AVJennings
Annual Report 2018

Plain-text annual report

Housing matters. Community matters. Annual Report 2018 AVJennings Limited ABN 44 004 327 771 Contents Chairman’s Report FY18 Highlights Chief Executive Officer’s Report Community Matters Creating and Supporting Communities 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 10 11 12 25 26 27 28 29 69 70 74 77 AVJENNINGS LIMITED · ANNUAL REPORT 2018 | 1 The continuing focus on delivering traditional housing solutions in prime markets, as affordably as possible, maintains our exposure to the deepest and most stable residential markets. As at 30 June 2018, we have work in progress of over 1,900 lots and sales contracts covering more than 1,000 lots on hand, providing the Company a solid platform heading into FY19. Lastly, I would like to thank our Directors for their invaluable guidance; our employees for their dedicated commitment throughout the year; and our shareholders and customers for their strong support. Simon Cheong Chairman Chairman’s Report Dear Fellow Shareholders, On behalf of the Board of Directors, I am pleased to present our 2018 Annual Report. This year, the Company recognized revenue of $374.3 million and profit before tax of $45.1 million, driven by strong contribution by projects in New South Wales. Though overall top-line and bottom-line figures were lower compared to FY17, the Company continues to execute its strategy and develop in the right direction with revenue, earnings and dividends on the uptrend. Over the past four years, revenue and earnings per share have increased at compounded annual growth rates of 10.6% and 13.4% respectively. Gross profit margin and profit before tax margin continue to hold well and were relatively stable compared to FY17 at 24.5% and 12.0% respectively. Strong operating cashflows of $47.9 million was recorded in FY18, which allowed the Company to reduce net debt from $164.1 million to $130.7 million. Net gearing ratio dropped to 20.4%, giving greater financial capacity and flexibility for future acquisitions. The consistent financial performance and strong net operating cash flow provided the Board with the confidence to declare a fully franked final dividend of 3.0 cents per share, taking total dividends declared for the year to 5.0 cents per share, in line with FY17. The Dividend Reinvestment Plan was reactivated this year to provide shareholders additional flexibility of choice while steadily growing the Company’s capital base over time. This will continually strengthen our position to take advantage of any opportunities that may emerge. Our business continues to have a strong underlying base with a land bank of more than 9,300 lots and we look to further grow this base. Melbourne and Sydney have been difficult markets in which to acquire new sites in any volume but the team continues to assess and bid on opportunities. Over 880 lot equivalents were acquired during the year with notable acquisitions in Kogarah and Huntley in New South Wales, and another two greenfield sites in Brisbane, Ripley and Deebing Heights. The geographic diversification of the Company’s land holdings is expected to be further enhanced by the acquisition of a 580 lot, residential land development site, 37km north of Auckland’s Central Business District, that received regulatory approval after 30 June. The fundamental drivers of demand for residential property remain positive with low interest rates and inflationary expectations combined with population growth and shortages of detached dwellings, townhouses and low-rise apartments in Sydney, Melbourne and Auckland. 2 | AVJENNINGS LIMITED · ABN 44 004 327 771 FY18 Highlights FINANCIAL SCALE Revenue $374.3m, - 6.8% PBT $45.1m, -11.7% Strong net operating cash flow $47.9m (FY17 -$13.2m) Cash receipts from customers +10.3% to $450.8m STABLE BUSINESS PLATFORM Good progress on major projects in Victoria WIP pipeline of ~2K lots Exciting NZ acquisition of 575 lots (Hall Farm) Sales contracts in hand covering > 1,000 lots Cobbitty Stage 6 to settle (~$6.1m PBT) • • • • • • • • • BALANCED APPROACH TO CAPITAL MANAGEMENT • Total dividends maintained at 5 CPS fully franked • Reduced net debt by -20.3% to $130.7m • ~9.4k lots under control (~10k incl. Hall Farm) FY18 FY17 % change FY16 FY15 Revenue $374.3m $401.6m (6.8)% $421.9m $317.9m Statutory Profit before Tax $45.1m $51.0m (11.7)% $58.8m $48.2m Statutory Profit after Tax $31.3m $35.7m (12.2)% $40.9m $34.4m Gross Margins 24.5% Inventory Provision Write Back (After tax) $0.8m 24.0% $3.5m Net tangible assets (NTA) $396.2m $378.2m NTA per share $1.00 $0.99 EPS (cents per share) Dividend fully franked (CPS) 8.1 5 9.3 5 0.5pp (78.0)% 4.8% 1.8% (12.7)% 0% 25.2% $2.6m 26.8% $2.6m $361.1m $334.5m $0.95 $0.88 10.7 5 9 4 AVJENNINGS LIMITED · ANNUAL REPORT 2018 | 3 FY18 Highlights Steady growth since FY14 Revenue ($M) Earnings and dividend growth (CPS) 421.9 421.9 401.6 401.6 374.3 374.3 317.9 317.9 250.6 250.6 DPS EPS DPS EPS 9 9 10.7 10.7 9.3 9.3 8.1 8.1 5 5 5 5 5 5 4.9 4.9 2 2 4 4 FY14 FY14 FY15 FY15 FY16 FY16 FY17 FY17 FY18 FY18 FY14 FY14 FY15 FY15 FY16 FY16 FY17 FY17 FY18 FY18 Revenue linear trend Revenue linear trend EPS linear trend EPS linear trend Work in progress (lots) 1,681 1,512 1,264 715 2,161 1,949 FY13 FY14 FY15 FY16 FY17 FY18 Settlement volumes by region (cash basis) 1,600 1,400 1,200 1,000 800 600 400 200 0 FY13 NSW FY14 VIC FY15 QLD SA FY16 NZ FY17 FY18 NZ SA QLD VIC NSW 4 | AVJENNINGS LIMITED · ABN 44 004 327 771 Chief Executive Officer’s Report The most significant of these are both in Victoria. Waterline, our large urban infill site in Williamstown, is progressing well, with the 12 dwelling “Lonsdale” townhouses due to settle in the first half of FY19. The prestigious “Gem” apartment building will reach practical completion early next year and is expected to commence contributing revenue late in the second half of FY19. In Lyndarum North, we had 396 contracts on hand as at 30 June 2018 and settlement of these will begin to flow in the first half of FY19. In coming years, we will see significant contributions from these projects and other even more recent acquisitions and they will provide future upward momentum for the business into FY19 and beyond. There have been other challenges in our business which we have or are addressing. South Australia has had difficult market conditions but we continue to improve our projects so that they provide compelling propositions for our customers. Queensland has underperformed this year and we are addressing operational aspects of that part of our business. It has a good project base and we believe will provide much stronger returns going forward. I know the Queensland team are passionate and committed to achieving this. Overall, this part of our business is operating at a reasonably mature level. Had Stage 6 at Acadian Hills been recognised, the result for FY18 would have been almost the same as for FY17. It is expected similar outcomes will be achieved from these mature projects for the next financial year, even allowing for some softening in markets such as Melbourne and Sydney. The second part of our business has been to advance newer projects to the stage where they are contributing to profit. For AVJennings this is important as we have a number of significant projects that don’t replace existing projects but add to them in a whole-of-business sense. Other than in a minor way, the results for FY18 don’t adequately reflect the continued advancement of relatively new projects which haven’t formed part of our results in recent years. It is when these projects are added to our mature projects that we will see further growth. These new projects are also the part of the business that can experience the greatest delays due to planning and other constraints. Much more so than when you do get to site and are under way with development. Delays then tend to be more related to weather and short term trade availability issues. It is disappointing some of these projects did not contribute to the FY18 results, however, they are now very close to doing so and will most certainly have a material impact on the FY19 results and beyond. During the year we continued to have two parts to our business. The first part related to projects which have been mature and ongoing and formed the basis for over four years of strong growth. In the main, these projects continued to see favourable market conditions in our larger operations, especially New South Wales, which underpinned our reported result for FY18. This part of our business did have some challenges and delays in completing some stages resulted in certain contracts not reaching the point necessary for revenue and profit to be recognised by 30 June. The most material of these was Stage 6 at Acadian Hills at Cobbitty, in Sydney, the impact of which was a deferral of some $6.1 million net profit before tax. AVJENNINGS LIMITED · ANNUAL REPORT 2018 | 5 As part of our constant search for improvement we looked at our operational structure during the year, which has led to the creation of a Chief Operating Officer role. We continue to look at other areas to improve performance and create new opportunities, including innovation in the built form space trialing new construction techniques in order to continue to address the affordability issue. As our Chairman, Simon Cheong, points out in his report, we remain keen to continue to grow the business and our balance sheet is in excellent shape to provide capacity for such growth. For more than 85 years, AVJennings has helped people build a brighter future by creating communities they feel a part of. I am always proud of the commitment of the staff of AVJennings to this and the way they support our wider involvement in the community, especially our long term partnership with the Steve Waugh Foundation. I thank them and our wonderful business partners for their efforts in the last year. I would also like to thank our Chairman, Simon Cheong, who continues to demonstrate his support and passion for AVJennings, and my other fellow Directors. Finally, I would like to thank you, our shareholders, for your continued interest and support of AVJennings. Peter Summers Chief Executive Officer 6 | AVJENNINGS LIMITED · ABN 44 004 327 771 Community Matters Australia’s original community builder is officially recognised AVJENNINGS LIMITED · ANNUAL REPORT 2018 | 7 Sir Albert Jennings was driven by the desire to improve the way Australians live long before ‘lifestyle’ shows filled our screens. AVJennings – both the man and the company – have always championed the principles of community. These principles are now recognised as central to good property development. So it’s fitting to see Sir Albert’s contribution officially acknowledged at the Property Council of Australia Awards, where he was recently inducted into the Australian Property Hall of Fame. Born in Melbourne in 1896, Albert Jennings trained as a dentist before switching careers to become a real estate auctioneer. His work gave him a clear insight into why people chose to buy the homes they did. Through the combined power of better design, better planning and better building, he saw a gap in the market for quality homes at a lower cost than previously possible. In 1932, in the depths of the Great Depression and