AVJennings
Annual Report 2020

Plain-text annual report

Annual Report 2020 AVJennings Limited ABN 44 004 327 771 Housing matters. Community matters. 2 We have always championed the principles of community, that housing matters, community matters. Angus Johnson, National Developments Manager AVJennings Limited - Annual Report 20203 Contents. COMPANY OVERVIEW Chairman’s Report 2020 Highlights Property Portfolio Project Pipeline Chief Executive Officer’s Report Committed to Creating and Supporting Communities Our Communities DIRECTORS’ REPORT Directors’ Report FINANCIAL STATEMENTS 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 5 7 8 9 11 15 18 20 42 43 44 45 46 93 94 ADDITIONAL INFORMATION Shareholder Information Company Particulars 99 102 Empress Apartments, Williamstown, VIC Artist Impression COMPANY OVERVIEWDIRECTORS’ REPORTFINANCIAL STATEMENTSADDITIONAL INFORMATIONAVJennings Limited - Annual Report 20204 Argyle, Elderslie, NSW The housing needs of buyers have evolved... as families demand more quality space and look towards a home in the suburbs. Simon Cheong, Chairman AVJennings Limited - Annual Report 2020Chairman’s Report. 5 Dear fellow shareholders, on behalf of the Board of Directors, I am pleased to present our 2020 Annual Report. In the 88-year history of AVJennings, FY2020 was a year unlike any other. Signs of a recovery after the first half of the financial year were soon impacted by drought and bushfires which dampened consumer confidence and attendances at sales offices as people stayed indoors due to poor air quality. The early months of 2020 saw a recovery in enquiry levels and an uplift in contract signings. However, unfortunately, the COVID-19 pandemic stymied the anticipated stronger finish to this financial year. Revenue was down 11.5% overall to $262.4 million, largely due to a 76.8% decrease in apartment revenue to $13.2 million, reflecting project completion timing. The 2019 financial year included the completion of our GEM apartments at Waterline Place in Victoria. The next apartment building, Empress at Waterline Place, is currently under construction and is expected to contribute to the 2021 financial year result. Despite the extraordinary challenges seen in the 2020 financial year, our core revenue from land and traditional housing increased by 4.9% to $246.4 million. On a positive note, margins did increase for land and traditional housing in all States and New Zealand, with the exception of New South Wales, where margins were impacted by some price corrections plus the relative impact of some projects that yield slightly lower margins. Margins in our apartments decreased slightly with some lower value remaining apartments at GEM sold. Overall, margins decreased 1.7% to 22.8%. Recent changes to the Company’s operating structure have also proved beneficial. These have not only allowed the Company to reduce overheads further during the 2020 financial year but also to respond quickly to the challenges we are facing. Net cash from operations was positive $10 million in the 2020 financial year compared with net outflows of $45.8 million in the previous financial year. The improved cashflow was assisted by solid settlements and reduced expenditure on production, acquisitions and overheads. Our balance sheet strength continues. Gearing at 28.1% remains within our target range of net debt to assets of 15 – 35%, a slight increase from financial year 2019 level at 26.6%. Whilst the pandemic impacted the 2020 financial result, your Board believes the results achieved given the extraordinary circumstances were solid. The Company remains in a sound financial position, with moderate gearing and adequate undrawn banking facilities. For prudent capital management, the Board decided not to declare a final dividend. Dividends for the year were 1.2 cents per share, fully franked. Our land bank’s diversification, location, quality and size continue to be a long- term goal. Controlled lots were 12,134 including land at Caboolture, Queensland of approximately 3,500 lots, which is under an option agreement. This compares to a total number of controlled lots of 9,531 as at 30 June 2019. Our disciplined approach to land acquisitions has seen no major new provisions against the land bank, although a further $1.6 million provision was booked relating to legacy regional projects in Queensland and South Australia. In response to the COVID-19 pandemic induced uncertainty, management wound back production in early March 2020, with the exception of projects necessary to facilitate settlements of existing pre-sales. This capability demonstrates the strength and flexibility of horizontal development vs vertical development. While site activity was scaled back, our planning and design program continued so as to place us in a good position to quickly scale up production as the market recovers. The housing needs of buyers have evolved due to the pandemic. With an increase in working from home, city living is likely to become less attractive as families demand more quality space and look towards a home in the suburbs. This trend will provide continued support for traditional housing. I would like to take the opportunity to thank our Directors for their invaluable guidance and dedication. During the year, we bade farewell to Mrs Elizabeth Sam, who retired after almost 20 years of commitment and contributions to AVJennings. Elizabeth’s guidance and insights as a director and chairperson on numerous committees has proven a most valuable asset to the Company and the Board. Finally, I would like to thank our shareholders, partners and customers for their continued trust and support, as well as our management and employees for their hard work and commitment during these unprecedented times. Simon Cheong Chairman AVJennings Limited - Annual Report 2020COMPANY OVERVIEWDIRECTORS’ REPORTFINANCIAL STATEMENTSADDITIONAL INFORMATION6 AVJennings Limited - Annual Report 20202020 Highlights. 7 Traditional Markets. Land & traditional housing revenue $246.4m up $11.5m 4.9% (cid:31) Apartment revenue $13.2m down $43.5m 76.8% (cid:30) Group revenue $262.4m down $34.1m 11.5% (cid:30) Profit before tax $13.2m down $10.6m 44.8% (cid:30) YOY Comparison Total revenue Statutory profit before tax Statutory profit after tax Gross margins Net tangible assets (NTA) NTA per share EPS (cents per share) Dividend fully franked (cents per share) Quality Asset Base. Under control 12,134 lots (Includes land under option) Net funds employed spread geographically. Work in progress 1,117 lots Strong Stability. Net cash from operations $10.0m Available line of credit $122.6m Net debt $184.4m Gearing 28.1% (inside 15-35% target range) Total fully franked dividend 1.2 cps FY20 $262.4m $13.2m $9.0m 22.8% FY19 $296.5m $23.8m $16.4m 24.5% $390.3m $393.5m $0.96 2.23 1.2 $0.97 4.09 2.5 %change (11.5%) (44.8%) (45.0%) (1.7pp) (0.8%) (0.9%) (45.5%) (52.0%) AVJennings Limited - Annual Report 2020COMPANY OVERVIEWDIRECTORS’ REPORTFINANCIAL STATEMENTSADDITIONAL INFORMATION8 Property Portfolio. Number of lots at 30 June 2020. 2,500 2,000 1,500 1,000 500 0 2,210 2,054 Excludes 3,500 lots at Caboolture, Queensland Excludes 231 lots at Mernda, Victoria Excludes 13 remnant lots 1,656 1,637 VIC QLD SA NSW NZ 194 WA 639 Net funds employed by region. PCP 18% QLD 21% PCP 2% WA 1% PCP 10% SA SA 9% PCP = Prior corresponding period (FY19) PCP 30% NSW 26% PCP 16% NZ 17% PCP 24% VIC VIC 26% AVJennings Limited - Annual Report 2020 Project Pipeline. 9 Project pipeline as at 30 June 2020. Pre-delivery phase Development phase Communities Remaining Pre FY2021 FY2022 FY2023 Post no. of lots. S E L A W H T U O S W E N D N A L S N E E U Q Argyle, Elderslie Magnolia, Hamlyn Terrace Evergreen, Spring Farm (South) Evergreen, Spring Farm (East Village) Arcadian Hills, Cobbitty Stages 1 - 8 Arcadian Grove, Cobbitty Warnervale Evergreen, Spring Farm Kogarah (apartment project) Huntley Creekwood, Caloundra Glenrowan, Mackay Essington Rise, Leichhardt Parkside, Bethania Anise, Bridgeman Downs Arbor, Rochedale 2 Riverton, Jimboomba Deebing Springs, Deebing Heights Arbor, Rochedale 1 Cadence, Ripley D Buckley B, Hobsonville Point W E N N A L A E Z I A R O T C V I H T U O S A I L A R T S U A N R E T S E W A I L A R T S U A Ara Hills, Orewa Lyndarum, Wollert Lyndarum North, Wollert JV Harvest Square, Brunswick West Waterline Place, Williamstown Pathways, Murray Bridge River Breeze, Goolwa North St Clair Eyre at Penfield Indigo China Green, Subiaco Fine China Precinct Viridian China Green, Subiaco Fine China Precinct The Heights, Kardinya Parkview, Ferndale 119 10 61 444 138 44 526 43 56 196 35 177 5 42 46 55 1,175 205 20 294 2 637 95 1,732 87 296 40 83 205 1,328 77 11 78 28 Excludes 3,500 lots at Caboolture, Queensland Excludes 231 lots at Mernda, Victoria Excludes 13 remnant lots AVJennings Limited - Annual Report 2020COMPANY OVERVIEWDIRECTORS’ REPORTFINANCIAL STATEMENTSADDITIONAL INFORMATION 10 AVJennings Limited - Annual Report 2020Chief Executive Officer’s Report. Housing matters, community matters. There is no doubt 2020 has reminded us of this even more. And not just that housing and communities matter – we again see the importance of caring and vital communities, and of the safety and security housing gives us and our families. The impacts from the bushfires and the COVID-19 crisis have been huge. Lives have been lost, communities destroyed, wildlife devastated. The pandemic has been something most of us have never before experienced in our lives. Whatever other challenges we have faced, the most important was, and remains, safety. We recognise that this is first and foremost a serious health crisis and, from the outset, we proactively implemented appropriate measures to safeguard the well-being of our employees, suppliers, customers and the wider community. Working from home has been implemented for virtually all office employees since March 2020. As some areas have opened up those employees that need to and may work from the office are on rotational shifts to ensure distancing and safety in their working environment. In July 2020, an internal survey showed a high percentage of employees felt safe in their working environment. Throughout these challenges, we did not lose sight of our customers. Many had already bought and made plans for their future. We wanted to deliver on those plans and dreams. Others, potentially challenged by current accommodation restraints which challenged dealing with working from home or home schooling, began looking for better options. Whilst we took appropriate steps to keep everyone safe, we continued at site to ensure we could finish product that was sold. Our sales centres remained open, with pre-arranged appointments and contactless check-in. This was supported by increased investment in telephone, e-mail and on-line support as well as on- line video content. The 2020 financial year provided the Company with many financial challenges. So too have so many Australians and New Zealanders faced tough financial challenges. One of the things I have been proud of the most has been the way our employees have responded to challenges our customers have faced. And they have done so whilst dealing with the stress the pandemic has had on them personally and professionally. In the face of scaled back operations, our employees have worked with the Company to adjust and react. In addition to receipt of the Federal Government ‘JobKeeper’ support, almost all staff other than those at site or in sales, and including the Senior Executive Team, moved to a four day week for May to July. A modified elevated leave management plan has also been agreed for the period between July and December 2020. Also, our senior executives agreed to further remuneration initiatives that saw them give up all entitlements to current Short Term Incenctives, Long Term Incentives and Service entitlements. In the spirit of solidarity, the Board of Directors also agreed to reduce their fees for the May to July period. All initiatives were designed to help to improve cash and profit outcomes. I won’t repeat in detail the comments made by Simon in his Chairman’s Statement about 2020 financial year outcomes. However, I think it important to emphasise his comments that despite the challenges of the 2020 financial year, AVJennings remains in a sound financial position, with moderate gearing and adequate undrawn banking facilities. Our flexible, horizontal delivery bias allowed us to respond quickly to the pandemic and has allowed us to change gears as early signs of improvement emerged. This is even more important given the relatively short time limits imposed with the HomeBuilder scheme. Additionally, our focus on traditional customer segments has been an important aspect in providing some stability to sales 11 One of the things I have been proud of the most has been the way our employees have responded to challenges our customers have faced. and, particularly to settlements of pre- sales. Our customer base is mainly driven by a fundamental need for housing, which is understandable, and is less volatile than some other segments. Our geographic diversity continues to provide strength. Normally this is due to different territories being at different positions in terms of their residential markets. But the strength of diversity at present comes from the need to react differently as territories have moved in and out of restrictions in different ways. As Simon stated in his report, the Company’s long-term prudent approach towards acquisitions means that we have not been unduly exposed to write downs in asset values. That doesn’t mean we have been inactive in terms of our land bank. Securing an option agreement over a large parcel of land in Caboolture, Queensland, AVJennings Limited - Annual Report 2020COMPANY OVERVIEWDIRECTORS’ REPORTFINANCIAL STATEMENTSADDITIONAL INFORMATION12 Brunswick West, VIC Artist Impression on capital-efficient terms, will provide an important plank in the Company’s future. Our venture with the Victorian Government in relation to a public housing site in Brunswick West provides not only a great opportunity in itself, we expect to see it provide a catalyst for future such projects in Victoria and elsewhere. This is especially so given the hope that one positive legacy from the pandemic will be a greater emphasis on safe housing for those currently homeless and others challenged for access to good, secure housing. Many other existing projects have advanced in terms of their development status. Projects at Mernda, Kogarah, Huntley, Warnervale, Jimboomba, Rochedale, Deebing Heights, Ripley, Murray Bridge, Goolwa and Auckland have all reached important milestones during the year. While contract signings in the second half were lower than was anticipated before the onset of the pandemic, they were stronger than we initially feared. As lockdown restrictions eased in June 2020, well ahead of what many thought likely when first introduced, we saw a return to strong enquiry levels. Net contract signings in March, April, May and June were 57, 51, 86 and 97 respectively. A total of 385 contracts were carried over at 30 June 2020, with a further 76 contracts signed in July 2020. As Australia and New Zealand rebuild, government support will be vital. Construction, including residential housing, are vital parts of our economies. The introduction of HomeBuilder (June) and State Government incentives such as stamp duty relief, will be critical in ensuring existing underlying demand that we had seen materialise in strong ways ahead of the pandemic, is given the incentive and confidence to continue to transact, especially whilst international borders remain closed. Hopefully, we also see one other change from the pandemic survive. The responses to the pandemic have seen a new level of cooperation between industry and governments. It is vital this continues into the future and allows for proper and much needed reform, especially in areas of taxation, including the highly inefficient and inequitable area of stamp duty. Internally, we have taken steps to advance project planning and approvals to be well placed to respond to improving conditions. Two important components of the FY21 result will be the first profit recognition from Ara Hills, New Zealand, and the Empress Apartments, Williamstown Victoria. The timing of our results will remain very heavily weighted towards the second half and may be affected by any extensions to, or reintroduction of lockdown conditions, especially if they slow project delivery. The Company believes that the longer-term outlook remains bright. As employment levels rise as the economy gradually recovers from the shock of the pandemic, the fundamentals that drove the early stages of the anticipated AVJennings Limited - Annual Report 202013 FY20 recovery, which may have been temporarily stalled, remain generally intact. Whilst short term cycles will always exist, housing remains a fundamental need for us all. Both Australia and New Zealand, in most parts, have traditionally produced too little housing compared to underlying needs. As both countries re-open their borders, they will no doubt seek to attract new citizens and continue to benefit from our richly diverse cultures as well as the economic benefits of growth. We continually invest in our systems, employees, business partners and our communities as we stay focussed on safety, stability and our values. And we will stay true to our “why” - Housing Matters, Community Matters. In a July employee engagement survey, a high percentage of our employees reported that they believed that their personal values and AVJennings’ values align. Their dedication, enthusiasm and overall commitment makes me proud to lead AVJennings into its 89th year. We also believe the pandemic is likely to see a strengthening of traditional housing markets. The increased levels of community engagement reached during the pandemic support the types of communities we develop. The likely increase in working from home, resulting in less commuting time, will also see demand for traditional housing, in traditional communities, grow. And we never forget the role we play in one of the most important decisions made by our customers and the trust that comes with that. As such, we are proud that AVJennings has again been highly commended for being one of the most trusted brands in Australia in a public survey conducted by the Reader’s Digest trusted brands program. I thank my executive team and all employees for their commitment at a most extraordinary and challenging time. The resilience, strength and caring attributes they have exhibited throughout have been exemplary. I also thank our Chairman, Simon Cheong, the Board, our business and community partners, and shareholders for their continued support over the year. I too, would like to echo Simon’s words in relation to Elizabeth Sam, who retired from the Board on 30 June, and thank her for her commitment and passion over almost 20 years. Stay safe. Peter Summers Chief Executive Officer AVJennings Limited - Annual Report 2020COMPANY OVERVIEWDIRECTORS’ REPORTFINANCIAL STATEMENTSADDITIONAL INFORMATION14 Jennings Germans at work in the early 1950’s AVJennings Limited - Annual Report 2020Committed to Creating and Supporting Communities. 15 It has been quite a year. Droughts brought so many great, hardworking Australians to their knees. Bushfires, the worst in years, devastated communities and lives were lost. The global pandemic, too, has claimed lives and caused suffering. It has claimed jobs and caused financial hardship. It has changed our lives in ways we could never have imagined most, especially in freedom of movement. We have all experienced change. Weddings have been postponed. Funerals have been attended under heartbreaking restrictions. Visits to friends and family curtailed. Travel plans cancelled. The challenges of home schooling and no doubt the odd milestone birthday passed without a proper celebration. The uncertainty caused stress and anxiety to many. At AVJennings we have not only spoken of the importance of community, we have been actively involved in supporting communities. David Lowden, Head of Community “Out of crisis comes opportunity”. A phrase we hear often, and without doubt true. But when you are in the middle of dealing with so many issues, so much anxiety, it can be difficult to focus on opportunity. Surviving seems a good target. Quite often that inspiration comes from the past. How many of us have drawn on the stories from older Australians and New Zealanders who survived wars and economically challenging times together to go on and build two of the greatest countries in the world. AVJennings was established in 1932. Given what has happened since, maybe “established” is understating things – maybe the correct word is “created”. As you no doubt know, 1932 was during not just a recession, but a depression. In 1951, the first of 150 German carpenters left the security of their homeland to sail to Australia on the ship “Skaubryn”. They were answering a call from AVJennings to help with a labour shortage to build homes in Canberra. They became fondly known as the Jennings Germans. To those of us who haven’t experienced war, certainly not of the likes of a world war, it is nothing short of amazing to think that this was all happening such a short time after the conclusion of World War II. In time, a group of men grew into groups of families. Alongside local tradespeople, they built 1,850 homes in 18 months. Some departed for other parts of Australia, others for other parts of the world. But many – most – stayed. They built businesses, plied their incredible craftsmanship, and helped not only rebuild, but reshape, Australia post-war. AVJennings was proud to partner with the Canberra Museum and Gallery (CMAG) to celebrate the outstanding achievements of the Jennings Germans with a public exhibition. Our National Design Manager, Richard Baker, spoke at the formal opening. Richard had become lifelong friends with Rick Goehner, son of Paul, one of the original Jennings’ Germans. But the human race has been challenged before and we have adapted and seized opportunities. The sooner we are able to start along this path the better. At times like this, hope and inspiration are vital. Our CEO and others have been invited to a number of Jennings Germans events over the years. They always leave with a sense of the power and importance of community. Today isn’t a war. It might feel like it at times, but it isn’t. It isn’t a depression, although at times it can feel like it. What is clear is to start to rebuild our countries, we will need to do it together. Divided we will achieve nothing. Together, as communities, we can build great futures. Vital communities, safe communities, aspirational communities – it starts right there. It was images of communities rising together in different ways that gave us our first signs of hope. People walking with dogs, waving to others, getting to know names of neighbours for the first time. People finding inventive ways of keeping their sense of community, even if that was a virtual cocktail party or grandparents reading stories remotely to grandchildren. At AVJennings we have not only spoken of the importance of community, we have been actively involved in supporting communities. In 2012 the Company became a founding corporate partner of the Steve Waugh Foundation. The Foundation provides vital equipment and financial grants to children, young adults and their families living with a rare disease in our communities. Alongside our focus on these community events and charities, we have also been proud supporters of women’s sport. A few years ago, with the real possibility of one of Australia’s proudest women’s sporting teams folding, we stepped in to help ensure the Melbourne Boomers survived and prospered. Within the sponsorship we AVJennings Limited - Annual Report 2020COMPANY OVERVIEWDIRECTORS’ REPORTFINANCIAL STATEMENTSADDITIONAL INFORMATION16 St.Kilda Football Club - AFLW Team Kate McCarthy, No 9 Laura Geitz, AVJennings Ambassador Steve Waugh AO, AVJennings Ambassador & Renee Eliades Proud sponsors of AVJennings Limited - Annual Report 202017 Spring Farm Public School Site Visit, Evergreen, Spring Farm, November 2019 asked for a new category of recognition to be created – volunteers. We know how so many great people give up their time to ensure these types of community clubs and organisations can exist. great perspective to our staff about our community. It is not just about the hardships, but equally about the inspiration, from how they meet their challenges, usually with a smile. This year we became an inaugural sponsor of St.Kilda Football Club’s AFLW team. The Club is based in an area containing more female footballers than any other area in