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annual report 2008
STRENGTH - CONFIDENCE - OPPORTUNITY
Securityholder Enquiries
All enquiries and correspondence regarding securityholdings should be directed to Cromwell’s registry provider:
Computershare Investor Services
Level 19, 307 Queen St, Brisbane QLD 4000
Telephone: 1300 550 841 (outside Australia: +61 3 9415 4000) Facsimile: 07 3237 2151
Website: www.computershare.com.au
E-mail: web.queries@computershare.com.au
Units in the DPT, CPF and PSF are issued by Cromwell Property Securities Limited. This document has been prepared without taking
into account your objectives, financial situation or needs. Therefore, in deciding whether to acquire or continue to hold an investment, you
should consider the relevant offer document available from us and assess, with or without your financial advisor, whether the product fits
your objectives, financial situation or needs. Past performance is not indicative of future performance. Certain statements in this docu-
ment are also forward-looking and are not guarantees of future performance. Actual results could differ materially from those expressed.
This document is issed by:
Cromwell Group
Cromwell Corporation Limited ABN 44 001 056 980
Cromwell Property Securities Limited AFS 238052 ABN 11 079 147 809 as responsible entity for
Cromwell Diversified Property Trust ARSN 102 982 598 ABN 30 074 537 051 (“DPT”)
Level 19, 200 Mary St, GPO Box 1093, Brisbane QLD 4000
Telephone: 07 3225 7777 Facsimile: 07 3225 7788
Website: www.cromwell.com.au
E-mail: cromwell@cromwell.com.au
Cromwell Property Fund ARSN 119 080 410 (“CPF”)
Cromwell Phoenix Property Securities Fund ARSN 129 580 267 (“PSF”)
Cromwell Group’s new Chairman - Geoffrey Levy, AO
Mr Levy has extensive public company executive and directorship experience and is the former
Chief Executive Officer and current Deputy Chairman of Investec Bank (Australia) Ltd.
He is currently Chairman of Speciality Fashion Group Limited and MZL Investments Pty Ltd and is
also Deputy Chair of the Australian Sports Anti-doping Authority.
He has previously held Directorships with Mirvac Group Limited, Rebel Sport Limited, Freedom
Group Limited, Hoyts Cinemas Limited and Ten Network Holdings Limited, as well as the Film
Finance Corporation Australia and Multiple Sclerosis Society of New South Wales.
Mr Levy is a Solicitor of the Supreme Court currently admitted in New South Wales. He holds a
Bachelor of Commerce and a Bachelor of Laws and is a Fellow of the Financial Services Institute
of Australasia and a Fellow of the Australian Institute of Company Directors.
Aside from his professional commitments, Geoff is involved in film and television production and is
well known in the rugby community. Geoff and his wife of 25 years have four children.
contents
J
Chairman’s Review
J
Performance Highlights
J
CEO’s Review
J
Property Portfolio
J
Directors’ Report
J
Auditor’s Independence Declaration
J
Income Statements
J
Balance Sheets
1
2
4
6
8
25
26
27
J
Statements of Changes in Equity
J
Cash Flow Statements
J
Notes to the Financial Statements
J
Directors’ Declaration
J
Independent Auditor’s Report
J
Corporate Governance Statement
J
Securityholder Information
J
Directory
28
30
31
93
94
96
102
105
CrOMWELL GrOUP
strength - ConfidenCe - opportunity
Chairman’s review
This year marks 10 years since the name
Cromwell appeared on the Australian Secu-
rities Exchange and our first full year as a
stapled security. It is also the first year
of my stewardship as Chairman and it is
my privilege to report this year’s financial
results.
It is pleasing, in a year that has undoubt-
edly been a challenging one for many of
Cromwell’s peers, to be able to present
such strong results to securityholders. The
Group has earned a record profit from oper-
ations of $70.8 million, in line with forecasts
outlined with our 2007 results and rewarded
securityholders with a 10 cents per security
distribution for the year.
These results reflect the successful strat-
egy of the board and management to main-
tain Cromwell’s focus on our core strengths:
Australian commercial property with strong
cashflows and minimal short-term expiry,
and retail funds management.
Cromwell’s high quality assets and active
management of the properties and funds
continues to provide a strong foundation
for the Group, with 81% of 2008 operating
earnings coming from recurring property
and funds management income and recur-
ring income expected to increase to 85% of
2009 earnings.
Management’s decision to undertake a
number of asset sales throughout the 2007
calendar year left the Group in a strong
financial position to ride out the current
credit crunch and market volatility which
began with the collapse of the sub-prime
mortgage market in the United States.
The opportunistic acquisition of Tugger-
anong Office Park at an earnings accretive
yield of 10.7% in late June is an excellent
example of the opportunities this strategy
now affords us.
In January the Group launched an on-mar-
ket buy-back of up to 10% of the Group’s
securities as the Board believed that the
buy-back would be the optimal way of uti-
lising Cromwell’s capital reserves.
Since becoming a stapled security in 2006,
the Board has been committed to ensuring
that the Group’s corporate governance prin-
ciples are in line with Australian best prac-
tice standards.
A key element to achieving this goal has
been the appointment of two additional
non-executive directors and my appoint-
ment as independent chairman, creating
a Board composed predominantly of inde-
pendent representation.
I would like to thank my fellow board
members for their valuable input through-
out the year and, as new Chairman, hope I
can do justice to the prior achievements of
the Group. I look forward to working with
Paul and his team to continue to build on
these achievements.
Over the past 10 years the Group has built
an enviable track record of reliability and
success based on a commitment to deliver-
ing secure and stable returns to investors,
regardless of prevailing market conditions.
Our strong, defensive portfolio continues to
provide me with confidence that Cromwell
can deliver capital and income growth in
the years ahead.
Geoffrey H Levy, AO
Chairman
StrENGtH - CONFIDENCE - OPPOrtUNIty 1
performance highlights*
J
full year net profit after tax (npAt) of $108.0 million
J
record profit from operations of $70.8 million
J
total distributions for the year of 10.0 cents per security
J
ntA stable at $1.01
A$ Million
$2,000
$1,800
$1,600
$1,400
$1,200
$1,000
$800
$600
$400
$200
$145
$0
gross assets under management*
fy08 earnings & distributions*
A$ Million
$7.5
$70.8
$4.1
$1.5
$70.4
$2.3
Internal Funds
External Funds
$1,244
$1,143
$1,368
%
9
R 3
G
A
a r C
e
5 y
$779
$562
$279
$344
$499
$544
80
70
60
50
40
30
20
10
0
2001
2002
2003
2004
2005
2006
2007
2008
Operating
Earnings
Realised
Gains
Incentives
& Leasing
Costs
(cash)
Main-
tenance
Capex
Retained
Earnings/
Other
Available
for
Distribu-
tion
total securityholder returns (% per annum)*
Annual Return
60%
50%
40%
30%
20%
10%
0%
-10%
-20%
-30%
-40%
-12.1%
-26.2%
-37.7%
58.6%
45.8%
49.0%
16.8%
5.2%
10.8%
7.5%
12.5%
-2.4%
Cromwell
S&P/ASX All Ords Index
S&P/ASX300 A-REIT Index
$1.600
$1.400
$1.200
$1.000
$0.800
$0.600
$0.400
$0.200
0.78
security price vs. ntA per security*
Security Price
NTA
1.01
0.96
1.02
1 Year
3 Years
5 Years
7 Years
Investment Period
$0
Dec 06
Jun 07
Dec 07
Jun 08
2
CrOMWELL GrOUP annual report 2008
Cromwell has had consistent organic growth throughout its
history, with an average compound annual growth rate (CAgr)
in assets under management of 32% over the last 3 years
and 39% over the last 5 years.
Major fy08 announcements
30 June 2008 Acquisition of Canberra office park
Cromwell settles acquisition of Tuggeranong Office Park
in Greenway, ACT for $166.025 million on an initial yield of
10.7% pa.
15 APrIL 2008 Launch of Property Securities Fund
Cromwell launches property securities fund to take advan-
tage of strong buying opportunities among A-REITs. The fund
will be managed by Phoenix Portfolios Pty Ltd.
24 JAnuAry 2008 On-market buyback
Cromwell announces on-market buyback of up to 10% of
issued capital as part of its capital management program.
24 JAnuAry 2008 Portfolio revaluations
Cromwell portfolio valuation increases $31.2 million after an
independent revaluation of 10 property assets. The proper-
ties, which represent approximately 40% of Cromwell’s port-
folio, gained an average of 8.6%.
8 APrIL 2008 Refinances fund debt
Cromwell refinances Cromwell Property Fund debt facilities
totalling $248 million for three years.
28 AuguST 2007 Buoyant full-year result
Record full-year profit after tax of $113.9 million for 2007/08.
Operating profit of $37.6 million exceeds forecast.
20 FebruAry 2008 Strong half-year result
Cromwell posts a record half-year net profit after tax of $79.5
million, record profit from operations of $41.8 million, and
confirms distribution guidance of 10cps for full year.
24 AuguST 2007 Sale of Perth office building
Cromwell completes off-market sale of RSM Bird Cameron
building in Perth for $27.3 million.
* Past performance is not indicative of future performance.
StrENGtH - CONFIDENCE - OPPOrtUNIty 3
Ceo’s review
Cromwell maintains a defensive property portfolio and
a simple low risk business structure which can deliver
reliable organic growth.
As I flagged in the 2007 Annual Report,
Cromwell Group’s Board and Manage-
ment took the decision in 2007 to sell a
number of assets to reduce gearing, build
cash reserves and strengthen the Group’s
balance sheet. That decision was motivat-
ed by our views on market fundamentals,
volatility in debt markets, and our expec-
tation that a market correction would lead
to opportunities to acquire properties and
businesses on attractive terms from others
not so well placed to deal with changing
conditions.
As a result of our decision, the Group finds
itself in a position of strength, with quality
assets, secure revenues and low gearing.
The highlights of the year’s performance
include:
J
J
J
A full year net profit after tax of
$108 million;
Operating earnings of $70.8 million or
10.1 cents per security;
Positive fair value adjustments of $24
million to our property portfolio, despite
market volatility, resulting in NTA of
$1.01 (up from $0.96 at 30 June 2007);
and
J
81% of operating earnings derived from
recurring income.
Cromwell’s security price has been neg-
atively affected by the downturn in the
market, falling from $1.18 at 30 June 2007
to $0.70 at the date of this report. However,
its performance compares favourably to
that of its peers and the ASX200 and ASX300
A-REIT indices. Furthermore, the current
security price represents a 30% discount to
NTA, with no allowance for the value of the
Group’s funds management business.