with almost one in three people out of work, Albert put his money where his principles were. He mortgaged his family home and formed the AVJennings Construction Company. This business would create new housing projects and sell off-the-plan – a strategy that became a hallmark of his business. Where other home builders often sold poorly- serviced weatherboard houses, AVJennings would match their prices – but with larger brick houses, with hot-water systems and already connected to the sewer system. By the 1960s, Albert and his team had cornered the market in appealing, affordable designs, well-planned community developments with display homes which are common practice today. Albert’s greatest legacy was creating an innovation culture (not that it was called so at the time) that has since permeated the entire property industry. An excellent example of this came in 1951, when AVJennings was awarded a contract by the Federal Government to build 1,850 homes in Canberra within two years. Facing labour shortages, Albert enticed 150 German carpenters and bricklayers to the nation’s capital. Remember this is just six years after the end of World War II. He affectionately dubbed them the ‘Jennings Germans’. Many of his innovations are things we now take for granted. Before he introduced them, there were no display homes, no off-the- plan sales, no cul-de-sacs, no new homes complete with fitted wardrobes. He gave us all of this and more. Peter Summers, CEO of AVJennings, says, “He was passionate about R&D and employed a whole department of people focused on innovation, long before it was an industry buzzword.” At the grand age of 73, Albert became Sir Albert Jennings, knighted for his services to the property industry. In true AV style, he famously joked with staff that if any of them called him Sir he would fine them ‘two bob’. Sir Albert stepped down from his company in 1972 but remained active within the industry. For 21 years after his retirement, Sir Albert would drive to the Jennings headquarters in the Melbourne suburb of Mulgrave every Wednesday for lunch and a chat with his staff. Peter Summers says it was an honour to represent AVJennings at this year’s induction ceremony, saying Sir Albert “left a giant personal and professional footprint”. Indeed. 8 | AVJENNINGS LIMITED · ABN 44 004 327 771 Committed to Creating & Supporting Communities It is difficult to overstate the importance of community to our everyday lives. No matter how independent we are as individuals, we want to belong. We need to feel included. The author Frances Moore Lappé wrote that community is vital to our survival. “It isn’t a luxury, a nice thing; community is essential to our wellbeing.” Indeed, researchers have discovered that being an active contributor to the community, particularly as a volunteer, has a positive influence on wellbeing. In other words, when we help others we feel good about ourselves. AVJennings believes in being an active contributor to the community and we do this in a variety of ways, some of them unstructured, such as allowing individual staff members who volunteer for organisations like the S.E.S. (State Emergency Service) to take time off; other staff members provide their expertise pro bono to community organisations such as Rotary; and both the Company as a whole and its individual employees, raise funds for charity through a variety of activities. One of the most effective ways we contribute to the community is through sponsorship. There is no denying there is often a commercial benefit to sponsorship such as promoting the AVJennings brand. However, what is equally important to us is partnering with organisations who themselves make a positive contribution to the community or provide unique opportunities for our staff (and sometimes their families) to engage in personal development. highest level and girls deserve to have female role models in professional sport. Many of the organisations and individuals we support are low profile, but they make a significant contribution to their local community such as Puka Up (mental health) and the Williamstown Literary Festival. Other organisations have a higher profile such as: • Steve Waugh Foundation • The Captain’s Ride • Melbourne Boomers (WNBL) • Queensland Firebirds (Super Netball) • St Kilda Football Club (AFL) In 2012, AVJennings became the founding corporate partner of the Steve Waugh Foundation which supports children, young adults and their families living with a rare disease who would otherwise not receive help. Each year the company and its staff participate in a range of fundraising activities for the Foundation, including the sale of a home in the ‘Renee’ series. Our generous suppliers pitch in with labour and materials to construct a new home. This year two commercial cleaners bought the ‘Renee 5’ and one of the reasons they did is because net proceeds go to the Steve Waugh Foundation. We sponsor two professional women’s sports teams, the Boomers and the Firebirds, because we believe in aspiration. Women should have an equal opportunity to play sport at the AVJennings also partners with the St Kilda Football Club. The Saints have led the way in promoting the value of inclusion, a sense of belonging that is the fabric of a vibrant community. We are proud to have three ambassadors who put a ‘human face’ to our sponsorships and more importantly share our values. Former Australian cricket captain Steve Waugh has been an ambassador for our company for eight years and is one of the most respected figures in the country, not only for his success as a cricketer but for the charitable work he does in India and Australia. Another national team captain, Laura Geitz, who retired from elite netball this year joined AVJennings as a corporate ambassador in 2017. As a young mother, Laura is passionate about promoting an active and healthy lifestyle, particularly to other mums, and she is a wonderful role model to girls and young women. And St Kilda key forward Josh Bruce is not only a successful AFL player and young father but has a strong interest in housing. He’s doing a carpentry apprenticeship through Trade Industry Victoria. AVJennings is a community developer. We do that by creating great places to live but also by partnering with others who improve our community through inclusion, diversity and belonging. AVJENNINGS LIMITED · ANNUAL REPORT 2018 | 9 Proud sponsors of 10 | AVJENNINGS LIMITED · ABN 44 004 327 771 Property Portfolio Number of lots at 30 June 2018 9,360 Qld 2,231 WA 239 SA 1,898 NSW 2,146 VIC 2,690 NZ 156 Queensland MACKAY New South Wales SANDY BEACH CALOUNDRA BRIDGEMAN DOWNS KENMORE BRISBANE ROCHEDALE LEICHHARDT RIPLEY & DEEBING HEIGHTS JIMBOOMBA BETHANIA WARNERVALE HAMLYN TERRACE CENTRAL COAST KOGARAH SYDNEY COBBITTY SPRING FARM ELDERSLIE COOMERA HUNTLEY WOLLONGONG Victoria WOLLERT DOREEN WILLIAMSTOWN MELBOURNE PORTARLINGTON South Australia Western Australia New Zealand PENFIELD ST CLAIR ADELAIDE MURRAY BRIDGE GOOLWA NORTH VIVEASH SUBIACO PERTH HOBSONVILLE POINT AUCKLAND FERNDALE KARDINYA AVJENNINGS LIMITED · ANNUAL REPORT 2018 | 11 Project Pipeline As at 30 June 2018 Project Name Argyle, Elderslie Magnolia, Hamlyn Terrace Evergreen, Spring Farm (South) Evergreen, Spring Farm (East) Seacrest, Sandy Beach Arcadian Hills, Cobbitty Stages 1–8 Arcadian Hills, Cobbitty Stages 9&10 Cobbitty Road, Cobbitty Warnervale Evergreen, Spring Farm PDA Kogarah (apartment project) Hayes Lane, Huntley Creekwood, Caloundra Glenrowan, Mackay Essington Rise, Leichhardt Parkside, Bethania Enclave, Bridgeman Downs Kersley Lane, Kenmore Anise, Bridgeman Downs Riverton, Jimboomba S E L A W H T U O S W E N D N A L S N E E U Q Deebing Springs, Deebing Heights Rochedale Ripley 1 Z N Hobsonville Point, Buckley B I A R O T C V I Lyndarum, Wollert Lyndarum North, Wollert JV Arlington Rise, Portarlington Hazelcroft, Doreen Waterline, Williamstown 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 N R E T S E W A I L A R T S U A Indigo China Green, Subiaco Fine China Precinct Viridian China Green, Subiaco Fine China Precinct The Heights Kardinya Viveash Parkview, Ferndale Remaining # of Lots Pre FY 2019 FY 2020 FY 2021 FY 2022 Post 164 62 91 453 79 201 67 57 595 79 67 231 80 177 6 94 11 19 63 1196 210 81 294 156 95 2129 50 1 415 53 80 292 1473 83 14 94 16 32 TOTAL NO. OF REMAINING LOTS 9,360* *excludes 11 remnant lots 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 2018. 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 BL Tan Non-Executive Director Non-Executive Director 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 $31.3 million (2017: $35.7 million). DIVIDENDS Dividends paid to members during the financial year were as follows: Cash dividends declared and paid 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 final dividend of 3.5 cents per share, paid 19 September 2017. Fully franked @ 30% tax 2018 interim dividend of 2.0 cents per share, paid 19 April 2018. Fully franked @ 30% tax 2018 $’000 2017 $’000 – – 13,455 7,688 13,455 5,766 – – Total cash dividends declared and paid 21,143 19,221 The Dividend Reinvestment Plan (DRP) was activated for the 2018 interim dividend. Details of shares issued under the DRP are disclosed in note 14(a). Subsequent to the end of the financial year, the Directors have declared a fully franked final dividend of 3.0 cents per share to be paid on 11 October 2018 (2017: 3.5 cents). The DRP remains active. Any DRP shortfall for the final dividend will not be underwritten. Directors’ ReportAVJENNINGS LIMITED · ANNUAL REPORT 2018 | 13 OPERATING AND FINANCIAL REVIEW Balance Sheet and Land Holdings Controlled land inventory fell moderately to 9,373 lots (30 June 2017: 9,654 lots) as settlements outweighed acquisitions, which included an apartment site in Kogarah, New South Wales (67 lot equivalents) and land projects at Huntley, New South Wales (231 lot equivalents) and in Queensland at Ripley (294 lot equivalents), Deebing Heights (210 lot equivalents) and Rochedale (81 lot equivalents). The geographic diversification of the Company’s land holdings will be further enhanced by the pending acquisition of a 575 lot, residential land development site, 35km north of Auckland’s CBD. The acquisition remains subject to regulatory approval however, the approval application is at an advanced stage and settlement is expected in October/November 2018. Strong cash from operations has assisted a reduction in net debt to $130.7 million, down from $164.1 million at 30 June 2017. As such, gearing remains low with net debt to total assets of only 20% (30 June 2017: 23%) and the Company extended its Club banking facilities by a further 12 months to 30 September 2020. Outlook The fundamental drivers of demand for residential property remain positive with low interest rate and inflationary expectations combined with population growth and shortages of detached dwellings, townhouses and low-rise apartments in Sydney, Melbourne and Auckland. Activity in key residential markets has been very high in recent years, placing significant pressure on development and construction processes. The Company believes that, as some markets soften, it will benefit as activity eventually returns to levels that are more sustainable over the longer term. The Company continues to be confident about the future as