Australia. When AVJennings confirmed to Catherine Clark, CEO of Netball Queensland and the Firebirds, that it would continue to stand with them during the pandemic, the importance of our contribution to netball and the wider community hit home: “In the first few days of the pandemic, one of our managers came into my office with tears rolling down her cheeks. She was crying because she had been assured by AVJennings they would continue to back us, despite the fact we had no idea when we would be allowed to play. That’s how much it meant. We still had to make some incredibly difficult decisions, but the amazing and decisive support from AVJennings meant we could plan our way through the crisis,” Ms Clark said. These aren’t just commercial partnerships. A key outcome is the insight and opportunity they provide for our staff and families. They all provide connections to community. For ten consecutive years, AVJennings staff raised funds for the Steve Waugh Foundation by entering a team in the City2Surf fun run, held in Sydney each August. This year’s event will go ‘virtual’ in October due to COVID-19 but we will be back next year. Likewise, AVJennings staff have participated in the Steve Waugh Foundation Captain’s Ride since its creation in 2015. Without exception the riders all talk about the amazing experience and positive impact they believe it will have on their lives. Sadly, the pandemic has also forced the postponement of this year’s ride which was due to be held in November. Our partnership with the St.Kilda Football Club has involved leadership training, the ability for some staff to experience training camps and a connection to community through their community programs. The St.Kilda Football Club has championed and supported many areas in recent years, such as the Pride Game, which is aimed at ensuring such a basic principle as the LGBTQI community feeling respected, included and safe in attending AFL matches. Hearing from families supported by the Steve Waugh Foundation, including their Ambassador, Renee Eliades provides When AVJennings initiated a $1 million Bushfire & Community Relief Fund with an immediate donation of $250,000 to the Red Cross, and three year grants program, we also announced an intention to create a staff volunteer scheme. This is in addition to the volunteer work our staff already do with organisations such as Rotary and the State Emergency Service. At a more local level, we continue to ensure we make a positive contribution to communities. For example, at our new project, Ara Hills, in New Zealand, we are supporting a number of local community organisations, such as the Orewa Surf Life Saving Club and the Orewa Surf and Sounds Concert and Fireworks. Our ambassadors are chosen, not based on their marketability, but on their aligned values. AVJennings Ambassador and former Australian captain, Laura Geitz, led her country with distinction and now as a young mother, is passionate about families enjoying a healthy and active lifestyle. Steve Waugh AO is also an AVJennings Ambassador. One of Australia’s official ‘National Living Treasures’, he is the epitome of working-class aspiration, dependability and high achievement. We have always championed the principles of community, that housing matters and community matters. What we do is develop superb residential communities. Why we do it is to make a positive contribution to society by creating places where people feel like they belong to a community. AVJennings Limited - Annual Report 2020COMPANY OVERVIEWDIRECTORS’ REPORTFINANCIAL STATEMENTSADDITIONAL INFORMATION 18 Our Communities. New South Wales. New South Wales experienced improving market conditions prior to the COVID-19 restrictions. We expect demand to further improve in a COVID-19 recovery phase for our quality, affordable homes in our local residential communities. Seacrest project at Sandy Beach sold out and planning has progressed at our new communities at Warnervale in the Central Coast and Huntley in the south east Illawarra district. Planning also continues for the construction of low rise apartments at Kogarah, inner south of Sydney. Our four projects in the south-west corridor of Sydney are trading well in this strong established market through a range of turn key built form and land sales. Queensland. Queensland had a strong year bringing new developments to construction with settlements from the first stage of projects at Rochedale (Arbor) south east of Brisbane and Jimboomba (Riverton) between Brisbane and the Sunshine Coast. Construction commenced at our Ripley (Cadence) development south west of Brisbane. These projects are set to continue to drive results for the business in the coming financial years with subsequent stages delivered. We have entered into a binding agreement for a project in the Ripley corridor effectively bolting this onto our Cadence development and have commenced planning work on the Caboolture project (3,500 lots - located between Caloundra and Brisbane). In November 2019, AVJennings’ Creekwood project was nominated as a finalist in the UDIA Awards for Excellence in the Environmental Excellence category. New Zealand. Ara Hills in Orewa north of Auckland has commenced construction on Stage 1 with earthworks, road and bridge construction with lots oriented to take advantage of the views to the 34 hectares of open space within the development and the open space and ocean of the Orewa district. AVJennings at Hobsonville Point traded its last lots recently bringing to a close the sales over 10 years on this award-winning development. Warnervale, NSW Artist Impression Creekwood, Caloundra, QLD Ara Hilla, Orewa, NZ AVJennings Limited - Annual Report 2020St Clair, St Clair, SA Waterline Place, Williamstown, VIC 19 South Australia. Eyre residential community stands apart from other developments within the outer northern growth corridor of Adelaide due to the upfront delivery of the Eyre Sports park, local neighbourhood shopping centre and variety of land and built form catering to all sections of the market. Our St Clair project north west of Adelaide remains attractive to consumers with the mix of housing types, significant open space and wetland network and train station integrated with the shopping centre. We have seen consistent demand for medium density terrace housing around the wetland precinct with Kingfisher terraces recently completed. Additionally, with the opportunity of schemes such as HomeBuilder we have accelerated planning and development at our regional Murray Bridge and Goolwa projects. Victoria. Lyndarum North, Wollert residents in the northern corridor continue to move into this master planned community taking advantage of the newly complete major park and wetland system. Planning on the new Mernda (Aspect) project nearby continues in earnest with a launch forecast in late FY21 and on the Brunswick West (Harvest Square) public housing renewal project with works forecast to commence in FY21. Waterline Place at Williamstown has had the completion of 2 more townhome precincts and the commencement of construction on The Empress low rise apartments showcasing quality design and attractive streetscapes. In December 2019, AVJennings’ Waterline Place project was the winner in the UDIA Awards for Excellence in the High Density Development (under 10 storeys) category. AVJennings Limited - Annual Report 2020COMPANY OVERVIEWDIRECTORS’ REPORTFINANCIAL STATEMENTSADDITIONAL INFORMATION20 The Directors of AVJennings Limited present their report together with the Financial Report of the Group (referred to hereafter as “AVJennings”,“Group” or “Company”) and the Auditor’s Report thereon for the year ended 30 June 2020. 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 (retired on 30 June 2020) Non-Executive Director BG Hayman Non-Executive Director TP Lai BL Tan P Kearns Non-Executive Director 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 $9.0 million (2019: $16.4 million). DIVIDENDS Dividends paid during the financial year were as follows: Cash dividends declared and paid 2018 final dividend of 3.0 cents per share, paid 11 October 2018. Fully franked @ 30% tax 2019 interim dividend of 1.0 cent per share, paid 22 March 2019. Fully franked @ 30% tax 2019 final dividend of 1.5 cents per share, paid 20 September 2019. Fully franked @ 30% tax 2020 interim dividend of 1.2 cents per share, paid 27 March 2020. Fully franked @ 30% tax Total cash dividends declared and paid 2020 $’000 - - 6,093 4,875 2019 $’000 11,848 4,062 - - 10,968 15,910 Directors’ Report.AVJennings Limited - Annual Report 202021 OPERATING AND FINANCIAL REVIEW Financial Results The Company recorded Net Profit Before Tax of $13.2M for the year ended 30 June 2020 down 44.8% on the previous corresponding year (30 June 2019: $23.8M), and Profit After Tax of $9.0M (30 June 2019: $16.4M). The result includes $1.6M of the Federal Government JobKeeper subsidy over the period April to June 2020. this recovery in late calendar year 2019 were subdued by the bushfires which impacted on consumer confidence and also attendances at sales offices as people stayed indoors due to poor air quality. The early months of 2020 did see growing momentum and results were starting to strengthen just when the first stages of the pandemic hit, draining the last three and a half months of FY20 of their anticipated strong finish. As we entered FY20 we had expectations of exceeding the FY19 result. This was on the back of: • • • improving market conditions, especially in New South Wales and Victoria; better results from our Queensland operations from actions taken in FY19; and timing of revenue recognition in New Zealand, which would see the next significant recognition of superlot sales to builders, although we knew we would see reduced turnover and results from our sole apartment project, ‘Waterline Place’ Williamstown, Melbourne as FY19 benefited from completion of the ‘GEM’ apartments, whereas the next building, ‘Empress’, isn’t due for completion until the latter part of FY21. FY20 did, however, toss up unforeseen challenges including drought, bushfire and a global pandemic. Although our original expectations for FY20 didn’t materialise, the results achieved are considered to be good in the circumstances and were in part due to important improvements in operations and efficiency. Revenue   While revenue reduced by 11.5% overall, compared to the previous corresponding period, it requires a deeper analysis. Despite initial concerns, settlements held up well in the second half, with only moderate extensions to contracted settlement periods required in some cases that pushed some settlements into FY21. While the contract rescission rate increased, the value and number of affected contracts remains very low as a proportion of turnover and lots settled during the period. Pleasingly, our efforts in FY19 addressing certain issues in Queensland, resulted in much improved outcomes before the pandemic arrived. These actions included the acquisition of the balance 50% interest in the ‘Riverton’ JV at Jimboomba, following which the project was relaunched with good outcomes. Other projects also performed well. The mix of new projects and the early stage of their development did see less built form, which dampened the overall revenue increase as average contract value declined. Nevertheless, the improvement in results off the back of work done in FY19 leaves our Queensland operation well placed for continued growth. The anticipated lift in revenue and profit from our New Zealand operations also occurred. The New Zealand business is dominated by lumpy transactions relating to sales of superlots to other builders, and revenue and profit recognition for contract signings in previous financial years arising from the last stage of our Hobsonville Point, Auckland project, that occurred in the second half of FY20. While substantial contract signings were achieved for our new ‘Ara Hills’ project during FY20, revenue and profit recognition will only commence in FY21. Land and Traditional Housing FY20 FY19 • New South Wales $113.6m $123.5m • Victoria • Queensland • South Australia • New Zealand Sub-Total Apartments $43.4m $40.1m $16.2m $33.1m $246.4m $13.2m $59.1m $32.0m $19.1m $1.2m $234.9m $56.7m Total Australia & NZ (excl. other services income) $259.6m $291.6m Turnover from land and traditional housing of $246.4M was higher than the prior year (30 June 2019: $234.9M). In relation to New South Wales and Victoria, the anticipated recovery was slower to materialise than hoped. Early signs of The apartments segment, as shown above, is more a reflection of project delivery timing than market conditions. Revenue from apartments was down $43.5M to $13.2M (30 June 2019: $56.7M) due to the completion and substantial settlement of the GEM apartment building in FY19, with only residual apartment stock available for settlement in FY20. The next apartment building, Empress, is due for completion in late FY21. Margins Margins increased for land and traditional housing in all States and New Zealand with the exception of New South Wales. The margins achieved in New South Wales reflect the impact of some price corrections plus the relative impact of some projects that have slightly lower margins. The other area to see margins decrease was apartments as some lower value remaining apartments in GEM were sold in FY20. Overall, margins decreased 1.7% to 22.8%. AVJennings Limited - Annual Report 2020COMPANY OVERVIEWDIRECTORS’ REPORTFINANCIAL STATEMENTSADDITIONAL INFORMATION22 OPERATING AND FINANCIAL REVIEW (CONTINUED) Provisions Outlook Whilst our commitment to rational and conservative land acquisitions has seen the value of most acquisitions protected from writedowns or provisions, the FY20 result does include an increase in provisions of $1.6M (FY19:$Nil) relating to regional projects in Queensland and South Australia. Additionally, $0.5M (FY19:$0.7M) was provided against the Otan investment and $0.9M (FY19:$0.6M) against the Pindan investment, both in Perth. Overheads and JobKeeper There continued to be a strong focus on overheads, and the pre- tax result included an amount of $1.6M in relation to JobKeeper for the April to June period. The Senior Executive Team and the Board took significant reductions in entitlements. In addition, all staff other than sales and site staff accepted accelerated leave arrangements to reduce labour expenses, which extend into FY21. The Company has substantially restructured in recent years and continues to look for ways to improve outcomes and efficiencies. Balance Sheet and Land Holdings Controlled land inventory at 30 June 2020 was 12,134 lots (30 June 2019: 13,031 lots). This includes land at Caboolture, Queensland (approximately 3,500 lot equivalents) over which the Company holds options that are subject to the achievement of certain planning milestones. Total inventory excluding land under option stood at 8,634 lots (30 June 2019: 9,531 lots). As a response to the pandemic, the Company sharply wound back physical production in early March to conserve cash in the face of pandemic-induced uncertainty, although production continued for those projects necessary to facilitate settlements of existing presales. This capability demonstrates the strength and flexibility of the Company’s focus on horizontal development. Work in progress was down year-on-year to 1,117 lots (30 June 2019: 1,600 lots), however, planning and design work continued largely unabated, leaving the Company well placed to resume physical works in key locations as Government stimulus measures were introduced and buyer confidence began to return. Net debt remained comparable with the prior year at $184.4M (30 June 2019: $182.1M) and gearing remained moderate with net debt to total assets of 28.1% (30 June 2019: 26.6%). Net cash from operations turned around strongly year-on-year to positive $10.0M (FY19:Net outflow ($45.8M)), assisted by solid settlements and reduced expenditure on production, acquisitions and overheads. From a structural and financial strength aspect, AVJennings remains in a sound financial position, with moderate gearing and adequate undrawn banking facilities. Our flexible, horizontal delivery bias allowed us to respond quickly to the pandemic, and then change gears as early signs of a recovery emerged. Additionally, our focus on traditional customer segments and a conservative and responsible approach to acquisitions are important aspects of our ability to cope with the ongoing challenges presented by COVID-19. While contract signings in the second half were lower than was anticipated in early January, they were stronger than management expected they might have been when the Company revised its internal forecast in March, after the first lockdown period was triggered in Australia. Contract signings strengthened in the period leading up to 30 June, as Government support and stimulus measures, such as HomeBuilder and State Government Stamp Duty and other measures were announced, with net contract signings in March, April, May and June of 57, 51, 86 and 97 respectively. There is short term uncertainty and volatility, but we are encouraged by recent contract signings and schemes such as HomeBuilder. A total of 385 contracts were carried over 30 June 2020, with a further 76 contracts signed in July 2020. As lockdown restrictions eased in June 2020, well ahead of what many thought likely when first introduced, we saw a return to strong enquiry levels. No doubt the Federal Government’s HomeBuilder scheme contributed to this, although we believe it fundamentally represents the strong level of underlying demand for housing that we had started to see in the early months of 2020. To a large extent, such schemes don’t so much create demand as bring forward the timing of buyers’ decisions. In many areas around Australia, the improved enquiry level and sales momentum that followed the easing of lockdown restrictions has continued. The reintroduction of tighter restrictions in Victoria has slowed that State’s recovery and shows that the short term remains uncertain and volatile. Net migration is also unlikely to be a short term positive although the continuing low cost of capital and strength in a number of employment sectors not impacted, at least directly, by the pandemic will provide a solid short term base. Critical to the short term are support mechanisms provided by various levels of Australian Government, including the national HomeBuilder scheme. Apart from influencing buyers not to delay their purchasing decisions, they also act as a strong incentive for first home buyers who have found entering the market difficult in recent years. Directors’ Report.AVJennings Limited - Annual Report 2020 23 OPERATING AND FINANCIAL REVIEW (CONTINUED) ENVIRONMENTAL REGULATION The Group’s operations are subject to various environmental regulations under both Commonwealth and State legislation, particularly in relation to its property development activities. The Group’s practice is to ensure that where operations are subject to environmental regulations, those obligations are identified and appropriately addressed. This includes the obtaining of approvals, consents and requisite licences from the relevant authorities and complying with their requirements. To the best of the Directors’ knowledge, property development activities have and are being undertaken in compliance with these requirements. CHANGE IN STATE OF AFFAIRS The Australian Federal Government began introducing COVID-19 pandemic related constraints on certain activities from early February 2020. Since then, various levels of Government in Australia and New Zealand have implemented a variety of measures aimed at protecting public health. These have had the effect of restricting business and social activity. Public perception of the prevalence and seriousness of the virus and the legally enforceable measures introduced to contain its spread have negatively affected consumer and business confidence and outlook. This has had, and (for the foreseeable future) will continue to have, implications for the way in which the Company conducts business as well as an adverse effect upon trading conditions generally. Internally, we have taken steps to advance project planning and approvals to be well placed to respond to improving conditions. Two important components of the FY21 result will be the first profit recognition from Ara Hills, New Zealand, and the Empress Apartments, Williamstown Victoria. The timing of our results will remain very heavily weighted towards the second half and may be affected by any extensions to, or reintroduction of lockdown conditions, especially if they slow project delivery. The Company believes that the longer term outlook remains bright. As employment levels rise as the economy gradually recovers from the shock of the pandemic, the fundamentals that drove the early stages anticipated of the FY20 recovery, which may have been temporarily stalled, remain generally intact. Net migration is a key driver of underlying housing demand that the Company anticipates is also likely to recover strongly when international borders reopen, as Australia and New Zealand are relatively less affected by the virus than comparable jurisdictions. Additionally, the significant trend towards high density, inner city living over the last 5 years (which was starting to abate before the pandemic), is unlikely to continue. Renewed focus on community, safety and increased flexibility in working arrangements is likely to see stronger support for traditional housing, which AVJennings is well placed to deliver. SIGNIFICANT EVENTS AFTER BALANCE SHEET DATE The contract for the acquisition of land at 280 Bridge Inn Road Mernda, Victoria became unconditional on 24 July 2020. The purchase price is $28.3M and the project yield which is currently under review, is expected to be about 231 lots. A deposit of 10% was paid as at 30 June 2020 and the balance is to be settled in May 2021. No other matter or circumstance has arisen since 30 June 2020 that has significantly affected, or may significantly affect: a) b) c) the Group’s operations in future financial years; or the results of those operations in future financial years; or 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. AVJennings Limited - Annual Report 2020COMPANY OVERVIEWDIRECTORS’ REPORTFINANCIAL STATEMENTSADDITIONAL INFORMATION24 INFORMATION ON THE DIRECTORS Simon Cheong B.Civ.Eng. MBA 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 PwC). 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 was a Director of SC Global Developments Pte Ltd, the Company’s major shareholder. Resident of Singapore. Mrs Sam retired from her role as a Director of the Company on 30 June 2020. Responsibilities: Non-Executive Director, Chairman of Nominations Committee, Member of Remuneration Committee. Directorships held in other listed entities: None. 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. He 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 till 2010. He served on the Board of the Institute of Real Estate Studies, National University of Singapore from 2008 to 2011 and was a board member of the Republic Polytechnic Board of Governors from 2008 to 2011. He was also a Council Member of the Singapore Business Federation, a position he held from 2007 to 2010. On 1 June 2017, Mr Cheong was appointed a Non-Executive Director of Singapore Airlines Limited. Resident of Singapore. Responsibilities: Chairman of the Board, Non-Executive Director, Chairman of Investments Committee, Member of Remuneration Committee, Member of Nominations Committee. Directorships held in other listed entities: Singapore Airlines Limited since 1 June 2017. 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. Responsibilities: Deputy Chairman of the Board, Non-Executive Director, Chairman of Risk Management Committee, Member of Audit Committee, Member of Investments Committee, Member of Nominations Committee. Directorships held in other listed entities: None. Directors’ Report.AVJennings Limited - Annual Report 202025 INFORMATION ON THE DIRECTORS (CONTINUED) Bobby Chin CA (ICAEW) B.Acc. Lai Teck Poh B.A. Hons. (Economics) Director since 18 October 2005. Mr Chin is currently the Chairman of NTUC Fairprice Co-operative Ltd, NTUC Fairprice Foundation Ltd and the Housing & Development Board. He is the Deputy Chairman of NTUC Enterprise Co-operative Ltd and a Director of Singapore Labour Foundation. He also serves as Chairman of the Singapore Corporate Governance Advisory Committee. 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. 