Cedar Woods Properties Limited
Annual Report 2020

Plain-text annual report

Annual Report Cedar Woods Properties Limited ABN 47 009 259 081 20 20 ABOUT CEDAR WOODS Cedar Woods Properties Limited (“Cedar Woods”) is a national developer of residential communities and commercial properties. Established in 1987, Cedar Woods has Cedar Woods’ diversified product mix ranges grown to become one of the country’s from land subdivisions in emerging residential leading developers. The Company has established a reputation for delivering long-term shareholder value underpinned by its disciplined approach to acquisitions, the rigour and thoughtfulness of its designs, and the creation of dynamic communities that meet the evolving needs of its customers. communities, to medium and high-density apartments and townhouses in vibrant inner- city neighbourhoods and supporting retail and commercial developments. Cedar Woods’ developments epitomise the company’s long-standing commitment to quality. TABLE OF CONTENTS Letter from the Chairman ..................................................................... 4 Letter from the Managing Director....................................................... 6 Financial Performance Highlights ........................................................ 8 Our Business ..................................................................................... 10 Financial and Operating Review ........................................................ 13 ESG Report ........................................................................................ 22 Directors’ Report ............................................................................... 34 Directors’ Report: Chair of the Human Resources and Remuneration Committee’s Letter to Shareholders ........................... 39 Directors’ Report - Remuneration Report .......................................... 40 Auditor’s independence declaration ................................................. 62 Financial Statements ......................................................................... 63 Notes to the Financial Statements ..................................................... 69 Section A: Key Numbers ................................................................. 70 Section B: Financial risks ................................................................ 91 Section C: Group Structure ............................................................ 99 Section D: Unrecognised Items .................................................... 107 Section E: Further Information ...................................................... 109 Directors’ Declaration ...................................................................... 123 Independent Auditor’s report .......................................................... 124 Shareholders Information ............................................................... 130 Five Year Financial Performance .................................................... 134 2 CEDAR WOODS PROPERTIES LIMITED 3  Ellendale, Queensland 2020 ANNUAL REPORTLETTER FROM THE CHAIRMAN For more than three decades, since our inception in 1987, Cedar Woods has successfully navigated many economic cycles. Throughout these cyclical peaks and troughs, establishing diversity in the Cedar Woods’ project our disciplined and customer-focused approach portfolio in terms of price, product and geography has remained consistent. This approach has proven has seen our projects continue to perform and, fundamental to overcoming the complexities of relatively speaking, proving somewhat resistant to the past and it underpins the resilience of our recent impacts. portfolio today. With a resilient portfolio and proven-track record As we face the social and economic challenges of of overcoming challenges, Cedar Woods is in a 2020, we continue to reflect on and enhance our robust position, able to take on the complexities ability to transcend cycles, stay the course and of today and emerge well positioned to meet the emerge stronger. Beyond the sharp impact of COVID-19 we look forward to a reshaping of the economy, sector by sector. Assisted by the Federal Government’s HomeBuilder package and respective state customer demands of the future. We will continue to make disciplined decisions that retain value in the business for our shareholders while maximising opportunities to meet the aspirations of Australian home buyers. government incentives, opportunities are available In conclusion, I acknowledge the strong culture in the Australian property market to those nimble and high-performance of the Cedar Woods team. enough to respond. As the country begins to In the face of challenges, our people continue to recover and migration levels rise, as the life in the demonstrate personal strength and unwavering ‘lucky country’ is once again sought, Cedar Woods commitment to customers. On behalf of the Board, is well prepared. In recent years, Cedar Woods has been quietly responding to state governments’ pursuit of infill I thank Nathan and his team for their valuable contribution to Cedar Woods and delivering returns to shareholders while building for the future. development, investing in market intelligence to I also take this opportunity to thank our loyal innovate our product ready to meet future demand. shareholders for their support. We understand the emerging needs of new home buyers and how to create a high-quality built form Sincerely, product that appeals to them. The Company’s disciplined capital management has enabled our expansion into this more capital-intensive product, all the while maintaining our moderate gearing levels. Our strategy of William Hames Chairman 4 5 2020 ANNUAL REPORTCEDAR WOODS PROPERTIES LIMITED LETTER FROM THE MANAGING DIRECTOR Last year, Cedar Woods predicted that the 2020 financial year would be defined by the second half. While a pandemic was not predicted, the past six months have been significant and, although challenging, have confirmed the resilience of the Company’s operations and national property portfolio. As we continue to navigate our way through the Throughout, we have maintained financial health COVID-19 pandemic, the Company is in a strong via prudent capital management including cost position, both operationally and financially, with more reduction initiatives. We continue to enjoy strong than 9,000 lots/units in our development pipeline and support from our banking partners, positioning us $360 million of presale contracts in place, as at 30 well to pursue opportunities in an environment where June 2020. development lending has tightened. Determined to grow even stronger from this Given the extraordinary economic impact of period, we continue to deploy our strategy with COVID-19, subdued buyer confidence and ongoing several initiatives in place to accelerate recovery. market uncertainty, we are prepared for a multi-year The Company’s July 2020 announcement of the recovery. Conditions are likely to remain difficult, conditional acquisition of land in one of Australia’s but our customer-focused team remains up for the highest growth areas, Burpengary, Queensland, challenge. A strong balance sheet and an extensive demonstrates that we continue to seek out and list of new projects, which are starting to contribute assess further growth opportunities. to growth, give us a position of strength. With a focus on quality, the Cedar Woods I thank the Board for its continued support and portfolio maintains a significant exposure to highly look forward to leading our high performance sought-after infill developments which have proven and enterprising team as we rise to the future to outperform the market. During the first half of the opportunities that will present as the Australian year, the Company advanced its development and economy recovers. construction program across its national portfolio in Queensland, Western Australia, South Australia Sincerely, and Victoria. When impacted by the external shocks of the second half, our recently completed digital transformation program enabled seamless remote working. Marketing and sales adapted, and Cedar Woods started to use electronic sales contracts more widely, protecting our customers and people. Nathan Blackburne Managing Director 6 7 2020 ANNUAL REPORTCEDAR WOODS PROPERTIES LIMITED FINANCIAL PERFORMANCE HIGHLIGHTS NET PROFIT AFTER TAX $20.9m TOTAL REVENUE $260.7m 6 1 0 2 7 1 0 2 8 1 0 2 9 1 0 2 0 2 0 2 EARNINGS PER SHARE 26.0c FULL YEAR DIVIDENDS 19.0c 6 1 0 2 7 1 0 2 8 1 0 2 9 1 0 2 0 2 0 2 6 1 0 2 7 1 0 2 8 1 0 2 9 1 0 2 0 2 0 2 6 1 0 2 7 1 0 2 8 1 0 2 9 1 0 2 0 2 0 2 RETURN ON EQUITY TOTAL SHAREHOLDER RETURN 5.5% Below company benchmark of 10% -2.4% Outperformed All Ordinaries of -7.2%, Small Industrials of -7.4%, Peer group average* of -17.8% PRESALE CONTRACTS NET BANK DEBT TO EQUITY $360m Up $30m 37.7%At the lower end of target range of 20%-75% *Peer group average includes 6 ASX listed residential property developers. 8 2020 ANNUAL REPORT 9 9 CEDAR WOODS PROPERTIES LIMITED OUR BUSINESS OUR HISTORY Cedar Woods was established in 1987 and listed The company is known for taking on complex, large on the ASX (Code: CWP) in 1994. Starting out as a scale projects, adding value through planning developer of master planned communities in Western design and delivery and generating strong returns Australia, the company progressively branched from multi-year projects. As a result, it has built a out into new product areas and geographies. The reputation as an innovative and diversified property company expanded into Melbourne in 1997, then company with a track record of strong financial Brisbane in 2014 and Adelaide in 2016 and now performance, sustained since inception. has a significant portfolio of quality developments delivering residential lots, townhouses, apartments and commercial projects. OUR PURPOSE, VISION & VALUES Our Purpose, Vision and Values inform every decision we make, guide our conduct internally and our relationships with partners, customers and investors. We are proud to be a leading national property developer, and with an ongoing commitment to our strategy and our values, we look forward to fulfilling our vision of becoming the best Australian property company, renowned for performance and quality. PURPOSE Our purpose is to create long-term value for shareholders through the development of vibrant communities. OUR STRATEGY Our strategy is to grow 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. Geography Product Type Price Point Good geographic spread Range of housing lots, Wide range of price of well-located projects in apartments, townhouses and points offered in Queensland, our states. commercial properties. South Australia, Victoria and Western Australia. VALUE CREATION MODEL We deliver on our strategy via our value creation model. VISION Our vision is to be the best Australian property company renowned for performance and quality. VALUES WE DO WHAT WE SAY WE’LL DO We deliver what we say we will for all our stakeholders. WE ARE PEOPLE DEVELOPERS We are committed to developing our people so that they thrive in their careers. WE THINK ABOUT TOMORROW We take a long-term view of our performance and the product we deliver. WE STRIVE TO SUCCEED We are driven to succeed in all aspects of our business. Property Acquisitions Development Marketing & Sales Disciplined approach to acquisitions: Research, design, planning and delivery: Integrated approach to optimise results: y Tactical and research based decisions to identify projects y Rigorous assessment and conservative assumptions y Structure contracts to minimise risks and optimise returns y Sustainable designs that optimise quality, functionality, environmental outcomes and returns y Collaborative approach with community and authorities y Negotiate timely value-adding approvals y Structure contracts to minimise risks y Manage construction closely y Positioning projects to maximise demand y Pre-sell to underwrite projects y Quality brands and marketing material y Lead generation and sales conversion y Customer nurturing and referrals 10 11 2020 ANNUAL REPORTCEDAR WOODS PROPERTIES LIMITED STRATEGIC PRIORITIES We optimise business performance through a focus on four strategic priorities. FINANCIAL AND OPERATING REV IEW High Performance Culture Financial Strength Creating a progressive, high-spirited Optimising performance through disciplined work environment with strong staff alignment capital management, a commercial focus, to values and objectives, where top talent cost minimisation and maintaining a strong work collaboratively and high performance balance sheet. is rewarded. Operational Excellence Earnings Growth Being operationally strong and safe Pursuit of earnings growth is the key metric through renewed and integrated systems to achieve our primary objective of creating and technologies, having a strong corporate long-term value for our shareholders. This may be brand with quality projects and delivering achieved organically, by mergers and acquisitions sustainable projects. or through new business areas. On behalf of the Board, we are pleased to present the financial and operating review of Cedar Woods to shareholders. The following summarises the results of operations during the year and the financial position of the consolidated entity at 30 June 2020 which were significantly impacted by COVID-19: 2020 FINANCIALS AT A GLANCE NET PROFIT AFTER TAX (NPAT) AND DIVIDENDS y Revenue of $260,660,000 down 30.5 per cent on In FY2020, the company delivered a profit of $20.9 the prior year y Net profit after tax of $20,899,000, down 57.0 per cent on the prior year y Total dividends of 19.0 cents per share, down 39.7 per cent, generating a fully franked yield of 3.6 per cent at year end million. This was down 57.0 per cent from the prior year, although followed profit growth in eight of the nine previous years. Dividends declared for FY2020 were 19.0 cents per share, also down from 31.5 cents per share in the prior year after nine years of y Earnings per share of 26.0 cents, down 57.3 increasing or stable dividends. per cent on the prior year y Total shareholder return of -2.4 per cent NPAT AND DIVIDENDS DECLARED SINCE FY11 s n o i l l i M $ 50 45 40 35 30 25 20 15 10 5 0 12 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Dividend H1 Dividend H2 NPAT 35 30 25 20 15 10 5 0 C e n t s 13 2020 ANNUAL REPORTCEDAR WOODS PROPERTIES LIMITED 2020 FINANCIAL RESULTS SUMMARY Year ended 30 June Revenue Net profit after tax (NPAT) Total assets Net bank debt Shareholders’ equity Key performance indicators Year ended 30 June Basic earnings per share 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 Net bank debt to total tangible assets (less cash) Interest cover Net tangible asset backing per share – historical cost 2020 $’000 260,660 20,899 646,742 142,671 378,685 2019 $’000 375,149 48,644 571,711 105,314 376,530 % Change (30.5) (57.0) 13.1 35.5 0.6 2019 % Change (57.3) 60.9 ¢ ¢ ¢ % % % % % x $ 2020 26.0 25.8 19.0 5.5 6.2 -2.4 37.7 22.3 6.1 4.67 60.6 31.5 12.9 14.9 5.3 28.0 18.9 8.6 4.67 (57.4) (39.7) (7.4) (8.7) (7.7) 9.7 3.4 (2.5) - 0.4 (7.7) (8.1) Shares on issue – end of year Stock market capitalisation at 30 June Share price at 30 June ’000 $’000 $ 80,448 421,547 5.24 80,118 456,671 5.70 FINANCIAL YEAR OVERVIEW Cedar Woods started FY2020 with expectations of delivering moderately lower earnings than the record net profit of $48.6 million achieved in FY2019. This outlook was supported by pre-sale contracts on hand at 30 June 2019 totaling $330 million, approximately two thirds of which were expected to settle in FY2020. While property market conditions remained challenging in the first half of FY2020, the Company delivered a net profit of $10.2 million in the first half and remained on track to meet its full year earnings target, albeit with earnings weighted to the second half and particularly the final quarter, which is not unusual for the Company. The first two and a half months of calendar year 2020 saw improving conditions in most property markets and particularly WA, which had experienced consecutive months of good enquiry and improved sales following a summer marketing campaign. In February 2020 some of our builders expressed some concern over the timely availability of particular building materials that were sourced from China, which was experiencing disruptions to manufacturing as it dealt with the early stages of the COVID-19 pandemic. This risk was noted in our first half results release in February 2020 and was largely resolved in the subsequent months with alternative supplies being sourced locally or from China following factories returning to business. Over February and March 2020, Cedar Woods took early proactive measures across the business to safeguard its staff, customers and other stakeholders and to ensure as much as possible the smooth running of its property developments in the face of the evolving COVID-19 pandemic. The digital transformation the business had undertaken over the previous eighteen months, as part of delivering on the Company’s Operational Excellence strategic priority, put the technology and business continuity systems in place to support a mobile and flexible workforce and allowed the Company to remain engaged with staff, customers and business partners and continue to operate effectively while working remotely from corporate offices. In response to the evolving pandemic in Australia, on 20 March 2020, the Company made an ASX announcement informing the market that it was unable to confirm profit guidance given the potential disruption that could arise from construction workers, local councils and other certifying authorities being unable to attend work and thus the impact on the delivery and settlement of a significant number of lots, homes and offices that were due to settle in the final quarter of FY2020. While sales centres remained open via appointment, social restrictions and weak buyer demand impacted enquiry and sales over late March, April and May 2020. Further social distancing guidelines for construction sites slowed the rate of construction and impacted development completions, with a significant portion of settlements previously anticipated in May and June 2020 being delayed to early FY2021. This resulted in revenue and profit being significantly down in FY2020 on the prior year, 31 per cent and 57 per cent respectively. Gross margin moderated from 29 per cent in FY2019 to 27 per cent in FY2020 as a result of different product mix settling and some discounting to accommodate market conditions. The Company had settlements from 24 projects in FY2020, each with different profit margins and the portion of settlements from each project impacting the overall gross margin for the Company. Acknowledging the important contribution the housing industry makes to the national economy, and the potential disruption to the industry caused by the COVID-19 pandemic, in early June 2020, the Federal Government announced the HomeBuilder scheme, which provides a $25,000 grant to owner-occupiers to build new homes, subject to certain criteria. In addition to this, the WA State Government announced the Building Bonus Package, which provides an additional $20,000 grant for new homes in single-tier developments, that are contracted by 31 December 2020. The national HomeBuilder grant resulted in increased sales enquiry around the country in June 2020 and the combined grants on offer for WA home buyers saw the Company achieve WA sales of more than four times usual levels in June 2020, with the sales expected to deliver settlements and revenue in FY2021. The combined impact of slower development completions which delayed a number of settlements into FY2021 and strong sales performance in June 2020 contributed to the Company’s $360 million balance of contracted pre-sales at 30 June 2020, which is $30 million higher than the same time in the prior year. These pre-sales are expected to settle over FY2021 and FY2022, with approximately two thirds expected to settle in FY2021. The lower FY2020 profit result correspondingly impacted the Company’s returns, with return on equity of 5.5 per cent and return on capital of 6.2 per cent falling below the Company’s benchmarks of 10 per cent and 12 per cent respectively. The one-year shareholder return of negative 2.4 per cent significantly outperformed the All Ordinaries index (negative 7.2 per cent), the Small Industrials index (negative 7.4 per cent) and a peer group average (negative 17.8 per cent). The peer group being made up of six ASX listed residential property developers. CAPITAL MANAGEMENT While earnings were delayed, the Company’s history of disciplined capital management and continued focus on its strategic priority of Financial Strength positioned it well to deal with the economic fallout of the pandemic. At 30 June 2020, net bank debt stood at $143 million leaving approximately $68 million in undrawn headroom in the Company’s long term debt facilities to fund the development of the Company’s existing property portfolio and make additional land acquisitions for growth. Following a significant number of settlements taking place in July 2020, facility headroom increased to more than $85 million at 31 July 2020. Net bank debt-to-equity at 30 June 2020 was 38 per cent, at the lower end of the Company’s target debt to equity range of 20-75 per cent. Net debt to total tangible assets less cash was 22 per cent at year end and interest cover was 6.1 times, well in excess of minimum facility covenant of 2 times. The Company continued to operate within all of its facility covenants throughout FY2020. 14 15 2020 ANNUAL REPORTCEDAR WOODS PROPERTIES LIMITEDConsidering the lower earnings outcome in FY2020 of $20.9 million, the Company’s low gearing, significant facility headroom at 31 July 2020 and significant presales at 30 June 2020 of $360 million, the Board declared a full year dividend of 6.5 cents per share at a cash cost of $5 million. This brings total FY2020 dividends to 19.0 cents representing a payout ratio of approximately 73 per cent. The Board elected to depart from its longstanding policy of distributing approximately 50 per cent of full year net profit to shareholders, considering the Company’s strong capital position, the relatively low cash cost of the final dividend to the Company and the benefit of the fully franked dividends in the hands of shareholders. The dividend reinvestment and bonus share plans have been reintroduced for the FY2020 final dividend to be paid in October 2020 after being suspended for the interim dividend paid in April 2020 when equity markets were experiencing volatile conditions. PORTFOLIO HIGHLIGHTS Cedar Woods’ strategy to grow a national project portfolio diversified by geography, product type and price point continues to prove successful. In FY2020 there were many highlights across the portfolio despite the challenging conditions: y In Western Australia, the launch of Solaris, a 290 lot land subdivision within the strong inner south east growth corridor of Perth in March 2020, which has met with strong demand. y Very strong sales across the WA portfolio in June 2020 of more than four times usual levels, in response to Federal and State Government housing grants announced and available until 31 December 2020. y In South Australia, completion of the Botanica Apartments in June 2020 which saw the first residents moving into the growing community at Glenside. y Commencement of construction of Grace Apartments, also at Glenside after encouraging early sales that included a penthouse apartment priced at $2.7 million. y In Victoria, completion of 101 Overton Road and 107 Overton Road offices at Williams Landing, with the Victorian Government moving into 107 Overton Road to operate an emergency communications facility from the offices. y Commencement of construction of Huntington Apartments at Jackson Green in Victoria with the 165 apartments also selling out in FY2020. y In Queensland, continuing strong sales performance at the Ellendale estate in Upper Kedron. 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This year, the Company reported a full year net profit after tax of $20.9 million and total fully franked dividends of 19.0 cents. The overarching strategy, as illustrated on page 11, 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 strategy is delivered through the operation of our value creation model, as illustrated on page 11. The experience of dealing with the COVID-19 pandemic in FY2020 has reinforced the Board’s and Management’s view that the Company’s strategy is appropriate for current and future economic conditions. Diversity of product type has ensured the Company has significant product offering available to purchasers seeking to take advantage of Federal and State Government housing grants predominantly designed for affordable dwellings. Further, with differing market conditions in each state, the company is realising the benefit of its geographical diversity. Cedar Woods’ Corporate Plan guides management’s activities and provides a five-year outlook for the Company, projecting earnings and other key performance indicators. The Corporate Plan sets out a number of key action items under each strategic priority focused on achieving the primary purpose and addressing key risk factors. These key actions are implemented as performance targets by senior executives, sales managers and other employees. DELIVERING ON STRATEGIC PRIORITIES The Company continues to deliver on its four strategic priorities of a High Performance Culture, Operational Excellence, Financial Strength and Earnings Growth. High Performance Culture A focus on maintaining our high performing and high-spirited work environment continued in FY20. Refinement of the Company’s reward and accountability systems, recruitment practices and career management has further aligned employee performance to Cedar Woods’ objectives. During FY2020 approximately 10 per cent of existing staff members were promoted to more senior roles, continuing the Company’s culture of people development and internal promotion. Operational Excellence Important milestones were achieved in the year through the implementation of new technologies and systems. The Company’s new Microsoft ERP system went live in October 2019. This new system has improved processes and created efficiencies in procurement, payments, document storage, reporting and data access, and has provided a cloud-based platform to support future business growth. During the onset of the COVID-19 pandemic, staff were able to move seamlessly from being office based to working from home because of the flexibility these new systems provided. The Company has embarked on initiatives in digital marketing to improve customer experience and create a more powerful platform for lead generation and sales. The Company’s excellent safety record continues with the Company having no reportable incidents during the year and maintaining industry-standard safety practices across workplaces and projects. Sustainability, efficiency and quality continue to drive project design across the portfolio. The Company will review its sustainability practices in FY2021 with a view to reducing environmental and climate-change impacts across its operations. An enhanced Environment, Social, Governance (ESG) report is incorporated into this year’s annual report. Supporting local community groups remains an important part of the Company’s core values. The Neighbourhood Grants Scheme provides funds for small community groups such as sporting clubs, special interest groups and emergency services around the country, funding and supporting activities that play important roles in creating and maintaining community spirit. Financial Strength During the year the Company announced the introduction of National Australia Bank (NAB) to the $205 million corporate finance facility and an extension of a component of the facility from 3 to 5 years, diversifying the Company’s funding sources and providing a longer maturity date for approximately 20 per cent of the facility. NAB joined ANZ and Bankwest as club facility lenders to the Company. In February 2020 the Company completed the annual review of the facility and extended the terms to 30 January 2023 for the 3-year debt ($165 million) and to 30 January 2025 for the 5-year debt ($40 million). In June 2020, the Company also extended the tenor of its $30 million finance facility for the Williams Landing Shopping Centre at Williams Landing in Victoria. The facility term was extended to have a further 3 years tenure to June 2023. Earnings Growth Cedar Woods’ strategically located projects across four states, and its diversified product mix, have proven resilient during the COVID-19 pandemic led downturn, notwithstanding the reduction in market demand during the second half, resulting in strong pre-sales at the start of FY2021. The Company has maintained a growth mindset taking advantage of soft market conditions to secure four significant development sites during the year. In October 2019 the Company announced the acquisition of a 43-hectare site at Wollert, Victoria and, earlier, infill projects in Subiaco and Hamersley in Western Australia. The Company also conditionally acquired 28 hectares of land in Burpengary, Queensland, located within the high growth area of Moreton Bay. These acquisitions will add more than 1,100 dwellings/lots to the Company’s national portfolio. The Company plans to continue to take advantage of relatively favourable buying conditions as development finance proves difficult to secure for some property developers and the property cycle justifies buying in several markets. Cedar Woods is currently assessing a number of acquisition opportunities. MARKET OUTLOOK The COVID-19 pandemic and the resultant economic downturn has resulted in challenging market conditions across all of the sectors in which the Company operates. These factors will likely have an adverse impact on property markets until a vaccine is widely available. Australia’s international borders remain closed. Population growth is expected to fall from 1.4 per cent in 2019 (ABS) to around 0.5 per cent in 2020 (Australian Government Treasury), as net overseas migration falls to near zero and temporary residents leave Australia. Victoria and New South Wales have been heavily impacted by this fall in population growth, as these states traditionally receive the highest numbers of immigrants and temporary residents. Australian GDP is forecast to fall by 3.75 per cent in 2020, followed by an increase of around 2.5 per cent in 2021. Unemployment is forecast to peak at 9.25 per cent in the December 2020 quarter (Australian Government Treasury). New housing starts are expected to fall by 15 per cent nationally in FY2021 with the majority of falls occurring in the apartment sector (HIA). Median house prices for established property declined by 2 per cent nationally over the June quarter (Domain) with further falls expected. 