its continuing focus on delivering traditional housing solutions in prime markets as affordably as possible exposes it to the deepest and most stable residential markets. In FY2019, the Company expects to benefit from continued strength in the Sydney market and settlements from the Lyndarum North and Waterline projects in Victoria in particular. The Company expects positive revenue and earnings momentum given current levels of production, strong pre-sales volumes and continued progress of key projects. Financial Results For the year ended 30 June 2018, the Company reported a profit before tax of $45.1 million. Profit after tax was $31.3 million (30 June 2017: $35.7 million). When adjusted for the impact of the writeback in the inventory loss provision of $1.1 million before tax (FY2017: $5.1 million), the underlying profit before and after tax declined approximately 4% and 5% respectively. On 6 August 2018, the Company provided a market update in relation to its year end result. Determination of the result involved resolution of the timing, and not the certainty, of revenue recognition of a stage at Arcadian Hills, Cobbitty, New South Wales which had a PBT contribution of approximately $6.1 million. The issues involved were complicated and required time to review. After considering accounting and other requirements, a decision was made to exclude the item from the FY2018 result. Business Overview The FY2018 result has been primarily driven by projects that have been in production over recent years. The Company expects that contributions from more recent acquisitions will provide future upward momentum for the business into FY2019. A significant contributor will be Lyndarum North (joint venture) at Wollert, Melbourne. A small amount of revenue and profit was booked from this project very late in FY2018. This was limited by the Company not being able to recoup lost time which mainly resulted from previous planning delays. At 30 June 2018, there were 396 contracts on hand for this project which have not been realised as FY2018 revenue or profit. Settlements on these lots are due to commence in the first half of FY2019 with approximately 361 lots of the pre- sales due to settle in FY2019 (AVJ share is 49%). Sales of the GEM apartments at Waterline continue at a solid rate with 63% of the apartments sold at 30 June, including the first penthouse. Construction for the GEM apartments is progressing satisfactorily. The final new project of scale that is currently under construction is Riverton at Jimboomba in Brisbane. Earthworks for stage 1 have commenced and some presales achieved. However, significant advancement of the project is not expected until the back end of FY2019. Directors declared a fully franked final dividend of 3.0 cents per share be paid in October 2018, taking total dividends declared for FY2018 to 5.0 cents per share, in line with the prior year. The Company’s Directors have determined that the Dividend Reinvestment Plan (DRP) will apply to the final dividend. Shares issued under the DRP will attract a 2.5% discount to the weighted average market price over the 5 trading days from the ex-dividend date. The DRP will not be underwritten. Directors’ Report14 | AVJENNINGS LIMITED · ABN 44 004 327 771 SIGNIFICANT EVENTS AFTER THE BALANCE SHEET DATE No matter or circumstance has arisen since 30 June 2018 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 in the operating and financial review of this Report. Jerome Rowley SF Fin, FAICD 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. ENVIRONMENTAL REGULATION Responsibilities: 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. INFORMATION ON THE DIRECTORS Simon Cheong B.Civ.Eng. MBA Director since 20 September 2001. Mr Cheong has over 35 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 as 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. 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. Peter K Summers B.Ec. CA 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. Responsibilities: Non-Executive Director, Chairman of Nominations Committee, Chairman of Remuneration Committee. Directorships held in other listed entities: None. Directors’ ReportAVJENNINGS LIMITED · ANNUAL REPORT 2018 | 15 INFORMATION ON THE DIRECTORS (continued) Teck Poh Lai B.A. Hons. (Economics) 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, Member of Nominations Committee (effective 14 August 2018). 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: 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. Temasek Holdings (Private) Limited, since 10 June 2014. Oversea-Chinese Banking Corporation since 1 June 2010. 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. Boon Leong Tan DipUrbVal (Auckland University, NZ) Director since 9 June 2017. Mr Tan has over 36 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. 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. Resident of Singapore. Responsibilities: Directorships held in other listed entities: Non-Executive Director, Member of Investments Committee. None. Directorships held in other listed entities: None. Directors’ Report16 | AVJENNINGS LIMITED · ABN 44 004 327 771 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. 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 BL Tan Non-Executive Director Non-Executive Director (ii) Executives CD Thompson L Mahaffy SC Orlandi (1) L Hunt Company Secretary/ General Counsel Chief Financial Officer Chief Operating Officer General Manager, Human Resources 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. This consulting fee is not included in the NEDs fee pool. 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 and have been fixed at this level for over ten years. The agreement may be terminated by either party giving six months’ notice or by the Company on 30 days’ notice for cause. (1) Appointed Chief Operating Officer on 14 August 2018. Prior to this, Mr Orlandi was Chief Strategy Officer. The remuneration of NEDs is detailed on page 21. 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 2018. 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 22. Directors’ ReportAVJENNINGS LIMITED · ANNUAL REPORT 2018 | 17 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 2018 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 desirability of Senior Executives having a significant equity interest in the Company so as to better align their interest with shareholders; The desire for Senior Executives to receive equity as a proportion of remuneration; 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18 | AVJENNINGS LIMITED · ABN 44 004 327 771 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 financial year end. The Committee has the discretion to adjust STIs upwards or downwards in light of unexpected circumstances or unintended consequences. Based on achievements of the Group in the 2018 financial year and performance against individual KPMs, the Remuneration Committee determined that Executives achieved between 40% and 100% of their target opportunity (average 84%). 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. 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. LTI remuneration is provided by the Issue of Rights and includes a performance and 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). Participants do not receive dividends on Rights (as distinct from shares). LTI and Retention Retention Rights are granted in three equal tranches which vest in each of the three succeeding years following the year of grant. 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% of the allocation for the hurdle 75% of the allocation for the hurdle 100% (Straight line interpolation between 12% and 18%) Rights have been granted to KMP as detailed in the table on page 19. The delayed May 2015 Grant was made for the FY15 year (with performance conditions testing in September 2018). The September 2015 Grant was made for the FY16 year (with performance conditions testing in September 2018). The September 2016 Grant was made for the FY17 year (with performance conditions testing in September 2019). Retention component – years of service Percentage of rights vesting The September 2017 Grant was made for the FY18 year (with performance conditions testing in September 2020). The fair value of the Rights at the date of the Grant is determined by the Plan manager 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. one year two years three years LTI and performance 33.33% 33.33% 33.34% Up to 50% of the Performance Rights granted vest depending on AVJennings’ average growth rate in Earnings Per Share (EPS) over the three financial years for performance comparison. Up to 50% of the Performance Rights granted vest depending on AVJennings’ Return on Equity (ROE) over the three financial years for performance comparison. The Return on Equity (ROE) component of the Performance Rights uses market capitalisation as a proxy for equity. The performance conditions are tested at the end of the three- year measurement 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% (Performance Rights) and 25% (Service Rights) of TEC respectively. Directors’ Report AVJENNINGS LIMITED · ANNUAL REPORT 2018 | 19 REMUNERATION REPORT (Audited) (continued) 2.4. Executive Remuneration Arrangements (continued) The following is the status of Rights granted to KMP under the FY15 and subsequent year LTI Plans: Year of Grant Fair Value at grant date Rights at beginning of the year Rights granted FY15 FY16 FY17 FY18 FY15 FY16 FY17 FY18 FY15 FY16 FY17 FY18 FY15 FY16 FY17 FY18 FY15 FY16 FY17 FY18 $386,528 $341,129 $372,970 $384,170 $51,035 $59,904 $65,649 $67,621 $46,660 $54,769 $60,022 $61,825 $41,301 $48,479 $53,129 $54,725 $31,538 $37,021 $40,571 $41,789 Rights vested (82,654) (78,997) (87,309) – – – 636,504 – – – – (14,186) (18,077) (19,978) 499,760 485,872 721,355 – – 76,267 125,641 – 110,981 – 53,874 69,729 114,872 – – – (12,969) (16,527) (18,266) – 101,469 – 47,686 61,721 101,680 – 36,414 47,133 77,646 – – – – 89,816 – – – (11,479) (14,629) (16,168) – (8,766) (11,172) (12,347) 68,586 – Rights at end of the year 417,106 406,875 634,046 636,504 44,740 58,190 105,663 110,981 40,905 53,202 96,606 101,469 36,207 47,092 85,512 89,816 27,648 35,961 65,299 68,586 KMP PK Summers PK Summers PK Summers PK Summers CD Thompson CD Thompson CD Thompson CD Thompson L Mahaffy L Mahaffy L Mahaffy L Mahaffy SC Orlandi SC Orlandi SC Orlandi SC Orlandi L Hunt L Hunt L Hunt L Hunt Total $2,300,835 2,578,576 1,007,356 (423,524) 3,162,408 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 securities. 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 2014 30 June 2015 30 June 2016 30 June 2017 30 June 2018 Profit After Tax $’000 18,782 34,385 40,912 35,717 31,347 Basic EPS Cents 4.94 9.03 10.71 9.31 8.13 TSR* Cents 13.0 10.5 (4.0) 15.0 10.0 Market Capitalisation $’000 Return on Market Capitalisation % 216,715 245,694 213,968 253,164 278,074 8.67 14.00 19.12 14.11 11.27 * TSR is the aggregate of the movement in the share price and dividends paid per share during the year ended 30 June. Directors’ Report20 | 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 22. 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 21 and 22. 