Distributions for the year were 10 cents
per security, an increase of approximately
10% over the annualised 2007 distribution
per security. Cromwell’s distribution policy
has always been to distribute no more than
100% of operating earnings. This policy was
generally regarded in the industry as con-
servative, with many of our peers paying
distributions in excess of cash inflows. We
continue to maintain our policy and believe
that it will be regarded as the preferred
policy for all A-REITs.
In addition to the key strengths highlight-
ed at the top of the page, one of Cromwell’s
greatest points of difference has been its
ability to adapt to changing market condi-
tions. This has been reflected in the range
of products which it has offered over the
years.
4
CrOMWELL GrOUP annual report 2008
strengths:
J
purely domestic property focus, with no exposure to offshore markets
J
strong retail brand and strong support from long term investors
J
significantly reduced competition in the retail funds management market
J
talented and stable executive team and internalised asset management model
We believe that the next few years will see
significant changes in the way that direct
property funds are structured and market-
ed. We see opportunity in the short term
for single property, fixed-term products
which take advantage of current market
conditions and which can be sourced and
warehoused on our balance sheet. To that
end we have developed a Cromwell Private
Wealth offering which will be promoted to
our investors, and which we believe will be
received well.
The views which were expressed in the 2007
report were reflected in our funds manage-
ment decisions. We have effectively been
out of the market for property acquisitions
since mid to late 2006, and our funds have
not been exposed to the frenzied acquisition
activity undertaken by many of our peers at
the top of the market. This adherence to
fundamentals has placed our funds in a
far more secure position than many others
and enabled us to secure funding for the
Cromwell Property Fund on advantageous
terms earlier this year, in the middle of the
credit crisis.
Since balance date, we have moved to
further consolidate our position, refinancing
debt well in advance of its scheduled matu-
rity date. Whilst the existing $429 million
commercial mortgage-backed securities
(CMBS) borrowings mature in April 2009,
we have taken the decision to secure a new
three year facility now to ensure that the
Group is not affected by any continuing vol-
atility in the credit markets or short-term
credit shortages. The cost of the new facil-
ity is higher than our current CMBS facility
but compares favourably to facilities recent-
ly negotiated by our peers.
The present market presents the Group
with the opportunities foreshadowed in our
2007 Report – that is, to acquire accretive
assets and businesses from those who are
not so well placed to deal with the market
downturn. Whilst we don’t subscribe to the
views expressed by some market commen-
tators that there will be a serious meltdown
in property values, we believe there will be
excellent buying opportunities in the year
ahead, and the current market represents
a once in a decade opportunity to build our
business.
As I indicated in our 2007 report, Cromwell
is committed to meeting Corporate Gov-
ernance Principles and Recommendations
published by the ASX Corporate Governance
Council. To that end, Mr Geoffrey Levy was
appointed as Independent Chairman earlier
this year. In the short time since Geoff’s
appointment, he has made a significant
contribution and has brought to the Board
qualities and insights which I believe are
invaluable in the current market. Geoff’s
appointment has reinforced the ability of
our Board to act in a rapid and decisive
manner and respond quickly to changing
market conditions.
I am delighted to present to you a Group
with a strong balance sheet and quality
assets and which has confidence in its
ability to take advantage of current market
opportunities.
Paul Weightman
Chief Executive Officer
StrENGtH - CONFIDENCE - OPPOrtUNIty 5
property portfolio as at 30 June 2008
Geographic diversification by value
WA 1%
$12.5 million
SA 8%
$94.2 million
QLD 14%
$163.3 million
NSW 13%
$154.0 million
Brisbane, QLD
Perth, WA
ACT 27%
$317.0 million
Adelaide, SA
VIC 34%
$401.2 million
Sydney, NSW
Canberra, ACT
Albury, NSW
Geelong, VIC
Melbourne, VIC
TAS 3%
$36.7 million
Launceston, TAS
Hobart, TAS
35.28%
sector diversification by income
Commercial 81%
Industrial 14%
Retail/
Entertainment 5%
Lease expiry profile (gross income by fy)
40%
30%
20%
10%
15.92%
6.45%
5.61%
9.48%
6.98%
7.82%
10.12%
2.35%
0%
2009
2010
2011
2012
2013
2014
2015
2016
Thereafter
6
CrOMWELL GrOUP annual report 2008
snapshot of portfolio:
J
total Assets
$1.251 billion
J
ntA per stapled security
$1.01
J
property portfolio Value
$1.2 billion
J
Weighted Average Lease term
5.9 years
J
occupancy
99.8%
Property
Independent Valuation
Property
Independent Valuation
Albury Cinema Centre
700 Collins Street
Elders Woolstore
$12,000,000
$183,500,000
$15,400,000
Scrivener Building
Spicers Paper
Terrace Office Park
Forsyth Distribution Centre
$44,450,000
TGA Complex
$12,800,000
$12,500,000
$36,000,000
$58,666,667
101 Grenfell Street
$36,800,000
Tuggeranong Office Park
$166,025,000
Hellman Distribution Centre
$11,260,000
475 Victoria Avenue
$142,000,000
380-390 La Trobe Street
200 Mary Street
19 National Circuit
NQX Distribution Centre
243 Northbourne Avenue
Quadrant Building
$110,000,000
$100,000,000
$35,500,000
$27,300,000
$34,000,000
$10,350,000
Village Geelong
Village Hobart
Village Launceston
Vodafone Call Centre
Henry Waymouth Centre
Wesfarmers Woolstore
$11,000,000
$15,450,000
$3,100,000
$18,100,000
$42,000,000
$41,000,000
geographic diversification by income
gross income by tenant classification
Victoria 32%
South Australia 8%
Tasmania 5%
ACT 30%
1% Western Australia
12% Queensland
14% Private
Company
12% New South Wales
35% Listed Company/
Subsidiary
51% Government
Authority
StrENGtH - CONFIDENCE - OPPOrtUNIty 7
directors’ report
Geoffrey Levy
ChAIrmAn
Paul Weightman
ChIeF eXeCuTIVe OFFICer
Daryl Wilson
FInAnCe DIreCTOr
Michelle McKellar
nOn-eXeCuTIVe DIreCTOr
The Directors of Cromwell Corporation
Limited (“the Company”) and Cromwell
Property Securities Limited as responsible
entity of the Cromwell Diversified Property
Trust (“the Trust”) present their report for
Cromwell Group (“the Group”) consisting of
Cromwell Corporation Limited and its con-
trolled entities and Cromwell Diversified
Property Trust and its controlled entities
for the year ended 30 June 2008.
The units of the Trust and the shares of
the Company are combined and issued as
stapled securities in the Group. The units of
the Trust and shares of the Company cannot
be traded separately and can only be traded
as stapled securities.
1. directors & officers
Directors
The persons who were Directors of the
Company at any time during the financial
year and up to the date of this report were:
Mr Geoffrey Levy, AO – Chairman –
Appointed 17 April 2008
Mr Levy has extensive public company
executive and directorship experience and
is the former Chief Executive Officer and
current Deputy Chairman of Investec Bank
(Australia) Ltd. He is currently Chairman
of Speciality Fashion Group Limited and
MZL Investments Pty Ltd. He is also Deputy
Chair of the Australian Sports Anti-doping
Authority.
Ms Michelle McKellar – Non-Executive
Director – Appointed 1 March 2007
Ms McKellar has a wealth of property busi-
ness and portfolio management experience,
having held a number of senior positions
with Intro International Limited (now Jen
Retail Properties) and CB Richard Ellis
throughout Asia-Pacific. She is a Senior
Member of the Property and Land Economy
Institute and has recently established her
own family property company. Ms McKel-
lar is a member of Cromwell’s Nomination
and Remuneration and Audit & Risk Com-
mittees.
Mr David Usasz – Non-Executive Director
– Appointed 26 April 2007
Mr Usasz has 20 years experience as a
partner with PricewaterhouseCoopers and
has been involved in merger and acquisition
advice, accounting and financial consultan-
cy, specialising in corporate re-organisa-
tions. He holds a Bachelor of Commerce
and is a Fellow of the Institute of Char-
tered Accountants. Mr Usasz is Chairman
of Cromwell’s Audit & Risk Committee and
a member of Cromwell’s Nomination and
Remuneration Committee.
Mr Robert Pullar – Non-Executive Director
– Appointed July 2002
Mr Pullar is a Director of the Brisbane-based
property development company operating
in Australia and Asia, Citimark Properties.
He was previously a partner with char-
tered accounting firm Douglas Heck and
Burrell (now known as Pitcher Partners),
specialising in property investment, taxa-
tion and corporate reorganisation. Mr Pullar
is a member of the Institute of Chartered
Accountants and a Fellow of the Australian
Institute of Company Directors. He is also
Chairman of Cromwell’s Nomination and
Remuneration Committee, and a member
of Cromwell’s Audit & Risk Committee.
8
8
CrOMWELL GrOUP annual report 2008
CrOMWELL GrOUP annual report 2008
David Usasz
nOn-eXeCuTIVe DIreCTOr
Robert Pullar
nOn-eXeCuTIVe DIreCTOr
Richard Foster
eXeCuTIVe DIreCTOr
Suzanne Morgan
COmPAny SeCreTAry
Mr Paul Weightman – Chief Executive
Officer – Appointed August 1998
Mr Weightman practised as a solicitor for
more than 20 years, and holds degrees in
commerce and law. He has extensive expe-
rience in property development and invest-
ment, financial structuring, public listings,
mergers and acquisitions, revenue matters
and joint ventures. Mr Weightman was
Cromwell’s Executive Chairman from 1998
until the appointment of Mr Levy in April
2008, and has acted as a Director of com-
panies in the property, energy and retail
sectors.
Mr Daryl Wilson – Finance Director –
Appointed 25 January 2007
Mr Wilson is a member of the Institute
of Chartered Accountants, and joined
Cromwell in August 1999 in the role of Chief
Financial Officer. He has many years expe-
rience in senior finance roles. Mr Wilson
has led the development of Cromwell’s
funds management capabilities, and has
primary responsibility for the finance func-
tion. He holds a Bachelor of Commerce and
a Diploma of Financial Planning.
Mr Richard Foster – Executive Director –
Appointed July 2005
Mr Foster is a licensed real estate agent
with substantial experience in the real
property industry specialising in large-scale
property acquisition for most of his profes-
sional life. He has also been closely involved
with the acquisition and marketing of direct
property investments valued in excess of
$1.2 billion. He has had substantial input
to the growth and development of the busi-
ness and the Group’s investment products.
All Directors of the Company are also
Directors of Cromwell Property Securities
Limited.
Directorships of other listed
companies
Mr Geoffrey Levy has been a Director of
Specialty Fashion Group since 8 April 2005.
Mr Levy was also a director of Ten Network
Holdings from 3 April 1998 until his resig-
nation from the Board on 25 October 2007,
and Mirvac Group from 9 February 1997
until his resignation on 3 March 2006.
