Cedar Woods Properties Limited
Annual Report 2016

Plain-text annual report

Cedar Woods Properties Limited 2016 Annual Report ABN 47 009 259 081 About Cedar Woods Cedar Woods Properties Limited is an Australian property development company. The company was established in 1987, was listed on the Australian Securities Exchange in 1994 and was admitted to the ASX 300 in 2013. The company’s shares trade under the security code ‘CWP’. The company’s principal interests are in urban land subdivision and built form development for residential, commercial and retail purposes. Its portfolio of assets is located in Western Australia, Victoria, Queensland and South Australia. The board and management of Cedar Woods have extensive experience in the property industry, with particular expertise in adding value to land holdings through the achievement of government and local authority approvals and the planning, design and delivery process. Cedar Woods has consistently generated profits and dividends for shareholders, whilst achieving excellence in product delivery, as recognised by several national awards and many state awards, including the categories “Best Residential Estate” and “Environmental Excellence” and most recently, “Best High Density Development”. In the investor relations arena, the company is a past winner of three ARA silver awards for its Annual Report. Cedar Woods’ projects are sensitively developed with consideration for environmental and community interests and built to a high quality that is renowned in the marketplace. Through the rapid expansion of its built form development portfolio, Cedar Woods has earned a reputation of delivering high quality apartments for both the owner-occupier and investor market. The company has a strong focus on shareholder value and its record in delivering quality developments to the market has produced a strong earnings stream, providing consistently high returns to shareholders. Downloadable content Cedar Woods Properties has taken the opportunity to publish the Corporate Governance statement on its website rather than include in the annual report. A copy of the 2016 Corporate Governance statement can be downloaded from the investor relations section of the website. www.cedarwoods.com.au Other information that is available in the investor relations section is listed below. • Board Committee Charters • Risk Management Policy and Internal Compliance and Control System • Investor Communications Policy • Continuous Disclosure Policy • Performance Evaluation Policy • Privacy Policy • Primary Objectives and Company Code of Conduct • Securities Trading Policy • Diversity Policy Sustainability Reports are available on our website in the Shareholder Reports section. 2 CEDAR WOODS PROPERTIES LIMITED s t n e t n o C f o l e b a T Table of Contents Cedar Woods’ Charter ....................................................................................................................................................... 5 Our Strategy and Business Model ..................................................................................................................................... 7 Financial and Operating Review ......................................................................................................................................... 8 Project Pipeline as at 30 June 2016 ................................................................................................................................. 16 Environmental and Social Governance ............................................................................................................................. 18 Directors’ Report ............................................................................................................................................................. 23 Directors’ Report: Chair of the Human Resources and Remuneration Committee’s Letter to Shareholders ...................... 28 Directors’ Report: Remuneration Report .......................................................................................................................... 30 Auditor’s Independence Declaration ................................................................................................................................. 47 Financial Statements .................................................................................................................................................... 48 Consolidated Statement of Profit or Loss and Other Comprehensive Income .................................................................. 49 Consolidated Balance Sheet ............................................................................................................................................ 50 Consolidated Statement of Changes in Equity ................................................................................................................. 51 Consolidated Cash Flow Statement ................................................................................................................................. 52 Notes to the Financial Statements ............................................................................................................................. 53 Section A: How the Numbers are Calculated ............................................................................................................ 54 A1. Profit or Loss Information ........................................................................................................................................ 55 A2. Financial Assets and Financial Liabilities .................................................................................................................. 57 A3. Non-Financial Assets and Liabilities ........................................................................................................................ 62 A4. Equity ..................................................................................................................................................................... 68 A5. Cash Flow Information ............................................................................................................................................ 70 Section B: Financial Risks ........................................................................................................................................... 71 B1. Significant Estimates and Judgements .................................................................................................................... 72 B2. Financial Risk Management .................................................................................................................................... 73 B3. Capital Management Objectives and Gearing ........................................................................................................ 78 Section C: Group Structure ......................................................................................................................................... 80 C1. Interests in Other Entities ........................................................................................................................................ 81 Section D: Unrecognised Items .................................................................................................................................. 84 D1. Contingent Liabilities ............................................................................................................................................... 85 D2. Commitments ......................................................................................................................................................... 86 D3. Events Occurring After the Reporting Period ........................................................................................................... 87 Section E: Other Information ....................................................................................................................................... 88 E1. Related Party Transactions ..................................................................................................................................... 89 E2. Remuneration of Auditors ....................................................................................................................................... 90 E3. Employee Share Scheme ........................................................................................................................................ 91 E4. Summary of Accounting Policies ............................................................................................................................. 92 E5. Segment Information ............................................................................................................................................ 100 E6. Parent Entity Financial Information ........................................................................................................................ 101 Section F: Declaration and Independent Auditor’s Report ..................................................................................... 102 F1. Directors’ Declaration ........................................................................................................................................... 103 F2. Independent Auditor’s Report to the Members of Cedar Woods Properties Limited .............................................. 104 Section G: Shareholders’ Information ...................................................................................................................... 106 G1. Investors Summary ............................................................................................................................................... 107 G2. Five Year Financial Performance ............................................................................................................................ 110 Corporate Directory ....................................................................................................................................................... 111 2016 ANNUAL REPORT 3 4 CEDAR WOODS PROPERTIES LIMITED r e t r a h C ’ s d o o W r a d e C Cedar Woods’ Charter We are Cedar Woods Properties, an ASX 300 company with a proud history of creating communities across Australia through high-quality property development. Our purpose is to create long-term value for our shareholders through the disciplined acquisition, development and marketing of properties that meet the needs of our customers. A significant part of our business involves creating vibrant residential communities, typically in capital city growth corridors, with supporting retail and commercial developments. We are also active in the redevelopment of major infill sites where we deliver medium and high density residential dwellings. We are guided by four key values. They act as critical drivers of Cedar Woods’ culture. Integrity • Do what is right and do what we say we will do. • Uphold honesty, truthfulness and sincerity whilst remaining fair and ethical with all stakeholders. Performance • Meet or exceed the expectations of stakeholders, communities, customers and suppliers. • Maintain a strong financial position to allow us to be competitive and engage in opportunities when they arise. Innovation • Strive to create and deliver new products to develop and grow as a business. • Foster a culture that encourages learning, new ideas and rewards creativity. People and Environment • Make positive contributions to communities in which we operate. • Attract, develop and retain the best talent for our business, challenging our people, demonstrating a can do attitude and fostering a collaborative and mutually supportive environment. Our customers are influenced by interest rates, the economic outlook and Government policies. Demand in the metropolitan and regional markets in which we operate is uneven and fluctuates in response to these factors. Against this backdrop, we manage our portfolio with the aim of delivering consistent annual growth in profits and dividends. 2016 ANNUAL REPORT 5 6 CEDAR WOODS PROPERTIES LIMITED l e d o M s s e n s u B d n a i y g e t a r t S r u O Our Strategy and Business Model Our Strategy “To grow and develop our national project portfolio, diversified by: • • • geography product type price point so that it continues to hold broad customer appeal and performs well in a range of market conditions.” Delivering on strategy in FY2016 We have further diversified our portfolio geographically with the acquisition of the Wooloowin project in Brisbane and the Glenside project in Adelaide. We were also selected as preferred proponent for the acquisition of land at Port Adelaide. We launched our first apartment project at the Williams Landing Town Centre and we are planning new medium density product at Wooloowin and Glenside, while we have now launched new residential estates at Ellendale in Brisbane and Bushmead in Perth. The first home buyer, upgrader and investor segments are all well catered for in our product range and the Brisbane, Perth and Adelaide markets offer excellent affordability. Our Business Model Property Acquisitions Development Marketing & Sales Disciplined approach to acquisitions Research, design, planning and delivery Positioning projects to meet demand Identify projects that meet closely defined criteria Assess prospects in line with corporate strategy and financial targets Structure contracts to minimise risks and optimise exposure (including Joint Ventures) Designs to meet agreed project vision Achieve required approvals Ongoing market research and assessment of designs to meet financial and non- financial objectives Manage construction within annual budget, cost and timeframe Generate pre-sales to underwrite stages of projects Ongoing monitoring of sales conditions and buyer groups Efficient settlement management 2016 ANNUAL REPORT 7 Financial and Operating Review On behalf of the Board, we are pleased to present the financial and operating review of Cedar Woods Properties Limited to shareholders. The following summarises the results of operations during the year and the financial position of the consolidated entity at 30 June 2016: a) 2016 Financial Highlights • • • • record net profit of $43,602,000, up 2.4 per cent; record full year dividends of 28.5 cents per share, up 1.8 per cent; record earnings per share of 55.3 cents, up 1.8 per cent; low level of bank debt; • strong interest cover; • approval received from financiers to increase our corporate finance facility from $135,000,000 to $175,000,000 to provide funding for acquisitions. b) Growth in Net Profit After Tax (NPAT) and Dividends Paid Cedar Woods has a track record of growth over the past five years with Net Profit after Tax growing from $34.3m in FY12 to $43.6m in FY2016 and dividends declared growing from 25 cents to 28.5 cents per share. NPAT and Dividends paid for the past 5 years s n o i l l i M $ 45 40 35 30 25 20 15 10 5 0 FY12 FY13 FY14 FY15 FY16 Net Profit After Tax Dividends Paid 30 25 20 15 10 5 0 s t n e C i w e v e R g n i t a r e p O d n a l i a c n a n F i 8 CEDAR WOODS PROPERTIES LIMITED i w e v e R g n i t a r e p O d n a l i a c n a n F i c) 2016 Financial Results Summary Year ended 30 June Revenue 2016 $’000 2015 $’000 % Change 175,159 178,637 (1.9%) Proceeds from Masters store sale - 36,000 - Total revenue and other proceeds from property sales 175,159 214,637 (18.4%) Net profit after tax Total assets Net bank debt Shareholders’ equity d) Key Performance Indicators Year ended 30 June Basic and diluted earnings per share Dividends per share – fully franked Return on equity Return on capital Total shareholder return (1 year) Net bank debt to equity – 30 June Interest cover Net asset backing per share – historical cost Shares on issue – end of year Stock market capitalisation at 30 June Share price at 30 June e) Financial Year Overview 43,602 42,585 452,729 383,330 50,344 27,908 307,188 285,605 2.4% 18.1% 80.4% 7.6% 2015 % Change ¢ ¢ % % % % x $ 2016 55.3 28.5 14.2 18.3 (9.6) 16.4 16.6 3.89 54.3 28.0 14.9 19.5 (24.3) 9.8 9.9 3.62 ’000 $’000 $ 78,892 78,892 343,179 414,970 4.35 5.26 1.8 1.8 (0.7) (1.2) 14.7 6.6 67.7 7.5 0.0 (17.3) (17.3) During FY2016, market conditions remained challenging in Western Australia, while Eastern States property markets continued to perform well. The company continued to diversify its national portfolio with an acquisition at Wooloowin in Brisbane, as well as being chosen by the South Australian Government as preferred proponent for the Glenside project in Adelaide. Shortly after the end of the financial year a conditional contract was secured for the acquisition of the Glenside site, and the company was also selected as the preferred proponent for the redevelopment of two precincts at Port Adelaide. During the year, significant progress was made with stages developed across the company’s property portfolio of active projects. In particular, the company’s Ellendale development in Upper Kedron, Brisbane, received initial planning approval for the first 480 lots in FY2016, with the planning process now underway for the balance of the 228ha site. In addition, plans and approvals were progressed for a number of developments anticipated to commence in future years, with important planning milestones achieved at Bushmead and Mangles Bay. Further details of achievements in the property portfolio follow in the next section. The year closed with a record full year net profit of $43.6m, being the sixth consecutive year of record profit and earnings, allowing the Board to declare a record full year dividend of 28.5 cents per share. As a result, earnings per share for FY2016 was 55.3 cents, an increase of 1.8 per cent on the previous year. Return on equity of 14.2 per cent and return on capital of 18.3 per cent were well above the company’s benchmarks of 12 per cent and 14 per cent respectively. The 1 year total shareholder return was -9.6%. Despite the record profit, the company’s share price continued to be impacted by negative market sentiment towards WA exposed companies and the residential property sector in general. 2016 ANNUAL REPORT 9 i w e v e R g n i t a r e p O d n a l i a c n a n F i 10 f) Operational Review of Developments The housing sector has experienced strong levels of activity in FY2016 with housing starts running at record levels nationally, fuelled by low interest rates and improving consumer sentiment. Building approvals continue at high levels in all states except WA, but are expected to ease in FY2017. The HIA economics group is forecasting annual dwelling starts to decrease in FY2017 with FY2016 the peak year in the cycle, but demand is forecast to continue at historically robust levels. In Victoria demand remains strong, particularly for well-located property close to transport infrastructure and other amenities. Solid price gains have been experienced in the Melbourne market over the last twelve months although prices are now beginning to moderate. In WA, ongoing population growth, relatively low unemployment and improving affordability continue to sustain demand. Recent data has shown an uptick in land sales and new building activity after easing from the resources driven upswing. In Queensland, State Treasury is forecasting 4% growth in the economy in FY2017, faster than every other state in Australia, driven by strong export activity. Dwelling investment is forecast to continue to grow at a steady rate with Queensland at an earlier phase in the housing cycle than the other states. Current high prices in Sydney and Melbourne are expected to cause increased demand for property in Brisbane, as investors chase higher yields and owner-occupiers seek greater affordability. In South Australia, the economy is expected to grow by 2% in FY2017 as low interest rates, government infrastructure spending and shipbuilding stimulate that market. i. Victoria The company’s projects in Victoria again performed well during the year, with strong sales and settlement results and good margins achieved. Construction of the Botanica Apartments in Footscray, comprising 101 apartments, was completed with settlements occurring in June and July 2016. Two other townhouse stages at the Banbury Village development in Footscray were also developed with settlements now complete. Several residential stages were completed at Williams Landing and good presales achieved for stages to be delivered in FY2017. The Newton Apartments project, comprising 57 one & two bedroom apartments, was successfully launched with 100% presales being achieved and construction underway. Completion is expected in FY2017. Planning for the next apartment project, Oxford apartments, is well advanced with a launch expected in mid FY2017. While the shopping centre now operates with a high level of occupancy, some of the original specialty retailers have underperformed and provisions of approximately $800,000, covering outstanding rent and impaired lease incentives, were made in the second half FY2016. Strategies have been implemented to improve tenancy performance and minimise vacancies in the short term while, in the long term, performance of the shopping centre is expected to improve as the Town Centre matures. Planning work for strata offices, a hotel and other commercial uses in the Town Centre is underway. The company sold a site to aged care facility developer and operator, Tricare, during the year adding to the diversity of developments at Williams Landing. The company’s new housing developments, St A. in St Albans and Jackson Green in Clayton South, have progressed well with civil contractors and home builders appointed, and planning permits in place for the initial stages of housing at both projects. The Victorian State Government is well progressed with the new station and level crossing removal at St. Albans, with completion expected in FY2017. Level crossing removal and the commencement of station construction works at Clayton, near the Jackson Green development, is also expected in FY2017. ii. Western Australia Market conditions in Western Australia eased during FY2015 and FY2016 after the resource driven peak, however early signs of improved conditions are now emerging. Although overall sales volumes declined, Cedar Woods has continued to achieve steady sales during FY2016, particularly at its estates in high-growth areas where limited competing product is available. The marketing launch of an exciting new project at Bushmead took place in late July to encouraging early results, with all 15 lots in the first release sold within three days. This project is located 15 kilometres north-east of the Perth CBD and is in close proximity to the Midland town centre and the Perth Airport precinct. CEDAR WOODS PROPERTIES LIMITED i w e v e R g n i t a r e p O d n a l i a c n a n F i Two thirds of the land at Bushmead will be set aside as park and recreational reserves, creating a unique environment for the enjoyment of local residents. The total project site covers 273 hectares and will be developed in stages to deliver approximately 935 lots over the next 8-10 years. Consistent sales have been achieved in the final canal stage of Mariners Cove in Mandurah and there are only a small number of lots remaining. Plans for the development of a waterfront site, allowing medium density housing, are being progressed. At Ariella Estate in Brabham, which is located 17 kilometres north-east of Perth’s CBD and within a strong growth corridor, construction of the 94-lot Stage 2 was completed in April 2016. The Sales and Marketing Centre is now open, with pleasing levels of enquiry and sales continuing. The commencement of construction of Stage 3 is expected during FY2017. During the first half of FY2016 Cedar Woods completed the acquisition of 51 hectares of land at North Baldivis, located 36 kilometres south of Perth, adjoining an existing Cedar Woods landholding of 68 hectares. The combined landholding of 119 hectares will enable economies of scale and provide opportunities for efficiency in estate design and, being located next to the Kwinana Freeway, is expected to be a landmark project for the Baldivis corridor. The company is well established in this region and this project will provide an extended presence in the area. It will yield approximately 1580 lots over the next 10-15 years. Planning continues for the Mangles Bay marina-based tourist precinct, 39 kilometres south of the Perth CBD. With all environmental approvals achieved, completion of statutory planning is anticipated in the first quarter of calendar 2017 and construction is anticipated to commence in FY2018. This mixed use project will provide much needed boating and tourism facilities, together with a range of housing options for the Rockingham region, as well as improved public access to the Mangles Bay beach front. The Batavia Coast Marina Apartments project in Geraldton has underperformed, reflecting the property downturn in the resources-exposed regions of WA. The company has further impaired the carrying value of its investment in the trust by $1 million during the year, ($300,000 impairment recognised in the first half and $700,000 in the second half) with the investment now fully impaired as at 30 June 2016. A full provision was also made for a $400,000 loan to the trust. iii. Queensland Planning at the company’s new Ellendale project in Upper Kedron in Queensland was progressed during the year, with approval for the first stages granted. Construction has commenced and the project recently launched with approximately 50 sales already achieved. Home builders have expressed strong interest in the display village which will commence construction following completion of civil works. The Queensland State Government approved the initial 480 dwellings on the site. The balance of the project is subject to a further planning process which is expected to conclude in late 2017. In December 2015 the company purchased another well located site in Brisbane, being 3.8 hectares in Wooloowin, a sought after suburb 6 kilometres north of the Brisbane CBD. Design work is underway for a medium-density residential development on the site; a process expected to conclude in FY2018. The site is well located in relation to train stations, shopping centres, schools and parks. iv. South Australia In July 2016 Cedar Woods confirmed the purchase of a 16.5 hectare site from the State Government at Glenside in the city’s inner eastern suburbs, just 3 kilometres from the CBD. Settlement of the purchase will occur upon finalisation of the rezoning, which is expected to occur later this year. The site will accommodate approximately 1,000 dwellings. The company was also selected as preferred developer by the State Government for a site at Port Adelaide. The site is 14 kilometres north-west of the Adelaide CBD and only 1.5 kilometres from Semaphore Beach. The 12.6 hectare site covers two precincts (North West and Fletcher’s Slip) which form part of a larger 40 hectare redevelopment area. Port Adelaide is located 7 kilometres from the Techport precinct, which is the confirmed build location for Australia’s next generation Future Submarines and Future Frigates Program commencing in 2018, creating thousands of new long-term jobs. The project site will accommodate approximately 500 dwellings across the two precincts with the majority being two and three storey townhouses. The State Government’s agency, Renewal SA, and Cedar Woods will work together over the next six months to develop a master plan for the Port Adelaide project, in consultation with the community. 