9,954)
(135)
(152)
(845)
(8)
339
(1,507)
(233)
152
–
(38)
Deferred tax liabilities
(33,284)
(1,287)
Net deferred tax liabilities
(23,437)
(3,987)
Deferred income tax movement for the
year ended 30 June 2016:
Deferred tax assets
– inventories
– prepayments and accruals
– provisions on employee entitlement
– losses available for offsetting against
future taxable income
– other
Deferred tax assets
Deferred tax liabilities
– inventories
– unearned revenue
– prepayments and accruals
– provisions on employee entitlement
– brand name
– other
9,588
(2,819)
909
1,363
434
82
2,506
(2,699)
240
48
14,606
(4,954)
(23,371)
(6,639)
(80)
(423)
(845)
(23)
1,181
(3,070)
(55)
271
–
15
Deferred tax liabilities
(31,381)
(1,658)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
193
–
193
–
–
–
–
–
–
–
–
–
–
–
–
–
2
–
–
–
–
2
2
–
1
1
–
–
2
–
(245)
–
–
–
–
4,251
1,164
1,518
214
7,147
(21,851)
(11,459)
(368)
–
(845)
(46)
(34,569)
(27,422)
6,769
1,344
1,446
–
288
9,847
(22,190)
(9,954)
(135)
(152)
(845)
(8)
(245)
(33,284)
Net deferred tax liabilities
(16,775)
(6,612)
193
(243)
(23,437)
Notes to the Consolidated Financial Statements 38 | AVJENNINGS LIMITED · ABN 44 004 327 771
3.
INCOME TAX (continued)
(f) Accounting
(e) Tax consolidation legislation
AVJennings Limited and its wholly owned Australian controlled
entities are in a tax consolidated group.
The entities in the tax consolidated group have entered into
a tax sharing agreement which limits the joint and several
liabilities of the wholly owned entities in the case of a default
by the head entity, AVJennings Limited.
The entities in the tax consolidated group have also entered
into a tax funding agreement to fully compensate/be
compensated by AVJennings Limited for current tax balances
and deferred tax assets or unused tax losses and credits
transferred.
Income tax expense is calculated at the applicable tax rate
and recognised in the profit and loss for the year, unless
it relates to other comprehensive income or transactions
recognised directly in equity.
The tax expense comprises current and deferred tax. Broadly,
current tax represents the tax expense paid or payable for
the current year. Deferred tax accounts for tax on temporary
differences. Temporary differences generally occur when
income and expenses are recognised by tax authorities and
for accounting purposes in different periods.
Deferred tax assets, including those arising from tax losses,
are only recognised to the extent it is probable that sufficient
taxable profits will be available to utilise the losses in the
foreseeable future.
Section A3 Balance Sheet information
4. CASH AND CASH EQUIVALENTS
Cash at bank and in hand
Accounting
2017
$’000
2016
$’000
15,562
43,086
Cash and cash equivalents in the Consolidated Statement of Financial Position comprise cash at bank and in hand and short
term deposits with a maturity of three months or less, which are subject to an insignificant risk of changes in value.
Notes to the Consolidated Financial Statements 5.
TRADE AND OTHER RECEIVABLES
Current
Trade receivables
Related party receivables
Funds held in trust accounts
Other receivables
Total current trade and other receivables
Non-current
Trade receivables
Related party receivables
Other receivables
Total non-current trade and other receivables
(i) Accounting
Receivables are recognised at fair value less provision for impairment.
AVJENNINGS LIMITED · ANNUAL REPORT 2017 | 39
2017
$’000
2016
$’000
113,999
102,910
3,580
–
4,293
1,600
657
893
121,872
106,060
32,583
15,063
1,096
4,452
1,601
5,030
38,131
21,694
Individual receivables that are known to be uncollectible are written-off when identified. A provision for impairment is recognised
when there is objective evidence that the collection of the receivable is doubtful. The provision is calculated as the difference
between the carrying amount of the receivable and the present value of estimated future cash flows, discounted at the effective
interest rate.
(ii) Allowance for impairment loss
No impairment loss (2016: $Nil) has been recognised by the Group in the current year.
At 30 June, the ageing analysis of trade receivables is as follows:
Number of days outstanding
Total
$’000
0-30
$’000
31-60
$’000
61-90
$’000
+ 91
$’000
+ 91#
$’000
146,582
146,570
117,973
117,962
6
6
3
–
3
5
–
–
2017
2016
# Considered impaired.
The carrying value of receivables is assumed to approximate their fair value.
The Group does not have any significant credit risk exposure to a single customer. Receivables in respect of land and built form
require to be fully settled prior to passing of title.
Notes to the Consolidated Financial Statements
40 | AVJENNINGS LIMITED · ABN 44 004 327 771
6.
INVENTORIES
Current
Broadacres
Land to be subdivided – at cost
Borrowing and holding costs capitalised
Impairment provision
Total broadacres
Work–in–progress
Land subdivided or in the course of being subdivided – at cost
Development costs capitalised
Houses and apartments under construction – at cost
Borrowing and holding costs capitalised
Impairment provision
Total work–in–progress
Completed inventory
Completed houses and apartments – at cost
Completed residential land lots – at cost
Borrowing and holding costs capitalised
Impairment provision
Total completed inventory
Total current inventories
Non–current
Broadacres
Land to be subdivided – at cost
Borrowing and holding costs capitalised
Impairment provision
Total broadacres
Work–in–progress
Land subdivided or in the course of being subdivided – at cost
Development costs capitalised
Houses and apartments under construction – at cost
Borrowing and holding costs capitalised
Impairment provision
Total work–in–progress
Completed inventory
Completed residential land lots – at cost
Borrowing and holding costs capitalised
Impairment provision
Total completed inventory
Total non–current inventories
Total inventories
Note
2017
$’000
2016
$’000
6(a)
6(a)
6(a)
6(a)
6(a)
6(a)
8,980
3,894
(480)
49,237
9,873
(3,133)
12,394
55,977
61,529
45,796
19,033
15,563
(1,838)
61,590
26,025
22,799
11,105
(2,390)
140,083
119,129
45,980
10,974
2,757
(1,115)
14,742
18,138
2,833
(880)
58,596
34,833
211,073
209,939
202,243
278,176
24,319
(10,000)
29,182
(14,076)
216,562
293,282
39,102
32,629
9,722
9,958
–
32,382
14,757
1,231
1,805
(519)
91,411
49,656
178
11
(29)
160
178
11
(29)
160
308,133
343,098
519,206
553,037
Notes to the Consolidated Financial Statements AVJENNINGS LIMITED · ANNUAL REPORT 2017 | 41
6.
INVENTORIES (continued)
(a) Borrowing costs attributable to qualifying assets are capitalised. These include interest, fees and costs associated with
interest rate derivatives and have been capitalised at a weighted average rate of 6.12% (2016: 6.18%).
(b) Inventory with a carrying value of $110,034,000 (2016: $98,405,000) was pledged as security for project specific
borrowings (refer to note 12(b)). The Group’s remaining inventory has been pledged as security for the main banking
facility (refer to note 12(a)).
Accounting
Inventories are carried at the lower of cost and net realisable value.
Costs include cost of acquisition, development, borrowings and all other costs directly related to specific projects. Borrowing
and holding costs such as rates and taxes incurred after completion of development and construction are expensed. Costs
expected to be incurred under penalty clauses and rectification provisions are also included.
Net realisable value is determined based on the estimated sales in the ordinary course of business less estimated costs of
completion and the estimated costs necessary to make the sale. Estimates of net realisable value are based on the most recent
evidence available at the time the estimates are made.
Movement in impairment provisions
At beginning of year
Amounts utilised
Amounts reversed
At end of year
7. OTHER ASSETS
Prepayments
Deposits
Total other current assets
2017
$’000
21,027
(2,508)
(5,057)
2016
$’000
30,216
(5,524)
(3,665)
13,462
21,027
2017
$’000
2,971
102
2016
$’000
2,052
88
3,073
2,140
Notes to the Consolidated Financial Statements 42 | AVJENNINGS LIMITED · ABN 44 004 327 771
8. AVAILABLE-FOR-SALE FINANCIAL ASSET
Property Fund Units
2017
$’000
2016
$’000
2,880
2,880
These comprise units in unlisted property funds which don’t have an active market. As the range of reasonable fair values can
be significant and estimates cannot be made reliably, the units are measured at cost less impairment.
The Company intends to hold the property fund units until development activity is completed, and all product sold.
Impairment and risk exposure
At each reporting date, the Group assesses whether there is objective evidence of impairment. A financial asset is impaired if
there is objective evidence of impairment as a result of one or more events and the loss event (or events) has an impact on the
estimated future cash flows of the financial asset that can be reliably estimated. In the case of equity investments classified as
available-for-sale, a significant or prolonged decline in the fair value of the security below the cost is considered an indicator
that the assets are impaired.
If there is objective evidence of impairment for an available-for-sale financial asset, the cumulative loss, measured as the
difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously
recognised in profit and loss, is taken to profit and loss.
None of the financial assets are either past due or impaired.
All available-for-sale investments are denominated in Australian currency. As a result, there is no exposure to foreign currency
risk. There is also no exposure to price risk as the intention is to hold the investments to maturity.
Notes to the Consolidated Financial Statements 9. PLANT AND EQUIPMENT
Leasehold improvements
At cost
Less: accumulated depreciation
Total leasehold improvements
Plant and equipment
At cost
Less: accumulated depreciation
Total plant and equipment
Total plant and equipment
(i) Reconciliations
AVJENNINGS LIMITED · ANNUAL REPORT 2017 | 43
2017
$’000
376
(286)
90
6,711
(6,009)
702
792
2016
$’000
379
(259)
120
6,631
(5,766)
865
985
Reconciliations of the carrying amounts of each class of plant and equipment at the beginning and end of the year are set out
below:
For the year ended 30 June 2016
Note
Carrying amount at 1 July 2015
Additions
Disposals
Depreciation charge
Carrying amount at 30 June 2016
For the year ended 30 June 2017
Carrying amount at 1 July 2016
Additions
Disposals
Depreciation charge
Carrying amount at 30 June 2017
(ii) Accounting
2
2
Leasehold
improve-
ments
$’000
Plant and
equipment
$’000
63
91
(26)
(8)
120
120
2
(3)
(29)
90
542
644
(54)
(267)
865
865
117
(11)
(269)
702
Total
$’000
605
735
(80)
(275)
985
985
119
(14)
(298)
792
Plant and equipment is stated at historical cost less accumulated depreciation and impairment.