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/ (Disposal) Other (2) Closing Balance For the year ended 30 June 2018 Directors S Cheong E Sam PK Summers RJ Rowley Executives CD Thompson L Mahaffy SC Orlandi L Hunt 203,818,030 209,349 3,920,188 252,000 1,372,557 182,447 367,431 239,075 – – 248,960 – 52,241 47,762 42,276 32,285 – – – – 5,568,796 5,719 31,168 6,502 209,386,826 215,068 4,200,316 258,502 – (100,713) – – 13,661 – 3,916 1,256 1,438,459 129,496 413,623 272,616 Total 210,361,077 423,524 (100,713) 5,631,018 216,314,906 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 (1) Resigned 9 June 2017. 198,412,025 1,286,448 11,500,000 (837,396) 210,361,077 (2) Includes shares acquired under the Dividend Reinvestment Plan. Refer to note 14. Directors’ ReportAVJENNINGS LIMITED · ANNUAL REPORT 2018 | 21 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 BL Tan (1) Total Total Year 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017 Short-Term Fees $ Post Employment Superannuation(2) $ – – 77,626 58,219 – – 60,000 60,000 45,662 45,662 50,000 50,000 – – 233,288 213,881 – – 7,374 26,781 – – – – 4,338 4,338 – – – – 11,712 31,119 Total $ – – 85,000 85,000 – – 60,000 60,000 50,000 50,000 50,000 50,000 – – 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22 | AVJENNINGS LIMITED · ABN 44 004 327 771 e c n a m r o f r e P d e t a e R l l a t o T d e s a b - e r a h S m r e T - g n o L t n e m y o p m E l r e h t O t s o P s e d u c n i ( l e c i v r e S g n o L I T L d e u r c c A ) n o i t n e t e R e v a e L ) 1 ( n o i t a u n n a r e p u S ) 2 ( r e h t O % 4 8 6 3 . . 7 1 5 3 5 3 8 1 . 1 9 7. 1 4 6 1 1 . 1 6 6 1 . 5 4 8 1 . . 6 5 6 1 4 5 7 1 . . 9 2 6 1 $ $ 4 4 5 , 8 4 2 , 1 4 0 0 , 3 3 4 , 5 8 0 8 0 2 1 , 7 1 5 , 8 6 5 3 6 0 7 3 5 , 5 7 3 , 0 0 5 0 9 1 5 7 4 , 2 8 5 , 7 5 4 6 8 8 7 3 4 , 0 2 6 , 3 4 3 7 3 5 7 2 3 , 3 1 5 6 8 3 , 1 6 2 , 2 7 7 8 4 5 6 , 7 6 0 , 6 6 4 7 8 9 5 , 9 7 4 , 8 5 8 9 9 2 5 , 6 5 6 , 4 4 1 7 4 0 4 , $ 9 3 5 , 8 2 2 7 9 7 2 , 3 6 7 , 8 1 6 7 7 8 1 , 4 5 4 , 1 1 3 0 5 8 , 0 2 8 , 1 1 8 0 6 1 1 , 0 2 1 , 3 1 4 5 5 0 1 , $ 9 4 0 , 0 2 6 1 6 9 1 , 9 4 0 , 0 2 6 1 6 9 1 , 9 4 0 , 0 2 6 1 6 9 1 , 9 4 0 , 0 2 7 8 6 9 1 , 9 4 0 , 0 2 9 6 6 9 1 , $ 8 2 8 , 1 9 9 0 3 0 7 , – – – – – – – – I T S $ 8 7 1 , 6 8 1 0 4 8 0 0 2 , 3 2 6 , 7 6 3 5 6 5 6 , 1 3 7 , 4 2 2 2 0 1 5 , 6 2 7 , 4 5 9 1 8 7 4 , 2 1 6 , 7 3 8 8 4 4 3 , m r e T - t r o h S d e u r c c A e v a e L l a u n n A y r a a S l $ 1 8 7 , 2 1 3 3 9 1 2 , 3 3 1 , 4 ) 2 7 7 6 ( , 4 6 1 , 7 2 ) 4 6 3 4 ( , 0 0 2 , 4 7 9 5 6 , ) 3 1 3 , 1 ( 9 2 7 3 , $ 5 6 1 , 6 7 4 2 0 9 0 8 4 , 8 8 6 , 5 8 3 3 0 3 4 7 3 , 0 1 9 , 0 5 3 9 3 5 0 4 3 , 8 0 3 , 8 0 3 7 7 1 9 9 2 , 6 9 4 , 9 2 2 6 2 6 8 1 2 , r a e Y 8 1 0 2 7 1 0 2 8 1 0 2 7 1 0 2 8 1 0 2 7 1 0 2 8 1 0 2 7 1 0 2 8 1 0 2 7 1 0 2 s r e m m u S K P n o s p m o h T D C y ff a h a M L i d n a l r O C S t n u H L l a t o T l a t o T ) d e u n i t n o c ( ) d e t i d u A ( T R O P E R N O I T A R E N U M E R l ) d e u n i t n o c ( s e b a T n o i t a r e n u m e R . 8 P M K r e h t O ) i i 8 3 6 , 8 1 1 , 3 7 6 4 , 4 7 6 6 9 6 , 3 8 5 4 2 , 0 0 1 8 2 8 , 1 9 0 7 8 , 0 7 3 5 6 9 , 6 4 7 6 5 , 0 5 7 , 1 8 1 0 2 , 1 6 7 5 8 9 2 , 3 4 3 5 0 6 , 3 1 4 7 7 , 4 0 2 8 9 , 9 0 3 0 7 , 2 2 8 9 9 3 , 3 2 1 1 2 , , 7 4 5 3 1 7 1 , 7 1 0 2 . s n o i t u b i r t n o c y r a t n u o v e e y o p m e s a l l l l e w s a s t n e m y a p n o i t u b i r t n o C e e t n a r a u G n o i t a u n n a r e p u S f o t s i s n o c s n a P n o i t u b i r t n o C d e n fi e D o t l s t n e m y a P ) 1 ( . s t fi e n e b e c h e v i l r o t o m l f o e u a v e h t o t s e t a e r l ’ r e h t O ‘ ) 2 ( Directors’ Report AVJENNINGS LIMITED · ANNUAL REPORT 2018 | 23 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 5 5 5 5 5 5 5 5 Attended 5 5 5 5 5 5 5 5 Held – 3 – – 3 – 3 – Attended – 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 – 2 – – – 2 – – Held – 2 – – – 2 – – S Cheong RJ Rowley PK Summers E Sam B Chin BG Hayman TP Lai BL Tan 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 INDEMNIFICATION OF AUDITORS 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 209,386,826 215,068 4,200,316 258,502 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. 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. ROUNDING 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. AUDITOR’S INDEPENDENCE DECLARATION The Auditor’s Independence Declaration is set out on page 24. Directors’ Report24 | 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 2018, 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 5 September 2018 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 5 September 2018 Peter Summers Director Directors’ Report Consolidated Statement of Comprehensive Income AVJENNINGS LIMITED · ANNUAL REPORT 2018 | 25 Revenues Cost of sales Gross profit Share of profits/(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 for the year Total comprehensive 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 2018 $’000 2017 $’000 2 374,317 401,632 (282,710) (305,053) 91,607 96,579 2 2 2 3 226 1,111 (7,285) (24,392) (7,534) (8,192) (269) (190) 45,082 (13,735) (28) 5,057 (10,297) (24,600) (7,069) (8,120) (298) (195) 51,029 (15,312) 31,347 35,717 (714) (714) (109) (109) 30,633 35,608 31,347 35,717 30,633 35,608 30 30 8.13 8.13 9.31 9.31 26 | 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 2018 $’000 2017 $’000 4 5 6 7 5 6 22 8 9 10 11 12 3(c) 13 11 12 3(d) 13 8,491 95,096 193,340 7,150 15,562 121,872 211,073 3,073 304,077 351,580 24,329 38,131 295,037 308,133 10,721 2,880 536 2,816 8,449 2,880 792 2,816 336,319 361,201 640,396 712,781 38,358 13,407 10,597 6,019 75,553 2,607 5,257 5,607 68,381 89,024 23,397 125,799 23,079 742 37,449 177,016 27,422 867 173,017 242,754 241,398 331,778 398,998 381,003 14 15(a) 15(c) 167,943 160,436 6,906 6,622 224,149 213,945 398,998 381,003 Consolidated Statement of Changes in Equity AVJENNINGS LIMITED · ANNUAL REPORT 2018 | 27 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 $’000 160,436 3,833 2,189 197,449 363,907 – – – (109) – – 35,717 35,717 – (109) – (109) – 35,717 35,608 28(a) 28(a) 16 – – – – – – – (110) 819 – – (110) 819 – (19,221) (19,221) – 709 (19,221) (18,512) At 1 July 2016 Comprehensive income: Profit for the year Other comprehensive loss for the year Total comprehensive (loss)/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 At 30 June 2017 160,436 3,724 2,898 213,945 381,003 At 1 July 2017 Comprehensive income: Profit for the year Other comprehensive loss for the year Total comprehensive (loss)/income for the year Transactions with owners in their capacity as owners: – Ordinary share capital raised – Treasury shares acquired – Share-based payment expense – Dividends paid Total transactions with owners in their capacity as owners 160,436 3,724 2,898 213,945 381,003 – – – – (714) (714) 14(a) 14(b) 28(a) 16 7,688 (181) – – 7,507 – – – – – – – – – – 998 31,347 31,347 – (714) 31,347 30,633 – – – 7,688 (181) 998 – (21,143) (21,143) 998 (21,143) (12,638) At 30 June 2018 167,943 3,010 3,896 224,149 398,998 28 | 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 from/(used in) operating activities CASH FLOW FROM INVESTING ACTIVITIES Payments for plant and equipment Interest received Dividends received from joint venture entity Additional investment in joint venture entity Net cash (used in)/from investing activities CASH FLOW FROM FINANCING ACTIVITIES Proceeds from borrowings Repayment of borrowings Payment for treasury shares Dividends paid Proceeds from issue of shares Net cash used in financing activities NET DECREASE IN CASH AND CASH EQUIVALENTS Cash and cash equivalents at beginning of year Effects of exchange rate changes on cash and cash equivalents Note 2018 $’000 2017 $’000 2 3(c) 17 9 2 22 22 14(b) 16 14(a) 450,776 408,600 (378,095) (394,782) (12,212) (12,575) (10,544) (16,501) 47,894 (13,227) (15) 1,410 – (2,047) (652) (119) 860 208 – 949 154,182 230,975 (194,599) (226,875) (181) – (21,143) (19,221) 7,688 – (54,053) (15,121) (6,811) 15,562 (260) (27,399) 43,086 (125) CASH AND CASH EQUIVALENTS AT END OF YEAR 4 8,491 15,562 AVJENNINGS LIMITED · ANNUAL REPORT 2018 | 29 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 Australian states and New Zealand where the company operates: Includes activities relating to Land Development, Integrated Housing and Apartments Development. Other: Includes numerous low value items, amongst the most significant of which is interest. Notes to the Consolidated Financial Statements30 | AVJENNINGS LIMITED · ABN 44 004 327 771 l a t o T r e h t O Z N A S D L Q C V I W S N 7 1 0 2 0 0 0 $ ’ 8 1 0 2 0 0 0 $ ’ 7 1 0 2 0 0 0 $ ’ 8 1 0 2 0 0 0 $ ’ 7 1 0 2 0 0 0 $ ’ 8 1 0 2 0 0 0 $ ’ 7 1 0 2 0 0 0 $ ’ 8 1 0 2 0 0 0 $ ’ 7 1 0 2 0 0 0 $ ’ 8 1 0 2 0 0 0 $ ’ 7 1 0 2 0 0 0 $ ’ 8 1 0 2 0 0 0 $ ’ 7 1 0 2 0 0 0 $ ’ 8 1 0 2 0 0 0 $ ’ : s t n e m g e s g n i t a r e p o g n d r a g e r n o i t a m r o f n i i s t l u s e r d n a s e u n e v e r e h t s t n e s e r p e b a t g n w o i l l l o f e h T s t n e m g e s g n i t a r e p O s e u n e v e R ) d e u n i t n o c ( S T N E M G E S G N I T A R E P O . 1 4 8 0 1 , 7 7 9 0 5 4 9 9 3 , 0 9 1 1 7 3 , – – – – 8 9 0 1 , 0 5 1 2 , 8 9 0 1 , 0 5 1 2 , 3 8 8 7 4 , 1 5 5 4 1 , 8 6 7 7 2 , 7 7 7 2 5 , 1 4 5 2 8 , 0 6 3 1 5 , 0 3 2 3 7 , 4 2 0 7 5 , 8 2 0 8 6 1 , 8 7 4 5 9 1 , l s e a s l a n r e t x E – – – – 3 2 – 5 1 – – – – – 5 1 2 8 1 3 6 4 8 4 4 6 – – – – s e e f t n e m e g a n a M e u n e v e r r e h t O 2 3 6 , 1 0 4 7 1 3 , 4 7 3 8 9 0 , 1 0 5 1 , 2 3 8 8 , 7 4 1 5 5 , 4 1 1 9 7 , 7 2 2 9 7 , 2 5 6 5 7 , 2 8 8 7 6 , 1 5 6 7 0 , 4 7 8 6 6 , 7 5 8 2 0 , 8 6 1 8 7 4 , 5 9 1 s e u n e v e r t n e m g e s l a t o T 2 9 4 3 6 , 4 7 5 2 6 , 7 7 1 2 , 4 3 8 2 , 4 2 9 9 , 7 2 1 4 , ) 6 8 2 1 ( , ) 0 1 4 ( 1 5 0 8 , 2 1 1 1 , 9 2 2 2 , 7 0 2 1 , 7 9 3 2 4 , 4 0 7 3 5 , s t l u s e r t n e m g e S s t l u s e R 7 5 0 5 , 1 1 1 1 , ) 8 9 2 ( ) 9 6 2 ( ) 9 9 9 6 1 ( , ) 0 7 3 8 1 ( , ) 5 9 1 ( ) 0 9 1 ( 9 2 0 1 5 , 2 8 0 5 4 , ) 2 1 3 5 1 ( , ) 5 3 7 3 1 ( , 7 1 7 , 5 3 7 4 3 , 1 3 – – – – – – – – ) 8 2 ( 6 2 2 ) 3 6 ( 0 3 2 – – – – – – – – – – ) 7 ( ) 1 ( – – – ) 8 1 7 ( – – – – – – – – – – 1 9 3 – – – – – – – – ) 3 ( 2 4 – – – – – – – – – – – 5 7 7 5 , 0 2 7 d e t n u o c c a s V J d n a s e t a c o s s a i d o h t e m y t i u q e e h t g n i s u r o f f o ) s e s s o l ( / s t fi o r p f o e r a h S s s o l y r o t n e v n i n i e g n a h C s n o i s i v o r p i n o i t a c e r p e d d e t a c o l l a n U n o i t a s i t r o m a d n a s e s n e p x e d e t a c o l l a n U e s n e p x e t s e r e t n i d e t a c o l l a n U x a t e m o c n i e r o f e b t fi o r P x a t e m o c n i r e t f a t fi o r P x a t e m o c n I Notes to the Consolidated Financial Statements AVJENNINGS LIMITED · ANNUAL REPORT 2018 | 31 l a t o T r e h t O Z N A S D L Q C V I W S N 7 1 0 2 0 0 0 $ ’ 8 1 0 2 0 0 0 $ ’ 7 1 0 2 0 0 0 $ ’ 8 1 0 2 0 0 0 $ ’ 7 1 0 2 0 0 0 $ ’ 8 1 0 2 0 0 0 $ ’ 7 1 0 2 0 0 0 $ ’ 8 1 0 2 0 0 0 $ ’ 7 1 0 2 0 0 0 $ ’ 8 1 0 2 0 0 0 $ ’ 7 1 0 2 0 0 0 $ ’ 8 1 0 2 0 0 0 $ ’ 7 1 0 2 0 0 0 $ ’ 8 1 0 2 0 0 0 $ ’ s t n e m g e s g n i t a r e p O s t e s s A 1 8 7 2 1 7 , 6 9 3 0 4 6 , 6 8 4 6 2 , 3 1 2 5 2 , 4 2 1 6 6 , 8 2 1 4 4 , 5 1 6 2 9 , 8 2 0 1 7 , 1 9 6 2 2 1 , 3 6 0 8 0 1 , , 6 4 4 4 8 1 , 6 2 3 0 7 1 9 1 4 0 2 2 , 8 3 6 1 2 2 , s t e s s a t n e m g e S 1 8 7 , 2 1 7 6 9 3 , 0 4 6 6 8 4 , 6 2 3 1 2 , 5 2 4 2 1 , 6 6 8 2 1 , 4 4 5 1 6 , 2 9 8 2 0 , 1 7 1 9 6 , 2 2 1 3 6 0 , 8 0 1 6 4 4 , 4 8 1 6 2 3 , 0 7 1 9 1 4 , 0 2 2 8 3 6 , 1 2 2 s t e s s a l a t o T 8 7 7 1 3 3 , 8 9 3 1 4 2 , 2 9 2 8 6 1 , 2 3 0 1 3 1 , 2 6 6 5 4 , 2 3 0 8 1 , 1 3 2 5 , 2 9 9 4 , 5 0 4 6 2 , 7 0 5 6 , 5 8 6 8 5 , 1 1 6 4 5 , 3 0 5 7 2 , 4 2 2 6 2 , s e i t i l i b a i l t n e m g e S 8 7 7 , 1 3 3 8 9 3 , 1 4 2 2 9 2 , 8 6 1 2 3 0 , 1 3 1 2 6 6 , 5 4 2 3 0 , 8 1 1 3 2 , 5 2 9 9 , 4 5 0 4 , 6 2 7 0 5 , 6 5 8 6 , 8 5 1 1 6 , 4 5 3 0 5 , 7 2 4 2 2 , 6 2 s e i t i l i b a i l l a t o T s e i t i l i b a i L : s t n e m g e s g n i t a r e p o g n d r a g e r n o i t a m r o f n i i s e i t i l i b a i l d n a s t e s s a e h t s t n e s e r p e b a t g n w o i l l l o f e h T ) d e u n i t n o c ( S T N E M G E S G N I T A R E P O . 