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, Chairman of Remuneration Committee, Member of Audit Committee, Member of Investments Committee. Directorships held in other listed entities: PT Bank OCBC NISP Tbk (Commissioner), since 4 September 2008. Other Directorships: Bank of Singapore Limited since 1 January 2020. Responsibilities: Non-Executive Director, Chairman of Audit Committee, Member of Nominations Committee. Directorships held in other listed entities: Yeo Hiap Seng Limited, since 15 May 2006. Ho Bee Land Limited, since 29 November 2006. Other Directorships: Temasek Holdings (Private) Limited, since 10 June 2014. Frasers Logistics & Commercial Asset Management Pte Ltd since 29 April 2020. Bruce G Hayman Director since 18 October 2005. Mr Hayman has many years of commercial management experience with over 20 of those at operational Chief Executive or General Manager Level. He is currently Chairman of Chartwell Management Services. He has fulfilled senior management roles both in Australia and overseas for companies such as Nicholas Pharmaceutical Group, Dairy Farm Group, Hong Kong Land and Seagram Corporation. During his time in Singapore, he held the position of Foundation President of the Singapore Australia Business Council, now known as AUSTCHAM Singapore. He has also served as CEO of the Australian Rugby Union and as Chairman of the Board of the Rugby Club Ltd. He is Chairman of the Ella Foundation and a Director of Diabetes NSW. Resident of Sydney. Responsibilities: Non-Executive Director, Member of Remuneration Committee, Member of Nominations Committee, Member of Investments Committee, Member of Risk Management Committee. Directorships held in other listed entities: None. AVJennings Limited - Annual Report 2020COMPANY OVERVIEWDIRECTORS’ REPORTFINANCIAL STATEMENTSADDITIONAL INFORMATION26 INFORMATION ON THE DIRECTORS (CONTINUED) INFORMATION ON THE COMPANY SECRETARY Tan Boon Leong DipUrbVal (Auckland University, NZ) 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 Ltd. Prior to that he was a partner at national law firm Corrs Chambers Westgarth, practising in corporate and commercial work. Resident of Melbourne. 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: Non-Executive Director, Member of Investments Committee. Directorships held in other listed entities: None. Philip Kearns, AM BA (Economics); Grad Dip (Applied Finance) Director since 21 March 2019. Mr Kearns has over fifteen years’ experience leading financial services organisations where he led significant cultural change and was instrumental in building a client base and introducing investors to innovative opportunities, including in the property sector. He is a Director of Venues NSW, a Government Board that owns and operates multiple sports and entertainment venues across New South Wales and Coolabah Capital Investments, a private funds management business. He was previously the Managing Director and CEO of InterRISK Australia Pty Ltd, a division of ASX listed AUB Group. Mr Kearns was appointed a member of the Order of Australia in 2017 for significant service to the community through support for charitable organisations, to business, and to rugby union at the elite level. He played 67 tests for the Australia national rugby union team, Wallabies (1989-1999) and captained the team ten times. Resident of Sydney. Responsibilities: Non-Executive Director, Member of Investments Committee, Member of Risk Management Committee. Directorships held in other listed entities: None. Directors’ Report.AVJennings Limited - Annual Report 202027 REMUNERATION REPORT (AUDITED) A. Introduction The AVJennings Limited Board is pleased to present the Remuneration Report for FY20 in accordance with the requirements of the Corporations Act 2001 (the Act). The Report has been audited as required by section 308(3C) of the Act. The effects of the COVID-19 pandemic have been significant, impacting considerably on the Company’s operations and its results for the year ended 30 June 2020. This Report not only sets out the long term approach to remuneration, but also the actions taken by the Remuneration Committee, Key Management Personnel (“KMP”) and all staff in relation to COVID-19, in particular those actions set out in Section I. (i) Directors S Cheong RJ Rowley PK Summers E Sam B Chin BG Hayman TP Lai BL Tan P Kearns (ii) Executives Non-Executive Chairman Non-Executive Deputy Chairman Managing Director and Chief Executive Officer Non-Executive Director (retired 30 June 2020) Non-Executive Director Non-Executive Director Non-Executive Director Non-Executive Director Non-Executive Director The Board intends that the Report provides clear and transparent communication of the remuneration arrangements in place for the Company’s Directors and Executives. These arrangements are intended to align remuneration with the Company’s values, purpose, strategy and performance. CD Thompson Company Secretary/General Counsel SC Orlandi L Mahaffy L Hunt Chief Operating Officer Chief Financial Officer General Manager, Human Resources Our purpose is straightforward: “Housing Matters. Community Matters.” This is supported by our Values which include: integrity, trustworthiness and being a good corporate citizen. C. Remuneration Framework 1. Remuneration Governance The Company’s remuneration arrangements are structured to attract and retain high quality people and remunerate them for achieving against our objectives and acting consistently with our values and purpose. Remuneration arrangements are reviewed regularly by the Remuneration Committee and adjustments and redesign made where considered appropriate, balancing alignment with the Company’s own specific circumstances, fairness to executives and taking into account market expectations and industry standards. B. Persons covered by the Report This Report sets out the remuneration arrangements in place for KMP, which comprises the Directors of the Company (executive and non-executive) and those members of the AVJennings executive officers who have authority and responsibility for planning, directing and controlling the activities of the Company (“Executive KMP”). The name and position of each KMP for FY20 whose remuneration is disclosed in this Report as follows: The Board has established a Remuneration Committee comprising not less than three Non-Executive Directors (NEDs) which is responsible for determining and reviewing remuneration arrangements for KMP, other senior management personnel and general staff. 2. Remuneration Objectives AVJennings’ remuneration objectives are to remunerate fairly, attract and retain talent, drive performance, promote adherence to values, and are aligned with shareholder interests. They are also designed to provide an appropriate balance between fixed and at-risk components to support the Company’s objectives and strategy and promote sustained growth in shareholder value. 3.Securities Trading Policy The Company has adopted a Securities Trading Policy (available on the Company’s website Investor Centre). In accordance with this policy, Executives are prohibited from hedging the risk associated with unvested equity-based incentives. Breach of this requirement could lead to disciplinary action including dismissal and forfeiture of equity-based incentives. The Policy also provides for blackout periods for trading in the Company’s shares around reporting season as well as prohibitions on insider trading and breach of confidentiality obligations to the Company. AVJennings Limited - Annual Report 2020COMPANY OVERVIEWDIRECTORS’ REPORTFINANCIAL STATEMENTSADDITIONAL INFORMATION28 REMUNERATION REPORT (AUDITED) (CONTINUED) 4. Cessation of Employment Where an executive resigns or is terminated for cause, any unvested awards are forfeited unless otherwise determined by the Board. In exercising this discretion, the Board considers the circumstances of the cessation of employment. • • Executive KMP and other senior executives agreed to cancel all Retention Rights due to be tested for vesting in July 2020. Executive KMP and other senior executives agreed to cancel all Long Term Incentive (“LTI”) Rights due to be tested for vesting in September 2020. • Implemented Annual Leave management strategies. 5. 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 2020. Cancellation of the Retention Rights and the Performance Rights will save the Company the cost of acquiring shares on market to meet vesting obligations. Refer to Section I for full details. 6. 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 37. ii) Other Executives Other Executives are full time permanent employees with employment contracts. Their employment contracts do not have termination dates or termination payments. However, they specify a notice period of three months. 7. Remuneration of KMP Details of the nature and amount of each element of remuneration of Directors and Executives are set out in the tables on pages 32 and 37. The Directors are the same as those identified in the Directors’ Report. The discussion in this Report mainly addresses the formal remuneration structure which is in place and applies to remuneration arrangements in a typical year. The unexpected COVID-19 crisis has had a dramatic impact on the Company, the residential property industry and more broadly, on the Australian economy in FY20. Senior management put forward to the Remuneration Committee, which it accepted, a number of measures to help the Company navigate this challenging period of uncertainty. These and other relevant arrangements were approved by the Remuneration Committee at its May 2020 meeting. The measures included a number of changes to remuneration arrangements and these are outlined below: • • • NED fees were reduced by 20% for the three months May to July 2020. The SC Global Management and Consultancy fee was reduced by 20% for the three months May to July 2020. Executive KMP and other senior executives agreed to forgo any Short Term Incentive (“STI”) award in respect of FY20. 8. 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. 9. Remuneration Report at FY19 Annual General Meeting (AGM) At the Company’s 2019 Annual General Meeting (“AGM”), of the eligible votes cast on the Remuneration Report, 38.9% were against the Report. This meant that the Company recorded a First Strike on the Report. The vote against the Report represented 6.2% of the Company’s total shares and approximately one-half of that 6.2%, represented one particular shareholder. That shareholder has voted against the Remuneration Report at previous AGM’s. As a consequence, the Company has on a number of occasions reached out to the shareholder to ascertain whether there were any specific concerns, but no response has been provided. The Company did not receive any specific feedback at the AGM on its remuneration arrangements. 10. Addressing Feedback The Company became aware of separate commentary on the FY19 Remuneration Report from proxy advisers. This feedback indicated that concerns were held in relation to the following: • • The Return on Equity (“ROE”) component of the LTI Plan was not considered appropriate. In response to this, the Remuneration Committee determined at a meeting in February 2020 to replace the ROE hurdle with a Total Shareholder Return (“TSR”) hurdle for all grants made in FY21 and beyond. Further details are provided on page 34; The Retention component was said not to satisfy the generally accepted term of measurement (3 years) for an LTI Plan. The Retention component of the remuneration structure is not part of the LTI Plan. It was designed as a tool to promote stability in executive ranks; minimise disruption, cost and adverse effects of high turnover in executive ranks; and to ensure that all senior executives had a meaningful shareholding in the Company to align interests with shareholders. For this reason, it was determined to make the retention award as a grant of rights rather than a cash payment; and Directors’ Report.AVJennings Limited - Annual Report 202029 REMUNERATION REPORT (AUDITED) (CONTINUED) • The readability of the Report could be improved. As a result, the Report has been revamped to make it easier to follow and with improved disclosure. Short Term Incentives – which is at risk and is based on satisfying key performance measures which include a range of financial and non-financial targets. This award is paid in cash. For the FY20 year, Executives agreed to forgo any STI payment. The Company will continue to consult with shareholders and their representatives to ensure its remuneration practices balance the need to meet the objectives of the remuneration practices and the need to be consistent with prevailing community standards. 11. Framework The remuneration framework is designed to align executive interests with Company success and long-term shareholder value. The framework discussed below is the structure which applies in a typical year. It should be noted that, as a result of the impact of the COVID-19 crisis, this structure was effectively modified for FY20, as discussed below. The structure consists of several components: For NEDs – this is Directors’ fees. These are annual fees paid monthly to Australian based Directors (together with the superannuation guarantee payment) and paid quarterly to Singapore based Directors (to which no superannuation payment is applicable). These arrangements do not include SC Global nominated Directors, as noted in D2 on page 30. NEDs agreed to a reduction in their fees of 20% for the period 1 May to 31 July 2020. For Executive KMP, this is made up of: Fixed remuneration – which is made up of base salary and superannuation payments. Target fixed remuneration is set at or below market median which creates a deferred salary component which is “at risk” under the STI component. Long Term Incentives – this is a long term (3 year) equity plan under which Performance Rights are granted annually subject to performance conditions. The Rights are granted as to 50% subject to the Earnings Per Share (“EPS”) hurdle and as to 50% to the TSR hurdle from FY21 onwards (previously subject to an ROE hurdle). The Rights are tested against performance hurdles at the end of 3 years from grant date in September of the relevant year. In June 2020, Executives agreed to cancel all Performance Rights which were due to be tested in September 2020 to determine vesting. The TSR measure was introduced in February 2020 to replace the former ROE component of the Performance Rights which uses market capitalisation as a proxy for equity. The TSR hurdle will apply to grants under the LTI from FY21 onwards. The old ROE hurdle will apply to grants which were made in FY19 and FY20. Retention Component – this is an equity award and is granted annually and vesting as to one third after the first, second and third anniversaries of the grant. Rights are granted and these may vest into shares once the service conditions are met. The Retention Rights are a retention tool designed to promote stability in the executive ranks and minimise disruption, cost and adverse effects of high turnover. In June 2020, Executives agreed to cancel all Retention Rights which were due to vest in July 2020. In lieu of a higher fixed remuneration base, a portion of remuneration is “at risk”. 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 Remuneration between Components is as follows: CEO Other Senior Executives Fixed Remuneration (%) 50 75 Total at Risk (%) 50 25 STI at Risk (%) Split of Total at Risk Retention at Risk (%) LTI at Risk (%) 35 50 25 25 40 25 The proportions of STI, LTI and retention components take into account: • • The objectives that the Board seeks to achieve and the behaviours which support that outcome; The desirability of Senior Executives having equity interest in the Company so as to better align their interest with shareholders; • Market practice; and • The service period before Executives can receive equity rewards. AVJennings Limited - Annual Report 2020COMPANY OVERVIEWDIRECTORS’ REPORTFINANCIAL STATEMENTSADDITIONAL INFORMATION 30 REMUNERATION REPORT (AUDITED) (CONTINUED) 12. Group Performance The STI and LTI are linked to performance against Key Performance Measures (“KPMs”). These are itemised in F and G below. KPMs include performance measures linked to the financial performance of the Company and to shareholder value and are structured to foster achievement of certain financial metrics. The STI is focussed on short term performance over the preceding 12 months. The KPMs under the LTI are measured over the 3 years from grant date. The KPMs are also linked to other non-financial metrics considered critical, such as safety performance, as well as alignment with values, Company purpose and implementation of Company strategy. The criteria involved in assessment of Group Performance has altered in FY20 as a result of the impact of COVID-19. Once the impact of the crisis became apparent, safety of the Company’s employees, customers, contractors and the public became paramount, which involved establishing procedures and protocols for visiting sales offices, attending offices and conducting operations at site. It also involved ensuring compliance with these new requirements. The uncertainty created by the ongoing crisis also meant a re- prioritisation of relevant remuneration criteria. The Remuneration Committee met on several occasions during FY20 to consider changes to the structure proposed by Management. These involved a greater focus on short term management, whilst also maintaining focus to set the Company on path to longer term success. This has involved setting and assessing performance on quarterly targets in addition to annual for FY21. The Board will assess targets and performance quarterly and re-set targets as is considered necessary or appropriate in the circumstances, to ensure the Company adapts to the changing environment. The table below shows the Group’s earnings performance as well as the movement in the Group’s EPS, TSR and Market Capitalisation over the last 5 years. Financial Report Date 30 June 2016 30 June 2017 30 June 2018 30 June 2019 30 June 2020 Profit After Tax $’000 40,912 35,717 31,347 16,439 9,041 Basic EPS Cents 10.71 9.31 8.13 4.09 2.23 TSR* Cents ( 4.0 ) 15.0 10.0 ( 12.5 ) ( 4.8 ) Market Capitalisation $’000 213,968 253,164 278,074 218,953 188,897 Return on Market Capitalisation % 19.12 14.11 11.27 7.51 4.79 *TSR is the aggregate of the movement in the share price and dividends paid per share during the year ended 30 June. D. NED Remuneration Arrangements 2. SC Global Nominee Directors 1. NED Fee Pool At the AGM in 2019, shareholders approved an increase in the maximum annual aggregate fee pool to $650,000 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 leave entitlement benefits or performance-based remuneration. Australian based NEDs receive superannuation payments. For FY20, SC Global had three nominees on the Board, Mr S Cheong, Mrs E Sam and Mr BL Tan. Mrs Sam also served on the SC Global Board and effective 30 June 2020, Mrs Sam retired from the SC Global Board and as a consequence, from the Company’s Board. These three Directors 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. Directors’ Report.AVJennings Limited - Annual Report 202031 REMUNERATION REPORT (AUDITED) (CONTINUED) 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 fee payable is $600,000 and has 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. SC Global agreed to a 20% reduction in the consulting fee for the period 1 May to 31 July 2020. 3. NEDs Remuneration (a) Approach to setting fees NEDs receive a base fee for service as a Director and an additional fee for participation in a Committee. The Chair of a Committee receives a higher fee, reflecting the additional responsibility of that position. The Company’s policy is to pay fees which are reflective of peer practice in the property sector and similarly sized entities, and which attract and retain directors with the desired attributes, skills and experience. The fees also reflect the time commitment which directors are expected to provide and the increased complexities and expectations of the office. (b) Review NED fees are reviewed on an ad hoc basis as considered necessary. As a matter of practice, fees have been stable for some years and the NED fee pool cap was not increased for almost 20 years until 2019. (c) Board and Committee fees Board Audit Risk Nominations Remuneration Investments Deputy Chair $70,000 Member Chair Member Chair Member Chair Member Chair Member Chair Member $60,000 $30,000 $12,000 $30,000 $12,000 N/A $6,000 N/A $6,000 N/A $8,000 As noted above, NEDs agreed to a 20% reduction in fees for the period 1 May to 31 July 2020. No fee is payable for chairing the Nominations Committee, the Remuneration Committee and the Investments Committee. (d) Indemnification Article 112 of the Company’s constitution provides that to the extent permitted by law, it indemnifies a person who is or has been, an officer of the Company or any related bodies corporate against any liability incurred by the person as such an officer, to another person and against a liability for costs and expenses incurred by the person in successfully defending proceedings. (e) Insurance premiums Article 112 of the Company’s constitution also provides that to the extent permitted by law the Company may pay or agree to pay a premium in respect of a contract insuring a person who is or has been an officer of the Company or its related bodies corporate against a liability incurred by the person as such an officer, and for costs and expenses incurred by the person in defending proceedings as such an officer, whatever the outcome. During the year the Company paid premiums for policies insuring directors and officers of the Company and its related bodies corporate against certain liabilities, to the extent permitted by law and subject to certain exclusions. The amount of the premiums paid in respect of these policies has not been disclosed in accordance with usual practice. AVJennings Limited - Annual Report 2020COMPANY OVERVIEWDIRECTORS’ REPORTFINANCIAL STATEMENTSADDITIONAL INFORMATION 32 REMUNERATION REPORT (AUDITED) (CONTINUED) (f) Fees paid Fees paid to NEDs in FY20 is set out in the table below: S Cheong(1) RJ Rowley(3) E Sam(1) B Chin (3) (4) BG Hayman(3) TP Lai(3) (4) BL Tan (1) P Kearns(3) Total Total Year 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 Short-Term Fees $ Post Employment Superannuation(2) $ - - 111,233 115,069 - - 116,800 72,000 81,218 84,018 104,200 64,500 - - 70,624 20,294 484,075 355,881 - - 10,567 10,931 - - - - 7,716 7,982 - - - - 6,709 1,928 24,992 20,841 Total $ - - 121,800 126,000 - - 116,800 72,000 88,934 92,000 104,200 64,500 - - 77,333 22,222 509,067 376,722 (1) These Directors were not paid fees. A consulting fee of $50,000 per month is payable to the Ultimate Parent Entity SC Global Developments Pte Ltd which covers the services of these Directors. The fee for the months of May and June 2020 were reduced by 20% to $40,000 per month as part of actions taken to manage overheads in response to the COVID-19 pandemic. Total fees paid for the year was $580,000. (2) Payments to Defined Contribution Plans consist of Superannuation Guarantee Contribution payments as well as employee voluntary contributions. (3) NEDs also agreed to a 20% reduction in fees for the period 1 May to 31 July 2020. (4) A portion of the FY20 increase in fees paid to B Chin and TP Lai were due to a one-off timing of a payment. 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. E. Executive Fixed Remuneration Executive remuneration includes a mix of fixed and variable remuneration. Variable remuneration includes short term incentives, long term incentives and retention components. 