18 19 2020 ANNUAL REPORTCEDAR WOODS PROPERTIES LIMITEDIn response to these conditions, the Federal Government and some state governments have moved quickly to supply chain (mainly in causing delays to completion of projects and settlements). In recent times Federal and support the construction sector with new housing grants announced in June 2020 to stimulate and maintain State governments have recognised the contribution of the residential housing industry to the economy and have employment. The design of the grants favour residential land estates with titled, or soon to be titled stock. introduced significant stimuli which to an extent has offset the economic impact of the pandemic. This stimulus has resulted in significant increases in sales volumes for some land estates, which is expected to taper off towards the end of 2020. The property industry continues its dialogue with those state governments who are yet to provide targeted housing stimulus, and it is hoped that additional support is announced in coming months. COMPANY OUTLOOK While national property market conditions remain challenging with uncertainty over the depth and duration of the economic downturn due to COVID-19, Cedar Woods starts FY2021 in a strong position with $360 million in presales expected to settle over FY2021 and FY2022. Subject to the ability of Federal and State Government’s to effectively manage COVID-19, the company is targeting strong growth on FY2020 earnings for FY2021. Cedar Woods remains well placed for the medium term with more than 9,000 undeveloped lots/units in its development pipeline across four states, maintaining the ability to respond quickly to improved market conditions. A number of new projects are expected to contribute to earnings from FY2022, including Grace Apartments and Fletcher’s Slip in South Australia, Subiaco and Hamersley in Western Australia, Greville (Wooloowin) and Burpengary in Queensland and Mason Quarter (Wollert) and several apartment buildings in Victoria. Further acquisitions are anticipated to supplement the portfolio in future years. RISKS The Board has established the Audit and Risk Management Committee to assist the Board in the effective discharge of its responsibility for risk oversight and ensuring that internal control systems are in place to identify, assess, monitor and manage risk. A Risk Management Framework has been established to support the integration of risk management within the business and to promote a culture committed to building long term sustainable value for stakeholders. The general risks to the Company’s 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 stance of other regulatory bodies such as APRA, the strength of the labour market and consumer confidence. The Company is also exposed to the property cycles in the metropolitan markets in which it operates, i.e. Western Australia, Victoria, Queensland and South Australia. Demand fluctuations 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 objectives by managing both prices and volumes through the property cycle. As described above, during FY2020 the COVID-19 pandemic caused major disruption to the economy and business globally and within Australia, including the business conducted by the Company. During this time management formed a response team led by the Managing Director to formulate and execute its response to the changing situation and impacts on the operations within the business. Frequent meetings were held with the Board, to review and approve the response plan. The ongoing pandemic remains a material risk to the Company insofar as it impacts upon economic activity, employment and migration to Australia and hence population growth, which are major drivers of consumer confidence and housing demand, as well through impacts to the 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 Company aims to balance its portfolio at any time in favour of mature projects where the project risks are generally diminished. The risk management framework also seeks to address a range of other risks that impact the business, such as economic and political risks, climate change risks, competition for staff and project opportunities, and cyber risks. While the Company has no material exposures to environmental, social and governance (ESG) risks, aside from those related to COVID-19 mentioned above, the ESG report starting on page 22 provides further details on how the Company is managing ESG risks. 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. On 1 July 2019, Independent Director Ron Packer took leave of absence from the Board for health reasons, returning on 5 December 2019. The Board notes that Mr Packer is due to retire by rotation at the forthcoming Annual General Meeting and is not seeking re-election to the Board. Accordingly, the Board wishes to sincerely thank Mr Packer for his long service to the Company and wishes him well in his retirement. We invite shareholders to join the Board to farewell Mr Packer at the 2020 Annual General Meeting. During the year the Board consolidated the Human Resources and Remuneration Committee and the Nominations Committee into one committee, the Remuneration and Nominations Committee. In addition: y Independent director Valerie Davies was appointed as Chair of the Remuneration and Nominations Committee; and y Independent director Jane Muirsmith was appointed as Chair of the Audit and Risk Management Committee. Further details of the Board members are contained in this annual report and the Corporate Governance Statement which is available on the Company’s website. William Hames Chairman Nathan Blackburne Managing Director 20 21 2020 ANNUAL REPORTCEDAR WOODS PROPERTIES LIMITED ESG REPORT Our vision is to be the best Australian property company renowned for performance and quality. We aim to play a positive role in society over the long-term, through our products and services, which are fundamental to human wellbeing in homes and businesses, and through behaving responsibly in our markets and in our communities. Cedar Woods does more than create vibrant communities. We are proud of our reputation for being environmentally and socially responsible. We continually look for ways to: y reduce our ecological footprint y promote affordable housing y respect indigenous and cultural heritage y stimulate economic investment and jobs y foster cooperative stakeholder relationships y activate the communities we create y foster diversity, equal opportunity and career development in the workplace y provide a safe work environment for all who work on Cedar Woods projects; and y instill our values and promote an ethical business culture through strong governance. This section communicates our progress and achievements on sustainability, community outcomes and governance, benefiting those affected by our actions. The link between our values and our sustainability objectives ENVIRONMENT We think about tomorrow. SOCIETY We deliver what we say we will for all our stakeholders. GOVERNANCE We abide by our Code of Conduct & company values. ENVIRONMENT Protecting the Environment Environmental issues, including climate change, are a challenge affecting society globally and we must address them collectively to preserve our planet for future generations. Cedar Woods recognises that its development activities carry the risk of environmental impact. The strategies to limit this impact are summarised below. Our Objectives This year the company formulated its Environmental Management Policy which incorporates mitigation and adaption measures for climate change throughout the business lifecycle. y Our focus on urban infill seeks to mitigate climate change by redeveloping existing brownfield sites to avoid further impact on the natural environment, lower travel emissions by reducing travel distances and encouraging the use of public transport. y When evaluating the business case for new projects we investigate potential climate change impacts, along with the adoption of mitigation strategies. These factors affect urban design, development outcomes and project feasibility. y During detailed design we plan for climate responsive solutions, such as conservation and protection of natural bushland, rehabilitation of degraded land, design guidelines (with energy and water efficiency measures) and bush fire risk mitigation. y During construction we implement strategies and initiatives relating to conservation, revegetation, offsets, environmental management, wildlife protection, water management and, in some cases, infrastructure for renewable energy. We also work to reduce and recycle demolition and construction waste. y Post construction we engage in activities to monitor and manage ongoing environmental impacts such as fauna surveys, ground water monitoring, and conservation reserve management. Key Areas SUSTAINABLE COMMUNITIES Cedar Woods has a strategic focus on creating sustainable communities, with a growing involvement in transit-oriented-development and urban renewal. This enables us to better respond to climate change by reducing urban sprawl, maximising use of existing infrastructure, including public transport, and by developing more compact cities. BIODIVERSITY Land development on greenfield estates can impact local bushland habitat, ecological communities and significant species. We aim to minimise and mitigate these impacts to protect biodiversity in surrounding environments. In most cases, only that part of a project site already degraded or denuded is suitable for urban development and environmental rehabilitation. WATER Australia’s climate is characterised by variability, either severe flooding or long-term drought / water scarcity (often resulting in water restrictions). In response, Cedar Woods is constantly considering where its water is sourced, how efficiently it is used and how water quality is managed. ENERGY Implementing strategies to reduce energy use from fossil fuels and increase the uptake of renewable energy is an important part of our carbon emissions mitigation strategy. Most energy initiatives are realised at the building stage. WASTE Investigating land for potential contamination, identifying hazardous waste and undertaking remediation and removal of waste to enable urban development, are important considerations when considering new acquisitions and project delivery. We manage demolition and construction impacts by containing or removing contaminants and minimising waste to landfill with subsequent environment and financial benefits. 22 23 2020 ANNUAL REPORTCEDAR WOODS PROPERTIES LIMITED Sustainable Communities Biodiversity How we are Implementing Our Progress How we are Implementing Our Progress We define a sustainable community as having the following attributes: y Compact infill built-form in existing urban areas (brownfields), or new urban expansion areas (greenfields) that benefit from urban infrastructure, community centres, major transport networks and proximity to commercial centres and employment; or y Compact infill urban development connected to high-frequency public transport, such as train stations and bus corridors. The company has some 2,700 townhouses and apartments in its national development pipeline, making it one of Australia’s largest density infill builders. In financial year 2020, for lots / dwellings settled: y 50 per cent are urban infill, within 20 km of a capital city y 88 per cent are close to a commercial centre and major transport network y 40 per cent are medium-high density townhouses or apartments y 38 per cent are within 1 km proximity to high frequency public transport. All greenfield land development projects within the portfolio are in a ‘Sustainable Communities’ context. Design and construction of the new Emergency Communications Facility in Williams Landing will bring 300 additional workers to the Town Centre, bringing total employment to 2,100 persons. The Town Centre has some 17 hectares of development land still available for a mix of office, retail and residential projects and is adjacent to rail, bus and freeway connections. The company acquired a 1.4 hectare infill urban renewal site in Subiaco (WA) and a 43 hectare site in Wollert (VIC). In Subiaco we will deliver a quality medium density residential development consisting of townhouses and apartments. Wollert will be a master-planned community of over 500 lots and provides for a future train station, town centre, schools and community facilities. Cedar Woods seeks to minimise impacts on biodiversity in line with requirements and internal goals. This includes the preparation of a range of environmental management plans which are referred to authorities for review and approval. Environmental management initiatives vary by project and include measures such as: y vegetation protection, including handing land over to relevant long-term conservation management; y on-site and off-site revegetation and rehabilitation; y wetland management and enhancement; and y fauna protection and relocation. Auditing for compliance against obligations under the applicable management plans and conditions of approval are carried out by authorities. y Bushmead (WA). We continue to implement our environmental management plan, preserving over 185 hectares of this community as pristine natural bushland. This has included bushland revegetation and rehabilitation and the installation of black cockatoo nesting boxes. y Ellendale (QLD). Ellendale offers 91 hectare of open space corridors, over 40 per cent of the estate. Our work has consisted of ongoing vegetation maintenance and monitoring of revegetation. y Ariella (WA). Referred for Commonwealth environmental approval. We continue to implement the management plan to conserve wetland park, including revegetation and implement the fauna relocation plan (relocation of kangaroos). Revegetation monitoring and maintenance is ongoing. y Millars Landing (WA). We continue ongoing revegetation maintenance and monitoring in the Tramway reserve. y Harrisdale Green (WA). This estate is adjacent to the Jandakot Regional Park. Our work includes implementation of a bushland management plan, and interface management, including fencing, with the adjoining ‘Bushforever’ conservation area. y The Rivergums (WA). We continue ongoing revegetation maintenance and monitoring in reserves and parks. Preparation of acid sulphate soils management plan was completed. We achieved audit clearance for the landscape management plan. y Solaris (WA). Solaris is situated adjacent a ‘Bushforever’ area and incorporates a conservation wetland, for which our management plan was approved by the City of Armadale. y Karmara (WA). Contamination was removed and remediation audit approved by authorities. Revegetation monitoring and maintenance is ongoing. y Carlingford (VIC). The estate incorporates important conservation areas and habitat links. The company continues to protect and manage local fauna under the kangaroo management plan. y Williams Landing (VIC). We implement ongoing management and maintenance of conservation management plan for grassland and wetland reserves. 24 25 2020 ANNUAL REPORTCEDAR WOODS PROPERTIES LIMITEDWater Waste How we are Implementing Our Progress How we are Implementing Our Progress Often projects involve the investigation of land for contamination, identifying hazardous waste material and undertaking remediation and removal of waste arising from historic land uses. We manage construction impacts to minimise waste to landfill. y Subiaco TAFE Site (WA). Due diligence included detailed investigations to manage the risk of site and building contamination. y Port Adelaide (SA). Continuation of asbestos management, site contamination remediation and bulk earthworks. y Glenside (SA). Completion of Stage 1 and 2 contamination remediation, with audit certificates issued for both stages. y Williams Landing (VIC). Environmental surveys completed. Cedar Woods maintains all relevant Certificates and Statements of Environmental Audit at Williams Landing including those secured prior to acquisition and those relating to the repurpose of the land for residential use. y Bushmead (WA). We used recycled concrete pavement in road base and recycled concrete eco blocks for retaining wall construction. Bushmead recently featured as an Urban Development Institute of Australia (UDIA) webinar case study on the use of recycled materials. At Bushmead we are trialing the different soil profiles to increase the use of in situ material for fill and reduce the amount of waste removed from the site. y Botanica Apartments (SA). Construction incorporated a 3-bin waste management system to achieve zero waste taken to landfill. We ensure our greenfield projects comply with Better Urban Water Management Guidelines. These require the preparation of a strategic and detailed plan demonstrating how an urban project achieves a holistic water balance and addresses stormwater recharge and water quality. Our Design Guidelines help achieve water efficiency in new home construction. Purchasers are encouraged to reduce potable water consumption by installing rainwater tanks and plumbing them directly for toilet flushing or use in the laundry or installing grey-water systems which use laundry and shower water for irrigation. In Bushmead (WA) and Harrisdale Green (WA), Cedar Woods provides a financial rebate to incentivise the installation of rainwater tanks. y All projects conform with applicable state government water sensitive urban design principles to enhance natural water systems, integrate stormwater treatment into the landscape, protect water quality from urban development, manage runoff and reduce peak flows by using retention measures. y The year saw ongoing groundwater monitoring across most greenfield projects to ensure water quality is maintained. y Design Guidelines apply to all vacant lot sales. y At Bushmead (WA) over $150,000 was invested in new rainwater tanks through customer rebates. The estate has met the criteria for compliance and accreditation with UDIA EnviroDevelopment (Water), achieving a 20 per cent reduction in potable water use from statutory compliance. y At Williams Landing Town Centre (VIC) the Emergency Communications Facility and 101 Overton Road incorporate rainwater tanks for local harvesting and onsite re-use in addition to water efficient fixtures and fittings for taps, showers and toilets. As part of its rebate scheme, Cedar Woods offers new lot purchasers with a rebate for waterwise front landscaping packages, to promote water efficiency in our new residential communities. y Newly appointed landscape contractors for land development estates in WA are ‘waterwise accredited’. During FY20 358 waterwise gardens were completed across WA projects. Energy How we are Implementing Our Progress Greenfield land development estates incorporate climate responsive subdivision lot layouts. Our Design Guidelines recommend strategies to reduce energy consumption and increase the take-up of renewable energy. In Bushmead (WA) and Harrisdale Green (WA), Cedar Woods provides a financial rebate to incentivise the installation of photovoltaic systems. y Land development estate Design Guidelines make recommendations that encourage purchasers to incorporate climate responsive design principles; take advantage of renewable energy systems (photovoltaic cells and solar hot water); and incorporate energy efficient fittings and appliances when building their new home. y At Bushmead (WA), Cedar Woods has complied with the UDIA EnviroDevelopment (Energy) criteria by achieving a 20 per cent reduction in off-the-grid power consumption across the estate. Cedar Woods has the opportunity to contribute to sustainability progress by putting an emphasis on smart and resource-efficient building construction. y Botanica Apartments (SA) achieved 7-star energy rating, with common areas supported by photovoltaic systems. y At the Emergency Communications Facility (VIC) a 4.5 star NABERS energy performance was targeted through use of optimized glazing, building fabric, solar renewable energy system, LED sensor lighting control and air-cooled chiller air-conditioning. y At 101 Overton Road (VIC) a 4.0 Star NABERS energy performance was targeted through use of double glazing, VRV/VRF heating and cooling systems and LED sensor lighting control. y In the coming year Cedar Woods will review its procurement tendering and selection processes to emphasise the company’s preference for: supporting local materials; supplies and jobs; emission reduction strategies; and waste minimisation. Cedar Woods has started to examine how it can further influence its supply chain to improve its procurement practices by requiring suppliers to optimise environmental outcomes. 