Depreciation is calculated on a straight-line basis using the following rates which are consistent with the prior year:
Plant and equipment
Leasehold improvements
3-7 years
3-10 years
Notes to the Consolidated Financial Statements 44 | AVJENNINGS LIMITED · ABN 44 004 327 771
10. INTANGIBLE ASSETS
Brand name at cost
Less: accumulated amortisation
Total intangible assets
2017
$’000
9,868
(7,052)
2,816
2016
$’000
9,868
(7,052)
2,816
The intangible asset relates to the value of the “AVJennings” brand name which was acquired as part of a business combination
in 1995. On recognition, the asset was determined to have a finite life of 20 years and was amortised over the expected useful life.
In accordance with the accounting policy discussed below, the amortisation period and the amortisation method for an intangible
asset are reviewed at least each financial year-end. A review carried out at 31 December 2009 determined that the brand name
has indefinite useful life. This change in accounting estimate has been applied prospectively with amortisation ceasing as of
31 December 2009.
The brand name is tested for impairment annually, or more frequently if there are indicators of impairment. At 30 June 2017, there
were no indicators of impairment.
Accounting
Intangible assets acquired separately are measured at cost on initial recognition. The cost of intangible assets acquired in a
business combination is their fair value as at the date of the acquisition. Following initial recognition, intangible assets are carried
at cost less any accumulated amortisation and accumulated impairment losses. The Group does not capitalise any expenditure
resulting in the creation of internally generated intangible assets.
The useful lives of intangible assets are assessed as either finite or indefinite.
Intangible assets with finite lives are amortised over the useful economic life and assessed for impairment whenever there is an
indication that the asset may be impaired. The amortisation period and the amortisation method for an intangible asset with
a finite useful life are reviewed at least at the end of each reporting period. Changes in the expected useful life or the expected
pattern of consumption of future economic benefits embodied in the asset are considered to modify the amortisation period
or method, as appropriate, and are treated as changes in accounting estimates and adjusted on a prospective basis. The
amortisation expense on intangible assets with finite lives is recognised in the Consolidated Statement of Comprehensive Income
in the expense category that is consistent with the function of the intangible assets.
Intangible assets with indefinite useful lives are not amortised, but are tested for impairment annually. The assessment of indefinite
life is reviewed annually to determine whether the indefinite life continues to be supportable. If not, the change in useful life from
indefinite to finite is made on a prospective basis.
Notes to the Consolidated Financial Statements 11. TRADE AND OTHER PAYABLES
Current
Secured
Land creditors
Unsecured
Land creditors
Trade creditors
Related party payables
Other creditors and accruals
Total current payables
Non-Current
Unsecured
Land creditors
Related party payables
Other creditors and accruals
Total non-current payables
Accounting
AVJENNINGS LIMITED · ANNUAL REPORT 2017 | 45
2017
$’000
2016
$’000
–
4,350
43,332
9,766
1,179
21,276
75,553
74,904
14,306
150
23,923
113,283
75,553
117,633
32,742
4,707
–
39,571
2,978
784
37,449
43,333
Trade and other payables are carried at an amortised cost and represent liabilities for goods and services provided to the
Group prior to the end of the financial year which are unpaid.
Due to the short term nature of current payables, their carrying amount is assumed to approximate their fair value.
Non-current land creditors have been discounted using a rate of 6.01% (2016: 5.65%).
Notes to the Consolidated Financial Statements 46 | AVJENNINGS LIMITED · ABN 44 004 327 771
12. INTEREST-BEARING LOANS AND BORROWINGS
Current
Bank overdraft
Bank loans
Total current interest-bearing liabilities
Non-current
Bank loans
Total non-current interest-bearing liabilities
Accounting
Borrowing costs
2017
$’000
2016
$’000
3
–
2,604
10,057
2,607
10,057
177,016
165,466
177,016
165,466
Borrowing costs directly attributable to the acquisition, construction or production of an asset that necessarily takes a
substantial period of time to get ready for its intended use or sale are capitalised as part of the cost of the asset. All other
borrowing costs are expensed.
Borrowing costs consist of interest and other costs incurred in connection with the borrowing of funds. Interest income on
borrowed funds pending their expenditure, is deducted from borrowing costs eligible for capitalisation.
Interest-bearing loans and borrowings
Loans and borrowings are initially recognised at the fair value of the consideration received less directly attributable
transaction costs. Subsequently, interest-bearing loans and borrowings are measured at amortised cost using the effective
interest method. Fees paid on establishment of loan facilities are capitalised as a prepayment and amortised over the period of
the facility.
Borrowings are classified as current liabilities unless there is an unconditional right to defer repayment for at least 12 months
after the reporting date.
Notes to the Consolidated Financial Statements AVJENNINGS LIMITED · ANNUAL REPORT 2017 | 47
12. INTEREST-BEARING LOANS AND BORROWINGS (continued)
Financing arrangements
The Group has access to the following lines of credit:
30 June 2017
Main banking facilities
– bank overdraft
– bank loans
– performance bonds
Project funding facilities
– bank loans
Contract performance bond facilities
– performance bonds
30 June 2016
Main banking facilities
– bank overdraft
– bank loans
– performance bonds
Other non-cash facilities
Project funding facilities
– bank loans
Contract performance bond facilities
– performance bonds
Note
12(a)
12(b)
12(c)
12(a)
12(b)
12(c)
Available
$’000
Utilised
$’000
Unutilised
$’000
5,000
3
225,000
139,000
20,000
9,931
4,997
86,000
10,069
250,000
148,934
101,066
92,000
40,620
51,380
35,000
26,936
8,064
5,000
225,000
20,000
250,000
220
–
143,243
14,317
157,560
–
5,000
81,757
5,683
92,440
220
92,000
32,280
59,720
35,000
22,239
12,761
At 30 June 2017 main banking facilities are interchangeable up to $47 million (2016: $47 million) between the bank loans
and performance bonds.
During the current and prior year, there were no defaults or breaches of any covenants relating to the facilities.
Notes to the Consolidated Financial Statements
48 | AVJENNINGS LIMITED · ABN 44 004 327 771
12. INTEREST-BEARING LOANS AND BORROWINGS (continued)
Significant terms and conditions
(a) Main banking facilities
The Group’s main banking facilities mature on 30 September 2019. These facilities are secured by a fixed and floating
charge over all the assets and undertakings of the entities within the Group that are obligors under the main banking facilities,
and by first registered mortgages over various real estate inventories other than those controlled by the Group under project
development agreements and those assets pledged as security for project funding (see note 12(b)). The Parent Entity has
entered into a cross deed of covenant with various controlled entities to guarantee obligations of those entities in relation
to the main banking facilities (see note 21). The weighted average interest rate including margin on the main banking
facilities at 30 June 2017 was 3.00% (2016: 3.21%).
(b) Project funding facilities
Project funding facilities are secured by:
• a fixed and floating charge over the assets of the entity involved in the relevant project, namely, AVJennings Waterline
Pty Ltd; and
• a first registered mortgage over certain real estate inventories of the entity involved in the relevant project, namely,
AVJennings Waterline Pty Ltd.
The lines of credit shown are maximum limits which are available progressively as projects are developed. The expiry date for the
facility at the reporting date was November 2019. The project funding facilities are to reduce to $50 million in December 2017.
The outstanding amounts are expected to be repaid or refinanced prior to expiry of the facility. As at 30 June 2017, the balance
outstanding on the bank loan facilities was $40,620,000 (2016: $32,280,000).
The carrying amounts of the pledged assets are as follows:
Waterline, Victoria
2017
$’000
2016
$’000
111,021
98,905
The weighted average interest rate including margin on the project funding loans at 30 June 2017 was 3.17% (2016: 3.40%).
(c) Contract performance bond facilities
The Group has entered into Contract performance bond facilities of $35,000,000 (2016: $35,000,000) which are subject to
review annually. The facilities expire on 31 December 2017 and management expects the annual review which is underway,
to be completed shortly and the facilities extended for a further 12 months. The performance bond facilities are secured by
Deeds of Indemnity between the Parent Entity and various controlled entities. Details of the controlled entities, included in
the Deeds of Indemnity are set out in note 21.
13. PROVISIONS
Current
Employee benefits
Total current provisions
Non-current
Employee benefits
Total non-current provisions
Accounting
Provisions
2017
$’000
2016
$’000
5,607
6,261
5,607
6,261
867
867
794
794
A provision is recognised when there is a present obligation (legal or constructive) as a result of a past event, it is probable that
an outflow of resources will be required to settle the obligation and a reliable estimate can be made of the obligation.
Provisions are measured at the present value of management’s best estimate of the expenditure required to settle the present
obligation at the reporting date. The non-current portion is discounted using corporate bond rates.
Notes to the Consolidated Financial Statements 14. CONTRIBUTED EQUITY
Share capital
(a) Issued shares
Ordinary shares
Treasury shares
Total issued shares
(b) Movement in treasury shares
At beginning of year
Employee share scheme issue
At end of year
AVJENNINGS LIMITED · ANNUAL REPORT 2017 | 49
Note
2017
$’000
2016
$’000
160,436
160,436
2017
Number
2016
Number
384,423,851
384,423,851
14(b)
(842,089)
(2,338,154)
383,581,762
382,085,697
(2,338,154)
(3,502,401)
1,496,065
1,164,247
(842,089)
(2,338,154)
Holders of ordinary shares are entitled to dividends and to one vote per share at shareholders’ meetings.
Accounting
Incremental costs directly attributable to the issue of ordinary shares are shown in equity as a deduction, net of tax, from
the proceeds.
Shares held by the AVJ Deferred Employee Share Plan are disclosed as treasury shares and deducted from contributed equity.
15. RESERVES AND RETAINED EARNINGS
(a) Reserves
At 1 July 2015
Foreign currency translation
Share-based payment expense
At 30 June 2016
Foreign currency translation
Share-based payment expense
At 30 June 2017
(b) Nature and purpose of reserves
Foreign currency translation reserve
Foreign
Currency
Translation
Reserve
$’000
Share-based
Payment
Reserve
$’000
Total
$’000
1,791
1,283
3,074
2,042
–
–
906
2,042
906
3,833
2,189
6,022
(109)
–
–
709
(109)
709
3,724
2,898
6,622
Note
28(a)
28(a)
Exchange differences arising on translation foreign operations are recognised in other comprehensive income as
explained in note 36(e) and accumulated in a separate reserve within equity. The cumulative amount is reclassified to the
Consolidated Statement of Comprehensive Income when the net investment is disposed of.