No other Director has been a director of
any other listed company during the 3 years
preceding the end of the financial year, and
up to the date of this report.
Company Secretary
Ms Suzanne Morgan – Appointed
25 January 2007
Ms Morgan is the Company Secretary for
the Cromwell Group and is responsible
for ensuring the Cromwell Group operates
within an appropriate legal and compli-
ance framework with specific focus on the
Cromwell Group’s statutory obligations.
Ms Morgan was appointed to the role of
Company Secretary after joining Cromwell
in 2006 as the Cromwell Group’s Corporate
Legal Counsel. She has over 12 years expe-
rience as an in-house lawyer having worked
primarily in the banking and financial serv-
ices industry. Ms Morgan has a Bachelor of
Laws and an Associate Diploma in Applied
Finance and Investment from the Securities
Institute of Australia.
StrONG tHrOUGH aDvErSIty 9
StrONG tHrOUGH aDvErSIty 9
directors’ report continued
Directors’ Meetings
The number of Directors’ meetings (including meetings of committees of the Board) and number of meetings attended by each of the Direc-
tors of the Company during the financial year were:
Director
Board
Nomination and
Remuneration Committee
Audit & Risk Committee
Geoffrey Levy
Robert Pullar
Michelle McKellar
David Usasz
Paul Weightman
Richard Foster
Daryl Wilson
A
2
14
14
14
14
12
14
B
3
14
14
14
14
14
14
A
–
5
4
5
–
–
–
B
–
5
5
5
–
–
–
A
–
6
5
6
–
–
–
B
–
6
6
6
–
–
–
A – Number of meetings attended
B – Number of meetings eligible to attend
2. principal Activities
The principal activities of the Group during the financial year consisted of property investment and management, the promotion and man-
agement of property related managed investment schemes and property development.
There were no significant changes in the nature of the Group’s principal activities during the financial year.
3. dividends/distributions
Dividends/distributions paid or declared since the start of the financial year are detailed below.
Dividend
per Security
Distribution
per Security
Total
per Security
Total
$’000
Franked amt
per Security
Record
Date
Payment
Date
2008
Dividends/distributions
for the year ended 30 June 2008
Interim distribution
Interim distribution
Interim distribution
Final dividend/distribution
2007
Dividends/distributions
for the year ended 30 June 2007
Interim dividend – stapling
Interim distribution
Interim distribution
Final dividend/distribution
* Expected payment date
10
CrOMWELL GrOUP annual report 2008
–
–
–
1.00¢
1.00¢
0.10¢
–
–
0.80¢
0.90¢
2.50¢
2.50¢
2.50¢
1.50¢
9.00¢
–
1.50¢
1.50¢
1.45¢
4.45¢
2.50¢
2.50¢
2.50¢
2.50¢
10.00¢
0.10¢
1.50¢
1.50¢
2.25¢
5.35¢
17,574
17,651
17,628
17,583
70,436
139
10,458
10,470
15,740
36,807
–
–
–
0.50¢
0.50¢
0.10¢
–
–
0.27¢
0.37¢
02/10/07
31/12/07
31/03/08
30/06/08
15/11/07
15/02/08
15/05/08
29/08/08*
18/12/06
12/02/07
03/04/07
29/06/07
18/12/06
20/03/07
21/05/07
31/08/07
4. review of operations
Financial performance
The financial performance for the year reflects the first full year since the significant increase in the assets of the Group following the Sta-
pling transaction, and reflects the resulting increase in income. Basic earnings attributable to stapled securityholders were 15.3 cents per
stapled security.
Net income from investment properties recognised in the income statement for the period was $73,161,000 (2007: $48,779,000). The
financial results have also been positively impacted by net increases in the fair value of investment properties of $34,649,000 (2007:
$69,779,000).
A gain on sale of $7,470,000 (2007: $4,963,000) was derived during the year, primarily from the sale of the Bird Cameron (Perth) and Heidelberg
(Brisbane) properties. The Group also recognised small adjustments on the sale of the Bundall (Gold Coast) and Goulburn Street (Sydney) prop-
erties during the year. These properties had previously been revalued at 30 June 2007 to fair value based on anticipated sales value.
One-off costs of $7,049,000 associated with the stapling transaction were incurred during the previous financial year.
The Trust previously had a limited term (80 years), and in accordance with AASB 132, net assets attributable to unitholders were recognised
as debt, rather than equity. This also led to the recognition of the finance cost attributable to unitholders in the income statement. The
responsible entity amended the constitution of the Trust on 1 June 2007 to remove the limitation on the Trust term. The net assets attribut-
able to unitholders have therefore been reclassified as equity since that date.
Operating profits and dividends/distributions to securityholders
The Board excludes certain items from the net profit after tax but before unitholders’ finance costs to arrive at an operating profit before
significant and non-cash items, when considering amounts available for distribution by the Group, as follows:
Consolidated
Profit from operations
Significant and non-cash items:
Gain on sale of investment properties
Net gain on fair value adjustments:
- Investment properties
- Interest rate derivatives
Decrease to recoverable amount:
- Available for sale financial assets
Straight-line lease income
Lease incentives and lease costs amortised
Amortisation of finance costs
Employee options expense
Amortisation and depreciation
Share of profit of equity accounted entities (1)
Gain on dilution of interest in associate
Stapling transaction costs
Share of net profit attributed to external minority interests
Income tax adjustments (2)
Net profit for the year
Attributable to:
Company shareholders
Trust unitholders – minority interest
Net profit attributable to stapled securityholders
External minority interests
2008
$’000
70,791
7,470
34,649
4,479
(9,011)
735
(4,182)
(890)
(73)
(470)
4,618
826
–
11,904
(945)
119,901
19,440
88,557
107,997
11,904
119,901
2007
$’000
36,644
4,963
69,779
4,610
–
1,374
(2,221)
(1,089)
(282)
(414)
–
6,341
(7,049)
–
1,301
113,957
8,620
105,337
113,957
–
113,957
(1) Includes share of profit of equity accounted entities relating to significant and non-cash items.
(2) Includes change in value of deferred tax asset due to realisation of tax losses.
StrENGtH - CONFIDENCE - OPPOrtUNIty
11
directors’ report continued
Profit from operations for the year was $70,791,000 (2007: $36,644,000). Basic operating earnings attributable to stapled securityholders
were 10.1 cents (2007: 5.3 cents) per stapled security a record for the Group. The increase reflected a significantly higher contribution from
the property portfolio in the current financial year, coupled with higher recurring funds management and development contributions.
The performance of the investment property portfolio was strong during the year, and reflects Cromwell Group’s commitment to an in-
sourced management model, with significant benefits attached to the integrated property management and tenant relationship manage-
ment activities. High renewal rates with tenants continue to be achieved, and the portfolio was 99% leased at year-end, with a 5.9 year
weighted average lease term.
Significant leasing activity was undertaken during the year, including a new 10-year lease to the South Australian Government over 11,621
square metres at 101 Grenfell Street, Adelaide.
Earnings per share
Basic/diluted operating earnings per stapled security (1) (2)
Basic/diluted earnings per stapled security (2)
(1) Based on profits from operations disclosed above.
(2) Excludes external minority interests.
Financial position
Total assets ($’000)
Net assets ($’000)
Net tangible assets (1) ($’000)
Net debt ($’000) (2)
Gearing (%)(3)
Securities issued ($’000)
NTA per security
(1) Total assets less deferred tax asset and intangible assets.
(2) Borrowings less cash and cash equivalents and restricted cash.
(3) Net debt divided by total assets less cash and cash equivalents and restricted cash.
Consolidated
2008
Cents
10.1
15.3
2007
Cents
5.3
16.4
Consolidated
2008
2007
1,368,523
715,236
710,938
589,465
44%
702,816
$1.01
1,295,154
673,064
667,691
569,000
44%
698,784
$0.96
12
CrOMWELL GrOUP annual report 2008
NTA per security has increased by 5% during the year, from $0.96 to $1.01, primarily as a result of the increases in value of the investment
property.
The Group acquired the Tuggeranong Office Park for $166,025,000 in June 2008. The Group also sold several properties valued at
$181,055,000 between July 2007 and October 2007, realising a gain on sale of $7,470,000.
Construction of the Synergy office building in Brisbane is over 50% complete, with construction expected to be finalised in November 2008.
Cromwell Group announced an on-market buy-back of up to 69 million stapled securities in January 2008. To 30 June 2008, approximately
5,565,000 securities have been repurchased under the buy-back.
At balance date the Group held borrowings of $589,465,000, net of available cash (including $25,700,000 cash held as security against bor-
rowings). This represents gearing of approximately 44%.
The Group’s major borrowings, a $429,000,000 Commercial Mortgage Backed Security (“CMBS”) issue is due for repayment in April 2009.
Since balance date offers have been received from 3 banks to provide a syndicated loan facility totalling $452,000,000, which would enable
the repayment of the CMBS issue. The offers of finance have been approved by the banks credit committees, but are still subject to docu-
mentation and satisfaction of relevant pre-conditions before the funding is able to be drawn. The Directors expect that the facility will be
finalised on satisfactory terms, and that it will be available to the Group prior to the scheduled repayment date of the CMBS issue.
Outlook
The outlook remains very positive for the Group, despite the recent market volatility. The proportion of earnings from recurring sources of
property investment and funds management is expected to be higher in the coming year with the Group having less reliance on transac-
tional earnings.
The Group remains very well placed, with a strong Australian core property portfolio. This portfolio is expected to continue to deliver average
increases in property rental income of at least 4% per annum. Continuing growth in funds under management via the Group’s expansive
retail distribution network will also underpin future growth in operating profits, although more subdued growth is expected in FY09.
5. significant Changes in the state of Affairs
Changes in the state of affairs of the Group during the financial year are set out within the financial report.
There were no significant changes in the state of affairs of the Group during the financial year other than as disclosed in this report and the
accompanying financial report.
6. subsequent events
Other than as set out in note 45 of the financial report, no matter or circumstance has arisen since 30 June 2008 that has significantly
affected or may significantly affect:
a) the Group’s operations in future financial years; or
b) the results of those operations in future financial years; or
c) the Group’s state of affairs in future financial years.
7. Likely developments
The Group will continue to pursue activities which increase profitability of the Group, and create value for securityholders. Further informa-
tion in relation to likely developments, and the impact on the operations of the Group, has not been included in this report as the directors
believe it would result in unreasonable prejudice to the Group.
8. environmental regulation
The Directors are not aware of any particular and significant environmental regulation under a law of the Commonwealth, State or Terri-
tory relevant to the Group.