26 27 2020 ANNUAL REPORTCEDAR WOODS PROPERTIES LIMITEDSOCIETY In support of our people objectives we have policies on: Equal employment opportunity Diversity Whistleblowing Flexible working arrangements and special leave Anti-bribery and corruption Grievance Study support Workplace health and safety Maintaining strong Stakeholder relationships is fundamental to Cedar Woods’ long-term sustainable success. Our People Our Objectives Key Areas Creating a progressive, high spirited, inclusive and safe work environment with strong staff alignment to values and objectives, where top talent work collaboratively and high performance is rewarded. Strong culture, equal opportunities, diversity, health & safety, development and progression, flexible workplace policies. How we are Engaging Our Progress Employee engagement surveys are conducted annually and provide valuable insight on the issues that matter to our workforce and our culture. Our staff communications platform, ‘Woodsy’ enables our employees to keep up to date with the latest news across the Company, access employment policies, collaborate with colleagues and share experiences and content. Utilising an on-line training platform and external providers, we provide targeted training and development opportunities, including health and safety training, and the tools needed to deliver enhanced operational and financial performance in line with our growth strategy. We increased our gender diversity in the company during the year, with the proportion of females in the workforce increasing from 53 per cent to 56 per cent. We are cognisant that we need to promote and recruit more females to senior management and executive positions, with this objective being positively pursued in our career development and recruitment programs. We were pleased that in our most recent survey 97 per cent of our people completed the employee survey and 90 per cent were either engaged or highly engaged in their roles. Our good health and safety record continued through the effective operation of our work, health and safety systems resulting in no reportable incidents. Our workplace policies in the areas of anti-bribery and corruption and whistleblowing were introduced or updated. Gender Diversity 40% 56% 40% 39% 30% 0% 30% 33% Proportion of women employed in the whole organisation Proportion of women in senior management positions Proportion of women in senior executive positions Proportion of women on the Board Long term objective % FY20 Actuals % COVID-19 During the COVID-19 pandemic we safeguarded technology and systems enabled the smooth our staff by taking pro-active measures across transition to remote working arrangements, the business, including introducing new social including on-line training and performance distancing and hygiene policies, enhanced management and assessment. The program cleaning practices, formalised working from has informed our digital strategy and business home arrangements, and a series of other policies continuity planning. informed by government guidelines. Our leading 28 29 2020 ANNUAL REPORTCEDAR WOODS PROPERTIES LIMITEDOur Suppliers Our Objectives Developing strong relationships with like-minded suppliers renowned for good safety and sustainability is key to the operational success of our businesses and ensures that we have agility to develop new and market competitive solutions to meet our customers’ needs. Key Areas y Long term relationships y Social impacts y Health and Safety Community Our Objectives Key Areas We create vibrant, socially beneficial communities by investing in resident wellbeing, nurturing a strong sense of community and maximising social connectivity. We respect indigenous and cultural heritage. Improving quality of life y Social impact y y Respecting heritage y Housing and workplace affordability How we are Engaging Our Progress How we are Engaging Our Progress Cedar Woods values long term business relationships built on trust and shared values and behaviours. We recognise our role to ensure that the products and materials included in our developments are responsibly sourced with a view to ensure the company’s values are reflected within its supply chain. Our principal suppliers are regularly engaged with and assessed for performance on a range of metrics, with remediation action taken place where required. We are committed to limiting the risk of modern slavery occurring within our business, infiltrating the supply chain or through any other business relationship. As part of this ongoing process we review our principal suppliers’ health and safety systems to ensure our own, and the suppliers’ workforce is adequately protected. This is enforced with regular audits and occasional site briefings for our Board. Activity on work sites is monitored with regular reports to the Board. Our Customers Our Objectives Our customers play an essential role in ensuring the sustainability of our operations. Our aim is to provide our customers improved quality of life, in the fulfilment of our company vision as a company renowned for performance and quality. Our most recent review of our suppliers’ performance resulted in 98 per cent passing or exceeding the required benchmark, up from 97 per cent in the previous year. During the year we introduced our Modern Slavery Policy and communicated this to our suppliers, with key terms being included in our construction contracts. Test checks have been carried out with major suppliers in our supply chain. Employees responsible for purchasing were trained in order to help us meet our obligations under the Modern Slavery Act 2018. Our good health and safety record continued through the effective operation of our work, health and safety systems resulting in no serious injuries or fatalities on contractor sites. Key Areas y Quality y Value y Customer focus How we are Engaging Our Progress Cedar Woods engages with its customers from initial enquiry through to eventual product settlement and beyond that as a member of each community. We engage digitally with our customers via our websites and through social media, and in our customer sales centres. Focus groups are frequently established to market test new products before delivery. Customer surveys are conducted throughout the year as products are completed, providing valuable feedback to help us to refine our customer offering and to help drive innovation. Feedback received from our customers through surveys have indicated high net promoter scores. Our customer relationship management (CRM) system continues to be refined to enhance data analytics and learn more about our customers’ requirements. We have embarked on a digital strategy to more effectively capture and manage our leads and enquiries, and a corporate marketing strategy to better coordinate national marketing initiatives. We create communities with amenities, public open space and easy access to transport and community facilities such as schools and ovals. Many of our projects are located close to train stations or transport hubs. We engage with the communities we create with regular family events such as festivals, family fun days, local environmental initiatives and entertainment. At the grass roots level, we support our local communities through the Neighbourhood Grants program. Within particular projects, we preserve local heritage, such as at the Wooloowin project in Queensland, which contains two historic heritage-listed buildings that will be restored and re-purposed within the development. Certain communities include affordable dwellings and offices to appeal to younger or less affluent buyers. Feedback received from our community engagement provides us vital feedback to help further improve our products. During the year the company received FOUR coveted Urban Development Institute of Australia Awards, being the Residential Excellence Award (more than 250 lots), for Bushmead in WA and best Master-planned Development, best Residential Development and Excellence in Urban Renewal for the Glenside project in SA. Since its inception The Neighbourhood Grants program has donated more than half a million dollars to support a range of community projects, organisations and clubs that operate in the localities of our projects. During the year we created 4 social housing lots at Harrisdale Green (WA) and 13 affordable housing apartments at Glenside (SA). Affordable Housing Partnering with the Department of Communities (WA) to provide affordable housing, where 1 in 9 of the dwellings at Harrisdale Green are dedicated to affordable housing product. Shareholders Our Objectives Key Areas Our purpose is to create long term value for our shareholders. We are committed to transparent and open engagement with our investors. y Returns to shareholders y Shareholder engagement and communications y Investor relations How we are Engaging Our Progress The Managing Director and Chief Financial Officer engage with shareholders and potential investors throughout the year with briefings and investor roadshows. The half year and full year results are presented by way of a webcast followed by a question and answer forum. Directors and staff are available to meet with shareholders at the Annual General Meeting. The company conducts investor shareholder feedback surveys on a regular basis to obtain feedback from institutional and retail investors and engages an investor relations consulting firm to assist with its investor relations strategy. Returns to shareholders over 1, 3 and 5 years are detailed in the remuneration report at page 54 of the annual report. Further details with respect to our shareholder communications and disclosures are set out in the Corporate Governance Statement available on our website. When asked in the independently conducted survey how timely Cedar Woods is with its investor communications, investors rated the Company 4.5 out of 5. 30 31 2020 ANNUAL REPORTCEDAR WOODS PROPERTIES LIMITEDCORPORATE GOVERNANCE & BUSINESS ETHICS The Board of Cedar Woods is committed to achieving and demonstrating the highest standards of corporate governance. The Company updates its comprehensive Corporate Governance Statement annually, a copy of which is lodged with ASX on the date that the Company publishes its full year results. Investors may find a copy in the Governance section (under ‘Our Company’) on the company website www.cedarwoods.com.au. Governance Governance is overseen by the Board and its Committees, with the main responsibility areas as follows: Board of Directors 50% Independent William Hames – Chair Robert Brown – Deputy Ronald Packer Valerie Davies Jane Muirsmith Nathan Blackburne y Purpose & Vision y Culture y Values y Policies y Strategy y Corporate Plan y Monitoring y Performance Assessment y Shareholder Engagement y Executive Appointments Audit & Risk Management Committee 100% Independent Remuneration & Nominations Committee 100% Independent Jane Muirsmith – Chair Valerie Davies – Chair Ronald Packer Valerie Davies Ronald Packer Jane Muirsmith y Risk Management Framework y Risk Monitoring y Financial Reporting y Compliance y W.H.S. y Cyber Security y Whistleblowing y External Auditor Engagement y Board Composition, Skills and Independence y Nominations y Succession y Director Induction y Board and Executive Remuneration y Human Resources y Diversity Risk Management Process The Board has ultimate responsibility for internal compliance and control. The Board has established the Audit and Risk Management Committee as responsible for overseeing and ensuring that internal control systems are in place to monitor and manage risk. The Board has adopted a Risk Management Framework that governs the identification, management and monitoring of risks in the business. The framework incorporates a number of tools that are used in the business to identify, assess and manage risks and opportunities, assess how they are controlled and whether further actions are required. Risk Management Framework During the year, updates from management are provided to the Committee, and ultimately the Board, covering all principal risks. In addition, the Board requires that each major proposal submitted to the Board for a decision is accompanied by a comprehensive risk assessment and, where required, management’s proposed mitigation strategies. An overview of the Risk Management Framework is provided below. RISK REPORTING & MONITORING Tools Risk Committee Report MD Report Risk as part of ‘business as usual’ RISK IDENTIFICATION Tools Risk Reviews Policies & Procedures Risk Management Tools RISK MANAGEMENT Tools Board Risk Register Project Risks Registers Other Risk Registers Policies and Procedures RISK ASSESSMENT Tools Risk Impact Matrix Risk Likelihood Matrix Risk Rating Matrix Risk Register Risk Appetite Statement Corporate Policies In support of the governance framework and the company’s culture, and to promote sound business ethics the company has developed corporate policies, copies of which are available on our website. y Code of Conduct y Anti-bribery & Corruption y Conflicts of Interests y Continuous Disclosure y Diversity y Environmental Management & Climate Change Investor Communications y y Modern Slavery y Performance Evaluation y Privacy y Risk Management y Securities Trading y Whistleblower y Other internal policies 32 33 2020 ANNUAL REPORTCEDAR WOODS PROPERTIES LIMITEDDIRECTORS’ REPORT Your directors present their report on the consolidated entity consisting of Cedar Woods Properties Limited (‘the company’ or ‘Cedar Woods’) and the entities it controlled (together ‘the consolidated entity’ or ‘group’) at the end of, or during, the year ended 30 June 2020. a. Directors f. Significant changes in the state of affairs The consolidated entity was significantly impacted by the social and political response to the COVID-19 pandemic, resulting in a contraction in customer demand and disruptions to the company’s second half sales and settlement program. As a consequence, the consolidated entity’s revenue and profit was significantly reduced compared to the previous year. Further details can be found in the financial and operating review, commencing on page 13 of this annual report. There were no other significant changes in the state of affairs of the consolidated entity during the year. g. Matters subsequent to the end of the financial year Refer to item (c) of this Directors’ Report for details of the dividend recommended by directors since the end of The following persons were directors of Cedar Woods during the whole of the financial year and up to the date the financial year. of this report, except where stated: William George Hames (Chairman) Robert Stanley Brown (Deputy Chairman) Ronald Packer (Independent Director) Valerie Anne Davies (Independent Director) Jane Mary Muirsmith (Independent Director) Nathan John Blackburne (Managing Director) The qualifications, experience and other details of the directors in office at the date of this report appear on pages 35 to 37 of this report. b. Principal activities The principal continuing activities of the consolidated entity in the course of the year ended 30 June 2020 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 2019 of 13.5 cents (2018 – 18.0 cents) per fully paid share, paid on 25 October 2019 (2018 – 26 October 2018) Interim fully franked ordinary dividend for the year ended 30 June 2020 of 12.5 cents (2019 – 18.0 cents) per fully paid share, paid on 24 April 2020 (2019 – 26 April 2019) 2020 $’000 2019 $’000 10,653 13,892 10,056 14,421 20,709 28,313 Since the end of the financial year the directors have recommended the payment of a final fully franked ordinary dividend of 6.5 cents (2019 - 13.5 cents per share) to be paid on 30 October 2020 out of retained profits at 30 June 2020. 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 13 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, Queensland and South Australia. Cedar Woods is well positioned moving into FY2021 with strong pre-sales, modest debt, substantial funding capacity and a diverse portfolio of well-located developments in Melbourne, Brisbane, Perth and Adelaide. No other matters or circumstances have arisen since 30 June 2020 that have significantly affected or may significantly affect: y the consolidated entity’s operations in future financial years; or y the results of those operations in future financial years; or y 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) y Chairman of the Board of directors, non-executive director Mr Hames is a co-founder of Cedar Woods. 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 thirty years. Other current listed company directorships and former listed company directorships in the last three years: None. Mr Robert S Brown, MAICD, AIFS y Deputy Chairman of the Board of directors, non-executive director 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 for thirty-one years. Other current listed company directorships and former listed company directorships in the last three years: Luiri Gold Limited. 34 35 2020 ANNUAL REPORTCEDAR WOODS PROPERTIES LIMITED Mr Ronald Packer, BCom (UWA), FAICD, Solicitor Supreme Court of England & Wales Mr Nathan J Blackburne, BB (Curtin), AMP (Harvard), GAICD y Non-executive director y Member of the Audit and Risk Management Committee y Member of the Remuneration and Nominations Committee Mr Packer is an independent director, 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 fourteen years. Other current listed company directorships and former listed company directorships in the last three years: None. Ms Valerie A Davies, FAICD y Non-executive director y Chair of the Remuneration and Nominations Committee y Member of the Audit and Risk Management Committee Valerie Davies is a professional company director with broad experience across the spectrum of public and private companies, government boards and community organisations. ASX experience includes her current role on the Board of Event Hospitality and Entertainment Limited and she is a Commissioner of Tourism Western Australia. Previous non-executive roles include HBF, lluka Resources, ASG, and Integrated Group (now Programmed). 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. Aside from the boardroom Ms Davies’ career spans more than 30 years across a range of industries including media, marketing and television production. A specialist provider of communications and strategic issues management services, she has worked at the highest level with numerous tier 1 national and international business organisations addressing the complexities of issues management, communications, coaching and mentoring. y Managing Director, executive director Mr Blackburne has worked since 1993 in various sectors of the property industry including valuations, asset management, commercial leasing and property development. He commenced his career with Cedar Woods in 2002 with the mandate to establish and grow the company in Melbourne. Starting off as State Manager for Victoria, he later led the expansion of the company into Brisbane and Adelaide to become State Manager for Victoria, Queensland and South Australia. In 2016, Mr Blackburne was appointed as Chief Operating Officer for the company and in September 2017 was appointed to the position of Managing Director. Mr Blackburne has a Bachelor of Business degree majoring in Valuations and Land Economics and is a Graduate of the Australian Institute of Company Directors. He is also a Graduate of Harvard Business School in Boston having completed their Advanced Management Program. Mr Blackburne is a member of the Presbyterian Ladies College Masterplanning, Design & Infrastructure Committee. 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 New Zealand and is a member of the Australian Institute of Company Directors. He brings to the company a background of over twenty-five 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. Ms Davies is a member of Chief Executive Women (CEW), a former Telstra Business Woman of the Year (WA) l. Directors’ interests in shares and a past Vice-President of the Australian Institute of Company Directors (WA). Ms Davies is a non-executive, independent Director and has served on the board for five years. Other current listed company directorships and former listed company directorships in the last three years: Event Hospitality & Entertainment Ltd. Mrs Jane M Muirsmith, B Com (Hons), FCA, GAICD y Non-executive director y Chair of the Audit and Risk Management Committee y Member of the Remuneration and Nominations Committee Mrs Muirsmith is an accomplished digital and marketing strategist, having held several executive positions in Sydney, Melbourne, Singapore and New York. She is Managing Director of Lenox Hill, a digital strategy and advisory firm and is a non-executive director of Australian Finance Group Limited (AFG), the Telethon Kids Institute and Chair of Healthdirect Australia. Mrs Muirsmith is a Graduate of the Australian Institute of Company Directors and a Fellow of Chartered Accountants in Australia and New Zealand, with an audit and accounting background together with deep expertise in digital transformation. Mrs Muirsmith is a member of the Ambassadorial Council UWA Business School and is a former President of the Women’s Advisory Council to the WA Government. Mrs Muirsmith is a non-executive, independent Director and has served on the board for three years. Other current listed company directorships and former listed company directorships in the last three years: Australian Finance Group Limited. Directors’ relevant interests in shares of Cedar Woods 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 Valerie A Davies Jane M Muirsmith Nathan J Blackburne Interest in ordinary shares 10,246,965 7,818,633 167,859 15,785 10,734 72,901 Nathan J Blackburne also has an interest in performance rights under the executive long term incentive plan, details of which are set out in the remuneration report within this report. m. Committees of the Board As at the date of this report Cedar Woods had the following committees of the Board: Audit and Risk Management Committee Remuneration and Nominations Committee J M Muirsmith (Chair) V A Davies (Chair) R Packer V A Davies R Packer J M Muirsmith 36 37 2020 ANNUAL REPORTCEDAR WOODS PROPERTIES LIMITED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 2020, and the numbers of meetings attended by each director: Number of meetings held: W G Hames R S Brown R Packer*** V A Davies J M Muirsmith N J Blackburne Board meetings Meetings of Committees Audit and Risk Management Human Resources and Remuneration Nominations Remuneration and Nominations 9 9 9 7 9 9 9 5 1* 4** 2 5 5 5* 2 2* 2 - 2 2 2* 1 1* 1 - 1 1 1* 8 8* 8** 5 8 8 8* * Not a member of this committee. ** Member of committee for 3 meetings. *** On board approved leave of absence from 1 July 2019 to 5 December 2019. The Human Resources and Remuneration and Nominations Committees were replaced by one committee, the Remuneration and Nominations Committee during the year. The above table shows the meetings of all committees. DIRECTORS’ REPORT: LETTER TO SHAREHOLDERS FROM THE CHAIR OF THE REMUNERATION & NOMINATIONS COMMITTEE Dear Shareholders, I am pleased to provide this letter setting out the highlights in relation to remuneration matters for FY2020. The Financial and Operating Review notes that Cedar Woods’ result was significantly impacted by COVID-19, while there were other good achievements across the various areas within the company’s operations, as described in our revised “balanced scorecard” in section r) of this report. The balanced scorecard sets out the company’s FY2020 objectives and records performance against targets as assessed by the Board. We continue to engage with shareholders and proxy advisors to ensure our policies and practices in relation to remuneration matters are both well described and appropriate for the company and its shareholders. Review of the executive remuneration framework In FY2020 the Committee reviewed executive remuneration levels and structures with the objective of furthering the transition towards a greater proportion of ‘at-risk’ pay for executives, thereby improving alignment with shareholder returns, as well as ensuring that remuneration levels and structures are competitive in an environment where the competition for talent is very high around the country. This process was assisted by external consultants and has resulted in some adjustments to both the Short-Term Incentive Plan and the Long-term Incentive Plan, which are detailed in this Remuneration Report. Fixed remuneration For FY2020 the Managing Director’s (MD’s) fixed remuneration was limited to 41% of his total package and was increased, based on market benchmarking information. Other executives in continuing roles had average fixed remuneration increases in line with inflation, with remuneration packages aligned with market remuneration levels in both listed and non-listed property companies. Short-term incentives (“STIs”) Long-term incentives (“LTIs”) To ensure the STI’s were appropriately aligned to the corporate strategy, the company updated and simplified its balanced scorecard of measures for determining the STI awards for FY2020. Scorecard sections have been grouped into financial and non-financial categories, within the relevant strategic priority areas. Part of the Managing Director’s STI was deferred into equity as detailed later in this report. The LTI plan continues to operate for the executives and has two vesting conditions: a) a three year service condition and b) two performance conditions measured over a three year period: 50 per cent 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 strategy. The relative TSR performance condition was chosen as it offers a means 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. As noted in the 2019 remuneration report, for FY2020, the Board approved the recommendation of the Remuneration and Nominations Committee to amend the vesting schedule for the EPS component of the LTI Plan, details of which are set out in the section ‘LTI Plan effective for FY2020 (from 1 July 2019)’ on page 48 below. Non-Executive Director (“NED”) fees The potential maximum aggregate NED remuneration for FY2020 was $750,000, as approved by shareholders at the FY2014 AGM. Chair and NED fees were increased by approximately 2% effective 1 July 2019 to provide an increase in line with CPI. Total NED fees paid for FY2020 were $638,000. The Remuneration Report provides information on the remuneration outcomes for FY2020. It was pleasing to note that shareholders voted overwhelmingly in favour of the FY2019 Remuneration Report at the 2019 Annual General Meeting, with 92.9 per cent of votes cast in favour. I look forward to answering any questions you may have at our 2020 Annual General Meeting on 4 November. Yours faithfully, Valerie A Davies Chair - Remuneration and Nominations Committee 38 39 2020 ANNUAL REPORTCEDAR WOODS PROPERTIES LIMITEDDIRECTORS’ REPORT - REMUNERATION REPORT The directors present Cedar Woods’ FY2020 Remuneration Report which sets out remuneration information for the directors and other key management personnel (“KMP”) for the year ended 30 June 2020. 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: Page o) Introduction p) Remuneration governance q) Executive remuneration policy and framework r) Executive remuneration outcomes for FY2020 (including link to performance) s) Executive contracts t) Non-Executive Director fee arrangements u) Additional statutory disclosures o. Introduction 40 41 42 49 57 57 58 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 2020. Unless otherwise indicated, the individuals were KMP for the entire financial year. For the purposes of this report, the term “executive” includes the managing director and senior executives of the company. KMP Position Non-Executive Directors (“NEDs”) W G Hames R S Brown R Packer V A Davies J M Muirsmith Executive Director N J Blackburne Senior Executives P Archer L M Hanrahan P S Freedman Changes since last year None. Non-Executive Chair Non-Executive Deputy Chair Lead Independent Non-Executive Director Independent Non-Executive Director Independent Non-Executive Director Managing Director (“MD”) Chief Operating Officer (“COO”) Chief Financial Officer (“CFO”) Company Secretary Term as KMP Full year Full year Full year Full year Full year Full year Full year Full year Full year Changes since the end of the reporting period There were no changes to KMP after the reporting date and before the date the annual report was authorised for issue. 40 p. Remuneration governance Role of the Remuneration and Nominations Committee The Remuneration and Nominations Committee is a committee of the Board. In relation to remuneration matters, it is responsible for making recommendations to the Board on: y the over-arching executive remuneration framework; y remuneration levels of the MD and other executives; y operation of incentive plans and key performance hurdles for the executive team; and y NED fees. The 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 Committee periodically obtains independent remuneration information to ensure executive remuneration packages and NED fees are appropriate and in line with the market. The Corporate Governance Statement provides further information on the role of the Remuneration and Nominations Committee and may be found on the company’s website under the Our Company/Governance link. Use of remuneration advisors During the year the Remuneration and Nominations Committee reviewed the executive remuneration framework assisted by external consultants, further details of which are set out below. Remuneration benchmarking was obtained by the Committee during the reporting period. The terms of engagement for the consultants included specific measures designed to protect their independence. The Remuneration and Nominations Committee recognises that, to effectively perform its role, it is necessary for the consultants to interact with members of Cedar Woods’ management. However, to ensure the consultants remained independent, members of Cedar Woods’ management were precluded from requesting services that would be considered to be a ‘remuneration recommendation’ as defined by the Corporations Act 2001. Clawback of remuneration 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 (cash) 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. STI at any time prior to, or at, the final vesting date of the award and will take account of factors such (deferred) as any material misstatements of financial results or individual instances of non-compliance with Cedar Woods’ policies. LTI at any time prior to, or at, the final vesting date of the award 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 FY2019 Annual General Meeting (“AGM”) At the company’s 2019 AGM, 92.9 per cent of eligible votes cast were in favour of the Remuneration Report for FY2019. 