Share-based payment reserve
The share-based payment reserve is used to recognise the fair value of shares issued to employees, with a corresponding
increase in employee expense in the Statement of Comprehensive Income.
Notes to the Consolidated Financial Statements
50 | AVJENNINGS LIMITED · ABN 44 004 327 771
15. RESERVES AND RETAINED EARNINGS (continued)
(c) Retained earnings
Movements in retained earnings were as follows:
At beginning of year
Profit after income tax
Dividends declared and paid
At end of year
16. DIVIDENDS
Cash dividends declared and paid
2015 final dividend of 3.0 cents per share,
paid 23 September 2015. Fully franked @ 30% tax
2016 interim dividend of 1.5 cents per share,
paid 15 April 2016. Fully franked @ 30% tax
2016 final dividend of 3.5 cents per share,
paid 23 September 2016. Fully franked @ 30% tax
2017 interim dividend of 1.5 cents per share,
paid 7 April 2017. Fully franked @ 30% tax
2017
$’000
2016
$’000
197,449
173,836
35,717
(19,221)
40,912
(17,299)
213,945
197,449
2017
$’000
2016
$’000
–
–
11,532
5,767
13,454
5,767
–
–
Total cash dividends declared and paid
19,221
17,299
Dividends proposed
2016 final dividend of 3.5 cents per share,
paid 23 September 2016. Fully franked @ 30% tax
2017 final dividend of 3.5 cents per share,
to be paid 19 September 2017. Fully franked @ 30% tax
Total dividends proposed
The Company’s Dividend Reinvestment Plan remains suspended.
Dividend franking account
–
13,454
13,454
–
13,454
13,454
Franking credits available for subsequent financial years based on a tax rate of 30%
15,652
15,162
The above balance is based on the balance of the dividend franking account at the year-end adjusted for:
•
•
franking credits that will arise from the payment of the amount provided for income tax; and
franking debits that will arise from the payment of dividends proposed at the year-end.
Notes to the Consolidated Financial Statements Section A4 Cash Flows information
17. CASH FLOW STATEMENT RECONCILIATION
Reconciliation of profit after tax to net cash flow used in operating activities
Profit after tax
Adjustments for non-cash items:
Depreciation
Net loss on disposal of plant and equipment
Interest revenue classified as investing cash flow
Share of losses of associates and joint venture entities
Change in inventory loss provisions
Share-based payments expense
Change in operating assets and liabilities:
Decrease/(increase) in inventories
Increase in trade and other receivables
Increase in other current assets
Decrease in current tax receivables
Increase in deferred tax liability
(Decrease)/increase in current tax liability
Decrease in trade and other payables
(Decrease)/increase in provisions
AVJENNINGS LIMITED · ANNUAL REPORT 2017 | 51
2017
$’000
2016
$’000
35,717
40,912
298
14
(860)
28
(7,565)
709
41,396
(32,249)
(933)
–
3,985
(5,237)
(47,949)
(581)
275
80
(526)
583
(9,189)
906
(26,899)
(45,572)
(80)
143
6,662
10,494
(6,902)
803
Net cash used in operating activities
(13,227)
(28,310)
Notes to the Consolidated Financial Statements 52 | AVJENNINGS LIMITED · ABN 44 004 327 771
Section B – Risk
18. JUDGEMENTS, ESTIMATES AND ASSUMPTIONS
The preparation of financial statements involves the use
of certain critical accounting estimates and requires
management to exercise judgement. These estimates and
judgements are continually reviewed based on historical
experience, current and expected market conditions as well as
other relevant factors.
(i) Judgements
In applying the Group’s accounting policies, management
makes judgements, which can significantly affect the
amounts recognised in the Consolidated Financial
Statements. This includes the determination of whether
revenue recognition criteria has been satisfied on sales of
land lots with deferred settlement terms.
(ii) Estimates and assumptions
Estimates and assumptions that have a significant risk of
causing a material adjustment to the carrying amounts of
assets and liabilities within the next financial year include:
Estimates of net realisable value of inventories:
Estimates of net realisable value are based on the most
reliable evidence available at the time the estimates are made
of the net amount expected to be realised from the sale of
inventories, and the estimated costs to complete.
Profit recognised on developments:
The calculation of profit for land lots and built form is based
on actual costs to date and estimates of costs to complete.
19. FINANCIAL RISK MANAGEMENT
The Group’s principal financial instruments comprise
receivables, payables, loans and borrowings, financial
guarantee contracts, cash and short-term deposits.
The Group’s treasury department focuses on the following
main financial risks: interest rate risk, foreign currency risk,
credit risk and liquidity risk. It provides assurance to the
Group’s senior management that financial risk activities are
governed by appropriate policies and procedures and that
financial risks are identified, measured and managed in
accordance with policies and risk objectives.
Responsibility for the monitoring of financial risk exposure
and the formulation of appropriate responses rests with the
Chief Financial Officer.
The Board reviews and approves policies, discusses their
appropriateness with senior management and varies them as
necessary.
(i) Interest rate risk
Interest rate risk is the risk that the fair value of a financial
instrument or future cash flows associated with it will
fluctuate because of changes in market interest rates. The
exposure to market interest rates primarily relates to interest-
bearing loans and borrowings issued at variable rates.
In assessing interest rate risk, the Group considers its loan
maturity and cash flow profile and the outlook for interest
rates over the medium term. To manage this, the Group may
enter into hedging strategies that combine interest rate caps
and floors, as well as floating-to-fixed interest rate swap
contracts. However, the forecast cash position together with
the current benign outlook for medium term interest rates
has resulted in the Group retaining all of the drawn debt at
variable rates of interest.
Notes to the Consolidated Financial Statements AVJENNINGS LIMITED · ANNUAL REPORT 2017 | 53
19. FINANCIAL RISK MANAGEMENT (continued)
(i) Interest rate risk (continued)
The Group uses various techniques, including interest rate swaps, caps and collars to hedge the risk associated with interest
rate fluctuations. These derivatives do not qualify for hedge accounting and changes in fair value are recognised in profit
and loss.
Derivative financial instruments are initially recognised at fair value on the date a derivative contract is entered into and their
fair value is reassessed at the end of each reporting period. Derivative financial instruments are not held for trading purposes.
At balance date, the following variable rate borrowings were outstanding:
Cash
Bank overdrafts
Bank loans
Net financial liabilities
Borrowings not hedged
2017
2016
Weighted
average
interest rate
%
1.48
5.50
3.03
Balance
$‘000
(15,562)
3
179,620
164,061
164,061
Weighted
average
interest rate
%
1.73
–
3.24
Balance
$‘000
(43,086)
–
175,523
132,437
132,437
The Group analyses its interest rate exposure on an ongoing basis. Within this analysis, consideration is given to potential
renewals of existing positions, alternative financing, alternative hedging positions and the mix of fixed and variable
interest rates.
The following table shows the impact on profit after tax if interest rates changed by 50 basis points. The calculation is based
on borrowings and cash held at year-end. It assumes that interest is capitalised to qualifying assets as shown in note 2:
+50 basis points
– 50 basis points
Profit After Tax
Higher/(Lower)
2017
$’000
(108)
108
2016
$’000
(138)
138
Notes to the Consolidated Financial Statements 54 | AVJENNINGS LIMITED · ABN 44 004 327 771
19. FINANCIAL RISK MANAGEMENT (continued)
(ii) Foreign currency risk
Foreign currency risk arises as a result of having assets denominated in a currency that is not the Group’s functional currency
(balance sheet risk) or from transactions or cash flows denominated in a foreign currency (cash flow risk).
Balance sheet risk can affect net tangible assets whereas cash flow risk is more likely to affect potential equity distributions and
repayment of debt.
The following table demonstrates the sensitivity to a change in AUD/NZD exchange rates on exposures existing at balance date.
With all other variables held constant, profit after tax and equity would have been affected as follows:
AUD/NZD +10%
AUD/NZD – 10%
(iii) Credit risk
Profit After Tax
Higher/(Lower)
Equity
Higher/(Lower)
2017
$’000
(413)
413
2016
$’000
(649)
649
2017
$’000
(402)
402
2016
$’000
(853)
853
Credit risk is the risk that a counterparty will not meet its contractual obligations under a financial instrument, leading to a
financial loss. Credit risk arises from cash and cash equivalents, trade and other receivables, available-for-financial asset,
financial instruments and from granting of financial guarantees.
Contracts for Land, Integrated Housing and Apartments usually require payment in full prior to passing of title to customers
and collateral is therefore unnecessary. In the event that title is to pass prior to full payment being received, appropriate credit
verification procedures are performed before contract execution.
Credit risk from balances with banks and financial institutions is managed by the Group’s treasury department in accordance
with Group policy. Surplus funds are invested in high quality and low risk short-term money market instruments to ensure
preservation of capital. Counterparties are limited to financial institutions approved by the Board.
The granting of financial guarantees also exposes the Group to credit risk, being the maximum amount that would have to be
paid if the guarantee is called on. As the amounts payable under the guarantees are not significantly greater than the original
liabilities, this risk in not material. See note 33 for details regarding financial guarantees.
The Group has no significant concentrations of credit risk.
(iv) Liquidity risk
Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due.
The Group manages its liquidity risk by monitoring forecast cash flows on a fortnightly basis and matching the maturity
profiles of financial assets and liabilities. These are reviewed by the Chief Financial Officer and presented to the Board as
appropriate. The objective is to maintain a balance between continuity of funding and flexibility through the use of bank loans
and committed available credit facilities.
The current main banking facilities are due to mature on 30 September 2019 and are therefore non-current. In addition, the
Group operates certain project funding facilities which are discussed in note 12(b). The maturity profile of all debt facilities is
monitored on a regular basis by the Chief Financial Officer and ongoing financing plans presented to the Board for approval
well in advance of maturity.
At 30 June 2017, 1.5% (2016: 5.7%) of the Group’s interest-bearing loans and borrowings will mature in less than one year.
Notes to the Consolidated Financial Statements AVJENNINGS LIMITED · ANNUAL REPORT 2017 | 55
19. FINANCIAL RISK MANAGEMENT (continued)
(iv) Liquidity risk (continued)
The table below summarises the maturity profile of the Group’s financial assets and liabilities based on contractual
undiscounted payments.