1 Notes to the Consolidated Financial Statements 32 | 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 2018 $’000 2017 $’000 371,190 1,410 977 740 399,450 860 1,084 238 374,317 401,632 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 as services are performed. 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 2018 | 33 Note 2018 $’000 2017 $’000 Cost of sales include: Amortisation of finance costs capitalised to inventories 17,220 12,898 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 9 9 28 241 269 29 269 298 12,212 (12,022) 10,544 (10,349) 190 195 1,111 5,057 For the year ended 30 June 2018, the movement in inventory loss provisions resulted from a realignment of future assumptions with current market conditions specifically relating to relevant projects in New South Wales and Queensland. Notes to the Consolidated Financial Statements34 | 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 temporary differences Adjustment for prior year Income tax reported in the Consolidated Statement of Comprehensive Income 2018 $’000 2017 $’000 17,955 11,332 (7) (7) (4,212) (1) 3,977 10 13,735 15,312 (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% (2017 – 30%) Share of equity accounted Joint Venture (profit)/losses Other non-deductible items Foreign jurisdiction (losses)/gains 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 in current year 45,082 51,029 13,525 15,309 (69) 363 (21) (55) (8) 8 144 2 (154) 3 13,735 15,312 30% 30% 13,735 15,312 4,213 (3,987) 7 (20) (10,597) 5,237 7 (45) (5,257) 10,471 Cash taxes paid per Consolidated Statement of Cash Flows 12,575 16,501 Notes to the Consolidated Financial Statements 3. INCOME TAX (continued) (d) Recognised deferred tax assets and liabilities Deferred income tax movement for the year ended 30 June 2018: Deferred tax assets – inventories – prepayments and accruals – provisions on employee entitlement – other Deferred tax assets Deferred tax liabilities – inventories – unearned revenue – prepayments and accruals – brand name – other Deferred tax liabilities Net deferred tax liabilities 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 Deferred tax liabilities Net deferred tax liabilities AVJENNINGS LIMITED · ANNUAL REPORT 2018 | 35 Opening balance Expense /(benefit) Foreign exchange variance Closing balance $’000 $’000 $’000 $’000 4,251 1,164 1,518 214 (1,179) (297) 109 (77) – – 3,072 867 (1) 1,626 – 137 7,147 (1,444) (1) 5,702 (21,851) (11,459) (368) (845) (46) 1,594 3,842 220 - 1 – (20,257) 131 (7,486) – – – (148) (845) (45) (34,569) 5,657 131 (28,781) (27,422) 4,213 130 (23,079) 6,769 1,344 1,446 288 (2,518) (180) 72 (74) 9,847 (2,700) (22,190) 339 – – – – – – 4,251 1,164 1,518 214 7,147 (21,851) (9,954) (1,507) 2 (11,459) (135) (152) (845) (8) (233) 152 - (38) – – – – (368) - (845) (46) (33,284) (1,287) 2 (34,569) (23,437) (3,987) 2 (27,422) Notes to the Consolidated Financial Statements36 | AVJENNINGS LIMITED · ABN 44 004 327 771 3. INCOME TAX (continued) (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. Section A3 Balance Sheet information 4. CASH AND CASH EQUIVALENTS Cash at bank and in hand Accounting (f) Accounting 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. Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority. 2018 $’000 8,491 2017 $’000 15,562 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 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 AVJENNINGS LIMITED · ANNUAL REPORT 2018 | 37 2018 $’000 2017 $’000 81,731 2,060 11,305 113,999 3,580 4,293 95,096 121,872 14,003 32,583 5,492 4,834 1,096 4,452 24,329 38,131 Receivables are initially recognised at fair value and subsequently measured at amortised cost using the effective interest rate method, less an allowance for impairment. 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 (2017: $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 overdue Total $’000 Not due $’000 0-30 $’000 31-60 $’000 61-90 $’000 + 91 $’000 + 91# $’000 2018 2017 95,734 95,731 146,582 146,570 – – – 6 – 3 3 3 – – # 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 full settlement prior to passing of title. Notes to the Consolidated Financial Statements 38 | 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 2018 $’000 2017 $’000 6(a) 6(a) 6(a) 6(a) 6(a) 6(a) 35,320 2,844 (875) 8,980 3,894 (480) 37,289 12,394 51,444 22,169 24,125 12,372 (607) 61,529 45,796 19,033 15,563 (1,838) 109,503 140,083 35,633 8,802 2,367 (254) 45,980 10,974 2,757 (1,115) 46,548 58,596 193,340 211,073 219,527 202,243 26,380 (8,015) 24,319 (10,000) 237,892 216,562 39,829 8,003 2,145 7,210 (202) 39,102 32,629 9,722 9,958 – 56,985 91,411 178 11 (29) 160 178 11 (29) 160 295,037 308,133 488,377 519,206 Notes to the Consolidated Financial StatementsAVJENNINGS LIMITED · ANNUAL REPORT 2018 | 39 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 6.27% (2017: 6.12%). (b) Inventory with a carrying value of $116,235,000 (2017: $110,179,000) 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 (NRV). Cost includes costs of acquisition, development, interest capitalised 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. NRV is the estimated selling price in the ordinary course of business less the estimated costs to complete and sell the inventory. NRV is estimated using the most reliable evidence at the time, including expected fluctuations in selling price and estimated costs to complete and sell. 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 2018 $’000 13,462 (2,369) (1,111) 2017 $’000 21,027 (2,508) (5,057) 9,982 13,462 2018 $’000 2,249 4,901 2017 $’000 2,971 102 7,150 3,073 Notes to the Consolidated Financial Statements40 | AVJENNINGS LIMITED · ABN 44 004 327 771 8. AVAILABLE-FOR-SALE FINANCIAL ASSET Property Fund Units 2018 $’000 2017 $’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 testing Available-for-sale financial assets (AFS) are tested when an indicator of impairment exists. An asset is impaired if the recoverable amount, calculated as the higher of value in use and fair value less costs to sell, is less than its carrying amount. None of the financial assets are either past due or impaired. 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 2018 | 41 2018 $’000 376 (314) 62 6,715 (6,241) 474 536 2017 $’000 376 (286) 90 6,711 (6,009) 702 792 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 2017 Note Carrying amount at 1 July 2016 Additions Disposals Depreciation charge Carrying amount at 30 June 2017 For the year ended 30 June 2018 Carrying amount at 1 July 2017 Additions Disposals Depreciation charge Carrying amount at 30 June 2018 (ii) Accounting 2 2 Leasehold improve- ments $’000 Plant and equipment $’000 120 2 (3) (29) 90 90 – – (28) 62 865 117 (11) (269) 702 702 15 (2) (241) 474 Total $’000 985 119 (14) (298) 792 792 15 (2) (269) 536 Plant and equipment is stated at historical cost less accumulated depreciation and impairment. Depreciation is calculated on a straight-line basis over the estimated useful lives of the assets 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42 | AVJENNINGS LIMITED · ABN 44 004 327 771 10. INTANGIBLE ASSETS Brand name at cost Less: accumulated amortisation Total intangible assets 2018 $’000 9,868 (7,052) 2,816 2017 $’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 2018, 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. 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. 11. TRADE AND OTHER PAYABLES Current Unsecured Land creditors Trade creditors Related party payables Deferred Income Other creditors and accruals Total current payables Non-Current Unsecured Land creditors Related party payables Deferred Income Total non-current payables Accounting 2018 $’000 2017 $’000 12,229 43,332 8,298 150 2,158 9,766 150 1,029 15,523 21,276 38,358 75,553 18,884 32,742 2,978 1,535 2,978 1,729 23,397 37,449 Trade and other payables are initially recognised at fair value and subsequently carried at amortised cost. They 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 6.86% (2017: 6.01%). Notes to the Consolidated Financial Statements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 AVJENNINGS LIMITED · ANNUAL REPORT 2018 | 43 2018 $’000 2017 $’000 – 3 13,407 2,604 13,407 2,607 125,799 177,016 125,799 177,016 Borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset are capitalised as part of the cost of that asset whilst in active development. Qualifying assets are assets that take a substantial period of time to get ready for their intended use or sale. Other borrowing costs are expensed as incurred. Borrowing costs consist of interest and other costs incurred in connection with the borrowing of funds. 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44 | AVJENNINGS LIMITED · ABN 44 004 327 771 12. INTEREST-BEARING LOANS AND BORROWINGS (continued) Financing arrangements The Group has access to the following lines of credit: 30 June 2018 Main banking facilities – bank overdraft – bank loans – performance bonds Project funding facilities – bank loans Contract performance bond facilities – performance bonds 30 June 2017 Main banking facilities – bank overdraft – bank loans – performance bonds Project funding facilities – bank loans Contract performance bond facilities – performance bonds Note 12(a) 12(b) 12(c) Note 12(a) 12(b) 12(c) Available $’000 Utilised $’000 Unutilised $’000 5,000 225,000 20,000 – 98,586 7,079 5,000 126,414 12,921 250,000 105,665 144,335 70,000 40,620 29,380 45,000 28,531 16,469 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 At 30 June 2018 main banking facilities are interchangeable up to $47 million (2017: $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 AVJENNINGS LIMITED · ANNUAL REPORT 2018 | 45 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 2020. 