StrENGtH - CONFIDENCE - OPPOrtUNIty
13
directors’ report continued
9. directors’ interests
The interests of current Directors in securities of Cromwell Corporation Limited are as follows:
Geoffrey Levy
Robert Pullar
Michelle McKellar
David Usasz
Paul Weightman
Richard Foster
Daryl Wilson
10.
options
Stapled
Securities
Performance
Rights
Options over
Securities
–
14,000,000
120,000
1,547,602
15,464,167
5,349,598
2,215,006
–
–
–
–
1,108,100
–
516,300
–
–
–
–
–
–
–
Shares under option through Employee Share Ownership Plan
Stapled securities in Cromwell Group held by the Employee Share Ownership Plan, which are accounted for as in-substance options, at the
date of this report are as follows:
Number of options
Date granted
Exercise date
Exercise price
Expiry date
17,757
250,950
268,707
28/8/05
28/8/05
01/07/08 – 30/06/09
01/07/08 – 30/09/09
30.9¢
30.9¢
30/6/09
30/9/09
Movement in number of in-substance options:
Opening balance 1 July 2007
Vested and exercised prior to year end
Closing balance 30 June 2008
Number of options
936,096
(667,389)
268,707
All remaining options expire on the earlier of their expiry date or termination of the employee’s employment. Further details are included in
the remuneration report. No option holder has any right under the options to participate in any other share or interest issue of the Company
or any other entity.
Shares under option through the Performance Rights Plan
Stapled securities in Cromwell Group under option through the Performance Rights Plan at the date of this report are as follows:
Number
of options
492,900
3,886,800
8,600
1,624,400
6,012,700
Date
granted
18/9/07
18/9/07
18/9/07
06/12/07
Exercise
date
Exercise price
19/12/09 – 19/01/10
19/12/10 – 19/01/11
19/12/10 – 19/01/11
07/3/11 – 07/4/11
$1.21
$1.21
$0.00
$1.21
Expiry
date
19/1/10
19/1/11
19/1/11
07/4/11
14
CrOMWELL GrOUP annual report 2008
No option holder has any right under the options to participate in any other share or interest issue of the Company or any other entity, except
that the performance rights holders have a matching in-substance option for units in Cromwell Diversified Property Trust as a result of the
Group’s stapling arrangement.
Shares issued on the exercise of options through the Performance Rights Plan
No stapled securities have been issued on the exercise of options through the Performance Rights Plan up to the date of this report.
11. remuneration report
Principles used to determine the nature and amount of remuneration
The remuneration report is set out under the following main headings:
A
B Details of remuneration
C Service agreements
D Share-based compensation
E Additional information
Principles used to determine the nature and amount of remuneration
A
The Group has appointed a Nomination and Remuneration Committee (“committee”) to set and review the remuneration structure for
executive officers, including executive directors. The committee also advises the Board on remuneration policy and practices. The com-
mittee is chaired by Mr RJ Pullar, a non-executive director. External consultants are appointed to advise the committee as required. The
remuneration of executives is considered by the committee for recommendation to the Board.
Executive remuneration is benchmarked periodically against the market, based on national remuneration levels for similar companies.
Performance is assessed not less than annually in light of performance against individual and Group related goals.
The employment or remuneration of any executive of the Group is not influenced by the executive’s shareholding in the Group.
The Group seeks to emphasise payment for results when setting remuneration for executives, through providing short and long term
incentives, and linking these to key performance indicators which reinforce both the short and long-term goals of the Group and provide a
common interest between management and securityholders. Long term incentives may include share-based compensation.
Executive pay
The executive pay and reward framework has four components:
−
−
−
−
base pay and benefits
performance-related bonuses
long-term incentives
other remuneration such as superannuation.
The combination of these comprises the executive’s remuneration.
Base pay
Base pay is structured as a total employment cost package which may be delivered as a combination of cash and prescribed non-financial
benefits at the executive’s discretion. There are no guaranteed base pay increases included in any executive’s contract.
Performance-related bonuses
Performance-related cash bonus entitlements are linked to the achievement of individual objectives, both financial and non-financial, which
are relevant to meeting the Group’s business objectives. Further information is provided in part E.
The executives’ cash bonus entitlements are assessed and paid based on the actual performance against the relevant key performance
indicator targets. For all executives, the Chief Executive Officer is responsible for assessing whether an executive’s targets have been met,
and key performance indicator targets are reviewed and reset annually. The key performance indicator targets for the Chief Executive Officer
are set, revised and reviewed by the committee.
StrENGtH - CONFIDENCE - OPPOrtUNIty
15
directors’ report continued
Long-term incentives
The Group has established the Cromwell Employee Share Ownership Plan. Under the Employee Share Ownership Plan, eligible employ-
ees were allocated shares in Cromwell Corporation Limited. The shares were acquired by the eligible employees at the time of allocation,
funded by a loan from Cromwell Corporation Limited to the eligible employee. The loan was limited recourse to the shares only and interest
was payable on the loan at the rate prescribed by the ATO for fringe benefits tax purposes from time to time. Dividends received on shares
allocated to the eligible employee are applied against the outstanding loan balance.
Under AIFRS, the shares held within the Employee Share Ownership Plan are classified as in-substance options, and accounted for as
treasury stock, reducing contributed capital. The Group is required to expense the options over the period from grant date to vesting date.
Shares on issue under the Employee Share Ownership Plan at the time of the Stapling in December 2006 were effectively converted to
Stapled Securities, in the same way as other shares issued by the Company.
No grants were made under the Employee Share Ownership Plan during the 2007 or 2008 financial years, and it is not intended that any
further grants will be made by this plan in the future.
The number of employees participating in the Employee Share Ownership Plan in the 2008 financial year was 3 (2007: 16). The number of
stapled securities allocated to employees at 30 June 2008 was 268,707 (2007: 936,096).
The Group has established a Performance Rights Plan and a Tax Exempt Plan during the 2008 financial year. The Performance Rights
Plan enables eligible employees to acquire performance rights. Each performance right enables the holder to acquire a stapled security in
Cromwell Group, at a future date and exercise price, subject to conditions. The Tax Exempt Plan enables eligible employees to acquire up
to $1,000 of stapled securities in a tax effective manner within a 12 month period. Eligibility for the Performance Rights Plan and the Tax
Exempt Plan is approved by the Board or the committee, having regard to individual circumstances and performance.
Securities allocated under the Performance Rights Plan generally vest in 3 years. Until securities have vested, the employee cannot sell or
otherwise deal with the securities except in certain limited circumstances. It is a condition of the Performance Rights Plan that an employee
must remain employed by the Group in order for securities to vest. Any securities which have not yet vested on an employee leaving service
must be forfeited.
The number of employees participating in the Performance Rights Plan during the 2008 financial year was 28 (2007: nil). The number of
performance rights allocated to employees at 30 June 2008 was 6,012,700 (2007: nil).
The number of employees participating in the Tax Exempt Plan during the 2008 financial year was 22 (2007: nil). The number of stapled
securities allocated to employees during the year was 17,057 (2007: nil) of these 13,956 (2007: nil) remained within the plan at year-end.
Directors’ fees
Fees and payments to non-executive directors reflect the demands which are made on, and the responsibilities of, the directors. The Board
determines remuneration of non-executive directors within the maximum amount approved by securityholders from time to time. This
maximum currently stands at $500,000 per annum in total for salary and fees, to be divided among the non-executive directors in such a
proportion and manner as they agree. Non-executive directors are paid a fixed remuneration, comprising base fees or salary and superan-
nuation (if applicable). Non-executive directors do not receive bonus payments or participate in security-based compensation plans, and are
not provided with retirement benefits other than statutory superannuation. The Board was comprised of four non-executive directors and
three executive directors during the financial year.
B Details of remuneration
Remuneration paid, payable, or otherwise made available, directly or indirectly, to key management personnel is set out below. The cash
bonuses were dependent on the satisfaction of performance conditions as set out under the Performance-related bonuses heading above.
Other than the key management personnel shown below, there were no other key management personnel of the Company or Group during
the year. Key management personnel below include the five highest remunerated Group executives and Company executives.
16
CrOMWELL GrOUP annual report 2008
Key management personnel during the 2008 financial year were:
Non-Executive Directors
Mr G H Levy, AO (1)
Ms M A McKellar
Mr D E Usasz
Mr R J Pullar
Executive Directors
Mr PL Weightman
Mr DJ Wilson
Mr WR Foster
Other Key Management Personnel
Mr PA Cronan (2)
Mr PW Howard (3)
Ms SM Morgan
Mr DA Gippel
Ms MC McLaughlin
Mr MJ Blake
Mr PJ McDonnell
Mr PJ Cowling
Details of remuneration
Chairman
Director
Director
Director
Chief Executive Officer
Chief Financial Officer
Director – Acquisitions
Chief Operations Officer
Chief Operations Officer
Company Secretary
Director - Cromwell Capital
National Head of Investor Relations
National Head of Distribution
National Asset Manager
Associate Director
Short-term
benefits
Movement
in accrued
salary
$
Cash salary
and fees
$
Post-
employment
Long-term
benefits
Cash
bonus
Non-cash
benefits
Super-
annuation
$
$
$
Long
service
leave
$
614,252
250,000
386,871
28,670
77,354
72,150
72,812
2008
Non-Executive Directors
GH Levy (1)
RJ Pullar
MA McKellar
DE Usasz
Executive Directors
PL Weightman
WR Foster
DJ Wilson
Other key management personnel
PA Cronan (2)
PW Howard (3)
SM Morgan
DA Gippel
MC McLaughlin
MJ Blake
PJ McDonnell
PJ Cowling
133,276
48,201
144,522
236,557
176,871
236,871
198,532
254,319
2,931,258
–
–
–
–
48,199
–
17,307
(3,722)
4,205
(1,131)
29,699
2,143
7
(5,661)
8,417
99,463
–
–
–
–
–
–
20,000
–
–
–
–
46,893
54,709
–
–
121,602
–
–
–
–
222,900
–
–
–
–
–
26,903
–
–
–
–
249,803
2,580
6,637
13,129
13,129
13,129
–
13,129
9,482
9,744
12,550
12,370
13,129
13,129
13,129
13,129
158,395
–
–
–
–
3,853
–
14,608
(93)
90
1,154
12,436
3,062
3,845
1,937
3,612
44,504
(1) Appointed on 17 April 2008 (2) Resigned on 22 February 2008 (3) Appointed on 31 March 2008
Share-
based
payment
Options
Total
$
$
–
–
–
–
12,660
–
5,899
–
–
3,610
14,885
6,212
7,986
4,728
5,131
61,111
31,250
83,991
85,279
85,941
914,993
250,000
457,814
138,943
62,240
160,705
332,850
248,310
316,547
212,665
284,608
3,666,136
% of Remun.