Year ended 30 June 2017
Financial Assets
Cash and cash equivalents
Trade and other receivables
Financial Liabilities
Trade and other payables
Interest-bearing loans and borrowings*
Financial Guarantees
< 6 months
$’000
6–12
months
$’000
> 1–5 years
$’000
Total
$’000
15,562
100,505
–
–
21,367
38,131
15,562
160,003
116,067
21,367
38,131
175,565
61,881
2,701
2,135
13,672
5,280
37,449
183,923
–
–
113,002
191,904
2,135
66,717
18,952
221,372
307,041
Net maturity
49,350
2,415
(183,241)
(131,476)
Year ended 30 June 2016
Financial Assets
Cash and cash equivalents
Trade and other receivables
Financial Liabilities
Trade and other payables
Interest-bearing loans and borrowings*
Financial Guarantees
< 6 months
$’000
6–12
months
$’000
> 1–5 years
$’000
Total
$’000
43,086
91,922
135,008
103,714
2,868
5,593
–
14,138
14,138
16,897
12,892
–
–
21,694
43,086
127,754
21,694
170,840
40,355
168,420
–
160,966
184,180
5,593
112,175
29,789
208,775
350,739
Net maturity
22,833
(15,651)
(187,081)
(179,899)
* Expected settlement amounts of interest-bearing loans and borrowings include an estimate of the interest payable to the date of expiry of the facilities.
In addition to maintaining sufficient short term assets to meet short term payments, at reporting date, the Group has
approximately $161 million (2016: $165 million) of unused credit facilities available for its immediate use. Please refer
to note 12.
Notes to the Consolidated Financial Statements 56 | AVJENNINGS LIMITED · ABN 44 004 327 771
19. FINANCIAL RISK MANAGEMENT (continued)
(v) Fair value
The following table provides the fair value measurement hierarchy of the Group’s financial assets and financial liabilities:
Year ended 30 June 2017
Year ended 30 June 2016
Quoted
prices
in active
markets
(Level 1)
$’000
Significant
observable
inputs
Significant
unobservable
inputs
Total
(Level 2)
$’000
(Level 3)
$’000
$’000
Quoted
prices
in active
markets
(Level 1)
$’000
Significant
observable
inputs
Significant
unobservable
inputs
Total
(Level 2)
$’000
(Level 3)
$’000
$’000
Financial liabilities
Interest-bearing loans
and borrowings
–
–
179,623
179,623
–
–
179,623
179,623
–
–
175,523
175,523
–
–
175,523
175,523
Management assessed that the fair values of cash and short-term deposits, trade receivables, trade payables, bank overdrafts
and other current liabilities approximate their carrying amounts largely due to the short-term maturities of these instruments.
20. CAPITAL MANAGEMENT
When managing capital, management’s objective is to ensure that returns to shareholders are optimised by using a
mix of funding options. The aim is to achieve the lowest possible weighted average cost of capital.
In order to maintain or adjust the capital structure, management may change the amount of dividends, offer a dividend
reinvestment plan, return capital to shareholders, issue new shares or sell assets to reduce debt.
During the year ended 30 June 2017, a total dividend of $19,221,000 was paid (2016: $17,299,000).
Management monitors capital mix through the debt to equity ratio (net debt/total equity) and the debt to total assets
ratio (net debt/total assets) calculated below:
Interest-bearing loans and borrowings
Less: cash and cash equivalents
Net debt
Total equity
Total assets
Net debt to equity ratio
Net debt to total assets ratio
Consolidated
2017
$’000
179,623
(15,562)
2016
$’000
175,523
(43,086)
164,061
132,437
381,003
363,907
712,781
741,382
43.1%
23.0%
36.4%
17.9%
Notes to the Consolidated Financial Statements
AVJENNINGS LIMITED · ANNUAL REPORT 2017 | 57
Section C – Group Structure
21. CONTROLLED ENTITIES
(a) Investment in controlled entities
The following economic entities are the controlled entities of AVJennings Limited:
ECONOMIC ENTITY (1)
2017
2016
2017
2016
% Equity Interest
Included in Banking Cross
Deed of Covenant (2)
Entities included in the Closed Group
A.V. Jennings Real Estate Pty Limited
AVJennings Real Estate (VIC) Pty Limited
AVJennings Holdings Limited(3)
AVJennings Properties Limited(3)
Jennings Sinnamon Park Pty Limited
Long Corporation Limited(3)
Orlit Pty Limited(3)
Sundell Pty Limited(3)
AVJennings Housing Pty Limited(3)
AVJennings Home Improvements S.A. Pty Limited(3)
AVJennings Mackay Pty Limited(3)
Entities excluded from the Closed Group
Crebb No 12 Pty Limited
Dunby Pty Limited
Epping Developments Limited
Montpellier Gardens Pty Limited
AVJ ODP Pty Limited
AVJennings (Cammeray) Pty Limited
AVJennings Syndicate No 3 Limited
AVJennings Syndicate No 4 Limited(3)
AVJennings Officer Syndicate Limited(3)
AVJennings Properties SPV No 1 Pty Limited
AVJennings Properties SPV No 2 Pty Limited
AVJennings Properties SPV No 4 Pty Limited
AVJennings Properties Elderslie No 2 Pty Limited(4)
AVJennings Wollert Pty Limited
AVJ Erskineville Pty Limited
AVJ Hobsonville Pty Limited
AVJennings Properties SPV No 9 Pty Limited
AVJennings SPV No 10 Pty Limited
AVJennings SPV No 19 Pty Limited
AVJennings SPV No 20 Pty Limited
Cusack Lane Nominees Pty Ltd(5)
AVJennings SPV No 22 Pty Limited
AVJennings SPV No 23 Pty Limited
AVJennings SPV No 24 Pty Limited
AVJBOS Nominees Pty Limited(6)
AVJBOS Eastwood Developments Pty Limited(6)
AVJBOS Eastwood Finance Pty Limited(6)
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
–
100
100
100
100
100
100
100
–
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
–
–
–
–
–
–
No
No
Yes
Yes
No
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
No
Yes
No
Yes
No
Yes
Yes
No
Yes
Yes
N/A
Yes
Yes
Yes
Yes
No
No
No
N/A
No
No
No
No
No
No
No
No
Yes
Yes
No
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
No
Yes
No
Yes
No
Yes
Yes
No
Yes
Yes
No
Yes
Yes
Yes
Yes
No
No
No
No
N/A
N/A
N/A
N/A
N/A
N/A
Notes to the Consolidated Financial Statements 58 | AVJENNINGS LIMITED · ABN 44 004 327 771
21. CONTROLLED ENTITIES (continued)
(a) Investment in controlled entities (continued)
ECONOMIC ENTITY (1)
2017
2016
2017
2016
% Equity Interest
Included in Banking Cross
Deed of Covenant (2)
Entities excluded from the Closed Group
(continued)
Creekwood Developments Pty Limited(3)
Portarlington Nominees Pty Limited
AVJennings St Clair Pty Limited
St Clair JV Nominee Pty Limited
AVJennings Properties Wollert SPV Pty Limited
AVJennings Waterline Pty Limited
100
100
100
100
100
100
100
100
100
100
100
100
Yes
Yes
Yes
Yes
No
No
Yes
Yes
Yes
Yes
No
No
(1)
All entities are incorporated in Australia. With the exception of AVJ Hobsonville Pty Limited which has a branch in New Zealand, all entities operate
within Australia.
These entities, including AVJennings Limited, are included under the Banking Cross Deed of Covenant referred to in note 12(a).
These entities, including AVJennings Limited, are included in the Deeds of Indemnity for performance bond facilities referred to in note 12(c).
(2)
(3)
(4) Deregistered on 20 March 2017.
(5) Ceased to be a controlled entity on 28 November 2016 and its previous name was AVJennings SPV No 21 Pty Limited.
(6) Acquired on 22 February 2017. Refer to note 22.
(b) Ultimate parent
AVJennings Limited is the ultimate Australian parent entity. SC Global Developments Pte Ltd is the ultimate parent entity.
(c) Deeds of cross guarantee
Certain entities within the Group are parties to deeds of cross guarantee under which each controlled entity guarantees the
debts of the others. By entering into these deeds, the controlled entities are relieved from the requirement to prepare Financial
Statements and Directors’ Reports under Corporations Instrument 2016/785 issued by the Australian Securities and Investments
Commission (ASIC). Those entities included in the Closed Group are listed in note 21(a). These entities represent a “Closed
Group” for the purposes of the Corporations Instrument, and as there are no other parties to the deeds of cross guarantee that
are controlled by AVJennings Limited, they also represent the “Extended Closed Group”.
(d) Class order closed group
Certain controlled entities were granted relief by ASIC (under provisions of Corporations Instrument) from the requirement to
prepare separate audited financial statements, where deeds of indemnity have been entered into between the Parent Entity and
the Controlled Entities to meet their liabilities as required (refer to note 21(c)).
The Extended Closed Group referred to in the Directors’ Declaration therefore comprises all of the entities within the Class
Order. Certain entities falling outside of the Extended Closed Group are listed in note 21(a), and are therefore required to
prepare separate annual financial statements.
The Consolidated Statement of Comprehensive Income for those controlled entities which are party to the deed is as follows:
Revenues
Cost of property development sold
Other expenses
Profit before income tax
Income tax
Profit after income tax
Closed Group
2017
$’000
2016
$’000
209,949
200,591
(144,675)
(39,220)
(139,923)
(40,587)
26,054
20,081
(8,079)
(6,057)
17,975
14,024
Notes to the Consolidated Financial Statements AVJENNINGS LIMITED · ANNUAL REPORT 2017 | 59
21. CONTROLLED ENTITIES (continued)
(d) Class order closed group (continued)
The Consolidated Statement of Financial Position for those controlled entities which are party to the deed is as follows:
CURRENT ASSETS
Cash and cash equivalents
Trade and other receivables
Inventories
Other assets
Total current assets
NON-CURRENT ASSETS
Trade and other receivables
Inventories
Equity accounted investments
Available-for-sale financial asset
Plant and equipment
Intangible assets
Total non-current assets
Total assets
CURRENT LIABILITIES
Trade and other payables
Tax payable
Provisions
Total current liabilities
NON-CURRENT LIABILITIES
Trade and other payables
Interest-bearing loans and borrowings
Deferred tax liabilities
Provisions
Total non-current liabilities
Total liabilities
Net assets
EQUITY
Contributed equity
Reserves
Retained earnings
Total equity
2017
$’000
2016
$’000
15,035
221,428
110,102
2,504
41,265
182,747
104,115
644
349,069
328,771
5,548
6,631
112,828
148,976
5,431
2,880
792
2,816
5,495
2,880
985
2,816
130,295
167,783
479,364
496,554
30,483
64,512
4,307
5,491
9,146
6,136
40,281
79,794
18,167
139,000
23,482
867
784
138,000
19,078
794
181,516
158,656
221,797
238,450
257,567
258,104
160,436
160,436
2,898
94,233
2,188
95,480
257,567
258,104
Notes to the Consolidated Financial Statements 60 | AVJENNINGS LIMITED · ABN 44 004 327 771
21. CONTROLLED ENTITIES (continued)
(d) Class order closed group (continued)
The Consolidated Statement of Changes in Equity for those controlled entities which are party to the deed is as follows:
At beginning of year
Comprehensive income:
Profit for the year
Total comprehensive income for the year
Transactions with owners in their capacity as owners
– Share-based payment expense
– Dividends paid
Total transactions with owners in their capacity as owners
Closed Group
2017
$’000
2016
$’000
258,104
260,473
17,975
17,975
709
(19,221)
(18,512)
14,024
14,024
906
(17,299)
(16,393)
At end of year
257,567
258,104
22. EQUITY ACCOUNTED INVESTMENTS
Associate
Joint Ventures
Total equity accounted investments
Accounting
2017
$’000
5
8,444
2016
$’000
4
8,680
8,449
8,684
An associate is an entity over which the Group has significant influence. Significant influence is the power to participate in the
financial and operating policy decisions of the investee, but is not control or joint control over those policies.