41 2020 ANNUAL REPORTCEDAR WOODS PROPERTIES LIMITED q. Executive remuneration policy and framework ii. Approach to setting remuneration Attract, motivate and retain high performing individuals: Remuneration levels are reviewed annually through a process that considers market data, insights into The information contained within this section outlines the details pertaining to the executive remuneration policy and framework for FY2020. i. Principles and strategy Company purpose To create long-term value for shareholders through the development of vibrant communities Remuneration strategy linkages to company purpose The Board ensures our approach to executive reward satisfies the following key criteria for good reward governance practices: y y y y Competitiveness and reasonableness Acceptability to shareholders Alignment of executive remuneration to company performance Transparency of the link between performance and reward y y The remuneration offering rewards capability and experience Reflects competitive reward for contribution to growth in shareholder wealth The framework is aligned to shareholders’ interests by having: y y STIs (cash & deferred) linked to current year performance and subject to clawback LTIs linked to both long term external (relative total shareholder return (“TSR”)) and internal (earnings per share (“EPS”) growth) performance. LTIs are also subject to clawback. Component Vehicle Purpose Link to performance Fixed remuneration Comprises base salary, superannuation and non- monetary benefits To provide competitive fixed remuneration set with reference to role, market and skills and experience of individuals Group and individual performance are considered during the annual remuneration review process STIs Paid in cash Rewards executives for their contribution to achievement of company outcomes No guaranteed fixed remuneration increases included in executives’ contracts Fixed remuneration may be phased to market benchmark for new appointments, conditional on performance Linked to the Corporate Plan and achievement of personal objectives established at the start of the year Equity based STI grants awarded in Zero-price options Rewards executives for their contribution to the creation of shareholder value over the medium term Vesting of Zero-price options is dependent on a further one year of service after the initial performance period ) ” R T “ ( n o i t a r e n u m e r l a t o T LTIs Equity based LTI grants awarded in Performance Rights Rewards executives for their contribution to the creation of shareholder value over the longer term Vesting of 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 Remuneration and Nominations Committee). The Remuneration and Nominations Committee also considers issues of succession planning, career development and staff retention. In FY2020, 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 company and aligned with market practice. The approach is generally to position total remuneration between the median and upper quartile of its 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 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. In recent years the Board has made gains in restructuring executive remuneration to provide a greater weighting of ‘at risk’ components within the total remuneration opportunity (remuneration mix) particularly for the MD, and in FY2020 introduced a deferred STI component to the MD’s remuneration mix in addition to the equity based LTI plan. The Remuneration and Nominations Committee will continue to review the level of fixed and ‘at risk’ pay in FY2021 with the objective of ensuring that executive remuneration continues to meet the expectations of shareholders and candidates in a market that is highly competitive for talent. In light of COVID-19, the Committee has frozen KMP fixed remuneration and target STI and LTI opportunities at FY2020 levels. Some variations may however occur year to year due to influencing factors such as changing market conditions. The graphs below illustrate the remuneration mix for FY2020 compared to FY2019 and demonstrate the progress made this year in increasing the proportion of ‘at risk’ pay. Managing Director COO CFO Company Secretary FY20 FY19 FY20 FY19 FY20 FY19 FY20 FY19 41% 10% 12% 37% 54% 55% 65% 64% 23% 23% 17% 28% 18% 17% 11% 25% 74% 13% 13% 81% 81% 19% 19% Legend Fixed Pay Cash STI Deferred STI LTI 42 43 2020 ANNUAL REPORTCEDAR WOODS PROPERTIES LIMITED STI and LTI in the above graphs are based on 100% of the target opportunity when remuneration levels are determined by the Remuneration and Nominations Committee. STI’s awarded may exceed the target opportunity (refer to ‘STI Plan effective for FY2020’ below). LTI’s may be awarded up to the target opportunity. Other executives How is the STI delivered? Cash iii. Details of incentive plans Short-term incentives (STI) Key features of the current STI plan are set out below. Managing Director How is the STI delivered? 45% of the STI is delivered in cash and 55% of the STI is deferred by way of a grant of zero-price options under the Deferred Short Term Incentive (DSTI) Plan. What STI’s are available and what are the performance conditions for FY2020? The STI awarded is based on the Remuneration and Nominations Committee’s assessment of the company’s overall performance using the Balanced Scorecard system referred to in section r) Executive remuneration outcomes for FY2020 below. Subject to board discretion, in order for any STI to be payable, the following hurdles (triggers) must be achieved: y NPAT trigger: NPAT to equal or exceed 90% of the budget y Safety trigger: No reportable incident resulting in serious injury under the relevant Occupational Health & Safety Act in CWP premises or sites as a result of failure of the company’s Work, Health & Safety system. A performance rating of up to 150% of the STI opportunity is available to reward personal performance when it exceeds expectations, at the Board’s discretion. Based on the Board’s determination of overall performance and exercising its discretion, the MD received 40% of his STI opportunity in FY2020. For details refer to r) Executive remuneration outcomes for FY2020 below. How is performance assessed? On an annual basis, after consideration of performance against set balanced scorecard objectives, the Chairman and Chair of the Remuneration and Nominations Committee recommends to the Board the amount of STI to be paid to the MD. What happens in the event of change of control? If a Change of Control Event occurs prior to the vesting of an award, unless the Board determines otherwise, a pro-rata number of the MD’s unvested awards will vest immediately based on the proportion of the period that has passed at the time of the relevant change of control event, and the extent to which any applicable performance conditions have been satisfied (or are estimated to have been satisfied) at that time, unless the change of control event occurs after the end of the performance period (the first year), in which case full vesting of unvested awards will occur, to the extent to which any applicable performance conditions have been satisfied (or are estimated to have been satisfied) at that time. What STI’s are available and what are the performance conditions for FY2020? Each executive has a target STI opportunity depending on the accountabilities of the role and impact on organisational performance. The STI plan provides as follows: a) Up to 75% of the bonus based on personal performance, with the actual percentage awarded based on the executive’s overall rating measured against personal objectives as determined in the annual performance review and using categories and percentages set out in the table below. Overall Rating 5. Exceeded Expectations 4. Overly Met Expectations 3. Met Expectations 2. Nearly Met Expectations 1. Below Expectations Incentive 125% - 150% 100% - 125% 80% - 100% 50% - 80% 0% Performance ratings of up to 150% of the personal component are available to encourage and reward personal performance when it exceeds expectations. b) Up to 25% of the cash incentive awarded based on the Remuneration and Nominations Committee’s assessment of the company’s overall performance using the Balanced Scorecard system referred to in section r) Executive remuneration outcomes for FY2020 below. In order for any STI to be payable under the company component, the following hurdles (triggers) must be achieved: y NPAT trigger: NPAT to equal or exceed 90% of the budget y Safety trigger: No reportable incident resulting in serious injury under the relevant Occupational Health & Safety Act in CWP premises or sites as a result of failure of the company’s Work, Health & Safety system. Based on the Company’s and individuals’ performance in FY20, no executive received more than 40% of their STI opportunity in FY2020. The greater focus of the STI on personal performance was deemed appropriate to attract and retain executives. However, in line with the general market, for FY2021 onwards, other executives STI will be based 50% on company performance and 50% on personal performance. How is performance assessed? On an annual basis, for senior executives, the Remuneration and Nominations Committee will seek recommendations from the MD before making its determination. What happens if an Executive leaves Cedar Woods? Executives who resign prior to the end of the financial year generally forego their STI entitlement. The Remuneration and Nominations Committee has discretion in this regard. Do clawback provisions apply to STI’s? The company has an incentive claw back policy in place. Under the policy, the Board may at its absolute discretion claw back vested and unvested incentives in the case of an “inappropriate benefit” arising. 44 45 2020 ANNUAL REPORTCEDAR WOODS PROPERTIES LIMITEDLong-term incentives (LTI) LTI plan effective up to 30 June 2019 Key features of the LTI plan are as follows: Why have a LTI plan? The LTI plan builds a sense of business ownership and alignment which benefits all shareholder interests. It encourages a greater focus on sustainable long-term growth and seeks to attract and retain key executives. Who participates? MD and other Executives. NEDs are not eligible to participate in the LTI plan. What LTI’s are available? Each participant has a maximum LTI opportunity depending on the accountabilities of the role and impact on company performance. How is the LTI delivered? 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. At the discretion of the Board the LTI awards may be satisfied in cash rather than shares by payment of the cash equivalent value. How are the number of rights determined for each LTI grant? The number of performance rights allocated for each participant is calculated by reference to the target LTI opportunity outlined in the prior section. For the LTI, the target opportunity is the maximum opportunity. When does the LTI vest? 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 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, 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 rights: y y 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 rights 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 rights to remain ‘on foot’ on cessation of employment). What happens in the event of change of control? Unless the Board determines otherwise, a pro-rata number of the participant’s unvested rights 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. Do participants receive dividends on LTI grants? Not prior to any vesting. Can a participant deal with or trade their performance rights before vesting? A participant cannot enter into any scheme, arrangement or agreement (including options and derivative products) under which the participant may alter the economic benefit to be derived from any unvested rights. Is performance retested if performance hurdles are not exceeded? Do clawback provisions apply to LTI’s? No, there are no further retests of the performance conditions. The company has an incentive claw back policy in place. 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 included in this index. 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 and is an appropriate hurdle as it aligns the experience of shareholders and executives. This index was chosen, rather than a peer group, as there are a limited number of companies with similar operations and in recent years the number of these has reduced even further through takeovers (e.g. Australand, CIC and Villa World) and changes to business models and operations (e.g. Aveo and Devine). Participants will only derive value from this component of the LTI if the company’s TSR performance is equal to or 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 < Index At the Index Percentage of TSR-tested rights vesting 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: Statutory net profit after tax EPS = 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: y The earnings and EPS targets contained in the company’s Corporate Plan, particularly with reference to the most recent internal five-year forecasts; y The level of stretch associated with those Corporate Plan targets; y Any earnings guidance that has been provided to the market; y 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% 46 47 2020 ANNUAL REPORTCEDAR WOODS PROPERTIES LIMITEDLTI plan effective for FY2020 (from 1 July 2019) As noted in section p) Remuneration Governance, the Remuneration and Nominations Committee reviewed the remuneration framework with advice from external consultants and changes to the LTI Plan were made for FY2020, as noted in the FY2019 remuneration report. How is performance assessed and rewarded against the hurdles under the changes? The awards will continue to be 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 described in the previous section is unchanged for FY2020. EPS compound annual growth rate (50%): From 1 July 2019 the target range in the EPS vesting schedule will be set at the commencement of the three year performance period. The relevant inputs when setting the EPS target range will be: y The earnings and EPS targets contained in the Corporate Plan, particularly with reference to the most recent internal five-year forecasts; y The level of stretch associated with those Corporate Plan targets; y Any earnings guidance that has been provided to the market; y Shareholder and analyst (individual and consensus) expectations; y The rate of growth in the Australian economy and the performance of the property sector. At commencement of the plan, the Remuneration and Nominations Committee will consider the appropriate EPS target range and the level of payout if targets are met. This may include setting any maximum payout under the LTI plan and minimum levels of performance to trigger payment of LTI. The EPS target range, once set, remains in place for the three-year performance period. The FY2020 plan vesting schedule is below: EPS compound annual growth rate Percentage of EPS-tested rights vesting <3% 3% Between 3% - 5% > = 5% Nil 50% Pro-rata between 50% and 100% 100% Changes were made to the LTI plan for the following reasons: y Improving the LTI plan supports the objective of increasing the weighting of ‘at-risk’ components of executive remuneration, as outlined in section q) ii) Approach to setting remuneration. y To ensure that a significant component of at-risk remuneration is equity based, thereby increasing the ‘skin in the game’ held by the company’s executives over time. y It was deemed important that performance targets remain relevant, challenging and achievable in the current economic and market conditions. y The Company’s previous EPS target range had been set a number of years ago in a period of higher growth in the economy and property markets nationally, and in being a fixed range did not allow the target to be adjusted for prevailing economic and market conditions. The changes are designed to ensure that, in combination with other components of executive remuneration, the LTI plan offers sufficient incentive to attract and retain executives and aligns to current shareholder return expectations. r. Executive remuneration outcomes for FY2020 (including link to performance) Performance against STI balanced scorecard objectives The table below provides a summary of the FY2020 STI objectives and performance of the company 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 value creation model as described on page 11. Strategic Priority & Measure Financial Strength Annual performance and balance sheet strength Total Metric Outcome Net Profit After Tax (NPAT) NPAT of $20.9m did not meet the Company’s budget in FY2020. Settlements Total settlements did not meet budget. 50% Revenue Reported revenue was below budget. Return on Equity Return on equity was 6%, below budget and below company benchmark of 10%. Return on Capital Return on capital was 6%, below budget and below company benchmark of 12%. Performance assessment Not achieved Not achieved Not achieved Not achieved Not achieved Borrowings – debt/ equity Borrowings maintained within target debt/equity range of 20 – 75%. Achieved Borrowings - terms Finance facilities extended and maintained within covenants. Achieved Cost reduction program Identified cost savings of over 1% achieved against budgeted total costs. Presales Presales of $360m at 30 June exceed prior year level of $330m. 20% New projects The company successfully acquired 4 new projects assisting the replenishment of the project pipeline. Achieved Achieved Achieved Project cost overruns Project development costs overruns were kept to within 1% of total development costs. Achieved Strong customer net promoter score Based on surveys the Company exceeded its customer net promoter score targets. Investor perception 20% Product quality Based on post roadshow surveys and feedback the Company is perceived well in the investor community. The company measures the quality in the supply chain according to an in house rating system and met internal benchmarks. Achieved Achieved Achieved Earnings Growth Measures of future financial health of the Company Operational Excellence Measures of customer and investor satisfaction and risk management Risk management program Risks managed under the company’s risk management framework with some risks elevated as a result of COVID-19. Partially achieved Compliance with the work, health and safety system WHS risks monitored and there was no reportable incident resulting in serious injury as a result of any failure of the Company’s WHS system. Achieved Employee engagement Based on staff survey, 85% of staff are highly engaged in their roles. Achieved 10% Retention of executives and senior management Achieved an annual retention rate of 86%. Partly achieved Gender and diversity target Gender diversity meets target overall however the Company is seeking to improve gender diversity in senior positions. Partly achieved High Performance Culture Manage leadership pool and strive for strong staff engagement and team improvements 48 49 2020 ANNUAL REPORTCEDAR WOODS PROPERTIES LIMITEDThe following table outlines the proportion of maximum STI earned and forfeited by executives in relation to Terms and conditions of the share-based payment arrangements FY2020 and the maximum STI that was available. The terms and conditions of each grant of zero price options affecting remuneration in the current or a future Proportion of maximum STI earned and forfeited in FY2020 reporting period are as follows: CFO Company Secretary Incentive Plan Grant date Performance period Service period Vesting date Value at start of performance period Performance hurdle Value per option at grant date % Vested Total earned of target % Total earned of target $ Total forfeited of target % Total forfeited of target $ Target STI opportunity Maximum STI opportunity MD 40% $168,520 60% $252,780 $421,300 $631,950 COO 40% $52,000 60% $78,000 $130,000 $178,750 40% $22,000 60% $33,000 $55,000 $75,625 40% $16,000 60% $24,000 $40,000 $55,000 For the Managing Director, 45% of the STI earned is payable in cash ($75,834) and 55% of the STI earned ($92,686) was deferred into zero price options under the DSTI plan. For the other executives the STI is payable in cash. Board discretion applied to the FY2020 STIs While the company failed to meet its FY2020 settlements and revenue targets, and as a consequence did not achieve the net profit hurdle in the balanced scorecard, the Board exercised discretion provided for under the STI plan to award modest short term incentives to the executive team, taking into account the following: y In FY20 the company significantly outperformed both the market and peer group as measured by Total Shareholder Return. The Company’s TSR of -2.4% outperformed the All Ordinaries (-7.2%), Small Ordinaries (-5.7%), Small Industrials (-7.4%), S&P ASX 300 (-7.6%) and the S&P ASX 300 industrials (-7.7%). y Prior to the onset of COVID-19 the company was on track to achieve its budget. y Significant settlements targeted for June 2020 were delayed because of mandatory social distancing measures at construction sites. The settlements were largely achieved in July 2020, representing a deferral rather than a loss of income. y Strong personal performance of the executives during the year, and in managing and limiting the impact of COVID-19 on the company. y The good performance of the company on the majority of metrics generally, as shown by the balanced scorecard. y The company remains in a strong financial position with significant headroom under its finance facilities and significant presales at 30 June 2020 ($360m) compared to the same time last year ($330m). y The STIs awarded are significantly lower than the target opportunities (27% of maximum), and the STIs awarded in the previous year. y The need to retain executives in a market and industry (property) where quality talent with sufficient and relevant experience is in short supply nationally. FY2020 – Managing Director TBA 1/7/19 to 30/6/20 1/7/19 to 30/6/21 30/8/21 TBA Balanced scorecard score $TBA N/A The first grant of options to the Managing Director under the DSTI is subject to shareholder approval at the 2020 AGM. Performance against LTI objectives The equity based LTI plan for the MD and executives has two vesting conditions a) a 3 year service condition and b) two performance conditions measured over a 3 year period: 50 per cent 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 shows the maximum LTI opportunities that were granted to KMP during FY2020. Value granted (max LTI opportunity) $689,400 $212,100 $120,000 The LTI awards earned vest on 31 August 2022 subject to the two vesting conditions. LTI awards in FY2020 MD COO CFO 50 51 2020 ANNUAL REPORTCEDAR WOODS PROPERTIES LIMITEDTerms and conditions of the share-based payment arrangements Reconciliation of share rights held by KMP The terms and conditions of each grant of rights affecting remuneration in the current or a future reporting The following table shows how many share rights were granted, vested and forfeited during the year for KMP. 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 FY2017 – Award 1 (Executives) FY2017 – Award 2 (MD) FY2018 – Award 1 (Executives) FY2018 – Award 2 (MD) FY2019 – Award 1 (Executives) FY2019 – Award 2 (MD) FY2020 – Award 1 (Executives) FY2020 – Award 2 (MD) 25/08/2016 10/11/2016 25/08/2017 9/11/2017 14/09/2018 13/11/2018 24/09/2019 6/11/2019 1/7/16 to 30/6/19 1/7/16 to 30/6/19 1/7/17 to 30/6/20 1/7/17 to 30/6/20 1/7/18 to 30/6/21 1/7/18 to 30/6/21 1/7/19 to 30/6/22 1/7/19 to 30/6/22 31/08/2019 $4.35 31/08/2019 $4.35 31/08/2020 $5.16 31/08/2020 $5.16 31/08/2021 $6.08 31/08/2021 $6.08 31/08/2022 $5.71 31/08/2022 $5.71 EPS Growth Relative TSR EPS Growth Relative TSR EPS Growth Relative TSR EPS Growth Relative TSR EPS Growth Relative TSR EPS Growth Relative TSR EPS Growth Relative TSR EPS Growth Relative TSR $4.29 $2.75 $4.15 $2.87 $4.62 $2.68 $4.92 $2.81 $5.21 $3.01 $4.62 $2.59 $6.17 $4.45 $6.18 $4.51 No Yes No Yes No Partial No Partial 50% 50% 30% 30% to be determined n/a to be determined n/a to be determined n/a to be determined n/a The number of share rights granted to key management personnel under the LTI scheme during FY2020 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 FY2020 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 FY2020 ($5.71). The market value of the shares is not discounted. 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. Shares converting under the FY2018 LTI plan will be issued in FY2021. The fair value of the rights has been determined using the amount of the grant date fair value. Name & grant dates Balance at start of year Number Granted during year Number Executive director N J Blackburne Vested Number Vested % Forfeited Number Forfeited % Balance at end of year (unvested) Number Max. value yet to vest * 6 Nov 2019** - 120,735 13 Nov 2018** 46,875 - 22 Aug 2017** 36,434 - - - - - - - - - - 25 Aug 2016 29,885 - 14,942 50 14,943 Senior executives P Archer 24 Sep 2019 - 37,145 14 Sep 2018 17,270 - 22 Aug 2017 16,473 - - - - - - - - - - 25 Aug 2016 18,391 - 9,195 50 9,196 L M Hanrahan 24 Sep 2019 - 21,015 14 Sep 2018 22 Aug 2017 8,224 3,488 25 Aug 2016 2,759 P S Freedman 22 Aug 2017 7,752 25 Aug 2016 9,195 - - - - - - - - 1,379 - 4,597 - - - 50 - 50 - - - 1,380 - 4,598 - - - 50 - - - 50 - - - 50 - 50 120,735 $272,257 46,875 $60,703 36,434 $51,190 - - 37,145 $82,648 17,270 $25,991 16,473 $22,074 - - 21,015 $46,758 8,224 $12,377 3,488 $4,674 - - 7,752 $10,388 - - * The LTI awards granted in FY2020 vest on 31 August 2022 subject to the two vesting conditions. The maximum value of the deferred shares yet to vest has been determined based on the grant date fair value of the rights, adjusted to the anticipated vesting outcomes. ** Approval for the issue of share rights to NJ Blackburne was obtained from shareholders under Australian Securities Exchange Listing Rule 10.14. 52 53 2020 ANNUAL REPORTCEDAR WOODS PROPERTIES LIMITEDPerformance of shareholder return metrics In FY2020, the company delivered a profit of $20.9 million, a decrease of 57.0 per cent over the prior year. The returns to shareholders of Cedar Woods over the last 1, 3 and 5 years are detailed in the table below: Returns to shareholders over 1, 3 and 5 years (%) 1 year 3 years 5 years EPS growth Share price growth Dividend growth CWP TSR (change in share price and dividends) S&P Small Industrials Index (XSIAI) TSR (57.3) (8.1) (39.7) (2.4) (7.4) (23.3) 0.2 (12.6) 6.2 5.2 (13.7) (0.1) (7.1) 5.9 4.7 The total shareholder return in FY2020 was -2.4 per cent which outperformed the S&P Small Industrials Index total return of -7.4 per cent over the same period. The returns over 1, 3 & 5 years compare favourably to the returns of the S&P Small Industrials Index. Returns over 1, 3 & 5 years also compare favourably to listed peers in the property sector, noting the sector has faced challenging conditions nationally. Management is focused on delivering consistent earnings per share and dividend growth. The company’s share price is subject to market factors that are beyond the company’s control. The measures of the company’s financial performance over the last five years as required by the Corporations Act 2001 are shown in the table below. However, these are not necessarily consistent with the measures used in determining the variable amounts of remuneration awarded to KMP, the basis for which is outlined above. As a consequence, there may not always be a direct correlation between the statutory key performance measures and the variable remuneration awarded. 