2016 ANNUAL REPORT 11 i w e v e R g n i t a r e p O d n a l i a c n a n F i 12 g) Corporate Objectives, Strategy and Risks Cedar Woods’ Corporate Plan guides management’s activities and provides a five year outlook for the company, projecting earnings and other key performance indicators. Cedar Woods’ primary objective is to create value for shareholders as it aims to deliver consistent year on year growth in net profit and earnings per share and put the company in the top half of all listed industrial companies based on financial performance. This year, the company reported full year net profit growth of 2.4 per cent and dividend growth of 1.8 per cent. The Corporate Plan sets out a number of key action items and strategies focused on achieving delivery of earnings growth and addressing key risk factors. These key actions are implemented as performance targets by senior executives, sales managers and other employees. In addition, twice each year our Audit and Risk Management Committee assesses risk factors that may affect the company including specific risks affecting individual projects and more general risks affecting our business sector. The overarching strategic objective is to grow and develop our national project portfolio, diversified by geography, product type and price point, so that it continues to hold broad customer appeal and performs well in a range of market conditions. The company’s key areas of focus, as set out in the Corporate Plan and shown in our business model on page 7 are: i. Acquisition of properties The focus on the project pipeline guides management’s activities by ensuring there is sufficient diversity by geography and product to meet the company’s ongoing earnings objectives in the years ahead and influences the company’s acquisition strategy. Consequently, progress with acquisitions in FY2016 was achieved in 3 different states and with regard to a variety of housing types. In the last year the company acquired an additional 51 hectares of land at North Baldivis (WA), adjacent to the company’s existing land holding purchased in 2011. Fully developed, the additional land is expected to produce approximately 700 residential lots and the combined land holding will have a total lot yield of approximately 1580 lots. In Dec 2015 the company purchased another well located site in Brisbane (QLD), 3.8ha in Wooloowin, a sought after suburb 6 kilometres north of the Brisbane CBD. Progress was made towards the acquisition of two landholdings in Adelaide (SA) as detailed in the preceding sections. A summary of the project pipeline may be found at the end of this Financial and Operating Review on page 16. Cedar Woods’ core competency is in property development and the company continues to achieve industry- leading design, delivery and marketing of projects to maximise returns. ii. Development The company has a strategically located and diverse residential portfolio in urban and regional growth areas in Western Australia, Victoria, Queensland and South Australia offering a wide spectrum of dwelling product and price points to consumers. The company’s offerings include small affordable housing lots at its residential estates through to high-end luxury apartments at boutique waterfront developments. Cedar Woods utilises joint ventures and co-development arrangements to diversify the company’s revenue streams and efficiently manage its capital. This year, the company continued development by Cedar Woods Wellard Limited, which generates ongoing revenue by way of management and selling fees. Cedar Woods will build a limited number of commercial and retail property assets at Williams Landing and at other estates, where the development of those buildings is consistent with the estate’s master plan objectives. The long term ownership of those assets will be balanced against the company’s capital management objectives and acquisition opportunities. Developments may be sold once they have achieved the amenity objectives and their valuations have matured, with disposals likely to become a regular component of the company’s future revenue stream. The company sold a site to aged care facility developer and operator, Tricare, during the year adding to the diversity of developments at Williams Landing. ii. Marketing and sales The company continually assesses the markets in which it operates in order to ensure it has a wide offering of product to meet customer demand. Achieving sufficient pre-sales underwrites each development and is an important performance indicator for management. The company successfully launched new projects at Ellendale (Upper Kedron) in Brisbane’s western corridor and at Bushmead in Perth’s eastern corridor during the year and progressed approvals for a number of other projects across its portfolio that will contribute in future years. CEDAR WOODS PROPERTIES LIMITED i w e v e R g n i t a r e p O d n a l i a c n a n F i h) Risks The general risks to company performance include those relevant to the property market, including government policy in relation to immigration and support for the housing industry generally, the environmental policy framework, monetary policy set by the Reserve Bank of Australia, the strength of the labour market and consumer confidence. The company is also exposed to the property cycles in the markets in which it operates, i.e. Western Australia (regional and metropolitan), Victoria (metropolitan), Queensland (metropolitan) and South Australia (metropolitan). The fluctuations in demand in these markets represent a risk to achieving the company’s financial objectives. The company aims to mitigate this risk by operating in diverse geographical markets and offering a wide range of products and price points to various consumer segments. Whilst house and land prices fluctuate, underlying demand will be driven by population growth and changing demographics. In the past, the company has achieved its profit objective by managing both prices and volumes through the property cycle. Individual projects are exposed to a number of risks including those related to obtaining the necessary approvals for development, construction risks and delays, pricing risks and competition. The “call in” of the Upper Kedron project by the Queensland Government provides an example of such risks, with the company’s program for that project delayed by approximately twelve months, although approval has now been received to enable development to commence. The company aims to balance its portfolio at any time in favour of mature projects where the project risks are generally diminished. i) Capital Management The company reviewed its credit facilities during the year, maintaining the corporate bank facility limit at $135m, and extending the tenure by a further year to November 2018. The company has received recent approval from its financiers to increase its current corporate facility from $135m to $175m to provide funding for the Glenside and Port Adelaide opportunities. In addition, the company has a facility of $30m in place for the Williams Landing Shopping Centre, expiring in February 2019. The year concluded with a low net debt to equity of 16.4 per cent at year end, temporarily below the company’s target debt to equity range of 20-75 per cent. Interest cover was at a favourable 16.6 times. The dividend policy, which is to distribute approximately 50 per cent of the annual net profit, was maintained. The company suspended the dividend reinvestment plan and bonus share plan during the year in response to capital management initiatives, having regard to the company share price. j) Sustainability Reporting and Corporate Governance Report These reports are available as separate downloadable documents on our website www.cedarwoods.com.au under the Corporate Governance and Shareholder reports pages. k) People Cedar Woods remains committed to an inclusive workplace that embraces and promotes diversity. The diversity policy sets out a framework for the company’s diversity-related initiatives, strategies and programs. Commentary is provided in the Corporate Governance Statement on the company’s website. During the year the company introduced new staff induction and retention initiatives, including an Employee Service Recognition Policy. l) Board Matters The board is conscious of its duty to ensure the company meets its performance objectives. During the year, the board and its committees reviewed their respective charters and performance to ensure they were properly discharging their responsibilities. The charters were updated during the year as required and are published on the company’s website. During the year the company has reviewed its corporate governance framework and practices and has implemented a number of key changes: • a review of the company’s Board committees that has resulted in the company achieving a fully independent Audit & Risk Management committee, • a review of the remuneration framework for the key management personnel, including improved linkage of the performance assessment to the company’s balanced scorecard, and greater weighting towards variable components of executive remuneration, • the implementation of a new equity based long term incentive plan that was announced last year. Further details of these changes are contained in this Annual Report and the Corporate Governance Statement which is available on the company’s website and also on the ASX website. 2016 ANNUAL REPORT 13 m) Outlook Cedar Woods is well positioned moving into FY2017 with strong pre-sales of $184 million, low debt, funding capacity and a diverse portfolio of developments in established growth corridors in Melbourne, Perth and Brisbane and, soon, Adelaide. The development program for FY2017 will see the completion of a number of stages at new projects, including at Bushmead, Ellendale and in the Williams Landing Town Centre. The company anticipates that earnings will be skewed significantly to the second half of FY2017, with the first half result considerably lower than the first half of FY2016. Assuming current market conditions continue in FY2017, the company is well placed to maintain profit momentum during the current financial year and into FY2018. The company anticipates a similar profit result in FY2017 to that achieved in FY2016. A number of new projects, including Jackson Green and St A. in Victoria, where the first stages are already under construction, and North Baldivis and Mangles Bay in Western Australia, where development is expected to proceed over the next 12 months, together with the recent move into the Adelaide market, provide a positive growth outlook for future financial years. William Hames Chairman Paul Sadleir Managing Director i w e v e R g n i t a r e p O d n a l i a c n a n F i 14 CEDAR WOODS PROPERTIES LIMITED 2016 ANNUAL REPORT 15 15 e n i l e p P i t c e o r j P 16 Project Pipeline as at 30 June 2016 PROJECT NAME CORRIDOR / LOCATION PROJECT TYPE LOTS / UNITS PROJECT LOTS / UNITS REMAIN FY17 FY18 FY19 FY20 FY21 FY22 PROJECT LIFE WESTERN AUSTRALIA - PERTH Mariners Cove The Brook at Byford Rivergums Baldivis Ariella South Canal South East Residential Land South Residential Land North East Residential Land Byford on the Scarp South East Residential Land Piara Waters / Forrestdale South East Residential Land Bushmead North Baldivis Pinjarra East South South Residential Land Residential Land Residential Land WESTERN AUSTRALIA - REGIONAL (As of 1/7/16) 40 277 457 425 262 443 935 1580 1080 948 405 1413 480 324 443 935 1580 1080 Elements South Hedland Pilbara Residential Land 136 15 WESTERN AUSTRALIA - “JV” PROJECTS Cedar Woods Wellard (Emerald Park) South Residential Land Batavia Coast Marina Apartments Mid-West Apartments Harrisdale Green Mangles Bay Western Edge South East Residential Land South Pilbara Mixed Use Residential Land VICTORIA - MELBOURNE Banbury Village Carlingford St Albans Jackson Green Inner West Houses & Apartments North Residential Land North West Houses & Apartments South East Houses & Apartments Williams Landing Residential Williams Landing Town Centre West West Residential Land Retail / Mixed Use / Apartments QUEENSLAND - BRISBANE Ellendale Wooloowin North West Residential Inner North Houses & Apartments SOUTH AUSTRALIA - ADELAIDE Glenside (proposed) Inner South East Houses & Apartments Port Adelaide (proposed) North West Houses & Apartments 665 54 427 TBD 600 430 650 250 350 2385 600 480 279 1000 500 135 27 262 TBD 600 6,538 62 141 250 350 721 600 2,124 480 279 759 1000 500 1,500 CEDAR WOODS PROPERTIES LIMITED PROJECT NAME CORRIDOR / LOCATION PROJECT TYPE LOTS / UNITS LOTS / UNITS PROJECT REMAIN FY17 FY18 FY19 FY20 FY21 FY22 PROJECT LIFE Planning & Design Development & Sales Leasing, Development & Sales e n i l e p P i t c e o r j P WESTERN AUSTRALIA - REGIONAL Elements South Hedland Pilbara Residential Land 136 15 WESTERN AUSTRALIA - PERTH Mariners Cove The Brook at Byford Rivergums Baldivis Ariella Bushmead North Baldivis Pinjarra South Canal South East Residential Land South Residential Land North East Residential Land East South South Residential Land Residential Land Residential Land Byford on the Scarp South East Residential Land Piara Waters / Forrestdale South East Residential Land WESTERN AUSTRALIA - “JV” PROJECTS Cedar Woods Wellard (Emerald Park) South Residential Land Batavia Coast Marina Apartments Mid-West Apartments Harrisdale Green Mangles Bay Western Edge Banbury Village Carlingford St Albans Jackson Green VICTORIA - MELBOURNE South East Residential Land South Pilbara Mixed Use Residential Land Inner West Houses & Apartments North Residential Land North West Houses & Apartments South East Houses & Apartments Williams Landing Residential Williams Landing Town Centre West West Residential Land Retail / Mixed Use / Apartments QUEENSLAND - BRISBANE Ellendale Wooloowin North West Residential Inner North Houses & Apartments SOUTH AUSTRALIA - ADELAIDE Glenside (proposed) Inner South East Houses & Apartments Port Adelaide (proposed) North West Houses & Apartments 948 405 1413 480 324 443 935 1580 1080 665 54 427 TBD 600 430 650 250 350 2385 600 480 279 1000 500 (As of 1/7/16) 40 277 457 425 262 443 935 1580 1080 135 27 262 TBD 600 6,538 62 141 250 350 721 600 480 279 759 2,124 1000 500 1,500 2016 ANNUAL REPORT 17 e c n a n r e v o G l i a c o S d n a l a t n e m n o r i v n E 18 Environmental and Social Governance ESG Reporting Cedar Woods seeks to integrate sustainability best practice into all levels of decision making and project outcomes. To achieve this, leadership is provided at senior executive level to ensure that sustainability management and performance is integrated into the company’s culture, processes and stakeholder relationships. This helps us manage the non-financial impacts and performance of our projects. In addition, the company is working to embed innovation as a consistent business practice. It recently established an ‘Innovation and Business Development Committee’ in its Perth and Melbourne offices. Current areas of focus include: strengthening links with universities, housing construction efficiencies, affordability, shared equity, sales and marketing, finance packaging, deposit funding and existing business processes. These initiatives tie in with Cedar Woods emerging ‘continuous improvement’ approach to business. This section summaries our sustainability performance for the past financial year. It provides updates and progress against targets and outcomes identified in the balanced scorecard reporting and allows us to communicate our achievements to our business, industry and stakeholder parties. It should be read in conjunction with Cedar Woods’ annual Sustainability Report. Sustainability Objective: Integrate sustainability best practice into all levels of decision making and project outcomes. Environment and Climate Change - enhance and rehabilitate environmental assets; remediate contamination as an integral part of project delivery; and promote renewable energy, energy efficiency and reduced energy consumption. FY2016 Highlights and Achievements • Cedar Woods continues to build on its track record of being an environmentally responsible developer. All greenfield projects continue to be subject to thorough site analysis and surveys at the outset to determine biodiversity objectives. This highlights the required local, state and commonwealth approvals and opportunities for retention and management of biodiversity to improve project outcomes. • Bushmead has been recognised by the State government as delivering an improved environmental outcome, based on Cedar Woods gifting two-thirds of the site for conservation management and the remediation of site contamination. Commonwealth environmental approval has now been granted. The first stage subdivision has now commenced. • The Ellendale masterplan dedicates 40% of the site as a greenspace corridor. It has received Federal, State and local government environmental approvals. A Queensland State government review concluded that the Cedar Woods project would result in overall environment enhancement, including restored habitat linkages, improved wildlife movement networks, including fauna underpasses, squirrel glider poles and nesting boxes and ecological buffers. • Cedar Woods’ Sustainability Checklist and Sustainable Living Guide template continues to be rolled out in new estates, encouraging new home builders to make smart choices to address escalating energy costs, water scarcity and other impacts of climate change. Optimising Land Use - delivering the best use of land by optimising land use mix and product yield in the context of high quality urban places that deliver quality of life. FY2016 Highlights and Achievements • By the nature of our business, a key outcome of our project delivery is to assist with residential and commercial land supply in line with the Perth, Melbourne, Brisbane and now Adelaide strategic planning frameworks. The company has developed a proven model for delivering quality, medium-density projects in middle and inner suburbs. This year saw an expansion of this model with the acquisition of an infill site in Wooloowin, in Brisbane’s inner north, Glenside, just 3 kilometres from the Adelaide CBD, which will see 1,000 medium to high density homes, and the company’s selection as preferred proponent for two redevelopment precincts in Port Adelaide. CEDAR WOODS PROPERTIES LIMITED e c n a n r e v o G l i a c o S d n a l a t n e m n o r i v n E 2016 ANNUAL REPORT 19 e c n a n r e v o G l i a c o S d n a l a t n e m n o r i v n E 20 • Our Melbourne office has continued to deliver strategic urban renewal projects along public transport corridors with further progress at Williams Landing Town Centre, St Albans, Jackson Green and the completion of Banbury Village. • Perth based projects continue to be characterised by the acquisition of government priority green fields projects in urban corridors, with the acquisition of an additional 50.7ha in Baldivis. • The Ellendale project is one of three broadacre development areas identified within the urban footprint in the South East Queensland Regional Plan. It will optimise disused rural land by providing residential housing supply that compliments an established residential area, capitalising on existing transport and service infrastructure. Housing Diversity - promote equality of access to housing for all sectors of the community. FY2016 Highlights and Achievements • Cedar Woods commitment to providing affordable housing was highlighted through the Elements project which won the 2015 UDIA Russel Perry Excellence Award and Affordable Housing Excellence Award. Affordable Housing strategies have continued to be delivered at Carine Rise, Harrisdale and The Rivergums. • Cedar Woods selection on Glenside, a strategic infill site just 3 kilometres from the Adelaide CBD, will include 1,000 medium to high density homes and includes 15% affordable housing. • Cedar Woods selection as preferred proponent to purchase two precincts in Port Adelaide also includes the provision of 15% affordable housing. Heritage - recognising Indigenous and cultural heritage. FY2016 Highlights and Achievements • Cedar Woods has continued to respect Indigenous and European cultural heritage at all of its project sites. Ethnographic and architectural research is undertaken for all projects to ensure that Indigenous and European heritage is identified and managed appropriately. Glenside contains four heritage buildings which will be adaptively reused for residential homes and/or services such as a café or childcare facility. Stakeholder Engagement - maintain Cedar Woods’ position as a competent and trustworthy company and joint venture partner and a valuable contributor to the property industry. FY2016 Highlights and Achievements • Engagement with our government stakeholders is guided by targeted relationship engagement and communication plans which are developed for each project and updated annually. • Cedar Woods is a trusted joint venture partner with each of the Western Australian State land development agencies through the following projects: Carine Rise (LandCorp); Mangles Bay Marina (LandCorp); Harrisdale Green (Housing Authority); Elements, South Hedland (Dept of Lands) and Western Edge, South Hedland (LandCorp). • Cedar Woods has maintained its membership with key industry associations, including the Urban Development Institute of Australia, Property Council Australia and Housing Institute Australia. Company staff participate on many industry committees. • Project operations with industry consultants and contractors involve day to day communications and attendance at project and operational meetings. Consultant and contractor performance assessments are carried out bi-annually. • Cedar Woods continues to acknowledge the importance of adopting a proactive approach to community engagement which often provides opportunities to mitigate and address community concerns. Active engagement strategies were undertaken for planning at Glenside, Ellendale, Bushmead and The Rivergums with the advancement of planning approvals. Community Investment, Development and Integration - create vibrant communities by investing in their wellbeing, nurturing a strong ‘sense of community’ and maximising social connectivity. FY2016 Highlights and Achievements • Cedar Woods continued its sponsorship of the Perth International Arts Festival with an annual investment of $30,000. This sponsorship not only allows The Festival to deliver world-class performances to the people of Western Australia, it also provides Cedar Woods valuable opportunity to share the enriching experience of the various performances with investors, key stakeholders and amongst staff. • The Cedar Woods Neighbourhood Cinema tradition also continued in FY2016. WA estates at The Brook at Byford / Byford on the Scarp, Piara Central, Harrisdale Green and The Rivergums enjoyed family and neighbours coming together. The movie events were well attended and feedback was very positive. They will continue across all major WA estates in FY2017. CEDAR WOODS PROPERTIES LIMITED e c n a n r e v o G l i a c o S d n a l a t n e m n o r i v n E • Cedar Woods is committed to creating vibrant sustainable urban communities. Part of this vision includes the support of new emerging and existing community groups. At the project level, Cedar Woods has continued its Community Grants program at Byford on the Scarp, The Brook at Byford, Piara Central, Harrisdale Green, The Rivergums and Williams Landing. Over $23,000 of grants were awarded in FY2016. The total contribution to date has benefitted over 100 community groups which provide local services. • In an effort to foster a vibrant business community in the Wyndham region and Williams Landing, Cedar Woods is continuing its major sponsorship of the Wyndham Business Awards. • Other local project based events extended across Ariella, The Brook at Byford, The Rivergums and Mariners Cove, with a community investment of over $70,000. Occupational Health & Safety - providing a safe working environment for staff and stakeholders. FY2016 Highlights and Achievements • Early in FY2016 Cedar Woods adopted a new Work Health & Safety System (WHS) in order to prepare for the introduction of the Model Work Health and Safety Act as it is enacted across Australia to harmonise workplace Health and Safety law. • Management and staff have undertaken extensive training on the new requirements and procedures that have been adopted. In addition consultants and contractors working for the company on construction projects have all been briefed on the new policy and the requirements that follow as they relate to contractors and consultants. • Cedar Woods’ contractors are required to prepare OH&S plans for construction projects prior to commencement of works which are audited by independent third party assessors. A further audit is carried during the construction works. Contractors are required to report to Cedar Woods on performance of WHS matters on a regular basis during the contracted works. Contractors are assessed on their performance on WHS matters as part of any future award of contracts. • There has not been any WHS incidents of a significant nature on any Cedar Woods construction sites during FY2016. • The WHS system is being further developed and enhanced to improve the management of construction sites by Cedar Woods contractors and consultants. 2016 ANNUAL REPORT 21 22 CEDAR WOODS PROPERTIES LIMITED t r o p e R ’ s r o t c e r i D Directors’ Report Your directors present their report on the consolidated entity consisting of Cedar Woods Properties Limited (‘the company’) and the entities it controlled (together ‘the consolidated entity’ or ‘group’) at the end of, or during, the year ended 30 June 2016. a) Directors The following persons were directors of Cedar Woods Properties Limited during the whole of the financial year and up to the date of this report, except where stated: William George Hames (Chairman) Robert Stanley Brown (Deputy Chairman) Ronald Packer Stephen Thomas Pearce Valerie Anne Davies (appointed on 21 September 2015) Paul Stephen Sadleir (Managing Director) Timothy Robert Brown (Alternate for R S Brown) The qualifications, experience and other details of the directors in office at the date of this report appear on page 24 of this report. b) Principal activities The principal continuing activities of the consolidated entity in the course of the year ended 30 June 2016 were that of property developer and investor and no significant change in the nature of those activities took place during the year. c) Dividends Dividends paid to members during the financial year were as follows: Final fully franked ordinary dividend for the year ended 30 June 2015 of 16.0 cents (2014 - 15.5 cents) per fully paid share, paid on 30 October 2015 (2014 – 31 October 2014) Interim fully franked ordinary dividend for the year ended 30 June 2016 of 12 cents (2015 – 12.0 cents) per fully paid share, paid on 29 April 2016 (2015 – 30 April 2015) 2016 $’000 2015 $’000 12,622 12,142 9,467 22,089 9,248 21,390 Since the end of the financial year the directors have recommended the payment of a final fully franked ordinary dividend of $13,017,127 (16.5 cents per share) to be paid on 28 October 2016 out of retained earnings at 30 June 2016. d) Financial and operating review Information on the operations and financial position of the group and its business strategies and prospects is set out in the financial and operating review, commencing on page 8 of this annual report. e) Business strategies and prospects for future financial years The consolidated entity will continue property development operations in Western Australia, Victoria and Queensland and expects to commence property development operations in South Australia. Subject to market conditions continuing at current levels, the group anticipates that it is well placed to maintain profit momentum into FY2017, with a similar profit result to that achieved in FY2016, underpinned by a significant bank of presales already in place at the date of this report. 2016 ANNUAL REPORT 23 d e t i m L i s e i t r e p o r P s d o o W r a d e C 24 f) Significant changes in the state of affairs There were no significant changes in the state of affairs of the consolidated entity during the year. g) Matters subsequent to the end of the financial year On 12 July 2016 Cedar Woods announced that the South Australian Government approved the conditional purchase of a 16.5ha site in Glenside, Adelaide for a price of $25.8m plus GST. The Glenside site is located 3 kilometres south east of Adelaide CBD and adjacent to over 700 hectares of parkland which surrounds the city. Settlement of the purchase will occur upon finalisation of the rezoning, which is expected to occur mid FY2017. The site will accommodate approximately 1000 dwellings. The company was also selected as preferred developer by the State Government for a 12.6ha site at Port Adelaide (Port Adelaide). The site will accommodate about 500 homes with the majority being 2 to 3 storey townhouses. The State Government (Renewal SA) and Cedar Woods will work together over the next six months to develop a master plan in consultation with the community. The State Government will then determine whether to accept Cedar Woods’ proposal. Other than the above, no matters or circumstances have arisen since 30 June 2016 that have significantly affected or may significantly affect: a. b. c. the consolidated entity’s operations in future financial years; or the results of those operations in future financial years; or the consolidated entity’s state of affairs in future financial years. h) Likely developments and expected results of operations Beyond the comments at items (d) and (e), further information on likely developments in the operations of the consolidated entity and the expected results of operations have not been included in this report because the directors believe it would be likely to result in unreasonable prejudice to the consolidated entity. i) Environmental regulation To the best of the directors’ knowledge, the group complies with the requirements of environmental legislation in respect of its developments, and obtains the planning approvals required prior to clearing or development of land under the laws of the relevant states. There have been no instances of non-compliance during the year and up to the date of this report. j) Information on directors Mr William G Hames, B Arch (Hons) MCU (Harvard) LFRAIA, MPIA, FAPI (Econ) • Chairman of the Board of directors, non-executive director Mr Hames is a co-founder of Cedar Woods Properties Limited. He is an architect and town planner by profession, and received a Masters Degree in City Planning and Urban Design from the Harvard Graduate School of Design, at Harvard University in Boston. He worked in the US property development market before returning to Australia in 1975 and establishing Hames Sharley Australia, an architectural and town planning consulting company. Mr Hames brings substantial property experience to the Board upon which he has served as a director for twenty-six years. Other current listed company directorships and former listed company directorships in the last three years: None. Mr Robert S Brown, MAICD, AIFS • Deputy Chairman of the Board of directors, non-executive director • Member of the Human Resources and Remuneration Committee • Member of the Nominations Committee Mr Brown is Executive Chairman of Westland Group Holdings Pty Ltd, with responsibilities in mining, agribusiness, biotechnology and venture capital. He is a past president of the Federation of Building Societies of WA and has participated in and chaired various Western Australian government advisory committees related to the housing industry. Mr Brown brings to the Board his diversified experience as a director of these companies and other listed entities and has served as a director of Cedar Woods Properties Limited for twenty-eight years. Other current listed company directorships and former listed company directorships in the last three years: Luiri Gold Limited. CEDAR WOODS PROPERTIES LIMITED d e t i m L i s e i t r e p o r P s d o o W r a d e C Mr Ronald Packer, BCom (UWA), FAICD, Solicitor Supreme Court of England & Wales • Non-executive director • Chairman of the Audit and Risk Management Committee • Chairman of the Human Resources and Remuneration Committee • Chairman of the Nominations Committee Mr Packer is the lead independent director of the Board, bringing a wide range of property experience in the public and private arena. He is the former Managing Director of PA Property Management Limited, the responsible entity for the PA Property Trust and is currently the Chairman of Terrace Properties and Investments Pty Ltd. Mr Packer has served as a director for ten years and chairs all of the Board’s committees. Other current listed company directorships and former listed company directorships in the last three years: None. Mr Stephen T Pearce, BBus (ACC), Grad Dip (Admin), FCA, AGIA, MAICD • Non-executive director • Member of the Audit and Risk Management Committee • Member of the Human Resources and Remuneration Committee • Member of the Nominations Committee Mr Pearce is currently the Chief Financial Officer and Executive Director of the Board of Fortescue Metals Group Limited and Non-executive Chairman of The Lions Eye Institute. He has almost 30 years’ senior executive and directorship experience at publicly listed companies in the resources, oil and gas, energy and utilities sectors and has significant expertise across all areas of finance and capital markets. He is a Fellow