A joint venture is a type of joint arrangement whereby the parties that have joint control of the arrangement have rights to the
net assets of the joint venture. Joint control is the contractually agreed sharing of control of an arrangement, which exists only
when decisions about the relevant activities require unanimous consent of the parties sharing control.
Investments in associate and joint ventures are accounted for using the equity method. Under the equity method, investments in
these entities are carried at cost plus post acquisition changes in the Group’s share of net assets of these entities.
The aggregate of the Group’s share of profit or loss after tax of associate and joint ventures is shown separately on the face of
the Consolidated Statement of Comprehensive Income. The Group’s share of movements in reserves is recognised in reserves.
Dividends received from an associate or a joint venture are recognised as a reduction in the carrying amount of the investment.
Unrealised gains and losses resulting from transactions between the Group and the associate or joint venture are eliminated
to the extent of the interest in the associate or joint venture, until the underlying assets are realised by the associate or joint
venture on consumption or sale.
After application of the equity method, the Group determines whether it is necessary to recognise an additional impairment
loss on its equity accounted investments. If there is objective evidence that the investment in the associate or joint venture is
impaired, the Group calculates the amount of impairment as the difference between the recoverable amount of the investment
and its carrying value and recognises it in the Consolidated Statement of Comprehensive Income.
Notes to the Consolidated Financial Statements 22. EQUITY ACCOUNTED INVESTMENTS (continued)
Interest in Joint Ventures
Joint Venture and principal activities
Eastwood – Land Development and Building Construction
Woodville – Land Development and Building Construction
Pindan Capital Group Dwelling Trust – Building Construction
Movements in carrying amount
At beginning of year
Dividends received
Share of loss
At end of year
AVJENNINGS LIMITED · ANNUAL REPORT 2017 | 61
Interest held
2017
2016
–
50.0%
33.3%
2017
$’000
50.0%
50.0%
33.3%
2016
$’000
8,680
10,663
(208)
(28)
(1,400)
(583)
8,444
8,680
The Group’s share of the individually immaterial Joint Ventures’ assets, liabilities, revenues and expenses are as follows:
Share of assets and liabilities
Current assets
Non-current assets
Total assets
Current liabilities
Non-current liabilities
Total liabilities
Net assets
Share of revenues and expenses
Revenues
Expenses
Loss before income tax
Income tax
Loss after income tax
2017
$’000
2016
$’000
3,495
11,947
15,442
4,580
2,418
6,998
3,778
10,868
14,646
4,093
1,873
5,966
8,444
8,680
869
(882)
(13)
(15)
(28)
43
(621)
(578)
(5)
(583)
On 22 February 2017, the Group purchased the equity held by the joint venture partner in AVJBOS Nominees Pty Ltd, the
holding company for the Eastwood project. The Eastwood project does not constitute a business and has been accounted for as
an asset acquisition. AVJBOS Nominees Pty Ltd and its wholly owned subsidiaries, AVJBOS Eastwood Developments Pty Ltd and
AVJBOS Eastwood Finance Pty Ltd are now wholly owned by the Group.
Notes to the Consolidated Financial Statements 62 | AVJENNINGS LIMITED · ABN 44 004 327 771
23. INTEREST IN JOINT OPERATIONS
A number of controlled entities have entered into joint operations. Information relating to the Joint Operations is set out below:
Interest Held
2017
2016
Joint Operation name, principal place of business and principal activities
Wollert Joint Venture (Victoria) – Land Development and Building Construction
Cusack Lane Development Joint Venture (Queensland) – Land Development
49%
50%
49%
–
On 2 December 2016, the Group entered into a joint venture agreement to develop land at Cusack Lane, Jimboomba in
Queensland.
Accounting
A joint operation is a type of joint arrangement whereby the parties that have joint control of the arrangement have rights to the
assets and obligations for the liabilities of the joint operation. Joint control is the contractually agreed sharing of control of an
arrangement, which exists only when decisions about the relevant activities require unanimous consent of the parties sharing
control. The proportionate interests in the assets, liabilities, revenues and expenses of joint operations have been recognised in
the Financial Statements under the appropriate headings.
The Group’s interest in the profits and losses of the individually immaterial Joint Operations are included in the Consolidated
Statement of Comprehensive Income, under the following classifications:
Revenues
Cost of property developments sold
Other expenses
(Loss)/profit before income tax
Income tax
(Loss)/profit after income tax
Total comprehensive (loss)/income for the year
2017
$’000
9
–
(511)
(502)
151
(351)
(351)
2016
$’000
3,088
(2,695)
(188)
205
(62)
143
143
Notes to the Consolidated Financial Statements AVJENNINGS LIMITED · ANNUAL REPORT 2017 | 63
23. INTEREST IN JOINT OPERATIONS (continued)
The Group’s interest in the assets and liabilities of individually immaterial Joint Operations are included in the Consolidated
Statement of Financial Position, under the following classifications:
CURRENT ASSETS
Cash and cash equivalents
Trade and other receivables
Inventories
Total current assets
NON-CURRENT ASSETS
Inventories
Total non-current assets
Total assets
CURRENT LIABILITIES
Trade and other payables
Total current liabilities
NON-CURRENT LIABILITIES
Trade and other payables
Total non-current liabilities
Total liabilities
Net assets
2017
$’000
–
60
7,335
7,395
2016
$’000
947
12
730
1,689
51,387
22,315
51,387
22,315
58,782
24,004
2,581
2,581
259
259
10,077
1,028
10,077
12,658
1,028
1,287
46,124
22,717
Notes to the Consolidated Financial Statements 64 | AVJENNINGS LIMITED · ABN 44 004 327 771
Section D – Other information
25. STATEMENT OF COMPLIANCE
24. CORPORATE INFORMATION
The Consolidated Financial Statements of AVJennings Limited
for the year ended 30 June 2017 were authorised for issue in
accordance with a resolution of the Directors on 4 September
2017.
AVJennings Limited (the Parent) is a for-profit Company
limited by shares domiciled and incorporated in Australia
whose shares are publicly traded on the Australian Securities
Exchange and the Singapore Exchange through SGX
Globalquote. The ultimate parent is SC Global Developments
Pte Ltd, a company incorporated in Singapore which owns
53.02% of the ordinary shares in AVJennings Limited.
The Group (“AVJennings” or “Group”) consists of AVJennings
Limited (“Company” or “Parent”) and its controlled entities.
The nature of the operations and principal activities of the
Group are provided in the Directors’ Report.
These consolidated financial statements are general purpose
financial reports. They have been prepared in accordance
with Australian Accounting Standards and other authoritative
pronouncements of the Australian Accounting Standards
Board, the Corporations Act 2001 and International Financial
Reporting Standards (IFRS) as issued by the International
Accounting Standards Board (IASB).
26. BASIS OF PREPARATION
These financial statements have been prepared on a going
concern basis, using historical cost convention. All figures in
the financial statements are presented in Australian dollars
and have been rounded to the nearest thousand dollars in
accordance with ASIC Corporations Instrument 2016/191,
unless otherwise indicated.
Where necessary, comparative information has been restated
to conform to the current year’s disclosures.
27. RELATED PARTY DISCLOSURES
(a) Ultimate parent
AVJennings Limited is the ultimate Australian parent entity. SC Global Developments Pte Ltd (incorporated in Singapore) is the
ultimate parent entity.
(b) Share and share option transactions with Directors and Director-related entitiess
The aggregate number of shares and options held at the reporting date either directly or indirectly or beneficially by the
Directors or by an entity related to those Directors of AVJennings Limited are as follows:
Fully paid ordinary shares
Owned by Directors directly,
or indirectly or beneficially
2017
Number
2016
Number
208,199,567
196,736,550
(c) Entity with significant influence over AVJennings Limited
203,818,030 ordinary shares equating to 53.02% of the total ordinary shares on issue (2016: 192,318,030 and 50.03%
respectively) were held by SC Global Developments Pte Ltd and its subsidiaries in the Parent Entity at 30 June 2017. Certain
Directors of SC Global Developments Pte Ltd are also Directors of AVJennings Limited. Details of Directors’ interests in the shares
of the Parent Entity are set out in the Directors’ Report.
(d) Parent Entity amounts receivable from and payable to controlled entities
An impairment assessment is undertaken each reporting period to determine whether there is objective evidence that a related
party receivable is impaired. At 30 June 2017, there is no evidence of impairment and recoverability is considered probable
(2016: Nil).
Notes to the Consolidated Financial Statements
27. RELATED PARTY DISCLOSURES (continued)
(e) Transactions with related parties
Entity with significant influence over the Group:
SC Global Developments Pte Ltd
Consultancy fee paid/payable
Joint Ventures:
Eastwood JV
Management fee received/receivable
Accounting services fee received/receivable
Dividends received
Woodville JV
AVJENNINGS LIMITED · ANNUAL REPORT 2017 | 65
Note
2017
$
2016
$
(i)
600,000
600,000
(ii)
–
–
49,684
12,500
207,500
1,400,000
Accounting services fee received/receivable
19,500
16,500
Joint Operations:
Wollert JV
Management fee received/receivable
Accounting services fee received/receivable
Cusack Lane Development JV
Management fee received/receivable
Accounting services fee received/receivable
1,832,847
1,935,132
50,000
50,000
198,290
33,881
–
–
(i) Consultancy fees paid to SC Global Developments Pte Ltd of $600,000 (2016: $600,000).