2020 2019 2018 2017 2016 Profit for the year ($’000) 20,899 48,644 42,603 45,445 43,602 Basic earnings per share (cents) Dividends per share (cents) Increase (decrease) in share price (%) 26.0 19.0 (8.1) 60.9 31.5 (1.0) 53.9 30.0 10.6 57.6 30.0 19.8 55.3 28.5 (17.3) Executive remuneration for the years ended 30 June 2020 and 30 June 2019 When determining the remuneration mix for executives, the Remuneration and Nominations committee used the target STI and LTI opportunities contained in the tables on pages 50 and 51, which differ from the amounts calculated in the table below. In the below table, the actual cash bonuses are shown, and the share based payment is calculated in accordance with AASB 2 Share Based Payments. . w o e b l t u o t e s s i , s d r a d n a t s g n i t n u o c c a h t i w e c n a d r o c c a n i , s d o o W r a d e C f o P M K e v i t u c e x e h c a e f o n o i t a r e n u m e r e h t f o s l i a t e D % $ l a t o T e c i v r e S g n o L $ e v a e L $ # t n e m y a p d e s a b e r a h S $ n o i t a u n n a $ s t fi e n e b - r e p u S y r a t e n o m - n o N h s a C $ s u n o b $ s e e f d n a y r a l a s h s a C e c n a m r o f r e P d e t a l e r s t fi e n e b m r e t g n o L t s o P t n e m y o p m e l m r e t - t r o h S s t fi e n e b l a i c n a n F i r a e y e m a N % 7 1 % 7 2 % 6 1 % 1 2 % 0 1 % 5 1 % 8 % 4 1 2 5 7 , 2 7 9 8 0 0 7 9 9 , 5 6 6 7 3 , 7 8 8 , 2 4 2 2 9 1 9 , 0 4 5 , 5 1 9 9 6 , 3 2 9 9 6 , 3 2 5 2 2 , 6 6 5 0 , 6 4 3 8 , 5 7 0 0 5 , 6 5 2 7 0 4 , 7 3 7 7 2 3 , 2 5 6 7 4 4 , 6 2 5 6 6 0 , 6 1 5 4 1 1 0 1 , 1 6 2 , 8 - , 4 7 1 9 4 3 4 6 0 , 4 6 3 8 6 1 9 , 5 6 1 5 , 2 5 5 7 3 2 , 3 6 4 1 8 2 , 5 2 0 , 5 9 1 2 , 5 3 - 7 3 2 , 4 0 1 1 4 3 , 2 3 9 , 4 5 1 9 , 5 1 8 5 1 4 , 8 8 5 , 4 - , 1 1 7 3 4 1 2 , 5 1 8 , 0 0 1 2 , 3 7 5 , 4 2 7 9 1 6 , 1 2 1 0 2 , , 5 0 1 6 4 1 3 0 0 , 1 2 1 3 5 , 0 2 0 0 0 , 5 2 1 3 5 , 0 2 0 8 9 , 4 2 9 9 9 , 4 2 2 8 6 , 4 9 0 6 7 9 8 , 3 2 2 , 5 7 2 7 5 , 1 8 9 , 6 5 8 7 7 , 0 5 5 1 4 5 9 7 9 , 8 1 8 0 1 0 2 , 0 0 0 , 2 5 3 6 3 , 4 0 1 0 0 0 , 2 2 5 7 8 , 6 4 0 0 0 , 6 1 0 5 2 , 4 4 4 3 8 , 5 6 1 8 8 9 1 5 4 , 7 9 9 , 3 0 4 , 9 6 4 9 8 3 0 0 0 , 5 8 2 6 8 8 , 3 6 2 9 3 8 , 6 8 1 0 8 4 1 5 2 , 3 4 2 , 3 1 6 , 1 , 1 6 1 7 5 5 1 , 0 2 0 2 9 1 0 2 0 2 0 2 9 1 0 2 0 2 0 2 9 1 0 2 0 2 0 2 9 1 0 2 0 2 0 2 9 1 0 2 t r o c e r i D e v i t u c e x E e n r u b k c a B J N l P M K r e h O t r e h c r A P n a h a r n a H M L n a m d e e r F S P l a t o T d e s a B e r a h S 2 B S A A h t i w e c n a d r o c c a n i d e r u s a e m r a e y e h t o t l e b a t u b i r t t a s e m e h c s I T L 0 2 0 2 d n a 9 1 0 2 , 8 1 0 2 e h t m o r f s d r a w a f o e u a v l r i a f e h t f o t n e n o p m o c e h t o t e t l a e r s t n e m y a p d e s a b - e r a h s d e l t t e s - y t i u q E # . l a u r c c a e v a e l l a u n n a e d u c n l i s e e f l d n a y r a a s h s a C . s t n e m y a P 54 55 2020 ANNUAL REPORTCEDAR WOODS PROPERTIES LIMITED e c n a m r o f r e P d e t a l e r s t fi e n e b m r e t g n o L t s o P t n e m y o p m e l m r e t - t r o h S s t fi e n e b % $ l a t o T e c i v r e S g n o L $ e v a e L $ # t n e m y a p d e s a b e r a h S $ n o i t a u n n a $ s t fi e n e b - r e p u S y r a t e n o m - n o N h s a C $ s u n o b $ s e e f d n a y r a l a s h s a C % 5 2 % 7 2 % 0 2 % 1 2 % 9 % 5 1 % 7 1 % 4 1 1 0 4 , 8 7 9 9 6 4 1 8 9 , 5 6 6 7 3 , 7 8 8 , 2 4 - 1 7 5 7 9 , 9 9 6 , 3 2 9 9 6 , 3 2 5 2 2 , 6 6 5 0 , 6 4 3 8 , 5 7 0 0 5 , 6 5 2 7 0 4 , 7 3 7 7 2 3 , 2 5 6 9 2 8 1 1 5 , 0 8 3 , 2 5 5 4 1 1 0 1 , 1 6 2 , 8 - , 4 5 1 7 5 3 2 4 2 , 4 4 3 8 6 1 9 , 5 6 1 5 , 2 1 4 , 3 6 2 1 5 0 , 6 8 2 5 2 0 , 5 9 1 2 , 5 3 - 3- 4 0 , 0 6 5- 0 0 , 9 8- 1 0 , 0 3 , 7 4 3 1 5 1 2 , 0 9 5 , 3 2 1 2 , 3 7 5 , 4 2 7 9 1 6 , 7- 3 6 , 6 9 1 3 0 0 , 1 2 1 3 5 , 0 2 0 0 0 , 5 2 1 3 5 , 0 2 0 8 9 , 4 2 9 9 9 , 4 2 2 8 6 , 4 9 0 6 7 9 8 , 3 2 2 , 5 7 2 7 5 , 5 8 7 7 , 1 8 9 , 6 0 5 5 1 4 5 9 7 9 , 8 1 8 0 1 0 2 , 0 0 0 , 2 5 3 6 3 , 4 0 1 0 0 0 , 2 2 5 7 8 , 6 4 0 0 0 , 6 1 0 5 2 , 4 4 4 3 8 , 5 6 1 8 8 9 1 5 4 , 7 9 9 , 3 0 4 , 9 6 4 9 8 3 0 0 0 , 5 8 2 6 8 8 , 3 6 2 9 3 8 , 6 8 1 0 8 4 1 5 2 , 3 4 2 , 3 1 6 , 1 , 1 6 1 7 5 5 1 , : ) n o i t a r e n u m e r e m o h e k a t ( s d o o W r a d e C f o P M K e v i t u c e x e h c a e y b d e v e c e r n o i i t a r e n u m e r f o e u a v l l a u t c a e h t l a i c n a n F i r a e y 0 2 0 2 9 1 0 2 0 2 0 2 9 1 0 2 0 2 0 2 9 1 0 2 0 2 0 2 9 1 0 2 0 2 0 2 9 1 0 2 t u o s t e s e b a l t i g n w o l l o f e h T 56 t r o c e r i D e v i t u c e x E e n r u b k c a B J N l e m a N P M K r e h O t r e h c r A P n a h a r n a H M L n a m d e e r F S P l a t o T . n a p l I T L 9 1 - 7 1 Y F e h t r e d n u d e t s e v s e r a h s , 0 2 0 2 Y F n I . g n i t s e v f o e t a d e h t t a s e i t i r u c e s f o e u a v l t e k r a m e h t n o d e s a b s i d e t s e v I T L # s. Executive contracts Remuneration and other terms of employment for executives are formalised in employment agreements. Details of executive service contract for the Managing Director and other executives The Managing Director, Mr N J Blackburne is employed under an ongoing contract. Mr Blackburne’s total remuneration package for FY2020 was as follows: y Fixed remuneration of $766,000 per annum y Target STI opportunity of $421,300, Maximum STI opportunity of $631,950 (45% in cash, 55% in DSTI) y Target & Maximum LTI opportunity $689,400. The target STI and LTI opportunity represent 22% and 37% respectively of the total target remuneration. The maximum STI opportunity represents 30% of the maximum remuneration. If the Managing Director resigns following a takeover or substantial change of control of the company due to a material variation or diminution in his position duties, reporting structure or status, he will be entitled to be paid the maximum amount permitted under s 200G of the Corporations Act 2001. The agreements for the executives are reviewed annually by the Remuneration and Nominations Committee for each KMP and details are as follows: Contract term Notice required to terminate contract Termination benefit* Executive director N J Blackburne No fixed term 6 months Either party may terminate with 6 months’ notice 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 q) iii. Details of incentive plans section of the Directors’ Report. t. 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 or for memberships of directors on subsidiary Boards). NEDs do not receive performance-based remuneration. Remuneration of NEDs is determined by the Board, after receiving recommendations from the Remuneration and Nominations 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 FY2020 was $638,000. The Board will not seek any increase for the NED maximum aggregate fee pool at the 2020 AGM. Fee policy NEDs’ annual fees were last reviewed from FY2020 (effective date: 1 July 2019). The annual fees (inclusive of superannuation) for FY2020 and FY2019 are set out in the table below: Chair Deputy Chair Other NEDs Committee Chair Committee member 2020 $ 174,000 137,000 94,000 15,000 Nil 2019 $ 164,000 126,500 88,700 13,200 Nil 57 2020 ANNUAL REPORTCEDAR WOODS PROPERTIES LIMITED NED remuneration for the years ended 30 June 2020 and 30 June 2019 The table below outlines fees paid to NEDs for FY2020 and FY2019 in accordance with statutory rules and applicable accounting standards. Name W G Hames R S Brown R Packer V A Davies J M Muirsmith Total Short-term benefits Post-employment Financial year Board and committee fees $ Superannuation $ Total $ 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 158,904 149,772 138,813 115,525 70,302 104,601 99,543 81,005 99,543 81,005 567,105 531,908 15,096 14,228 13,187 10,975 23,698 23,699 9,457 7,695 9,457 7,695 70,895 64,292 174,000 164,000 152,000 126,500 94,000 128,300 109,000 88,700 109,000 88,700 638,000 596,200 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, including their personally-related parties, are set out below. There were no shares granted during the period as remuneration. 2019 NEDs W G Hames * R S Brown R Packer V A Davies J M Muirsmith Executive director N J Blackburne Senior executives P Archer L M Hanrahan P S Freedman Number of shares at the start of the year Other changes during the year Number of shares at the end of the year 10,343,320 7,985,584 167,859 15,297 10,198 42,870 20,277 11,398 107,583 230 - - 488 325 4,465 24 - 1,000 10,343,550 7,985,584 167,859 15,785 10,523 47,335 20,301 11,398 108,583 * Includes 2,014,439 (2019 – 2,014,439) shares over which W G Hames has voting rights and a first right of refusal to purchase. 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. Other transactions with key management personnel Aggregate amounts of other transactions with key management personnel of Cedar Woods or their related entities: 2020 NEDs W G Hames * R S Brown R Packer V A Davies J M Muirsmith Executive director N J Blackburne Senior executives P Archer L M Hanrahan P S Freedman Number of shares at the start of the year Other changes during the year Number of shares at the end of the year 10,343,550 7,985,584 167,859 15,785 10,523 5,148 (163,951) - - 211 10,348,698 7,821,633 167,859 15,785 10,734 Amounts recognised as expense Architectural fees Creative design services Settlement fees Sponsorships 47,335 25,566 72,901 Architectural fees Amounts recognised as inventory/ investment property 2020 $ 2019 $ 6,000 - 196,658 - - 30,908 189,616 3,182 202,658 223,706 127,755 127,755 221,993 221,993 20,301 11,398 108,583 9,787 1,379 (35,721) 30,088 12,777 72,862 Total amounts recognised in year 330,413 445,699 Aggregate amounts of assets at balance date relating to the above types of other transactions with directors of Cedar Woods or their related entities: Inventory Investment property 123,155 4,600 219,718 2,275 127,755 221,993 58 59 2020 ANNUAL REPORTCEDAR WOODS PROPERTIES LIMITED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, subject to the Board considering the services under the Conflict of Interest policy, available on the Company website. 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. 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. In addition, tenders and market reviews are regularly conducted to ensure that services are provided on competitive terms and conditions. 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 lower than in the previous year as a result of the timing of architectural and design work performed on the Williams Landing Town Centre and the Glenside project in Adelaide. The Glenside project was introduced to the company by Hames Sharley. 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 FY2020 was similar to that of the previous year and as a result the value of transactions with Westland Settlement Services Pty Ltd is also similar. In 2019 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. In 2019 a payment was made for sponsorship of the Property Education Foundation Inc. of which Mr R Packer is a trustee with no beneficial interest. The transaction was based on normal commercial terms and conditions. There are no aggregate amounts payable to directors of Cedar Woods at balance date. An amount of $4,560 was payable to related entities (Hames Sharley) at balance date. There are no other amounts payable to 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 129 of this annual report for PwC’s report on the remuneration report. w. Retirement, election and continuation in office of directors Mr R Packer and Mrs J M Muirsmith retire by rotation at the forthcoming Annual General Meeting. Mrs J M Muirsmith, being eligible, will offer herself for re-election. x. Insurance of officers During the financial year, Cedar Woods 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 and the Company Secretary. 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 39 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 62. aa. Rounding of amounts The company is of a kind referred to in AISC Legislative Instrument 2016/191, relating to the ‘rounding off’ of amounts in the directors’ report. Amounts in the directors’ report have been rounded off in accordance with the instrument to the nearest thousand dollars, or in certain cases, to the nearest dollar. The directors report including the remuneration report is signed in accordance with a resolution of the directors of Cedar Woods. N J Blackburne Managing Director 26 August 2020 60 61 2020 ANNUAL REPORTCEDAR WOODS PROPERTIES LIMITEDAUDITOR’S INDEPENDENCE DECLARATION Auditor’s Independence Declaration As lead auditor for the audit of Cedar Woods Properties Limited for the year ended 30 June 2020, I declare that to the best of my knowledge and belief, there have been: (a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit, and (b) no contraventions of any applicable code of professional conduct in relation to the audit. This declaration is in respect of Cedar Woods Properties Limited and the entities it controlled during the period. Helen Bathurst Partner PricewaterhouseCoopers Perth 26 August 2020 F I N A N C I A L S T A T E M E N T S FINANCIAL STATEMENTS Consolidated Statement of Profit or Loss and Other Comprehensive Income For the Year Ended 30 June 2020 ............................64 Consolidated Balance Sheet As at 30 June 2020 ..................................................65 Consolidated Statement of Changes in Equity For the Year Ended 30 June 2020 ............................67 Consolidated Cash Flow Statement For the Year Ended 30 June 2020 ............................68 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 31. 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 26 August 2020. The directors have the power to amend and reissue the financial statements. PricewaterhouseCoopers, ABN 52 780 433 757 Brookfield Place, 125 St Georges Terrace, PERTH WA 6000, GPO Box D198, PERTH WA 6840 T: +61 8 9238 3000, F: +61 8 9238 3999, www.pwc.com.au Liability limited by a scheme approved under Professional Standards Legislation. 62 63 FINANCIAL STATEMENTS2020 ANNUAL REPORTCEDAR WOODS PROPERTIES LIMITED CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME For the Year Ended 30 June 2020 Continuing operations Revenue Cost of sale of land and buildings Cost of providing development services Gross profit Project operating costs Administration expenses Other expenses Other income Operating profit Finance costs Share of net (loss) profit of joint ventures accounted for using the equity method Profit before income tax Income tax expense Profit for the year Total comprehensive income for the year Total comprehensive income attributable to members of Cedar Woods Properties Limited Earnings per share for profit attributable to the ordinary equity holders of the company: Basic earnings per share Diluted earnings per share Note 2020 $’000 2019 $’000 1 260,660 375,149 (184,083) (254,142) (1,628) (6,433) 74,949 114,574 (23,067) (24,027) (20,312) (20,561) (455) 1,520 (364) 2,370 32,635 71,992 (2,245) (3,072) (174) 30,216 (9,317) 20,899 20,899 22 68,942 (20,298) 48,644 48,644 20,899 48,644 2 32(iii) 3 24 4 4 26.0 cents 60.9 cents 25.8 cents 60.6 cents The above consolidated statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes. CONSOLIDATED BALANCE SHEET As at 30 June 2020 Note 2020 $’000 2019 $’000 ASSETS Current assets Cash and cash equivalents Trade and other receivables Contract assets Inventories Deferred development costs Current tax asset Total current assets Non-current assets Receivables Inventories Deferred development costs Investments accounted for using the equity method Property, plant and equipment Intangible assets Right-of-use assets Investment properties Lease incentives Total non-current assets Total assets LIABILITIES Current liabilities Trade and other payables Derivative financial instruments Other financial liabilities Current tax liabilities Contract liabilities Lease liabilities Provisions Total current liabilities Non-current liabilities Borrowings Derivative financial instruments Other financial liabilities Lease liabilities Provisions Deferred tax liabilities Total non-current liabilities Total liabilities Net assets 5 6 1 7 8 6 7 8 9 10 11 12 13 14 15 17 18 1(ii) 19 20 16 17 18 19 20 21 2,691 8,478 3,329 157,836 3,523 787 176,644 2,123 401,314 11,010 1,576 7,151 3,241 1,906 40,701 1,076 470,098 646,742 26,022 - 32,075 - 3,894 815 1,310 64,116 145,362 144 49,592 1,436 210 7,197 203,941 268,057 378,685 13,442 7,759 2,144 144,778 2,921 - 171,044 2 337,065 8,317 2,725 7,264 2,428 - 41,642 1,224 400,667 571,711 30,881 230 9,338 3,822 5,813 - 4,094 54,178 118,756 31 16,849 - 125 5,242 141,003 195,181 376,530 64 65 FINANCIAL STATEMENTSFINANCIAL STATEMENTSCEDAR WOODS PROPERTIES LIMITED2020 ANNUAL REPORTCONSOLIDATED BALANCE SHEET (CONTINUED) As at 30 June 2020 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY For the Year Ended 30 June 2020 EQUITY Contributed equity Reserves Retained profits Total equity Note 22 23 24 2020 $’000 127,781 568 250,336 378,685 2019 $’000 125,979 427 250,124 376,530 The above consolidated balance sheet should be read in conjunction with the accompanying notes. Contributed equity $’000 Note Reserves $’000 Retained profits $’000 Total $’000 Balance at 1 July 2018 123,018 442 229,726 353,186 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 Employee share scheme Balance at 30 June 2019 Change in accounting policy 22 30 23 42 - - 2,961 - - - 2,961 125,979 - - - - - - (15) (15) 427 - 48,644 48,644 48,644 48,644 - - 2,961 - (28,313) (28,313) 67 52 (28,246) (25,300) 250,124 376,530 2 2 Restated total equity at 1 July 2019 125,979 427 250,126 376,532 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 Employee share scheme 22 30 23 - - 1,632 - - 170 1,802 - - - (11) - 152 141 20,899 20,899 20,899 20,899 - 11 1,632 - (20,709) (20,709) 9 331 (20,689) (18,746) Balance at 30 June 2020 127,781 568 250,336 378,685 The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes. 66 67 FINANCIAL STATEMENTSFINANCIAL STATEMENTSCEDAR WOODS PROPERTIES LIMITED2020 ANNUAL REPORTCONSOLIDATED CASH FLOW STATEMENT For the Year Ended 30 June 2020 NOTES TO THE FINANCIAL STATEMENTS These are the consolidated financial statements of Cedar Woods Properties Limited and its subsidiaries. A list Note 2020 $’000 2019 $’000 Cash flows from operating activities Receipts from customers (incl. GST) Other income Payments to suppliers and employees (incl. GST) Payments for land and development Interest received Borrowing costs paid Income taxes paid Net cash (outflows) inflows from operating activities 26 Cash flows from investing activities Proceeds from sale of property, plant and equipment Proceeds from capital return from joint venture Payments for investment properties Payments for property, plant and equipment Payments for intangible assets Net cash outflows from investing activities Cash flows from financing activities Proceeds from (repayment of) borrowings Principal elements of lease payments Dividends paid Net cash inflows (outflows) from financing activities Net decrease in cash and cash equivalents Cash and cash equivalents at the beginning of the year Cash and cash equivalents at the end of the year 30 5 280,459 830 (70,439) (208,952) 389 (5,865) (11,913) (15,491) 10 975 (361) (911) (1,587) (1,874) 26,345 (660) (19,071) 6,614 (10,751) 13,442 2,691 403,651 - (84,556) (245,814) 737 (8,601) (32,329) 33,089 - 325 (309) (1,944) (1,832) (3,760) (14,246) - (25,335) (39,581) (10,250) 23,692 13,442 The above consolidated cash flow statement should be read in conjunction with the accompanying notes. of major subsidiaries is included in note 31. The notes are set out in the following main sections: A Key numbers: 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 Further 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. 68 69 FINANCIAL STATEMENTSFINANCIAL STATEMENTSCEDAR WOODS PROPERTIES LIMITED2020 ANNUAL REPORTSECTION A: KEY NUMBERS 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. PROFIT OR LOSS INFORMATION 1. Revenue (i) Disaggregation of revenue from contracts with customers Timing of revenue recognition At a point in time Sale of land and buildings Development services Over time Rent from properties (ii) Assets and liabilities related to contracts with customers Current contract assets Commissions relating to property sales Total contract assets 2020 $’000 2019 $’000 252,153 361,571 2,583 7,351 5,925 6,227 2020 $’000 3,329 3,329 2019 $’000 2,144 2,144 Profit or Loss Information .......................... 71 14. Lease incentives ...........................................79 Costs to fulfil a contract that were included in the contract asset balance at the beginning of the period 15. Trade and other payables .............................79 16. Borrowings ....................................................80 Commissions relating to property sales 1,503 2,030 Sales commissions incurred to fulfill a property sale contract are classified as contract assets in the balance 17. Derivative financial instruments .................... 81 sheet when incurred and are expensed when associated revenue is recognised. 1. Revenue ........................................................ 71 2. Expense items...............................................72 3. Income tax ....................................................73 4. Earnings per share ........................................ 74 Balance Sheet Information ......................... 75 18. Other financial liabilities ................................82 19. Lease liabilities .............................................82 20. Provisions .....................................................83 5. Cash and cash equivalents ...........................75 21. Deferred tax ..................................................84 6. Trade and other receivables .........................75 22. Equity ............................................................86 7. Inventories .................................................... 76 23. Reserves .......................................................87 8. Deferred development costs ......................... 76 24. Retained profits .............................................87 9. Investments accounted for using the equity method .........................................77 25. Categories of financial assets and financial liabilities ...................................88 10. Property, plant and equipment ......................77 11. Intangible assets ...........................................77 12. Right-of-use assets .......................................78 13. Investment properties ...................................78 Cash Flow information ............................... 89 26. Cash Flow Information ...................................89 Current contract liabilities Customer rebates Total contract liabilities 2020 $’000 3,894 3,894 2019 $’000 5,813 5,813 Revenue recognised that was included in the contract liability balance at the beginning of the period Customer rebates 4,424 4,483 (iii) Transaction price allocated to remaining performance obligations The transaction price allocated to partially unsatisfied performance obligations at 30 June 2020 is set out below: Within one year More than one year Total 2020 $’000 256,559 113,504 370,063 2019 $’000 229,615 109,206 338,821 70 71 CEDAR WOODS PROPERTIES LIMITED2020 ANNUAL REPORTKEY NUMBERSKEY NUMBERS 2. Expense items 3. Income tax Profit before income tax expense includes the following specific expenses: This note provides an analysis of the group’s income tax expense and how the tax expense is affected by non- Finance costs Interest and finance charges Interest - leases Interest – other financial liabilities Unrealised financial instrument (gains) losses Less: amount capitalised Finance costs expensed Note 2020 $’000 2019 $’000 6,028 91 2,578 (116) (6,336) 2,245 8,511 - 579 76 (6,094) 3,072 (i) (i) Capitalised borrowing costs 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 2.0% (2019 – 2.8%) per annum. Where qualifying assets are financed by specific facilities, the applicable borrowing costs of those facilities are capitalised. Net loss on disposal of property, plant and equipment Loss allowance of trade receivables Employee benefits expense Superannuation Depreciation of property, plant and equipment Depreciation of investment properties Depreciation of right-of-use assets Amortisation of intangible assets Other lease expenses Expense relating to short-term leases Expense relating to leases of low value assets that are not shown above as short-term leases Note 6 10 13 12 11 (ii) (ii) 2020 $’000 186 19 12,380 1,110 898 990 823 715 23 6 2019 $’000 280 (302) 12,007 1,093 875 1,029 - 371 - - (ii) Lease costs included in profit before income tax Depreciation of right-of-use assets is presented within Administration expenses and Project operating costs on the Consolidated Statement of Profit or Loss and Other Comprehensive Income. Expenses relating to short-term leases and low value assets are presented within Project operating costs on the Consolidated Statement of Profit or Loss and Other Comprehensive Income. assessable and non-deductible items. (i) Income tax expense Current tax Deferred tax Adjustments for current tax of prior periods Note 2020 $’000 7,303 2,014 - 2019 $’000 19,699 671 (72) Income tax expense attributable to profit 9,317 20,298 Deferred income tax (revenue) expense included in income tax expense comprises: Decrease in deferred tax assets Increase (decrease) in deferred tax liabilities (ii) Numerical reconciliation of income tax expense to prima facie tax payable Profit before income tax 21 21 982 1,032 2,014 1,130 (459) 671 2020 $’000 2019 $’000 30,216 68,942 Tax at the Australian tax rate of 30% (2019 – 30%) 9,065 20,683 Tax effect of amounts which are not deductible (taxable) in calculating taxable income: - Subsidiary company loss (profit) - Interest revenue - Employee share scheme - Share of net loss (profit) of joint venture - Permanent differences arising from capital gains - Sundry items Adjustments for current tax of prior periods: - Research and development Income tax expense 9 37 97 52 40 17 (477) 149 (4) (7) - 21 252 (318) - - (67) (67) 9,317 20,298 72 73 CEDAR WOODS PROPERTIES LIMITED2020 ANNUAL REPORTKEY NUMBERSKEY NUMBERS4. Earnings per share Basic earnings per share (cents) Diluted earnings per share (cents) 2020 26.0 25.8 2019 60.9 60.6 Net profit attributable to the ordinary owners of the company ($’000) 20,899 48,644 Weighted average number of ordinary shares used as the denominator in the calculation of earnings per share Weighted average number of ordinary shares used as the denominator in the calculation of diluted earnings per share 80,352,925 79,925,054 80,873,241 80,332,583 The calculation of diluted earnings per share includes performance rights that may vest under the company’s LTI plan. BALANCE SHEET INFORMATION 5. Cash and cash equivalents Cash at bank and in hand 2020 $’000 2,691 2019 $’000 13,442 2,691 13,442 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 1.55% (2019 - 0 to 1.8%) per annum depending on the balances. The Group’s exposure to interest rate risk is discussed in note 28 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. 6. Trade and other receivables Current Trade receivables Less: Loss allowance Other receivables Prepayments Non-Current Other receivables Loans – employee share scheme (discontinued) Notes (ii) (i), (ii) (ii) (iii) 40 2020 $’000 6,418 (149) 796 1,413 8,478 2,120 3 2,123 2019 $’000 4,786 (130) 1,310 1,793 7,759 - 2 2 (i) Credit risk To measure the lifetime expected credit loss for rental debtors, a provision is raised against each debtor based upon the payment profile over the last 12 months, adjusted for current and forward-looking information supporting the expected settlement of the receivable. (ii) 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 accounting policies for trade and other receivables are outlined in note 41(h). (iii) Other non-current receivables Other non-current receivables comprise refundable deposits paid on conditional contracts. 74 75 CEDAR WOODS PROPERTIES LIMITED2020 ANNUAL REPORTKEY NUMBERSKEY NUMBERS7. Inventories Total Inventory Current inventory Non-current inventory Aggregate carrying amount Current Property held for resale - at cost - at valuation 30 June 1992 - capitalised development costs Notes (i), (ii) (i), (ii) 2020 $’000 2019 $’000 157,836 144,778 401,314 337,065 559,150 481,843 2020 $’000 2019 $’000 31,716 32,666 56 29 126,064 112,083 157,836 144,778 The 1992 valuations were independent valuations which were based on current market values at that time. Non-Current Property held for resale - at cost - at valuation 30 June 1992 - capitalised development costs - at net realisable value 2020 $’000 2019 $’000 275,541 229,175 19 62 120,462 102,577 5,292 5,251 401,314 337,065 The 1992 valuations were independent valuations which were based on current market values at that time. (i) Current and non-current assets pledged as security Refer to note 16 for information on current assets pledged as security by the parent entity or its controlled entities. (ii) Accounting for inventory Refer to note 41(i) for the recognition and classification of inventory. 