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. As a starting point, the TEC is typically set at or below market median for the position with adjustment as necessary to take account of the factors above, the need to secure talent and to motivate the right people to deliver on the Company’s strategy. The fixed component of remuneration of Executive KMPs is detailed on page 37. Directors’ Report.AVJennings Limited - Annual Report 202033 REMUNERATION REPORT (AUDITED) (CONTINUED) F. Short Term Incentive (STI) Executives participate in a STI plan which assesses achievement against KPMs. Each executive has KPMs that are aligned to company, business unit and individual performance. An STI payment is made 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 units and company performance. As a response to the impact of COVID-19, Executive KMP and other senior executives agreed to forgo any STI award in respect of FY20. In addition, the Remuneration Committee has decided that for FY21, STIs and the associated KPMs will be set and determined on a quarterly basis, to ensure the Company remains nimble and is responsive to changes in the operating environment. Financial and Business Performance STI payments are based on the scorecard measures and weightings disclosed below. These targets are 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% of TEC. The performance conditions are designed to promote achievement of the Company’s financial and strategic goals, which in turn should lead to shareholder returns. Targets are also designed to achieve strong operational disciplines. Non-financial targets are focussed on maintaining a sustainable business through improved safety performance, focus on customer satisfaction and service and to implementation of strategy. The table below provides an overview of the STI against key financial and non-financial performance measures and the weightings for each component. CEO COO Other SET(1) Underlying Profit Performance Business Performance Strategic Initiatives Individual Performance objectives Organisational Performance Customer and Stakeholder Performance • Group profit before tax. • Return on Net Funds Employed (NFE). • Operating cashflow. • Gross margins. • Appropriate and efficient capital management. (efficiency of the Balance Sheet). • Alignment of priorities and allocation of resources to bring about implementation of company strategy. • Time (operational delivery against agreed timeframes) and quality (built form product). • Improvement in underlying health of the Company. • Risk management. • Strategy objectives focussed on exploring growth opportunities for AVJennings. • Development and implementation of strategy plans including growth through organic and corporate means, new business streams and strategic alignments. • Growth in lots under control (three year). 40% 50% 30% to 40% 30% 10% - • Aligned to strategic objectives. - 20% 40% to 50% • Customer Advocacy. • Employee retention and engagement. • Progress longer term inclusion and diversity People objectives. Safety and Environment • Leadership – maintain a high performing team. • Succession planning for key positions. • Providing a safe work environment. • Minimise the impact of our activities on the environment. (1) SET is an abbreviation for the Senior Executive Team. 30% 20% 20% AVJennings Limited - Annual Report 2020COMPANY OVERVIEWDIRECTORS’ REPORTFINANCIAL STATEMENTSADDITIONAL INFORMATION34 REMUNERATION REPORT (AUDITED) (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. In making its assessments, the Committee considers the following factors: • • • • Performance in implementing Company strategy. Performance in the prevailing market. The financial result. Performance against individual KPMs. G. Long Term Incentive (LTI) LTI grants are only made to Executives who have the ability to impact the Group’s performance and create shareholder value over the longer term. LTI remuneration is provided by the issue of Rights with performance conditions. The use of Performance Rights as an incentive reduces upfront cash requirements (as shares do not need to be acquired for allocations). Shares are acquired on market by the Plan Trustee to satisfy the grant of shares in respect of rights which have vested. Participants do not receive dividends on Rights (as distinct from shares). The allocation of Performance Rights is designed to align executives’ interests with shareholders and to consider themselves like shareholders. The Rights are subject to real risk of forfeiture during the vesting period. In response to the impact of COVID-19, Executive KMP and other senior executives agreed to cancel all Performance Rights due to be tested for vesting in September 2020. These Performance Rights were cancelled in June 2020. LTI and Performance The TSR measure was introduced in February 2020 to replace the former ROE component of the Performance Rights which used market capitalisation as a proxy for equity. The TSR hurdle will apply to grants under the LTI from FY21 onwards. The old ROE hurdle will apply to grants which were made in FY19 and FY20. The grants made under the LTI Plan in 2017 were cancelled in accordance with amended remuneration arrangements to deal with the COVID-19 crisis set out in the STI section above. 50% of Performance Rights granted vest depending on AVJennings’ average growth rate in EPS over the three financial years of performance measurement. 50% of Performance Rights granted vest depending on AVJennings’ TSR over the three financial years of performance measurement against the ASX 300 Real Estate Index, a comparator group including peers in the residential property sector. The comparator group is not directly comparable to AVJennings as the Index contains non-residential property participants. However, this comparator group was chosen as the best approximation as the pool of directly comparable listed developers was too small to provide a reliable and meaningful comparator group. Both elements of the Performance Rights (EPS and TSR, formerly ROE) are also subject to a service condition. The recipient must be employed by AVJennings as at 30 June of the year in which the performance conditions of the Rights are tested. The Rights only vest if both the service condition and the performance conditions are satisfied. The performance conditions are tested at the end of the three- year measurement period, in the September following release of the financial statements for that year. There is no re-testing. If the conditions are not satisfied when they are tested, the Rights are immediately forfeited. In the event of a change in control of the Company, the Board can elect to vest unvested Rights. The operation of the EPS, ROE and the new TSR hurdles are set out below. AVJennings’ EPS growth rate over the three year performance period Percentage of Rights vesting < 5% 5% 5% - 10% > = 10% Nil 50% of the allocation for the hurdle Pro-rata between 50% and 100% 100% of the allocation for the hurdle 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%) Directors’ Report.AVJennings Limited - Annual Report 202035 REMUNERATION REPORT (AUDITED) (CONTINUED) This ROE hurdle was removed in February 2020 and replaced with TSR hurdle for grants for FY21 and beyond. Retention component - years of service Percentage of Rights vesting AVJennings’ TSR rank against ASX 300 RE Index at 30 September Percentage vesting Two years One year < median At the median > median but < 75th percentile > 75th percentile H. Retention Nil 50% of the allocation for the hurdle Pro-rata between 50th and 75th percentiles 100% of the allocation for the hurdle Three years Rationale for Retention Rights The Company recognises that the TEC is generally set at around mid-market. It is also recognised that the market for quality executives is dynamic and that high turnover in executive ranks is undesirable, costly and disruptive. Accordingly, Retention Rights are granted to support a number of objectives: 33.33% 33.33% 33.34% Retention Rights are granted in three equal tranches which vest in each of the three succeeding years following the year of grant. • Address the issue of retaining executives; • Avoid the disruption of turnover in executive ranks; In response to the impact of COVID-19, Executive KMP and other senior executives agreed in June 2020 to cancel all Retention Rights due to vest in July 2020. • Avoid the costs of recruitment of replacement executives; and • Avoid the impact on operations, performance and productivity of executive turnover. Unvested Retention Rights are subject to real risk of forfeiture, for example where an executive ceases employment for any reason. I. Remuneration Related Measures Taken in Response to COVID-19 PK Summers CD Thompson SC Orlandi L Mahaffy L Hunt Executive KMP Other Executives Total Maximum STI Opportunity Forgone $ 218,397 71,393 66,667 65,272 44,121 465,850 272,784 Rights Cancelled Service Rights Number 268,505 61,440 53,044 56,174 37,970 477,133 256,927 LTI Performance Rights Number 403,993 57,777 46,758 52,825 35,706 597,059 255,635 738,634 734,060 852,694 AVJennings Limited - Annual Report 2020COMPANY OVERVIEWDIRECTORS’ REPORTFINANCIAL STATEMENTSADDITIONAL INFORMATION36 REMUNERATION REPORT (AUDITED) (CONTINUED) Senior executives agreed to a number of changes to remuneration arrangements in response to the COVID-19 crisis. The measures are outlined below: 477,133 shares at a cost of $226,781 plus brokerage in acquiring those shares. In addition, the cancellation resulted in additional savings being made by avoiding the acquisition of shares for other executives. That is a real cash saving to the Company. • Executive KMP and other senior executives agreed to forgo any STI award in respect of FY20 • Executive KMP and other senior executives agreed to cancel all Retention Rights due to vest in 2020 • Executive KMP and other senior executives agreed to cancel all LTI Rights due to be tested for vesting in 2020 • All office-based staff (including Executive KMP) agreed to take one day of annual leave per week for the period 1 May to 31 July 2020 thereby reducing the Company’s leave liabilities The cancelled Retention Rights were due to vest in early July 2020, subject to the executives being employed by the Company at 30 June 2020. All relevant executives including all Executive KMP remained employed at that date and so all the Retention Rights would have vested, but for their cancellation in late June. Cancellation of the Retention Rights saved the Company the cost of acquiring shares on market to meet vesting obligations. The share price at the time when those shares would have been acquired (early July) being the Volume Weighted Average Price for the first 5 trading days of July was $0.4753. If shares had been acquired at around that price, just for the Executive KMP (excluding other executives) the Company would have acquired Under the accounting standards, the cancellation of Service Rights does not result in the expense being reversed in the Income Statement. Therefore, the accounts will not reflect the saving to the Company even though the cancellation of Retention Rights saved the Company the cash cost of buying those shares on market. The Performance Rights were due to have the performance conditions tested to determine vesting in September 2020. The Performance Rights were cancelled in late June and therefore no testing will take place in September 2020. It is not possible to determine what percentage, if any, of the Performance Rights might have vested. In any event, executives including Executive KMP agreed to cancellation of the Performance Rights and so saved the Company the cost of acquiring shares on market to meet any vesting obligation which may have arisen. In addition, all employees (other than site and sales staff) including Executive KMP agreed to leave management arrangements, in particular a 4 day week from 1 May until 31 July 2020. Other leave arrangements have been put in place from 1 August 2020. Directors’ Report.AVJennings Limited - Annual Report 202037 REMUNERATION REPORT (AUDITED) (CONTINUED) e c n a m r o f r e P d e t a e R l l a t o T - e r a h S d e s a B r e h t O m r e T - g n o L l t n e m y o p m E t s o P m r e T - t r o h S ) I n o i t c e S n i d e t o n s a ( n e k a t s n o i t c a l l a t o n s a I n o i t c e S h t i w n o i t c n u n o c n j i l d a e r e b d u o h s e b a T e h T ( l s d r a w A P M K e v i t u c e x E l e b a T n o i t a r e n u m e R . J l l . ) w o e b e b a T e h t n i d e t c e fl e r e r a % 2 0 6 1 . 1 7 . 0 2 7 4 4 . 7 2 3 1 . 2 7 3 . 0 5 3 1 . 8 4 4 . 3 8 1 1 . 0 5 4 . 5 9 2 1 . $ $ 9 7 1 , 7 5 9 7 5 8 , 8 0 3 1 3 0 7 3 0 , , 1 2 0 1 , 8 9 1 4 8 2 , 0 9 4 3 1 5 , 7 5 2 7 8 , 5 4 5 5 4 9 4 4 , 8 3 2 , 5 1 5 9 2 8 , 0 5 4 0 4 , 5 8 4 9 5 8 , 6 3 8 5 4 , 7 4 4 4 8 5 , 2 5 7 4 1 9 7 4 , 3 9 0 1 4 , 4 9 3 , 1 0 3 3 4 5 , 5 3 7 1 7 , 5 4 3 6 7 7 7 2 , ) 3 ( I T L s e d u c n i ( l ) n o i t n e t e R d e u r c c A g n o L e c i v r e S e v a e L $ 0 6 4 , 9 2 1 4 5 0 3 , 8 0 6 , 4 1 3 6 1 7 1 , 1 2 9 , 3 3 6 5 5 , 5 1 9 0 0 , 9 1 9 0 2 7 1 , 2 5 6 , 8 7 7 3 , 0 1 ) 1 ( n o i t a u n n a r e p u S ) 2 ( r e h t O $ 3 0 0 , 1 2 1 3 5 , 0 2 3 0 0 , 1 2 1 3 5 , 0 2 3 0 0 , 1 2 1 3 5 , 0 2 3 0 0 , 1 2 1 3 5 , 0 2 3 0 0 , 1 2 1 3 5 , 0 2 6 9 6 , 4 3 7 4 7 4 4 , $ - - - - - - - - I T S $ - d e u r c c A l a u n n A e v a e L $ y r a a S l $ r a e Y ) 1 3 1 , 2 ( 4 9 2 , 5 6 5 0 2 0 2 s r e m m u S K P 7 5 4 0 7 1 , 8 5 1 2 3 , 5 9 4 , 0 4 5 9 1 0 2 - ) 4 9 1 , 0 1 ( 4 5 3 , 7 0 4 0 2 0 2 n o s p m o h T D C 6 8 6 2 6 , 0 7 1 3 , 7 7 3 7 9 3 , 9 1 0 2 2 6 4 7, 5 3 5 7 0 3 , 3 4 2 , 4 2 3 9 1 0 2 - 8 8 4 , 0 3 7 9 9 , 8 7 3 0 2 0 2 i d n a l r O C S 0 4 7 8 3 , 7 5 7 1 1 , 6 3 5 , 6 3 2 9 1 0 2 1 6 7 7, 4 ) 3 0 0 9, ( 6 5 5 , 1 6 3 9 1 0 2 - ) 6 2 3 , 6 ( 2 2 5 , 2 4 2 0 2 0 2 t n u H L - ) 5 7 7 , 5 1 ( 7 3 6 , 0 7 3 0 2 0 2 y ff a h a M L d n a s n o i t i d n o c e c n a m r o f r e p d n a e c i v r e s o t j t c e b u s e r a s t h g R e h T i . d e t n a r g s t h g i r e h t f o t c e p s e r n i y n a p m o C e h t y b d e s n e p x e t n u o m a e h t t n e s e r p e r s e r u g fi I T L e h T . s t fi e n e b e l i c h e v 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 ‘ 3 5 5 , 1 1 7 , 2 6 2 3 , 5 0 5 0 5 6 , 5 0 1 5 1 0 , 5 0 1 6 9 6 , 4 3 - ) 8 3 9 , 3 ( 4 0 8 , 4 6 9 , 1 0 2 0 2 , 1 7 1 3 9 8 2 , 5 7 7 8 4 3 , 6 4 8 0 9 , 5 5 6 , 2 0 1 7 4 7 4 4 , 6 0 1 7, 7 3 5 3 8 8 6 , , 7 0 2 0 6 8 1 , 9 1 0 2 . 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 t n e s e r p e r l s n a P n o i t u b i r t n o C d e n fi e D o t s t n e m y a P l a t o T l a t o T ) 1 ( ) 2 ( ) 3 ( . t s e v t a h t s e r a h s e h t n o d e s a b s i d n a t n e r e ff d s i i s e v i e c e r e v i t u c e x E e h t t n u o m a e h T . t s e v y a m i s t h g R e h t l l a t o n , i l y g n d r o c c a AVJennings Limited - Annual Report 2020COMPANY OVERVIEWDIRECTORS’ REPORTFINANCIAL STATEMENTSADDITIONAL INFORMATION 38 REMUNERATION REPORT (AUDITED) (CONTINUED) K. Equity Disclosures Rights have been granted to KMP as detailed in the table below. The September 2016 Grant was made for the FY17 year (with final performance conditions testing in September 2019). The September 2017 Grant was made for the FY18 year (with final performance conditions testing in September 2020). The September 2018 Grant was made for the FY19 year (with final performance conditions testing in September 2021). The September 2019 Grant was made for the FY20 year (with final performance conditions testing in September 2022). 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. The following is the status of Rights granted to KMP under the LTI Plans: KMP PK Summers PK Summers PK Summers PK Summers CD Thompson CD Thompson CD Thompson CD Thompson SC Orlandi SC Orlandi SC Orlandi SC Orlandi L Mahaffy L Mahaffy L Mahaffy L Mahaffy L Hunt L Hunt L Hunt L Hunt Total Year of Grant FY17 FY18 FY19 FY20 FY17 FY18 FY19 FY20 FY17 FY18 FY19 FY20 FY17 FY18 FY19 FY20 FY17 FY18 FY19 FY20 Fair Value at Grant date $372,970 $384,170 $395,702 $405,605 $65,649 $67,621 $69,652 $71,395 $53,129 $54,725 $57,463 $66,669 $60,022 $61,825 $63,682 $65,275 $40,571 $41,789 $43,044 $44,122 Rights at 1 July 2019 546,737 559,000 701,392 - 85,685 93,246 122,234 - 69,344 75,463 100,843 - 78,340 85,254 111,757 - 52,952 57,626 75,540 - Rights granted - - - 871,565 - - - 151,894 - - - 141,839 - - - 138,874 - - - 93,871 Rights vested ( 317,023 ) ( 77,504 ) ( 85,162 ) - ( 52,832 ) ( 17,735 ) ( 19,487 ) - ( 42,757 ) ( 14,353 ) ( 16,077 ) - ( 48,303 ) ( 16,215 ) ( 17,817 ) - ( 32,649 ) ( 10,960 ) ( 12,043 ) - Rights forfeited ( 229,714 ) - - - ( 32,853 ) - - - ( 26,587 ) - - - ( 30,037 ) - - - ( 20,303 ) - - - Rights cancelled(1) - ( 481,496 ) ( 85,162 ) ( 105,840 ) - ( 75,511 ) ( 19,487 ) ( 24,219 ) - ( 61,110 ) ( 16,077 ) ( 22,615 ) - ( 69,039 ) ( 17,817 ) ( 22,143 ) - ( 46,666 ) ( 12,043 ) ( 14,967 ) Rights at 30 June 2020 - - 531,068 765,725 - - 83,260 127,675 - - 68,689 119,224 - - 76,123 116,731 - - 51,454 78,904 $2,485,080 2,815,413 1,398,043 ( 780,917 ) ( 339,494 ) ( 1,074,192 ) 2,018,853 (1) Refer to Section I. Directors’ Report.AVJennings Limited - Annual Report 202039 REMUNERATION REPORT (AUDITED) (CONTINUED) 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. For the year ended 30 June 2020 Directors S Cheong E Sam PK Summers RJ Rowley BG Hayman P Kearns Executives CD Thompson SC Orlandi L Mahaffy L Hunt Opening Balance Vested as Remuneration 218,881,388 224,820 4,830,262 270,223 - - 1,550,309 492,293 211,031 329,871 - - 479,689 - - - 90,054 73,187 82,335 55,652 Total 226,790,197 780,917 For the year ended 30 June 2019 Directors S Cheong E Sam PK Summers RJ Rowley BG Hayman P Kearns Executives CD Thompson SC Orlandi L Mahaffy L Hunt 209,386,826 215,068 4,200,316 258,502 - - 1,438,459 413,623 129,496 272,616 - - 576,804 - - - 89,178 72,171 81,535 55,112 Total 216,314,906 874,800 (1) Includes shares acquired under the Dividend Reinvestment Plan in the prior year. On market Purchase/ (disposal) 231,451 - ( 350,000 ) 100,000 235,000 25,000 220,624 - - - 462,075 - - - - - - - - - - - Other (1) Closing Balance - - - - - - - - - - - 9,494,562 9,752 53,142 11,721 - - 22,672 6,499 - 2,143 219,112,839 224,820 4,959,951 370,223 235,000 25,000 1,860,987 565,480 293,366 385,523 228,033,189 218,881,388 224,820 4,830,262 270,223 - - 1,550,309 492,293 211,031 329,871 9,600,491 226,790,197 AVJennings Limited - Annual Report 2020COMPANY OVERVIEWDIRECTORS’ REPORTFINANCIAL STATEMENTSADDITIONAL INFORMATION40 MEETINGS OF DIRECTORS AND DIRECTORS’ COMMITTEES The number of meetings of Directors and Directors’ Committees held during the year, for the period the Director was a Member of the Board or a Committee, and the number of meetings attended by each Director are detailed below. Full Meetings of Directors Audit Held 6 6 6 6 6 6 6 6 6 Attended 6 6 6 5 6 6 6 6 5 Held - 3 - - 3 - 3 - - Attended - 3 - - 3 - 3 - - Meetings of Committees Remuneration Held 4 - - 4 - 4 4 - - Attended 4 - - 4 - 4 4 - - Nominations Held 1 1 - 1 1 1 - - - Attended 1 1 - 1 1 1 - - - Risk Management Attended - 8 - - - 8 - - 8 Held - 8 - - - 8 - - 8 S Cheong RJ Rowley PK Summers E Sam B Chin BG Hayman TP Lai BL Tan P Kearns Investments Committee The Investments Committee does not formally meet in person. It conducts physical inspections of certain major development sites and receives detailed briefings from management on all major development sites prior to consideration of formal acquisition proposals which are dealt with by way of circular resolution. DIRECTORS' INTERESTS ROUNDING 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 41. 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 BG Hayman P Kearns Number 219,112,839 224,820 4,959,951 370,223 235,000 25,000 INDEMNIFYING OFFICERS During the year, the Group paid a premium in respect of a contract insuring its Directors and employees against liabilities that may be incurred in defending civil or criminal proceedings that may be brought against the Officers in their capacity as Officers of entities in the Group. In accordance with common practice, the insurance policy prohibits disclosure of the nature of the liability insured against and the amount of the premium. INDEMNIFICATION OF AUDITORS To the extent permitted by law, the Company has agreed to indemnify its auditors, Ernst & Young, as part of the terms of its audit engagement agreement against claims by third parties arising from the audit (for an unspecified amount). No payment has been made to indemnify Ernst & Young during or since the financial year. Directors’ Report.AVJennings Limited - Annual Report 2020Ernst & Young 200 George Street Sydney NSW 2000 Australia GPO Box 2646 Sydney NSW 2001 Tel: +61 2 9248 5555 Fax: +61 2 9248 5959 ey.com/au 41 Non Audit Services Auditor’s Independence Declaration to the Directors of AVJennings Limited The Group’s auditor, Ernst & Young provided certain non-audit services as outlined in note 33. The Board has considered these and based on advice received from the Audit Committee, is satisfied that provision of these services is compatible with, and did not compromise, the auditor independence requirements imposed by the Corporations Act 2001, for the following reason: • • As lead auditor for the audit of the financial report of AVJennings Limited for the financial year ended 30 June 2019, I declare to the best of my knowledge and belief, there have been: all non-audit services have been reviewed and approved to ensure that they do not impact the integrity and objectivity of the auditor; and a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in the non-audit services do not undermine the general principles relating to auditor independence as set out in APES 110 Code of Ethics for Professional Accountants issued by the Accounting Professional and Ethical Standards Board as they do not involve reviewing or auditing the auditor’s own work, acting in a management or decision making capacity for the Group, acting as advocate for the Group or jointly sharing economic risks or rewards. b) no contraventions of any applicable code of professional conduct in relation to the audit. relation to the audit; and Signed in accordance with a resolution of the Directors. This declaration is in respect of AVJennings Limited and the entities it controlled during the financial year. Ernst & Young 200 George Street Sydney NSW 2000 Australia GPO Box 2646 Sydney NSW 2001 Tel: +61 2 9248 5555 Fax: +61 2 9248 5959 ey.com/au Ernst & Young 200 George Street Sydney NSW 2000 Australia GPO Box 2646 Sydney NSW 2001 Tel: +61 2 9248 5555 Fax: +61 2 9248 5959 ey.com/au Peter Summers Director Auditor’s Independence Declaration to the Directors of AVJennings Limited Ernst & Young Simon Cheong Director 1 September 2020 Glenn Maris Partner 5 September 2019 Ernst & Young 200 George Street Sydney NSW 2000 Australia GPO Box 2646 Sydney NSW 2001 Tel: +61 2 9248 5555 Fax: +61 2 9248 5959 ey.com/au As lead auditor for the audit of the financial report of AVJennings Limited for the financial year ended 30 June 2019, I declare to the best of my knowledge and belief, there have been: Auditor’s Independence Declaration to the Directors of AVJennings Limited relation to the audit; and a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in As lead auditor for the audit of the financial report of AVJennings Limited for the financial year ended 30 June 2019, I declare to the best of my knowledge and belief, there have been: Auditor’s Independence Declaration to the Directors of AVJennings Limited This declaration is in respect of AVJennings Limited and the entities it controlled during the financial year. b) no contraventions of any applicable code of professional conduct in relation to the audit. a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and As lead auditor for the audit of the financial report of AVJennings Limited for the financial year ended 30 Auditor’s Independence Declaration to the Directors of AVJennings June 2020, I declare to the best of my knowledge and belief, there have been: b) no contraventions of any applicable code of professional conduct in relation to the audit. Limited (a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and This declaration is in respect of AVJennings Limited and the entities it controlled during the financial year. (b) no contraventions of any applicable code of professional conduct in relation to the audit. As lead auditor for the audit of the financial report of AVJennings Limited for the financial year ended 30 This declaration is in respect of AVJennings Limited and the entities it controlled during the financial year. June 2019, I declare to the best of my knowledge and belief, there have been: Ernst & Young a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and Glenn Maris Partner Glenn Maris 5 September 2019 Partner b) no contraventions of any applicable code of professional conduct in relation to the audit. Ernst & Young Ernst & Young This declaration is in respect of AVJennings Limited and the entities it controlled during the financial year. 1 September 2020 A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation Glenn Maris Partner 5 September 2019 Ernst & Young Glenn Maris Partner 5 September 2019 A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation AVJennings Limited - Annual Report 2020COMPANY OVERVIEWDIRECTORS’ REPORTFINANCIAL STATEMENTSADDITIONAL INFORMATION 42 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME Continuing operations Revenue from contracts with customers Revenue Cost of sales Gross profit Share of net loss of joint ventures Provision for loss on equity accounted investments Change in inventory loss provisions Fair value adjustment to financial asset Fair value adjustment to investment property Selling and marketing expenses Employee expenses Other operational expenses Management and administration expenses Depreciation and amortisation expenses Finance income Finance costs Other income Profit before income tax Income tax Profit after income tax Other comprehensive income (OCI) Foreign currency translation (recyclable through profit and loss) Other comprehensive (loss)/income Total comprehensive income Profit attributable to owners of the Company Total comprehensive income attributable to owners of the Company Earnings per share (cents per share): Basic earnings per share Diluted earnings per share To be read in conjunction with the accompanying notes. Note 2020 $'000 2019 $'000 2 3 3 3 10 8 3 3 3 3 4 262,354 262,354 ( 202,461 ) 59,893 296,467 296,467 ( 223,900 ) 72,567 ( 66 ) ( 947 ) ( 1,629 ) ( 516 ) ( 190 ) ( 5,044 ) ( 23,531 ) ( 6,210 ) ( 7,805 ) ( 2,125 ) 1,264 ( 393 ) 457 ( 274 ) ( 607 ) - ( 669 ) 800 ( 6,865 ) ( 25,711 ) ( 8,591 ) ( 8,071 ) ( 252 ) 1,315 ( 159 ) 356 13,158 ( 4,117 ) 23,839 ( 7,400 ) 9,041 16,439 ( 1,228 ) ( 1,228 ) 1,246 1,246 7,813 17,685 9,041 16,439 7,813 17,685 34 34 2.23 2.23 4.09 4.08 Financial Statements.AVJennings Limited - Annual Report 202043 Note 5 6 7 4(c) 9 6 7 8 26 10 11 12 13 14 15 16 4(c) 17 14 15 16 4(d) 17 2020 $’000 2019 $’000 5,703 23,036 185,366 1,223 4,191 219,519 14,742 401,997 1,580 5,636 1,695 1,214 5,978 2,816 435,658 18,209 15,088 194,748 - 2,392 230,437 10,033 430,261 1,770 6,649 2,211 1,059 - 2,816 454,799 655,177 685,236 16,540 - 1,542 413 5,848 24,343 27,846 190,110 5,060 14,039 649 237,704 41,234 543 - 3,179 6,547 51,503 22,009 199,792 - 15,173 482 237,456 262,047 288,959 393,130 396,277 18 19(a) 19(c) 174,179 8,408 210,543 174,509 8,882 212,886 393,130 396,277 CONSOLIDATED STATEMENT OF FINANCIAL POSITION Current assets Cash and cash equivalents Receivables Inventories Tax receivable Other assets Total current assets Non-current assets Receivables Inventories Investment property Equity accounted investments Financial asset Plant and equipment Right-of-use assets Intangible assets Total non-current assets Total assets Current liabilities Payables Borrowings Lease liabilities Tax payable Provisions Total current liabilities Non-current liabilities Payables Borrowings Lease liabilities Deferred tax liabilities Provisions Total non-current liabilities Total liabilities Net assets Equity Contributed equity Reserves Retained earnings Total equity To be read in conjunction with the accompanying notes. AVJennings Limited - Annual Report 2020COMPANY OVERVIEWDIRECTORS’ REPORTFINANCIAL STATEMENTSADDITIONAL INFORMATION44 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY 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 $'000 167,943 3,010 3,896 224,149 398,998 - - - ( 11,792 ) ( 11,792 ) 167,943 3,010 3,896 212,357 387,206 - - - - 1,246 1,246 - - - - - - 7,480 18(b) ( 914 ) 32(a) 32(a) 20 - - - 6,566 174,509 174,509 - - - - - ( 402 ) 1,132 16,439 - 16,439 16,439 1,246 17,685 - - - - 7,480 ( 914 ) ( 402 ) 1,132 - ( 15,910 ) ( 15,910 ) 730 ( 15,910 ) ( 8,614 ) 4,256 4,256 4,626 4,626 212,886 396,277 212,886 396,277 39 - - - ( 416 ) ( 416 ) 174,509 4,256 4,626 212,470 395,861 - - - - ( 1,228 ) ( 1,228 ) 18(b) ( 330 ) 32(a) 32(a) 20 - - - ( 330 ) - - - - - - - - - ( 225 ) 979 - 754 9,041 - 9,041 9,041 ( 1,228 ) 7,813 - - - ( 330 ) ( 225 ) 979 ( 10,968 ) ( 10,968 ) ( 10,968 ) ( 10,544 ) At 1 July 2018 Effect of adoption of new revenue accounting standard At 1 July 2018 (restated) Comprehensive income: Profit for the year Other comprehensive income for the year Total comprehensive income for the year Transactions with owners in their capacity as owners: - Ordinary share capital raised - Treasury shares acquired - Share-based payment expense reversed (lapsed rights) - Share-based payment expense - Dividends paid Total transactions with owners in their capacity as owners At 30 June 2019 At 1 July 2019 Effect of adoption of new leases accounting standard At 1 July 2019 (restated) Comprehensive income: Profit for the year Other comprehensive loss for the year Total comprehensive income for the year Transactions with owners in their capacity as owners: - Treasury shares acquired - Share-based payment expense reversed (lapsed rights) - Share-based payment expense - Dividends paid Total transactions with owners in their capacity as owners At 30 June 2020 174,179 3,028 5,380 210,543 393,130 To be read in conjunction with the accompanying notes. Financial Statements.AVJennings Limited - Annual Report 2020 CONSOLIDATED STATEMENT OF CASH FLOWS Cash flow from operating activities Receipts from customers (inclusive of GST) Payments to other suppliers and employees (inclusive of GST) Interest paid Income tax paid Net cash from/(used in) operating activities Cash flow from investing activities Payments for plant and equipment Interest received Amounts received from joint ventures Dividends received from joint ventures Net cash from investing activities Cash flow from financing activities Proceeds from borrowings Repayment of borrowings Principal elements of lease payments Net payment for treasury shares Dividends paid Proceeds from issue of shares Net cash (used in)/from financing activities Net (decrease)/increase in cash and cash equivalents Cash and cash equivalents at beginning of year Effects of exchange rate changes on cash and cash equivalents 45 Note 2020 $’000 2019 $’000 3 4(c) 21 11 3 26 26 18(b) 20 18(a) 275,933 355,943 ( 247,127 ) ( 371,307 ) ( 9,809 ) ( 9,031 ) ( 12,663 ) ( 17,757 ) 9,966 ( 45,784 ) ( 476 ) 1,264 - - 788 ( 790 ) 1,315 1,536 1,655 3,716 85,460 162,128 ( 95,685 ) ( 101,000 ) ( 1,761 ) ( 330 ) - ( 914 ) ( 10,968 ) ( 15,910 ) - 7,480 ( 23,284 ) 51,784 ( 12,530 ) 18,209 24 9,716 8,491 2 Cash and cash equivalents at end of year 5 5,703 18,209 To be read in conjunction with the accompanying notes. AVJennings Limited - Annual Report 2020COMPANY OVERVIEWDIRECTORS’ REPORTFINANCIAL STATEMENTSADDITIONAL INFORMATION46 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Section A – How the numbers are calculated Section A1 Segment information 1. OPERATING SEGMENTS The Group 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 summarises the following: • • Historic results of the segment; and Forecast of the segment for the remainder of the year. Reportable Segments Jurisdictions: Land Development, Integrated Housing and Apartments Development activities are conducted within our jurisdictions. Other: Includes numerous low value items, amongst the most significant of which is interest. Financial Statements.AVJennings Limited - Annual Report 202047 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS l a t o T r e h t O Z N A S D L Q C V I W S N 9 1 0 2 0 0 0 $ ’ 0 2 0 2 0 0 0 $ ’ 9 1 0 2 0 2 0 2 9 1 0 2 0 2 0 2 0 0 0 $ ’ 0 0 0 $ ’ 0 0 0 $ ’ 0 0 0 $ ’ 9 1 0 2 0 0 0 $ ’ 0 2 0 2 0 0 0 $ ’ 9 1 0 2 0 0 0 $ ’ 0 2 0 2 0 0 0 $ ’ 9 1 0 2 0 0 0 $ ’ 0 2 0 2 0 0 0 $ ’ 9 1 0 2 0 0 0 $ ’ 0 2 0 2 0 0 0 $ ’ s t n e m g e S g n i t a r e p O 4 2 8 4 , 0 6 7 2 , 3 4 6 1 9 2 , 4 9 5 9, 5 2 7 6 4 , 6 9 2 4 5 3 , 2 6 2 - - - - - - 7 1 2 1 , 4 6 0 3 3 , 2 1 1 9, 1 6 1 2 6 1 , 0 5 9 1 3 , 9 0 1 0 4 , 2 2 8 5 1 1 , 2 8 5 6 5 , 2 4 5 3 2 1 , 3 2 6 3 1 1 , l s e a s l a n r e t x E s e u n e v e R 7 1 2 , 1 4 6 0 , 3 3 2 3 1 9, 1 6 1 2 , 6 1 5 3 1 , 2 3 9 0 1 , 0 4 3 0 2 , 0 2 1 5 9 0 9, 5 0 8 7 , 3 2 1 0 7 8 , 3 1 1 s e u n e v e r t n e m g e s l a t o T - - 0 2 - 5 8 1 - 1 8 3 4 , 3 1 5 2 , 8 3 2 7 4 2 s e e f t n e m e g a n a M 6 7 2 1 4 , 1 5 5 2 3 , 0 8 2 3 5 1 , 0 8 2 2 , 6 7 6 5 , ) 3 0 0 3 ( , ) 1 9 5 1 ( , ) 7 1 4 3 ( , 9 8 8 1 , 3 9 2 1 2 , 2 1 6 8 , 3 4 0 4 2 , 3 3 4 6 1 , s t l u s e r t n e m g e S s t l u s e R : 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 ) 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 7 2 ( ) 6 6 ( ) 4 5 2 ( ) 6 6 ( 1 6 6 1 , 6 9 5 1 , 1 6 6 1 , 6 9 5 1 , 0 1 5 2 1 1 3 1 ) 6 0 7 ( ) 9 2 6 1 ( , - - - - ) 9 6 6 ( ) 6 1 5 ( ) 7 0 6 ( ) 7 4 9 ( ) 7 0 6 ( ) 7 4 9 ( ) 9 9 1 8 1 ( , ) 3 7 3 7, 1 ( ) 9 5 1 ( ) 3 9 3 ( ) 0 0 4 7, ( ) 7 1 1 4 ( , 9 3 8 3 2 , 8 5 1 3 1 , 9 3 4 , 6 1 1 4 0 , 9 - - - - - - - - - - - - - - - - - - - - ) 0 2 ( - - - - - - - - - - ) 9 1 3 ( - - - - - - - - - - - - - - - ) 0 1 3 1 ( , - - - - 0 1 - - - - - 5 2 1 - 0 0 8 ) 0 9 1 ( - - - - - - - - - - - - - - - - - - - - - - t n e m g e s - n o n r e h t O e u n e v e r t n e m t s e v n i m o r f t n e R y t r e p o r p 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 t n o i j f o s s o l f o e r a h S s e r u t n e v s t n e m t s u d a e u a v j l r i a F y t i u q e n o s s o l r o f n o i s i v o r P s t n e m t s e v n i d e t n u o c c a x a t e m o c n i e r o f e b t fi o r P e s n e p x e x a t e m o c n I t fi o r p t e N t s e r e t n i d e t a c o l l a n U s e s n e p x e d e t a c o l l a n U AVJennings Limited - Annual Report 2020COMPANY OVERVIEWDIRECTORS’ REPORTFINANCIAL STATEMENTSADDITIONAL INFORMATION 48 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS l a t o T r e h t O Z N A S D L Q C V I W S N 9 1 0 2 0 0 0 $ ’ 0 2 0 2 0 0 0 $ ’ 9 1 0 2 0 0 0 $ ’ 0 2 0 2 0 0 0 $ ’ 9 1 0 2 0 0 0 $ ’ 0 2 0 2 0 0 0 $ ’ 9 1 0 2 0 0 0 $ ’ 0 2 0 2 0 0 0 $ ’ 9 1 0 2 0 0 0 $ ’ 0 2 0 2 0 0 0 $ ’ 9 1 0 2 0 0 0 $ ’ 0 2 0 2 0 0 0 $ ’ 9 1 0 2 0 0 0 $ ’ 0 2 0 2 0 0 0 $ ’ g n i t a r e p O s t n e m g e S s t e s s A 6 3 2 5 8 6 , 7 7 1 5 5 6 , 0 3 7 1 2 , 4 3 2 3 2 , 4 2 5 5 0 1 , 1 0 9 7, 0 1 3 0 9 2 6 , 4 5 9 6 5 , 9 0 7 5 2 1 , 3 1 5 8 2 1 , 4 2 7 3 7 1 , , 5 7 9 5 6 1 6 4 6 5 9 1 , 0 0 6 2 7 1 , s t e s s a t n e m g e S 6 3 2 , 5 8 6 7 7 1 , 5 5 6 0 3 7 , 1 2 4 3 2 , 3 2 4 2 5 , 5 0 1 1 0 9 , 7 0 1 3 0 9 , 2 6 4 5 9 , 6 5 9 0 7 , 5 2 1 3 1 5 , 8 2 1 4 2 7 , 3 7 1 5 7 9 , 5 6 1 6 4 6 , 5 9 1 0 0 6 , 2 7 1 s t e s s a 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 l i 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 9 5 9 8 8 2 , 7 4 0 2 6 2 , 0 9 4 7, 7 1 3 0 0 5 7 1 , 1 1 7 8 5 , 0 8 6 8 4 , 0 7 9 7 2 2 1 , 9 8 3 6 1 , 8 5 4 4 , 8 5 4 9, 1 2 8 1 0 1 , 1 4 9 5 1 , 7 9 4 2 2 , 9 5 9 , 8 8 2 7 4 0 , 2 6 2 0 9 4 , 7 7 1 3 0 0 , 5 7 1 1 1 7 , 8 5 0 8 6 , 8 4 0 7 9 7 2 2 , 1 9 8 3 , 6 1 8 5 4 , 4 8 5 4 , 9 1 2 8 1 , 0 1 1 4 9 , 5 1 7 9 4 , 2 2 s e i t i l i b a i l t n e m g e S s e i t i l i b a i l l a t o T Financial Statements.AVJennings Limited - Annual Report 2020 49 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Section A2 Profit and loss information 2. REVENUES FROM CONTRACTS WITH CUSTOMERS (a) Disaggregated revenue information The disaggregation of the Group’s revenue from contracts with customers is set out below: Operating Segments 30 June 2020 Types of goods or services Sale of Land Sale of Integrated Housing Sale of Apartments Property Development & Other Services NSW $'000 VIC $'000 QLD $'000 SA NZ $'000 $'000 Total $'000 48,324 19,512 31,409 7,457 25,317 132,019 65,299 23,909 8,700 8,759 7,747 114,414 - 13,161 247 2,513 - - - - - - 13,161 2,760 Total revenue from contracts with customers 113,870 59,095 40,109 16,216 33,064 262,354 Timing of revenue recognition Goods transferred at a point in time 113,623 56,582 40,109 16,216 33,064 259,594 Services transferred over time 247 2,513 - - - 2,760 Total revenue from contracts with customers 113,870 59,095 40,109 16,216 33,064 262,354 Operating Segments 30 June 2019 Types of goods or services Sale of Land Sale of Integrated Housing Sale of Apartments NSW $'000 VIC $'000 QLD $'000 SA NZ $'000 $'000 Total $'000 77,693 44,269 2,104 7,608 1,217 132,891 45,849 14,845 29,846 11,504 - 56,708 - - - - - 102,044 56,708 4,824 Property Development & Other Services 238 4,381 185 20 Total revenue from contracts with customers 123,780 120,203 32,135 19,132 1,217 296,467 Timing of revenue recognition Goods transferred at a point in time 123,542 115,822 31,950 19,112 1,217 291,643 Services transferred over time 238 4,381 185 20 - 4,824 Total revenue from contracts with customers 123,780 120,203 32,135 19,132 1,217 296,467 (b) Revenue recognition accounting policy (i) Sale of land, integrated housing and apartments Revenue from the sale of land, houses and apartments is recognised at a point in time when control is transferred to the customer. Except for certain contractual arrangements discussed below, this occurs at settlement when legal title passes and an enforceable right to payment exists. For the following contractual arrangements, revenue is recognised prior to settlement where the customer has obtained control, and a right to payment exists: • Revenue from sales of land on deferred terms to builders in New Zealand. The builder gains control of the land on completion of physical works and can commence building at that point. AVJennings Limited - Annual Report 2020COMPANY OVERVIEWDIRECTORS’ REPORTFINANCIAL STATEMENTSADDITIONAL INFORMATION50 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 2. REVENUES FROM CONTRACTS WITH CUSTOMERS (ii) Property development and other services (continued) • • Sales of englobo land on deferred terms. Control passes when the contract is unconditional, physical works are complete and the customer has unfettered rights to the land before settlement. Revenue from sales of land to builders in Australia where the builder is the ultimate purchaser and not a conduit between AVJennings and a retail purchaser. The builder gains control of the land on completion of the physical works and can commence building at that point. AVJennings Properties Ltd provides property development and other services to joint venture arrangements entered into by other entities within the Group. The performance obligation is satisfied over time and revenue is progressively recognised based on the terms of the service agreement. (iii) Financing components The Group does not expect to have any contracts for the sale of land, integrated housing and apartments where the duration between the transfer of the goods to the customer and payment by the customer exceeds one year in Australia. In the case of certain contracts for the sale of land in New Zealand and the provision of services in Australia, the duration may exceed one year. 3. INCOME AND EXPENSES Revenues Revenue from contracts with customers Total revenues Cost of sales include: Utilisation of inventory provisions Amortisation of finance costs capitalised to inventories Impairment of assets Provision for loss on equity accounted investments Increase in inventory loss provisions Note 2020 $'000 2019 $'000 2 262,354 296,467 262,354 296,467 ( 456 ) 7,730 947 1,629 ( 791 ) 12,181 607 - 26 7 For the year ended 30 June 2020, the movement in inventory provision resulted from a realignment of future assumptions with current market conditions relating to projects in Queensland and South Australia. Depreciation and amortisation expense Depreciation of owned assets Amortisation of right-of-use assets Total depreciation and amortisation expense Finance income 11 12 284 1,841 2,125 252 - 252 Interest from financial assets held for cash management purposes 1,264 1,315 Finance costs Bank loans and overdrafts Interest on lease liabilities Less: Amount capitalised to inventories Finance costs expensed Other income Rent from investment property Sundry income Total other income 9,809 335 12,663 - ( 9,751 ) ( 12,504 ) 393 159 125 332 457 10 346 356 Financial Statements.AVJennings Limited - Annual Report 2020 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 4. 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 51 2020 $’000 2019 $’000 4,822 226 ( 764 ) ( 167 ) 10,266 93 ( 2,959 ) - 4,117 7,400 (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 13,158 23,839 Tax at Australian income tax rate of 30% Net share of equity accounted joint venture losses Other non-deductible items Foreign jurisdiction (losses)/gains Effect of lower tax rate in foreign jurisdiction 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 Current year tax receivable at year end Prior year tax paid in current year Cash taxes paid per the Consolidated Statement of Cash Flows 3,947 7,152 20 205 ( 16 ) ( 98 ) 59 4,117 31% 4,117 931 ( 226 ) ( 7 ) ( 413 ) 1,223 3,406 9,031 82 57 49 ( 33 ) 93 7,400 31% 7,400 2,959 ( 93 ) ( 23 ) ( 3,179 ) - 10,693 17,757 AVJennings Limited - Annual Report 2020COMPANY OVERVIEWDIRECTORS’ REPORTFINANCIAL STATEMENTSADDITIONAL INFORMATION 52 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 4. INCOME TAX (continued) (d) Recognised deferred tax assets and liabilities Opening balance Expense /(benefit) Effect of (1) adoption of new accounting standard Foreign exchange variance Closing balance $’000 $’000 $’000 $’000 $’000 Deferred income tax movement for the year ended 30 June 2020: Deferred tax assets - inventories - accruals - provisions on employee entitlement - fair value other assets - lease liabilities - other Deferred tax assets Deferred tax liabilities - inventories - fair value investment property - unearned revenue - prepayments - brand name - right-of-use assets - other Deferred tax liabilities Net deferred tax liabilities 2,835 624 1,674 - - 352 134 56 822 665 455 ( 400 ) - - - - 1,235 - 5,588 1,629 1,235 ( 18,274 ) - ( 992 ) ( 66 ) ( 845 ) - ( 584 ) 275 ( 183 ) ( 101 ) 22 - ( 656 ) ( 55 ) - - - - - ( 1,057 ) - ( 20,761 ) ( 698 ) ( 1,057 ) ( 15,173 ) 931 178 Deferred income tax movement for the year ended 30 June 2019: Deferred tax assets - inventories - accruals - provisions on employee entitlement - other Deferred tax assets Deferred tax liabilities - inventories - unearned revenue - prepayments - brand name - other Deferred tax liabilities Net deferred tax liabilities 3,072 867 1,626 137 ( 237 ) ( 244 ) 47 318 5,702 ( 116 ) ( 20,257 ) ( 7,486 ) ( 148 ) ( 845 ) 1,983 1,549 82 - ( 45 ) ( 539 ) ( 28,781 ) 3,075 ( 23,079 ) 2,959 - - - - - - - - - - - - - - - 25 - - - - 25 25 - 1 1 - 2 3,187 758 1,730 822 1,900 55 8,452 ( 17,999 ) ( 183 ) ( 1,068 ) ( 44 ) ( 845 ) ( 1,713 ) ( 639 ) ( 22,491 ) ( 14,039 ) 2,835 624 1,674 455 5,588 - ( 18,274 ) 5,054 ( 109 ) - - - - - - ( 992 ) ( 66 ) ( 845 ) ( 584 ) 5,054 5,054 ( 109 ) ( 20,761 ) ( 107 ) ( 15,173 ) (1) For the year ended 30 June 2020, this is the effect of the Leases Accounting Standard - refer to note 39. For the year ended 30 June 2019, the effect relates to the Revenue Accounting Standard. Financial Statements.AVJennings Limited - Annual Report 202053 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 4. INCOME TAX (continued) (e) Tax consolidation legislation AVJennings Limited and its wholly owned Australian controlled entities are in a Tax Consolidated Group (TCG). The entities in the TCG 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 TCG 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. (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. AVJennings Limited - Annual Report 2020COMPANY OVERVIEWDIRECTORS’ REPORTFINANCIAL STATEMENTSADDITIONAL INFORMATION54 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Section A3 Balance Sheet information 5. CASH AND CASH EQUIVALENTS Cash at bank and in hand Accounting 2020 $’000 5,703 2019 $’000 18,209 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. 6. RECEIVABLES Current Trade receivables Related party receivables Other receivables Total current receivables Non-current Trade receivables Related party receivables Other receivables Total non-current receivables (i) Accounting 2020 $’000 19,451 822 2,763 23,036 8,963 3,079 2,700 2019 $’000 12,184 1,681 1,223 15,088 7,173 2,840 20 14,742 10,033 A receivable represents the Group’s right to an amount of consideration that is unconditional (i.e., only the passage of time is required before payment of the consideration is due). Receivables are initially recognised at fair value and subsequently measured at amortised cost using the effective interest rate method, less an allowance for impairment. The Group recognises an allowance for expected credit losses (ECLs) for all debt instruments not held at fair value through profit or loss. ECLs are based on the difference between the contractual cash flows due in accordance with the contract and all the cash flows that the Group expects to receive, discounted at an approximation of the original effective interest rate. For trade receivables, the Group applies the Standard’s simplified approach in calculating ECLs. Therefore, the Group does not track changes in credit risk, but instead recognises a loss allowance based on lifetime ECLs at each reporting date. Financial Statements.AVJennings Limited - Annual Report 202055 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 6. RECEIVABLES (continued) (ii) Expected credit losses Negligible expected credit losses (2019: $Nil) have been recognised by the Group in the current year. At 30 June, the ageing analysis of trade receivables is as follows: Total $'000 Not due $'000 0-30 $'000 31-60 $'000 61-90 $'000 + 91 $'000 + 91# $'000 Number of days overdue 28,414 28,414 19,357 19,357 - - - - - - - - - - 2020 2019 # 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. AVJennings Limited - Annual Report 2020COMPANY OVERVIEWDIRECTORS’ REPORTFINANCIAL STATEMENTSADDITIONAL INFORMATION56 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 7. 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 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 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 non-current inventories Total inventories Note 7(a) 7(a) 7(a) 7(a) 7(a) 7(a) 2020 $’000 2019 $’000 19,577 2,858 ( 1,983 ) 20,452 31,860 31,098 29,749 6,436 99,143 37,338 25,069 3,497 ( 133 ) 65,771 4,454 1,028 ( 387 ) 5,095 31,741 21,037 15,613 5,134 73,525 62,152 46,057 8,075 ( 156 ) 116,128 185,366 194,748 295,363 30,631 ( 8,473 ) 317,521 309,044 30,252 ( 8,877 ) 330,419 30,464 29,356 5,194 14,502 79,516 3,458 1,190 345 ( 33 ) 4,960 45,592 34,938 6,112 11,811 98,453 136 1,190 92 ( 29 ) 1,389 401,997 430,261 587,363 625,009 Financial Statements.AVJennings Limited - Annual Report 202057 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 7. INVENTORIES (continued) (a) Borrowing costs attributable to qualifying assets are capitalised. These include interest and fees and have been capitalised at a weighted average rate of 4.83% (2019: 6.36%). 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. As at 30 June 2020, significant judgement was required in determining the appropriate estimates and assumptions to be used in determining the carrying value of inventory. COVID-19 and the Government’s response to it significantly impacted our operations. Key assumptions and estimates impacted by COVID-19 include: • • forecast future sales and costs, based on the location, type and quality of residential property, recognise and incorporate the impact of COVID-19. the impact of government subsidies on the sale of residential property. Movement in impairment provisions At beginning of year Amounts utilised Effect of adoption of AASB 15 Amounts provided At end of year 8. INVESTMENT PROPERTY 2020 $’000 9,449 ( 456 ) - 1,629 10,622 2019 $’000 9,982 ( 791 ) 258 - 9,449 The Group has an investment property at Waterline, Victoria. This relates to a retail space asset being held for long term yield and capital appreciation. The Group accounts for its investment property at fair value and revaluations are recognised through profit and loss. The fair value at reporting date has been determined by the Directors with reference to the most recent external valuation performed by Knight Frank as at 21 November 2018. The Capitalisation Approach using a capitalisation rate of 7.00% (30 June 2019: 6.00%), and Direct Comparison Approach methods have been adopted in determining the fair value. AVJennings Limited - Annual Report 2020COMPANY OVERVIEWDIRECTORS’ REPORTFINANCIAL STATEMENTSADDITIONAL INFORMATION58 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 8. INVESTMENT PROPERTY (continued) Opening balance at 1 July Transfer from inventory Net (loss)/gain from fair value remeasurement Closing balance at 30 June 2020 $’000 1,770 - ( 190 ) 1,580 2019 $’000 - 970 800 1,770 Investment properties are measured as Level 3. Refer to note 23(v) for explanation of the levels of fair value measurement. The impact of COVID-19 and the Government’s response to it, has been incorporated in the measurement of fair value. It is the policy of the Group for the Directors to review the fair value of each property every year, with reference to the most recent external valuation. Going forward, the fair value for investment properties will be based on periodic, but at least triennial, valuations by qualified external independent valuers. 9. OTHER ASSETS Prepayments Deposits Total other current assets 10. FINANCIAL ASSET Property Fund Units 2020 $’000 3,461 730 4,191 2019 $’000 1,897 495 2,392 2020 $'000 2019 $'000 1,695 2,211 These are units in an unlisted property fund which do not have an active market. They are measured at fair value through profit and loss. The financial asset at fair value through Profit and Loss is carried in the Statement of Financial Position at fair value with net changes in fair value recognised in the Statement of Profit and Loss. Expected future cash flows discounted using a rate of 12%, have been used in determining the fair value. The impact of COVID-19 and the Government’s response to it, has been incorporated in the measurement of fair value. Unlisted property fund units are measured as Level 3 financial instruments. Refer to note 23(v) for explanation of the levels of fair value measurement. Financial Statements.AVJennings Limited - Annual Report 2020 59 2020 $’000 1,488 ( 460 ) 1,028 2019 $’000 1,075 ( 368 ) 707 1,994 ( 1,808 ) 186 6,772 ( 6,420 ) 352 1,214 1,059 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 11. 