that is
performance
based
–
–
–
–
1%
–
6%
–
–
2%
5%
21%
20%
2%
2%
StrENGtH - CONFIDENCE - OPPOrtUNIty
17
directors’ report continued
Short-term
benefits
Movement
in accrued
salary
$
Cash salary
and fees
$
25,000
–
–
734,721
247,788
330,790
300,000
2007
Non–Executive Directors
RJ Pullar
MA McKellar (2)
DE Usasz (3)
Executive Directors
PL Weightman
RL Stiles (1)
DJ Wilson
WR Foster
Other key management personnel
PA Cronan (4)
SM Morgan
DA Gippel
MC McLaughlin
MJ Blake
PJ McDonnell
PJ Cowling
68,442
105,385
175,917
149,836
224,961
180,931
203,662
2,747,433
–
–
–
59,766
(18,201)
6,706
–
3,722
6,899
11,317
(212)
6,029
(669)
1,408
76,765
Post-
employment
Long-term
benefits
Cash
bonus
Non-cash
benefits
Super-
annuation
$
$
$
–
–
–
–
–
20,000
150,000
–
20,000
35,000
48,480
64,800
18,500
45,000
401,780
10,000
–
–
3,567
9,049
7,264
–
–
–
28,802
–
–
–
–
58,682
–
20,000
10,692
11,713
7,152
11,946
–
5,441
10,181
12,102
13,115
14,354
12,686
12,686
142,068
Long
service
leave
$
–
–
–
970
(13,694)
15,501
–
93
509
2,096
1,886
2,259
709
1,379
11,708
Share-
based
payment
Options
Total
$
$
–
–
–
–
–
4,441
–
–
–
–
39,175
72,697
–
89,161
205,474
35,000
20,000
10,692
810,737
232,094
396,648
450,000
77,698
142,974
265,234
252,280
385,100
212,157
353,296
3,643,910
% of Remun.
that is
performance
based
–
–
–
–
–
6%
33%
–
14%
13%
35%
36%
9%
38%
(1) Retired on 26 April 2007 (2) Appointed on 1 March 2007 (3) Appointed on 26 April 2007 (4) Appointed on 12 February 2007
C Service agreements
PL Weightman
Remuneration and other terms of employment for Paul Weightman, Chief Executive Officer, are formalised in an employment agreement.
The Company may terminate the agreement without notice for gross misconduct; otherwise, the Company may terminate the agreement
on six months notice, or payment of entitlements for this period in lieu of notice. Mr Weightman may terminate the agreement at any time
with six months notice. Other major provisions of the agreement are as follows:
−
Term of agreement – commencing 1 July 2006, no fixed termination date.
Base salary, inclusive of superannuation, for the year ended 30 June 2008 of $850,000, thereafter to be reviewed annually by the Nomi-
−
nation and Remuneration Committee.
Performance targets to be reviewed annually by the Nomination and Remuneration Committee. No performance-related cash bonus
is payable.
−
DJ Wilson
Remuneration and other terms of employment for Daryl Wilson, Chief Financial Officer, are formalised in an employment agreement. The
Company may terminate the agreement without notice for gross misconduct; otherwise, the Company may terminate the agreement on
six months notice, or payment of entitlements for this period in lieu of notice. Mr Wilson may terminate the agreement at any time with six
months notice. Other major provisions of the agreement are as follows:
−
−
Term of agreement – commencing 1 July 2006, no fixed termination date.
Base salary, inclusive of superannuation, for the year ended 30 June 2008 of $400,000, to be reviewed annually by the Nomination and
Remuneration Committee.
Performance bonus of $20,000. Targets to be reviewed annually by the Nomination and Remuneration Committee.
−
18
CrOMWELL GrOUP annual report 2008
The performance bonus payable to Mr Wilson for the year ended 30 June 2008 depended on certain criteria being met. The criteria were
assessed as being met in full during the financial year, with 100% of the performance bonus amount being paid.
All other Key Management Personnel are employed under standard employment contracts which provide for termination by either party
on one months notice. There are no termination amounts payable under the contracts other than statutory entitlements for accrued leave.
Base salaries are disclosed above and reviewed annually.
D Share-based compensation
Details of the Employee Share Ownership Plan, the Performance Rights Plan and the Tax Exempt Plan are set out at part A of the remu-
neration report. No further securities are expected to be granted under the Employee Share Ownership Plan.
An allocation of securities/performance rights have been granted to executive directors and executives as share based compensation. All
directors and executives of Cromwell Corporation Limited and its controlled entities were eligible to participate in the Employee Share
Ownership Plan and the Performance Rights Plan subject to a minimum period of service, which may be waived by the Nomination and
Remuneration Committee. Participation by directors is subject to securityholder approval.
Consideration for granting options/performance rights, grant periods, vesting and exercise dates and exercise periods were/are deter-
mined by the Board or Nomination and Remuneration Committee in each case. Options granted under the Employee Share Ownership
Plan and stapled securities issued under the Tax Exempt Plan carry the same voting rights as ordinary Stapled Securities. Performance
rights granted under the Performance Rights Plan carry no voting rights. When exercisable, each performance right is convertible into one
stapled security.
The exercise price of the Performance Rights is determined by the Nomination and Remuneration Committee.
The terms and conditions of each grant of performance rights affecting remuneration in this or future reporting periods are as follows:
Grant
Date
18/9/2007
18/9/2007
18/9/2007
18/9/2007
6/12/2007
6/12/2007
Expiry
Date
19/1/2010
19/1/2010
19/1/2011
19/1/2011
7/4/2011
7/4/2011
Exercise Price
(cents)
No. of Options
Granted
Assessed Value
per Option at Grant Date
$1.21
$1.21
$1.21
$1.21
$1.21
$1.21
203,750
203,750
1,078,500
1,078,500
812,200
812,200
–
14.3¢
–
15.0¢
–
15.0¢
The terms and conditions of each grant of in-substance options over shares acquired by the Employee Share Ownership Plan affecting
remuneration in the previous, this or future reporting periods are as follows:
Grant
Date
27/11/2003
28/8/2005
28/8/2005
31/10/2005
Expiry
Date
26/11/2006
30/6/2009
30/9/2009
30/6/2009
Exercise Price
(cents)
No. of Options
Granted (1)
Assessed Value
per Option at Grant Date
10.0¢
30.9¢
30.9¢
40.0¢
2,000,000
1,945,000
2,000,000
500,000
8.2¢
10.1¢
10.1¢
7.1¢
(1) The options were granted for no cash consideration, prior to the 0.8879:1 share reconstruction and stapling transaction undertaken in
December 2006.
StrENGtH - CONFIDENCE - OPPOrtUNIty
19
directors’ report continued
The original exercise dates of the above options over shares acquired by the ESOP varied over time as follows:
Exercise Dates
27/11/2003
1/7/2004
1/7/2005
28/8/2005
28/8/2005
31/10/2005
1/7/2006
1/7/2006
1/7/2006
1/7/2007
1/7/2007
1/7/2008
1/7/2008
–
–
–
–
–
–
–
–
–
–
–
–
–
30/6/2004
30/6/2005
30/6/2006
30/6/2006
30/9/2006
30/6/2006
26/11/2006
30/6/2007
30/9/2007
30/6/2008
30/9/2008
30/6/2009
30/9/2009
500,000
500,000
500,000
500,000
No. of Options
486,250
486,250
486,250
486,250
2,000,000
1,945,000
500,000
500,000
500,000
500,000
2,000,000
125,000
125,000
125,000
125,000
500,000
As a result of the stapling transaction during the prior year, all outstanding options became vested and exercisable. All key management
personnel options were exercised, except for 1,000,000 options held by P J Cowling (prior to the 0.8879:1 reconstruction) as shown below. As
a result of the acceleration of vesting, the remaining expense attributable to the options vested and exercised during 2007 was recognised
during the 2007 year. No in-substance options under the Employee Share Ownership Plan were granted during the 2008 financial year.
Details of Performance Rights which were provided as remuneration to key management personnel under the Performance Rights Plan
during the 2008 financial year are set out below.
Grant
date
No. options
granted
Vested
during year
Fair value
per option at
grant date
(Cents)
2008
PL Weightman
PL Weightman
DJ Wilson
DJ Wilson
PA Cronan
PA Cronan
SM Morgan
SM Morgan
DA Gippel
DA Gippel
DA Gippel
DA Gippel
PJ McDonnell
PJ McDonnell
PJ Cowling
PJ Cowling
MJ Blake
MJ Blake
MC McLaughlin
MC McLaughlin
06/12/07
06/12/07
06/12/07
06/12/07
18/09/07
18/09/07
18/09/07
18/09/07
18/09/07
18/09/07
18/09/07
18/09/07
18/09/07
18/09/07
18/09/07
18/09/07
18/09/07
18/09/07
18/09/07
18/09/07
554,050
554,050
258,150
258,150
141,150
141,150
114,600
114,600
203,750
203,750
192,250
192,250
150,100
150,100
170,850
170,850
253,500
253,500
197,200
197,200
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
15.0¢
–
15.0¢
–
15.0¢
–
15.0¢
–
14.3¢
–
15.0¢
–
15.0¢
–
15.0¢
–
15.0¢
–
15.0¢
–
Exercise
Price
Amount paid
or payable
Expiry date
Date
exercisable
$
1.21
1.21
1.21
1.21
1.21
1.21
1.21
1.21
1.21
1.21
1.21
1.21
1.21
1.21
1.21
1.21
1.21
1.21
1.21
1.21
$
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
07/04/11
07/04/11
07/04/11
07/04/11
19/01/11
19/01/11
19/01/11
19/01/11
19/01/10
19/01/10
19/01/11
19/01/11
19/01/11
19/01/11
19/01/11
19/01/11
19/01/11
19/01/11
19/01/11
19/01/11
07/03/11
07/03/11
07/03/11
07/03/11
19/12/10
19/12/10
19/12/10
19/12/10
19/12/09
19/12/09
19/12/10
19/12/10
19/12/10
19/12/10
19/12/10
19/12/10
19/12/10
19/12/10
19/12/10
19/12/10
20
CrOMWELL GrOUP annual report 2008
The assessed fair value at grant date of performance rights granted to the individuals is allocated equally over the period from grant date to
vesting date, and the amount is included in the remuneration tables opposite. Fair value at grant date for performance rights with no market
based vesting conditions are independently determined using a Black-Scholes option pricing model that takes into account the exercise
price, the term of the option, the share price at grant date and expected price volatility of the underlying share, the expected dividend yield
and the risk-free interest rate for the term of the option. Fair value at grant date for performance rights with market based vesting condi-
tions are independently determined using a Monte Carlo simulation (TSR hurdle) and the Black-Scholes option pricing mode that takes
into account the exercise price, the term of the option, the share price at grant date and expected price volatility of the underlying share,
the expected dividend yield and the risk-free interest rate for the term of the option.