8. Deferred development costs Current Deferred development costs Non-Current Deferred development costs 2020 $’000 2019 $’000 3,523 3,523 11,010 11,010 2,921 2,921 8,317 8,317 Development costs incurred by the group for the development of land not held as inventory by the group are recorded as deferred development costs in the balance sheet. 9. Investments accounted for using the equity method Unlisted securities Shares in joint ventures Notes (i) 2020 $’000 2019 $’000 1,576 1,576 2,725 2,725 (i) Cedar Woods Wellard Limited The consolidated entity owns a 32.5% (2019: 32.5%) interest in Cedar Woods Wellard Limited, a property development company incorporated in Australia. Refer to note 32. 10. Property, plant and equipment Plant and Equipment at Cost At start of the year Additions Disposals At end of the year Accumulated depreciation on Plant and Equipment At start of the year Disposals Charge for the year At end of the year Net book value 2020 $’000 2019 $’000 9,410 981 (366) 10,025 2,146 (170) 898 2,874 7,151 8,732 1,960 (1,282) 9,410 2,055 (784) 875 2,146 7,264 (i) Non-current assets pledged as security Refer to note 16 for information on non-current assets pledged as security by the parent entity or its controlled entities. 11. Intangible assets IT Development and Software at Cost At start of the year Additions Disposals At end of the year Accumulated amortisation on IT Development and Software At start of the year Disposals Charge for the year At end of the year Net book value 2020 $’000 2019 $’000 3,478 1,587 (102) 4,963 1,050 (43) 715 1,722 3,241 1,690 1,832 (44) 3,478 679 - 371 1,050 2,428 76 77 CEDAR WOODS PROPERTIES LIMITED2020 ANNUAL REPORTKEY NUMBERSKEY NUMBERS12. Right-of-use assets Buildings At start of the year Recognised on 1 July 2019 Effect of exercising extension options Additions Depreciation At end of the year Equipment At start of the year Recognised on 1 July 2019 Depreciation At end of the year Notes 2020 $’000 2019 $’000 - 2,405 209 36 (784) 1,866 - 79 (39) 40 1,906 - - - - - - - - - (i) (ii) (i) (ii) (i) Depreciation expense on leases is included in Administration expenses in the Consolidated Statement of Profit or Loss and Other Comprehensive Income. (ii) In 2019 the group did not have any leases classified as finance leases under AASB 117 Leases. Right-of- use assets were recognised on 1 July 2019 upon adoption of AASB 16 Leases. 13. Investment properties Non-current assets – at cost Opening balance at the start of the year Capitalised expenditure Depreciation Impairment of capitalised lease costs Closing balance at the end of the year Represented by: Note 2020 $’000 2019 $’000 41,642 42,561 66 (990) (17) 127 (1,029) (17) 40,701 41,642 Completed investment property (i),(ii),(iii),(iv) 40,701 41,642 Closing balance at the end of the year 40,701 41,642 (i) 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 Bad debts recovered 2020 $’000 2019 $’000 5,277 5,417 (3,224) (3,870) (54) 8 (98) - (ii) Fair value of investment property The fair value of the Williams Landing Shopping Centre which makes up completed investment property at 30 June 2020 is $68.5m, based on a management valuation (2019 - $72.0m). The investment property includes land surrounding the shopping centre for future development which is on the same title. The management valuation applies a market capitalisation rate to the net rent for the shopping centre and a market rate per square metre to the area of the future development land. (iii) 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 2020 $’000 4,476 18,550 19,103 2019 $’000 4,387 19,064 21,826 42,129 45,277 (iv) Non-current assets pledged as security Refer to note 16 for information on non-current assets pledged as security by the parent entity or its controlled entities. 14. Lease incentives Lease incentives Amortisation of lease incentives Impairment of lease incentives 2020 $’000 2,805 (1,106) (623) 1,076 2019 $’000 2,626 (816) (586) 1,224 (i) Non-current assets pledged as security Refer to note 16 for information on non-current assets pledged as security by the parent entity or its controlled entities. 15. Trade and other payables Trade payables Accruals GST payable Other payables 2020 $’000 9,526 2019 $’000 8,751 16,075 19,057 - 421 2,849 224 26,022 30,881 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. 78 79 CEDAR WOODS PROPERTIES LIMITED2020 ANNUAL REPORTKEY NUMBERSKEY NUMBERS16. Borrowings 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 2020 $’000 2019 $’000 116,750 29,193 (842) 261 89,800 29,193 (414) 177 145,362 118,756 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 totalling $116,750,000 provided by three major banks (2019 - $89,800,000 provided by two major banks) 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 and applicable subsidiary entities. Cedar Woods 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 note 13. (ii) Financing arrangements The group had access to the following lines of credit at balance date: Corporate facilities Total facilities (loan and guarantees) Used at balance date (loan and guarantees) 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 2020 $’000 2019 $’000 205,000 205,000 137,106 104,579 67,894 100,421 30,000 29,193 807 30,000 29,193 807 235,000 235,000 166,299 133,772 68,701 101,228 The consolidated entity has total corporate finance facilities of $205,000,000 (2019 - $205,000,000), with $82,000,000 each provided by two major banks and $41,000,000 provided by a third major bank (2019 - $102,500,000 each provided by two major banks). The consolidated entity amended and extended the its corporate facility in July 2019 and further extended the facility again in February 2020 following its annual review. 80 The changes included longer facility tenure, with the previous three-year facility now comprising: y $165,000,000 (approximately 80%) of the facility expiring January 2023; and y $40,000,000 (approximately 20%) of the facility expiring January 2025. The conditions of the facilities impose certain covenants including interest cover, loan-to-valuation ratio and leverage ratio (net debt to EBITDA). The interest on the corporate loan facilities is variable and at 30 June 2020 was an average rate of 1.59% (2019 – 2.73%) per annum. The corporate facilities include bank guarantee facilities of $25,000,000 (2019 - $20,000,000) subject to similar terms and conditions, which were drawn to a total amount of $20,356,000 at 30 June 2020 (2019 -$14,779,000). The consolidated entity has a facility of $30,000,000 (2019 - $30,000,000) in place for the Williams Landing Shopping Centre investment property. The conditions of the facility impose certain covenants including loan-to-valuation ratio and interest cover ratio. During the financial year the facility was extended to June 2023. The interest on the Williams Landing Shopping Centre loan facility is variable and at 30 June 2020 was an average rate of 1.74% (2019 – 2.95%) per annum. Details of the group’s exposure to risk arising from current and non-current borrowings are set out in note 28. Financial risk management. 17. Derivative financial instruments Current liabilities Interest rate hedge contracts Non-current liabilities Interest rate hedge contracts 2020 $’000 2019 $’000 - 230 144 144 31 261 (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 hedge contracts The group’s policy is to protect part of the loans from exposure to fluctuations in interest rates. Accordingly, the consolidated entity has entered into interest rate hedge contracts under which part of the consolidated entity’s projected borrowings are protected for the period from 1 July 2020 to 30 June 2023. The group uses a combination of swaps, caps and collars to hedge interest rates. The swaps effectively fix interest rates applicable to bank bills issued with duration of 1 month (BBSY Bid) at 2.07% per annum (2019 – 2.07% to 2.495% per annum). The caps effectively cap interest rates applicable to bank bills issued with duration of 3 months (BBSY Bid) at certain levels between 1.00% - 1.95% (2019 – 1.50% to 1.95%). The collars effectively cap interest rates applicable to bank bills issued with duration of 3 months (BBSY Bid) at 1.50% and apply a floor to interest rates of 0.87% (2019 – 1.50% and apply a floor to interest rates of 0.87%). Interest rate hedge contracts currently in place cover approximately 38% (2019 – 46%) of the variable loans outstanding at balance date, with terms expiring in 2021, 2022 and 2023. 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. 81 CEDAR WOODS PROPERTIES LIMITED2020 ANNUAL REPORTKEY NUMBERSKEY NUMBERS18. Other financial liabilities Current Due to vendors of properties under contracts of sale Other payables Non-current Due to vendors of properties under contract of sale Notes 2020 $’000 2019 $’000 (i) 31,570 504 32,075 8,957 381 9,338 49,592 16,849 49,592 16,849 20. Provisions Current Employee benefits Site remediation Non-current Employee benefits (i) Fair value adjustment During the period the group re-assessed its cash flows associated with the other payables, resulting in a fair (i) Movements in current employee benefits value adjustment through profit or loss. 19. Lease liabilities Lease liabilities At start of the year Recognised on 1 July 2019 Effect of exercising extension options Additions Interest Principal and interest repayments At the end of the year Comprising: Current lease liabilities Non-current lease liabilities 2020 $’000 2019 $’000 - 2,666 209 36 91 (751) 2,251 2020 $’000 815 1,436 2,251 - - - - - - - 2019 $’000 - - - The total cash outflow for leases in 2020 was $751,000 excluding GST. As at 30 June 2020, potential future cash outflows of $3,395,000 (undiscounted) have not been included in the lease liability because it is not reasonably certain that the leases will be extended (or not terminated). Notes (i) (ii) 2020 $’000 2019 $’000 1,310 - 1,310 210 210 2020 $’000 1,073 850 (613) 1,073 3,021 4,094 125 125 2019 $’000 1,024 731 (682) Carrying amount at start of year Provided during the period Payments Carrying amount at end of year 1,310 1,073 Current leave obligations expected to be settled after 12 months 624 555 (ii) Movements in site remediation provisions Carrying amount at start of year Capitalised to inventory Payments Carrying amount at end of year Site remediation provision related to obligations under a land acquisition contract. 21. Deferred tax (i) Assets The balance comprises temporary differences attributable to: Inventory Special Unit in the BCM Apartment Trust Provision for customer rebates Provision for employee benefits 2020 $’000 3,021 - (3,021) - 2019 $’000 - 3,400 (379) 3,021 2020 $’000 2019 $’000 2,196 1,858 1,168 682 5,904 2,572 1,858 1,744 744 6,918 82 83 CEDAR WOODS PROPERTIES LIMITED2020 ANNUAL REPORTKEY NUMBERSKEY NUMBERS(i) Assets (continued) Other Derivative financial instruments Borrowing costs Right-of-use assets Receivables Share issue expenses Other sundry items 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 (Decrease) in deferred tax assets (debited) to income tax expense 3 Increase in deferred tax assets (credited) to equity Deferred tax assets at the end of the year Deferred tax assets expected to be recovered within 12 months Deferred tax assets expected to be recovered after more than 12 months Special Unit in the BCM Apartment Trust $’000 Provision for customer rebates $’000 Provision for employee benefits $’000 Inventory $’000 3,414 1,858 1,949 (842) 2,572 - - 1,858 - (205) 1,744 - 2,572 1,858 1,744 (376) - 2,196 (690) - 1,168 114 - 1,858 504 240 744 - 744 (62) - 682 Movements At 1 July 2018 (Charged)/credited - to profit or loss At 30 June 2019 Adjustment on adoption of AASB16 At 1 July 2019 (Charged)/credited - to profit or loss - directly to equity At 30 June 2020 Notes 2020 $’000 2019 $’000 Notes 2020 $’000 2019 $’000 (ii) Liabilities 43 49 107 45 6 94 344 6,248 (6,248) - 7,171 (982) 59 6,248 3,739 2,509 6,248 Other $’000 576 (323) 253 57 310 32 2 344 75 58 - 39 5 73 253 7,171 (7,171) - 8,301 (1,130) - 7,171 3,175 3,996 7,171 Total $’000 8,301 (1,130) 7,171 57 7,228 (982) 2 6,248 The balance comprises temporary differences attributable to: Amounts recognised in profit or loss Inventory Deferred development costs Prepayments Investment Property Other Lease incentives Revaluation reserve Other sundry items Sub-total other Total deferred tax liabilities Set off of deferred tax assets pursuant to set-off provisions Net deferred tax liabilities 7,622 3,923 1,134 430 7,671 3,371 647 324 13,109 12,013 323 16 (3) 336 13,445 (6,248) 7,197 367 21 12 400 12,413 (7,171) 5,242 Deferred tax liabilities at the start of the year 12,413 12,872 (Decrease) increase in deferred tax liabilities (credited) debited to income tax expense 3 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 Movements Inventory $’000 Deferred development costs $’000 Prepayments $’000 Investment Property $’000 At 1 July 2018 8,266 3,130 Charged/(credited) - to profit or loss At 30 June 2019 Charged/(credited) (595) 7,671 - to profit or loss (49) At 30 June 2020 7,622 241 3,371 552 3,923 656 (9) 647 487 1,134 348 (24) 324 106 430 1,032 13,445 5,320 8,125 (459) 12,413 6,284 6,129 13,445 12,413 Other $’000 472 (72) 400 (64) 336 Total $’000 12,872 (459) 12,413 1,032 13,445 84 85 CEDAR WOODS PROPERTIES LIMITED2020 ANNUAL REPORTKEY NUMBERSKEY NUMBERS22. Equity 23. Reserves 2020 Shares 2019 Shares 2020 $’000 2019 $’000 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. Movement in ordinary share capital Start of the year 80,117,767 79,516,567 125,979 123,018 Shares issued pursuant to the dividend reinvestment plan: Ordinary shares issued on 25 October 2019 at $6.73 243,401 - 1,638 Ordinary shares issued on 26 October 2018 at $5.64 - 526,554 Shares issued pursuant to the bonus share plan: Ordinary shares issued on 25 October 2019 25,398 Ordinary shares issued on 26 October 2018 Transaction costs arising on share issues - - Shares issued under employee share scheme: Ordinary shares issued on 28 August 2019 61,260 - 74,646 - - - - - (6) 170 - 2,970 - - (9) - End of the year 80,447,826 80,117,767 127,781 125,979 330,059 601,200 1,802 2,961 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 shareholder meeting in person or by proxy, is entitled to one vote, and upon a poll each share is entitled to one vote. Holders of performance rights or zero-price options under executive or employee share plans are not entitled to participate in dividends or any winding up of the company, nor are they entitled to vote at shareholder meetings. (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 in place during the 2020 financial year and in operation for the 2019 final dividend and suspended for the 2020 interim dividend. (iii) Employee share scheme Details of the company’s employee share scheme can be found in note 40 and in the remuneration report on pages 44 and 46 to 48 of this financial report. Composition a) Asset revaluation reserve (pre-1992) b) Employee share plan reserve Balance at the end of the year Movements a) Asset revaluation reserve Balance at the beginning of the year Transfer to retained profits Balance at the end of the year b) Employee share plan reserve Balance at the beginning of the year Share-based payments expense Transfer to retained profits Balance at the end of the year Notes 2020 $’000 2019 $’000 24 38 530 568 49 (11) 38 378 161 (9) 530 49 378 427 49 - 49 393 (15) - 378 The asset revaluation reserve was used until 1992 to record increments and decrements on the revaluation of non-current assets. Refer to note 41(i). 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 40. 24. Retained profits Retained profits at the start of the year Change in accounting policy Net profit attributable to members of Cedar Woods Transfers from reserves Dividends provided for or paid Employee share scheme Retained profits at the end of the year Notes 42 23 30 23 2020 $’000 2019 $’000 250,124 229,726 2 - 20,899 48,644 11 67 (20,709) (28,313) 9 - 250,336 250,124 86 87 CEDAR WOODS PROPERTIES LIMITED2020 ANNUAL REPORTKEY NUMBERSKEY NUMBERS25. Categories of financial assets and financial liabilities Notes 5, 6, 15, 16, 17, 18 and 19 provide 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 Notes 2020 Cash and cash equivalents Trade and other receivables* Total 2019 Cash and cash equivalents Trade and other receivables* Total 5 6 5 6 *Excluding prepayments and contract assets Financial Liabilities Notes 2020 Trade and other payables Borrowings Derivative financial instruments Other financial liabilities Lease liabilities Total 2019 Trade and other payables Borrowings Derivative financial instruments Other financial liabilities Total 15 16 17 18 19 15 16 17 18 Financial assets at amortised cost $’000 2,691 9,188 Total $’000 2,691 9,188 11,879 11,879 13,422 5,968 19,410 13,442 5,968 19,410 Derivatives used for hedging $’000 Liabilities at amortised cost $’000 - - 144 - - 26,022 145,362 - 81,667 2,251 Total $’000 26,022 145,362 144 81,667 2,251 144 255,302 255,446 - - 261 - 261 30,881 118,756 - 26,187 30,881 118,756 261 26,187 175,824 176,085 CASH FLOW INFORMATION 26. Cash Flow information (i) Reconciliation of profit after income tax to net cash (outflows) inflows from operating activities Profit after income tax Depreciation and amortisation Amortisation of lease incentives and legal fees Write down of assets – investment property and lease incentives Write down of inventory Write down/ loss on sale of non-current assets Write down of available for sale financial assets – BCM Apartment Trust Fair value (gain) loss on derivative financial instrument Non-cash share-based payments expense (reversal) Share of loss (profit) in equity accounted investment Changes in operating assets and liabilities Increase in provisions for employee benefits (Decrease) in contract liabilities (Decrease) increase in provisions (Increase) decrease in inventories (Increase) decrease in other deferred development costs Decrease in deferred tax assets (Decrease) in current income tax payable Increase (decrease) in deferred tax liability Decrease in capitalised borrowing costs (Increase) decrease in trade receivables (Increase) in contract assets (Decrease) in trade creditors Increase (decrease) in other financial liabilities Net cash (outflows) inflows from operating activities 2020 $’000 2019 $’000 20,899 48,644 3,412 2,275 373 46 286 186 123 (117) 322 174 322 (1,918) (3,021) (77,307) (3,295) 982 263 98 271 280 (843) 77 (15) (22) 97 (1,266) 3,021 15,996 253 1,130 (4,614) (12,694) 1,032 261 (2,840) (1,185) (459) 176 4,022 (176) (4,968) (15,391) 55,356 (12,648) (15,491) 33,089 88 89 CEDAR WOODS PROPERTIES LIMITED2020 ANNUAL REPORTKEY NUMBERSKEY NUMBERS(ii) Net debt reconciliation This section sets out an analysis of net debt and the movements in debt for each of the periods presented. Cash and cash equivalents Borrowings – repayable within one year Borrowings – repayable after one year Net debt Cash and cash equivalents Gross debt – fixed interest rates Gross debt – variable interest rates Net debt 2020 $’000 2,691 - 2019 $’000 13,442 - (145,362) (118,756) (142,671) (105,314) 2,691 13,442 - - (145,362) (118,756) (142,671) (105,314) Other Assets Liabilities from financing activities Cash $’000 23,692 (10,250) - 13,442 (10,751) - 2,691 Borrowings due within 1 year $’000 Borrowings due after 1 year $’000 Total $’000 - - - - - - - (132,826) (109,134) 14,246 (176) 3,996 (176) (118,756) (105,314) (26,345) (37,096) (261) (261) (145,362) (142,671) Net debt as at 1 July 2018 Cash flows Other non-cash movements Net debt as at 30 June 2019 Cash flows Other non-cash movements Net debt as at 30 June 2020 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. 27. Significant estimates and judgements ..........92 28. Financial Risk Management .........................93 29. Capital management objectives and gearing .................................................97 30. Dividends.....................................................98 90 91 2020 ANNUAL REPORTFINANCIAL RISKSCEDAR WOODS PROPERTIES LIMITEDKEY NUMBERS SIGNIFICANT ESTIMATES AND JUDGEMENTS FINANCIAL RISK MANAGEMENT The preparation of financial statements requires the use of accounting estimates which, by definition, will This note explains the group’s exposure to financial risks and how these risks could affect the group’s future seldom equal the actual results. Management also needs to exercise judgement in applying the group’s financial performance. Current year profit and loss information has been included where relevant to add accounting policies. further context. 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. 27. 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. Inventory - classification a) 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 executed sales contracts at year end and management’s settlement forecasts. Inventory - valuation b) 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 planning and development approvals. Other items of estimation within project cash flow models utilised for assessing the recoverable amount of inventory can include future sales rate, sales prices, further development costs required to complete the inventory for settlement and in some cases escalation of revenues and costs and total project yield. Management make informed estimates drawing on historical and recent experience, expert advice from consultants, third party valuations and economic and property market forecasts. In the current period, estimates have considered the impact of the COVID-19 pandemic, in particular on customer demand and its effect on future sales rates and prices. If approvals are not received when anticipated or forecasts of project yield, sale prices or future costs are significantly inaccurate, the recoverable amount of inventory may be significantly impaired. Refer also to note 41(i). There were no critical judgements other than those involving estimates referred to above, that management made in applying the group’s accounting policies. 28. Financial Risk Management 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 and derivative financial instruments Ageing analysis Credit ratings Management of deposits Ongoing checks by management 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 Financial liabilities Trade and other payables Other financial liabilities Borrowings Lease liabilities Derivative financial instruments a) Market risk 2020 $’000 2019 $’000 2,691 10,598 13,442 7,759 13,289 21,201 26,022 81,667 30,881 26,187 145,362 118,756 2,251 144 - 260 255,446 176,084 i. Price risk The consolidated entity has no foreign exchange exposure or price risk on equity securities. 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. 92 93 CEDAR WOODS PROPERTIES LIMITED2020 ANNUAL REPORTFINANCIAL RISKSFINANCIAL RISKSInterest rate risk arises from exposures to long term borrowings, where those borrowings are issued at variable An analysis by maturity is provided in 28(c)i. below. 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 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 financial assets is not significant. Refer to comments above for further economic conditions. Accordingly, the consolidated entity has entered into interest rate swap, cap and collar information on the impact of changes in interest rates upon the group. contracts under which a part of the consolidated entity’s projected borrowings are protected for the period from 1 July 2020 to 30 June 2023. 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 swaps effectively fix interest rates applicable to bank bills issued with duration of 1 month (BBSY Bid) at 2.07% per annum (2019 – 2.07% - 2.495% per annum). Interest rate caps effectively cap interest rates applicable to bank bills issued with duration of 3 months (BBSY Bid) at certain levels between 1.00% - 1.95% (2019 – 1.50% - 1.95%). Interest rate collars effectively cap interest rates applicable to bank bills issued with duration of 3 months (BBSY Bid) at 1.50% and apply a floor to interest rates of 0.87% (2019 – 1.50% and apply a floor to interest rates of 0.87%). 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. Hedge contracts currently in place cover 38% (2019 - 46%) of the variable loan outstanding at balance date of $145,943,000 (2019 - $118,993,000), with terms expiring in 2021, 2022 and 2023. The consolidated entity’s exposure to interest rate risk and the effective weighted average interest rate for receivables and borrowings is set out below. Interest bearing - variable $’000 2020 Non- interest bearing $’000 Interest bearing - variable $’000 Total $’000 - - - 10,598 10,598 3 3 10,601 10,601 - - - 2020 Interest bearing - variable $’000 Interest bearing - fixed $’000 Interest bearing - fixed $’000 Total $’000 2019 Non- interest bearing $’000 7,759 2 7,761 2019 Interest bearing - variable $’000 Total $’000 7,759 2 7,761 Total $’000 - 145,943 145,943 - 118,993 118,993 Receivables Other receivables Employee share loans Interest bearing liabilities Bank loans Other financial liabilities 81,162 - 81,162 25,806 - 25,806 81,162 145,943 227,105 25,806 118,993 144,799 The weighted average interest rate at year end is 1.59% (2019: 2.73%) 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 mitigate 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. 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. During the year forecasts included numerous scenario modelling including downside cases that considered potential significant impacts of the COVID-19 pandemic and government response. 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 2020 the group had undrawn committed facilities of $68,701,000 (2019 - $101,228,000) and cash of $2,691,000 (2019 - $13,442,000) to cover short term funding requirements. Refer to 16(ii) for details. The Company continued to operate within all of its facility covenants throughout FY2020. 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 2020 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 Carrying amount $’000 26,526 31,994 - - - 16,334 122,798 136 - 37,774 30,717 8 26,526 86,102 26,526 81,162 153,515 145,362 144 144 58,520 139,268 68,499 266,287 253,194 94 95 B. RISK CEDAR WOODS PROPERTIES LIMITED2020 ANNUAL REPORTFINANCIAL RISKSFINANCIAL RISKSGroup – at 30 June 2019 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 Carrying amount $’000 31,262 9,941 - - - 16,925 125,479 230 41,203 142,634 - - - 31 31 31,262 26,866 31,262 25,806 125,479 118,756 261 261 183,868 176,085 d) Fair value measurement 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 on 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 liabilities measured and recognised at fair value at 30 June 2020 and 30 June 2019: As at 30 June 2020 Notes Liabilities Derivatives used for hedging 17 Total liabilities As at 30 June 2019 Notes Liabilities Derivatives used for hedging 17 Total liabilities Level 1 $’000 Level 2 $’000 Level 3 $’000 - - 144 144 - - Level 1 $’000 Level 2 $’000 Level 3 $’000 - - 261 261 - - Total $’000 144 144 Total $’000 261 261 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. CAPITAL MANAGEMENT 29. 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: y raising or reducing borrowings y adjusting the dividend policy y issue of new securities y return of capital to shareholders y sale of assets. Gearing is a measure used to monitor the levels of debt used in the business to fund operations. The primary 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 16 5 2020 $’000 2019 $’000 145,362 118,756 (2,691) (13,442) 142,671 105,314 378,685 376,530 37.7% 28.0% 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. The group operated comfortably within the target range during the income year. a) Loan Covenants Under the terms of the major borrowing facilities, the group has complied with covenants throughout the reporting period. Debt covenants are disclosed in note 16 and include requirements in relation to a maximum loan to valuation ratio, a maximum leverage ratio (net debt to EBITDA) and minimum interest cover ratio. 