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 2018 was 3.32% (2017: 3.00%). Subsequent to the year end, the main banking facilities have increased from $250 million to $300 million. (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 June 2019. The outstanding amounts are expected to be repaid or refinanced prior to expiry of the facility. As at 30 June 2018, the balance outstanding on the bank loan facilities was $40,620,000 (2017: $40,620,000). The carrying amounts of the pledged assets are as follows: Waterline, Victoria 2018 $’000 2017 $’000 117,703 111,021 The weighted average interest rate including margin on the project funding loans at 30 June 2018 was 3.37% (2017: 3.17%). (c) Contract performance bond facilities The Group has entered into Contract performance bond facilities of $45,000,000 (2017: $35,000,000) which are subject to review annually. The facilities expire on 31 December 2018 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 2018 $’000 6,019 6,019 742 742 2017 $’000 5,607 5,607 867 867 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46 | AVJENNINGS LIMITED · ABN 44 004 327 771 14. CONTRIBUTED EQUITY Ordinary shares Treasury shares Share Capital (a) Movement in ordinary share capital 2018 Number 2017 Number 2018 $’000 2017 $’000 394,926,905 384,423,851 170,481 162,793 (495,632) (842,089) (2,538) (2,357) 394,431,273 383,581,762 167,943 160,436 At beginning of year 384,423,851 384,423,851 162,793 162,793 Issued under the Dividend Reinvestment Plan Issued pursuant to the Underwriting Agreement 7,252,488 3,250,566 – – 5,309 2,379 – – At end of year 394,926,905 384,423,851 170,481 162,793 On 23 February 2018, the Company announced a fully franked interim dividend of 2 cents per share to be paid on 19 April 2018. The Company also announced that the Dividend Reinvestment Plan (DRP) would be reactivated for this dividend. The DRP offered shares in the capital of the Company (Shares) to each shareholder of the Company with a registered address in Australia and New Zealand (and otherwise as determined pursuant to the DRP) by way of reinvestment of some or all of their Dividend entitlement. On 23 March 2018, the Company announced it had entered into an underwriting agreement to underwrite the subscription of shares offered under the DRP held by shareholders other than the ultimate parent entity, SC Global Developments Pte Ltd, who had elected to fully participate in the DRP. The issue price per share under the DRP was $0.732, being the average of the daily volume weighted average price of all AVJennings’ shares sold on the ASX during the Pricing Period, which commenced on 23 March 2018 and concluded on 29 March 2018, less a 2.5% discount. On 19 April 2018, AVJennings issued: • 7,252,488 Shares to shareholders of AVJennings under the DRP; and • 3,250,566 Shares to the Underwriter pursuant to the Underwriting Agreement. The shares issued under the DRP and the Underwriting Agreement raised $7,688,000 in total. (b) Movement in treasury shares 2018 Number 2017 Number 2018 $’000 2017 $’000 At beginning of year (842,089) (2,338,154) (2,357) (2,357) On market acquisition of shares Employee Share Scheme Issue (248,020) – 594,477 1,496,065 (181) – – – At end of year (495,632) (842,089) (2,538) (2,357) During the year, 248,020 treasury shares were purchased by the AVJ Deferred Employee Share Plan Trust at a cost of $181,000. Holders of ordinary shares are entitled to dividends and to one vote per share at shareholder 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 Trust are disclosed as treasury shares and deducted from contributed equity. Notes to the Consolidated Financial StatementsAVJENNINGS LIMITED · ANNUAL REPORT 2018 | 47 Foreign Currency Translation Reserve $’000 Share-based Payment Reserve $’000 Total $’000 3,833 2,189 6,022 (109) – – 709 (109) 709 3,724 2,898 6,622 (714) – – 998 (714) 998 3,010 3,896 6,906 Note 28(a) 28(a) 15. RESERVES AND RETAINED EARNINGS (a) Reserves At 1 July 2016 Foreign currency translation Share-based payment expense At 30 June 2017 Foreign currency translation Share-based payment expense At 30 June 2018 (b) Nature and purpose of reserves Foreign currency translation reserve Exchange differences arising on translation of 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 rights to shares or shares issued to employees, with a corresponding increase in employee expense in the Statement of Comprehensive Income. (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 2018 $’000 2017 $’000 213,945 197,449 31,347 (21,143) 35,717 (19,221) 224,149 213,945 Notes to the Consolidated Financial Statements48 | AVJENNINGS LIMITED · ABN 44 004 327 771 16. DIVIDENDS Cash dividends declared and paid 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 final dividend of 3.5 cents per share, paid 19 September 2017. Fully franked @ 30% tax 2018 interim dividend of 2.0 cents per share, paid 19 April 2018. Fully franked @ 30% tax 2018 $’000 2017 $’000 – – 13,455 5,766 13,455 7,688 – – Total cash dividends declared and paid 21,143 19,221 Dividends proposed 2017 final dividend of 3.5 cents per share, paid 19 September 2017. Fully franked @ 30% tax 2018 final dividend of 3.0 cents per share, to be paid 11 October 2018. Fully franked @ 30% tax Total dividends proposed The Company’s DRP has been re-activated. Dividend franking account Franking credits available for subsequent financial years based on a tax rate of 30% – 13,455 11,848 – 11,848 13,455 22,951 15,652 The above balance is based on the balance of the dividend franking account at 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 year-end. Notes to the Consolidated Financial StatementsAVJENNINGS LIMITED · ANNUAL REPORT 2018 | 49 Section A4 Cash Flow 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 (profit)/losses of associates and joint venture entities Change in inventory loss provisions Share-based payments expense Change in operating assets and liabilities: Decrease in inventories Decrease/(increase) in trade and other receivables Increase in other current assets (Decrease)/increase in deferred tax liability Increase/(decrease) in current tax liability Decrease in trade and other payables Increase/(decrease) in provisions 2018 $’000 2017 $’000 31,347 35,717 269 2 (1,410) (226) (3,480) 998 34,309 40,578 (4,077) (4,343) 5,502 (51,862) 287 298 14 (860) 28 (7,565) 709 41,396 (32,249) (933) 3,985 (5,237) (47,949) (581) Net cash from/(used in) operating activities 47,894 (13,227) Notes to the Consolidated Financial Statements50 | AVJENNINGS LIMITED · ABN 44 004 327 771 Section B – Risk 19. FINANCIAL RISK MANAGEMENT 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 have 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. The Group’s principal financial instruments comprise receivables, payables, loans and borrowings, financial guarantee contracts, available-for-sale financial asset, 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. Financial risk activities are governed by appropriate policies and procedures and 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 these policies. (i) Interest rate risk Interest rate risk is the risk that the fair value of a financial instrument or associated future cash flows 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 loan maturity and cash flow profiles and the outlook for interest rates. The Group uses various techniques, including interest rate swaps, caps and floors 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. 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 2018 | 51 19. FINANCIAL RISK MANAGEMENT (continued) (i) Interest rate risk (continued) 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 2018 2017 Weighted average interest rate % 1.43 – 3.33 Balance $‘000 (8,491) – 139,206 130,715 130,715 Weighted average interest rate % 1.48 5.50 3.03 Balance $‘000 (15,562) 3 179,620 164,061 164,061 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 (ii) Foreign currency risk Profit After Tax Higher/(Lower) 2018 $’000 (153) 153 2017 $’000 (108) 108 Foreign currency risk arises from NZD denominated assets (balance sheet risk) or from transactions or cash flows denominated in NZD (cash flow risk). 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) 2018 $’000 (102) 102 2017 $’000 (413) 413 2018 $’000 (173) 173 2017 $’000 (424) 424 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-sale 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 typically applied to repay drawn loans to minimise borrowing costs. 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. Notes to the Consolidated Financial Statements52 | AVJENNINGS LIMITED · ABN 44 004 327 771 19. FINANCIAL RISK MANAGEMENT (continued) (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 2020 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 2018, 9.6% (2017: 1.5%) of the Group’s interest-bearing loans and borrowings will mature in less than one year. The table below summarises the maturity profile of the Group’s financial assets and liabilities based on contractual undiscounted payments. Year ended 30 June 2018 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 8,491 61,716 – – 33,380 24,329 8,491 119,425 70,207 33,380 24,329 127,916 28,567 2,326 2,135 9,791 15,643 23,397 130,275 – – 61,755 148,244 2,135 33,028 25,434 153,672 212,134 Net maturity 37,179 7,946 (129,343) (84,218) 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) * 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 $190 million (2017: $161 million) of unused credit facilities available. Please refer to note 12. Notes to the Consolidated Financial StatementsAVJENNINGS LIMITED · ANNUAL REPORT 2018 | 53 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 2018 Year ended 30 June 2017 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 – – 139,206 139,206 – – 139,206 139,206 – – 179,623 179,623 – – 179,623 179,623 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 In managing capital, management’s objective is to achieve an efficient capital structure which optimises the weighted average cost of capital commensurate with business requirements and prudential considerations. During the year ended 30 June 2018, a total dividend of $21,143,000 was paid (2017: $19,221,000). 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 2018 $’000 139,206 (8,491) 2017 $’000 179,623 (15,562) 130,715 164,061 398,998 381,003 640,396 712,781 32.8% 20.4% 43.1% 23.0% Notes to the Consolidated Financial Statements 54 | AVJENNINGS LIMITED · ABN 44 004 327 771 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) 2018 2017 2018 2017 % 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(4) 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 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 AVJennings SPV No 22 Pty Limited AVJennings SPV No 23 Pty Limited AVJennings SPV No 24 Pty Limited AVJBOS Nominees Pty Limited(4) AVJBOS Eastwood Developments Pty Limited(4) AVJBOS Eastwood Finance Pty Limited(4) 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 No No Yes Yes No Yes Yes Yes Yes Yes Yes Yes Yes No Yes No Yes No Yes Yes No Yes Yes Yes Yes Yes Yes No Yes No Yes 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 Yes Yes Yes Yes No No No No No No No No No Notes to the Consolidated Financial StatementsAVJENNINGS LIMITED · ANNUAL REPORT 2018 | 55 21. CONTROLLED ENTITIES (continued) (a) Investment in controlled entities (continued) ECONOMIC ENTITY (1) 2018 2017 2018 2017 % 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 8 August 2018. (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) Corporations Instrument 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 Corporations Instrument. 