(ii) Ceased to be a joint venture on 22 February 2017. Refer to note 22.
(f) Joint ventures and Joint operations in which related entities in the Group are venturers
Joint arrangements in which the Group has an interest are set out in notes 22 and 23.
(g) Outstanding balances arising from provision of services
The following balances are outstanding at the end of the reporting period in relation to transactions with related parties.
Current receivables
Joint Ventures
Non-current receivables
Joint Ventures
(h) Loans to and from related parties
Loan advanced
Joint Ventures
Loan received
Joint Ventures
2017
$’000
2016
$’000
973
481
1,096
1,601
2,607
1,119
2,978
2,978
Notes to the Consolidated Financial Statements
66 | AVJENNINGS LIMITED · ABN 44 004 327 771
27. RELATED PARTY DISCLOSURES (continued)
(i) Remuneration of Key Management Personnel
Short-term
– Salary/Fees
– Accrued annual leave
– STI
– Other (1)
Post employment
– Superannuation (2)
Long-term
– Accrued Long service leave
Share-based payment
2017
$
2016
$
1,927,428
1,906,290
21,123
399,822
70,309
24,041
378,409
61,343
129,323
108,252
77,413
605,343
77,411
657,066
3,230,761
3,212,812
(1)
(2)
‘Other’ represents the value of motor vehicle benefits.
Payments to Defined Contribution Plans consist of Superannuation Guarantee Contribution payments as well as employee voluntary contributions.
(j) Terms and conditions of transactions with related parties
Transactions with related parties are made at arm’s length both at normal market prices and on normal commercial terms.
Outstanding balances at year-end are unsecured, interest free, at call and settlement occurs in cash.
28. SHARE-BASED PAYMENT PLANS
(a) Recognised share-based payment expenses
Total expenses arising from share-based payment transactions and disclosed as part of employee benefit expenses are shown
in the table below:
Expense arising from equity-settled share-based payment transactions
Expense reversed on forfeiture of shares
Total expense arising from share-based payment transactions
The share-based payment plan is described in note 28(b).
2017
$’000
819
(110)
709
2016
$’000
925
(19)
906
(b) Type of share-based payment plan
LTI awards are only made to executives who are in a position to have an impact on the Group’s performance and the creation
of shareholder value over the long term.
(i) LTI and retention (FY15 and subsequent years)
With effect from FY15, LTI arrangements were varied and remuneration is provided by the Issue of Rights (instead of shares)
and includes a retention component. The use of Rights as an incentive reduces the upfront cash requirements of the Company
(as shares do not need to be acquired for allocations) and because participants do not receive dividends on Rights (as distinct
from shares).
The Total Shareholder Return (TSR) hurdle of the LTI component was replaced by a Return on Equity (ROE) hurdle which uses
market capitalisation as a proxy for equity, and is more appropriate from a shareholders’ perspective as the required rates of
return do not vary with “market” performance. The ROE hurdle operates such that 50% vesting occurs at an average annual
return of 12% with 100% vesting at an average annual return of 18%. The EPS hurdle remains unchanged and is consistent
with the FY14 and prior years’ LTI structure explained under LTI (FY14 and prior years) below. The performance conditions will
be tested at the end of the three year vesting period and the number of rights that may vest will depend on the level of average
annual returns achieved over that three year period. The service rights are split into three tranches that progressively vest each
year subject to satisfaction of the service condition. The CEO’s participation was determined as 40% (LTI) and 25% (Retention
component) of TEC respectively.
Notes to the Consolidated Financial Statements AVJENNINGS LIMITED · ANNUAL REPORT 2017 | 67
28. SHARE-BASED PAYMENT PLANS (continued)
(ii) LTI Awards (FY14 and prior years)
(b) Type of share-based payment plan (continued)
The operation of the EPS, ROE and Retention hurdles are
set out below.
AVJennings’ EPS growth
rate over the three year
performance period
< 5%
5%
5% –10%
>=10%
Percentage of rights
vesting
Nil
50% of the allocation
for the hurdle
Pro-rata between
50% and 100%
100% of the allocation
for the hurdle
AVJennings’ ROE over the three
year performance period
Percentage of rights
vesting
<12%
12%
15%
>=18%
Nil
50%
75%
100% (Straight line
interpolation between
12% and 18%)
Retention component
– years of service
Percentage of rights
vesting
one year
two years
three years
Accounting
33.33%
33.33%
33.34%
The fair value of the rights at the date of the grant is
determined using an appropriate valuation model. The fair
value is expensed over the period in which the performance
and/or service conditions are fulfilled with a corresponding
increase in share-based payment reserve in equity. The
cumulative expense recognised for equity-settled transactions
at each reporting date until the vesting date reflects the
extent to which the vesting period has expired and the
Group’s best estimate of the number of equity instruments
that will ultimately vest. The expense or credit in the
Consolidated Statement of Comprehensive Income represents
the movement in cumulative expense recognised between the
beginning and end of that period. No expense is recognised
for awards that do not ultimately vest because non-market
performance and/or service conditions have not been met.
Where awards include a market or non-vesting condition, the
transactions are treated as vested irrespective of whether the
market or non-vesting condition is satisfied, provided that all
other performance and/or service conditions are satisfied.
The AVJ Deferred Employee Share Plan (the LTI Plan)
administers employee share schemes under which shares
were purchased on-market by the LTI Plan Trustee on behalf
of employees. These shares vest to employees for no cash
consideration subject to certain conditions being satisfied.
Shares held by the LTI Plan’s trust and not yet allocated to
employees are shown as treasury shares in the Financial
Statements.
Vesting is subject to both service and performance conditions.
The service condition requires the executive to be employed
by the Company as at 30 September in the third year after
the grant date for each grant. The performance conditions
apply to each grant – as to 50% as measured by the TSR
hurdle and as to 50% by the EPS hurdle. The two performance
hurdles are tested differently. The EPS hurdle is tested as at
30 June in the test year (three years after grant). The TSR
hurdle is tested at 30 September of the third year after grant.
The service vesting condition was that the employee must
be employed by AVJennings at 30 September 2016. In the
event of death, permanent disablement or retrenchment,
the shares may vest to the estate at the Board’s discretion.
If the employee resigned (in certain circumstances) or was
terminated, the unvested shares would be forfeited.
The performance vesting conditions were:
•
TSR performance measured against the ASX Small
Industrials Index; and
• EPS growth. AVJennings’ EPS growth must meet or exceed
10% p.a. for the three financial years to 30 June 2017.
Half of the allocation was assessed against each
performance condition. The vesting schedule for the TSR and
EPS performance conditions are set out in the tables below.
The holder of the shares was entitled to receive all dividends
paid between grant and vesting dates.
AVJennings’ TSR rank against
companies in the Index at
30 September
Percentage
vesting
< median
At the median
Nil
50%
> median but < 75th percentile
Pro-rata between 50th
and 75th percentiles
>=75th percentile
100%
AVJennings’ EPS growth rate
over the performance period
Percentage
vesting
< 5%
5%
5% – 10%
>=10%
Nil
50% of the allocation
for the hurdle
Pro-rata between 50%
and 100%
100% of the allocation
for the hurdle
Notes to the Consolidated Financial Statements 68 | AVJENNINGS LIMITED · ABN 44 004 327 771
28. SHARE-BASED PAYMENT PLANS (continued)
(b) Type of share-based payment plan (continued)
Accounting
The original cost of equity-settled transactions is treated as a reduction in share capital and the underlying shares identified
separately as treasury shares. The fair value at the date when the grant is made is determined using an appropriate valuation
model. That fair value is expensed over the period in which the performance and/or service conditions are fulfilled with a
corresponding increase in share-based payment reserve in equity. The cumulative expense recognised for equity-settled
transactions at each reporting date until the vesting date reflects the extent to which the vesting period has expired and the
Group’s best estimate of the number of equity instruments that will ultimately vest. The expense or credit in the Consolidated
Statement of Comprehensive Income represents the movement in cumulative expense recognised between the beginning and
end of that period.
In respect of shares forfeited, no further amounts are expensed. The cumulative amounts relating to non- market based
measures expensed to the date of forfeiture are reversed.
There is no non-recourse financing provided to executives in relation to any share-based payments.
(c) Summary of treasury shares
The following summarises the movement of the number of shares (both KMP and other executives) under the LTI Plan:
FY2011 Grant
FY2012 Grant
FY2013 Grant
FY2014 Grant
FY2015 Rights Grant
FY2016 Rights Grant
Holding Account
Issued
from holding
account
Forfeited and
transferred
to holding
account
Shares
vested
Unvested
shares
Purchased
on market
1,375,452
1,695,735
–
(1,375,452)
–
–
(1,240,047)
(455,688)
293,913
219,255
–
(513,168)
856,505
753,591
(418,783)
(1,191,313)
–
–
321,780
403,193
–
–
(321,780)
(403,193)
–
(2,224,846)
3,066,935
–
842,089
–
–
–
–
–
–
–
FY2013 Delayed Grant
–
527,027
(32,653)
(494,374)
Total
4,221,605
–
–
(3,379,516)
842,089
(d) Summary of rights granted
The following is the status of rights granted (both KMP and other executives) from FY15 onwards under the restructured
share-based remuneration:
FY2015 Grant
FY2016 Grant
FY2017 Grant
Total
Rights granted
Rights vested
Rights forfeited
Unvested rights
1,363,583
1,587,251
1,859,171
(321,780)
(403,193)
(252,408)
(232,816)
789,395
951,242
–
(97,085)
1,762,086
4,810,005
(724,973)
(582,309)
3,502,723
Notes to the Consolidated Financial Statements 29. AUDITOR’S REMUNERATION
Ernst & Young
Audit and assurance services
AVJENNINGS LIMITED · ANNUAL REPORT 2017 | 69
2017
$
2016
$
– Audit and review of the financial reports of the Group
303,974
282,014
– Share of audit and review costs of the financial reports of the Group’s joint ventures
3,901
2,624
Total auditor’s remuneration
307,875
284,638
30. EARNINGS PER SHARE
Basic EPS is calculated by dividing the profit for the year attributable to ordinary equity holders of the Parent by the weighted
average number of ordinary shares outstanding during the year.
Diluted EPS amounts are calculated by dividing the profit attributable to ordinary equity holders of the Parent by the sum of
the weighted average number of ordinary shares outstanding during the year (adjusted for treasury shares) and the weighted
average number of ordinary shares, if any, that would be issued on conversion of all the dilutive potential ordinary shares into
ordinary shares.