of the Institute of Chartered Accountants, a Member of the Governance Institute of Australia and the Australian Institute of Company Directors. Mr Pearce has served as a director for 2 years. Other current listed company directorships and former listed company directorships in the last three years: Fortescue Metals Group Limited (effective from 21 June 2016). Ms Valerie A Davies, FAICD • Non-executive director • Member of the Audit and Risk Management Committee Ms Davies is an experienced company director and leading communications advisor to numerous Tier 1 companies. Via her own consultancy, One.2.One Communications Pty Ltd, she has worked for nearly two decades on issues management and presentation skills delivery with senior corporate leaders across the spectrum of business and industry, at all levels of government, as well as sport. She is a previous winner of the Telstra Business Woman of the Year (WA) Award. Concurrently, Ms Davies has over the past 20 years established herself as one of Western Australia’s leading non- executive directors. She serves on the boards of major entertainment, hospitality and leisure operator Event Hospitality & Entertainment Ltd as well as the HBF Health Fund and Tourism Western Australia. Previous non-executive director roles include global mineral sands resources company, Iluka Resources Limited and labour hire firm Integrated Group (now Programmed Maintenance Services). She has also held positions on the boards of government trading enterprises such as Tourism Australia, Gold Corporation and the TAB (WA), as well as Screenwest and Fremantle Hospital & Health Service. Beyond Ms Davies’ day to day work, she has contributed to peak business groups such as the Australian Institute of Company Directors (AICD), where she was a Councillor and co-Vice President of the WA branch. Ms Davies is a non- executive, independent Director. Ms Davies was appointed on 21 September 2015. Other current listed company directorships and former listed company directorships in the last three years: Event Hospitality & Entertainment Ltd. Mr Paul S Sadleir, BE, MBA, AAPI, FAICD • Managing Director, executive director Mr Sadleir has extensive experience in the property sector including strategic planning, portfolio management, acquisition analysis, equity and finance raising and investor relations management. Mr Sadleir holds Masters of Business Administration and Bachelor of Engineering degrees from the University of Western Australia. Prior to joining Cedar Woods, he was manager of the Bunnings Warehouse Property Trust and previously held roles with Wesfarmers Limited, Western 2016 ANNUAL REPORT 25 d e t i m L i s e i t r e p o r P s d o o W r a d e C 26 Power and Barrack Mines. He is currently a Board member of the Brightwater Care Group, one of the largest providers of residential aged care in Western Australia, a Division Councillor at the WA Division of the Australian Institute of Company Directors and a Senate member of Murdoch University. Mr Sadleir has served as a director for thirteen years. Other current listed company directorships and former listed company directorships in the last three years: None. Mr Timothy R Brown, BA, LLB, M. Fin, Post Graduate Diploma (Phil) • Alternate director for Mr Robert S Brown Mr Brown is a director of Westland Group Holdings Pty Ltd, with responsibilities in mining, agribusiness, biotechnology and venture capital. His qualifications include a Bachelor of Laws from Notre Dame Australia and a Masters of Finance from Curtin University. Mr Brown was admitted to the Supreme Court of Western Australia as a barrister and solicitor in 2004. Other current listed company directorships and former listed company directorships in the last three years: None. Company Secretary The Company Secretary is Mr Paul S Freedman, BSc, CA, GAICD. Mr Freedman was appointed to the position in 1998. He is a member of the Institute of Chartered Accountants in Australia and is a member of the Australian Institute of Company Directors. He brings to the company a background of over twenty years in financial management in the property industry, preceded by employment in senior roles with major accountancy firms. k) Shares issued on the exercise of options No share options were in existence during the year and none have been issued up to the date of this report. l) Directors’ interests in shares Directors’ relevant interests in shares of Cedar Woods Properties Limited at the date of this report, as defined by sections 608 and 609 of the Corporations Act 2001, are as follows: Director William G Hames Robert S Brown* Ronald Packer Stephen T Pearce Valerie A Davies Paul S Sadleir Timothy R Brown* Interest in ordinary shares 10,064,952 7,982,584 167,859 20,000 15,000 1,057,445 4,639,980 *R S Brown and T R Brown have a shared interest in 4,639,980 shares. m) Committees of the Board As at the date of this report Cedar Woods Properties Limited had the following committees of the Board: Audit and Risk Management Committee Human Resources and Remuneration Committee Nominations Committee R Packer (Chairman) R Packer (Chairman) R Packer (Chairman) V A Davies S T Pearce R S Brown S T Pearce R S Brown S T Pearce CEDAR WOODS PROPERTIES LIMITED d e t i m L i s e i t r e p o r P s d o o W r a d e C n) Meetings of directors The following table sets out the numbers of meetings of the company’s directors (including meetings of committees of directors) held during the year ended 30 June 2016, and the numbers of meetings attended by each director: Board Meetings Meetings of Committees Audit and Risk Management Human Resources and Remuneration Nominations Number of meetings held: W G Hames R S Brown R Packer S T Pearce V A Davies P S Sadleir T Brown (alternate director) * Not a member of this committee. 10 9 10 10 10 † 7 10 - 4 * 3 4 4 † 1 * - 4 * 4 4 3 * * - 3 * 3 3 3 * * - † V A Davies was appointed to the Board on 21 September 2015 and has attended 7 of the 8 Board meetings held after this date. V A Davies was appointed to the Audit and Risk Management Committee on 1 December 2015 and has attended all meetings held after this date. R S Brown was a member of the Audit and Risk Management Committee until 1 December 2015. 2016 ANNUAL REPORT 27 l s r e d o h e r a h S o t r e t t e L : t r o p e R ’ s r o t c e r i D 28 Directors’ Report: Chairman of the Human Resources and Remuneration Committee’s Letter to Shareholders Dear Shareholders, I am pleased to provide this letter setting out the key highlights in relation to remuneration matters for FY2016. As outlined in the Financial & Operating Review, Cedar Woods had another successful year, reporting a record profit and achievements across the various areas within the company’s operations, as described in our “balanced scorecard” in section r) of this report. The balanced scorecard provides the company’s FY2016 objectives and performance against targets as assessed by the Board. In my letter last year, I noted shareholders and proxy advisory groups had sought greater transparency and enhanced structures around the short and long term incentive arrangements for executives. The Board then engaged Ernst & Young (EY) to provide advice as outlined in the table below. Review of the executive remuneration framework Fixed remuneration Last year the company engaged EY to provide advice on Cedar Woods’ executive remuneration framework with the objective of improving the link between shareholder returns and executive remuneration as well as a closer alignment of remuneration with the Corporate strategy. Aspects of the new executive remuneration framework applied from 1 July 2015 including transitioning to a greater emphasis on variable pay with the introduction of a new long-term incentive program (as outlined below). The company identified where adjustments were appropriate, based on market benchmarking information. For FY2016 the Managing Director’s (MD’s) fixed remuneration remained unchanged and other executives’ fixed remuneration increases were between 2% & 3%, reflecting sustained high performance of the individuals and alignment with market remuneration levels in both listed and non-listed property companies. Short-term incentives (“STIs”) To ensure the STI’s were appropriately aligned to the Corporate plan, the company continued with its balanced scorecard of measures for determining the STI awards for FY2016. Long-term incentives (“LTIs”) Consistent with the intention stated in the FY2014 Remuneration Report, the former LTI plan has been reviewed and replaced by a new LTI plan effective from 1 July 2015 for FY2016 and which will continue in FY2017. The new LTI plan has two vesting conditions a) a 3 year service condition and b) two performance conditions measured over a 3 year period: 50 percent of the LTI grant will be tested against a relative total shareholder return (“TSR”) hurdle (measured against the S&P / ASX Small Industrials Index) and 50 per cent against earnings per share (“EPS”) growth targets, set in the context of the Corporate plan. The relative TSR performance condition was chosen as it offers a relevant indicator of measuring changes in shareholder value by comparing the company’s return to shareholders against the returns of companies of a similar size and investment profile. The EPS performance condition was chosen as it is a primary determinant of shareholder value in a listed company context. The potential maximum aggregate Non Executive Director remuneration for FY2016 was $750,000, as approved by shareholders at the company’s FY2014 AGM. Chair and NED fees were increased by 2% effective 1 July 2015 to maintain market competitiveness. Total NED fees paid for FY2016 were $544,502. NED fees CEDAR WOODS PROPERTIES LIMITED Clawback policy The company implemented an incentive clawback policy for executives and other staff that applies for FY2015 onwards. Under the policy, the Board may at its absolute discretion claw back vested and unvested incentives in the case where an “inappropriate benefit” has arisen, as may be the case in a material mis-statement of financial results. The Remuneration Report provides information on Non Executive Directors and executives and the remuneration outcomes for FY2016. It was pleasing to note that shareholders voted overwhelmingly in favour of the FY2015 Remuneration Report at the 2015 Annual General Meeting, with 97.7 per cent of votes in favour. I look forward to answering any questions you may have at our 2016 Annual General Meeting in November. Yours faithfully, Ronald Packer Chairman of the Human Resources and Remuneration Committee l s r e d o h e r a h S o t r e t t e L : t r o p e R ’ s r o t c e r i D 2016 ANNUAL REPORT 29 t r o p e R n o i t a r e n u m e R : t r o p e R ’ s r o t c e r i D 30 Directors’ Report: Remuneration Report The directors present Cedar Woods Properties Limited’s FY2016 Remuneration Report which sets out remuneration information for the directors and other key management personnel (“KMP”) for the year ended 30 June 2016. The information provided in this remuneration report has been audited as required by section 308(3C) of the Corporations Act 2001. The Remuneration Report is presented under the following sections: o) p) q) r) s) t) Introduction Remuneration governance Executive remuneration policy and framework Executive remuneration outcomes for FY2016 (including link to performance) Executive contracts Non-Executive Director fee arrangements u) Additional statutory disclosures o) Introduction Page 30 31 32 37 42 43 44 The Remuneration Report details the remuneration arrangements for KMP who are defined as those persons having authority and responsibility for planning, directing and controlling the major activities of the company, directly or indirectly. The table below outlines the KMP of the company during the financial year ended 30 June 2016. Unless otherwise indicated, the individuals were KMP for the entire financial year. For the purposes of this report, the term “executive” includes the executive director and senior executives of the company. KMP Position Term as KMP Non-Executive directors (“NEDs”) W G Hames R S Brown R Packer S T Pearce V A Davies Executive directors P S Sadleir Senior executives N Blackburne P Freedman B Rosser Non-Executive Chair Non-Executive Deputy Chair Lead Independent Non-Executive Director Independent Non-Executive Director Independent Non-Executive Director (appointed to the board on 21 September 2015) Full year Full year Full year Full year Part year Managing Director (“MD”) Full year State Manager - Victoria and Queensland Full year Chief Financial Officer (“CFO”) and Company Secretary Full year State Manager - Western Australia (commenced employment with the company on 20 July 2015) Part year There were no changes to KMP after the reporting date and before the date the financial report was authorised for issue. CEDAR WOODS PROPERTIES LIMITED t r o p e R n o i t a r e n u m e R : t r o p e R ’ s r o t c e r i D p) Remuneration governance Role of the Human Resources and Remuneration Committee The Human Resources and Remuneration Committee is a committee of the Board. It is responsible for making recommendations to the Board on: • • • • the over-arching executive remuneration framework, NED fees, operation of incentive plans and key performance hurdles for the executive team, and remuneration levels of the MD and other executives. The Human Resources and Remuneration Committee’s objective is to ensure remuneration policies and structures are fair and competitive and aligned with the long-term interests of the company. The Human Resources and Remuneration Committee periodically obtains independent remuneration information to ensure NED fees and executive remuneration packages are appropriate and in line with the market, please refer to the Use of remuneration advisors section below. The Corporate Governance Statement provides further information on the role of the Human Resource and Remuneration Committee, and may be found on the company’s website under the Investor Relations link. Use of remuneration advisors In FY2015 the Human Resources and Remuneration Committee appointed EY as its external remuneration advisor to assist with the review of the overall executive remuneration framework. EY’s terms of engagement include specific measures designed to protect its independence. The Human Resources and Remuneration Committee recognises that, to effectively perform its role, it is necessary for EY to interact with members of Cedar Woods’ management. However, to ensure EY remains independent, members of Cedar Woods’ management are precluded from requesting services that would be considered to be a ‘remuneration recommendation’ as defined by the Corporations Amendment (improving Accountability on Director and Executive Remuneration) Act 2011. During the year ended 30 June 2016, EY provided the Human Resources and Remuneration Committee with: • guidance in the review and design of the executive remuneration framework; and • assistance in drafting of remuneration report disclosures. No remuneration recommendations were provided by EY or any other advisor during the reporting period. Clawback of remuneration For FY2015 and subsequent years, vested and unvested STI’s & LTI’s are subject to potential clawback based on the Board’s judgment. The Board may exercise its judgment in relation to STI or LTI outcomes: STI LTI at the end of the financial year when assessing performance against scorecard objectives to determine the STI payments, when determining if there are any matters impacting the initial performance assessment. at any time prior to, or at, the final vesting date of the performance rights and will take account of factors such as any material misstatements of financial results or individual instances of non-compliance with Cedar Woods’ policies. The clawback policy also provides that the Board can recover an STI or LTI award previously paid to an employee. Remuneration Report approval at FY2015 Annual General Meeting (“AGM”) At the company’s 2015 AGM, 97.7 per cent of eligible votes cast were in favour of the Remuneration Report for FY2015. The company received one question at the AGM when the resolution concerning the Remuneration Report was considered by shareholders. The question related to the weightings applied to components of the company’s business model for assessing executive responsibilities and the structuring of the STI and LTI components of the remuneration framework. Cognisant of these comments the Board has reviewed and changed some of the weightings applied to the components of the company’s business model in the table on page 34 and will consider the other comments on structuring going forward. 2016 ANNUAL REPORT 31 t r o p e R n o i t a r e n u m e R : t r o p e R ’ s r o t c e r i D 32 q) Executive remuneration policy and framework The information contained within this section outlines the details pertaining to the executive remuneration policy and framework for FY2016. As noted, following a review of the executive remuneration program last year, changes have been initiated and applied from 1 July 2015. Where relevant, these changes have been highlighted. i. Principles and strategy Company objective To create long-term value for shareholders through the disciplined acquisition, development and marketing of properties Remuneration strategy linkages to company objective The Board of directors ensures our approach to executive reward satisfies the following key criteria for good reward governance practices: Attract, motivate and retain high performing individuals: • The remuneration offering rewards capability and • Competitiveness and reasonableness experience • Acceptability to shareholders • Reflects competitive reward for contribution to • Alignment of executive remuneration to company growth in shareholder wealth performance • Transparency of the link between performance and reward The framework is aligned to shareholders’ interests by having: • STIs linked to current year performance and subject to clawback • From 1 July 2015 - LTIs linked to both long term external (relative total shareholder return (“TSR”)) and internal (earnings per share (“EPS”) growth) performance. Unvested LTIs also subject to clawback Component Vehicle Purpose Link to performance Fixed remuneration Comprises base salary, superannuation and non-monetary benefits STIs Paid in cash LTIs From 1 July 2015 – new equity based LTI grants awarded in Performance Rights ) ” R T “ ( n o i t a r e n u m e r l a t o T To provide competitive fixed remuneration set with reference to role, market and skills and experience of individuals Rewards executives for their contribution to achievement of company outcomes Rewards executives for their contribution to the creation of shareholder value over the longer term Group and individual performance are considered during the annual remuneration review process No guaranteed fixed remuneration increases included in executives’ contracts Linked to the Corporate Plan and achievement of personal objectives established at the start of the year From 1 July 2015 - Vesting of new grants is dependent on TSR performance relative to S&P / ASX Small Industrials Index and annual compound growth rate in EPS, both over a three year period Performance related outcomes are determined each year following the audit of the annual results. Outcomes may be adjusted up or down in line with over and under achievement against the target performance levels, at the discretion of the Board (based on a recommendation from the Human Resources and Remuneration Committee). The Human Resources and Remuneration Committee also considers issues of succession planning, career development and staff retention. CEDAR WOODS PROPERTIES LIMITED t r o p e R n o i t a r e n u m e R : t r o p e R ’ s r o t c e r i D ii. Approach to setting remuneration In FY2016, the executive remuneration framework consisted of fixed remuneration and short and long-term incentives as outlined below. The company aims to reward executives with a level and mix of remuneration appropriate to their position, responsibilities and performance within the organisation and aligned with market practice. The company’s approach is generally to position Total Remuneration between the median and upper quartile of our direct industry peers, both listed and unlisted, and other Australian listed companies of a similar size and complexity. Based on performance and experience, individuals have the potential to move from median to upper quartile over a period of time. Remuneration levels are reviewed annually through a process that considers market data, insights into remuneration trends, the performance of the company and the individual, and the broader economic environment. The “at risk” components (STI’s and LTI’s) ensure a proportion of remuneration varies with performance of both the individual and the company. The 2015 review of executive remuneration identified a need for a greater weighting of “at risk” components within the total remuneration opportunity (remuneration mix) particularly for the MD and a need for an equity based LTI plan. The Board intends continuing the transitioning to the new remuneration mix over the next two financial years, noting some variations may occur during this time due to influencing factors such as changing market conditions. In making this transition, the Board wishes to keep total remuneration increases at modest levels, with the majority of increases directed into LTI’s. The graph below illustrates the current (FY2016) and anticipated remuneration mix by FY2018. Managing Director - remuneration mix FY15 Current By FY18 63% 60% 35% 32% 2% 8% 50% 25% 25% State Managers - remuneration mix FY15 Current By FY18 69% 68% 67% CFO and Company Secretary – remuneration mix FY15 Current By FY18 78% 77% 75% 19% 19% 20% 12% 13% 13% 15% 15% 7% 8% 15% 10% STI and LTI are based on the maximum opportunity when remuneration levels are determined by the HR&R committee. Fixed remuneration Max STI opportunity Max LTI opportunity 2016 ANNUAL REPORT 33 t r o p e R n o i t a r e n u m e R : t r o p e R ’ s r o t c e r i D 34 iii. Details of incentive plans Short-term incentives (STI) Who participates? Executives How is the STI delivered? Cash What is the STI opportunity? Each executive has a target STI opportunity depending on the accountabilities of the role and impact on organisational performance. The company seeks to deliver steady annual growth and accordingly the maximum STI opportunity is the target opportunity. The maximum STI opportunity for KMP’s is detailed in section r) Executive remuneration outcomes. What are the performance conditions for FY2016? Actual STI payments to each executive depend on the extent to which specific targets set at the beginning of the financial year are met with regard to both company and individual performance criteria. The weightings that applied in FY2016 to components of the company’s business model are set out in the table below: Business development Developments Sales and customer experience Financial performance and risk management People and culture Shareholder engagement and satisfaction Sustainability Weighting (%) State Managers CFO and Company Secretary 15% 20% 20% 15% 20% 5% 5% 15% 0% 5% 40% 20% 20% 0% MD 15% 20% 20% 20% 10% 10% 5% Refer to section r) Executive remuneration outcomes for further details of performance outcomes for FY2016, and STI awards to KMP. The categories of “Developments” and “Sales and customer experience” involve close monitoring of revenues and financial expenditure and together with “Financial performance and risk management” provide a significant weighting to overall financial performance. On an annual basis, after consideration of performance against set balanced scorecard objectives, the Chairman and Chair of the Human Resource and Remuneration Committee recommends to the Board the amount of STI to be paid to the MD. For senior executives, the Human Resource and Remuneration Committee will seek recommendations from the MD before making its determination. The Human Resources and Remuneration Committee has the discretion to determine STI outcomes in the light of personal and company performance. How is performance assessed? What happens if an Executive leaves Cedar Woods? Executives who leave prior to the end of the financial year generally forego their entitlement. The Human Resources and Remuneration Committee has discretion in this regard. Long-term incentives (LTI) FY2015 LTI plan The company operated a long term incentive plan, which first commenced in FY2012 with the final grants made in FY2015. The incentive was designed as a cash bonus opportunity that vests three years after award, based on company and individual performance criteria assessed in the first year and ongoing employment with the company for the remaining two years. The FY2015 LTI awards were based on the same criteria used for FY2015 STI awards, with KMP amounts detailed in section r) Executive remuneration outcomes. CEDAR WOODS PROPERTIES LIMITED t r o p e R n o i t a r e n u m e R : t r o p e R ’ s r o t c e r i D If the employee left the company before the vesting date no bonus was paid, although the Board may waive this restriction at its discretion, for example when an employee retires. If an employee was made redundant after the award but before the vesting date then the bonus would be paid out. In FY2015 a total of $447,000 was awarded under the incentive plan for participants, which will vest on 1 July 2017. The total awarded under the plan in previous years which has vested on 1 July 2016 is $260,750. New LTI plan effective 1 July 2015 The company has introduced a new LTI plan, effective 1 July 2015. Key features of the new LTI plan are as follows: Why have a new LTI plan? To encourage a greater alignment of the interests of executives and shareholders, focus on sustainable long term growth and attract and retain key executives. Who participates? Executives and key staff. NEDs are not eligible to participate in the LTI plan. What LTI’s are available? How is the LTI delivered? How are the number of rights determined for each LTI grant? When does the LTI vest? Each executive has a maximum LTI opportunity depending on the accountabilities of the role and impact on organisational performance. It is intended for annual grants to be made under the plan and over time for these to become a larger proportion of total remuneration, so as to keep total remuneration in check. The maximum LTI for each KMP is detailed in section r) Executive remuneration outcomes. Awards under the LTI plan are made in the form of performance rights, which provide, when vested, one share at nil cost (provided the specified performance hurdle is met). No dividends are paid on unvested LTI awards. A new share will be issued for each vested performance right. The number of performance rights allocated for each executive is calculated by reference to the maximum LTI opportunity outlined in the prior section. Allocations are made based on a face value approach using the Volume Weighted Average Price of Cedar Woods’ shares over the first five trading days of the 2016 financial year. This fixes the maximum number of shares and the actual number will vest in accordance with the performance conditions set out below. The Board will determine the outcomes at the end of the three year performance period (1 July 2015 to 31 August 2018), with vesting, if any, occurring once results are released and within a trading window. Once vested, there are no restrictions on trading the shares, subject to the company’s Securities Trading Policy. What happens if an Executive leaves Cedar Woods? If cessation of employment occurs, the following treatment will apply in respect of unvested Shares: • If the Participant ceases employment with Cedar Woods on resignation or on termination for cause, unvested Rights will normally be forfeited. • If the Participant ceases employment in other circumstances (for example, due to illness, total or permanent disablement, retirement, redundancy or other circumstances determined by the Board), unvested Shares will stay ‘on foot’ and may vest at the end of the original performance period to the extent performance conditions are met. The Board may determine in its discretion that the number of Rights available to vest will be reduced pro-rata for time at the date employment ceases. The Board will retain discretion to allow for accelerated vesting (pro-rated for performance and/or time) in special circumstances (as opposed to allowing unvested Shares to remain ‘on foot’ on cessation of employment). Unless the Board determines otherwise, a pro-rata number of the participant’s unvested awards will vest based on the proportion of the performance period that has passed at the time of the change of control. Vesting will also be subject to the achievement of pro-rata performance conditions at the time of the change of control. Not prior to any vesting. No, there are no further retests of the performance conditions. What happens in the event of change of control Do participants receive dividends on LTI grants? Is performance retested if performance hurdles are not exceeded? 