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 2018 $’000 2017 $’000 240,082 209,949 (170,670) (144,675) (39,315) (39,220) 30,097 (9,214) 26,054 (8,079) 20,883 17,975 Notes to the Consolidated Financial Statements56 | AVJENNINGS LIMITED · ABN 44 004 327 771 21. CONTROLLED ENTITIES (continued) (d) Corporations Instrument 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 2018 $’000 2017 $’000 7,433 177,186 98,337 1,782 15,035 221,428 110,102 2,504 284,738 349,069 17,708 5,548 114,356 112,828 7,709 2,880 536 2,816 5,431 2,880 792 2,816 146,005 130,295 430,743 479,364 21,871 30,483 9,717 5,896 4,307 5,491 37,484 40,281 11,917 94,000 20,788 742 18,167 139,000 23,482 867 127,447 181,516 164,931 221,797 265,812 257,567 167,943 160,436 3,896 93,973 2,898 94,233 265,812 257,567 Notes to the Consolidated Financial StatementsAVJENNINGS LIMITED · ANNUAL REPORT 2018 | 57 21. CONTROLLED ENTITIES (continued) (d) Corporations Instrument 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 – Ordinary share capital raised – Treasury shares acquired – Share-based payment expense – Dividends paid Total transactions with owners in their capacity as owners At end of year 22. EQUITY ACCOUNTED INVESTMENTS Associate Joint Ventures Closed Group 2018 $’000 2017 $’000 257,567 258,104 20,883 20,883 17,975 17,975 7,688 (181) 998 (21,143) (12,638) – – 709 (19,221) (18,512) 265,812 257,567 2018 $’000 – 10,721 2017 $’000 5 8,444 Total equity accounted investments 10,721 8,449 Accounting 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 disclosed in the Consolidated Statement of Comprehensive Income. The Group’s share of movements 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. 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. The operations of the Associate have been wound down over the past few years. The partnership was terminated during the year. Notes to the Consolidated Financial Statements58 | AVJENNINGS LIMITED · ABN 44 004 327 771 22. EQUITY ACCOUNTED INVESTMENTS (continued) Interest in Joint Ventures Joint Venture and principal activities Woodville – Land Development and Building Construction Pindan Capital Group Dwelling Trust – Building Construction Movements in carrying amount At beginning of year Contributions made Dividends received Share of profit/(loss) At end of year Interest held 2018 2017 50.0% 33.3% 2018 $’000 8,444 2,047 – 230 50.0% 33.3% 2017 $’000 8,680 – (208) (28) 10,721 8,444 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 Cost of property developments sold Expenses Profit/(loss) before income tax Income tax Profit/(loss) after income tax 2018 $’000 2017 $’000 222 13,871 14,093 648 2,724 3,372 3,495 11,947 15,442 4,580 2,418 6,998 10,721 8,444 4,920 (3,594) (1,097) 229 1 230 1,513 (804) (722) (13) (15) (28) Notes to the Consolidated Financial StatementsAVJENNINGS LIMITED · ANNUAL REPORT 2018 | 59 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 2018 2017 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% 50% 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 share of the individually immaterial Joint Operations’ 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 Cost of property developments sold Other expenses Loss before income tax Income tax Loss after income tax Total comprehensive loss for the year 2018 $’000 2017 $’000 17,793 49,690 67,483 3,376 8,174 11,550 7,395 51,387 58,782 2,581 10,077 12,658 55,933 46,124 898 (672) (786) (560) 168 (392) (392) 9 – (511) (502) 151 (351) (351) Notes to the Consolidated Financial Statements60 | 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 2018 were authorised for issue in accordance with a resolution of the Directors on 5 September 2018. 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 2018 Number 2017 Number 214,060,712 208,199,567 (c) Entity with significant influence over AVJennings Limited 209,386,826 ordinary shares equating to 53.02% of the total ordinary shares on issue (2017: 203,818,030 and 53.02% respectively) were held by SC Global Developments Pte Ltd and its subsidiaries in the Parent Entity at 30 June 2018. 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 2018, there is no evidence of impairment and recoverability is considered probable (2017: 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 Dividends received Woodville JV Accounting services fee received/receivable 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 AVJENNINGS LIMITED · ANNUAL REPORT 2018 | 61 Note 2018 $ 2017 $ (i) 600,000 600,000 (ii) – 207,500 1,684 19,500 642,631 50,000 845,929 50,000 317,626 50,000 215,231 33,881 (i) Consultancy fees paid to SC Global Developments Pte Ltd of $600,000 (2017: $600,000). (ii) Ceased to be a joint venture on 22 February 2017. (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 and others Current payables SC Global Developments Pte Ltd (h) Amounts advanced to and received from related parties Amounts advanced Joint Ventures and others Amounts received Joint Ventures 2018 $’000 2017 $’000 2,060 973 4,336 1,096 150 150 1,156 2,607 2,978 2,978 Notes to the Consolidated Financial Statements62 | AVJENNINGS LIMITED · ABN 44 004 327 771 27. RELATED PARTY DISCLOSURES (continued) (i) Remuneration of Key Management Personnel (KMP) Short-term – Salary/Fees – Accrued annual leave – STI – Other (1) Post employment – Superannuation (2) Long-term – Accrued Long service leave Share-based payment 2018 $ 2017 $ 1,983,855 1,927,428 46,965 370,870 91,828 21,123 399,822 70,309 111,957 129,323 83,696 674,467 77,413 605,343 3,363,638 3,230,761 ‘Other’ represents the value of motor vehicle benefits. (1) (2) 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). 2018 $’000 998 – 998 2017 $’000 819 (110) 709 Notes to the Consolidated Financial StatementsAVJENNINGS LIMITED · ANNUAL REPORT 2018 | 63 28. SHARE-BASED PAYMENT PLANS (continued) (b) Type of share-based payment plan The operation of the EPS, ROE and Retention hurdles are set out below. 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. AVJennings’ EPS growth rate over the three year performance period LTI remuneration is provided by the Issue of Rights and includes a performance and 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). LTI and retention Retention Rights are granted in three equal tranches which vest in each of the three succeeding years following the year of grant. Retention component – years of service Percentage of rights vesting one year two years three years LTI and performance 33.33% 33.33% 33.34% Up to 50% of the Performance Rights granted vest depending on AVJennings’ average growth rate in Earnings Per Share (EPS) over the next three financial years. Up to 50% of the Performance Rights granted vest depending on AVJennings’ Return on Equity (ROE) over the next three financial years. The Return on Equity (ROE) component of the Performance Rights uses market capitalisation as a proxy for equity. The performance conditions are tested at the end of the three- year measurement 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% (Performance Rights) and 25% (Service Rights) of TEC respectively. < 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% Accounting Nil 50% of the allocation for the hurdle 75% of the allocation for the hurdle 100% (Straight line interpolation between 12% and 18%) 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. Notes to the Consolidated Financial Statements64 | AVJENNINGS LIMITED · ABN 44 004 327 771 28. SHARE-BASED PAYMENT PLANS (continued) (c) 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 FY2018 Grant Total 29. AUDITOR’S REMUNERATION Ernst & Young Audit and assurance services Total rights granted Rights vested to date Rights forfeited to date Unvested rights at 30 June 2018 1,363,583 (474,158) (252,408) 1,587,251 (592,493) (232,816) 637,017 761,942 1,859,171 (252,799) (97,085) 1,509,287 1,671,573 – – 1,671,573 6,481,578 (1,319,450) (582,309) 4,579,819 2018 $ 2017 $ – Audit and review of the financial reports of the Group 297,540 303,974 – Share of audit and review costs of the financial reports of the Group’s joint ventures 6,499 3,901 Total auditor’s remuneration 304,039 307,875 30. EARNINGS PER SHARE (EPS) 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 Weighted average number of ordinary shares Treasury shares 2018 $’000 31,347 2017 $’000 35,717 2018 Number 2017 Number 386,247,296 384,423,851 (495,632) (842,089) Weighted average number of ordinary shares for EPS 385,751,664 383,581,762 Notes to the Consolidated Financial StatementsAVJENNINGS LIMITED · ANNUAL REPORT 2018 | 65 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 2018 $’000 2017 $’000 61,959 53,454 225,245 216,740 6 6 6 6 167,943 160,436 3,896 53,400 2,898 53,400 225,239 216,734 – – – – (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 2018 $’000 2017 $’000 2,255 1,977 2,143 3,144 4,232 5,287 3,754 478 5,271 16 4,232 5,287 Notes to the Consolidated Financial Statements 66 | AVJENNINGS LIMITED · ABN 44 004 327 771 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 2018 amounted to $28,531,000 (2017: $26,936,000). 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 2018, amounted to $4,943,000 (2017: $7,796,000). 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 2018, amounted to $2,135,000 (2017: $2,135,000). No liability is expected to arise. 34. SIGNIFICANT EVENTS AFTER THE BALANCE SHEET DATE No matter or circumstance has arisen since 30 June 2018 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. 35. NEW ACCOUNTING STANDARDS AND INTERPRETATIONS The new and amended standards adopted by the Group for the year ended 30 June 2018 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 2018 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) AASB 9 addresses the classification, measurement and derecognition of financial assets, financial liabilities and hedging and a new impairment model for financial assets. The adoption of AASB 9 is not expected to have a material impact. AASB 15 Revenue from Contracts with Customers: (effective 1 January 2018 / applicable for the Group 1 July 2018) 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 core principle of AASB 15 is that revenue is recognised when control of goods or services passes to the customer. AASB 15 is unlikely to have a material impact on land and built form revenue currently recognised on settlement. However, the standard is expected to have a material impact on the recognition of revenue from land sales prior to settlement. AVJennings currently recognises revenue when an unconditional contract for sales exists, the significant risks and rewards of ownership have been transferred to the buyer, and there is no managerial involvement to a degree usually associated with ownership. Notes to the Consolidated Financial StatementsAVJENNINGS LIMITED · ANNUAL REPORT 2018 | 67 AVJennings has performed an 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 6.86%, 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 2018. Assuming there are no material changes to the business, AVJennings expects the percentage of right of use assets and lease liabilities to remain at similar levels. The transition adjustment is yet to be determined and will be calculated upon the finalisation of the assessment. 36. OTHER ACCOUNTING POLICIES 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 2018. 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. 