All performance rights granted during 2008 bore no consideration and vest over time. The model inputs for performance rights granted
during the year ended 30 June 2008 are disclosed in note 42.
The plan rules contain a restriction on removing the “at risk” aspect of the instruments granted to executives. Plan participants may not enter
into any transaction designed to remove the “at risk” aspect of an instrument before it vests without explicit approval from the Board.
Details of in-substance options which were provided as remuneration to Key Management Personnel during the 2008 and 2007 financial
years under the Employee Share Ownership Plan are set out below. No Performance Rights were provided as remuneration during the
2007 financial year.
Opening
balance
Granted
during year
Vested
during year
Exercised
during the year
Lapsed
during year
Closing
balance
2008
PJ Cowling
887,900
–
–
(636,950)
–
250,950
For each option exercised one ordinary share in Cromwell Corporation Limited was issued. The amounts paid per share was 30.9¢.
No amounts are unpaid.
Further details relating to options are set out below:
Name
GH Levy
RJ Pullar
MA McKellar
DE Usasz
PL Weightman
WR Foster
DJ Wilson
PA Cronan
PW Howard
SM Morgan
DA Gippel
MC McLaughlin
PJ McDonnell
PJ Cowling
A
Remuneration
consisting
of options
B
Value
at grant date
$
C
Value
at exercise date
$
D
Value
at lapse date
$
0.0%
0.0%
0.0%
0.0%
1.4%
0.0%
1.3%
0.0%
0.0%
2.2%
4.5%
2.5%
2.2%
1.8%
–
–
–
–
83,108
–
38,723
21,173
–
17,190
57,974
29,580
22,515
25,628
–
–
–
–
–
–
–
–
–
–
–
–
–
296,819
–
–
–
–
–
–
–
21,173
–
–
–
–
–
–
A = The percentage of the value of remuneration consisting of options, based on the value of options expensed during the current year.
B = The value at grant date calculated in accordance with AASB 2 Share-based Payment of options granted during the year as part
of remuneration.
C = The value at exercise date of options that were granted as part of remuneration and were exercised during the year, being the intrinsic
value of the options at that date.
D = The value at lapse date of options that were granted as part of remuneration and that lapsed during the year because a vesting condition
was not satisfied.
StrENGtH - CONFIDENCE - OPPOrtUNIty
21
directors’ report continued
E Additional information
The overall level of executive reward takes into account the performance of the Group over a number of years, with greater emphasis given
to the current year and is monitored through the identification of performance criteria which must be met for each executive. Although the
performance criteria may be different for each executive the overriding principles are the same and involve assessment of performance
against the following areas:
Financial
Both in relation to the Group’s financial performance and the individual executive’s business unit.
Individual
Achievement of personal objectives related to identified non-financial business targets, implementing operational improvements for the
Group, achieving performance enhancements and overseeing personal and staff development.
Governance
Achieving performance consistent with the Group’s values and meeting standards of professional conduct.
In addition, the vesting of certain Performance Rights issued to executives is linked to the Group’s total securityholder returns, including
share price growth, dividends/distributions and capital returns.
To ensure the appropriate performance objectives are being set and that there is alignment of effort with the key deliverables of the Group’s
business strategy, the overall performance objectives of the Group are set by the Board annually and then cascaded into the business via
the performance criteria and objectives set for all executives and staff.
Details of remuneration: cash bonuses and options
For each cash bonus and grant of options included in the tables in Section B above, the percentage of the available bonus or grant that was
paid, or that vested, in the financial year, and the percentage that was forfeited because the person did not meet the service and perform-
ance criteria is set out below. No part of the bonus is payable in future years. The options are subject to different vesting conditions. Options
granted under the Employee Share Ownership Plan originally had four year vesting terms, provided the conditions were met. However, all
options were subject to accelerated vesting as a result of the stapling transaction in December 2006.
Name
Cash bonus
Paid
%
Forfeited
%
Year
Granted
Options
Vested in
2008
%
Forfeited
%
Financial
years in
which
options may
vest
Minimum
total value
of grant to
vest
$
Maximum
total value
of grant to
vest
$
PL Weightman
DJ Wilson
WR Foster
SM Morgan
PA Cronan
PW Howard
DA Gippel
PJ McDonnell
PJ Cowling
MJ Blake
MC McLaughlin
–
100%
–
–
–
–
–
–
–
50%
52%
–
–
–
–
–
–
–
–
–
50%
48%
2008
2008
–
2008
–
–
2008
2008
2008
2008
2008
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2011
2011
–
2011
–
–
2010–2011
2011
2011
2011
2011
–
–
–
–
–
–
–
–
–
–
–
83,108
38,723
–
17,190
–
–
57,974
22,515
25,628
38,025
29,580
22
CrOMWELL GrOUP annual report 2008
12. indemnifying officers or Auditor
Subject to the following, no indemnity or insurance premium was paid during the financial year for a person who is or has been an officer
of the Group.
The constitution of Cromwell Corporation Limited provides that to the extent permitted by law, a person who is or has been an officer of the
Company, is indemnified against certain liabilities and costs incurred by them in their capacity as an officer of the Company.
Further, the Company has entered into a Deed of access, insurance and indemnity with each of the Directors and the company secretary.
Under the deed, the Company agrees to, amongst other things:
−
indemnify the officer to the extent permitted by law against certain liabilities and legal costs incurred by the officer as an officer of the
Company and its subsidiaries;
maintain, and pay the premium on a Directors and Officers Liability Policy in respect of the officer; and
provide the officer with access to board papers and other documents provided or available to the officer as an officer of the Company
and its subsidiaries.
−
−
The Group has also paid premiums for directors and officers’ liability insurance with respect to the Directors, company secretary and
senior management as permitted under the Corporations Act 2001. The terms of the policy prohibit disclosure of the nature of the liabilities
covered, and the premiums payable under the policy.
No indemnities have been given or insurance premiums paid, during or since the end of the financial year, for any person who is or has
been an auditor of the Company or any of its controlled entities.
13. rounding of Amounts to nearest thousand dollars
The Company is of a kind referred to in Class Order 98/0100, issued by the Australian Securities & Investments Commission, relating to
the “rounding off” of amounts in the directors’ report and financial report. Amounts in the directors’ report and financial report have been
rounded off to the nearest thousand dollars, or in certain cases to the nearest dollar, in accordance with that Class Order.
StrENGtH - CONFIDENCE - OPPOrtUNIty
23
directors’ report continued
14. Auditor
Johnston Rorke continues in office in accordance with section 327 of the Corporations Act 2001.
Non-audit services
The Company may decide to employ Johnston Rorke on assignments additional to their statutory duties where the auditor’s expertise and
experience with the Company and/or the 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 below.
The Board of Directors has considered the position and, in accordance with advice received from the audit committee, is satisfied that the provi-
sion 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, as set out below, did not compromise the auditor independence
requirements of the Corporations Act 2001 as none of the services undermine the general principles relating to auditor independence as set
out in APES 110 Code of Ethics for Professional Accountants and all non-audit services have been reviewed by the audit committee to ensure
they do not impact the impartiality and objectivity of the auditor.
During the year the following fees were paid or payable to the auditor and its related parties:
Audit Services
Audit and review of financial reports under the Corporations Act 2001
Audit of a controlled entity’s Australian Financial Services Licence
Audit of controlled entities’ compliance plans
Total remuneration for audit services
Non-audit Services
Investigating accountants’ report for Explanatory Memorandum for Merger/Stapling
transactions
Tax compliance services
Other
Total remuneration for non-audit services
Consolidated
2008
$
332,000
5,000
23,000
360,000
–
48,350
9,100
57,450
2007
$
261,000
4,000
40,000
305,000
200,000
17,620
–
217,620
The auditor receives remuneration for audit and other services relating to other entities (schemes) for which Cromwell Property Securities
Limited, a controlled entity, acts as responsible entity. The remuneration is disclosed in the relevant entity’s financial reports and totalled
$85,000 (2007: $42,500).
Auditor’s independence declaration
A copy of the auditor’s independence declaration as required under section 307C of the Corporations Act 2001 is attached to this report.
This report is made in accordance with a resolution of the Directors.
P.L. Weightman
Director
Dated this 19th day of August 2008
24
CrOMWELL GrOUP annual report 2008
Auditor’s independence declaration
The Directors
The Directors
Cromwell Corporation Limited
Level 19
Cromwell Corporation Limited
200 Mary Street
Level 19
BRISBANE QLD 4000
200 Mary Street
BRISBANE QLD 4000
Auditor’s Independence Declaration
Auditor’s Independence Declaration
As lead engagement partner for the audit of the financial report of Cromwell Corporation Limited for the financial year ended
30 June 2008, I declare that, to the best of my knowledge and belief, there have been:
(i)
(ii)
As lead engagement partner for the audit of the financial report of Cromwell Corporation Limited for the financial year ended
no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and
30 June 2008, I declare that, to the best of my knowledge and belief, there have been:
no contraventions of any applicable code of professional conduct in relation to the audit.
(i)
no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and
(ii)
no contraventions of any applicable code of professional conduct in relation to the audit.