2016 ANNUAL REPORT 35 t r o p e R n o i t a r e n u m e R : t r o p e R ’ s r o t c e r i D 36 Do clawback provisions apply to LTI’s? The company has an incentive claw back policy in place for executives and other staff. Under the policy, the Board may at its absolute discretion claw back vested and unvested incentives in the case of an “inappropriate benefit” arising. How is performance assessed and rewarded against these hurdles? The awards are subject to two equally weighted performance conditions which operate independently, so that awards can be made under either or both categories. Relative TSR hurdle (50%): The relative TSR hurdle provides a comparison of external performance. The ASX Small Industrials Index is comprised of the companies included in the S&P/ASX 300 (excluding companies in the S&P/ASX 100) who have a Global Industry Classification Standard (GICS) classification other than Energy or Metals & Mining, with Cedar Woods ranked approximately 130th of 168 companies in this index at present. TSR (Total Shareholder Return) measures changes to share price and dividends paid to show the total return and is widely used in the investment community. Executives will only derive value from this component of the LTI if the company’s TSR performance is greater than the Index. Maximum vesting of the TSR hurdle at or above 15% of the Index recognises significant out-performance of the company over 3 years. The vesting schedule is as follows: Relative TSR performance outcome Percentage of TSR-tested rights vesting < Index At the Index Nil 50% > Index and up to 15% above the Index Pro-rata between 50% and 100% > = 15% above the Index 100% EPS compound annual growth rate (50%): EPS is a method of calculating the performance of an organisation, capturing information regarding an organisation’s earnings in proportion to the total number of shares issued by the organisation. The EPS calculation is: EPS = Statutory net profit after tax Weighted number of shares on issue Where: Statutory net profit after tax: Weighted number of shares on issue: as reported by a company at the most recent financial-year end preceding the calculation date. The weighted number of shares on issue for the financial year. The relevant inputs when setting the EPS target range are generally: • The earnings and EPS targets contained in the Corporate plan, particularly with reference to the most recent internal five year forecasts; • The level of stretch associated with those business plan targets; • Any earnings guidance that has been provided to the market; • Shareholder and analyst (individual and consensus) expectations. The vesting schedule for this component of the LTI is as follows: EPS compound annual growth rate Percentage of EPS-tested rights vesting <5% 5% Nil 50% Between 5% - 10% Pro-rata between 50% and 100% > = 10% 100% CEDAR WOODS PROPERTIES LIMITED t r o p e R n o i t a r e n u m e R : t r o p e R ’ s r o t c e r i D r) Executive remuneration outcomes for FY2016 (including link to performance) Performance against STI balanced scorecard objectives The table below outlines FY2016 STI objectives and performance against target outcomes as assessed by the Board. This performance measurement framework provides a close alignment to the company’s overriding objective of providing long term value to shareholders and links to our business model as described on page 7. Objective Measures Outcomes Business development To build and replenish the portfolio by acquiring quality assets Undertake due diligence investigations for new acquisitions consistent with approved checklist and reporting measures in a thorough and disciplined manner Acquire 1-2 new complementary projects each year, consistent with the corporate growth strategy Pursue joint venture opportunities Respond to existing joint venture partners with professionalism, transparency and quality outcomes Detailed assessment of numerous properties in VIC and QLD and to a lesser extent WA and SA. The acquisitions environment continues to be highly competitive in VIC but less so in other states. Four projects were secured - Wooloowin, QLD and North Baldivis, WA Glenside SA (‘preferred’ status), Port Adelaide SA (‘preferred’ status) Existing joint ventures (or development agreements) in WA with LandCorp (Mangles Bay & Western Edge) and Dept. of Housing (Harrisdale) Seek new joint venture opportunities to add to project diversity and corporate reputation No new joint ventures initiated but opportunities continue to be evaluated on various projects Residential and commercial building Establish strategic alliances to add value, product diversity and profitability Builder alliances operating in both WA and VIC across a number of estates Developments Maximise value, minimize risk with project delivery on time and on budget Timely approvals achieved Enhanced value of sites Monthly reporting of actual vs budget development costs and program Compliance with Corporate Sustainability Policy Innovation and quality in projects Create quality communities which embrace innovation and sustainable development Approvals generally received in line with programs for mature projects but delays experienced with approvals for the Jackson Green & St Albans projects. Servicing delays have occurred on a small number of projects. Approvals generally received in line with highest and best use applications. At the Ellendale project approval was received for residential use over one third of the site with the application on the remaining part of the land ongoing. Costs generally kept well within budget. Delayed expenditure at several projects was a result of project approvals behind schedule. Good environmental initiatives achieved across the projects. The 2015 Russel Perry Award for Urban Development Excellence was presented by the Urban Development Institute of Australia to Cedar Woods for the Elements Estate in Western Australia. This is the most prestigious recognition that is awarded by UDIA in Western Australia. Performance assessment Achieved Achieved Achieved Not achieved Achieved Partly achieved Achieved Partially achieved Achieved 2016 ANNUAL REPORT 37 t r o p e R n o i t a r e n u m e R : t r o p e R ’ s r o t c e r i D 38 Objective Measures Outcomes Sales and customer experience Position projects to meet market and customer demand Settlements Sales Enquiry & conversion rates Budget expenditure Pricing Customer satisfaction Settlements achieved to meet company forecast Budgeted sales not achieved, primarily due to weakness in WA market Enquiry achieved target in VIC and QLD but not in WA. Enquiry conversion was satisfactory Expenditure was controlled and lower than budget due to delays in launching new projects Pricing generally at budget levels in Victoria but marginally below budget in WA Good levels of referral and low incidence of complaints Performance assessment Achieved Not achieved Partially achieved Partially achieved Partially achieved Achieved Financial performance and risk management Continued growth in a risk controlled manner Growth in NPAT and EPS NPAT up 2.4% and EPS up 1.8%, below EPS target Not achieved Satisfactory ROE and ROC Conservative gearing (debt/equity) Capital management ROE 14.2% and ROC 18.3%, both above company benchmarks Gearing 16.4%, below target range but conservative Maintained capital availability on satisfactory terms to remain well positioned for potential acquisitions Achieved Achieved Achieved Risk management framework in place Risks identified and mitigated Achieved People and culture Attract, motivate and retain staff Be a preferred employer Experienced and qualified staff were attracted to the business Partly Achieved Succession planning & leadership training Staff productivity Staff development Progressive HR policies were introduced: - Employee referral policy, - Employee service recognition policy A number of staff received promotions during the year. Leadership programs were undertaken by selected managers and are programmed for other staff. An executive manager undertook the Advanced Management Course at Harvard University. Cost levels were consistent with the budget and corporate plan. Performance management was undertaken. Numerous group and individual training programs undertaken including management and leadership courses, on the job training and attendance of industry events. Achieved Achieved Achieved CEDAR WOODS PROPERTIES LIMITED t r o p e R n o i t a r e n u m e R : t r o p e R ’ s r o t c e r i D Objective Measures Outcomes Performance assessment Shareholder engagement and satisfaction Shareholders support the company Participation in share issues No share issues and dividend reinvestment plan and bonus share plans suspended N/A Company investor relations program Positive feedback including from Achieved Total shareholder return (TSR) Support for board resolutions survey of institutional investors and brokers TSR for 1 and 3 years unsatisfactory. Five year return satisfactory (CWP 9.5% - compared to Small industrials index 9.2%) Board resolutions supported by shareholders at 2015 AGM Proxy advisors support board resolutions Proxy advisor firms supported all resolutions at 2015 AGM Enhance and rehabilitate environmental assets and rehabilitate contamination as an integral part of project delivery Environmental assessment and statutory approvals achieved (Commonwealth, State and Local) across all projects Promote total water cycle management and efficient water use Promote energy efficiency and use of renewables Deliver the best use of land by optimising land use mix and densities in the context of high quality urban places that deliver safe and healthy lifestyles Urban water management strategies and plans prepared and at various stages of implementation across all projects Sustainable Living Guide applied to new Perth Projects. Solar panel rebates offered at Harrisdale All projects addressing statutory land use and housing density targets Achieved Partially achieved Achieved Achieved Achieved Achieved Achieved Sustainability Environment & Climate Change; Optimising Land Use; Housing Diversity & Affordability; Heritage; Stakeholder Engagement; Community Investment, Development & Integration Promote equality of access to housing for all sectors of the community through diversity of product and embracing opportunities to assist those disadvantaged by the market Housing diversity initiatives continue. Specific affordable housing strategies implemented across all Perth projects. Cedar Woods won the 2015 UDIA WA Affordable Housing excellence award. Recognising indigenous and cultural heritage Engage with key stakeholders throughout project delivery Create vibrant communities by investing in their wellbeing, nurturing a strong ‘sense of community’ and maximizing social connectivity Heritage assessments undertaken throughout for all projects. Heritage values recognised through project themes and street names. For all projects, key stakeholders are identified during project planning, leading to the preparation of Communication Strategies to guide effective engagement throughout project delivery Preparation and implementation of sponsorship strategies at both corporate and project levels. Successful implementation of the project Fun Days and Movie Nights and neighbourhood grants program Achieved Achieved Achieved Achieved 2016 ANNUAL REPORT 39 t r o p e R n o i t a r e n u m e R : t r o p e R ’ s r o t c e r i D 40 The following table outlines the proportion of maximum STI earned and forfeited in relation to FY2016 and the maximum STI that was available. Proportion of maximum STI earned in FY2016 Proportion of maximum STI forfeited in FY2016 MD State Manager VIC & QLD State Manager WA CFO and Company Secretary MD State Manager VIC & QLD State Manager WA CFO and Company Secretary 82% 80% 73% 82% 18% 20% 27% 18% $328,000 $88,000 $54,750 $57,400 $72,000 $22,000 $20,250 $12,600 $400,000 $110,000 $75,000 $70,000 Total % Total $ Max STI opportunity Performance against LTI objectives The company introduced a new equity based LTI scheme in FY2016. The plan has two vesting conditions a) a 3 year service condition and b) two performance conditions measured over a 3 year period: 50 percent of the LTI grant will be tested against a relative total shareholder return (“TSR”) hurdle (measured against the S&P / ASX Small Industrials Index) and 50 per cent against earnings per share (“EPS”) growth compared with the Corporate plan targets. The relative TSR performance condition was chosen as it offers a relevant indicator of measuring changes in shareholder value by comparing the company’s return to shareholders against the returns of companies of a similar size and investment profile. The EPS performance condition was chosen as it is a primary determinant of shareholder value in a listed company context. The following table outlines the proportion of maximum LTI that were granted to KMP during FY2016. LTI awards in FY2016 MD State Manager VIC & QLD CFO and Company Secretary State Manager WA Value granted (max LTI opportunity) $100,000 $80,000 $40,000 $50,000 The LTI awards earned vest on 31 August 2018 subject to the two vesting conditions. Terms and conditions of the share-based payment arrangements The terms and conditions of each grant of rights affecting remuneration in the current or a future reporting period are as follows: Incentive Plan Grant date Performance period Vesting date Value at start of performance period Performance hurdle Value per share right at grant date Performance achieved % Vested FY2016 – Award 1 (Employees) FY2016 – Award 2 (MD) 28/08/2015 9/11/2015 1/7/15 to 30/6/18 1/7/15 to 30/6/18 31/08/2018 $5.33 EPS Growth Relative TSR $4.12 $2.04 to be determined 31/08/2018 $5.33 EPS Growth Relative TSR $3.43 $0.96 to be determined n/a n/a The number of share rights granted to key management personnel under the LTI scheme during FY2016 is shown in the table below. Rights granted will only vest upon satisfaction of the Performance Conditions which are measured over the Performance Period. The number of rights granted has been determined by dividing the FY2016 LTI grant opportunity by the market value of shares at the beginning of the performance period, which is the volume weighted average price of the company’s shares over the first five trading days in FY2016 ($5.33). The market value of the shares is not discounted. CEDAR WOODS PROPERTIES LIMITED t r o p e R n o i t a r e n u m e R : t r o p e R ’ s r o t c e r i D Upon vesting, each right is convertible into one fully paid ordinary share in the company. The executives do not receive any dividends in relation to the rights during the vesting period. If an executive ceases employment before the rights vest, the rights will normally be forfeited, except in limited circumstances that are approved by the board on a case-by- case basis. The fair value of the rights has been determined using the amount of the grant date fair value. Reconciliation of share rights held by KMP The following table shows how many share rights were granted, vested and forfeited during the year for KMP. Name & grant dates Balance at start of year Number Granted during year Number Vested Number Vested % Forfeited Number Forfeited % Executive director P S Sadleir 9 Nov 2015 Senior executives N Blackburne 28 Aug 2015 P Freedman 28 Aug 2015 B Rosser 28 Aug 2015 - - - - 18,762 15,009 7,505 9,381 - - - - - - - - - - - - - - - - Balance at end of year (unvested) Number Maximum value yet to vest * 18,762 $41,182 15,009 $46,228 7,505 $23,115 9,381 $28,893 * The LTI awards earned vest on 31 August 2018 subject to the two vesting conditions. The maximum value of the deferred shares yet to vest has been determined as the amount of the grant date fair value of the rights that is yet to be expensed. Performance of shareholder return metrics In FY2016, the company delivered a record profit of $43.6 million, an increase of 2.4 per cent. This was the sixth consecutive record profit for the company. The returns to shareholders of Cedar Woods Properties Limited over the last 1, 3 and 5 years are detailed in the table below: Returns to shareholders over 1, 3 and 5 years (%) EPS growth Share price growth Dividend growth (paid dividend) CWP TSR (change in share price and dividends) S&P Small Industrials Index (XSIAI) 1 year 1.8 (17.3) 1.8 (9.6) 12.8 3 years 3.5 (5.6) 3.8 1.0 11.5 5 years 3.8 1.7 8.1 9.5 9.2 The total shareholder return in FY2016 was -9.6 per cent which compared unfavourably with the S&P Small Industrials Index total return of 12.8 per cent over the same period. However, the returns over 5 years compare favourably to the returns of the S&P Small Industrials Index. Management is focussed on delivering consistent earnings per share and dividend growth. The company’s share price is subject to market factors that are beyond the company’s control. The measures of the company’s financial performance over the last five years as required by the Corporations Act 2001 are shown in the table below. However, these are not necessarily consistent with the measures used in determining the variable amounts of remuneration awarded to KMP, the basis for which is outlined above. As a consequence, there may not always be a direct correlation between the statutory key performance measures and the variable remuneration awarded. Profit for the year ($’000) Basic earnings per share (cents) Dividends per share (cents) Increase (decrease) in share price (%) 2016 43,602 55.3 28.5 (17.3) 2015 42,585 54.3 28.0 (28.0) 2014 40,313 54.4 27.5 41.4 2013 36,337 49.9 26.0 45.2 2012 34,250 53.2 25.0 (11.0) 2016 ANNUAL REPORT 41 t r o p e R n o i t a r e n u m e R : t r o p e R ’ s r o t c e r i D 42 Executive remuneration for the years ended 30 June 2016 and 30 June 2015 Details of the remuneration of each executive of Cedar Woods Properties Limited is set out below. Short-term benefits Post Employ- ment Long-term benefits Cash salary and fees $ Cash bonus $ Non- monetary benefits $ Super- annuation $ Cash bonus $ Share based payment # $ Long- service leave $ Termination Benefit $ Total $ Perfor- mance related % Financial year Name Executive director P S Sadleir 2016 2015 762,383 328,000 765,393 387,000 9,434 7,990 33,699 - 9,423 13,375 33,699 21,500 - 13,338 Senior executives N Blackburne P Freedman B Rosser * S Duplock Total 2016 2015 2016 2015 2016 2015 2016 2015 390,692 88,000 381,217 95,700 341,000 57,400 330,000 57,850 8,411 7,972 1,075 1,112 19,308 - 12,944 18,783 60,900 - 35,000 - 6,472 9,074 9,362 9,410 35,000 35,600 - 11,432 255,727 54,750 - 19,273 33,353 - 1,085 5,833 1,749,802 528,150 18,920 107,280 - - - 8,090 - 495 - 1,509,963 540,550 18,159 93,315 118,000 - 34,132 124,500 2,438,619 36,929 32,354 - 2,473,435 - - - - - - - 1,156,314 1,228,920 29% 33% 528,429 573,934 450,357 470,994 338,335 19% 27% 14% 20% 19% 124,500 164,771 - * The company appointed Ben Rosser as the Western Australian State Manager on 20 July 2015. Stuart Duplock ceased employment with the company on 14 August 2014. # Equity-settled share-based payments relate to the component of the fair value of awards from the 2016 LTI scheme attributable to the year measured in accordance with AASB 2 Share Based Payments. No awards vested in FY2016. When determining the remuneration mix for executives, the human resources & remuneration committee used the maximum STI and LTI opportunities contained in the tables on page 40, which differ from the amounts calculated in the table above. s) Executives contracts Remuneration arrangements for executives are formalised in employment agreements. The following outlines the details of these agreements. Details of renegotiated executive service contract for the Managing Director The Managing Director, Mr Sadleir is employed under an ongoing contract. Mr Sadleir’s total remuneration package for FY2016 was as follows: • Fixed remuneration of $800,000 per annum • Maximum STI opportunity of 32% of total remuneration • Maximum LTI opportunity of 8% of total remuneration. Service agreements Remuneration and other terms of employment for the executives are formalised in employment agreements. The agreements for the executives provide for performance related cash bonuses and other benefits. The agreements are reviewed annually by the Human Resources and Remuneration Committee for each KMP and details are as follows: Executive director P S Sadleir Contract term Notice required to terminate contract Termination benefit* No fixed term 12 months See below** Other senior executives No fixed term Up to 3 months Up to 3 months base salary *For treatment of STI and LTI awards upon cessation of employment please refer to iii. Details of incentive plans section of the Directors Report. CEDAR WOODS PROPERTIES LIMITED t r o p e R n o i t a r e n u m e R : t r o p e R ’ s r o t c e r i D **As well as allowing for participation (subject to shareholder approval) in the LTI Plan, Mr Sadleir’s contract has been varied such that on termination by the company on ordinary notice or if he resigns following a material variation/ diminution in his role, responsibilities or status he will be entitled to be paid the maximum amount permitted under section 200G of the Corporations Act. Taking into account Mr. Sadleir’s period of service, the maximum payment under the Act would be the average annual base salary that Mr. Sadleir received from the company and related bodies corporate during the previous 3 years. t) Non-Executive Director (NED) fee arrangements Determination of fees and maximum aggregate NED fee pool On appointment to the Board, all NEDs enter into a service agreement with the company in the form of a letter of appointment. The letter details the terms, including fees, relevant to the office of the NED. Fees and payments to NEDs reflect the demands which are made on, and the responsibilities of the NEDs. NEDs’ receive an additional fee for chairing committees (no additional fees are paid for committee membership). No additional fees are paid for memberships of directors on subsidiary Boards. NEDs’ fees and payments are reviewed from time to time by the Board, taking into account comparable roles and market data. NEDs do not receive performance based remuneration. Remuneration of NEDs is determined by the Board, after receiving recommendations from the Human Resources and Remuneration Committee, within the maximum aggregate amount approved by the shareholders from time to time (currently set at $750,000). The total of NED fees paid in FY2016 was $544,502.The Board will not seek any increase for the NED maximum aggregate fee pool at the FY2016 AGM. Fee policy NEDs’ annual fees were last reviewed from FY2016 (effective date: 1 July 2015). The annual fees (inclusive of superannuation) for FY2015 and FY2016 are set out in the table below: Chair Deputy Chair Other NEDs Committee Chair Committee member FY2016 $ 154,734 119,187 83,640 12,546 Nil FY2015 $ 151,700 116,850 82,000 12,300 Nil The table below outlines fees paid to NEDs for FY2016 and FY2015 in accordance with statutory rules and applicable accounting standards. NED remuneration for the years ended 30 June 2016 and 30 June 2015 Name W G Hames R S Brown R Packer S T Pearce* V A Davies * Total Short-term benefits Board and committee fees $ Post employment Superannuation $ Financial year 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 141,310 138,538 108,847 106,712 87,831 85,201 76,384 74,885 59,966 - 474,338 405,336 13,424 13,162 10,340 10,138 33,447 33,698 7,256 7,115 5,697 - 70,164 64,113 Total $ 154,734 151,700 119,187 116,850 121,278 118,899 83,640 82,000 65,663 - 544,502 469,449 * Ms V A Davies was appointed on 21 September 2015. 2016 ANNUAL REPORT 43 t r o p e R n o i t a r e n u m e R : t r o p e R ’ s r o t c e r i D 44 u) Additional statutory disclosures Equity instrument disclosures relating to KMP The numbers of ordinary shares in the company held during the financial year by each director and other KMP of Cedar Woods Properties Limited, including their personally-related parties, are set out below. There were no shares granted during the period as remuneration. 2016 NEDs W G Hames† RS Brown* R Packer S T Pearce V A Davies T S Brown (alternate for R S Brown)* Executive Directors P S Sadleir Senior executives P Freedman N J Blackburne B G Rosser 2015 NEDs W G Hames† RS Brown* R Packer S T Pearce T S Brown (alternate for R S Brown)* Executive Directors P S Sadleir Senior executives P Freedman N J Blackburne S A Duplock Number of shares at the start of the year Other changes during the year Number of shares at the end of the year 10,082,559 112,532 10,195,091 7,985,584 167,859 15,000 0 4,639,980 0 0 5,000 15,000 0 7,985,584 167,859 20,000 15,000 4,639,980 1,049,529 42,000 1,091,529 105,912 18,303 0 0 7,336 0 105,912 25,639 0 Number of shares at the start of the year Other changes during the year Number of shares at the end of the year 9,905,406 7,973,135 166,782 15,000 4,639,980 1,049,529 103,619 17 0 177,153 10,082,559 12,449 1,077 0 0 0 2,293 18,286 0 7,985,584 167,859 15,000 4,639,980 1,049,529 105,912 18,303 0 † Includes 2,014,439 (2015 – 2,014,439) shares over which W G Hames has voting rights and a first right of refusal to purchase. *Interest of T R Brown relates to shares also shown under R S Brown. The interests shown above comply with AASB124 Related Party Disclosures and differ to those shown at item l) of the directors’ report which comply with the requirements of sections 608 and 609 of the Corporations Act 2001. The table above includes the shares held by related parties of the KMP. CEDAR WOODS PROPERTIES LIMITED t r o p e R n o i t a r e n u m e R : t r o p e R ’ s r o t c e r i D Other transactions with key management personnel The consolidated entity uses a number of firms for architectural, urban design and planning services, creative design services and settlement services. Accordingly the company has a high level of knowledge regarding commercial rates for these services. Where entities related to directors are able to fulfil the requisite criteria to provide the services at competitive rates, they may be engaged by the company to perform the services. Should entities connected with the directors be engaged, the directors declare their interests in those dealings and take no part in decisions relating to them. During the year planning, architectural and consulting services were provided by Hames Sharley Architects of which Mr W G Hames is a principal. The transactions were performed on normal commercial terms and conditions and fees paid were consistent with market rates. The value of services provided was higher than in the previous year as a result of architectural and design work performed on the Williams Landing Shopping Centre and the Glenside master plan. During the year creative design services were provided by Axiom Design, an entity associated with the family of Mr W G Hames. Mr Hames has no beneficial interest in Axiom Design. The services were performed on normal commercial terms and conditions. The level of services increased during the year due to additional shareholder reporting and increased corporate marketing activities. Property settlement charges were paid to Westland Settlement Services Pty Ltd, a company associated with the family of Mr R S Brown. The charges were based on normal commercial terms and conditions. At the estates where Westland Settlement Services was engaged, the number of lots that settled in FY2016 was lower than that of the previous year and as a result the value of transactions with Westland Settlement Services Pty Ltd decreased. Cedar Woods has for many years been a member of the Australian Institute of Company Directors (AICD). During the 2015 year Mr P S Sadleir became a council member of AICD WA. The annual subscriptions paid in 2015 and 2016 were performed on normal commercial terms and conditions. In 2015 and 2016 payments were made for sponsorship of the Warren Jones Foundation Inc. of which Mr R Packer is a trustee with no beneficial interest. The transactions were performed on normal commercial terms and conditions. Aggregate amounts of each of the above types of other transactions with key management personnel of Cedar Woods Properties Limited or their related entities: Amounts recognised as expense Creative design services Settlement fees Donations Subscriptions Sponsorships Amounts recognised as inventory / investment property Architectural fees Total amounts recognised in year Aggregate amounts of assets at balance date relating to the above types of other transactions with directors of Cedar Woods Properties Limited or their related entities: Inventory Investment property 2016 $ 62,323 24,500 78,355 10,000 9,500 184,678 153,995 338,673 90,020 63,975 153,995 2015 $ 59,585 0 131,440 10,000 7,650 208,675 59,749 268,424 0 59,749 59,749 There are no aggregate amounts payable to directors of Cedar Woods Properties Limited, or their related entities, at balance date relating to the above types of other transactions. v) Independent audit of remuneration report The remuneration report has been audited by PricewaterhouseCoopers (PwC). See page 104 of this annual report for PwC’s report on the remuneration report. 2016 ANNUAL REPORT 45 ) d e u n i t n o c ( t r o p e R ’ s r o t c e r i D 46 Directors’ Report (continued) w) Retirement, election and continuation in office of directors Mr Robert Brown and Mr Ron Packer retire by rotation at the forthcoming Annual General Meeting and being eligible, will offer themselves for re-election. x) Insurance of officers During the financial year, Cedar Woods Properties Limited paid a premium in respect of directors’ and officers’ liabilities that indemnifies certain officers of the company and its controlled entities. The officers of the company covered by the insurance policy include the directors, W G Hames, R S Brown, R Packer, S T Pearce, V A Davies, P S Sadleir and the Company Secretary, P S Freedman. The liabilities insured include costs and expenses that may be incurred in defending civil or criminal proceedings that may be brought against the officers in their capacity as officers of the company and its controlled entities. The directors have not included more specific details of the nature of the liabilities covered or the amount of the premium paid in respect of the policy, as such disclosure is prohibited under the terms of the contract. y) Non-audit services The group may decide to employ the auditor on assignments additional to their statutory audit duties where the auditor’s expertise and experience with the company and/or group are important. Details of the amounts paid or payable to the auditor for audit and non-audit services provided during the year are set out in note E2 in the other information section of this report. The Board of directors has considered the position and, in accordance with the advice received from the Audit and Risk Management Committee, is satisfied that the provision of the non-audit services is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The directors are satisfied that the provision of non-audit services by the auditor did not compromise the auditor independence requirements of the Corporations Act 2001 for the following reasons: • All non-audit services have been reviewed by the Audit and Risk Management Committee to ensure they do not impact the impartiality and objectivity of the auditor • None of the services undermine the general principles relating to auditor independence as set out in APES 110 Code of Ethics for Professional Accountants. z) Auditor’s independence declaration A copy of the auditor’s independence declaration as required under section 307C of the Corporations Act 2001 forms part of this directors’ report and is set out on page 47. aa) Rounding of amounts The company is of a kind referred to in Class Order 2016/191, issued by the Australian Securities and Investments Commission, relating to the ‘rounding off’ of amounts in the directors’ report. Amounts in the directors’ report have been rounded off in accordance with that class order to the nearest thousand dollars, or in certain cases, to the nearest dollar. The directors reporting including the remuneration report is signed in accordance with a resolution of the directors of Cedar Woods Properties Ltd. P S Sadleir Managing Director 24 August 2016 CEDAR WOODS PROPERTIES LIMITED Auditor’s Independence Declaration l n o i t a r a c e D e c n e d n e p e d n I s ’ r o t i d u A 2016 ANNUAL REPORT 47 Financial Statements Consolidated Statement of Profit or Loss and Other Comprehensive Income .................................................................... 