The following reflects the income and share data used in the basic and diluted EPS computations:
Profit attributable to ordinary equity holders of the Parent
35,717
40,912
2017
$’000
2016
$’000
Weighted average number of ordinary shares
Treasury shares
2017
Number
2016
Number
384,423,851
384,423,851
(842,089)
(2,338,154)
Weighted average number of ordinary shares for EPS
383,581,762
382,085,697
Notes to the Consolidated Financial Statements 70 | AVJENNINGS LIMITED · ABN 44 004 327 771
31. PARENT ENTITY FINANCIAL INFORMATION
(a) Summary financial information
The individual financial statements for the Parent Entity show the following aggregate amounts::
Balance Sheet
Current assets
Total assets
Current liabilities
Total liabilities
Shareholders' equity
Contributed equity
Reserves
Share-based payment reserve
Retained earnings
Total equity
Profit for the year
Total comprehensive income for the year
2017
$’000
53,454
216,740
6
6
2016
$’000
52,745
216,031
6
6
160,436
160,436
2,898
53,400
2,189
53,400
216,734
216,025
–
–
–
–
(b) Guarantees entered into by the Parent Entity
The Parent Entity has not provided any financial guarantees other than those mentioned in notes 12(a), 12(c) 21(c) and 33.
(c) Contingent liabilities of the Parent Entity
Please refer to note 33 for details of the Parent Entity’s contingent liabilities.
32. COMMITMENTS
Operating lease commitments – Group as lessee
Operating leases include property, display homes, computer equipment leases and leases for motor vehicles provided under
novated leases. Certain property leases include inflation escalation and market review clauses. No renewal or purchase options
exist in relation to operating leases, and no operating leases contain restrictions on financing or other leasing activities.
Future minimum rentals payable under non-cancellable operating leases are as follows:
Operating leases
Commitments in relation to leases contracted for at the
reporting date but not recognised as liabilities:
Within one year
After one year, but not more than five years
Total operating leases
Represented by:
Non-cancellable operating leases
Cancellable operating leases
Total operating leases
2017
$’000
2016
$’000
2,143
3,144
2,080
2,382
5,287
4,462
5,271
16
4,210
252
5,287
4,462
Notes to the Consolidated Financial Statements 33. CONTINGENCIES
Unsecured
Cross guarantees
The Parent Entity has entered into deeds of cross guarantee
in respect of the debts of certain of its controlled entities as
described in note 21(c).
Contract performance bond facilities
The Parent Entity has entered into Deeds of Indemnity with
various controlled entities to indemnify the obligation of
those entities in relation to the Contract performance bond
facilities. Details of these entities are set out in note 21.
Contingent liabilities in respect of certain performance
bonds, granted by the Group’s financiers, in the normal
course of business as at 30 June 2017 amounted to
$26,936,000 (2016: $22,239,000).
No liability is expected to arise.
Legal issues
From time to time a controlled entity defends actions served
on it in respect of rectification of building faults and other
issues. It is not practicable to estimate the amount, if any,
which the entity could be liable for in this respect. The
Directors anticipate that the resolution of any such matters
currently outstanding will not have a material effect on the
Group’s results.
Secured
Banking facilities
The Parent Entity has entered into a cross deed of covenant
with various controlled entities to guarantee the obligations
of those entities in relation to the banking facilities.
Details of these entities are set out in note 21.
Performance guarantees
Contingent liabilities in respect of certain performance
guarantees, granted by the Group bankers in the normal
course of business to unrelated parties, at 30 June 2017,
amounted to $7,796,000 (2016: $8,724,000). No liability is
expected to arise.
Financial guarantees
Financial guarantees granted by the Group’s bankers
to unrelated parties in the normal course of business at
30 June 2017, amounted to $2,135,000 (2016: $5,593,000).
No liability is expected to arise.
34. SIGNIFICANT EVENTS AFTER THE BALANCE
SHEET DATE
No matter or circumstance has arisen since 30 June 2017
that has significantly affected, or may significantly affect:
a) the Group’s operations in future financial years; or
b) the results of those operations in future financial years; or
c) the Group’s state of affairs in future financial years.
AVJENNINGS LIMITED · ANNUAL REPORT 2017 | 71
35. NEW ACCOUNTING STANDARDS AND
INTERPRETATIONS
The new and amended standards adopted by the Group
for the year ended 30 June 2017 have not had a significant
impact on the current period or any prior period and are not
likely to have a significant impact on future periods.
Certain new accounting standards have been published
that are not mandatory for the year ended 30 June 2017
and have not been adopted early by the Group. The Group’s
assessment of the impact of these new standards is set
out below:
AASB 9 Financial Instruments (effective 1 January 2018 /
applicable for the Group 1 July 2018 with early adoption
permitted)
AASB 9 addresses the classification, measurement and
derecognition of financial assets and financial liabilities. It
sets out new rules for hedge accounting. The Group does
not expect a material impact to the Group’s accounting for
financial instruments.
AASB 15 Revenue from Contracts with Customers: (effective
1 January 2018 / applicable for the Group 1 July 2018 with
early adoption permitted)
AASB 15 establishes a comprehensive framework for
determining whether, how much and when revenue is
recognised. It replaces existing revenue recognition guidance,
including AASB 118 Revenue and AASB 111 Construction
Contracts. The new standard is unlikely to have a material
impact on land and built form revenue recognised on
settlement, however, the Company continues to consider
the implications for revenue currently recognised prior to
settlement.
AASB 16 Leases: (effective 1 January 2019 / applicable for
the Group 1 July 2019 with early adoption permitted if AASB
15 is also adopted)
AASB 16 sets out the principles for the recognition,
measurement, presentation and disclosure of leases. This
standard will predominantly affect lessees, bringing all major
leases on balance sheet. Whilst the total amount of expense
recorded in the income statement is expected to remain
unchanged over the full lease term, the timing of expense
recognition could accelerate. The expense would be re-
characterised as interest expense and amortisation expense
instead of rent. Assets and liabilities will increase as “right
to use assets” and “leasing liabilities” are recorded for
operating leases.
AVJennings has performed a high-level assessment of AASB
16 on its existing operating lease arrangements as a lessee.
Based on the preliminary assessment and using a discount
rate of approximately 6.01%, the Group would recognise right
of use assets approximating 1% of total assets and lease
liabilities approximating 2% of total liabilities if the Standard
were to be implemented at 30 June 2017. Assuming there
are no major structural changes to the business, AVJennings
expects the percentage of right of use assets and lease
liabilities to remain at similar levels.
The Group has not yet decided when to adopt AASB 16.
Notes to the Consolidated Financial Statements
72 | AVJENNINGS LIMITED · ABN 44 004 327 771
36. OTHER ACCOUNTING POLICIES
d) Goods and services tax (GST)
Significant accounting policies relating to particular items
are set out in the relevant notes. Other significant accounting
policies adopted in the preparation of the financial report are
set out below.
a) Basis of consolidation
The Consolidated Financial Statements comprise the financial
statements of AVJennings Limited and its subsidiaries as at
30 June 2017. Subsidiaries are entities over which the Group
has control. Control is achieved when the Group is exposed
to, or has rights to variable returns from its involvement with
the entity and has the ability to affect those returns through
its power to direct the activities of the entity. Subsidiaries are
consolidated from the date on which control is transferred to
the Group and deconsolidated from the date control ceases.
The financial statements of subsidiaries are prepared for the
same period as the Parent, adopting consistent accounting
policies. All intra-group assets and liabilities, equity, income,
expenses and cash flows are fully eliminated in preparing the
consolidated financial statements.
The AVJ Deferred Employee Share Plan Trust was formed
to administer the Group’s employee share scheme. This
Trust is consolidated, as the substance of the relationship is
that the Trust is controlled by the Group. Shares held by the
Trust are disclosed as treasury shares and deducted from
contributed equity.
b) Business combinations
Business combinations are accounted for using the
acquisition method. This involves recognising at acquisition
date, separately from goodwill, the identifiable assets
acquired, the liabilities assumed and any non-controlling
interest in the acquiree. The identifiable assets acquired and
the liabilities assumed are measured at their acquisition date
fair values. Acquisition-related costs are expensed as incurred.
c) Leases
Leases where the Group, as lessee, has substantially all
the risks and rewards of ownership are classified as finance
leases. The Group did not have any finance leases at the
year end.
Leases in which a significant portion of the risks and rewards
of ownership are not transferred to the Group as lessee,
are classified as operating leases. Payments made under
operating leases (net of any incentives received from the
lessor) are recognised as an expense on a straight-line basis
over the period of the lease.
Lease income from operating leases where the Group is a
lessor is recognised in income on a straight-line basis over
the lease term. The respective leased assets are included in
the Consolidated Statement of Financial Position based on
their nature.
Revenues, expenses and assets are recognised net of the
amount of GST except:
• when the GST incurred on a sale or purchase of assets or
services is not payable to or recoverable from the taxation
authority, in which case the GST is recognised as part of
the revenue or as part of the cost of acquisition of the
asset or the expense item as applicable
receivables and payables, which are stated with the
amount of GST included.
•
The net amount of GST recoverable from, or payable to,
the taxation authority is included as part of receivables or
payables in the Consolidated Statement of Financial Position.
Commitments and contingencies are disclosed net of the
amount of GST recoverable from, or payable to, the taxation
authority.
Cash flows are included in the Consolidated Statement of
Cash Flows on a gross basis and the GST component of cash
flows arising from investing and financing activities, which
is recoverable from, or payable to, the taxation authority is
classified as part of operating cash flows.
e) Foreign currency translation
(i) Functional and presentation currency
The Group’s functional and presentation currency is
Australian Dollars.
(ii) Translation of Group Companies’ functional currency
to presentation currency
The results and financial positions of foreign operations
that have a functional currency different from the
presentation currency are translated into the presentation
currency as follows:
• assets and liabilities for each Statement of Financial
Position presented are translated at the closing rate
at the date of that Statement of Financial Position;
income and expenses for each Statement of
Comprehensive Income are translated at average
exchange rates; and
•
• all resulting exchange differences are recognised in
other comprehensive income.
On consolidation, exchange differences arising from the
translation of any net investment in foreign entities are
recognised in other comprehensive income. When a foreign
operation is sold or any borrowings forming part of the net
investment are repaid, the associated exchange differences
are reclassified to profit or loss, as part of the gain or loss
on sale.