96 97 CEDAR WOODS PROPERTIES LIMITED2020 ANNUAL REPORTFINANCIAL RISKSFINANCIAL RISKS30. Dividends a) Ordinary shares Fully franked based on tax paid at 30% Final dividend for the year ended 30 June 2019 of 13.5 cents (2018 – 18.0 cents) per fully paid share - Paid in cash - Satisfied by shares under the dividend reinvestment plan - Applied to the employee share loans Interim dividend for the year ended 30 June 2020 of 12.5 cents (2019 – 18.0 cents) per fully paid share - Paid in cash - Applied to the employee share loans Total 2020 $’000 2019 $’000 9,015 1,638 - 10,918 2,970 4 10,056 14,417 - 4 20,709 28,313 b) Dividends not recognised at the year end In addition to the above dividends, since year end the directors have recommended the payment of a final dividend of 6.5 cents per fully paid ordinary share (2019 – 13.5 cents), fully franked based on the tax paid at 30%. The aggregate amount of the proposed dividend expected to be paid on 30 October 2020 out of retained profits at 30 June 2020, but not recognised as a liability at year end is below: Dividends not recognised at year end 2020 $’000 2019 $’000 5,229 10,816 c) Franked Dividends The franked portions of the final dividend proposed at 30 June 2020 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% (2019 – 30%) 2020 $’000 2019 $’000 94,245 96,261 The above amounts represent the franking accounts at the end of the financial year, adjusted for: i. Franking credits that will arise from the payment of the current tax liability; ii. Franking debits that will arise from the payment of dividends recognised as a liability at the reporting date; iii. 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 $2,241,000 (2019 - $4,635,000). 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. 31. Subsidiaries ................................................ 100 32. Interests in joint arrangements .................... 101 33. Deed of cross guarantee............................. 102 34. Parent entity financial information ............... 105 98 99 2020 ANNUAL REPORTGROUP STRUCTURECEDAR WOODS PROPERTIES LIMITEDFINANCIAL RISKS GROUP STRUCTURE 31. Subsidiaries The group’s operating subsidiaries at 30 June 2020 are set out below. Unless otherwise stated, they have share capital consisting solely of ordinary shares or units 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 principal activities of all subsidiary entities are property development and/or investment. The consolidated financial statements incorporate the assets, liabilities and results in accordance with the accounting policy described in note 41(b). Company Notes Equity Holding BCM Apartment Trust Champion Bay Nominees Pty Ltd Cedar Woods Properties Finance Pty Ltd Cedar Woods Properties Harrisdale Pty Ltd Cedar Woods Properties Investments Pty Ltd Cedar Woods Properties Management Pty Ltd Cedar Woods Property Sales Pty Ltd a. b. 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 2020 50% 50% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 2019 50% 50% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% a. The forecast profits of BCM Apartment Trust are not expected to be sufficient to make a return to the other ordinary unit holder that ranks behind the consolidated entity for trust distributions. Accordingly, the consolidated entity has not recognised a non-controlling interest. b. The net assets of Champion Bay Nominees Pty Ltd are not material to the consolidated entity. 32. Interests in joint arrangements Set out below are the joint ventures of the group as at 30 June 2020. 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 Cedar Woods Wellard Limited 2020 % 32.5 2019 % 32.5 Joint Venture Equity method Carrying amount 2020 $’000 1,576 2019 $’000 2,725 The consolidated entity owns a 32.5% (2019 – 32.5%) interest in Cedar Woods Wellard Limited, a property development company incorporated in Australia. Cedar Woods Wellard Limited is developing the Emerald Park residential estate at Wellard, WA. 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. The carrying amount represents the amount attributable to the group. (i) Commitments and contingent liabilities in respect of the joint ventures Cedar Woods Wellard Limited has no commitments for expenditure at 30 June 2020 (2019 - Nil) and has no contingent liabilities (2019 - Nil). (ii) 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’ 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 Total liabilities Net assets Group’s share in % Group’s share in $ 2020 $’000 480 3,661 4,141 2,801 6,942 107 107 6,835 32.5% 2,221 2019 $’000 1,599 4,200 5,799 4,803 10,601 229 229 10,372 32.5% 3,371 100 101 CEDAR WOODS PROPERTIES LIMITED2020 ANNUAL REPORTGROUP STRUCTUREGROUP STRUCTURE(iii) Movements in carrying amounts – Cedar Woods Wellard Limited At start of the year Share of (loss) profit after income tax Capital return At end of the year Share of (loss) profit before income tax Share of (loss) profit after income tax Share of joint venture’s revenue, assets, liabilities and contingent liabilities Revenue Assets Liabilities 2020 $’000 2,725 (174) (975) 1,576 (174) (174) 448 2,256 (35) 2019 $’000 3,028 22 (325) 2,725 22 22 1,042 3,445 (74) 33. Deed of Cross Guarantee Cedar Woods Properties Limited and all subsidiaries listed at note 31 except for Champion Bay Nominees Pty Ltd and the BCM Apartment Trust are parties to a deed of cross guarantee under which each company guarantees the debts of the others. By entering the deed, the wholly-owned entities have been relieved from the requirement to prepare a financial report and directors’ report under ASIC Corporations (Wholly-owned Companies) Instrument 2016/ 785. The companies referred to above as parties to the deed of cross guarantee represent a ‘closed group’ for the purposes of the instrument, and as there are no other parties to the deed of cross guarantee that are controlled by Cedar Woods Properties Limited, they also represent the ‘extended closed group’. Set out below is a consolidated statement of profit or loss and comprehensive income, summary of movements in consolidated retained earnings and consolidated balance sheet for the closed group. a) Consolidated statement of profit or loss and comprehensive income for the year ended 30 June, and summary of movements in consolidated retained profits Revenue from continuing operations Cost of sales of land and buildings Cost of providing development services Other expenses from ordinary activities: Other Income Finance costs Share of net profit of joint ventures accounted for using the equity method Profit before income tax Income tax expense Profit for the year Total comprehensive income for the year b) Summary of movements in consolidated retained profits Retained profits at the beginning of the financial year Profit for the period Transfers from reserves Dividends provided for or paid Retained profits at the end of the financial year 2020 $’000 2019 $’000 258,282 367,593 (181,894) (246,851) (1,628) (6,433) (43,605) (44,725) 1,631 819 (2,245) (3,072) (174) 22 30,367 67,353 (9,317) (20,298) 21,050 47,055 21,050 47,055 2020 $’000 2019 $’000 249,920 231,111 21,050 47,055 20 67 (20,709) (28,313) 250,281 249,920 102 103 CEDAR WOODS PROPERTIES LIMITED2020 ANNUAL REPORTGROUP STRUCTUREGROUP STRUCTUREc) Consolidated balance sheet as at 30 June ASSETS Current assets Cash and cash equivalents Trade and other receivables Contract assets Inventories Deferred development costs Current tax asset Total current assets Non-current assets Receivables Inventories Deferred development costs Investments accounted for using the equity method Property, plant and equipment Intangible assets Right-of-use assets Investment properties Lease incentives Total non-current assets Total assets LIABILITIES Current liabilities Trade and other payables Derivative financial instruments Other financial liabilities Current tax liabilities Contract liabilities Lease liabilities Provisions Total current liabilities 2020 $’000 2019 *Restated $’000 2,640 8,468 3,329 157,003 3,523 787 13,277 7,692 2,144 141,892 2,921 - 175,750 167,926 2,469 401,314 11,010 1,576 7,117 3,241 1,906 40,701 1,076 470,410 646,160 2,517 337,065 8,317 2,725 7,212 2,428 - 41,642 1,224 403,130 571,056 26,000 30,811 - 31,570 - 3,894 815 1,310 63,589 230 8,957 3,822 5,813 - 4,094 53,727 Non-current liabilities Borrowings Derivative financial instruments Other financial liabilities Lease liabilities Provisions Deferred tax liabilities Total non-current liabilities Total liabilities Net assets EQUITY Contributed equity Reserves Retained profits Total equity 2020 $’000 2019 *Restated $’000 145,362 118,756 144 49,592 1,436 210 7,197 203,941 267,530 378,630 31 16,849 - 125 5,242 141,003 194,730 376,326 127,781 125,979 568 427 250,281 249,920 378,630 376,326 * The prior period has been restated to include a non-current receivable of $2,515,000 from a consolidated subsidiary outside of the closed group. 34. Parent Entity Financial Information The financial information for the parent entity, Cedar Woods, 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 profits Profit for the year Total comprehensive income 2020 $’000 2019 $’000 33,555 411,774 56,448 397,735 (38,542) (49,050) (156,519) (138,991) 255,255 258,744 127,781 125,979 530 379 126,944 132,386 255,255 258,744 9,178 9,178 23,363 23,363 104 105 CEDAR WOODS PROPERTIES LIMITED2020 ANNUAL REPORTGROUP STRUCTUREGROUP STRUCTURE Investments in subsidiaries and joint venture entities i. Investments in subsidiaries and joint venture entities are accounted for at cost in the financial statements of Cedar Woods. 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 and its wholly owned Australian controlled entities have implemented the tax consolidation legislation. The head entity, Cedar Woods, 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 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. 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. 35. Contingent Liabilities ................................... 108 36. Commitments .............................................. 108 37. Events occurring after the reporting period ......................................................... 108 106 107 2020 ANNUAL REPORTUNRECOGNISED ITEMSCEDAR WOODS PROPERTIES LIMITEDGROUP STRUCTURE UNRECOGNISED ITEMS 35. Contingent liabilities a) Bank guarantees At 30 June 2020 bank guarantees totalling $20,356,000 (2019 - $14,779,000) had been provided to various state and local authorities supporting development and maintenance commitments. b) Claims Cedar Woods has initiated legal proceedings to recover damages from a contractor in relation to civil and electrical works in 2016 and 2017 at the St. A project in Victoria. The contractor lodged a counterclaim for unspecified damages against Cedar Woods, however the counterclaim was dismissed. It is not practicable to estimate the potential effect of Cedar Woods’ claim. 36. 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 2020 $’000 10 - 10 2019 $’000 936 2,287 3,222 The group leases various corporate offices, IT equipment and land for sales centres or marketing signage 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. From 1 July 2019, the group has recognised right-of-use assets for these leases, except for short-term and low value leases. See note 42 for further information. b) Capital commitments At 30 June 2020 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 $6,577,000 (2019 - $11,994,000), for building construction was $63,945,000 (2019 - $92,381,000) and for landscaping construction was $1,481,000 (2019 - $2,425,000). This work will be substantially completed in the next 12 months. 37. Events occurring after the reporting period Refer to note 30(b) for details of the final dividend recommended by the directors, to be paid on 30 October 2020. No other matters or circumstances have arisen since 30 June 2020 that have significantly affected or may significantly affect: y the consolidated entity’s operations in future financial years; or y the results of those operations in future financial years; or y the consolidated entity’s state of affairs in future financial years. SECTION E: FURTHER 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. 38. Related Party Transactions.......................... 110 39. Remuneration of Auditors ............................ 111 40. Employee Share Scheme ............................ 112 41. Summary of Accounting Policies ................. 112 42. Changes in Accounting Policies .................. 120 43. Segment Information ................................... 121 108 109 2020 ANNUAL REPORTFURTHER INFORMATIONCEDAR WOODS PROPERTIES LIMITEDUNRECOGNISED ITEMS 38. Related Party Transactions a) Key management personnel compensation Additional disclosures relating to key management personnel are set out in the Directors’ Report. Aggregate amounts of each of the above types of other transactions with key management personnel of Cedar Woods or their related entities: Short-term employee benefits Post-employment benefits Long-term employee benefits Consolidated 2020 $ 2019 $ 2,365,161 2,561,165 165,577 154,052 208,077 24,694 2,738,815 2,739,911 b) Group 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 31. 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 Pty Ltd derived management and selling fees totalling $115,485 (2019 - $284,427) from Cedar Woods Wellard Limited. 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 lower than in the previous year as a result of the timing of architectural and design work performed on the Williams Landing Town Centre and the Glenside project in Adelaide. The Glenside project was introduced to the company by Hames Sharley. 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 FY2020 was similar to that of the previous year and as a result the value of transactions with Westland Settlement Services Pty Ltd is also similar. In 2019 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. In 2019 a payment was made for sponsorship of the Property Education Foundation Inc. of which Mr R Packer is a trustee with no beneficial interest. The transaction was based on normal commercial terms and conditions. Amounts recognised as expense Architectural fees Creative design services Settlement fees Sponsorships Amounts recognised as inventory/ investment property Architectural fees 2020 $ 2019 $ 6,000 - - 30,908 196,658 189,616 - 3,182 202,658 223,706 127,755 221,993 127,755 221,993 Total amounts recognised in year 330,413 445,699 Aggregate amounts of assets at balance date relating to the above types of other transactions with directors of Cedar Woods or their related entities: Inventory Investment property 123,155 219,718 4,600 2,275 127,755 221,993 There are no aggregate amounts payable to directors of Cedar Woods at balance date. 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 A balance of $4,560 was payable to a related entity (Hames Sharley) at balance date (2019 - Nil). 39. 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 2020 $ 2019 $ - Audit and review of the financial statements 268,091 215,457 Non-audit services - Taxation advice and reviews - Accounting advice Total fees for non-audit services Total assurance and non-audit services 26,520 - 26,520 48,960 10,896 59,856 294,611 275,313 110 111 CEDAR WOODS PROPERTIES LIMITED2020 ANNUAL REPORTFURTHER INFORMATIONFURTHER INFORMATION40. Employee Share Scheme The current Long Term Incentive (LTI) plans effective from 1 July 2017 for FY2018, from 1 July 2018 for FY2019 and from 1 July 2019 for FY2020 will continue in FY2021. The current LTI plan for the MD and executives has two vesting conditions a) a 3 year service condition and b) two performance conditions measured over a 3 year period: 50 per cent 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. Full details of the operation of the current LTI plan are set out in the remuneration report on pages 46 to 48 of this annual report. The MD receives 45% of the STI in cash, with 55% deferred by way of a grant of zero-price options under the Deferred Short Term Incentive (DSTI) Plan. The STI including the DSTI is awarded based on the Remuneration and Nominations Committee’s assessment of the company’s overall performance using the Balanced Scorecard. Full details of the operation of the current DSTI plan are set out in the remuneration report on page 44 of this annual report. 41. 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. Where necessary, comparative information is reclassified and restated for consistency with current period disclosures. The financial statements are for the consolidated entity consisting of Cedar Woods 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 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 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. New and amended standards adopted by the group A number of new or amended standards became applicable in the current reporting period: y AASB 16 Leases y AASB 2017-6 Amendments to Australian Accounting Standards - Prepayment Features with Negative Compensation y AASB 2017-7 Amendments to Australian Accounting Standards - Long-term Interests in Associates and Joint Ventures y AASB 2018-1 Amendments to Australian Accounting Standards - Annual Improvements 2015-2017 Cycle y AASB 2018-2 Amendments to Australian Accounting Standards - Plan Amendment, Curtailment or Settlement y Interpretation 23 Uncertainty over Income Tax Treatments The group changed its accounting policies as a result of adopting AASB 16 Leases. The impact of the adoption of the new accounting policies are disclosed in notes 41(s) and 42. The other amendments listed above did not have any impact on the amounts recognised in prior periods and are not expected to significantly affect the current or future periods. iv. New standards and interpretations not yet adopted Certain new accounting standards and interpretations have been published that are not mandatory for 30 June 2020 reporting periods and have not been early adopted by the group. These standards are not expected to have a material impact on the consolidated entity in the current or future reporting periods and on foreseeable future transactions. v. Functional and presentation currency The consolidated financial statements are presented in Australian dollars, which is the functional and presentation currency of Cedar Woods. b) Principles of consolidation i. Subsidiaries The consolidated financial statements incorporate the assets and liabilities of all entities controlled by Cedar Woods (parent) as at 30 June 2020 and the results of all subsidiaries for the year then ended. Cedar Woods 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. 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 32. 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. The carrying amount of equity-accounted investments is tested for impairment in accordance with the policy described in note 41(q). c) 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. d) Business combinations The acquisition 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. e) Revenue and other income i. Sale of land and buildings Revenue arising from the sale of land and buildings is recognised when control over the property has been transferred to the customer. In most of the group’s contracts this is the point in time at which legal title passes to the customer. The revenue is measured at the transaction price agreed under the contract, with revenue relating to customer rebates recognised separately where applicable. 112 113 CEDAR WOODS PROPERTIES LIMITED2020 ANNUAL REPORTFURTHER INFORMATIONFURTHER INFORMATIONii. Sale of land and buildings – customer rebates Certain contracts for the sale of land and buildings include an obligation of the group to provide goods, services, or payments to the customer, subject to certain performance conditions. These contracts provide a right to customers that forms a separate performance obligation. The transaction price is allocated to the performance obligations on a relative stand-alone selling basis. Management estimates the stand-alone selling prices at the point in time that legal title passes to the customer based on the contract value, and observable market prices of similar services. The likelihood of redemption of each customer rebate is estimated at the time of transfer of legal title. If the performance conditions of the customer are not met within the terms of the contract, the obligation expires, and the group recognises the revenue attributable to the performance obligation without delivery of the goods, services or payment iii. Development services Revenue from development services is recognised at a point in time where the group has satisfied contractual performance obligations and control over the output has passed to the customer. In most instances this coincides with the transfer of legal title of the developed land or building. iv. Lease income Income from operating leases is recognised over time on a straight-line basis over the period of the lease. v. Government grants Grants from the government are recognised as other income at their fair value where there is a reasonable assurance that the grant will be received and the group will comply with all attached conditions. Income tax f) 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 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. g) 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. h) Trade and other receivables Trade receivables are amounts due from customers for goods sold or services performed in the ordinary course of business. 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. For trade receivables, the group applies the simplified approach permitted by AASB9, which requires expected lifetime credit losses to be recognised from initial recognition of the receivables. To measure the lifetime expected credit loss for rental debtors, a provision is raised against each debtor based upon the payment profile over the last 12 months, adjusted for current and forward-looking information supporting the expected settlement of the receivable. i) 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. Deferred development costs j) 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. k) 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. Property, plant and equipment l) 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 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: y Plant and equipment – 3 to 15 years (straight line and diminishing value methods) 114 115 CEDAR WOODS PROPERTIES LIMITED2020 ANNUAL REPORTFURTHER INFORMATIONFURTHER INFORMATION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. Intangible assets m) Costs associated with maintaining software are recognised as an expense as incurred. Development costs that are directly attributable to the design and testing of identifiable and unique software products controlled by the group are recognised as intangible assets where the following criteria are met: y it is technically feasible to complete the software so that it will be available for use y management intends to complete the software and use it y there is an ability to use the software y it can be demonstrated how the software will generate probable future economic benefits y adequate technical, financial and other resources to complete the development and to use the software are available, and y the expenditure attributable to the software during its development can be reliably measured. Directly attributable costs that are capitalised as part of the software include contractor and employee costs. The group does not apportion overheads to capitalised intangible assets. Intangible assets and amortised from the point at which the asset is ready for use using the straight-line method over the expected useful lives as follows: y IT development and software – 3 to 5 years 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. n) Investments and other financial assets i. Classification The group classifies its financial assets in the following categories: y those to be measured at fair value through profit or loss; and y those to be measured at amortised cost. The classification depends on the entity’s business model for managing the financial assets and the contractual terms of the cash flows. For assets measured at fair value, gains and losses will be recorded in profit or loss. ii. Measurement At initial recognition, the group measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss (FVPL), transaction costs that are directly attributable to the acquisition of the financial asset. Transaction costs of financial assets carried at FVPL are expensed in profit or loss. iii. Impairment The group assesses on a forward-looking basis the expected credit losses associated with its financial assets carried at amortised cost. The impairment methodology applied depends on whether there has been a significant increase in credit risk. Investment property o) 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. Lease incentives p) 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. Impairment of assets q) 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. Trade and other payables r) Trade payables 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 days of recognition. Trade and other payables are presented as current liabilities unless payment is not due within 12 months after the reporting period. They are recognised initially at their fair value and subsequently measured at amortised cost using the effective interest method. s) Leases i. Group as a lessee The group leases corporate offices, IT equipment and land for sales centres or marketing signage. Rental contracts vary in periods and may have extension options as described below. Lease terms are negotiated on an individual basis and contain a wide range of different terms and conditions. The lease agreements do not impose any covenants, but leased assets may not be used as security for borrowing purposes. Prior to 1 July 2019, leases of property, plant and equipment were classified as either finance or operating leases. Payments made under operating leases (net of any incentives received from the lessor) were charged to profit or loss on a straight-line basis over the period of the lease. From 1 July 2019, leases are recognised as a right-of-use asset and a corresponding liability at the date at which the leased asset is available for use by the group. Each lease payment is allocated between the liability and finance cost. The finance cost is charged to profit or loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The right-of-use asset is depreciated over the shorter of the asset’s useful life and the lease term on a straight-line basis. Assets and liabilities arising from a lease are initially measured on a present value basis. Lease liabilities include the net present value of the following lease payments: y fixed payments (including in-substance fixed payments), less any lease incentives receivable y variable lease payments that are based on an index or a rate y amounts expected to be payable by the lessee under residual value guarantees y the exercise price of a purchase option if the lessee is reasonably certain to exercise that option, and y payments of penalties for terminating the lease, if the lease term reflects the lessee exercising that option. The lease payments are discounted using the interest rate implicit in the lease. If that rate cannot be determined, the group’s incremental borrowing rate is used, being the rate that the group would have to pay to borrow the funds necessary to obtain an asset of similar value in a similar economic environment with similar terms and conditions. This reflects the group’s weighted average interest rate. Right-of-use assets are measured at cost comprising the following: y the amount of the initial measurement of lease liability y any lease payments made at or before the commencement date less any lease incentives received y any initial direct costs, and y restoration costs. Right-of-use assets are depreciated over the shorter of the asset’s useful life and the lease term on a straight- line basis. 