49 Consolidated Balance Sheet .............................................................................................................................................. 50 Consolidated Statement of Changes in Equity ................................................................................................................... 51 Consolidated Cash Flow Statement ................................................................................................................................... 52 These financial statements are consolidated financial statements for the group consisting of Cedar Woods Properties Limited and its subsidiaries. A list of major subsidiaries is included in note C1(a). The financial statements are presented in the Australian currency. Cedar Woods Properties Limited is a company limited by shares, incorporated and domiciled in Australia. Its registered office and principal place of business is: Ground Floor, 50 Colin Street WEST PERTH WA 6005. The financial statements were authorised for issue by the directors on 24 August 2016. The directors have the power to amend and reissue the financial statements. 48 Financial StatementsCEDAR WOODS PROPERTIES LIMITEDConsolidated Statement of Profit or Loss and Other Comprehensive Income For the Year Ended 30 June 2016 Note Revenue from operations Sale of land and buildings Services Rent from properties Interest revenue Gain on sale of investment property A1(a) Other Income Expenses Cost of sales of land and buildings Cost of providing services Other expenses from ordinary activities: Project operating costs Occupancy Administration Other Finance costs Share of net profit (loss) of joint ventures accounted for using the equity method Profit before income tax Income tax expense A1(b) A1(b) C1(d)i A1(c) Consolidated 2016 $’000 2015 $’000 169,181 170,359 787 3,892 1,299 2,830 4,018 1,430 175,159 178,637 - 76 19,969 60 (77,715) (71) (14,911) (597) (14,483) (1,912) (3,755) 41 61,832 (18,230) (99,438) (949) (17,583) (739) (13,442) (6,368) (3,397) 1,073 57,823 (15,238) Profit for the year A4(c) & A1(d) 43,602 42,585 Total comprehensive income for the year 43,602 42,585 Total comprehensive income attributable to members of Cedar Woods Properties Limited 43,602 42,585 Earnings per share for profit attributable to the ordinary equity holders of the company: Basic and diluted earnings per share A1(d) 55.3 cents 54.3 cents The above consolidated statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes. 2016 ANNUAL REPORT 49 Financial Statements Consolidated Balance Sheet As at 30 June 2016 ASSETS Current assets Cash and cash equivalents Trade and other receivables Inventories Deferred development costs Total current assets Non-current assets Receivables Inventories Deferred development costs Investments accounted for using the equity method Available-for-sale financial assets Property, plant and equipment Investment properties Lease incentives Total non-current assets Total assets LIABILITIES Current liabilities Trade and other payables Borrowings Other financial liabilities Current tax liabilities Provisions Total current liabilities Non-current liabilities Borrowings Other financial liabilities Deferred tax liabilities Provisions Derivative financial instruments Total non-current liabilities Total liabilities Net assets EQUITY Contributed equity Reserves Retained profits Total equity Note A2(a) A2(b) A3(a) A3(b) A2(b) A3(a) A3(b) A3(c) A2(c) A3(d) A3(e) A3(e) A2(d) A2(f) A2(g) A3(g) A2(f) A2(g) A3(f) A3(g) A2(e) A4(a) A4(b) A4(c) Consolidated 2016 $’000 2015 $’000 1,697 8,374 55,644 6,535 72,250 6,890 311,542 11,836 4,016 - 4,080 41,542 573 380,479 452,729 13,494 - 27,446 6,070 7,128 54,138 52,041 34,086 4,277 271 728 91,403 145,541 307,188 119,525 159 187,504 307,188 1,886 9,475 59,181 6,495 77,037 3,069 251,109 5,868 3,975 1,029 2,479 37,982 782 306,293 383,330 16,063 22,481 - 8,679 8,365 55,588 7,313 32,106 2,236 414 68 42,137 97,725 285,605 119,525 186 165,894 285,605 The above consolidated balance sheet should be read in conjunction with the accompanying notes. 50 Financial StatementsCEDAR WOODS PROPERTIES LIMITEDConsolidated Statement of Changes in Equity For the Year Ended 30 June 2016 Consolidated Note Contributed equity $’000 Reserves $’000 Retained profits $’000 Total $’000 Balance at 1 July 2014 116,716 309 144,576 261,601 Profit for the year Total comprehensive income for the year - - Transactions with owners in their capacity as owners: Contributions of equity, net of transaction costs and tax Transfers from reserves to retained profits Dividends provided for or paid B3(b) Balance at 30 June 2015 A4(a) 2,809 - - 2,809 119,525 - - - (123) - (123) 186 42,585 42,585 42,585 42,585 - 123 (21,390) (21,267) 2,809 - (21,390) (18,581) 165,894 285,605 Balance at 1 July 2015 119,525 186 165,894 285,605 Profit for the year Total comprehensive income for the year Transactions with owners in their capacity as owners: Transfers from reserves to retained profits Dividends provided for or paid Employee share plan reserve B3(b) A4(b) - - - - - - - - 43,602 43,602 43,602 43,602 (97) - 70 (27) 97 - (22,089) (22,089) - 70 (21,992) (22,019) Balance at 30 June 2016 119,525 159 187,504 307,188 The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes. 2016 ANNUAL REPORT 51 Financial Statements Consolidated Cash Flow Statement For the Year Ended 30 June 2016 Cash flows from operating activities Receipts from customers (incl. GST) Payments to suppliers and employees (incl. GST) Note Consolidated 2016 $’000 190,846 (51,468) 2015 $’000 194,015 (46,777) Payments for land and development (112,887) (120,620) Interest received Borrowing costs paid Income taxes paid 516 (3,941) (18,799) 595 (6,163) (12,502) Net cash inflows from operating activities A5(a) 4,267 8,548 Cash flows from investing activities Proceeds from sale of investment properties Repayments of loan by joint ventures Advance of loan to joint ventures Payments for investment properties Payments for property, plant and equipment - 1,108 - (3,656) (2,052) 36,000 2,796 (7,005) (15,938) (1,130) Net cash (outflows) inflows from investing activities (4,600) 14,723 Cash flows from financing activities Proceeds from borrowings Repayment of borrowings Payment of share issue expenses Dividends paid 44,708 (22,481) - (22,083) 22,481 (34,082) (15) (18,565) B3(b) Net cash inflows (outflows) from financing activities 144 (30,181) Net decrease in cash and cash equivalents Cash and cash equivalents at the beginning of the year (189) 1,886 (6,910) 8,796 Cash and cash equivalents at the end of the year A2(a) 1,697 1,886 The above consolidated cash flow statement should be read in conjunction with the accompanying notes. 52 Financial StatementsCEDAR WOODS PROPERTIES LIMITEDs t n e m e t a t S l i a c n a n F i e h t o t e t o N Notes to the Financial Statements These are the consolidated financial statements of Cedar Woods Properties Limited and its subsidiaries. A list of major subsidiaries is included in note C1a. The Financial statements are presented in the Australian currency. The notes are set out in the following main sections: A How the numbers are calculated: Provides a breakdown of those individual line items in the financial statements that the directors consider most relevant in the context of the operations of the group, or where there have been significant changes that required specific explanations; the section further explains what accounting policies have been applied to determine these line items and how the amounts were affected by significant estimates and judgements made in calculating the final numbers. B Financial risks: Discusses the group’s exposure to various financial risks, explains how these affect the group’s financial position and performance and what the group does to manage these risks. C Group structure: Explains significant aspects of the group structure and how changes have affected the financial position and performance of the group. D Unrecognised items: Provides information about items that are not recognised in the financial statements, but could potentially have a significant impact on the group’s financial position and performance. E Other information: Information that is not immediately related to individual line items in the financial statements, such as related party transactions, share based payments and a full list of the accounting policies applied by the entity. F Declaration and independent auditor’s report Contains the director’s declaration and the independent report. 2016 ANNUAL REPORT 53 Section A: How the Numbers are Calculated This section provides a breakdown of those individual line items in the financial statements that the directors consider most relevant in the context of the operations of the group, or where there have been significant changes that required specific explanations, what accounting policies have been applied to determine these line items and how the amounts were affected by significant estimates and judgements made in calculating the final numbers. A1. Profit or loss Information ................................................................................................................................... 55 a) b) c) d) Gain on sale of investment property ..................................................................................................................... 55 Expense items ..................................................................................................................................................... 55 Income tax ........................................................................................................................................................... 56 Earnings per share ............................................................................................................................................... 56 A2. Financial assets and financial liabilities ............................................................................................................ 57 a) b) c) d) e) f) g) Cash and cash equivalents .................................................................................................................................. 58 Trade and other receivables ................................................................................................................................. 58 Available-for-sale financial assets ......................................................................................................................... 59 Trade and other payables ..................................................................................................................................... 59 Derivative financial instruments ............................................................................................................................ 59 Borrowings .......................................................................................................................................................... 60 Other financial liabilities ........................................................................................................................................ 61 A3. Non-Financial assets and liabilities .................................................................................................................. 62 a) b) c) d) e) f) g) Inventories ........................................................................................................................................................... 62 Deferred development costs ................................................................................................................................ 63 Investments accounted for using the equity method ............................................................................................ 63 Property, plant and equipment ............................................................................................................................. 63 Investment properties .......................................................................................................................................... 64 Deferred tax ......................................................................................................................................................... 65 Provisions ............................................................................................................................................................ 67 A4. Equity ................................................................................................................................................................. 68 a) b) c) Movement in ordinary share capital ...................................................................................................................... 68 Reserves .............................................................................................................................................................. 69 Retained profits .................................................................................................................................................... 69 A5. Cash flow information ........................................................................................................................................ 70 a) Reconciliation of profit after income tax to net cash outflows from operating activities .......................................... 70 54 A – How the Numbers are CalculatedCEDAR WOODS PROPERTIES LIMITED l d e t a u c a C e r a l s r e b m u N e h t w o H – 1 A A1. Profit or Loss Information a) Gain on sale of investment property Gain on sale of investment property Proceeds from sale of investment property Carrying value of investment property disposed Net gain on disposal of investment property Notes b) Expense items Profit before income tax expense includes the following specific expenses: Finance costs Interest and finance charges Interest – other financial liabilities Unrealised financial instrument losses (gains) Less: amount capitalised Finance costs expensed i. Capitalised borrowing costs Notes i Consolidated 2016 $’000 - - - 2015 $’000 36,000 (16,031) 19,969 Consolidated 2016 $’000 3,861 2,564 660 (3,330) 3,755 2015 $’000 5,822 2,592 (577) (4,440) 3,397 Where qualifying assets have been financed by the entity’s corporate facility, the capitalisation rate used to determine the amount of borrowing costs to be capitalised is the weighted average interest rate applicable to the entity’s corporate facility during the year, in this case 3.68% (2015 – 5.10%) per annum. Where qualifying assets are financed by specific facilities, the applicable borrowing costs of those facilities are capitalised. Consolidated Net loss on disposal of property, plant and equipment Rental expense relating to operating leases Minimum lease payments Other provisions Provision for customer rebates Provision for impairment of trade receivables Superannuation Depreciation of property, plant and equipment Depreciation of investment properties Employee benefits expense Other Impairment of available for sale financial assets: units in the BCM Apartment Trust A2(c) Impairment of loan to the BCM Apartment Trust Impairment of lease incentives and capitalised lease costs 2016 $’000 2 696 1,647 348 809 458 996 9,743 1,029 449 434 1,912 2015 $’000 18 803 3,671 - 778 301 1,015 8,996 6,368 - - 6,368 2016 ANNUAL REPORT 55 l d e t a u c a C e r a l s r e b m u N e h t w o H – 1 A 56 c) Income tax This note provides an analysis of the group’s income tax expense and how the tax expense is affected by non- assessable and non-deductible items. . i. Income tax expense Consolidated Current tax Deferred tax Adjustments for current tax of prior periods Income tax expense attributable to profit Deferred income tax expense (revenue) included in income tax expense comprises: (Increase) in deferred tax assets Increase in deferred tax liabilities Notes A3(f) A3(f) ii. Numerical reconciliation of income tax expense to prima facie tax payable Profit before income tax 2016 $’000 16,511 2,041 (322) 18,230 (35) 2,076 2,041 Consolidated 2016 $’000 61,832 2015 $’000 16,987 55 (1,804) 15,238 (3,065) 3,120 55 2015 $’000 57,823 Tax at the Australian tax rate of 30% (2015 – 30%) 18,550 17,347 Tax effect of amounts which are not deductible in calculating taxable income: - Share of net profit of joint venture - Sundry items Adjustments for current tax of prior periods: - Research and development Income tax expense d) Earnings per share Basic earnings per share (cents) Diluted earnings per share (cents) Net profit attributable to the ordinary owners of the company ($’000) Weighted average number of ordinary shares used as the denominator in the calculation of earnings per share and diluted earnings per share (13) 15 2 (322) (322) (322) 17 (305) (1,804) (1,804) 18,230 15,238 2016 55.3 55.3 2015 54.3 54.3 43,602 42,585 78,891,681 78,430,698 CEDAR WOODS PROPERTIES LIMITED l d e t a u c a C e r a l s r e b m u N e h t w o H – 2 A A2. Financial Assets and Financial Liabilities This note provides information about the group’s financial instruments, including: i. Specific information about each type of financial instrument ii. Accounting policies iii. Information about determining the fair value of the instruments, including judgements and estimation uncertainty involved The group holds the following financial instruments: Financial Assets 2016 Cash and cash equivalents Trade and other receivables* Total 2015 Cash and cash equivalents Trade and other receivables* Available-for-sale financial assets Total * Excluding prepayments Financial Liabilities 2016 Trade and other payables Borrowings Derivative financial instruments Other financial liabilities Total 2015 Trade and other payables Borrowings Derivative financial instruments Other financial liabilities Total Notes A2(a) A2(b) A2(a) A2(b) A2(c) Available for sale $’000 - - - - - 1,029 1,029 Financial assets at amortised cost $’000 1,697 13,331 15,028 1,886 10,796 - 12,682 Notes Derivatives used for hedging Liabilities at amortised cost A2(d) A2(f) A2(e) A2(g) A2(d) A2(f) A2(e) A2(g) $’000 - - 728 - 728 - - 68 - 68 $’000 13,494 52,041 - 61,532 127,067 16,063 29,794 - 32,106 77,963 Total $’000 1,697 13,331 15,028 1,886 10,796 1,029 13,711 Total $’000 13,494 52,041 728 61,532 127,795 16,063 29,794 68 32,106 78,031 2016 ANNUAL REPORT 57 l d e t a u c a C e r a l s r e b m u N e h t w o H – 2 A 58 a) Cash and cash equivalents Cash at bank and in hand Consolidated 2016 $’000 1,697 1,697 2015 $’000 1,886 1,886 The above figure reconciles to the amount of cash shown in the statement of cash flows at the end of the year. Cash at bank includes cash held in day to day bank transaction accounts and deposit accounts earning interest from 0 to 2.3% (2015: 0 – 2.0%) per annum depending on the balances. The Group’s exposure to interest rate risk is discussed in section B2. Financial risk management. The maximum exposure to credit risk at the reporting date is the carrying amount of each class of cash and cash equivalents mentioned above. b) Trade and other receivables Consolidated Current Trade receivables Provision for impairment Other receivables Loan to BCM Apartment Trust (Secured) Prepayments Non-Current Loans to BCM Apartment Trust (Secured) Provision for impairment Loans – employee share scheme (discontinued) Notes i & ii i & ii i & ii iii iii iii E3 2016 $’000 2,213 (348) 2,578 1,998 1,933 8,374 7,317 (449) 22 6,890 2015 $’000 982 - 122 6,623 1,748 9,475 3,040 - 29 3,069 i. Classification as trade and other receivables Trade receivables are amounts due from customers for goods sold or services performed in the ordinary course of business. Loans and other receivables are non-derivative financial assets with fixed or determinable payments and are not quoted in an active market. If collection of the amounts is expected in one year or less they are classified as current assets. If not, they are presented as non-current assets. Trade receivables are generally due for settlement within 30 days and therefore are all classified as current. The group’s impairment and other accounting policies for trade and other receivables are outlined in note E4(k) and E4(x). ii. Current trade and other receivables Current trade and other receivables include interest and non-interest bearing receivables (see B2. Financial risk management). Trade receivables are initially recorded at fair value and subsequently carried at amortised cost. A provision for impaired trade receivables of $348,000 was made at 30 June 2016 (2015 – $nil) for Williams Landing Shopping Centre rental that is past due, where there is low probability of recovery in full. Other receivables includes GST receivable in relation to the payment of Other financial liabilities - Current in note A2(g). The fair values of non-current receivables of the group approximate the carrying values. Other non-current receivables and loans under the discontinued employee share scheme are non-interest bearing. None of these are impaired, or past due but not impaired. CEDAR WOODS PROPERTIES LIMITED l d e t a u c a C e r a l s r e b m u N e h t w o H – 2 A iii. Secured loan to BCM Apartment Trust In the year ended 30 June 2016, finance facilities continued to be provided by Cedar Woods Properties Limited to BCM Apartment Trust, secured over all of the apartments in the Batavia Coast Marina Apartments development. The interest rate on these facilities is BBSY plus 4.5% per annum. A provision for doubtful debts of $449,000 was made at 30 June 2016 (2015 - $nil) for a loan to Champion Bay Nominees Pty Ltd ATF the BCM Apartment Trust. c) Available-for-sale financial assets Unlisted securities Special unit in unit trust – at fair value i. Unlisted securities Consolidated 2016 $’000 - - 2015 $’000 1,029 1,029 Refer to B2. Financial risk management for further information about the methods used and assumptions applied in determining fair value of unlisted securities. For the purposes of the Batavia Coast Marina Apartments project in Geraldton, WA, the consolidated entity acquired 100 ordinary units for $1 each and 1 special unit (class B) for $6,000,000 in the BCM Apartment Trust (BCM), on 30 March 2012. The ordinary units are disclosed as an interest in joint venture in note A3(c) and the 1 special unit (class B) is disclosed as an available-for-sale financial asset above. The special unit (class B) has been assessed for impairment and a write-down of $1,029,000 (2015: $6,368,000) recorded. ii. Non-current assets pledged as security Refer to note A2(f) for information on non-current assets pledged as security by the parent entity or its controlled entities. d) Trade and other payables Trade payables Accruals GST payable Other payables Consolidated 2016 $’000 7,053 3,853 2,256 332 2015 $’000 6,275 6,226 3,560 2 13,494 16,063 Trade payables are unsecured and are usually paid within 30 days of recognition. The carrying amounts of trade and other payables are assumed to be the same as their fair values due to their short-term nature. e) Derivative financial instruments Non-current liabilities Interest rate swap contracts Consolidated 2016 $’000 728 728 2015 $’000 68 68 2016 ANNUAL REPORT 59 i. Instruments used by the group The group is party to derivative financial instruments in the normal course of business in order to manage exposure to fluctuations in interest rates in accordance with the group’s financial risk management policies. Interest rate swap contracts The bank loans currently bear an average variable interest rate of 3.28% per annum (2015 – 3.72% per annum). It is the group’s policy to protect part of the loans from exposure to fluctuations in interest rates. Accordingly the consolidated entity has entered into interest rate swap contracts under which part of the consolidated entity’s projected borrowings are protected for the period from 1 July 2016 to 30 June 2020. The swaps effectively fix interest rates applicable to bank bills issued with a duration of 1 month (BBSY Bid) at certain levels between 2.255% - 2.495% per annum (2015 – 2.49% - 2.50% per annum). Swaps currently in place cover approximately 61% (2015 – 66%) of the variable loans outstanding at balance date, with terms expiring in 2019 and 2020. The group is not applying hedge accounting to these derivatives. The gain or loss from re- measuring the derivative financial instruments at fair value is recognised in profit or loss. f) Borrowings Current Bank loan – secured (Williams Landing Shopping Centre facility) Non-Current Bank loans – secured (Corporate facilities) Bank loan – secured (Williams Landing Shopping Centre facility) Facility fees capitalised (amortised over the period of facility) Amortisation of facility fees Consolidated 2016 $’000 - - 26,400 25,909 (558) 290 52,041 2015 $’000 22,481 22,481 7,600 - (702) 415 7,313 The fair value of non-current borrowings equals their carrying amount. i. Security for borrowings All of the consolidated entity’s assets are pledged as security for the group’s finance facilities. Bank loans of $13,200,000 provided by ANZ Bank (2015 - $3,800,000) and $13,200,000 provided by Commonwealth Bank trading as Bankwest (2015 - $3,800,000) are secured by first registered mortgages over some of the consolidated entity’s land holdings, and first registered charges, guarantees and indemnities provided by Cedar Woods Properties Limited and applicable subsidiary entities. Cedar Woods Properties Limited has provided first registered charges over its assets and undertakings in relation to the corporate loan facility (see below). The Williams Landing Shopping Centre facility is secured by a first registered mortgage over the Williams Landing Shopping Centre disclosed in investment properties at A3(e). l d e t a u c a C e r a l s r e b m u N e h t w o H – 2 A 60 CEDAR WOODS PROPERTIES LIMITED ii. Financing arrangements Unrestricted access was available to the following lines of credit at balance date: Corporate facilities Total facilities (loan and guarantees) Used at balance date Unused at balance date Williams Landing Shopping Centre facility Total facility Used at balance date Unused at balance date Total Facilities Used at balance date Unused at balance date l d e t a u c a C e r a l s r e b m u N e h t w o H – 2 A Consolidated 2016 $’000 2015 $’000 135,000 40,545 94,455 30,000 25,909 4,091 165,000 66,454 98,546 135,000 21,288 113,712 23,000 22,481 519 158,000 43,769 114,231 The consolidated entity has total corporate finance facilities of $135,000,000, with $67,500,000 each provided by ANZ Bank and Commonwealth Bank trading as Bankwest. The facilities expire on 30 November 2018. Approval has been received from financiers to increase the corporate facility to $175,000,000. The conditions of the facilities impose certain covenants as to the consolidated entity’s revenue, interest cover and loan-to-valuation ratio. The corporate facilities provide funding for the consolidated entity’s existing operations, ongoing development and future acquisitions. The funding structure has been set up as a club facility with a security trustee, providing the flexibility for other banks to enter, should the group’s requirements grow and more lenders are required. The interest on the corporate loan facilities is variable and at 30 June 2016 was an average rate of 3.28% per annum (2015 – 3.72%). The corporate facilities include bank guarantee facilities of $18,000,000 (2015 - $15,000,000) subject to similar terms and conditions, which were drawn to a total amount of $14,145,000 at 30 June 2016 (2015 - $13,688,000). The consolidated entity has a facility of $30m (2015 - $23m) in place for the development of the Williams Landing Shopping Centre provided by Commonwealth Bank trading as Bankwest. The conditions of the facility impose certain covenants including loan-to-valuation ratio and interest cover ratio. The facility extends to February 2019. The interest on the Williams Landing Shopping Centre loan facility is variable and at 30 June 2016 was an average rate of 3.20% (2015 – 3.99%) per annum. Details of the group’s exposure to risk arising from current and non-current borrowings are set out in note B2 Financial risk management. g) Other financial liabilities Current Due to vendors of properties under contracts of sale Non-Current Due to vendors of properties under contract of sale Consolidated 2016 $’000 27,446 27,446 34,086 34,086 2015 $’000 - - 32,106 32,106 2016 ANNUAL REPORT 61 l d e t a u c a C e r a l s r e b m u N e h t w o H – 3 A 62 A3. Non-Financial Assets and Liabilities a) Inventories Total Inventory Current inventory Non-current inventory Aggregate carrying amount Current Property held for resale - land at cost - at valuation 30 June 1992 - capitalised development costs Notes i & ii i & ii Consolidated 2016 $’000 55,644 311,542 367,186 2015 $’000 59,181 251,109 310,290 Consolidated 2016 $’000 2015 $’000 9,433 87 46,124 55,644 16,031 178 42,972 59,181 The 1992 valuations were independent valuations which were based on current market values at that time. Non-Current Property held for resale - land at cost - at valuation 30 June 1992 - capitalised development costs - at net realisable value Consolidated 2016 $’000 2015 $’000 251,330 203,787 74 54,994 5,144 151 42,054 5,117 311,542 251,109 The 1992 valuations were independent valuations which were based on current market values at that time. i. i. Current and non-current assets pledged as security Refer to note A2(f) for information on current assets pledged as security by the parent entity or its controlled entities. ii. Accounting for inventory Refer to note E4(g) for the recognition and classification of inventory. CEDAR WOODS PROPERTIES LIMITED l d e t a u c a C e r a l s r e b m u N e h t w o H – 3 A b) Deferred development costs Current Deferred development costs Non-Current Deferred development costs c) Investments accounted for using the equity method Unlisted securities Shares in joint ventures i. Cedar Woods Wellard Limited Consolidated 2016 $’000 6,535 6,535 11,836 11,836 2015 $’000 6,495 6,495 5,868 5,868 Consolidated 2016 $’000 2015 $’000 4,016 3,975 The consolidated entity owns a 32.5% (2015: 32.5%) interest in Cedar Woods Wellard Limited, a property development company incorporated in Australia. Refer to note C1(b). ii. BCM Apartment Trust The consolidated entity owns 100 ordinary units for $1 each (a 50% interest in the ordinary units) in the BCM Apartment Trust. The consolidated entity’s interests in the ordinary units do not entitle it to a share of the revenue, profit/loss and net assets of BCM. Refer to note A2(c) for details. The consolidated entity also owns 10 ordinary shares for $1 each (a 50% interest) in Champion Bay Nominees Pty Ltd, the trustee of BCM. Refer to note C1(b). d) Property, plant and equipment Plant and Equipment at Cost At start of the year Additions Assets disposed At end of the year Accumulated depreciation on Plant and Equipment At start of the year Charge for year Assets disposed At end of the year Net book value Consolidated 2016 $’000 4,586 2,052 (4) 6,634 2,107 458 (11) 2,554 4,080 2015 $’000 3,486 1,130 (30) 4,586 1,818 301 (12) 2,107 2,479 Non-current assets pledged as security Refer to note A2(f) for information on non-current assets pledged as security by the parent entity or its controlled entities. 