35. NEW ACCOUNTING STANDARDS AND INTERPRETATIONS (continued) AASB 15 Revenue from Contracts with Customers (continued) AASB 15 establishes a five-step model to account for revenue arising from contracts with customers and includes increased disclosure requirements. The new standard is based on the principle that revenue is recognised at a point in time when control of the goods or service passes to the customer. For certain contracts, the substance as well as legal clauses will need to be considered in determining the point at which control passes. This will require judgement, however, we have summarised below the types of contractual arrangements where revenue is currently recognised prior to settlement and the Group’s assessment of the potential impact: • In the year to 30 June 2018, the company recognised revenue on sales of land on deferred terms to builders in New Zealand. Adoption of AASB 15 is not expected to impact revenue recognition as the builder gains control of the land on completion of the physical works and can commence building at that point. • Sales of englobo land on deferred terms are also not expected to be impacted by the new standard. Control passes when the contract is unconditional, physical works are complete and the purchaser has unfettered rights to the land - which can be before settlement. • Revenue on sales to builders in Australia under put and call arrangements, historically recognised prior to settlement, may be deferred until settlement if it is only at this point that control is considered to pass. The Company intends to adopt the standard using the modified retrospective approach which means that the cumulative impact of the adoption will be recognised in retained earnings as of 1 July 2018 with no restatement of comparatives. Consequently, for contracts that had not settled and control had not passed at 30 June 2018, but revenue could be recognised under AASB 118 Revenue because the significant risks and rewards had transferred to the buyer, revenue and costs will be recognised again on settlement from 1 July 2018. The post-tax profit effect of amounts recognised in the year ended 30 June 2018 will be reversed by adjusting opening retained earnings. For contracts where control is deemed to have passed to the purchaser before 30 June 2018, revenue will not be recognised again on settlement and there will be no adjustment to retained earnings. AASB 16 Leases: (effective 1 January 2019/applicable for the Group 1 July 2019) 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 of use assets” and “leasing liabilities” are recorded for operating leases. Notes to the Consolidated Financial Statements68 | AVJENNINGS LIMITED · ABN 44 004 327 771 36. OTHER ACCOUNTING POLICIES (continued) e) Foreign currency translation 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 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. (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 d) Goods and services tax (GST) 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. 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. Notes to the Consolidated Financial Statements Directors’ Declaration AVJENNINGS LIMITED · ANNUAL REPORT 2018 | 69 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 2018 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 2018. 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 5 September 2018 Peter Summers Director 70 | 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 2018, 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 to the financial statements, including 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 2018 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 auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the financial report in Australia. We have also 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 2018 | 71 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 76% 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: Our audit procedures focused on assessing the judgments and assumptions made by the Group in the feasibilities underpinning the net realisable value assessments. Our procedures included the following: 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 was considered a key audit matter as it involves a significant degree of judgment and can present a range of alternative outcomes. The net realisable value analysis performed was 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 recognised upon the 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 and gross margin 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 $95.2 million in sales revenue prior to settlement as at 30 June 2018. 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. Assessed and tested the effectiveness of relevant controls over cost accumulation Interviewed Project Managers to understand the status and progress of a sample of developments Assessed the impairment methodology, project margin analysis and feasibility models prepared by management for a sample of developments in progress Identified higher risk projects, based on our judgment, and evaluated the assumptions adopted. In doing so, we: Compared the forecast sales revenue assumptions 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 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 Tested the mathematical accuracy of the feasibilities tested. How our audit addressed the key audit matter Our audit procedures included the following: Assessed the accounting policies and judgments applied by the Group on the recognition of revenue and determination of cost of sales for appropriateness. Assessed the recognition of revenue for a sample of unsettled sales to ensure compliance with the Group’s accounting policies. In doing so, for identified samples, we: Reviewed underlying sales contracts Performed site visits close to year end Obtained relevant documents to determine the status of the projects at year end We assessed whether revenue and cost of sales were recognised in the correct period for revenue recognised around the balance sheet date. Assessed the appropriate recognition 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 72 | 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 2018, 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 accordingly we do not express any form of assurance conclusion thereon, with the exception of the Remuneration Report and our related assurance opinion. 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 to 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 the 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 the 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 Group’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 and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial report or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group 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 financial report represents 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 2018 | 73 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 16 to 22 of the Directors’ Report for the year ended 30 June 2018. In our opinion, the Remuneration Report of AVJennings Limited for the year ended 30 June 2018, 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 5 September 2018 A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation 74 | AVJENNINGS LIMITED · ABN 44 004 327 771 Shareholder Information As at 12 September 2018 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 SCGlobal Developments Pte Ltd Australian Securities Exchange Singapore Exchange Total 613 862 376 914 179 2,944 371 265 593 189 203 26 1,276 126 878 1,455 565 1,117 205 4,220 497 Ordinary Shares % 209,386,826 53.02 AVJENNINGS LIMITED · ANNUAL REPORT 2018 | 75 Shareholder Information As at 12 September 2018 3. TWENTY LARGEST SHAREHOLDERS ON THE AUSTRALIAN REGISTER Name The Central Depository (Pte) Ltd BNP Paribas Nominees Pty Ltd HSBC Custody Nominees (Australia) Ltd Citicorp Nominees Pty Ltd Brazil Farming Pty Ltd Gillcorp Pty Limited John E Gill Operations Pty Ltd John E Gill Trading Pty Ltd Pacific Custodians Pty Ltd JP Morgan Nominees Australia Ltd Horrie Pty Ltd Luton Pty Ltd URB Investments Ltd Mr D R M Gill and Mrs J M Gill Mr Bradley John Newcombe Jamplat Pty Ltd Ago Pty Ltd Hillmorton Custodians Pty Ltd Peter Summers Carlcorp Pty Ltd Total Ordinary Shares % 216,203,146 54.75 16,038,210 15,440,157 10,121,647 7,271,016 6,343,003 5,609,105 5,598,712 4,958,808 4,163,713 3,585,355 2,773,770 2,353,693 1,958,511 1,825,000 1,700,000 1,682,044 1,236,954 1,171,953 1,125,313 4.06 3.91 2.56 1.84 1.61 1.42 1.42 1.26 1.05 0.91 0.70 0.60 0.50 0.46 0.43 0.43 0.31 0.30 0.28 311,160,110 78.79 76 | AVJENNINGS LIMITED · ABN 44 004 327 771 Shareholder Information As at 12 September 2018 4. TWENTY LARGEST SHAREHOLDERS ON THE SINGAPORE REGISTER Name UOB Nominees (2006) Pte Ltd United Overseas Bank Nominees Pte Ltd Trimount Pte Ltd Oei Hong Leong Foundation Pte Ltd Lim Chin Tiong Raffles Nominees (Pte) Ltd Tsang Sze Hang DBS Nominees Pte Ltd Rowland Wong Kwok Ho Vesmith Investments Pte Ltd Pansbury Investments Pte Ltd Hexacon Construction Pte Ltd UOB Kay Hian Pte Ltd OCBC Nominees Singapore Pte Ltd Teo Chiang Long Ng Poh Cheng Chng Bee Suan Wee Kim Choo @ Elizabeth Sam Lim Kong Wee Chua Hung Koon Edmond Total Ordinary Shares % 184,115,725 46.62 11,570,545 1,705,293 1,502,060 1,408,420 1,045,424 860,275 836,015 769,292 652,222 509,716 368,480 338,613 275,162 257,496 220,627 218,620 215,068 206,465 197,900 2.93 0.43 0.38 0.36 0.26 0.22 0.21 0.19 0.17 0.13 0.09 0.09 0.07 0.07 0.06 0.06 0.05 0.05 0.05 207,273,418 52.48 Percentages are calculated on the total number of shares on issue. 5. VOTING RIGHTS Ordinary Shareholder On a show of hands, every member present in person or by representative, proxy or attorney shall have one vote, and on a poll each fully paid share shall have one vote. 6. TOTAL NUMBER OF SHARES The total number of shares on issue and listed on the Australian Securities Exchange is 394,926,905. Company Particulars AVJENNINGS LIMITED · ANNUAL REPORT 2018 | 77 DIRECTORS Mr Simon Cheong Mr Jerome Rowley Mrs Elizabeth Sam Mr Bobby Chin Mr Lai Teck Poh Mr Bruce Hayman Mr Tan Boon Leong Mr Peter Summers COMPANY SECRETARY Mr Carl Thompson PRINCIPAL REGISTERED OFFICE IN AUSTRALIA Level 4, 108 Power Street Hawthorn Vic 3122 Telephone +61 3 8888 4800 AUDITORS Ernst & Young 200 George Street Sydney NSW 2000 BANKERS SHARE REGISTRY Australia Link Market Services Ltd Tower 4 727 Collins Street, Docklands Vic 3008 Telephone: +61 1300 554 474 Singapore The Central Depository (Pte) Ltd 11 North Buona Vista Drive #06-07 The Metropolis Tower 2 Singapore 138589 Telephone +65 6535 7511 ANNUAL GENERAL MEETING The Annual General Meeting of the Company will be held at: Metropol Meeting Room 2 Crown Metropol Melbourne 8 Whiteman Street Southbank Vic 3006. Friday, 23 November 2018 at 10.00 a.m. DIVIDENDS Commonwealth Bank of Australia Ltd (Bankwest Division) DBS Bank HSBC Bank Australia Ltd United Overseas Bank Ltd Oversea-Chinese Banking Corporation Ltd Dividends paid in the year under review: Final Dividend of $0.035 for FY17 paid on 19 September 2017 Interim Dividend of $0.02 for FY18 paid on 19 April 2018 STOCK EXCHANGE LISTINGS Australia The Company is listed on: The Australian Securities Exchange Level 4, 525 Collins Street Melbourne Vic 3000 Singapore The Company’s shares are also quoted and traded on: The Singapore Exchange 11 North Buona Vista Drive #06-07 The Metropolis Tower 2 Singapore 138589 through SGX Globalquote (formerly known as the Central Limit Order Book System (CLOB)). 

Continue reading text version or see original annual report in PDF format above