Notes to the Consolidated Financial Statements Directors’ Declaration
AVJENNINGS LIMITED · ANNUAL REPORT 2017 | 73
In accordance with a resolution of the Directors of AVJennings Limited, we state that:
1)
In the opinion of the Directors:
i)
the Consolidated Financial Statements and Notes are in accordance with the Corporations Act 2001, including;
a) giving a true and fair view of the Group’s financial position as at 30 June 2017 and of their performance for
the year ended on that date; and
b) complying with Australian Accounting Standards (including the Australian Accounting Interpretations) and
Corporations Regulations 2001;
ii) the Consolidated Financial Statements and Notes also comply with International Financial Reporting Standards
as disclosed in note 25; and
iii) there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become
due and payable.
2) This declaration has been made after receiving the declarations required to be made to the Directors in accordance
with section 295A of the Corporations Act 2001 for the financial year ended 30 June 2017.
3) In the opinion of the Directors, as at the date of this declaration, there are reasonable grounds to believe that the
members of the Closed Group identified in note 21 will be able to meet any obligations or liabilities to which they are
or may become subject, by virtue of the Deed of Cross Guarantee.
On behalf of the Board
Simon Cheong
Director
4 September 2017
Peter Summers
Director
74 | AVJENNINGS LIMITED · ABN 44 004 327 771
Independent Auditor’s Report to the Members
of AVJennings Limited
Report on the Audit of the Financial Report
Opinion
We have audited the financial report of AVJennings Limited (the Company) and its subsidiaries (collectively the Group), which
comprises the consolidated statement of financial position as at 30 June 2017, the consolidated statement of comprehensive
income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended,
notes comprising a summary of significant accounting policies and the directors’ declaration.
In our opinion, the accompanying financial report of the Group is in accordance with the Corporations Act 2001, including:
(i)
giving a true and fair view of the consolidated financial position of the Group as at 30 June 2017 and of its consolidated
financial performance for the year ended on that date; and
(ii)
complying with Australian Accounting Standards and the Corporations Regulations 2001.
Basis for Opinion
We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are
further described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report. We are independent
of the Group in accordance with the Corporations Act 2001 and the ethical requirements of the Accounting Professional and
Ethical Standards Board’s APES110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the
financial report in Australia; and we have fulfilled our other ethical responsibilities in accordance with the Code.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Key Audit Matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial
report of the current year. These matters were addressed in the context of our audit of the financial report as a whole, and in
forming our opinion thereon, but we do not provide a separate opinion on these matters. For each matter below, our description
of how our audit addressed the matter is provided in that context.
We have fulfilled the responsibilities described in the Auditor’s Responsibilities for the Audit of the Financial Report section of
our report, including in relation to these matters. Accordingly, our audit included the performance of procedures designed to
respond to our assessment of the risks of material misstatement of the financial report. The results of our audit procedures,
including the procedures performed to address the matters below, provide the basis for our audit opinion on the accompanying
financial report.
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
AVJENNINGS LIMITED · ANNUAL REPORT 2017 | 75
Independent Auditor’s Report to the Members
of AVJennings Limited (continued)
1. Net realisable value (NRV) of inventories
Why significant
How our audit addressed the key audit matter
Approximately 74% of the Group’s total assets comprise
development inventories. Inventories are carried at the lower
of cost and net realisable value and the directors assess this
with reference to the following key data inputs:
Inventory costs incurred to date
Capitalised costs to date
Forecast costs to complete
Average historic and forecast selling price
and sales rate per project
This is considered a key audit matter as it involves a
significant degree of judgment and can present a range of
alternative outcomes. The NRV analysis performed is based
on a combination of the current project feasibility models
and an overlay analysis that takes into account changes
to the underlying assumptions based on the impact of
changing market conditions and changes to strategy.
There is judgment involved in determining the appropriate
allocation of cost of sales on realisation of inventories.
Disclosure of inventories is included in note 6 of the
financial report.
Disclosure of significant judgments is included in note 18
of the financial report.
2. Revenue recognition
Why significant
The Group’s policy is to recognise revenue when the
significant risks, rewards and ownership and effective
control has been transferred to the buyer. This is generally
once settlement has occurred; however, revenue may be
recognised prior to settlement when a signed unconditional
contract for sale exists, and the significant risks and rewards
of ownership and effective control have been transferred to
the buyer, and there is no ongoing management involvement
to the degree usually associated with ownership.
The Group recognised $138.3million in sales revenue prior to
settlement for the year ended 30 June 2017.
Revenue recognition for unsettled sales is considered an area
of judgment.
The gross margin recognised on development sales is based
upon the costs attributed to the inventory asset prior to sale
and which can be subject to judgment.
Disclosure of revenue is included in note 2 of the financial
report.
Disclosure of significant judgments is included in note 18
of the financial report.
Our audit procedures focused on assessing the judgments
and assumptions made by the Group in the feasibilities
underpinning the net realisable assessments.
We achieved this by performing the following procedures:
We assessed and tested the design and operating
effectiveness of relevant controls over cost
accumulation;
We met with the project managers to understand the
status and progress of a sample of developments;
We assessed the Group’s impairment methodology,
project margin analysis and feasibility models
prepared by the Group for a sample of developments
currently in progress;
Identified higher risk projects, based on our judgment,
and evaluated the assumptions adopted. In doing so, we:
Compared the forecast sales revenue assumed to
the most recent historical or comparable sales and
external market data where available;
Corroborated the costs projected to signed
contracts or actual costs incurred for current or
comparable projects; and
Assessed contingency estimates for remaining
development risks.
Performed sensitivity analyses in relation to the key
forward looking assumptions including sales price
achieved, cost per lot and escalation rates; and
Tested the mathematical accuracy of the feasibilities
tested.
How our audit addressed the key audit matter
In obtaining sufficient audit evidence:
We assessed the accounting policies and judgments
applied by the Group on the recognition of revenue and
cost of sales for appropriateness.
To evaluate the adherence to the Group’s policy, on a
sample basis, we assessed the recognition of revenue for
unsettled sales with reference to the following supporting
evidence (where applicable):
Underlying sales contracts,
Title registration certificates, and/or
Sub-contractor completion certificates.
We performed cut-off testing around year-end sales to
assess whether revenue and cost of sales was recognised
in the correct period.
Assessed the appropriate release of cost of sales for
the contracts selected.
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
76 | AVJENNINGS LIMITED · ABN 44 004 327 771
Independent Auditor’s Report to the Members
of AVJennings Limited (continued)
Information Other than the Financial Report and Auditor’s Report
The directors are responsible for the other information. The other information comprises the information in the Company’s
Annual Report for the year ended 30 June 2017, but does not include the financial report and the auditor’s report thereon.
Our opinion on the financial report does not cover the other information and we do not express any form of assurance
conclusion thereon.
In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, consider
whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit or
otherwise appears to be materially misstated.
If, based upon the work we have performed, we conclude that there is a material misstatement of this other information, we are
required to report that fact. We have nothing to report in this regard.
Responsibilities of the Directors for the Financial Report
The directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in
accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the Directors
determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material
misstatement, whether due to fraud or error.
In preparing the financial report, the Directors are responsible for assessing the Group’s ability to continue as a going concern,
disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the
Directors either intend to liquidate the Group or cease operations, or have no realistic alternative but to do so.
Auditor’s Responsibilities for the Audit of the Financial Report
Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material
misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is
a high level of assurance, but is not a guarantee that an audit conducted in accordance with Australian Auditing Standards will
always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material
if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the
basis of this financial report.
As part of an audit in accordance with Australian Auditing Standards, we exercise professional judgment and maintain
professional scepticism throughout the audit. We also:
•
Identify and assess the risks of material misstatement of the financial report, whether due to fraud or error, design and
perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a
basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting
from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal
control.
• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in
the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control.
• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related
disclosures made by the Directors.
• Conclude on the appropriateness of the Directors’ use of the going concern basis of accounting in the preparation of the
financial report. We also conclude, based on the audit evidence obtained, whether a material uncertainty exists related to
events and conditions that may cast significant doubt on the entity’s ability to continue as a going concern. If we conclude
that a material uncertainty exists, we are required to draw attention in the auditor’s report to the disclosures in the financial
report about the material uncertainty or, if such disclosures are inadequate, to modify the opinion on the financial report.
However, future events or conditions may cause an entity to cease to continue as a going concern.
• Evaluate the overall presentation, structure and content of the financial report, including the disclosures, and whether
the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair
presentation.
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
AVJENNINGS LIMITED · ANNUAL REPORT 2017 | 77
Independent Auditor’s Report to the Members
of AVJennings Limited (continued)
We communicate with the Directors regarding, among other matters, the planned scope and timing of the audit and significant
audit findings, including any significant deficiencies in internal control that we identify during our audit.
We also provide the Directors with a statement that we have complied with relevant ethical requirements regarding
independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on
our independence, and where applicable, related safeguards.
From the matters communicated to the Directors, we determine those matters that were of most significance in the audit of the
financial report of the current year and are therefore the key audit matters. We describe these matters in our auditor’s report
unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine
that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be
expected to outweigh the public interest benefits of such communication.
Report on the Remuneration Report
Opinion on the Remuneration Report
We have audited the Remuneration Report included in pages 17 to 24 of the Directors’ Report for the year ended 30 June 2017.
In our opinion, the Remuneration Report of AVJennings Limited for the year ended 30 June 2017, complies with section 300A of
the Corporations Act 2001.
Responsibilities
The Directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance
with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based
on our audit conducted in accordance with Australian Auditing Standards.
Ernst & Young
Mark Conroy
Partner
Sydney
4 September 2017
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
78 | AVJENNINGS LIMITED · ABN 44 004 327 771
Shareholder Information
As at 12 September 2017
1. NUMBER OF SHAREHOLDERS AND DISTRIBUTION OF EQUITY SECURITIES
Range of Holdings of Ordinary Shares
1 – 1,000
1,001 – 5,000
5,001 – 10,000
10,001 – 100,000
100,001 – and over
Total number of holders
Number of holders of less than a marketable parcel
2. SUBSTANTIAL SHAREHOLDERS
As disclosed by latest notices received by the Company:
Name
SC Global Developments Pte Ltd
Australian
Securities
Exchange
Singapore
Exchange
Total
624
898
362
827
166
2,877
345
265
615
184
216
25
1,305
121
889
1,513
546
1,043
191
4,182
466
Ordinary
Shares
%
203,818,030
53.02
AVJENNINGS LIMITED · ANNUAL REPORT 2017 | 79
Shareholder Information
As at 12 September 2017
3. TWENTY LARGEST SHAREHOLDERS ON THE AUSTRALIAN REGISTER
Name
The Central Depository (Pte) Ltd
BNP Paribas Nominees Pty Ltd
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