2016 ANNUAL REPORT 63 l d e t a u c a C e r a l s r e b m u N e h t w o H – 3 A 64 e) Investment properties Consolidated Notes Non-current assets – at cost Opening balance at the start of the year Capitalised expenditure Transfer from inventory Depreciation Investment properties disposed A1(a) Impairment of capitalised lease costs Closing balance at the end of the year Represented by: Property under construction Completed investment property Closing balance at the end of the year i. Investment properties under construction i 2016 $’000 37,982 4,631 - (996) - (75) 41,542 4,547 36,995 41,542 2015 $’000 34,929 15,143 4,956 (1,015) (16,031) - 37,982 - 37,982 37,982 For investment properties that are under construction at 30 June 2016 depreciation has not yet commenced. ii. Amounts recognised in profit or loss for investment properties Rental income Direct operating expenses from property that generated rental income Impairment of lease incentives and capitalised lease costs Net gain on disposal of investment property Consolidated 2016 $’000 3,627 (2,709) (434) - 2015 $’000 3,700 (1,545) - 19,969 iii. Fair value of investment property The fair value of the Williams Landing Shopping Centre which makes up completed investment property at 30 June 2016 is $58.8m (2015 - $52.3m) exclusive of GST, based on an independent valuation. This includes land surrounding the shopping centre for future development which is on the same title and adding subsequent development. iv. Leasing arrangements Investment properties are leased to tenants under long term operating leases. Minimum lease payments under non- cancellable leases are receivable as follows: Within one year Later than one year but not later than 5 years Later than 5 years Consolidated 2016 $’000 3,070 12,571 30,552 46,193 2015 $’000 2,867 11,835 32,972 47,674 CEDAR WOODS PROPERTIES LIMITED l d e t a u c a C e r a l s r e b m u N e h t w o H – 3 A v. Leasing incentives Lease incentives Amortisation of lease incentives Impairment of lease incentives Consolidated 2016 $’000 1,118 (186) (359) 573 2015 $’000 830 (48) - 782 vi. Non-current assets pledged as security Refer to note A2(f) for information on non-current assets pledged as security by the parent entity or its controlled entities. f) Deferred tax i. Assets Consolidated The balance comprises temporary differences attributable to: Inventory Available for sale financial assets at fair value Notes Provision for customer rebates Provision for employee benefits Other Receivables Derivative financial instruments Share issue expenses Borrowing costs Other Sub-total other Total deferred tax assets Set-off of deferred tax assets pursuant to set-off provisions Net deferred tax assets Deferred tax assets at the start of the year Increase in deferred tax assets credited to income tax expense Increase in deferred tax assets credited to equity Deferred tax assets at the end of the year A1(c) A4(a) Deferred tax assets expected to be recovered within 12 months Deferred tax assets expected to be recovered after more than 12 months 2016 $’000 2,328 1,858 1,743 776 6,705 239 218 102 18 52 629 7,334 (7,334) - 7,299 35 - 7,334 3,445 3,889 7,334 2015 $’000 2,501 1,549 2,117 834 7,001 - 20 210 35 33 298 7,299 (7,299) - 4,230 3,065 4 7,299 3,801 3,498 7,299 2016 ANNUAL REPORT 65 l d e t a u c a C e r a l s r e b m u N e h t w o H – 3 A 66 Available for sale financial assets at fair value $’000 Inventory $’000 Provision for customer rebates $’000 Provision for employee benefits $’000 507 - 1,774 772 Movements At 1 July 2014 (Charged)/credited - to profit or loss 1,994 1,549 - directly to equity - - 343 - At 30 June 2015 2,501 1,549 2,117 (Charged)/credited - to profit or loss - directly to equity At 30 June 2016 ii. Liabilities (173) - 2,328 309 - 1,858 (374) - 1,743 62 - 834 (58) - 776 Other $’000 1,177 (883) 4 298 331 - 629 Total 4,230 3,065 4 7,299 35 - 7,334 Notes Consolidated 2016 $’000 2015 $’000 The balance comprises temporary differences attributable to: Amounts recognised in profit or loss Deferred development costs Inventory Prepayments Investment Property Other Lease incentives Revaluation reserve Other Sub-total other Total deferred tax liabilities Set off of deferred tax assets pursuant to set-off provisions Net deferred tax liabilities Deferred tax liabilities at the start of the year Increase in deferred tax liabilities debited to income tax expense A1(c) Deferred tax liabilities at the end of the year Deferred tax liabilities expected to be settled within 12 months Deferred tax liabilities expected to be settled after more than 12 months 5,372 5,212 439 367 11,390 172 38 11 221 11,611 (7,334) 4,277 9,535 2,076 11,611 3,643 7,968 11,611 3,706 4,872 411 215 9,204 235 81 15 331 9,535 (7,299) 2,236 6,415 3,120 9,535 3,908 5,627 9,535 CEDAR WOODS PROPERTIES LIMITED l d e t a u c a C e r a l s r e b m u N e h t w o H – 3 A Movements At 1 July 2014 Charged/(credited) - to profit or loss At 30 June 2015 Charged/(credited) - to profit or loss At 30 June 2016 Deferred development costs $’000 Inventory $’000 Prepayments $’000 Investment Property $’000 2,694 2,932 115 143 1,012 3,706 1,666 5,372 1,940 4,872 340 5,212 296 411 28 439 72 215 152 367 Other $’000 531 (200) 331 (110) 221 g) Provisions Current Employee benefits Dividends Customer rebates Non-current Employee benefits i. Movements in customer rebate provisions Carrying amount at start of year Charged to profit or loss Payments Carrying amount at end of year Notes i Consolidated 2016 $’000 1,316 3 5,809 7,128 Consolidated 2016 $’000 271 271 Consolidated 2016 $’000 7,057 1,647 (2,895) 5,809 Total $’000 6,415 3,120 9,535 2,076 11,611 2015 $’000 1,305 3 7,057 8,365 2015 $’000 414 414 2015 $’000 5,914 3,671 (2,528) 7,057 Customers are generally entitled to customer rebates within 12 months of balance date, however in some instances claims and payments may not be made within 12 months of balance date. 2016 ANNUAL REPORT 67 A4. Equity a) Movement in ordinary share capital 2016 Shares 2015 Shares 2016 $’000 2015 $’000 Start of the year 78,891,681 78,336,371 119,525 116,716 Shares issued pursuant to the dividend reinvestment plan: Ordinary shares issued on 30 April 2015 at $5.35 Transaction costs arising on share issues Share issued pursuant to the bonus share plan: Ordinary shares issued on 30 April 2015 - - - - 526,833 - 28,477 555,310 - - - - 2,819 (10) - 2,809 End of the year 78,891,681 78,891,681 119,525 119,525 Holders of ordinary shares are entitled to participate in dividends and the proceeds on any winding up of the company in proportion to the number of shares held. On a show of hands every holder of ordinary shares present at a meeting in person or by proxy, is entitled to one vote, and upon a poll each share is entitled to one vote. i. Dividend reinvestment plan The company has established a dividend reinvestment plan under which holders of ordinary shares may elect to have all or part of their dividend satisfied by the issue of new ordinary shares rather than being paid in cash. Shares may be issued under the plan at a discount to the market price, at the discretion of the Directors. ii. Bonus share plan The company has established a bonus share plan under which holders of ordinary shares may elect not to receive dividends but to receive instead additional fully paid shares issued as ‘Bonus Shares’ to the equivalent value of the dividend foregone. The entitlement for shares issued under the plan is calculated based on the same pricing mechanism as the dividend reinvestment plan, including any discount. The dividend reinvestment plan and bonus share plan were suspended during the 2016 financial year in response to capital management initiatives, having regard to the company share price. l d e t a u c a C e r a l s r e b m u N e h t w o H – 4 A 68 CEDAR WOODS PROPERTIES LIMITED l d e t a u c a C e r a l s r e b m u N e h t w o H – 4 A b) Reserves The following table shows the composition and movement in reserves during the year. A description of the nature and purpose of reserves is provided below the table. Composition a) Asset revaluation reserve (pre 1992) b) Employee share plan reserve Movements a) Asset revaluation reserve Balance at the beginning of the year Transfer to retained profits Balance at the end of the year b) Share-based payments reserve Balance at the beginning of the year Share-based payments expense Balance at the end of the year Notes A4(c) Consolidated 2016 $’000 89 70 159 186 (97) 89 - 70 70 2015 $’000 186 - 186 309 (123) 186 - - - The asset revaluation reserve was used until 1992 to record increments and decrements on the revaluation of non- current assets. Refer to note E4(g). The share-based payments reserve is used to recognise the grant date fair value of the rights issued to employees adjusted for those rights not expected to vest. Refer to note E3. c) Retained profits Retained profits at the start of the year Net profit attributable to members of Cedar Woods Properties Limited Transfers from reserves Dividends provided for or paid Retained profits at the end of the year Notes A4(b) B3(b) Consolidated 2016 $’000 2015 $’000 165,894 144,576 43,602 97 (22,089) 187,504 42,585 123 (21,390) 165,894 2016 ANNUAL REPORT 69 A5. Cash Flow Information a) Reconciliation of profit after income tax to net cash inflows from operating activities Consolidated Profit after income tax Depreciation Amortisation of lease incentives Write down of assets – investment property and lease incentives Loss on sale of non-current assets Gain on sale of investment properties Write down of assets - Available for sale financial assets – BCM Apartment Trust Write down of assets - Impairment of loan to the BCM Apartment Trust Fair value loss (gain) on derivative financial instrument Non-cash share based payments expense Accrued interest on receivables Share of profit in equity accounted investment Changes in operating assets and liabilities (Decrease) increase in provisions for employee benefits (Decrease) increase in provisions (Increase) decrease in inventories Transfer from inventories to investment properties (Increase) in other deferred development costs (Increase) in deferred tax assets Increase (Decrease) in current income tax payable Increase in deferred tax liability Decrease (increase) in capitalised borrowing costs (Increase) decrease in debtors Decrease in creditors Increase (decrease) in other financial liabilities Net cash inflows from operating activities 2016 $’000 43,602 1,454 138 434 2 - 1,029 449 660 70 (760) (41) (132) (1,248) (56,896) - (6,008) (35) (2,609) 2,076 20 (3,752) (3,612) 29,426 4,267 2015 $’000 42,585 1,316 48 - 18 (19,969) 6,368 - (577) - (870) (1,073) 377 1,143 20,303 (4,956) (3,375) (3,069) 2,681 3,120 (2) 7,434 (10,503) (32,451) 8,548 l d e t a u c a C e r a l s r e b m u N e h t w o H – 3 A 70 CEDAR WOODS PROPERTIES LIMITED Section B: Financial Risks This section of the notes discusses the group’s exposure to various risks and shows how these could affect the group’s financial position and performance. B1. Significant estimates and judgements .......................................................................................................... 72 a) Significant estimates and judgements ................................................................................................................. 72 B2. Financial risk management ............................................................................................................................. 73 a) b) c) d) Market risk ...........................................................................................................................................................73 Credit risk ........................................................................................................................................................... 75 Liquidity risk ........................................................................................................................................................ 75 Fair value measurement ...................................................................................................................................... 76 B3. Capital management objectives and gearing ............................................................................................... 78 a) b) Capital management objectives and gearing ....................................................................................................... 78 Dividends ............................................................................................................................................................ 79 2016 ANNUAL REPORT 71 B – Financial RisksB1. Significant Estimates and Judgements The preparation of financial statements requires the use of accounting estimates which, by definition, will seldom equal the actual results. Management also needs to exercise judgement in applying the group’s accounting policies. This note provides an overview of the areas that involved a higher degree of judgement or complexity and of items which are more likely to be materially adjusted due to estimates and judgements turning out to be inaccurate. Detailed information about each of these estimates and judgements is presented below. a) Significant estimates and judgements Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that may have a financial impact on the entity. The judgements that have a significant risk of causing a material adjustment to the carrying amounts or presentation of assets and liabilities within the next financial year are discussed below. i. Inventory - classification Judgement is exercised with respect to estimating the classification of inventory between current and non-current assets. Inventory is classified as current only when sales are expected to result in realisation of cash within the next twelve months, based on management’s sales forecasts. ii. Inventory - valuation The recoverable amount of inventory is estimated based on an assessment of net realisable value including future development costs. This requires judgement as to the future cash flows likely to be generated from the properties included in inventory, including in some cases, judgement regarding the likelihood and timing of obtaining development approvals. If the approvals are not received when anticipated, the recoverable amount of inventory may be significantly impaired. Refer also to note E4(g). iii. Estimated fair value of available for sale financial assets The recoverability of the secured loans to BCM Apartment Trust is estimated based on assumptions in relation to market conditions existing at the end of each reporting period. These include sales rates, sales prices and future contracts. There were no critical judgements other than those involving estimates referred to above, that management made in applying the group’s accounting policies. s k s R i l i a c n a n F i – 1 B 72 CEDAR WOODS PROPERTIES LIMITED s k s R i l i a c n a n F i – 2 B B2. Financial Risk Management This note explains the group’s exposure to financial risks and how these risks could affect the group’s future financial performance. Current year profit and loss information has been included where relevant to add further context. The group’s activities expose it to a variety of financial risks: Risk Exposure arising from Measurement Management Market risk – interest rate risk Long term borrowings at variable rates Cash flow forecasting Sensitivity analysis Interest rate swaps Credit risk Cash and cash equivalents, trade and other receivables, available-for-sale financial assets and derivative financial instruments Ageing analysis Credit ratings Ongoing checks by management Management of deposits Contractual arrangements Liquidity risk Borrowings and other liabilities Forecast and actual cash flows Flexibility in funding arrangements Financial risk management is considered part of the overall risk management program overseen by the Audit and Risk Management committee. Further detail on the types of risks to which the group is exposed and the way the group manages these risks is set out below. The group holds the following financial instruments: Financial assets Cash and cash equivalents Trade and other receivables Available-for-sale financial assets Financial liabilities Trade and other payables Other financial liabilities Borrowings Derivative financial instruments a) Market risk i. Price risk 2016 $’000 1,697 15,264 - 16,961 13,494 61,532 52,041 728 127,795 2015 $’000 1,886 12,544 1,029 15,459 16,063 32,106 29,794 68 78,031 The consolidated entity has no foreign exchange exposure and minimal exposure to price risk on equity securities. The fair value of the available-for-sale financial assets is determined using valuation techniques, considering a variety of scenarios and making assumptions that are based on market conditions, including sales prices and sales rates. An increase in sales prices of 10% has a +$157,000 impact on net profit after tax (2015: +$1,000,000), while a decrease in sales prices of 10% has no impact on net profit after tax as the available-for-sale financial asset has been impaired to nil (2015: -$1,000,000). The recoverability of other receivables is also determined considering a variety of scenarios and making assumptions that are based on market conditions, including sales prices and sales rates. An increase in sales prices of 10% has a +$449,000 impact on net profit after tax (2015: nil), while a decrease in sales prices of 10% has no impact on net profit after tax (2015: nil). 2016 ANNUAL REPORT 73 s k s R i l i a c n a n F i – 2 B 74 ii. Cash flow and fair value interest rate risk As the consolidated entity does not have a significant portfolio of interest-bearing assets, the income and operating cash inflows are not materially exposed to changes in market interest rates. The group has issued loans to the BCM Apartment Trust that bears an interest rate of BBSY plus 4.5%. Loans issued at fixed rates or at a fixed range of rates expose the group to fair value interest rate risk. Interest rate risk arises from exposures to long term borrowings, where those borrowings are issued at variable interest rates. Borrowings issued at variable interest rates expose the group to cash flow interest rate risk. The consolidated entity reviews the potential impact of variable interest rate changes and considers various interest rate management products in the context of prevailing monetary policy of the Reserve Bank and economic conditions. Accordingly the consolidated entity has entered into interest rate swap contracts under which a significant part of the consolidated entity’s projected borrowings are protected for the period from 1 July 2016 to 30 June 2020. There is an indirect exposure to interest rate changes caused by the impact of these changes upon the property market. The group addresses this risk by virtue of managing its pricing, product offer and planned development programs. iii. Instruments used by the group Interest rate swap contracts effectively fix interest rates applicable to bank bills issued with a duration of 1 month (BBSY Bid) at certain levels between 2.255% - 2.495% (2015 – 2.49% - 2.495%) per annum. Swaps currently in place cover 61% (2015 - 66%) of the variable loan outstanding at balance date, with terms expiring in 2019 and 2020. The consolidated entity’s policy is to limit a significant proportion of its borrowings to a maximum fixed rate using interest rate swaps or caps to achieve this when necessary. The swaps described above covered 61% of the bank loan at balance sheet date because the balance of the loan was $52,309,000 (2015 - $30,081,000), being at the lower end of the company’s available facilities. The consolidated entity’s exposure to interest rate risk and the effective weighted average interest rate for receivables and borrowings is set out below. Receivables Other receivables Employee share loans Loan to BCM Apartment Trust Interest bearing - variable $’000 2016 Non- interest bearing $’000 Interest bearing - variable $’000 Total $’000 2015 Non- interest bearing $’000 Total $’000 - - 8,866 8,866 6,376 6,376 22 - 22 8,866 6,398 15,264 - - 9,663 9,663 2,852 2,852 29 - 29 9,663 2,881 12,544 The weighted average interest rate at year end is 6.41% (2015: 6.59%) Interest bearing - fixed $’000 2016 Interest bearing - variable $’000 Total $’000 Interest bearing - fixed $’000 2015 Interest bearing - variable $’000 Total $’000 Interest bearing liabilities Bank loans - 52,309 52,309 - 30,081 30,081 Other financial liabilities 34,086 - 34,086 32,106 - 32,106 34,086 52,309 86,395 32,106 30,081 62,187 The weighted average interest rate at year end is 3.28% (2015: 3.72%) An analysis by maturity is provided in B2(c) below. iv. Summarised interest rate sensitivity analysis The potential impact of a change in bank interest rates of + / -1% is not significant to the group’s net profit and equity. The potential impact on financials assets is not significant. Refer to comments above for further information on the impact of changes in interest rates upon the group. CEDAR WOODS PROPERTIES LIMITED s k s R i l i a c n a n F i – 2 B b) Credit risk The consolidated entity has minimal exposure to credit risk from customers as title to lots or units in the consolidated entity’s developments does not generally pass to customers until funds are received. Policies and procedures are in place to manage credit risk including management of deposits and review of the financial capacity of customers. Ongoing checks are performed by management to ensure that settlement terms detailed in individual contracts are adhered to. For land under option the consolidated entity secures its rights by way of encumbrances on the underlying land titles. The maximum exposure to credit risk at the reporting date is the carrying amount of the financial assets as summarised above. Derivative counterparties and cash deposits are placed with high credit quality financial institutions, such as major trading banks. Credit risk may arise in relation to bank guarantees given to certain parties. These guarantees are supported by contractual arrangements that bind the counterparty, providing security against inappropriate presentation of the bank guarantees. For the purposes of the Batavia Coast Marina Apartments project in Geraldton, WA the consolidated entity acquired 100 ordinary units for $1 each and 1 special unit (class B) for $6,000,000 in BCM Apartment Trust (BCM) on 30 March 2012. The ordinary units are disclosed as an interest in joint venture in note A3(c) and the 1 special unit (class B) is disclosed as an available-for-sale financial asset in note A2(c). Under the BCM trust deed the 1 special unit (class B) entitles the consolidated entity to a fixed return upon the repurchase of the 1 special unit (class B) at cost. The fixed return is preferential to any return being received by the other ordinary unit holder and the consolidated entity is represented on the board of the trustee company. The maximum exposure to credit risk at the reporting date is the carrying amount of the available-for-sale financial asset. In relation to the loans to BCM Apartment Trust, loans are secured by way of registered first mortgages over property held by the BCM Apartment Trust. The majority of the loans take priority over payment of any return to the special units (class A, class B and class C). The portion of the loans that rank behind the payment of any returns to the special units has been impaired. c) Liquidity risk Prudent liquidity risk management implies maintaining sufficient cash and available credit facilities to manage the consolidated entity’s financial commitments. The group manages liquidity risk by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities. Due to the dynamic nature of the underlying businesses, the group aims at maintaining flexibility in funding by keeping committed credit lines available. At 30 June 2016 the group had undrawn committed facilities of $94,455,000 (2015 - $113,712,000) and cash of $1,697,000 (2015 - $1,886,000) to cover short term funding requirements. Refer to A2(f) ii for details. i. Maturities of financial liabilities The tables below analyse the group’s financial liabilities into relevant maturity groupings based on the remaining period at the reporting date to the contractual maturity date. The amounts disclosed in the table for non-interest bearing liabilities are the contractual undiscounted cash flows. For variable interest rate liabilities the cash flows have been estimated using interest rates applicable at the reporting date. Group – at 30 June 2016 Non-derivatives Non-interest bearing Fixed rate Variable rate Derivatives Total Less than 1 year $’000 Between 1 and 2 years $’000 Between 2 and 5 years $’000 Total contractual cash flows $’000 13,494 25,037 - - 38,531 - - - - - - 39,000 57,607 728 13,494 64,037 57,607 728 Carrying amount $’000 13,494 61,532 52,041 728 97,335 135,866 127,795 2016 ANNUAL REPORT 75 s k s R i l i a c n a n F i – 2 B 76 Group – at 30 June 2015 Non-derivatives Non-interest bearing Fixed rate Variable rate Derivatives Total d) Fair value measurement Less than 1 year $’000 Between 1 and 2 years $’000 Between 2 and 5 years $’000 Total contractual cash flows $’000 16,063 - 23,145 - 39,208 - - - - - - 39,000 8,453 68 16,063 39,000 31,598 68 47,521 86,729 78,031 Carrying amount $’000 16,063 32,106 29,794 68 This note provides information on the judgements and estimates made by the group in determining the fair values of the financial instruments. i. Fair value hierarchy To provide an indication about the reliability of the inputs used in determining fair value, the group classifies its financial instruments into three levels prescribed under the accounting standards. An explanation of each level follows underneath the table. The following table presents the group’s financial assets and financial liabilities measured and recognised at fair value at 30 June 2016 and 30 June 2015: As at 30 June 2016 Notes Assets Available-for-sale financial assets A2(c) Total assets Liabilities Derivatives used for hedging A2(e) Total liabilities As at 30 June 2015 Notes Assets Available-for-sale financial assets A2(c) Total assets Liabilities Derivatives used for hedging A2(e) Total liabilities Level 1 $’000 Level 2 $’000 Level 3 $’000 Total $’000 - - - - - - 728 728 - - - - Level 1 $’000 Level 2 $’000 Level 3 $’000 - - - - - - 68 68 1,029 1,029 - - - - 728 728 Total $’000 1,029 1,029 68 68 ii. Valuation techniques used to determine fair values Level 1 – The fair value of financial instruments traded in active markets (such as publicly traded derivatives) is based on quoted (unadjusted) market prices at the end of the reporting period. The quoted market price used for the financial assets held by the group is the current bid price. These instruments are included in level 1. Level 2 – The fair value of financial instruments that are not traded in an active market (such as derivatives provided by trading banks) is determined using market valuations provided by those banks at reporting date. These instruments are included in level 2. Level 3 – If one or more of the significant inputs is not based on observable market data, the instruments is included in level 3. This is the case for unlisted equity securities (classified as available-for-sale financial assets in the balance sheet). The unlisted equity securities provide a fixed return and the fair value of the securities is determined based on management’s estimate of the period over which the return will be received and the performance of the issuer entity. CEDAR WOODS PROPERTIES LIMITED s k s R i l i a c n a n F i – 3 B iii. Fair value measurements using significant unobservable inputs (level 3) The following table presents the changes in level 3 instruments for the year ended 30 June 2016: Opening balance 30 June 2015 Impairment of Available-for-sale financial assets Closing balance 30 June 2016 Available For sale $’000 1,029 (1,029) - Total $’000 1,029 (1,029) - The reduction in fair value of the equity securities in the table above reflects the reduced return expected to be received and the extended period over which the return is now expected to be received. Refer to note A2(c) for details. 2016 ANNUAL REPORT 77 s k s R i l i a c n a n F i B3. Capital Management Objectives and Gearing – 3 B a) Capital management objectives and gearing The consolidated entity’s objectives when managing capital are to safeguard its ability to continue as a going concern, so that it can continue to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. In order to maintain or adjust the capital structure, the group will consider a range of alternatives which may include: • raising or reducing borrowings • adjusting the dividend policy • • • issue of new securities return of capital to shareholders sale of assets. Gearing is a measure used to monitor the levels of debt used in the business to fund operations. The gearing ratio is calculated as interest bearing bank debt net of cash and cash equivalents divided by shareholders’ equity. Gearing is managed by reference to a guideline which sets the desirable upper and lower limits for the gearing ratio. The group’s gearing is then addressed by utilising capital management initiatives as discussed above. The gearing ratios were as follows: Total interest bearing bank debt Less: cash and cash equivalents Net debt Shareholders’ equity Gearing ratio Note A2(f) A2(a) 2016 $’000 52,041 (1,697) 50,344 2015 $’000 29,794 (1,886) 27,908 307,188 16.4% 285,605 9.8% The group’s guideline is to target gearing generally within the range of 20-75% although periods where the gearing is outside of this range are acceptable, depending upon the timetable for acquisition payments and the construction and settlement of developments. i. Loan Covenants Under the terms of the major borrowing facilities, the group has complied with covenants throughout the reporting period. Key covenants include requirements in relation to a maximum loan to valuation ratio and a minimum interest cover ratio. 