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 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 2020 Note Carrying amount at 1 July 2019 Additions Disposals Depreciation charge Carrying amount at 30 June 2020 For the year ended 30 June 2019 Carrying amount at 1 July 2018 Additions Disposals Depreciation charge Carrying amount at 30 June 2019 (ii) Accounting 3 3 Leasehold improvements $'000 Plant and equipment $'000 707 458 ( 9 ) ( 128 ) 1,028 62 720 ( 13 ) ( 62 ) 707 352 18 ( 28 ) ( 156 ) 186 474 70 ( 2 ) ( 190 ) 352 Total $'000 1,059 476 ( 37 ) ( 284 ) 1,214 536 790 ( 15 ) ( 252 ) 1,059 Plant and equipment are 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 3-10 years Leasehold improvements 5-10 years or lease term if shorter AVJennings Limited - Annual Report 2020COMPANY OVERVIEWDIRECTORS’ REPORTFINANCIAL STATEMENTSADDITIONAL INFORMATION60 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 12. RIGHT-OF-USE ASSETS The Group has lease contracts for various office premises, motor vehicles and IT equipment used in its operations. Lease of office premises generally have lease terms between 3 and 5 years, while motor vehicles and IT equipment have lease terms between 3 and 4 years. The Group’s obligations under its leases are secured by the lessor’s title to the leased assets. Some of the lease contracts for office premises include extension options, which are discussed in note 39. The Group also has certain leases with terms of 12 months or less and leases of office equipment with low value. The Group applies the ‘short-term lease’ and ‘lease of low-value assets’ recognition exemptions for these leases. Set out below are the carrying amounts of right-of-use assets recognised and the movements during the year: As at 1 July 2019(1) Additions Amortisation expense Disposal As at 30 June 2020 Current Non-current Total Note 39 3 Motor vehicle lease $’000 464 313 ( 296 ) - 481 - 481 481 Right-of-use assets Office premises lease $’000 2,744 4,169 ( 1,409 ) ( 196 ) IT equipment lease $’000 316 14 ( 136 ) ( 5 ) 189 - 189 189 5,308 - 5,308 5,308 Total $’000 3,524 4,496 ( 1,841 ) ( 201 ) 5,978 - 5,978 5,978 (1) The Group adopted AASB 16 using the modified retrospective approach which does not require a restatement of prior year numbers. 13. INTANGIBLE ASSETS Brand name at cost Less: accumulated amortisation Total intangible assets 2020 $’000 9,868 ( 7,052 ) 2,816 2019 $’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 are reviewed each year. A review carried out at 31 December 2009 determined that the brand name had indefinite life. This change in accounting estimate was applied prospectively with amortisation ceasing as of 31 December 2009. At 30 June 2020, there were no indicators of impairment. However, an annual impairment test was performed and no impairment identified. Financial Statements.AVJennings Limited - Annual Report 2020 61 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 13. INTANGIBLE ASSETS (continued) 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 tested annually for impairment. The assessment of indefinite life is reviewed annually to determine whether it continues to be supportable. If not, the change in useful life from indefinite to finite is made on a prospective basis. 14. PAYABLES Current Unsecured Land creditors Trade creditors Related party payables Deferred income Other creditors and accruals Total current payables Non-current Unsecured Land creditors Deferred income Other creditors and accruals Total non-current payables Accounting 2020 $’000 2019 $’000 1,323 9,954 130 38 5,095 16,540 23,360 589 3,897 27,846 21,323 6,544 150 1,253 11,964 41,234 20,830 1,167 12 22,009 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 3.84% (2019: 5.68%). 15. BORROWINGS Current Bank loans Total current interest-bearing liabilities Non-current Bank loans Total non-current interest-bearing liabilities 2020 $’000 - - 2019 $’000 543 543 190,110 199,792 190,110 199,792 AVJennings Limited - Annual Report 2020COMPANY OVERVIEWDIRECTORS’ REPORTFINANCIAL STATEMENTSADDITIONAL INFORMATION62 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 15. BORROWINGS (continued) Accounting Borrowing costs 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. Financing arrangements The Group has access to the following lines of credit: 30 June 2020 Main banking facilities - bank overdraft - bank loans - performance bonds Contract performance bond facilities - performance bonds 30 June 2019 Main banking facilities - bank overdraft - bank loans - performance bonds Project funding facilities - bank loans Contract performance bond facilities - performance bonds Note 15(a) 15(c) 15(a) 15(b) 15(c) Available $'000 Utilised $'000 Unutilised $'000 5,000 265,000 30,000 300,000 - 190,110 16,925 207,035 5,000 74,890 13,075 92,965 60,000 30,377 29,623 5,000 275,000 20,000 300,000 - 199,792 17,325 217,117 5,000 75,208 2,675 82,883 4,978 543 4,435 45,000 39,812 5,188 At 30 June 2020 main banking facilities are interchangeable up to $47 million (2019: $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. Financial Statements.AVJennings Limited - Annual Report 202063 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 15. BORROWINGS (continued) Significant terms and conditions (a) Main banking facilities $50,000,000 of the Group’s main banking facilities currently matures on 30 September 2021 with the balance of $250,000,000 maturing on 30 September 2022. 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 15(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 25). The weighted average interest rate including margin on the main banking facilities at 30 June 2020 was 1.47% (2019: 2.80%). (b) Project funding facilities Project funding facilities are secured by: • • a fixed and floating charge over the assets of the entities involved in the relevant projects, namely, AVJennings Properties Wollert SPV Pty Ltd; and a first registered mortgage over certain real estate inventories of the entities involved in the relevant projects, namely, AVJennings Properties Wollert SPV Pty Ltd. The AVJennings Properties Wollert SPV Pty Ltd facility was repaid on 29 November 2019. At reporting date there were no project funding facilities. (c) Contract performance bond facilities The Group has entered into Contract performance bond facilities of $60,000,000 (2019: $45,000,000) which are subject to review annually. $25,000,000 of the facilities expire on 31 December 2020 with the balance expiring on 27 February 2021. 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 25. 16. LEASE LIABILITIES The Group has lease contracts for various office premises, motor vehicles and IT equipment used in its operations. Lease of office premises generally have lease terms between 3 and 5 years, while motor vehicles and IT equipment have lease terms between 3 and 4 years. The Group’s obligations under its leases are secured by the lessor’s title to the leased assets. Some of the lease contracts for office premises include extension options, the effects which have been incorporated in calculating lease liabilities. The Group also has certain leases with terms of 12 months or less and leases of office equipment with low value. The Group applies the ‘short-term lease’ and ‘lease of low-value assets’ recognition exemptions for these leases. AVJennings Limited - Annual Report 2020COMPANY OVERVIEWDIRECTORS’ REPORTFINANCIAL STATEMENTSADDITIONAL INFORMATION64 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 16. LEASE LIABILITIES (continued) Set out below are the carrying amounts of lease liabilities recognised and the movements during the year: As at 1 July 2019(1) Additions Payments Disposal As at 30 June 2020 Current Non-current Total Note 39 Motor vehicle lease $’000 471 31 3 ( 299 ) - 485 253 232 485 Lease Liabilities IT equipment lease $’000 323 14 ( 134 ) ( 6 ) Office premises lease $’000 3,324 4,1 6 9 ( 1,328 ) ( 245 ) 197 107 90 197 5,920 1,182 4,738 5,920 Total $’000 4,118 4,496 ( 1 , 7 6 1 ) ( 2 51 ) 6,602 1,542 5,060 6,602 (1) The Group adopted AASB 16 using the modified retrospective approach which does not require a restatement of prior year numbers. The Group recognised rent expense from short-term leases of $334,000 and leases of low-value assets of $224,000 for the year ended 30 June 2020. 17. PROVISIONS For the year ended 30 June 2020 At 1 July 2019 Arising during the year Utilised At 30 June 2020 Current Non-current Total For the year ended 30 June 2019 At 1 July 2018 Arising during the year Utilised At 30 June 2019 Current Non-current Total Accounting Rectification and maintenance $’000 Restructuring $’000 Annual leave and long service leave $’000 282 680 ( 537 ) 425 425 - 425 3,850 522 ( 4,090 ) 282 282 - 282 216 300 ( 216 ) 300 300 - 300 - 216 - 216 216 - 216 6,531 1,143 ( 1,902 ) 5,772 5,123 649 5,772 6,761 1,475 ( 1,705 ) 6,531 6,049 482 6,531 Total $’000 7,029 2,123 ( 2,655 ) 6,497 5,848 649 6,497 10,611 2,213 ( 5,795 ) 7,029 6,547 482 7,029 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. Financial Statements.AVJennings Limited - Annual Report 202065 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 18. CONTRIBUTED EQUITY Ordinary shares Treasury shares Share capital (a) Movement in ordinary share capital 2020 Number 2019 Number 2020 $’000 2019 $’000 406,230,728 - 406,230,728 ( 762,619 ) 177,961 ( 3,782 ) 177,961 ( 3,452 ) 406,230,728 405,468,109 174,179 174,509 At beginning of year Issued under the Dividend Reinvestment Plan At end of year 406,230,728 - 394,926,905 11,303,823 406,230,728 406,230,728 177,961 - 177,961 170,481 7,480 177,961 (b) Movement in treasury shares 2020 Number 2019 Number 2020 $’000 2019 $’000 At beginning of year ( 762,619 ) ( 495,632 ) ( 3,452 ) ( 2,538 ) On market acquisition of shares Excess funds received from AVJDESP Employee share scheme issue At end of year ( 757,523 ) - 1,520,142 ( 1,462,177 ) - 1,195,190 ( 435 ) 105 - ( 914 ) - - - ( 762,619 ) ( 3,782 ) ( 3,452 ) During the year, 757,523 treasury shares were purchased by the AVJ Deferred Employee Share Plan Trust (AVJDESP) at a cost of $435,000. 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 AVJDESP Trust are disclosed as treasury shares and deducted from contributed equity. AVJennings Limited - Annual Report 2020COMPANY OVERVIEWDIRECTORS’ REPORTFINANCIAL STATEMENTSADDITIONAL INFORMATION66 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 19. RESERVES AND RETAINED EARNINGS (a) Reserves Foreign Currency Translation Reserve $'000 Share-based Payment Reserve $'000 3,010 1,246 - 4,256 ( 1,228 ) - 3,028 3,896 - 730 4,626 - 754 5,380 Total $'000 6,906 1,246 730 8,882 ( 1,228 ) 754 8,408 Note 32(a) 32(a) At 1 July 2018 Foreign currency translation Share-based payment expense At 30 June 2019 Foreign currency translation Share-based payment expense At 30 June 2020 (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 40(d) 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 Consolidated Statement of Comprehensive Income. (c) Retained earnings Movements in retained earnings were as follows: At beginning of year Effect of adoption of new revenue accounting standard Effect of adoption of new leases accounting standard At beginning of year (restated) Profit after income tax Dividends declared and paid At end of year Note 39 2020 $'000 212,886 - ( 416 ) 212,470 9,041 ( 10,968 ) 210,543 2019 $’000 224,149 ( 11,792 ) - 212,357 16,439 ( 15,910 ) 212,886 Financial Statements.AVJennings Limited - Annual Report 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 20. DIVIDENDS Cash dividends declared and paid 2018 final dividend of 3.0 cents per share, paid 11 October 2018. Fully franked @ 30% tax 2019 interim dividend of 1.0 cent per share, paid 22 March 2019. Fully franked @ 30% tax 2019 final dividend of 1.5 cents per share, paid 20 September 2019. Fully franked @ 30% tax 2020 interim dividend of 1.2 cents per share, paid 27 March 2020. Fully franked @ 30% tax Total cash dividends declared and paid Dividends proposed 2019 final dividend of 1.5 cents per share, paid 20 September 2019. Fully franked @ 30% tax Total dividends proposed The Company’s Dividend Reinvestment Plan is suspended. Dividend franking account Franking credits available for subsequent financial years based on a tax rate of 30% 67 2020 $’000 2019 $’000 - - 6,093 4,875 10,968 11,848 4,062 - - 15,910 - - 6,093 6,093 28,730 27,029 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. AVJennings Limited - Annual Report 2020COMPANY OVERVIEWDIRECTORS’ REPORTFINANCIAL STATEMENTSADDITIONAL INFORMATION68 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Section A4 Cash Flow information 21. CASH FLOW STATEMENT RECONCILIATION Reconciliation of profit after tax to net cash flow from/(used in) operating activities Profit after tax Adjustments for non-cash items: Depreciation and amortisation Net gain on disposal of right-of-use assets Net loss on disposal of plant and equipment Interest revenue classified as investing cash flow Share of loss of joint ventures Change in inventory loss provisions Share-based payments expense Fair value adjustment to investment property Fair value adjustment to financial asset Provision for loss on equity accounted investments Change in operating assets and liabilities: Decrease/(increase) in inventories (Increase)/decrease in receivables (Increase)/decrease in other current assets Decrease in deferred tax liability Decrease in net current tax liability (Decrease)/increase in payables Decrease in provisions Net cash from/(used in) operating activities 2020 $’000 2019 $’000 9,041 16,439 2,125 ( 51 ) 37 ( 1,264 ) 66 1,173 754 190 516 947 36,473 ( 12,657 ) ( 1,799 ) ( 955 ) ( 3,959 ) ( 20,139 ) ( 532 ) 252 - 15 ( 1,315 ) 274 ( 533 ) 730 ( 800 ) 669 607 ( 89,536 ) 29,829 4,758 ( 2,852 ) ( 7,502 ) 6,763 ( 3,582 ) 9,966 ( 45,784 ) Financial Statements.AVJennings Limited - Annual Report 202069 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Section B – Risk 22. 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. Fair value measurement: Judgement is exercised in determining: • fair value of financial asset carried at fair value through profit and loss. • fair value of investment property. The impact of COVID-19 and the Government’s response to it, has been incorporated in the measurement of fair value. 23. FINANCIAL RISK MANAGEMENT (i) Judgements In applying the Group’s accounting policies, management makes judgements, which can significantly affect the amounts recognised in the Consolidated Financial Statements. The Group’s principal financial assets and financial liabilities comprise receivables, payables, loans and borrowings, investment in property funds and cash. Timing of revenue recognition: 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. Significant judgement was required in determining the appropriate estimates and assumptions to be used in determining the carrying value of inventory. COVID-19 and the Government’s response to it significantly impacted our operations. Key assumptions and estimates impacted by COVID-19 include: • • forecast future sales and costs, based on the location, type and quality of residential property, recognise and incorporate the impact of COVID-19. the impact of Government subsidies on the sale of residential property. 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 treasury department focuses on the following main financial risks: • • • • interest rate risk, foreign currency risk, credit risk, 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. AVJennings Limited - Annual Report 2020COMPANY OVERVIEWDIRECTORS’ REPORTFINANCIAL STATEMENTSADDITIONAL INFORMATION70 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 23. FINANCIAL RISK MANAGEMENT (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 Group had the following cash and variable rate borrowings: Cash Bank loans Net financial liabilities Borrowings not hedged Weighted average interest rate % 0.36 1.47 2020 2019 Balance $'000 ( 5,703 ) 190,110 184,407 184,407 Weighted average interest rate % 0.89 2.80 Balance $'000 ( 18,209 ) 200,335 182,126 182,126 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 disclosed in note 3: +50 basis points -50 basis points The effect on the basis that no interest is capitalised, would be as follows: +50 basis points -50 basis points (ii) Foreign currency risk Profit After Tax Higher/(Lower) 2020 $'000 ( 100 ) 100 2019 $'000 ( 89 ) 89 Profit After Tax Higher/(Lower) 2020 $'000 ( 645 ) 645 2019 $'000 ( 637 ) 637 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% Profit After Tax Higher/(Lower) Equity Higher/(Lower) 2020 $'000 ( 24 ) 24 2019 $'000 - - 2020 $'000 ( 147 ) 147 2019 $'000 ( 125 ) 125 Financial Statements.AVJennings Limited - Annual Report 202071 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 23. FINANCIAL RISK MANAGEMENT (continued) (iii) Credit risk 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, receivables, financial assets 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 37 for details regarding financial guarantees. The Group has no significant concentrations of credit risk. (iv) Liquidity risk Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group manages its liquidity risk by monitoring forecast cash flows on a fortnightly basis and matching the maturity profiles of financial assets and liabilities. These are reviewed by the Chief Financial Officer and presented to the Board as appropriate. The objective is to maintain a balance between continuity of funding and flexibility through the use of bank loans and committed available credit facilities. $50,000,000 of the Group’s main banking facilities currently matures on 30 September 2021 with the balance of $250,000,000 maturing on 30 September 2022 and are therefore non-current. In addition, the Group operated certain project funding facilities which are discussed in note 15(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 2020, none (2019: 0.3%) of the Group’s interest-bearing loans and borrowings will mature in less than one year. AVJennings Limited - Annual Report 2020COMPANY OVERVIEWDIRECTORS’ REPORTFINANCIAL STATEMENTSADDITIONAL INFORMATION72 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 23. FINANCIAL RISK MANAGEMENT (continued) (iv) Liquidity risk (continued) The table below summarises the maturity profile of the Group’s financial assets and liabilities based on contractual undiscounted payments. Year ended 30 June 2020 Financial Assets Cash and cash equivalents Receivables Financial Liabilities Payables Interest-bearing loans and borrowings* Lease liabilities (note 16) Financial Guarantees Net maturity Year ended 30 June 2019 Financial Assets Cash and cash equivalents Receivables Financial Liabilities Payables Interest-bearing loans and borrowings* Financial Guarantees < 6 months $'000 6-12 months $'000 > 1-5 years $'000 Total $'000 5,703 13,799 19,502 14,996 1,398 738 1,031 18,163 1,339 - 9,237 9,237 1,544 1,391 804 - 3,739 5,498 - 14,742 14,742 28,959 193,594 5,060 - 227,613 5,703 37,778 43,481 45,499 196,383 6,602 1,031 249,515 (212,871) (206,034) < 6 months $'000 6-12 months $'000 > 1-5 years $'000 Total $'000 18,209 10,688 28,897 29,038 3,347 1,148 33,533 - 4,400 4,400 12,196 2,787 - 14,983 - 10,033 10,033 24,069 206,788 - 230,857 18,209 25,121 43,330 65,303 212,922 1,148 279,373 Net maturity ( 4,636 ) ( 10,583 ) ( 220,824 ) ( 236,043 ) * Expected settlement amounts of interest-bearing loans and borrowings include an estimate of the interest payable to the date of expiry of the facilities. At reporting date, the Group has approximately $123 million (2019: $93 million) of unused credit facilities available. Please refer to note 15. Financial Statements.AVJennings Limited - Annual Report 202073 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 23. 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 2020 Year ended 30 June 2019 Quoted prices in active markets (Level 1) $'000 Significant observable inputs (Level 2) $'000 Significant unobservable inputs (Level 3) $'000 - - - - 1,695 1,695 Total $'000 1,695 1,695 - - 190,110 190,110 - - 190,110 190,110 Quoted prices in active markets (Level 1) $'000 - - - - Significant observable inputs (Level 2) $'000 Significant unobservable inputs (Level 3) $'000 Total $'000 - - 2,211 2,211 2,211 2,211 200,335 200,335 - - 200,335 200,335 Financial assets Financial asset Financial liabilities Interest-bearing loans and borrowings 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. Investment property is considered Level 3. Refer to note 8. 24. 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 2020, a total dividend of $10,968,000 was paid (2019: $15,910,000). 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 2020 $'000 190,110 ( 5,703 ) 184,407 393,130 655,177 46.9% 28.1% 2019 $'000 200,335 ( 18,209 ) 182,126 396,277 685,236 46.0% 26.6% AVJennings Limited - Annual Report 2020COMPANY OVERVIEWDIRECTORS’ REPORTFINANCIAL STATEMENTSADDITIONAL INFORMATION74 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Section C – Group Structure 25. CONTROLLED ENTITIES (a) Investment in controlled entities The following economic entities are the controlled entities of AVJennings Limited: ECONOMIC ENTITY (1) 2020 2019 2020 2019 % 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 Montpellier Gardens Pty Limited(3) AVJennings (Cammeray) Pty Limited(3) 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(3) AVJennings Properties SPV No 4 Pty Limited(3) AVJennings Wollert Pty Limited(3) AVJ Erskineville Pty Limited(3) AVJ Hobsonville Pty Limited(3) AVJennings Properties SPV No 9 Pty Limited(3) AVJennings SPV No 10 Pty Limited AVJennings SPV No 19 Pty Limited(3) AVJennings SPV No 20 Pty Limited AVJennings SPV No 22 Pty Limited(3) AVJennings SPV No 23 Pty Limited AVJennings SPV No 24 Pty Limited AVJennings SPV No 25 Pty Limited(4) AVJennings SPV No 26 Pty Limited(4) Creekwood Developments Pty Limited(3) Portarlington Nominees Pty Limited(3) 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 Yes No Yes Yes Yes Yes Yes Yes No Yes Yes Yes Yes No No No Yes Yes No No Yes Yes No Yes Yes Yes Yes Yes Yes Yes Yes No Yes Yes No Yes Yes Yes Yes Yes Yes No Yes No Yes No No No No Yes Yes Financial Statements.AVJennings Limited - Annual Report 202075 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 25. CONTROLLED ENTITIES (continued) (a) Investment in controlled entities (continued) % Equity Interest Included in Banking Cross Deed of Covenant (2) ECONOMIC ENTITY (1) 2020 2019 2020 2019 Entities excluded from the Closed Group (continued) AVJennings St Clair Pty Limited(3) St Clair JV Nominee Pty Limited(3) AVJennings Properties Wollert SPV Pty Limited AVJennings Waterline Pty Limited Cusack Lane Nominees Pty Ltd AVJennings NZ Management Services Ltd 100 100 100 100 100 100 100 100 100 100 100 100 Yes Yes No Yes Yes No Yes Yes No No No No (1) All entities with the exception of AVJennings NZ Management Services Ltd are incorporated in Australia. With the exception of AVJ Hobsonville Pty Limited which has a branch in New Zealand and AVJennings NZ Management Services Ltd which is incorporated and operates in New Zealand, all entities operate within Australia. (2) These entities, including AVJennings Limited, are included under the Banking Cross Deed of Covenant referred to in note 15(a). (3) These entities, including AVJennings Limited, are included in the Deeds of Indemnity for performance bond facilities referred to in note 15(c). (4) Incorporated on 23 May 2020. (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 25(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”. AVJennings Limited - Annual Report 2020COMPANY OVERVIEWDIRECTORS’ REPORTFINANCIAL STATEMENTSADDITIONAL INFORMATION76 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 25. CONTROLLED ENTITIES (continued) (d) Corporations Instrument closed group Certain controlled entities were granted relief by ASIC (under provisions of the 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 25(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 25(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 sales Other expenses (Loss)/profit before income tax Income tax (Loss)/profit after income tax Closed Group 2020 $’000 2019 $’000 142,622 ( 108,449 ) ( 39,085 ) ( 4,912 ) 1,197 ( 3,715 ) 149,610 ( 106,817 ) ( 41,357 ) 1,436 ( 30 ) 1,406 Financial Statements.AVJennings Limited - Annual Report 2020 77 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 25. 