116 117 CEDAR WOODS PROPERTIES LIMITED2020 ANNUAL REPORTFURTHER INFORMATIONFURTHER INFORMATIONPayments associated with short-term leases and leases of low-value assets are recognised on a straight-line basis as an expense in profit or loss. Short-term leases are leases with a lease term of 12 months or less. Extension and termination options are included in a number of property and equipment leases across the group. These terms are used to maximise operational flexibility in terms of managing contracts. The majority of extension and termination options held are exercisable only by the group and not by the respective lessor. Critical judgements in determining the lease term In determining the lease term, management considers all facts and circumstances that create an incentive to exercise an extension option, or not exercise a termination option. Extension options (or periods after termination options) are only included in the lease term if the lease is reasonably certain to be extended (or not terminated). Most extension options in offices and equipment leases have not been included in the lease liability, because the group could replace the assets without significant cost or business disruption. The lease term is reassessed if an option is exercised (or not exercised) or the group becomes obliged to exercise (or not exercise) it. The assessment of reasonable certainty is only revised if a significant event or a significant change in circumstances occurs, which affects this assessment, and that is within the control of the lessee. ii. Group as a lessor 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. Borrowings and borrowing costs t) 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. u) 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. v) 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. w) Other financial liabilities Other financial liabilities at fair value through profit or loss are financial liabilities due to vendors of properties under contracts of sale and other payables. Liabilities in this category are classified as current liabilities if they are expected to be settled within 12 months, otherwise they are classified as non-current. x) 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. y) 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. z) 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. aa) Share based payments Share based compensation benefits are provided to employees via the Deferred STI and LTI plans. Information relating to these schemes is set out in the remuneration report on pages 44 and 46 to 48. The value of Performance Rights granted under the Deferred STI and LTI plans is recognised as an employee benefits expense with a corresponding increase in equity. The total amount to be expensed is determined by reference to the fair value of the Performance Rights granted: y Including any market performance conditions (e.g. the entity’s share price); and y Excluding the impact of any service and non-market performance vesting conditions (e.g. profitability and remaining an employee of the group over a specified time period) The total expense is recognised over the vesting period, which is the period over which all of the specified vesting conditions are to be satisfied. At the end of each reporting period, the group revises its estimates of the number of Performance Rights that are expected to vest based on the non-market vesting and service conditions. The impact of the revision to original estimates is recognised, if any, in profit or loss with a corresponding adjustment to equity. ab) Earnings per share i. Basic earnings per share Basic earnings per share is determined by dividing the profit attributable to owners of Cedar Woods 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. 118 119 CEDAR WOODS PROPERTIES LIMITED2020 ANNUAL REPORTFURTHER INFORMATIONFURTHER INFORMATIONac) Rounding of amounts The company is of a kind referred to in ASIC Legislative Instrument 2016/191, relating to the ‘rounding off’ of amounts in the financial statements. Amounts in the financial statements have been rounded off in accordance with the instrument to the nearest thousand dollars, or in certain cases, to the nearest dollar. ad) 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. 42. Changes in Accounting Policies This note discloses the impact of the adoption of AASB 16 Leases on the group’s financial statements and discloses the new accounting policies that have been applied from 1 July 2019. The group has adopted AASB 16 retrospectively from 1 July 2019, but has not restated comparatives for the 2019 reporting period, as permitted under the specific transitional provisions in the standard. The reclassifications and the adjustments arising from the new leasing rules are therefore recognised in the opening balance sheet on 1 July 2019. a) Adjustments recognised on adoption of AASB 16 On adoption of AASB 16, the group recognised lease liabilities in relation to leases which had previously been classified as ‘operating leases’ under the principles of AASB117 Leases. These liabilities were measured at the present value of the remaining lease payments, discounted using the lessee’s incremental borrowing rate as of 1 July 2019. The weighted average incremental borrowing rate applied to the lease liabilities on 1 July 2019 was 3.64%. Operating lease commitments disclosed as at 30 June 2019 Less: Non-lease components previously included in lease commitments Operating lease commitments as at 30 June 2019 Discounted using the lessee’s incremental borrowing rate of at the date of initial application Less: low value leases recognised on a straight-line basis as expense Less: short-term leases recognised on a straight-line basis as expense Lease liability recognised at 1 July 2019 Of which are: Current lease liabilities Non-current lease liabilities $’000 3,222 (308) 2,914 2,673 (3) (4) 2,666 643 2,023 2,666 The associated right-of-use assets for leases were measured on a retrospective basis as if the new rules had always been applied. The group did not restate comparative information, instead, the cumulative effect of initially applying AASB16 was recognised as an adjustment to the opening balance of retained earnings at the date of initial application. There were no onerous lease contracts that would have required an adjustment to the right-of-use assets at the date of initial application. The recognised right-of-use assets relate to the following types of assets: - Properties - Equipment Total right-of-use assets The change in accounting policy affected the following items in the balance sheet on 1 July 2019: y Right-of-use assets – increase by $2,484,000 y Deferred tax assets – increase by $57,000 y Lease liabilities – increase by $2,666,000 y Other payables – decrease by $127,000 1 July 2019 $’000 2,405 79 2,484 The net impact on retained earnings on 1 July 2019 was an increase of $2,000. i. Practical expedients applied In applying AASB 16 for the first time, the group has used the following practical expedients permitted by the standard: y the use of a single discount rate to a portfolio of leases with reasonably similar characteristics y the accounting for operating leases with a remaining lease term of less than 12 months as at 1 July 2019 as short-term leases y reliance on previous assessments on whether leases are onerous y the use of hindsight in determining the lease term where the contract contains options to extend or terminate the lease y the exclusion of initial direct costs for the measurement of the right-of-use asset at the date of initial application The group has also elected not to reassess whether a contract is, or contains a lease at the date of initial application. Instead, for contracts entered into before the transition date the group relied on its assessment made applying AASB 117 and Interpretation 4 Determining whether an Arrangement contains a Lease. The group did not need to make any adjustments to the accounting for assets held as lessor under operating leases as a result of the adoption of AASB 16. 43. 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 development and investment 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 mainly sells products to the public and is not generally reliant upon any single customer for 10% or more of the group’s revenue. In FY2019 the sale of the Target Head Office building resulted in a single sale to a single customer for greater than 10% of the group’s full year revenue, however this is not a typical occurrence. 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. 120 121 CEDAR WOODS PROPERTIES LIMITED2020 ANNUAL REPORTFURTHER INFORMATIONFURTHER INFORMATION DECLARATION AND INDEPENDENT AUDITOR’S REPORT Directors’ Declaration ....................................... 123 Independent Auditor’s Report .......................... 124 DIRECTORS’ DECLARATION In the directors’ opinion: a) the financial statements and notes set out on pages 63 to 121 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 2020 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, and c) at the date of this declaration, there are reasonable grounds to believe that the members of the extended closed group identified in Note 31 will be able to meet any obligations or liabilities to which they are, or may become, subject by virtue of the deed of cross guarantee described in Note 33. Note 41(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. Nathan Blackburne Managing Director Perth, Western Australia 26 August 2020 122 123 CEDAR WOODS PROPERTIES LIMITED2020 ANNUAL REPORTDECLARATION & AUDIT REPORTDECLARATION & AUDIT REPORT INDEPENDENT AUDITOR’S REPORT Independent auditor’s report To the members of Cedar Woods Properties Limited Report on the audit of the financial report Our opinion In our opinion: The accompanying financial report of Cedar Woods Properties Limited (the Company) and its controlled entities (together the Group) is in accordance with the Corporations Act 2001, including: (a) giving a true and fair view of the Group's financial position as at 30 June 2020 and of its financial performance for the year then ended, and (b) complying with Australian Accounting Standards and the Corporations Regulations 2001. What we have audited The Group financial report comprises: • • • • • • the consolidated balance sheet as at 30 June 2020 the consolidated statement of changes in equity for the year then ended the consolidated cash flow statement for the year then ended the consolidated statement of profit or loss and other comprehensive income for the year then ended the notes to the financial statements, which include a summary of significant accounting policies, and the directors’ declaration. Basis for opinion We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the financial report section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Independence We are independent of the Group in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (including Independence Standards) (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. Our audit approach An audit is designed to provide reasonable assurance about whether the financial report is free from material misstatement. Misstatements may arise due to fraud or error. They are considered material if individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial report. PricewaterhouseCoopers, ABN 52 780 433 757 Brookfield Place, 125 St Georges Terrace, PERTH WA 6000, GPO Box D198, PERTH WA 6840 T: +61 8 9238 3000, F: +61 8 9238 3999, www.pwc.com.au Liability limited by a scheme approved under Professional Standards Legislation. We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial report as a whole, taking into account the geographic and management structure of the Group, its accounting processes and controls and the industry in which it operates. Cedar Woods Properties Limited is an Australian property development company. The Group's principal interests are in urban land subdivision and built form development for residential, commercial and retail purposes. Its portfolio of assets are located in Western Australia, Victoria, Queensland and South Australia. Materiality Audit scope Key audit matters • Amongst other relevant topics, we communicated the following key audit matter to the Audit and Risk Management Committee: −− Valuation of inventory • This is further described in the Key audit matters section of our report. • Our audit focused on where the Group made subjective judgements; for example, significant accounting estimates involving assumptions and inherently uncertain future events. • The accounting processes are structured around a Group finance function at its head office in Perth. Our audit procedures were predominately performed at the Group head office, along with a number of development site visits being performed across the year. • For the purpose of our audit we used overall Group materiality of $1.5 million, which represents approximately 5% of the Group’s profit before tax. • We applied this threshold, together with qualitative considerations, to determine the scope of our audit and the nature, timing and extent of our audit procedures and to evaluate the effect of misstatements on the financial report as a whole. • We chose Group profit before tax because, in our view, it is the benchmark against which the performance of the Group is most commonly measured. • We utilised a 5% threshold based on our professional judgement, noting it is within the range of commonly acceptable thresholds. 124 125 CEDAR WOODS PROPERTIES LIMITED2020 ANNUAL REPORTDECLARATION & AUDIT REPORTDECLARATION & AUDIT REPORTKey audit matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report for the current period. The key audit matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Further, any commentary on the outcomes of a particular audit procedure is made in that context. Key audit matter Valuation of inventory (Refer to note 7, 27(b) and 41(i)) As of 30 June 2020, the Group recognised total inventory of property held for sale of $559m, split between current inventory of $137m and non- current inventory of $422m. Inventory is stated at the lower of cost and net realisable value for each development project, as assessed at each reporting date. The cost of the inventory is calculated as the sum of land acquisition costs, development costs and borrowing costs capitalised for eligible projects. The Group’s estimate of net realisable value is calculated based on the estimated selling price of the inventory, less the estimated costs of completion and selling costs. Each of these factors is impacted by assumptions about future market and economic conditions which inherently are subject to the risk of change, with increased uncertainty due to the impact of COVID-19. These assumptions include future sales prices, future sales rates, forecast development costs for completion, and in some cases escalation rates of sales and costs and total project yield. This was a key audit matter given the relative size of the inventory balance in the Consolidated Balance Sheet and the inherent subjectivity and significant judgements involved in the key assumptions and estimates used to calculate net realisable value. How our audit addressed the key audit matter We performed the following procedures, amongst others: • We obtained an understanding and evaluated the design of relevant controls in relation to inventory valuation, • We traced a sample of additions to the cost of projects (for e.g. land acquisition and development costs) to supporting documentation and assessed whether they were capitalised appropriately, • We recalculated a sample of the capitalisation of borrowing costs into inventory and assessed whether the borrowing costs were capitalised appropriately, and • We applied a risk-based assessment to determine those development projects where there was a greater risk that the carrying value of the inventory may be in excess of net realisable value. Our risk-based selection criteria incorporated our knowledge of the life cycle of each project from current and prior years, site visits and our understanding of current economic conditions relevant to individual project locations as informed by publicly available property market reports. In addition to these risk conditions, we focussed on specific projects which are large contributors to revenue and profit in the year. Key audit matter How our audit addressed the key audit matter For the selected projects we performed a combination of one or more of the following audit procedures: • We discussed current project performance with the Development manager and/or State manager, including factors such as the key project risks, strategy, construction progress, market conditions during the year and the outlook going forward, and sales revenue expected over the life of the project, • Where available for a project, we obtained the external third-party valuation reports, not older than 12 months. We compared the valuation in the external third-party prepared valuation report to the carrying value of the project inventory, • We obtained the net realisable value assessment and cash flow analysis performed by management and assessed the key assumptions, including: o o o o comparing forecast sales value for each project to actual sales values known from the current period and comparable projects, comparing forecast costs of the project to the relevant construction contracts (if applicable) or the construction contract proposal, comparing management’s forecast sales volumes, sales prices and cost escalation factors to internal and external data, and assessing the mathematical accuracy of the cash flow analysis for a sample of calculations. 126 127 CEDAR WOODS PROPERTIES LIMITED2020 ANNUAL REPORTDECLARATION & AUDIT REPORTDECLARATION & AUDIT REPORTReport on the remuneration report Our opinion on the remuneration report We have audited the remuneration report included in pages 40 to 60 of the directors’ report for the year ended 30 June 2020. In our opinion, the remuneration report of Cedar Woods Properties Limited for the year ended 30 June 2020 complies with section 300A of the Corporations Act 2001. Responsibilities The directors of the Company are responsible for the preparation and presentation of the remuneration report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the remuneration report, based on our audit conducted in accordance with Australian Auditing Standards. PricewaterhouseCoopers Helen Bathurst Partner Perth 26 August 2020 Other information The directors are responsible for the other information. The other information comprises the information included in the annual report for the year ended 30 June 2020, but does not include the financial report and our auditor’s report thereon. Prior to the date of this auditor's report, the other information we obtained included the About Cedar Woods, Letter from the Chairman, Letter from the Managing Director, Financial Performance Highlights, Our Business, Financial and Operating Review, ESG Report, Director's Report and Corporate Directory. We expect the remaining other information to be made available to us after the date of this auditor's report. Our opinion on the financial report does not cover the other information and we do not and will not express an opinion or any form of assurance conclusion thereon. In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed on the other information that we obtained prior to the date of this auditor’s report, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. When we read the other information not yet received, if we conclude that there is a material misstatement therein, we are required to communicate the matter to the directors and use our professional judgement to determine the appropriate action to take. Responsibilities of the directors for the financial report The directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. In preparing the financial report, the directors are responsible for assessing the ability of the Group to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so. Auditor’s responsibilities for the audit of the financial report Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial report. A further description of our responsibilities for the audit of the financial report is located at the Auditing and Assurance Standards Board website at: https://www.auasb.gov.au/admin/file/content102/c3/ar1_2020.pdf. This description forms part of our auditor's report. 128 129 CEDAR WOODS PROPERTIES LIMITED2020 ANNUAL REPORTDECLARATION & AUDIT REPORTDECLARATION & AUDIT REPORT SHAREHOLDERS’ INFORMATION This section provides information for shareholders on distributions and other shareholder benefits, the composition of the share register and past financial performance. Investors’ Summary .......................................... 131 Shareholder Information .................................... 132 Five Year Financial Performance ....................... 134 INVESTORS’ SUMMARY Dividend and dividend policy The final dividend for the 2020 financial year is 6.5 cents per share, fully franked. The dividend will be paid on 30 October 2020. The Company’s dividend policy is to distribute approximately 50% of the full year net profit after tax. The Board has elected to temporarily depart from this policy for FY2020, with the total FY2020 dividends representing a payout ratio of 73%. This acknowledges the lower earnings result in FY2020 and the current outlook for strong growth in FY2021. 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, apartments or strata commercial units at the group’s developments. A summary of the main terms and conditions follows: y For residential lots, shareholders must hold a minimum number of 1,000 shares for at least 6 months before purchasing a lot to qualify for the discount; y For off the plan purchases of ‘built-form’ lots (such as townhouses, apartments or commercial units), shareholders must hold a minimum number of 1,000 shares at the time of purchasing a lot and hold the shares through to settlement of the lot to qualify for the discount; y The number of shareholder discounts available will be limited in any sales release to two discounts, although the Company may extend this for a particular release; and y 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. 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. 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 in operation for the final dividend for the 2020 financial year. 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 27 August 2020 1 October 2020 30 October 2020 October 2020 4 November 2020 February 2021 April 2021 May 2021 August 2021 130 131 2020 ANNUAL REPORTCEDAR WOODS PROPERTIES LIMITED SHAREHOLDER INFORMATION The shareholder information set out below was applicable at 31 August 2020. a. Distribution of ordinary shares 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 and over Number of holders Number of shares 1,314 1,400 439 461 47 503,040 3,773,522 3,269,342 11,329,301 61,605,997 3,661 80,481,202 c. Substantial shareholders of ordinary shares As disclosed in substantial shareholder notices lodged with the ASX at 31 August 2020. Name William George Hames and related entities Robert Stanley Brown and related entities AustralianSuper Pty Ltd 1 Percentage of issued capital held as at the date notice provided. d. Voting rights The voting rights attaching to each class of equity securities are set out below: Ordinary shares Number of shares Percentage of shares1 9,314,668 7,818,633 5,427,695 12.90 9.75 6.75 There were 369 holders of less than a marketable parcel of 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. Performance rights and zero-price options Holders of performance rights or zero-price options under executive or employee share plans are not entitled to vote at shareholder meetings. b. Twenty largest shareholders of ordinary shares as disclosed in the share register Name JP Morgan Nominees Australia Pty Ltd HSBC Custody Nominees (Australia) Limited Citicorp Nominees Pty Ltd Hamsha Nominees Pty Ltd (The Nowra Projects Unit Fund A/C) Westland Group Holdings Pty Ltd National Nominees Limited Beach Corporation Pty Ltd Zero Nominees Pty Ltd Helen Kaye Poynton Joia Holdings Pty Ltd BNP Paribas Nominees Pty Ltd (Agency Lending DRP A/C) Mr Paul Stephen Sadleir Dr A Gerraty & Mrs P Gerraty (A & P Gerraty S/F A/C) BNP Paribas Noms Pty Ltd (DRP) Leblon Holdings Pty Ltd (William Hames Super Fund A/C) Mr JH Tucker & Mrs KJ Tucker (Tucker Family Super Fund A/C) BNP Paribas Nominees Pty Ltd HUB24 Custodial Serv Ltd (DRP A/C) Sandhurst Trustees Ltd (Endeavor Asset Mgmt MDA A/C) Gold Plaza Pty Ltd Gorn Super Pty Ltd (Gorn Pension Super Fund A/C) Number of shares 12,443,443 10,288,851 Percentage of shares 15.46 12.78 5,433,013 5,040,216 4,433,029 3,403,757 3,382,604 2,321,322 1,677,095 1,533,867 1,132,467 1,127,283 600,000 516,442 508,342 475,002 427,452 418,506 395,762 393,537 6.75 6.26 5.51 4.23 4.20 2.88 2.08 1.91 1.41 1.40 0.75 0.64 0.63 0.59 0.53 0.52 0.49 0.49 55,951,990 69.51 132 133 2020 ANNUAL REPORTCEDAR WOODS PROPERTIES LIMITEDFIVE YEAR FINANCIAL PERFORMANCE All figures in $’000 except where stated Financial Year Financial Performance Revenue from operations 2020 2019 2018 2017 2016 260,660 375,149 239,661 222,269 175,159 Earnings before interest and tax 32,461 72,014 65,168 67,446 65,587 Finance costs 2,245 3,072 4,020 2,947 3,755 Operating profit before tax 30,216 68,942 61,148 64,499 61,832 Income tax expense Net profit after tax Financial Position Total assets Total liabilities 9,317 20,298 18,545 19,054 18,230 20,899 48,644 42,603 45,445 43,602 646,742 571,711 601,516 505,624 452,729 268,057 195,181 248,330 175,390 145,541 Shareholders’ equity 378,685 376,530 353,186 330,234 307,188 Number of shares on issue – end of year (‘000) 80,448 80,118 79,517 78,892 78,892 Basic earnings per share (cents) 26.0 60.9 53.9 57.6 55.3 Key Performance Measures Dividend per share, fully franked (cents) 19.0 31.5 30.0 30.0 28.5 EBIT Margin Interest cover (times) Return on Equity 12.5% 19.2% 27.2% 30.3% 37.4% 6.1 8.6 8.5 13.9 16.6 5.5% 12.9% 12.1% 13.8% 14.2% Investment in inventory during year 208,952 245,814 191,633 161,588 112,887 Net tangible assets backing per share ($) 4.67 4.67 4.44 4.19 3.89 Net bank debt Net bank debt to equity 142,671 105,314 109,134 78,940 50,344 37.7% 28.0% 30.9% 23.9% 16.4% Share price – end of year ($) 5.24 5.70 5.76 5.21 4.35 Stock Market capitalisation at 30 June 421,547 456,671 458,015 411,026 343,179 Number of employees at 30 June 91 95 90 79 67 Returns to shareholders over 1, 3, & 5 years 1 Year 3 Year 5 Year Earnings per share growth % Share price growth % Dividend growth % Total shareholder return % (57.3) (8.1) (39.7) (2.4) (23.3) 0.2 (12.6) 6.2 (13.7) (0.1) (7.1) 5.9 134 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 Valerie Anne Davies, FAICD Jane Mary Muirsmith, BCom (Hons), FCA, GAICD Nathan John Blackburne, BB, AMP, GAID – Managing Director COMPANY SECRE TARY 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 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 Date: Wednesday 4 November 2020 Time: 10:00am WST 

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