78 CEDAR WOODS PROPERTIES LIMITED b) Dividends i. Ordinary shares Fully franked based on tax paid at 30% Final dividend for the year ended 30 June 2015 of 16.0 cents (2014 – 15.5 cents) per fully paid share - Paid in cash - Applied to the employee share loans Interim dividend for the year ended 30 June 2016 of 12.0 cents (2015 – 12.0 cents) per fully paid share - Paid in cash - Satisfied by shares under the dividend reinvestment plan - Applied to the employee share loans Total ii. Dividends not recognised at the year end s k s R i l i a c n a n F i – 3 B Consolidated 2016 $’000 2015 $’000 12,619 3 12,138 3 9,464 - 3 22,089 6,427 2,819 3 21,390 In addition to the above dividends, since year end the directors have recommended the payment of a final dividend of 16.5 cents per fully paid ordinary share (2015 – 16.0 cents), fully franked based on the tax paid at 30%. The aggregate amount of the proposed dividend expected to be paid on 28 October 2016 out of retained profits at 30 June 2016, but not recognised as a liability at year end is below: Dividends not recognised at year end iii. Franked Dividends Consolidated 2016 $’000 13,017 2015 $’000 12,623 The franked portions of the final dividend proposed at 30 June 2016 will be franked from existing franking credits or from franking credits arising from the payment of income tax in the next financial year. Franking credits available for the subsequent financial year on a tax-paid basis of 30% (2015 – 30%) Consolidated 2016 $’000 2015 $’000 70,516 64,443 The above amounts represent the franking accounts at the end of the financial year, adjusted for:: (a) Franking credits that will arise from the payment of the current tax liability; (b) Franking debits that will arise from the payment of dividends recognised as a liability at the reporting date; (c) Franking credits that will arise from the receipt of dividends recognised as receivables at the reporting date. The impact on the franking account of the dividend recommended by the directors since year end, but not recognised as a liability at year end, will be a reduction in the franking account of $5,579,000 (2015 - $5,410,000). 2016 ANNUAL REPORT 79 Section C: Group Structure This section provides information which will help users understand how the group structure affects the financial position and performance of the group as a whole. C1. Interests in Other Entities ............................................................................................................................... 81 a) b) c) d) Subsidiaries ........................................................................................................................................................ 81 Interests in joint ventures ..................................................................................................................................... 82 Commitments and contingent liabilities in respect of the joint ventures ................................................................ 82 Summarised financial information for joint ventures ............................................................................................. 83 80 C – Group StructureCEDAR WOODS PROPERTIES LIMITEDC1. Interests in Other Entities a) Subsidiaries The group’s subsidiaries at 30 June 2016 are set out below. Unless otherwise stated, they have share capital consisting solely of ordinary shares that are held directly by the group and the proportion of ownership interest held equals the voting rights held by the group. The subsidiaries are incorporated or established in Australia. The consolidated financial statements incorporate the assets, liabilities and results in accordance with the accounting policy described in note E4(b). Company Equity Holding e r u t c u r t S p u o r G – 1 C Cedar Woods Properties Harrisdale Pty Ltd Cedar Woods Properties Investments Pty Ltd Cedar Woods Properties Management Pty Ltd Cedar Woods Property Sales Pty Ltd Cranford Pty Ltd Daleford Property Pty Ltd Dunland Property Pty Ltd Esplanade (Mandurah) Pty Ltd Eucalypt Property Pty Ltd Flametree Property Pty Ltd Galaway Holdings Pty Ltd Gaythorne Pty Ltd Geographe Property Pty Ltd Huntsman Property Pty Ltd Jarrah Property Pty Ltd Kayea Property Pty Ltd Lonnegal Property Pty Ltd Osprey Property Pty Ltd Silhouette Property Pty Ltd Terra Property Pty Ltd Upside Property Pty Ltd Vintage Property Pty Ltd Williams Landing Home Improvement Pty Ltd Williams Landing Home Improvement Trust Williams Landing Shopping Centre Pty Ltd Williams Landing Shopping Centre Trust Williams Landing Town Centre Pty Ltd Woodbrooke Property Pty Ltd Yonder Property Pty Ltd Zamia Property Pty Ltd 2016 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% 2015 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% 2016 ANNUAL REPORT 81 b) Interests in joint arrangements Set out below are the joint ventures of the group as at 30 June 2016. The principal place of business and country of incorporation (or origin) is Australia for all entities. Name of entity % of ownership interest Nature of relationship Measurement method 2016 % 2015 % Carine Joint Venture - 50 Joint Operation Share of assets, liabilities, income and expenses Carrying amount 2016 $’000 2015 $’000 - (38) Cedar Woods Wellard Limited 32.5 32.5 Joint Venture Equity method 4,016 3,975 BCM Apartment Trust 50 50 Joint Venture Equity method - - The carrying amount represents the amount attributable to the group. Carine Joint Venture (CJV) was a joint venture with an aged care and retirement living provider, to develop a mixed use precinct including an aged care facility, retirement living and residential housing development on State land in Carine, Western Australia. The consolidated entity had a 50% participating interest in the CJV and was entitled to 50% of its revenue and assets, however the CJV was terminated in December 2015 and thus the consolidated entity’s interest in the assets employed in the CJV are nil in the balance sheet at 30 June 2016 in accordance with the accounting policy described in note E4(b). Cedar Woods Wellard Limited is developing the Emerald Park residential estate at Wellard, WA. BCM Apartment Trust, owns the Batavia Coast Marina Apartments project in Geraldton. The consolidated entity owns 100 ordinary units for $1 each (a 50% interest in the ordinary units) in the BCM Apartment Trust, which owns the Batavia Coast Marina Apartments project in Geraldton. The consolidated entity’s interest in the ordinary units does not entitle it to a share of the revenue, profit/loss or net assets of BCM. Refer to note A2(c) for details. The consolidated entity also owns 10 ordinary shares for $1 each (a 50% interest) in Champion Bay Nominees Pty Ltd, the trustee of BCM. c) Commitments and contingent liabilities in respect of the joint ventures Carine Joint Venture has no commitments for expenditure or contingent liabilities at 30 June 2016 (2015: nil). Cedar Woods Wellard Limited has commitment for expenditure at 30 June 2016 of $111,263 (2015: $2,865,262) and provided $2,075,100 (2015: $27,667) bank guarantees to various local authorities supporting development and maintenance commitments. BCM Apartment Trust has no commitments for expenditure or contingent liabilities at 30 June 2016 (2015: nil). e r u t c u r t S p u o r G – 1 C 82 CEDAR WOODS PROPERTIES LIMITED e r u t c u r t S p u o r G – 1 C d) Summarised financial information for joint ventures The following table provides summarised financial information for those joint ventures that are material to the group. The information disclosed reflects the amounts presented in the financial statements of the relevant joint ventures and not Cedar Woods Properties Limited’s share of those amounts. Cedar Woods Wellard Limited Current assets Cash Other current assets Total current assets Total non-current assets Total assets Total current liabilities Non-current liabilities Total liabilities Net assets Group’s share in % Group’s share in $ i. Movements in carrying amounts – Cedar Woods Wellard Limited At start of the year Share of profit after income tax At end of the year Share of profit before income tax Income tax expense Share of profit after income tax Share of joint venture’s revenue, assets, liabilities and contingent liabilities Revenue Assets Liabilities Contingent liabilities (bank guarantees) 2016 $’000 867 7,745 8,612 9,538 18,150 3,807 - 3,807 14,343 32.5% 4,661 2016 $’000 3,975 41 4,016 59 (18) 41 1,091 5,899 (1,237) (674) 2015 $’000 2,183 8,617 10,800 5,502 16,302 2,086 - 2,086 14,216 32.5% 4,620 2015 $’000 2,902 1,073 3,975 1,533 (460) 1,073 4,748 5,298 (678) (9) The consolidated entity owns a 32.5% (2015 – 32.5%) interest in Cedar Woods Wellard Limited, a property development company incorporated in Australia. The directors have determined that they do not control Cedar Woods Wellard Limited as no one investor can direct the activities without the co-operation of the others. 2016 ANNUAL REPORT 83 Section D: Unrecognised Items This section of the notes provides information about items that are not recognised in the financial statements as they do not satisfy the recognition criteria. D1. Contingent liabilities ...................................................................................................................................... 85 D2. Commitments ................................................................................................................................................. 86 D3. Events occurring after the reporting period ................................................................................................ 87 84 D – Unrecognised ItemsCEDAR WOODS PROPERTIES LIMITEDD1. Contingent Liabilities At 30 June 2016 the group had contingent liabilities in respect of: a) Bank guarantees At 30 June 2016 bank guarantees totalling $14,145,000 (2015 - $13,688,000) had been provided to various state and local authorities supporting development and maintenance commitments. s m e t I i d e s n g o c e r n U – 1 D 2016 ANNUAL REPORT 85 D2. Commitments a) Non-cancellable operating leases Commitments for minimum lease payments in relation to non-cancellable operating leases contracted for at the reporting date but not recognised as liabilities are payable as follows: Within 1 year Later than 1 year but not later than 5 years Consolidated 2016 $’000 683 1,294 1,977 2015 $’000 711 2,167 2,878 The group leases various offices under non-cancellable operating leases expiring within 5 years. The leases have varying terms, escalation clauses and renewal rights. On renewal, the terms of the leases are renegotiated. b) Capital commitments At 30 June 2016 the consolidated entity had commitments under civil works, building construction and landscaping construction for development of its projects in the ordinary course of business. The total amount contracted for work yet to be completed for civil works was $19,220,000 (2015 - $11,331,000), for building construction was $34,931,000 (2015 - $22,982,000) and for landscaping construction was $2,375,000 (2015 - $987,000). This work will be substantially completed in the next 12 months. s m e t I i d e s n g o c e r n U – 2 D 86 CEDAR WOODS PROPERTIES LIMITED D3. Events occurring after the reporting period On 12 July 2016 Cedar Woods announced that the South Australian Government approved Cedar Woods’ conditional purchase of a 16.5ha site in Glenside, Adelaide for a price of $25.8m plus GST. The Glenside site is located 3 kilometres south east of Adelaide CBD and adjacent to over 700 hectares of parkland which surrounds the city. Settlement of the purchase will occur upon finalisation of the rezoning, which is expected to occur mid FY2017. The site will accommodate over 1,000 dwellings. The company was also selected as preferred developer by the State Government for a 12.6ha site at Port Adelaide. The site will accommodate about 500 homes with the majority being 2 to 3 storey townhouses. The State Government (Renewal SA) and Cedar Woods will work together over the next six months to develop a master plan in consultation with the community. s m e t I i d e s n g o c e r n U – 3 D 2016 ANNUAL REPORT 87 n o i t a m r o f n I r e h t O – E Section E: Other Information Section E contains information that is not immediately related to individual line items in the financial statements, such as related party transactions, share based payments and a full list of the accounting policies applied by the entity. E1. Related party transactions ............................................................................................................................ 89 E2. Remuneration of auditors .............................................................................................................................. 90 E3. Employee share scheme ................................................................................................................................ 91 E4. Summary of accounting policies ................................................................................................................... 92 E5. Segment information .................................................................................................................................... 100 E6. Parent entity financial information .............................................................................................................. 101 88 E – Other InformationCEDAR WOODS PROPERTIES LIMITED n o i t a m r o f n I r e h t O – 1 E E1. Related Party Transactions a) Key management personnel compensation Additional disclosures relating to key management personnel are set out in the Directors’ Report. Short-term employee benefits Post-employment benefits Long-term employee benefits Termination benefit b) Group Consolidated 2016 $ 2015 $ 2,771,210 2,474,008 177,444 69,283 - 157,429 152,133 124,500 3,017,937 2,908,070 The group consists of Cedar Woods Properties Limited and its controlled entities. A list of these entities and the ownership interests held by the parent entity are set out in note C1. c) Parent entity The parent entity within the group is Cedar Woods Properties Limited. d) Transactions with other related parties Cedar Woods Properties Management Pty Ltd and Cedar Woods Property Sales derived management and selling fees totalling $312,413 (2015 - $1,361,275) from Cedar Woods Wellard Limited. Detailed disclosures on transactions with key management personnel or their related entities are set out in the Directors’ Report. e) Terms and conditions Management and selling fees are derived according to management agreements in place between the parties. These are based on normal terms and conditions, at market rates at the time of entering into the agreements. f) Outstanding balances arising from sales / purchases of goods and services The following balances are outstanding at the end of the reporting period in relation to transactions with related parties:: Current receivables (sales of goods and services) Cedar Woods Wellard Limited g) Loans to related parties Loan to Cedar Woods Wellard Limited Beginning of the year Loan repayments received Interest charged End of year 2016 $ 315 315 2016 $ - - - - 2015 $ - - 2015 $ 2,610,154 (2,796,146) 185,992 - 2016 ANNUAL REPORT 89 E2. Remuneration of Auditors During the year the following fees were paid or payable to the auditor of the parent entity: PricewaterhouseCoopers – Australian firm Assurance services 2016 $ 2015 $ - Audit and review of the financial statements of the parent entity, controlled entities and co-development projects 196,238 239,007 Non-audit services - Research and development advice - Accounting advice - Other taxation advice and reviews Total fees for non-audit services - 1,530 7,575 9,105 205,343 266,649 - 29,325 295,974 534,981 The statutory audit requirements for the group vary from year to year and can have an impact on the level of audit fees. Audit Fees in FY2016 include $11,936 in relation to the FY2015 audit that were subsequently billed in FY2016. The consolidated entity may decide to engage the auditor on assignments additional to their statutory audit duties where the auditor’s expertise and experience with the consolidated entity is important. These assignments relate to accounting advice, tax advice and reviews and other advice. All non-audit services are reviewed and approved by the Audit and Risk Management Committee to ensure they do not adversely impact the independence and objectivity of the auditor. The auditor has provided an independence declaration and the committee is satisfied that the work performed on non-audit services is conducted by a team separate from the audit team and does not impact the independence of the auditor. The majority of non-audit services fees in FY2015 related to research and development (R&D) tax incentive work. The work on R&D is now performed by a different firm to the auditor. The company has an objective that the value of non-audit services provided by the audit firm does not exceed the value of the audit services. n o i t a m r o f n I r e h t O – 2 E 90 CEDAR WOODS PROPERTIES LIMITED n o i t a m r o f n I r e h t O – 3 E E3. Employee Share Scheme The former employee share plan has been discontinued. Under the plan, certain employees were granted shares funded by interest free loans from the company and repaid by dividends. At 30 June 2016, $22,000 (2015 - $29,000) remained outstanding from employees in relation to loans granted in financial years prior to 2010. No amounts were due from former employees. The former employee share plan has been reviewed and replaced by a new Long Term Incentive (LTI) plan effective from 1 July 2015 for FY2016 and which will continue in FY2017. The new LTI plan has two vesting conditions a) a 3 year service condition and b) two performance conditions measured over a 3 year period: 50 percent of the LTI grant will be tested against a relative total shareholder return (“TSR”) hurdle (measured against the S&P / ASX Small Industrials Index) and 50 per cent against earnings per share (“EPS”) growth targets, set in the context of the Corporate plan. Full details of the operation of the LTI plan are set out in the remuneration report on pages 35 and 36 of this annual report. 2016 ANNUAL REPORT 91 n o i t a m r o f n I r e h t O – 4 E 92 E4. Summary of Accounting Policies The principal accounting policies adopted in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. The financial statements are for the consolidated entity consisting of Cedar Woods Properties Limited and its subsidiaries. a) Basis of preparation These general purpose financial statements have been prepared in accordance with Australian Accounting Standards and Interpretations issued by the Australian Accounting Standards Board and the Corporations Act 2001. Cedar Woods Properties Limited is a for-profit entity for the purpose of preparing the financial statements. i. Compliance with International Financial Reporting Standards (IFRS) The financial statements of the Cedar Woods Properties Limited group also comply with IFRS as issued by the International Accounting Standards Board (IASB). ii. Historical cost convention These financial statements have been prepared under the historical cost convention, as modified by the revaluation of available-for-sale financial assets and derivative financial instruments. iii. Critical accounting estimates The preparation of financial statements requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the group’s accounting policies. The areas involving a higher degree of judgement or complexity, or where assumptions and estimates are significant to the financial statements, are disclosed in B1. iv. Functional and presentation currency The consolidated financial statements are presented in Australian dollars, which is the functional and presentation currency of Cedar Woods Properties Limited. b) Principles of consolidation i. Subsidiaries The consolidated financial statements incorporate the assets and liabilities of all entities controlled by Cedar Woods Properties Limited (parent) as at 30 June 2016 and the results of all subsidiaries for the year then ended. Cedar Woods Properties Limited and its subsidiaries together are referred to in these financial statements as the consolidated entity or the group. Subsidiaries are those entities over which the parent has the power to govern the financial and operating policies, generally accompanying a shareholding of one-half or more of the voting rights. The acquisition method of accounting is used to account for business combinations by the group. Subsidiaries are fully consolidated from the date on which control is transferred to the parent. They are de-consolidated from the date that control ceases. All inter-company balances and transactions between companies within the consolidated entity are eliminated upon consolidation. ii. Joint arrangements Joint arrangements – Under AASB 11 Joint Arrangements, investments in joint arrangements are classified as either joint operations or joint ventures. The classification depends on the contractual rights and obligations of each investor, rather than the legal structure of the joint arrangement. The consolidated entity has both joint operations and joint ventures. Joint operations - The consolidated entity recognises its direct right to assets, liabilities, revenues and expenses of joint operations, which have been incorporated in the financial statements under the appropriate headings. Joint ventures – Interest in joint ventures are accounted for using the equity method (see below), after initially being recognised at cost in the consolidated balance sheet. Details of the joint ventures are set out in note C1(b). CEDAR WOODS PROPERTIES LIMITED n o i t a m r o f n I r e h t O – 4 E iii. Equity method Under the equity method of accounting, the investments are initially recognised at cost and adjusted thereafter to recognise the group’s share of the post-acquisition profits or losses of the investee in profit or loss, and the group’s share of movements in other comprehensive income. c) Revenue recognition Revenue is measured at the fair value of the consideration received or receivable and is recognised net of discounts and taxes paid. The following specific recognition criteria must also be met before revenue is recognised: i. Sale of land and buildings Revenue arising from the sale of land and buildings held for resale is recognised at settlement. ii. Interest Interest income is recognised using the effective interest method. When a receivable is impaired, the group reduces the carrying amount to its recoverable amount, being the estimated future cash flow discounted at the original effective interest rate of the instrument, and continues unwinding the discount as interest income. Interest income on impaired loans is recognised using the original effective interest rate. iii. Dividends Dividends are recognised as revenue when the right to receive payment is established. iv. Lease income Income from operating leases is recognised on a straight line basis over the period of each lease. v. Commissions and fees Commission and fee income is recognised when the right to receive the income has been earned in accordance with contractual arrangements. d) Income tax The income tax expense or revenue for the period is the tax payable on the current period’s taxable income based on the income tax rate in Australia adjusted by changes in deferred tax assets and liabilities attributable to temporary differences and to unused tax losses, if any. The current income tax charge is calculated on the basis of the tax laws enacted or substantially enacted at the end of the reporting period. Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. Deferred income tax is determined using the tax rates expected to apply when the assets are recovered or liabilities are settled, based on those tax rates which are enacted or substantively enacted. Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses. Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets and liabilities and when the deferred tax balances relate to the same taxation authority. Cedar Woods Properties Limited and its wholly owned Australian controlled entities have implemented the tax consolidation legislation. As a consequence, these entities are taxed as a single entity and the deferred tax assets and liabilities of these entities are set off in the consolidated financial statements. Current and deferred tax is recognised in profit and loss, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case, the tax is also recognised in other comprehensive income or directly in equity respectively. 2016 ANNUAL REPORT 93 n o i t a m r o f n I r e h t O – 4 E 94 e) Earnings per share i. Basic earnings per share Basic earnings per share is determined by dividing the profit attributable to owners of Cedar Woods Properties Limited by the weighted average number of ordinary shares outstanding during the financial year, adjusted for any bonus elements in ordinary shares issued during the year. ii. Diluted earnings per share Diluted earnings per share adjusts the earnings used in the determination of basic earnings per share to take account of any effect on borrowing costs associated with the issue of dilutive potential ordinary shares. The weighted average number of ordinary shares is adjusted to reflect the conversion of all dilutive potential ordinary shares. f) Cash and cash equivalents For cash flow statement presentation purposes, cash and cash equivalents includes cash on hand, and deposits at call which are readily convertible to cash on hand and are subject to an insignificant risk of changes in value. Bank overdrafts are shown within borrowings in current liabilities on the balance sheet. g) Inventories i. Property held for development and resale Since 1 July 1992, property purchased for development and sale is valued at the lower of cost and net realisable value. Cost includes acquisition and subsequent development costs, and applicable borrowing costs incurred during development. Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale. All property held for development and sale is regarded as inventory and is classified as such in the balance sheet. Property is classified as current inventory only when sales are expected to result in realisation of cash within the next twelve months, based on management’s sales forecasts. Borrowing costs incurred prior to active development and after development is completed, are expensed as incurred. Prior to 1 July 1992 the consolidated entity’s land assets were classified on acquisition as non-current investments and initially recorded at cost with regular independent valuations being undertaken. Increments or decrements were reflected in the balance sheet and also recognised in equity. The balance of this land is stated at 1992 valuation, which is its deemed cost. The amount remaining in the Asset Revaluation Reserve represents the balance of the net revaluation increment for land revalued prior to 1 July 1992 which is now classified as inventory and which is still held by the consolidated entity. When revalued assets are sold, it is policy to transfer any amounts included in reserves in respect of those assets to retained earnings. The acquisition of land is recognised when an unconditional purchase contract exists. When property is sold, the cost of the land and attributable development costs, including borrowing costs, is expensed through cost of sales. h) Deferred development costs Development costs incurred by the group for the development of land not held as an asset by the group are recorded as deferred development costs in the balance sheet. They are included in current assets, except for those which are not expected to be reimbursed within 12 months of the reporting period, which are classified as non-current assets. In instances when the deferred development costs are reimbursed by the land owner, they are expensed in the profit or loss. i) Assets classified as held for sale Non-current assets are classified as held for sale if their carrying amount will be recovered principally through a sale transaction rather than through continuing use and a sale is considered highly probable. They are measured at the lower of carrying amount and fair value, less costs to sell. An impairment loss is recognised for any initial or subsequent write-down of the asset (or disposal) to fair value less costs to sell. A gain is recognised for any subsequent increase in fair value less costs to sell of an asset (or disposal), but not in excess of any cumulative impairment loss previously recognised. A gain or loss not previously recognised by the date of the sale of the non-current asset (or disposal) is recognised at the date of derecognition. Non-current assets are not depreciated or amortised while they are classified as held for sale. Non-current assets classified as held for sale are presented separately from the other assets in the balance sheet. CEDAR WOODS PROPERTIES LIMITED n o i t a m r o f n I r e h t O – 4 E j) Business combinations The method of accounting is used to account for all business combinations. Cost is measured as the fair value of the assets given, or liabilities undertaken at the date of acquisition. Acquisition related costs are expensed as incurred. Where settlement of any part of cash consideration is deferred, the amounts payable in the future are discounted to their present values at the date of acquisition. The discount rate used is the incremental borrowing rate applied by the consolidated entity’s financiers for a similar borrowing under comparable terms and conditions. k) Impairment of assets Assets are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount of an asset is the higher of its fair value less costs of disposal and value in use. For the purposes of assessing impairment, assets are grouped at the lowest level for which there are separately identifiable cash generating units, which is generally the project level. Assets that suffered an impairment are reviewed for possible reversal of the impairment at the end of each reporting period. l) Property, plant and equipment Property, plant and equipment is substantially made up of furniture, fittings and equipment and is stated at historical cost less depreciation. Depreciation is calculated on a straight line or diminishing value basis to write off the net cost of each item of property, plant and equipment, including leased equipment, over its expected useful life to the consolidated entity. The expected useful lives of items of property, plant and equipment and the depreciation methods used are: • Plant and equipment – 3 to 15 years (straight line and diminishing value methods) The assets’ residual values and useful lives are reviewed for impairment and adjusted if appropriate, at each reporting date. Gains and losses on disposals are determined by comparing proceeds with carrying amount. These are included in the profit or loss. m) Investments, other financial assets and other financial liabilities The group classifies its financial assets in the following categories: financial assets at fair value through profit or loss, loans and receivables and available for sale financial assets. The classification depends on the purpose for which investments were acquired. Management determines the classification of its investments at initial recognition. i. Financial assets at fair value through profit or loss Financial assets at fair value through profit or loss are financial assets held for trading. A financial asset is classified in this category if acquired principally for the purpose of selling in the short term. Derivatives are classified as held for trading unless they are designed as hedges. Assets in this category are classified as current assets if they are expected to be settled within 12 months, otherwise they are classified as non-current. ii. Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in non-current assets, except for those with maturities less than 12 months after the reporting period which are classified as current assets. Loans and receivables are included in receivables in the balance sheet. Loans and receivables are carried at amortised cost using the effective interest method. iii. Available-for sale financial assets Available-for-sale financial assets, comprising marketable equity securities and other securities, are non-derivatives that are either designated in this category or not classified in any of the other categories. They are included in non- current assets as management does not intend to sell them within 12 months. Available-for-sale financial assets are carried at fair value. Changes in the fair value not arising from impairment or interest are recognised in other comprehensive income. The group assesses at the end of each reporting period whether there is objective evidence that a financial asset is impaired. If there is evidence of impairment, the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows, excluding future credit losses that have not been incurred. In the case of loans and receivables, the cash flows are discounted at the financial asset’s original effective interest rate. The loss is recognised in profit or loss. 2016 ANNUAL REPORT 95 n o i t a m r o f n I r e h t O – 4 E 96 Other financial liabilities at fair value through profit or loss are financial liabilities due to vendors of properties under contracts of sale. Assets in this category are classified as current assets if they are expected to be settled within 12 months, otherwise they are classified as non-current. n) Investment property i. Investment property Investment property, principally comprising retail property, is held for long term rental yields and is not occupied by the consolidated entity. Investment property includes properties under construction for future use as investment property and is stated at historical cost less depreciation. Depreciation is calculated on a straight line basis to write off the net cost of each investment over its expected useful life to the consolidated entity. The expected useful life of investment property buildings is 40 years. When the company elects to dispose of investment property, it is presented as assets classified as held for sale in the balance sheet where it meets the relevant criteria. Net gains or losses on sale are disclosed in the profit or loss. ii. Lease incentives Lease incentives provided under an operating lease by the Group as lessor are recognised on a straight line basis against rental income over the lease period. o) Employee benefits i. Short term obligations Liabilities for wages and salaries, bonuses and annual leave expected to be settled within 12 months of the reporting date are recognised in other payables in respect of employees’ services up to the reporting date and are measured at the amounts expected to be paid when the liabilities are settled. All other short-term employee benefit obligations are presented as payables. ii. Other long term employee benefit obligations The liability for long service leave which is not expected to be settled within 12 months after the end of the period in which the employees render the related service is recognised in the provision for employee benefits and measured as the present value of expected future payments to be made in respect of services provided by employees up to the reporting date. Consideration is given to expected future wage and salary levels, experience of employee departures and periods of service. Expected future payments are discounted using market yields at the reporting date on national corporate bonds with terms to maturity that match, as closely as possible, the estimated future cash flows. iii. Bonus plans The group recognises a liability and expense for bonuses earned during the financial year where contractually obliged or where past practice has created a constructive obligation. iv. Superannuation Contributions by the consolidated entity to employees’ superannuation funds are charged to the profit or loss when they are payable. The consolidated entity does not operate any defined benefit superannuation funds. p) Trade and other payables These amounts represent liabilities for goods and services provided to the consolidated entity prior to the end of the financial year and which are unpaid. These amounts are unsecured and are usually paid within 30 to 60 days of recognition. q) Leases Leases of property, plant and equipment in which a significant portion of the risks and rewards of ownership are not transferred to the consolidated entity as lessee are classified as operating leases. Operating lease payments are charged to the profit or loss in the periods in which they are incurred as this represents the pattern of benefit derived from the leased assets. Lease income from operating leases where the group is a lessor is recognised in income on a straight line basis over the lease term. The respective leased assets are included in the balance sheet as investment properties. CEDAR WOODS PROPERTIES LIMITED n o i t a m r o f n I r e h t O – 4 E r) Borrowings and borrowing costs Borrowings are initially recognised at fair value, net of transaction costs incurred. Borrowings are subsequently measured at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption amount is recognised in profit or loss over the period of the borrowings using the effective interest method. Fees paid on the establishment of loan facilities are recognised as transaction costs of the loan to the extent that it is probable that some or all of the facility will be drawn down. In this case the fee is deferred until the commencement of the facility when draw down occurs. Borrowings are removed from the balance sheet when the obligation specified in the contract is discharged, cancelled or expired. Borrowings are classified as current liabilities unless the group has an unconditional right to defer settlement of the liability for at least 12 months after the end of the reporting period. Borrowing costs are recognised as expenses in the period in which they are incurred, except where they are included in the costs of qualifying assets during the period when the asset is being prepared for its intended use or sale. s) Provisions for customer rebates Provision is made for the estimated liability arising from obligations in existence at balance date to customers for the provision of landscaping and fencing rebates and other incentives, to which customers are generally entitled within 12 months of balance date. t) Dividends Provision is made for the amount of any dividend declared, being appropriately authorised and no longer at the discretion of the entity, on or before the end of the financial year but not distributed at balance date. u) Maintenance Routine operating maintenance and repairs are charged as expenses as incurred. v) Contributed equity Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares are shown in equity as a deduction, net of tax, from the proceeds. w) Segment reporting Management has determined the operating segment based on the reports reviewed by the Managing Director that are used to make strategic decisions. The Managing Director has been identified as the chief operating decision maker. x) Trade and other receivables Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment. Trade receivables are generally due for settlement within one year. Collectability of trade receivables is reviewed regularly. Receivables that are uncollectable are written off by reducing the carrying amount directly. Receivables include prepayments and loans made under the discontinued employee share scheme. y) Derivatives Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently remeasured to their fair value at each reporting date. Changes to fair value are taken to profit or loss and are included in other income or expenses. z) Goods and services tax (GST) Revenues, expenses and assets are recognised net of the amount of associated GST, unless the GST incurred is not recoverable from the taxation authority. In this case it is recognised as part of the cost of the asset or as part of the expense. Receivables and payables are stated inclusive of the amount of GST receivable or payable. The net amount of GST recoverable from, or payable to, the taxation authority is included with other receivables or payables in the balance sheet. Cash flows are presented on a gross basis. The GST components of cash flows arising from investing or financing activities which are recoverable from, or payable to, taxation authorities, are presented as operating cash flows. 2016 ANNUAL REPORT 97 n o i t a m r o f n I r e h t O – 4 E 98 aa) New accounting standards and interpretations The group has applied the following standards and amendments for the first time for the annual reporting period commencing 1 July 2015: AASB 2014-1 Amendments to Australian Accounting Standards The amended standards only affected the disclosures in the notes to the financial statements. New accounting standards not yet adopted Certain new accounting standards and interpretations have been published that are not mandatory for 30 June 2016 reporting periods and have not been early adopted by the group. The group’s assessment of the impact of these new standards and interpretations is set out below. Mandatory application date / Date of adoption by group Must be applied for financial years commencing on or after 1 January 2018. Mandatory for financial years commencing on or after 1 January 2018. Expected date of adoption by the group: 1 July 2018. Mandatory for financial years commencing on or after 1 January 2019. At this stage, the group does not intend to adopt the standard before its effective date. Title of Standard Nature of change Impact AASB 9 Financial Instruments AASB 15 Revenue from Contracts with Customers AASB 16 Leases AASB 9 addresses the classification, measurement and derecognition of financial assets and financial liabilities, introduces new rules for hedge accounting and a new impairment model for financial assets. The AASB has issued a new standard for the recognition of revenue. This will replace AASB 118 which covers revenue arising from the sale of goods and the rendering of services and AASB 111 which covers construction contracts. The new standard is based on the principle that revenue is recognised when control of a good or service transfers to a customer. The standard permits either a full retrospective or a modified retrospective approach for the adoption. AASB 16 was issued in February 2016. It will result in almost all leases being recognised on the balance sheet, as the distinction between operating and finance leases is removed. Under the new standard, an asset (the right to use the leased item) and a financial liability to pay rentals are recognised. The only exceptions are short-term and low-value leases. The accounting for lessors will not significantly change. The application of the standard at the operative date is not expected to have a significant impact on the group’s accounting for financial assets and liabilities. Management is currently assessing the effects of applying the new standard on the group’s financial statements. At this stage, the group is not able to estimate the effect of the new rules on the group’s financial statements. The group will make more detailed assessments of the impact over the next twelve months. The standard will affect primarily the accounting for the group’s operating leases. As at the reporting date, the group has operating lease commitments of $1,977,000. However, the group has not yet determined to what extent these commitments will result in the recognition of an asset and a liability for future payments and how this will affect the group’s profit and classification of cash flows. Some of the commitments may relate to arrangements that will not qualify as leases under AASB 16. There are no other standards that are not yet effective and that are expected to have a material impact on the consolidated entity in the current or future reporting periods and on foreseeable future transactions. CEDAR WOODS PROPERTIES LIMITED bb) Rounding of amounts The company is of a kind referred to in Class Order 2016/191, issued by the Australian Securities and Investments Commission, relating to the ‘rounding off’ of amounts in the financial statements. Amounts in the financial statements have been rounded off in accordance with that Class Order to the nearest thousand dollars, or in certain cases, to the nearest dollar. n o i t a m r o f n I r e h t O – 4 E 2016 ANNUAL REPORT 99 E5. Segment Information The board has determined the operating segment based on the reports reviewed by the Managing Director that are used to make strategic decisions. The board has considered the business from both a product and a geographic perspective and has determined that the group operates a single business in a single geographic area and hence has one reportable segment. The group engages in property investment and development which takes place in Australia. The group has no separate business units or divisions. The internal reporting provided to the Managing Director includes key performance information at a whole of group level. The Managing Director uses the internal information to make strategic decisions, based primarily upon the expected future outcome of those decisions on the group as a whole. Material decisions to allocate resources are generally made at a whole of group level. The group sells products to the public and is not reliant upon any single customer for 10% or more of the group’s revenue. All of the group’s assets are held within Australia. The Managing Director assesses the performance of the operating segment based on the net profit after tax, earnings per share and net tangible assets per share. n o i t a m r o f n I r e h t O – 5 E 100 CEDAR WOODS PROPERTIES LIMITED n o i t a m r o f n I r e h t O – 6 E E6. Parent Entity Financial Information The financial information for the parent entity, Cedar Woods Properties Limited, has been prepared on the same basis as the consolidated financial statements, except as detailed in notes (i) and (ii) below. The individual financial statements for the parent entity show the following aggregate amounts: Balance sheet Current assets Total assets Current liabilities Total liabilities Net assets Shareholders’ equity Issued capital Reserves Retained earnings Profit for the year Total comprehensive income i. Investments in subsidiaries and joint venture entities 2016 $’000 2015 $’000 48,760 355,945 (98,884) (126,107) 229,838 51,095 315,404 (89,411) (97,212) 218,192 119,525 119,525 70 110,243 229,838 28,790 28,790 - 98,667 218,192 31,525 31,525 Investments in subsidiaries and joint venture entities are accounted for at cost in the financial statements of Cedar Woods Properties Limited. Such investments include both investments in shares issued by the subsidiary and other parent entity interests that in substance form part of the parent entity’s investment in the subsidiary. These include investments in the form of interest free loans which have no fixed repayment terms and which have been provided to subsidiaries as an additional source of long term capital. Dividends received from joint ventures are recognised in the parent entity’s profit or loss, rather than being deducted from the carrying amount of these investments. ii. Tax consolidation legislation Cedar Woods Properties Limited and its wholly owned Australian controlled entities have implemented the tax consolidation legislation. The head entity, Cedar Woods Properties Limited, and the controlled entities in the tax-consolidated group account for their own current and deferred tax amounts. These tax amounts are measured as if each entity in the tax-consolidated group continues to be a standalone taxpayer in its own right. In addition to its own current and deferred tax amounts, Cedar Woods Properties Limited also recognises the current tax liabilities (or assets) and the deferred tax assets arising from unused tax losses and unused tax credits assumed from controlled entities in the tax-consolidated group. The entities have also entered into a tax funding agreement under which the 100% subsidiaries fully compensate the parent for any current tax payable assumed and are compensated by the parent for any current tax receivable and deferred tax assets relating to unused tax losses that are transferred to the parent under the tax consolidation legislation. The funding amounts are determined by reference to the amounts recognised in the 100% subsidiaries’ financial statements. The amounts receivable/payable under the tax funding agreement are due upon receipt of the funding advice from the head entity when it is issued. The head entity may require payment of interim funding amounts to assist with its obligations to pay tax instalments. Assets or liabilities arising under tax funding agreements with the tax consolidated entities are recognised as current amounts receivable from or payable to other entities in the group. 2016 ANNUAL REPORT 101 Section F: Declaration and Independent Auditor’s Report F1. Directors’ Declaration .................................................................................................................................. 103 F2. Independent Auditor’s Report to the Members of Cedar Woods Properties Limited ............................ 104 102 F – Declaration and Independent Auditor’s ReportCEDAR WOODS PROPERTIES LIMITED t r o p e R s ’ r o t i d u A t n e d n e p e d n I d n a n o i t a r a c e D – l 1 F F1. Directors’ Declaration In the directors’ opinion: a) the financial statements that are set out in the financial statements section and notes on pages 48 to 101 are in accordance with the Corporations Act 2001, including:: i. complying with Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements; and ii. giving a true and fair view of the consolidated entity’s financial position as at 30 June 2016 and of its performance for the financial year ended on that date; and b) there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable. Note E4(a) confirms that the financial statements also comply with International Financial Reporting Standards as issued by the International Accounting Standards Board. The directors have been given the declarations by the Managing Director and Chief Financial Officer required by section 295A of the Corporations Act 2001. This declaration is made in accordance with a resolution of the directors. P S Sadleir Managing Director Perth, Western Australia 24 August 2016 2016 ANNUAL REPORT 103 F2. Independent Auditor’s Report to the members of Cedar Woods Properties Limited t r o p e R s ’ r o t i d u A t n e d n e p e d n I d n a n o i t a r a c e D – l 2 F 104 CEDAR WOODS PROPERTIES LIMITED t r o p e R s ’ r o t i d u A t n e d n e p e d n I d n a n o i t a r a c e D – l 2 F 2016 ANNUAL REPORT 105 Section G: Shareholders’ Information This section provides information for shareholders on distributions and other shareholder benefits, the composition of the share register and past financial performance. G1. Investors’ Summary ........................................................................................................................................ 107 a) b) c) d) e) f) Dividend and dividend policy .............................................................................................................................. 107 Shareholder discount scheme ............................................................................................................................ 107 Electronic payment of dividends ......................................................................................................................... 107 Dividend re-investment plan and Bonus share plan ............................................................................................ 107 Shareholders’ timetable ..................................................................................................................................... 107 Shareholder information ..................................................................................................................................... 108 G2. Five year financial performance .................................................................................................................... 110 106 G – Shareholders’ InformationCEDAR WOODS PROPERTIES LIMITED n o i t a m r o f n I l ’ s r e d o h e r a h S – 1 G G1. Investors’ Summary a) Dividend and dividend policy The dividend policy is to distribute approximately 50% of the full year net profit after tax. The final dividend for the 2016 financial year is 16.5 cents per share, fully franked. The dividend will be paid on 28 October 2016. b) Shareholder discount scheme The group operates a shareholder discount scheme which entitles shareholders to a 5% discount off the listed price of any residential lot, or 2.5% off the listed price of houses or apartments at the group’s developments. A summary of the main terms and conditions follows: • Shareholders must hold a minimum number of 1,000 shares for at least 12 months before purchasing a lot or dwelling to qualify for the discount; • There is no limit to the number of lots or dwellings which a shareholder may purchase under the scheme, subject to any statutory restrictions; and • The shareholder discount scheme does not apply to lots or dwellings at joint venture projects. The above is a summary of the main conditions and shareholders should apply to the company or visit the website for the full terms and conditions. c) Electronic payment of dividends The group continues to offer the electronic payment of dividends, which is now in use by the majority of our shareholders. Shareholders may nominate a bank, building society or credit union account for the payment of dividends by direct credit. Payments are electronically credited on the dividend payment date and confirmed by mailed advice. Shareholders wishing to take advantage of this facility for the first time should contact the Company’s Share Registrar, Computershare Investor Services Pty Ltd, by visiting www.computershare.com.au. d) Dividend re-investment plan and Bonus share plan The dividend re-investment plan and bonus share plan are operated from time to time as part of measures to manage the group’s capital. Shareholders can change their participation status in the plans by completing an election form in accordance with the rules of each plan. The dividend re-investment plan and bonus share plan are currently suspended. e) Shareholders’ timetable Dividend announcement Share register closes for dividend (Record date) Final dividend payment date First quarter update Annual General Meeting Half-year result announcement Interim dividend payment date Third quarter update Full year result and dividend announcement 25 August 2016 6 October 2016 28 October 2016 October 2016 10 November 2016 February 2017 April 2017 May 2017 August 2017 2016 ANNUAL REPORT 107 f) Shareholder Information The shareholder information set out below was applicable at 31 August 2016. i) Distribution of ordinary shares 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,000 and over Number of holders 965 1,266 435 443 59 Number of shares 411,777 3,460,230 3,280,264 11,451,297 60,288,113 3,168 78,891,681 There were 254 holders of less than a marketable parcel of shares. ii) Twenty largest shareholders of ordinary shares as disclosed in the share register JP Morgan Nominees Australia Limited HSBC Custody Nominees (Australia) Limited Hamsha Nominees Pty Ltd (The Nowra Projects Unit Fund A/C) Westland Group Holdings Pty Ltd Zero Nominees Pty Ltd National Nominees Limited Beach Corporation Pty Ltd Citicorp Nominees Pty Ltd Australian Executor Trustees Limited (No 1 Account) Helen Kaye Poynton Joia Holdings Pty Ltd Mr Paul Sadleir Australian Foundation Investments Company Limited BNP Paribas Nominees Pty Ltd (Agency Lending DRP A/C) Leblon Holdings Pty Ltd (William Hames Super Fund A/C) RBC Investor Services Australia Pty Ltd (VFA A/C) Dr A Gerraty & Mrs P Gerraty (A & P Gerraty S/F A/C) HSBC Custody Nominees (Australia) Limited (NT-Comnwlth Super Corp A/C) Netwealth Investments Limited (Wrap Services A/C) Mr JH Tucker & Mrs KJ Tucker (Tucker Family Super Fund A/C) Number of shares 10,341,125 9,300,214 5,040,216 4,596,980 4,059,874 2,706,545 2,384,963 2,258,742 1,806,934 1,677,095 1,177,922 1,045,445 800,000 736,952 708,456 696,474 600,000 543,422 478,950 460,002 Percentage of shares 13.11 11.79 6.39 5.83 5.15 3.43 3.02 2.86 2.29 2.13 1.49 1.33 1.01 0.93 0.90 0.88 0.76 0.69 0.61 0.58 51,420,311 65.18 n o i t a m r o f n I l ’ s r e d o h e r a h S – 1 G 108 CEDAR WOODS PROPERTIES LIMITED n o i t a m r o f n I l ’ s r e d o h e r a h S – 1 G iii) Substantial shareholders of ordinary shares As disclosed in substantial shareholder notices lodged with the ASX at 31 August 2016. William George Hames and related entities Robert Stanley Brown and related entities Westpac Banking Corporation Westoz Funds Management Pty Ltd AustralianSuper Pty Ltd Number of shares Percentage of shares 1 9,314,668 7,967,627 4,752,159 4,025,000 3,984,733 12.90 10.87 6.02 5.10 5.05 1 Percentage of issued capital held as at the date notice provided. iv) Voting rights The voting rights attaching to each class of equity securities are set out below: Ordinary shares On a show of hands every member present in person or by proxy shall have one vote and upon a poll each share shall have one vote. 2016 ANNUAL REPORT 109 n o i t a m r o f n I l ’ s r e d o h e r a h S – 1 G 110 G2. Five Year Financial Performance All figures in $’000 except where stated Financial Year Financial Performance Revenue from operations Proceeds from investment Properties Earnings before interest and tax Finance costs Operating profit before tax Income tax expense Net profit after tax Financial Position Total assets Total liabilities 2016 2015 2014 2013 2012 175,159 178,637 214,465 172,751 170,474 - 65,587 3,755 61,832 18,230 43,602 36,000 61,220 3,397 57,823 15,238 42,585 - 382 1,271 56,172 53,022 53,092 606 55,566 15,253 40,313 1,580 51,442 15,105 36,337 3,819 49,273 15,023 34,250 452,729 383,330 409,948 301,024 238,314 145,541 97,725 148,347 93,280 53,688 Shareholders’ equity 307,188 285,605 261,601 207,744 184,626 Number of shares on issue – end of year (‘000) 78,892 78,892 78,336 73,360 72,190 Earnings per share (cents) 55.3 54.3 54.4 49.9 53.2 Key Performance Measures Dividend per share, fully franked (cents) 28.5 28.0 27.5 26.0 25.0 EBIT Margin Interest cover (times) Return on Equity 37.4% 34.3% 26.2% 30.7% 31.1% 16.6 9.9 10.4 12.6 14.2% 14.9% 15.4% 17.5% Investment in inventory during year 112,887 120,620 158,149 145,474 Net tangible assets backing per share ($) Net bank debt Net bank debt to equity Share price – end of year ($) 3.89 50,344 16.4% 4.35 3.62 27,908 9.8% 5.26 3.34 32,602 12.5% 7.31 2.83 37,762 18.2% 5.17 Stock Market capitalisation at 30 June 343,179 414,970 572,639 379,269 256,995 Number of employees at 30 June 67 62 56 54 48 Returns to shareholders over 1, 3, & 5 years Earnings per share growth % Share price growth % Dividend growth % (paid dividend) Total shareholder return % 1 Year 1.8 (17.3) 1.8 (9.6) 3 Year 5 Year 3.5 (5.6) 3.8 1.0 3.8 1.7 8.1 9.5 8.8 18.6% 97,401 2.56 3,822 2.1% 3.56 CEDAR WOODS PROPERTIES LIMITED Corporate Directory A.B.N. 47 009 259 081 Directors William George Hames, BArch (Hons) MCU (Harvard) LFRAIA, MPIA, FAPI (Econ) – Chairman Robert Stanley Brown, MAICD, AIFS – Deputy Chairman Ronald Packer, BCom (UWA), FAICD, Solicitor Supreme Court of England & Wales Stephen Thomas Pearce, BBus(ACC), Grad Dip (Admin), FCA, AGIA, MAICD Valerie Anne Davies, FAICD Paul Stephen Sadleir, BE, MBA, AAPI, FAICD – Managing Director Timothy Robert Brown, BA, LLB, M.Fin, Post Grad Dip (Phil) (Alternate for R S Brown) Company Secretary Paul Samuel Freedman, BSc, CA, GAICD Registered office and principal place of business Ground Floor, 50 Colin Street WEST PERTH WA 6005 Postal address: P.O. Box 788 West Perth WA 6872 Phone: (08) 9480 1500 Fax: (08) 9480 1599 Email: email@cedarwoods.com.au Website: www.cedarwoods.com.au Share registry Computershare Investor Services Pty Ltd Level 11, 172 St Georges Terrace PERTH WA 6000 Auditor PricewaterhouseCoopers 125 St Georges Terrace PERTH WA 6000 Securities exchange listing Cedar Woods Properties Limited shares are listed on the Australian Securities Exchange (ASX) ASX code: CWP Annual general meeting Venue: Kings Park Function Centre, Fraser Avenue, West Perth WA 6005 Time: 10:00am Date: Thursday 10 November 2016 2016 ANNUAL REPORT 111 www.cedarwoods.com.au 

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