JOHNSTON RORKE
Chartered Accountants
J J Evans
Partner
Brisbane, Queensland
19 August 2008
Brisbane, Queensland
19 August 2008
JOHNSTON RORKE
Chartered Accountants
J J Evans
Partner
Liability limited by a scheme approved under Professional Standards Legislation
StrENGtH - CONFIDENCE - OPPOrtUNIty
25
Liability limited by a scheme approved under Professional Standards Legislation
17
income statements for the year ended 30 June 2008
Notes
Consolidated
Parent
Revenue and other income
Funds management fees
Property development sales
Rental income and recoverable outgoings
Distributions
Dividends from controlled entities
Interest
Other revenue
Gain on sale of investment properties
Net gain from fair value adjustment to:
- Interest rate derivatives
- Investment properties
Share of profits of equity accounted entities
Gain on dilution of interest in associate
Total revenue and other income
Expenses
Cost of property development sold
Amortisation/depreciation:
- Property, plant and equipment
- Intangibles
Commissions
Employee benefits expense
Premises rental – minimum lease payments
Property expenses and outgoings
Property administration costs
Stapling transaction costs
Finance costs (excluding unitholders)
Management fees – controlled entity
Decrease to recoverable amount:
- Available-for-sale financial asset
- Property development inventories
Other expenses
Profit before income tax and unitholders’ finance costs
Income tax expense/(credit)
Profit for the year before unitholders’ finance costs
Unitholders’ finance costs (1,2)
Profit for the year
Attributable to:
Company shareholders
Trust unitholders – minority interest
External minority interests
Profit for the year
3
14
16
16
19
21
4
5
6
Basic earnings per company share (cents)
Diluted earnings per company share (cents)
32
32
2008
$’000
14,747
38,000
89,658
1,348
–
10,553
84
7,470
4,479
34,649
10,357
826
212,171
13,594
291
179
2,502
9,011
104
16,497
1,156
–
31,815
–
9,011
1,200
3,568
88,928
123,243
3,342
119,901
–
119,901
19,440
88,557
11,904
119,901
Cents
2.8¢
2.8¢
2007
$’000
14,361
10,400
60,702
77
–
2,795
–
4,963
4,610
69,779
2,418
6,341
176,446
5,252
260
154
2,637
7,890
163
11,923
857
7,049
24,515
–
–
–
2,512
63,212
113,234
(723)
113,957
98,265
15,692
8,620
7,072
–
15,692
Cents
1.2¢
1.2¢
2008
$’000
8,972
12,504
–
18
2,000
1,198
–
–
–
–
–
–
24,692
1,140
–
–
–
402
–
–
–
–
37
3,100
–
–
619
5,298
19,394
1,008
18,386
–
18,386
2007
$’000
2,321
10,400
–
23
–
117
–
–
–
–
–
–
12,861
5,252
–
–
–
348
–
–
–
798
148
1,100
–
–
126
7,772
5,089
(1,273)
6,362
–
6,362
1. AIFRS required the Trust’s issued units to be treated as a liability and Trust distributions/changes in net assets attributable to unitholders to
be treated as a finance cost in the income statement while the Trust had a limited life. Accordingly, for the period from acquisition/stapling
of the Trust to 31 May 2007, $98,265,000 of the Trust’s result (including unrealised gains on fair value adjustments to investment properties)
for the year ended 30 June 2007 has been classified as finance costs. The Trust’s constitution was altered on 1 June 2007 such that Trust
units on issue are now classified as equity. As such, the Trust’s result is not recorded as finance costs from that date.
2. There is no effect on the income tax expense/credit associated with unitholders’ finance costs.
The above income statements should be read in conjunction with the accompanying notes.
26
CrOMWELL GrOUP annual report 2008
Balance sheets as at 30 June 2008
Notes
Consolidated
Parent
Current Assets
Cash and cash equivalents
Trade and other receivables
Other financial assets
Derivative financial instruments
Inventories
Other current assets
Investment properties classified as held for sale
Total current assets
Non-Current Assets
Investment properties
Available-for-sale financial assets
Investments in jointly controlled entity and associate
Investments in controlled entities
Other financial assets
Property, plant and equipment
Deferred tax assets
Intangible assets
Total non-current assets
Total assets
Current Liabilities
Trade and other payables
Borrowings
Dividends/distributions payable
Current tax liabilities
Provisions
Other current liabilities
Total current liabilities
Non-Current Liabilities
Borrowings
Provisions
Total non-current liabilities
Total liabilities
Net assets
Equity attributable to shareholders
Contributed equity
Reserves
Accumulated losses
Total equity attributable to shareholders
Minority Interests
Equity attributable to unitholders
Contributed equity
Reserves
Undistributed income
Total equity attributable to unitholders
External minority interest
Total equity attributable to securityholders
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
23
25
27
28
29
30
30
30
30
2008
$’000
8,283
48,473
25,700
19,367
4,030
2,027
107,880
–
107,880
1,120,716
11,457
80,593
–
–
43,579
3,846
452
1,260,643
1,368,523
5,731
475,316
17,583
2,196
738
3,314
504,878
148,132
277
148,409
653,287
715,236
43,644
3,023
(18,800)
27,867
531,853
130,966
25,150
687,969
(600)
715,236
2007
$’000
17,845
24,342
121
13,498
12,013
1,108
68,927
156,452
225,379
927,113
–
66,245
–
61,250
9,794
5,005
368
1,069,775
1,295,154
13,920
153,993
15,740
882
526
3,862
188,923
432,973
194
433,167
622,090
673,064
43,347
2,950
(31,212)
15,085
526,145
131,834
–
657,979
–
673,064
The above balance sheets should be read in conjunction with the accompanying notes.
2008
$’000
705
22,937
–
–
–
–
23,642
–
23,642
–
275
–
475
–
–
5,379
–
6,129
29,771
1,199
–
7,028
2,196
–
–
10,423
–
–
–
10,423
19,348
43,644
683
(24,979)
19,348
–
–
–
–
–
19,348
2007
$’000
35
6,699
–
–
1,140
–
7,874
–
7,874
–
275
–
475
–
–
5,860
–
6,610
14,484
181
–
5,590
882
–
–
6,653
211
–
211
6,864
7,620
43,347
610
(36,337)
7,620
–
–
–
–
–
7,620
StrENGtH - CONFIDENCE - OPPOrtUNIty
27
statements of Changes in equity for the year ended 30 June 2008
Consolidated
$’000
$’000
$’000
$’000
$’000
$’000
$’000
Notes
Attributable to Equity Holders of the Company
Total
Available–
Con-
for–Sale
tributed
Reserve
Equity
Accu-
mulated
Losses
Minority
Interest
(Trust)
Minority
Interest
(External)
Total
Equity
Share
Based
Payments
Reserve
$’000
Balance at 1 July 2007
43,347
(31,212)
2,340
610
15,085
657,979
–
673,064
Changes in the fair value of available–for–sale
financial assets, net of tax
Net income recognised directly in equity
Profit for the year
Total recognised income and expense for the year
28
–
–
–
–
–
–
19,440
19,440
–
–
–
–
–
–
–
–
–
–
19,440
19,440
(868)
(868)
88,557
87,689
–
–
11,904
11,904
(868)
(868)
119,901
119,033
Transactions with equity holders in their
capacity as equity holders:
– Dividends/distributions paid/declared
– Contributions of equity
– Buy–back of stapled securities
– Buy–back transaction costs
– Employee share options
– Distribution to external minority interest
Balance at 30 June 2008
31
27,30
27,30
27
28
–
535
(215)
(23)
–
–
43,644
(7,028)
–
–
–
–
–
(18,800)
–
–
–
–
–
–
2,340
–
–
–
–
73
–
683
(7,028)
535
(215)
(23)
73
–
27,867
(63,408)
10,152
(4,443)
–
–
–
687,969
–
–
–
–
–
(12,504)
(70,436)
10,687
(4,658)
(23)
73
(12,504)
(600) 715,236
Balance at 1 July 2006
42,391
(27,248)
1,154
328
16,625
–
Changes in the fair value of available–for–sale
financial assets, net of tax
Net income recognised directly in equity
Profit for the year
Total recognised income and expense for the year
Transfer from net assets attributable to unitholders (1)
– Contributed equity
– Reserves
28
–
–
–
–
–
–
–
–
8,620
8,620
–
–
1,186
1,186
–
1,186
–
–
–
–
–
–
–
–
1,186
1,186
8,620
9,806
–
–
7,072
7,072
–
–
526,119
134,912
Transactions with equity holders in their
capacity as equity holders:
– Dividends/distributions paid/declared
– Contributions of equity
– Employee share options
Balance at 30 June 2007
31
27
28
–
956
–
43,347
(12,584)
–
–
(31,212)
–
–
–
2,340
–
–
282
610
(12,584)
956
282
15,085
(10,150)
26
–
657,979
–
–
–
–
–
–
–
–
–
–
–
16,625
1,186
1,186
15,692
16,878
526,119
134,912
(22,734)
982
282
673,064
(1) Under AIFRS net assets attributable to unitholders of the Trust were initially classified as a liability rather than equity due to the limited
life of the Trust. On 1 June 2007 the constitution of the Trust was amended to effectively remove the limitation of the term of the Trust.
Accordingly, as at 1 June 2007 the contributed equity ($526,119,000) and reserves ($134,912,000) of the Trust were transferred from
liabilities to contributed equity and reserves respectively. All the 2007 changes in equity listed for the minority interest occurred in the month
of June 2007.
The above statements of changes in equity should be read in conjunction with the accompanying notes.
28
CrOMWELL GrOUP annual report 2008
Parent
Balance at 1 July 2007
Net income recognised directly in equity
Profit for the year
Total recognised income and expense for the year
Transactions with equity holders in their capacity as equity holders:
- Dividends paid/declared
- Contributions of equity
- Share buy–back
- Share buy–back transaction costs
- Employee share options
Balance at 30 June 2008
Balance at 1 July 2006
Net income recognised directly in equity
Profit for the year
Total recognised income and expense for the year
Transactions with equity holders in their capacity as equity holders:
- Dividends paid/declared
- Contributions of equity
- Employee share options
Balance at 30 June 2007
Notes
Con-
tributed
Equity
Accu-
mulated
Losses
Total
Share
Based
Pay-
ments
Reserve
$’000
$’000
$’000
$’000
31
27
27
27
28
43,347
–
–
–
(36,337)
–
18,386
18,386
–
535
(215)
(23)
–
43,644
42,391
–
–
–
(7,028)
–
–
–
–
(24,979)
(30,115)
–
6,362
6,362
31
27
28
–
956
–
43,347
(12,584)
–
–
(36,337)
610
–
–
–
–
–
–
–
73
683
328
–
–
–
–
–
282
610
7,620
–
18,386
18,386
(7,028)
535
(215)
(23)
73
19,348
12,604
–
6,362
6,362
(12,584)
956
282
7,620
The above statements of changes in equity should be read in conjunction with the accompanying notes.
StrENGtH - CONFIDENCE - OPPOrtUNIty
29
Cash flow statements for the year ended 30 June 2008
Notes
Consolidated
Parent
Cash Flows From Operating Activities
Cash receipts in the course of operations
Cash payments in the course of operations
Dividends received
Distributions received
Interest received
Finance costs paid
Income tax paid
Reimbursements received from tax consolidated
entities
Net cash provided by operating activities
Cash Flows From Investing Activities
Payments for property, plant and equipment
Payments for investment properties
Proceeds from sale of investment property
Payment for investment in associate
Payments for other financial assets
Proceeds from other financial assets
Payments for available-for-sale financial assets
Payments for software and other assets
Loans to schemes
Loans to related entities
Repayment of loans by related entities
Loans to other persons
Repayment of loans by other persons
Repayments from director related entity
Proceeds from sale of subsidiary (net of cash
disposed)
Deconsolidation of subsidiary
Acquisition of Trust (net of cash acquired)
Net cash provided by/(used in) investing activities
Cash Flows From Financing Activities
Proceeds from borrowings
Repayment of borrowings
Payment of loan establishment costs
Proceeds from issue of shares
Proceeds from issue of treasury shares/securities
Payments for buy-back of stapled securities
Buy-back transaction costs
Payment of dividends/distributions
Repayment of loans to controlled entities
Payment for derivative financial instruments
Payment of distributions to external minority
interests
Other payments
Net cash provided by/(used in) financing activities
Net increase/(decrease) in cash and cash
equivalents
Cash and cash equivalents at 1 July
Cash and cash equivalents at 30 June
35
34
34
33
31
2008
$’000
162,392
(63,639)
–
7,808
10,450
(30,804)
(868)
–
85,339
(34,101)
(184,360)
190,064
(10,000)
(25,700)
61,371
(21,337)
(263)
–
(45,052)
16,972
(1,606)
–
–
–
–
–
(54,012)
164,780
(128,475)
(713)
–
234
(4,658)
(23)
(58,140)
–
(1,390)
(12,504)
–
(40,889)
(9,562)
17,845
8,283
2007
$’000
95,142
(49,012)
–
2,590
2,417
(22,567)
(956)
–
27,614
(9,021)
(25,968)
32,745
–
–
–
–
(183)
(6,000)
(900)
2,500
–
736
3,500
(22)
(6,060)
11,761
3,088
138,699
(145,320)
–
139
775
–
–
(24,232)
–
–
–
(318)
(30,257)
445
17,400
17,845
The above cash flow statements should be read in conjunction with the accompanying notes.