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: 2020 $’000 2019 $’000 Current assets Cash and cash equivalents Receivables Inventories Tax receivable Other assets Total current assets Non-current assets Receivables Inventories Equity accounted investments Financial asset Plant and equipment Right-of-use assets Intangible assets Total non-current assets Total assets Current liabilities Payables Lease liabilities Tax payable Provisions Total current liabilities Non-current liabilities Payables Interest-bearing loans and borrowings Lease liabilities Deferred tax liabilities Provisions Total non-current liabilities Total liabilities Net assets Equity Contributed equity Reserves Retained earnings Total equity 1,172 189,845 69,040 1,223 2,580 263,860 5,488 149,375 5,636 1,695 1,214 5,711 2,816 171,935 435,795 7,745 1,485 - 5,410 14,640 19,860 149,000 4,848 13,002 649 187,359 201,999 233,796 7,660 185,479 75,966 - 1,615 270,720 9,036 164,085 6,649 2,211 1,059 - 2,816 185,856 456,576 17,758 - 2,150 6,348 26,256 15,143 152,000 - 14,224 482 181,849 208,105 248,471 174,179 5,380 54,237 174,509 4,626 69,336 233,796 248,471 AVJennings Limited - Annual Report 2020COMPANY OVERVIEWDIRECTORS’ REPORTFINANCIAL STATEMENTSADDITIONAL INFORMATION78 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 25. 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 Effect of adoption of new revenue accounting standard Effect of adoption of new leases accounting standard Comprehensive income: (Loss)/profit 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 At end of year 26. EQUITY ACCOUNTED INVESTMENTS Joint Ventures Accounting Closed Group 2020 $’000 248,471 - ( 416 ) ( 3,715 ) ( 3,715 ) - ( 330 ) 754 ( 10,968 ) ( 10,544 ) 2019 $’000 265,812 ( 10,133 ) - 1,406 1,406 7,480 ( 914 ) 730 ( 15,910 ) ( 8,614 ) 233,796 248,471 2020 $’000 2019 $’000 5,636 6,649 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. 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 joint ventures is disclosed in the Consolidated Statement of Comprehensive Income. Dividends received from 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 joint venture are eliminated to the extent of the interest in the joint venture, until the underlying assets are realised by the joint venture on consumption or sale. Financial Statements.AVJennings Limited - Annual Report 2020 79 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 26. EQUITY ACCOUNTED INVESTMENTS (continued) If there is objective evidence that the investment in the 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. Interest in Joint Ventures Joint Venture and principal activities Pindan Capital Group Dwelling Trust - Building Construction Movements in carrying amount At beginning of year Dividends received Amounts received Share of loss At end of year before provision for loss Provision for loss on investment At end of year (1) Interest held 2020 33.3% 2020 $’000 6,649 - - ( 66 ) 6,583 ( 947 ) 5,636 2019 33.3% 2019 $’000 10,721 ( 1,655 ) ( 1,536 ) ( 274 ) 7,256 ( 607 ) 6,649 (1) The difference between the carrying amount and the share of net assets in the table below relates to the provision for loss recognised by the Group. The Group’s share of the 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 sales Expenses Loss before income tax Income tax Loss after income tax At 30 June 2020, there were no significant commitments entered into by the Joint Venture. 2020 $’000 380 8,552 8,932 218 1,524 1,742 7,190 1,447 ( 1,093 ) ( 420 ) ( 66 ) - ( 66 ) 2019 $’000 333 9,161 9,494 252 1,986 2,238 7,256 3,606 ( 2,815 ) ( 1,058 ) ( 267 ) ( 7 ) ( 274 ) AVJennings Limited - Annual Report 2020COMPANY OVERVIEWDIRECTORS’ REPORTFINANCIAL STATEMENTSADDITIONAL INFORMATION80 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 27. INTEREST IN JOINT OPERATIONS A controlled entity has entered into a Joint Operation. Information relating to the Joint Operation is set out below: Joint Operation name, principal place of business and principal activities Wollert Joint Venture (Victoria) - Land Development and Building Construction Accounting Interest held 2020 49% 2019 49% 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 Operation have been recognised in the Financial Statements under the appropriate headings. The Group’s share of the Joint Operation’s assets, liabilities, revenues and expenses are as follows: Share of assets and liabilities Current assets Non-current assets Total assets Current Liabilities Current liabilities Non-current liabilities Total liabilities Net assets Share of revenues and expenses Revenues Cost of sales Other expenses Profit before income tax Income tax Profit after income tax Total comprehensive income for the year 2020 $'000 14,935 24,714 39,649 2,889 6,136 9,025 30,624 20,826 ( 13,069 ) ( 1,150 ) 6,607 ( 1,982 ) 4,625 4,625 2019 $'000 16,163 27,097 43,260 6,826 7,068 13,894 29,366 34,797 ( 25,856 ) ( 2,141 ) 6,800 ( 2,040 ) 4,760 4,760 Financial Statements.AVJennings Limited - Annual Report 202081 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Section D – Other information 28. CORPORATE INFORMATION The Consolidated Financial Statements of AVJennings Limited for the year ended 30 June 2020 were authorised for issue in accordance with a resolution of the Directors on 1 Septmeber 2020. 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 53.94% 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. 29. STATEMENT OF COMPLIANCE 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). 30. BASIS OF PREPARATION These Financial Statements have been prepared on a going concern basis, using historical cost convention with the exception of financial assets at fair value through profit and loss. 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. Consistent accounting policies have been applied in the current and prior years with the exception of AASB 16 Leases (refer to note 39) and JobKeeper Payment Scheme (refer to note 40(e)) for further details. 31. 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. AVJennings Limited - Annual Report 2020COMPANY OVERVIEWDIRECTORS’ REPORTFINANCIAL STATEMENTSADDITIONAL INFORMATION 82 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31. RELATED PARTY DISCLOSURES (continued) (b) Share and share option transactions with Directors and Director-related entities 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 2020 Number 2019 Number 224,927,833 224,206,692 (c) Entity with significant influence over AVJennings Limited 219,112,839 ordinary shares equating to 53.94% of the total ordinary shares on issue (2019: 218,881,388 and 53.88% respectively) were held by SC Global Developments Pte Ltd and its subsidiaries in the Parent Entity at 30 June 2020. 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 The Group recognises an allowance for expected credit losses (ECLs) for all related party receivables. Negligible ECLs over these amounts have been assessed as at 30 June 2020. (e) Transactions with related parties Entity with significant influence over the Group: SC Global Developments Pte Ltd Consultancy fee paid/payable Joint Ventures: Woodville JV Accounting services fee received/receivable Dividends received Equity repatriations 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 (i) Ceased to be a joint venture on 15 February 2020. (ii) Ceased to be a joint venture on 27 June 2019. Note 2020 $ 2019 $ (i) (ii) 580,000 600,000 - - - 19,500 1,389,669 1,601,719 2,513,092 50,000 4,380,854 50,000 - - 185,282 29,167 Financial Statements.AVJennings Limited - Annual Report 202083 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31. RELATED PARTY DISCLOSURES (continued) (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 26 and 27. (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 (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 2020 $’000 822 988 130 2020 $’000 2,090 2020 $’000 2019 $’000 1,681 1,181 150 2019 $’000 1,659 2019 $’000 2,448,879 ( 3,938 ) - 34,696 2,216,088 68,835 377,106 44,747 130,007 123,496 105,650 505,326 90,846 348,775 3,220,620 3,269,893 (1) (2) ‘Other’ represents the value of motor vehicle benefits. Payments to Defined Contribution Plans represent Superannuation Guarantee Contribution payments. (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. AVJennings Limited - Annual Report 2020COMPANY OVERVIEWDIRECTORS’ REPORTFINANCIAL STATEMENTSADDITIONAL INFORMATION84 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 32. 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 2020 $’000 2019 $’000 979 1,132 ( 225 ) ( 402 ) 754 730 The share-based payment plan is described in note 32(b). (b) Type of share-based payment plan LTI grants are only made to Executives who have the ability to impact the Group’s performance and create shareholder value over the long term. LTI remuneration is provided by the Issue of Rights with performance conditions. The use of Performance Rights as an incentive reduces the upfront cash requirements (as shares do not need to be acquired for allocations). Shares are acquired on market by the Plan Trustee to satisfy the grant of shares in respect of rights which have vested. Participants do not receive dividends on Rights (as distinct from shares). LTI and performance The TSR measure was introduced in February 2020 to replace the former ROE component of the Performance Rights which used market capitalisation as a proxy for equity. The TSR hurdle will apply to grants under the LTI from FY21 onwards. The old ROE hurdle will apply to grants which were made in FY19 and FY20. The comparator group is not directly comparable to AVJennings as the Index contains non-residential property participants. However, this comparator group was chosen as the best approximation as the pool of directly comparable listed developers was too small to provide a reliable and meaningful comparator group. Both elements of the Performance Rights (EPS and TSR, formerly ROE) are also subject to a service condition. The recipient must be employed by AVJennings as at 30 June of the year in which the performance conditions of the rights are tested. The rights only vest if both the service condition and the performance conditions are satisfied. The performance conditions are tested at the end of the three- year measurement period, in the September following release of the financial statements for that year. There is no re-testing. If the conditions are not satisfied when they are tested, the Rights are immediately forfeited. The operation of the EPS, ROE and the new TSR 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%) 50% of Performance Rights granted vest depending on AVJennings’ average growth rate in EPS over the three financial years of performance measurement. This ROE hurdle was removed in February 2020 and replaced with TSR hurdle for grants for FY21 and beyond. 50% of Performance Rights granted vest depending on AVJennings’ TSR over the three financial years of performance measurement against the ASX 300 Real Estate Index, a comparator group including peers in the residential property sector. Financial Statements.AVJennings Limited - Annual Report 202085 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 32. SHARE-BASED PAYMENT PLANS (continued) (b) Type of share-based payment plan (continued) AVJennings TSR rank against ASX 300 RE Index at 30 September < median At the median > median but < 75th percentile > 75th percentile Percentage vesting Nil 50% of the allocation for the hurdle Pro-rata between 50th and 75th percentiles 100% of the allocation for the hurdle 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 33.33% 33.33% 33.34% Unvested retention rights are subject to real risk of forfeiture, for example where an Executive ceases employment for any reason. Accounting 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. Where an award is cancelled during the vesting period other than by forfeiture for failure to satisfy the vesting conditions, it is treated as an acceleration of vesting, and the entity recognises immediately the amount that would otherwise have been recognised for services received over the remainder of the vesting period. (c) Summary of rights granted The following is the status of rights granted (both KMP and other executives) from FY17 onwards under the restructured share-based remuneration: Total rights granted Rights vested to date Rights forfeited to date Rights cancelled to date Unvested rights at 30 June 2020 FY2017 Grant FY2018 Grant FY2019 Grant FY2020 Grant Total 1,859,171 1,671,573 1,841,470 1,978,415 ( 1,285,626 ) ( 580,892 ) ( 402,130 ) - ( 573,545 ) ( 22,757 ) ( 25,117 ) - - ( 1,067,924 ) ( 236,510 ) ( 282,320 ) - - 1,177,713 1,696,095 7,350,629 ( 2,268,648 ) ( 621,419 ) ( 1,586,754 ) 2,873,808 AVJennings Limited - Annual Report 2020COMPANY OVERVIEWDIRECTORS’ REPORTFINANCIAL STATEMENTSADDITIONAL INFORMATION86 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 32. SHARE-BASED PAYMENT PLANS (continued) (c) Summary of rights granted (continued) The following table gives details and inputs in respect of the rights granted for the retention and performance components for the years ended 30 June 2020 and 2019. Number of rights granted Weighted average fair value at measurement date Dividend yield (%) Risk-free interest rate (%) Expected life (years) Share price Number of rights granted Weighted average fair value at measurement date Dividend yield (%) Risk-free interest rate (%) Expected life (years) Share price 33. AUDITOR’S REMUNERATION Fees to Ernst & Young Fees for auditing the statutory financial report of the parent covering the Group and audting the statutory financial reports of controlled entities Fees for other services Total fees to Ernst & Young 2020 Retention 2020 Performance 846,970 $0.4913 7.37 0.67 to 0.77 0.90 to 2.89 $0.56 1,131,445 $0.4505 7.37 0.67 3.09 $0.56 2019 Retention 2019 Performance 800,761 $0.5957 7.35 1.91 to 2.03 0.88 to 2.89 $0.68 1,040,709 $0.5461 7.35 2.05 3.09 $0.68 2020 $ 2019 $ 318,682 322,407 6,367 8,468 325,049 330,875 Financial Statements.AVJennings Limited - Annual Report 202087 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 34. 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 for diluted EPS Treasury shares Weighted average number of ordinary shares for basic EPS 35. 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 (b) Guarantees entered into by the Parent Entity 2020 $’000 2019 $’000 9,041 16,439 2020 Number 2019 Number 406,230,728 403,146,462 - ( 762,619 ) 406,230,728 402,383,843 2020 $’000 2019 $’000 69,679 232,965 69,255 232,541 6 6 6 6 174,179 174,509 5,380 53,400 232,959 4,626 53,400 232,535 - - - - The Parent Entity has not provided any guarantees other than those mentioned in notes 15(a), 15(c), 25(c) and 37. (c) Contingent liabilities of the Parent Entity Please refer to note 37 for details of the Parent Entity’s contingent liabilities. AVJennings Limited - Annual Report 2020COMPANY OVERVIEWDIRECTORS’ REPORTFINANCIAL STATEMENTSADDITIONAL INFORMATION88 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 36. 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 2020(1) $’000 2019 $’000 269 92 361 350 11 361 2,259 2,003 4,262 3,822 440 4,262 (1) The new leases Accounting Standard was adopted on 1 July 2019 - refer to note 39. Accordingly, lease liabilities for the year ended 30 June 2020 have been presented in note 16. Only liabilities in respect of short-term leases and leases of low-value assets, are presented here. The Group has applied the recognition exemption for these leases. 37. 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 25(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 25(a). Contingent liabilities in respect of certain performance bonds, granted by the Group’s financiers, in the normal course of business as at 30 June 2020 amounted to $30,377,000 (2019: $39,812,000). 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. An accrual is taken up for legal costs if a present obligation exists and there is a high degree of certainty on the amount payable. In cases where costs have been estimated after the exercise of judgement, a provision is taken up. 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 25(a). 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 2020, amounted to $15,894,000 (2019: $16,177,000). 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 2020, amounted to $1,031,000 (2019: $1,148,000). No liability is expected to arise. Financial Statements.AVJennings Limited - Annual Report 202089 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 38. SIGNIFICANT EVENTS AFTER BALANCE SHEET DATE The contract for the acquisition of land at 280 Bridge Inn Road Mernda, Victoria became unconditional on 24 July 2020. The purchase price is $28.3 million and the project yield which is currently under review, is expected to be about 231 lots. A deposit of 10% was paid as at 30 June 2020 and the balance is to be settled in May 2021. No other matter or circumstance has arisen since 30 June 2020 that has significantly affected, or may significantly affect: a) b) c) the Group’s operations in future financial years; or the results of those operations in future financial years; or the Group’s state of affairs in future financial years. 39. NEW ACCOUNTING STANDARDS AND INTERPRETATIONS The Group applied AASB 16 for the first time from 1 July 2019. The nature and effect of the changes as a result of adoption of these new accounting standards are described below. AASB 16 Leases: (adopted by the Group on 1 July 2019) AASB 16 supersedes AASB 117 Leases, IFRIC 4 Determining whether an Arrangement contains a Lease, SIC-15 Operating Leases- Incentives and SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease. The standard sets out the principles for the recognition, measurement, presentation and disclosure of leases and requires lessees to account for all leases under a single on-balance sheet model. Lessor accounting under AASB 16 is substantially unchanged from that under AASB 117. Lessors will continue to classify leases as either operating or finance leases using similar principles as in AASB 117. The Group adopted AASB 16 using the modified retrospective method of adoption with the date of initial application of 1 July 2019. Under this method, the standard is applied retrospectively with the cumulative effect of initially applying the standard recognised at the date of initial application. The Group elected to use the recognition exemptions for lease contracts that, at the commencement date, have a lease term of 12 months or less and do not contain a purchase option (‘short-term leases’), and lease contracts for which the underlying asset is of low value (‘low-value assets’). The effect of the adoption of AASB 16 as at 1 July 2019 is as follows: Assets Right-of-use assets Total adjustment on assets Liabilities Lease liabilities Deferred tax liabilities Total adjustment on liabilities Equity Retained earnings Total adjustment on equity a) b) c) d) Right of use assets recognised relating to operating leases Lease liabilities recognised relating to operating leases Tax effect of the difference between right of use assets and lease liabilities at adoption The post tax effect of the adoption on opening retained earnings Note (a) (b) (c) (d) Increase/ (decrease) $'000 3,524 3,524 4,118 ( 178 ) 3,940 ( 416 ) ( 416 ) AVJennings Limited - Annual Report 2020COMPANY OVERVIEWDIRECTORS’ REPORTFINANCIAL STATEMENTSADDITIONAL INFORMATION90 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 39. NEW ACCOUNTING STANDARDS AND INTERPRETATIONS (continued) Lease liabilities as at 1 July 2019 can be reconciled to operating lease commitments as at 30 June 2019 as follows: AASB 16 Leases (continued) Upon adoption of AASB 16, the Group applied a single recognition and measurement approach for all leases, except for short-term leases and leases of low-value assets. The Group recognised right-of-use assets and lease liabilities for those leases previously classified as operating leases, except for short-term leases and leases of low-value assets. The right-of-use assets for most leases were recognised based on the carrying amount as if the standard had always been applied, apart from the use of the incremental borrowing rate at the date of initial application. In some leases, the right-of-use assets were recognised based on the amount equal to the lease liabilities, adjusted for any related prepaid and accrued lease payments previously recognised. Lease liabilities were recognised based on the present value of the remaining lease payments, discounted using the incremental borrowing rate at the date of initial application. The weighted average incremental borrowing rate applied to the lease liabilities on 1 July 2019 was 5.68%. The Group also applied the available practical expedients wherein it: • Used a single discount rate to a portfolio of leases with reasonably similar characteristics. • Relied on its assessment of whether leases are onerous immediately before the date of initial application. • Applied the short-term lease exemptions to leases with lease terms that end within 12 months at the date of initial application. • Excluded initial direct costs from the measurement of the right-of-use assets at the date of initial application. • Used hindsight in determining the lease term where the Operating lease obligations at 30 June 2019 Recognition exemptions: - Leases of low value assets - Leases with remaining lease term of less than 12 months Cost of service type non-lease components and other adjustments Reasonably certain lease extensions Sub-total Effect of discounting Lease liability opening balance reported as at 1 July 2019 under AASB 16 $'000 4,262 ( 387 ) ( 426 ) ( 166 ) 1,231 4,514 ( 396 ) 4,118 Set out below are the new accounting policies of the Group upon adoption of AASB 16, which have been applied from the date of initial application: Right-of-use assets: The Group recognises right-of-use assets at the commencement date of the lease (i.e., the date the underlying asset is available for use). Right-of-use assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any remeasurement of lease liabilities. The cost of right-of-use assets includes the amount of lease liabilities recognised, initial direct costs incurred, and lease payments made at or before the commencement date less any lease incentives received. Unless the Group is reasonably certain to obtain ownership of the leased asset at the end of the lease term, the recognised right- of-use assets are depreciated on a straight-line basis over the shorter of its estimated useful life and the lease term. Right-of- use assets are subject to impairment. contract contains options to extend or terminate the lease. Lease liabilities: At the commencement date of the lease, the Group recognises lease liabilities measured at the present value of lease payments to be made over the lease term. The lease payments include fixed payments less any lease incentives receivable, variable lease payments that depend on an index or a rate, and amounts expected to be paid under residual value guarantees. The lease payments also include the exercise price of a purchase option reasonably certain to be exercised by the Group and payments of penalties for terminating a lease, if the lease term reflects the Group exercising the option to terminate. The variable lease payments that do not depend on an index or a rate are recognised as an expense in the period in which the event or condition that triggers the payment occurs. Financial Statements.AVJennings Limited - Annual Report 2020 91 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 39. NEW ACCOUNTING STANDARDS AND INTERPRETATIONS (continued) AASB 16 Leases (continued) In calculating the present value of lease payments, the Group uses the incremental borrowing rate at the lease commencement date if the interest rate implicit in the lease is not readily determinable. After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made. In addition, the carrying amount of lease liabilities is remeasured if there is a modification, a change in the lease term, a change in the in-substance fixed lease payments or a change in the assessment to purchase the underlying asset. Other Accounting Standards, Interpretations and Amendments Several other amendments and interpretations apply for the first time in 2020, but do not have a significant impact on the Consolidated Financial Statements of the Group. The Group has not early adopted any standards, interpretations or amendments that have been issued, but are not yet effective. The Group is currently assessing the impact of standards which will be effective in future years. 40. 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. Short-term leases and leases of low-value assets: a) Basis of consolidation The Group applies the short-term lease recognition exemption to its short-term leases of plant and equipment (i.e., those leases that have a lease term of 12 months or less from the commencement date and do not contain a purchase option). It also applies the lease of low-value assets recognition exemption to leases of office equipment that are considered of low value (i.e., below $5,000). Lease payments on short-term leases and leases of low-value assets are recognised as an expense on a straight-line basis over the lease term. Significant judgement in determining the lease term of contracts with renewal options: The Group determines the lease term as the non-cancellable term of the lease, together with any periods covered by an option to extend the lease if it is reasonably certain to be exercised, or any periods covered by an option to terminate the lease, if it is reasonably certain not to be exercised. The Group has the option, under some of its office leases to lease the assets for additional terms of up to three years. The Group applies judgement in evaluating whether it is reasonably certain to exercise the option to renew. That is, it considers all relevant factors that create an economic incentive for it to exercise the renewal. After the commencement date, the Group reassesses the lease term if there is a significant event or change in circumstances that is within its control and affects its ability to exercise (or not to exercise) the option to renew (e.g., a change in business strategy). The Group included the renewal period as part of the lease term for leases of office space due to the significance of these assets to its operations. The renewal options if any, for leases of plant and equipment and motor vehicles were not included as part of the lease term because the Group has a record of not exercising any renewal options for such leases. The Consolidated Financial Statements comprise the financial statements of AVJennings Limited and its subsidiaries as at 30 June 2020. 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. AVJennings Limited - Annual Report 2020COMPANY OVERVIEWDIRECTORS’ REPORTFINANCIAL STATEMENTSADDITIONAL INFORMATION 92 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 40. OTHER ACCOUNTING POLICIES (continued) e) JobKeeper Payment Scheme c) Goods and services tax (GST) 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; and 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. The Federal Government introduced a JobKeeper Payment Scheme to support businesses significantly affected by COVID-19 to help keep more Australians in jobs. The JobKeeper Payment is available to eligible employers to enable them to pay their eligible employee’s salary or wages of at least $1,500 (before tax) per fortnight. Eligible employers are reimbursed a fixed amount of $1,500 per fortnight for each eligible employee from 30 March 2020, for up to 13 fortnights. Employers are required to pay eligible employees a minimum of $1,500 (before tax) per fortnight to claim the JobKeeper payment. This is paid to the employer in arrears each month by the ATO. If employers do not continue to pay their employees for each pay period, they cease to qualify for the JobKeeper payment. 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. The Group is eligible for this payment which has been accounted for in accordance with AASB 120 – Accounting for Government Grants and Disclosure of Government Assistance. A total amount of $1,556,000 has been claimed to 30 June 2020. The credit has been recorded as an offset against employee expenses in the Statement of Comprehensive Income. d) Foreign currency translation (i) Functional and presentation currency The Group’s functional and presentation currency is Australian Dollars. (ii) Translation of Group Companies’ functional currency to presentation currency The results and financial positions of foreign operations that have a functional currency different from the presentation currency are translated into the presentation currency as follows: • assets and liabilities for each Statement of Financial Position presented are translated at the closing rate at the date of that Statement of Financial Position; • income and expenses for each Statement of Comprehensive Income are translated at average exchange rates; and • all resulting exchange differences are recognised in other comprehensive income. On consolidation, exchange differences arising from the translation of any net investment in foreign entities are recognised in other comprehensive income. When a foreign operation is sold or any borrowings forming part of the net investment are repaid, the associated exchange differences are reclassified to profit or loss, as part of the gain or loss on sale. Financial Statements.AVJennings Limited - Annual Report 202093 DIRECTORS’ DECLARATION. 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 2020 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 29; 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 2020. 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 25 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 1 September 2020 Peter Summers Director AVJennings Limited - Annual Report 2020COMPANY OVERVIEWDIRECTORS’ REPORTFINANCIAL STATEMENTSADDITIONAL INFORMATION 94 Ernst & Young 200 George Street Sydney NSW 2000 Australia GPO Box 2646 Sydney NSW 2001 Tel: +61 2 9248 5555 Fax: +61 2 9248 5959 ey.com/au Ernst & Young 200 George Street Sydney NSW 2000 Australia GPO Box 2646 Sydney NSW 2001 Tel: +61 2 9248 5555 Fax: +61 2 9248 5959 ey.com/au Auditor’s Independence Declaration to the Directors of AVJennings Limited Independent Auditor’s Report to the Members of AVJennings Limited As lead auditor for the audit of the financial report of AVJennings Limited for the financial year ended 30 Report on the Audit of the Financial Report June 2020, I declare to the best of my knowledge and belief, there have been: Auditor’s Independence Declaration to the Directors of AVJennings Limited Opinion a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and As lead auditor for the audit of the financial report of AVJennings Limited for the financial year ended 30 b) no contraventions of any applicable code of professional conduct in relation to the audit. June 2020, I declare to the best of my knowledge and belief, there have been: 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 2020, the consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended, notes to the financial This declaration is in respect of AVJennings Limited and the entities it controlled during the financial year. a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in statements, including a summary of significant accounting policies, and the directors’ declaration. relation to the audit; and In our opinion, the accompanying financial report of the Group is in accordance with the b) no contraventions of any applicable code of professional conduct in relation to the audit. Corporations Act 2001, including: This declaration is in respect of AVJennings Limited and the entities it controlled during the financial year. a) giving a true and fair view of the consolidated financial position of the Group as at 30 June 2020 and of its consolidated financial performance for the year ended on that date; and b) complying with Australian Accounting Standards and the Corporations Regulations 2001. Ernst & Young Basis for Opinion Ernst & Young 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 Glenn Maris Financial Report section of our report. We are independent of the Group in accordance with the Partner 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 1 September 2020 Accountants (including Independence Standards) (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 Glenn Maris the Code. Partner 1 September 2020 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. c) 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 - 32 30 June 2020 A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation AVJennings Limited - 32 30 June 2020 AVJennings Limited - Annual Report 2020 Ernst & Young 200 George Street Sydney NSW 2000 Australia GPO Box 2646 Sydney NSW 2001 Tel: +61 2 9248 5555 Fax: +61 2 9248 5959 ey.com/au Ernst & Young 200 George Street Sydney NSW 2000 Australia GPO Box 2646 Sydney NSW 2001 Tel: +61 2 9248 5555 Fax: +61 2 9248 5959 ey.com/au 95 Auditor’s Independence Declaration to the Directors of AVJennings Limited 1. Net realisable value (NRV) of inventories As lead auditor for the audit of the financial report of AVJennings Limited for the financial year ended 30 Why significant June 2020, I declare to the best of my knowledge and belief, there have been: Auditor’s Independence Declaration to the Directors of AVJennings Limited How our audit addressed the key audit matter a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in Our audit procedures focused on assessing the judgments and assumptions made by the Group in the feasibilities underpinning the net As lead auditor for the audit of the financial report of AVJennings Limited for the financial year ended 30 realisable value assessments. b) no contraventions of any applicable code of professional conduct in relation to the audit. June 2020, I declare to the best of my knowledge and belief, there have been: Approximately 90% of the Group’s total assets comprise inventories. Inventories are carried at the relation to the audit; and lower of cost and net realisable value and the directors assess this with reference to the following: This declaration is in respect of AVJennings Limited and the entities it controlled during the financial year. a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in Our procedures included the following: � Capitalised costs to date relation to the audit; and � Forecast costs to complete � Average historic and forecast selling price and b) no contraventions of any applicable code of professional conduct in relation to the audit. accumulation sales rate for each project � Held discussions with Project Managers to understand the status This declaration is in respect of AVJennings Limited and the entities it controlled during the financial year. and progress of a sample of developments � Assessed and tested the effectiveness of relevant controls over cost � Changes to the underlying assumptions based on the impact of changing market conditions and changes to strategy, which includes the COVID-19 pandemic negatively impacting the residential real estate market in Australia. Ernst & Young Ernst & Young This was considered a key audit matter as the assessment involves a significant degree of judgment Glenn Maris and can present a range of alternative outcomes. Partner 1 September 2020 There is judgment involved in determining the appropriate allocation of cost of sales recognised upon the realisation of inventories. Glenn Maris Partner 1 September 2020 Disclosure of inventories is included in Note 7 of the financial report. Disclosure of significant judgments is included in Note 22 of the financial report. � 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 � Corroborated the costs projected to signed contracts or actual costs incurred for current or comparable projects � Assessed contingency estimates for remaining development risks � Selected a sample of identified higher risk projects in which we involved our internal real estate valuation specialists to evaluate the key sales revenue assumptions in these projects � Performed sensitivity analyses in relation to the key forward looking assumptions including sales price achieved, cost per lot and escalation rates � Considered the impact of the market uncertainty arising from COVID-19 on the Group’s forward looking assumptions. � Tested the mathematical accuracy of the feasibilities tested. A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation AVJennings Limited - 32 30 June 2020 A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation AVJennings Limited - 32 30 June 2020 AVJennings Limited - Annual Report 2020COMPANY OVERVIEWDIRECTORS’ REPORTFINANCIAL STATEMENTSADDITIONAL INFORMATION 96 Ernst & Young 200 George Street Sydney NSW 2000 Australia GPO Box 2646 Sydney NSW 2001 Tel: +61 2 9248 5555 Fax: +61 2 9248 5959 ey.com/au Ernst & Young 200 George Street Sydney NSW 2000 Australia GPO Box 2646 Sydney NSW 2001 Tel: +61 2 9248 5555 Fax: +61 2 9248 5959 ey.com/au Auditor’s Independence Declaration to the Directors of AVJennings Limited Information Other than the Financial Report and Auditor’s Report Thereon Auditor’s Independence Declaration to the Directors of AVJennings Limited As lead auditor for the audit of the financial report of AVJennings Limited for the financial year ended 30 The directors are responsible for the other information. The other information comprises the information June 2020, I declare to the best of my knowledge and belief, there have been: included in the Company’s 2020 Annual Report other than the financial report and our auditor’s report thereon. We obtained the Directors’ Report, and we expect to obtain the remaining sections of the Annual Report after the date of this auditor’s report. a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and As lead auditor for the audit of the financial report of AVJennings Limited for the financial year ended 30 b) no contraventions of any applicable code of professional conduct in relation to the audit. June 2020, I declare to the best of my knowledge and belief, there have been: Our opinion on the financial report does not cover the other information and we do not and will not express any form of assurance conclusion thereon, with the exception of the Remuneration Report and our related assurance opinion. This declaration is in respect of AVJennings Limited and the entities it controlled during the financial year. a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and In connection with our audit of the financial report, our responsibility is to read the other information and, b) no contraventions of any applicable code of professional conduct in relation to the audit. 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. This declaration is in respect of AVJennings Limited and the entities it controlled during the financial year. If, based on the work we have performed on the other information obtained prior to the date of this Ernst & Young auditor’s report, 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 Ernst & Young Glenn Maris The directors of the Company are responsible for the preparation of the financial report that gives a true Partner and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for 1 September 2020 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. Glenn Maris Partner 1 September 2020 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 relating 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. A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation AVJennings Limited - 32 30 June 2020 A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation AVJennings Limited - 32 30 June 2020 AVJennings Limited - Annual Report 2020 Ernst & Young 200 George Street Sydney NSW 2000 Australia GPO Box 2646 Sydney NSW 2001 Tel: +61 2 9248 5555 Fax: +61 2 9248 5959 ey.com/au Ernst & Young 200 George Street Sydney NSW 2000 Australia GPO Box 2646 Sydney NSW 2001 Tel: +61 2 9248 5555 Fax: +61 2 9248 5959 ey.com/au 97 Auditor’s Independence Declaration to the Directors of AVJennings Limited • 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. As lead auditor for the audit of the financial report of AVJennings Limited for the financial year ended 30 June 2020, I declare to the best of my knowledge and belief, there have been: • Auditor’s Independence Declaration to the Directors of AVJennings Limited Evaluate the appropriateness of accounting policies used and the reasonableness of accounting a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in estimates and related disclosures made by the directors. relation to the audit; and • Conclude on the appropriateness of the directors’ use of the going concern basis of accounting This declaration is in respect of AVJennings Limited and the entities it controlled during the financial year. a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in As lead auditor for the audit of the financial report of AVJennings Limited for the financial year ended 30 b) no contraventions of any applicable code of professional conduct in relation to the audit. June 2020, I declare to the best of my knowledge and belief, there have been: 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 relation to the audit; and 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 b) no contraventions of any applicable code of professional conduct in relation to the audit. auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern. This declaration is in respect of AVJennings Limited and the entities it controlled during the financial year. • Ernst & Young 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. Ernst & Young 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 Glenn Maris identify during our audit. Partner 1 September 2020 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, actions taken to eliminate threats or safeguards applied. Glenn Maris Partner 1 September 2020 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. A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation AVJennings Limited - 32 30 June 2020 A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation AVJennings Limited - 32 30 June 2020 AVJennings Limited - Annual Report 2020COMPANY OVERVIEWDIRECTORS’ REPORTFINANCIAL STATEMENTSADDITIONAL INFORMATION 98 Ernst & Young 200 George Street Sydney NSW 2000 Australia GPO Box 2646 Sydney NSW 2001 Tel: +61 2 9248 5555 Fax: +61 2 9248 5959 ey.com/au Ernst & Young Ernst & Young 200 George Street 200 George Street Ernst & Young Sydney NSW 2000 Australia Sydney NSW 2000 Australia 200 George Street GPO Box 2646 Sydney NSW 2001 GPO Box 2646 Sydney NSW 2001 Sydney NSW 2000 Australia GPO Box 2646 Sydney NSW 2001 Tel: +61 2 9248 5555 Tel: +61 2 9248 5555 Fax: +61 2 9248 5959 Fax: +61 2 9248 5959 Tel: +61 2 9248 5555 ey.com/au ey.com/au Fax: +61 2 9248 5959 ey.com/au Auditor’s Independence Declaration to the Directors of AVJennings Limited relation to the audit; and a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in Auditor’s Independence Declaration to the Directors of AVJennings Limited Report on the Audit of the Remuneration Report As lead auditor for the audit of the financial report of AVJennings Limited for the financial year ended 30 June 2020, I declare to the best of my knowledge and belief, there have been: Opinion on the Remuneration Report Auditor’s Independence Declaration to the Directors of AVJennings Auditor’s Independence Declaration to the Directors of AVJennings We have audited the Remuneration Report included in the Directors’ Report for the year ended 30 June 2020. Limited As lead auditor for the audit of the financial report of AVJennings Limited for the financial year ended 30 Limited b) no contraventions of any applicable code of professional conduct in relation to the audit. June 2020, I declare to the best of my knowledge and belief, there have been: In our opinion, the Remuneration Report of AVJennings Limited for the year ended 30 June 2020, complies with As lead auditor for the audit of the financial report of AVJennings Limited for the financial year ended 30 This declaration is in respect of AVJennings Limited and the entities it controlled during the financial year. a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in section 300A of the Corporations Act 2001. As lead auditor for the audit of the financial report of AVJennings Limited for the financial year ended 30 June 2019, I declare to the best of my knowledge and belief, there have been: relation to the audit; and June 2019, I declare to the best of my knowledge and belief, there have been: Responsibilities b) no contraventions of any applicable code of professional conduct in relation to the audit. a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in This declaration is in respect of AVJennings Limited and the entities it controlled during the financial year. 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 Ernst & Young Standards. b) no contraventions of any applicable code of professional conduct in relation to the audit. 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. This declaration is in respect of AVJennings Limited and the entities it controlled during the financial year. relation to the audit; and relation to the audit; and Ernst & Young Glenn Maris Partner 1 September 2020 Ernst & Young Ernst & Young Ernst & Young Glenn Maris Partner 1 September 2020 Glenn Maris Glenn Maris Partner Glenn Maris Partner 5 September 2019 Partner 5 September 2019 1 September 2020 A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation AVJennings Limited - 32 30 June 2020 A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation A member firm of Ernst & Young Global Limited A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation Liability limited by a scheme approved under Professional Standards Legislation AVJennings Limited - 32 30 June 2020 AVJennings Limited - Annual Report 2020 Shareholder Information. 99 As at 8 September 2020. 1. NUMBER OF SHAREHOLDERS AND DISTRIBUTION OF EQUITY SECURITIES Range of Holdings of Ordinary Shares 1 - 1,000 1,001 - 5,000 5,001 - 10,000 10,001 - 100,000 100,001 - and over Total number of holders Number of holders of less than a marketable parcel 2. SUBSTANTIAL SHAREHOLDERS As disclosed by latest notices received by the Company: Name SC Global Developments Pte Ltd Australian Securities Exchange Singapore Exchange 630 807 316 767 171 2,691 561 266 580 185 205 26 1,262 259 Total 896 1,387 501 972 197 3,953 820 Ordinary Shares 219,112,839 % 53.94 AVJennings Limited - Annual Report 2020COMPANY OVERVIEWDIRECTORS’ REPORTFINANCIAL STATEMENTSADDITIONAL INFORMATION100 Shareholder Information. As at 8 September 2020. 3. TWENTY LARGEST SHAREHOLDERS ON THE AUSTRALIAN REGISTER Name The Central Depository (Pte) Ltd Brazil Farming Pty Ltd BNP Paribas Nominees Pty Ltd Citicorp Nominees Pty Ltd HSBC Custody Nominees (Australia) Ltd Gillcorp Pty Ltd Pacific Custodians Pty Ltd AVJ Def Emp Share Trust John E Gill Operations Pty Ltd John E Gill Trading Pty Ltd JP Morgan Nominees Australia Pty Ltd Horrie Pty Ltd Luton Pty Ltd Jamplat Pty Ltd Ago Pty Ltd Dr D R M Gill and Mrs J M Gill Mr Bradley John Newcombe Anchorfield Pty Ltd Di Iulio Homes Pty Ltd Carlcorp Pty Ltd Hillmorton Custodians Pty Ltd Ordinary Shares 225,231,604 16,967,100 16,923,556 14,750,135 8,608,591 6,343,003 6,021,520 5,609,105 5,598,712 5,127,973 3,747,931 3,085,853 2,500,000 2,182,342 1,958,511 1,588,565 1,500,000 1,401,472 1,368,609 1,293,054 % 55.44 4.18 4.17 3.63 2.12 1.56 1.48 1.38 1.38 1.26 0.92 0.76 0.62 0.54 0.48 0.39 0.37 0.34 0.34 0.32 Total 331,807,636 81.68 AVJennings Limited - Annual Report 2020Shareholder Information. As at 8 September 2020. 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 or Sim Lye Wan Tsang Sze Hang DBS Nominees Pte Ltd Rowland Wong Kwok Ho Vesmith Investments Pte Ltd Raffles Nominees (Pte) Ltd Pansbury Investments Pte Ltd Citibank Nominees Singapore Pte Ltd Hexacon Construction Pte Ltd UOB Kay Hian Pte Ltd Teo Chiang Long OCBC Nominees Singapore Pte Ltd Ng Poh Cheng Wee Kim Choo @ Elizabeth Sam Chng Bee Suan Chua Hung Koon Edmond Total 101 % 47.38 2.96 0.44 0.39 0.35 0.22 0.21 0.20 0.17 0.16 0.13 0.11 0.09 0.07 0.07 0.06 0.06 0.05 0.05 0.05 Ordinary Shares 192,463,638 12,011,389 1,782,618 1,570,170 1,408,420 899,283 857,972 804,175 681,796 655,710 532,828 453,267 368,480 294,414 269,172 261,537 233,131 224,820 224,220 216,873 216,213,913 53.22 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 on 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 406,230,728. AVJennings Limited - Annual Report 2020COMPANY OVERVIEWDIRECTORS’ REPORTFINANCIAL STATEMENTSADDITIONAL INFORMATION102 Company Particulars. DIRECTORS Mr Simon Cheong Mr Jerome Rowley Mr Bobby Chin Mr Lai Teck Poh Mr Bruce Hayman Mr Tan Boon Leong Mr Philip Kearns 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 Commonwealth Bank of Australia DBS Bank Ltd HSBC Bank Australia Ltd United Overseas Bank Ltd Oversea-Chinese Banking Corporation Ltd 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)). 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 DIVIDENDS Dividends paid in the year under review: Final Dividend of $0.015 for FY19 paid on 20 September 2019 Interim Dividend of $0.012 for FY20 paid on 27 March 2020 AVJennings Limited - Annual Report 2020 Building on our past. Shaping your future. Your community developer. 

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