30
CrOMWELL GrOUP annual report 2008
2008
$’000
25,526
(5,204)
2,000
13
393
(37)
(868)
661
22,484
–
–
–
–
–
–
–
–
–
(20,167)
–
–
–
–
–
–
–
(20,167)
–
(211)
–
–
234
(215)
(23)
(5,590)
4,158
–
–
–
(1,647)
670
35
705
2007
$’000
14,045
(8,868)
–
23
117
(148)
(956)
1,106
5,319
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
139
749
–
–
(6,994)
–
–
–
–
(6,106)
(787)
822
35
notes to the financial statements for the year ended 30 June 2008
1. summary of significant Accounting policies
Cromwell Group was formed by the stapling of two entities comprising Cromwell Corporation Limited (‘the Company’) and its controlled
entities, and Cromwell Diversified Property Trust (‘the Trust’) and its controlled entities. Cromwell Group is also defined as ‘the Group’.
The Group was established for the purpose of facilitating a joint quotation of the Company and its controlled entities and the Trust and its
controlled entities on the Australian Securities Exchange. The constitutions of the Trust and the Company ensure that, for so long as the two
entities remain jointly quoted, the number of units in the Trust and the number of shares in the Company shall be equal and the unithold-
ers and shareholders are identical. Both the Responsible Entity of the Trust and the Company must at all times act in the best interest of
the Group.
To account for the stapling, Australian Accounting Standards requires an acquirer (Cromwell Corporation Limited) to be identified and an
acquisition to be recognised. The net assets and net profit of the acquiree (the Trust and its controlled entities) are recognised as minority
interest as they are not owned by the acquirer in the stapling agreement. Refer to note 1(b)(i)(3).
The stapling arrangement will cease upon the earliest of either the winding up of the Company or the Trust.
Cromwell Corporation Limited is a company domiciled in Australia. The financial report includes separate financial statements for
Cromwell Corporation Limited as an individual entity (“the Parent”) and Cromwell Group, the stapled consolidated entity (‘the Group’) con-
sisting of Cromwell Corporation Limited (‘the Company’) and its subsidiaries and Cromwell Diversified Property Trust (‘the Trust’) and its
subsidiaries.
The principal accounting polices adopted in the preparation of the financial report are set out below. These policies have been consistently
applied to all the years presented, unless otherwise stated.
(a) Basis of preparation
The financial report is a general purpose financial report which has been prepared in accordance with Australian Accounting Standards
(including Australian Accounting Interpretations) adopted by the Australian Accounting Standards Board (AASB) and the Corporations Act
2001.
Compliance with IFRS
The financial report complies with the International Financial Reporting Standards (IFRS) and interpretations adopted by the International
Accounting Standards Board.
Historical cost convention
The financial report is prepared on the historical cost basis except for the following:
−
−
−
investment properties are measured at fair value
derivative financial instruments are measured at fair value
available-for-sale financial assets are measured at fair value
The methods used to measure fair values are discussed further below.
Functional and presentation currency
The financial report is presented in Australian dollars, which is the Company’s functional currency and the functional currency of the
Group.
Critical accounting estimates
The preparation of financial statements requires management to make judgements, estimates and assumptions that affect the appli-
cation of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these
estimates.
StrENGtH - CONFIDENCE - OPPOrtUNIty
31
notes to the financial statements continued
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period
in which the estimate is revised and in any future periods affected.
In particular, information about significant areas of estimation uncertainty and critical judgements in applying accounting policies that have
the most significant effect on the amounts recognised in the financial statements are described in note 2.
(b) Principles of consolidation
Stapling
The stapling of the Company and the Trust was approved at separate meetings of the respective shareholders and unitholders on 6 Decem-
ber 2006. Following approval of the stapling, shares in the Company and units in the Trust were stapled to one another and are quoted as a
single security on the Australian Securities Exchange.
Australian Accounting Standards require an acquirer to be identified and an in-substance acquisition to be recognised. In relation to the
stapling of the Company and the Trust, the Company is identified as having acquired control over the assets of the Trust. To recognise the
in-substance acquisition, the following accounting principles have been applied:
(1) no goodwill is recognised on acquisition of the Trust because no direct ownership interest was acquired by the Company in the Trust;
(2) the equity issued by the Company to unitholders to give effect to the transaction is recognised at the dollar value of the consideration
payable by the unitholders. This is because the issue of shares by the Company was administrative in nature rather than for the pur-
poses of the Company acquiring an ownership interest in the Trust; and
(3) the issued units of the Trust are not owned by the Company and are presented as minority interests in the Group notwithstanding that
the unitholders are also the shareholders by virtue of the stapling arrangement. Accordingly, the equity in the net assets of the Trust
and the profit/(loss) arising from these net assets have been separately identified in the Income Statement and Balance Sheet.
Subsidiaries
The consolidated financial statements incorporate the assets and liabilities of all subsidiaries and the results of all subsidiaries for the
year then ended.
Subsidiaries are entities controlled by the Group. Control exists when the Group has the power, directly or indirectly, to govern the financial
and operating policies of an entity, so as to obtain benefits from its activities. In assessing control, potential voting rights that presently are
exercisable are taken into account. The financial statements of subsidiaries are included in the consolidated financial statements from the
date that control commences until the date that control ceases.
The purchase method of accounting is used to account for the acquisition of subsidiaries by the Group (refer to note 1(n)).
Inter-entity transactions, balances and unrealised gains on transactions between the Group entities are eliminated. Unrealised losses are
also eliminated unless the transaction provides evidence of the impairment of the asset transferred. Accounting policies of subsidiaries
have been changed where necessary to ensure consistency with the policies adopted by the Group.
Minority interests in the results and equity of subsidiaries are shown separately in the consolidated income statement and balance sheet
respectively.
Investments in subsidiaries are accounted for at cost in the individual financial statements of the Company.
Associates
Associates are all entities over which the Group has significant influence but not control, generally accompanying a holding of between 20%
and 50% of the voting rights. Investments in associates are accounted for in the investor’s financial statements using the cost method and
in the Group’s financial statements using the equity method of accounting, after initially being recognised at cost. The Group’s investment
in associates includes goodwill (net of any accumulated impairment loss) identified on acquisition.
32
CrOMWELL GrOUP annual report 2008
The Group’s share of its associates’ post-acquisition profits or losses is recognised in the income statement and its share of post-acquisition
movements in reserves is recognised in reserves. The cumulative post-acquisition movements are adjusted against the carrying amount
of the investment. Dividends or distributions receivable from associates are recognised in the investor’s individual income statement, while
in the Group’s financial statements they reduce the carrying amount of the investment.
When the Group’s share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables,
the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the associate. Unrealised
gains on transactions between the Group and its associates are eliminated to the extent of the Group’s interest in the associates. Unreal-
ised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of
associates have been changed where necessary to ensure consistency with the policies adopted by the Group.
Joint ventures
Joint venture entities
The interest in a joint venture entity is accounted for in the Group’s financial statements using the equity method and is accounted for using
the cost method by the venturer. Under the equity method, the share of the profits or losses of the joint venture entity is recognised in the
income statement, and the share of movements in reserves is recognised in reserves in the balance sheet.
Profits or losses on transactions establishing the joint venture entity and transactions with the joint venture are eliminated to the extent of
the Group’s ownership interest until such time as they are realised by the joint venture entity on consumption or sale, unless they relate to
an unrealised loss that provides evidence of the impairment of an asset transferred.
Jointly controlled assets
The proportionate interests in the assets, liabilities and expenses of a joint venture activity have been incorporated in the financial statements
under the appropriate headings.
(c) Revenue recognition
Funds management Revenue is recognised as follows:
(i) Acquisition and capital raising fees – revenue is recognised at settlement of the relevant property or proportionately as the equity inter-
ests are issued/sold to external investors as appropriate.
(ii) Management fees – revenue is recognised on a proportional basis over time as services are performed.
Property development sales revenue is recognised on settlement of the relevant property.
Rental revenue from investment property is recognised on a straight-line basis over the lease term. Rental revenue not received at report-
ing date is reflected in the balance sheet as a receivable or if paid in advance, as rent in advance. Lease incentives granted are considered
an integral part of the total rental revenue and are recognised as a reduction in rental income over the term of the lease, on a straight-line
basis. Contingent rents based on the future amount of a factor that changes other than with the passage of time, including turnover rents
and CPI linked rental increases, are only recognised when contractually due.
Interest revenue is recognised as it accrues using the effective interest method.
Gain or loss on disposal of assets is calculated as the difference between the carrying amount of the asset at the date of disposal and the
net proceeds from disposal and is included in the income statement in the year of disposal. Where revenue is obtained from the sale of
properties, it is recognised when the significant risks and rewards have transferred to the buyer, which is normally when legal title passes
to the buyer.
StrENGtH - CONFIDENCE - OPPOrtUNIty
33
notes to the financial statements continued
(d) Income tax
Under current income tax legislation the Trust is not liable to pay tax provided its taxable income and taxable realised capital gains are dis-
tributed to unitholders. The liability for capital gains tax that may arise if the properties were sold is not accounted for in this report.
The Group’s income tax expense for the period is the tax payable on the current period’s taxable income adjusted by changes in deferred
tax assets and liabilities attributable to temporary differences between the tax bases of assets and liabilities and their carrying amounts in
the financial statements, and to unused tax losses.
Deferred tax assets and liabilities are recognised for temporary differences at the tax rates expected to apply when the assets are recov-
ered or liabilities are settled, based on those tax rates which are enacted or substantively enacted. The relevant tax rates are applied to the
cumulative amounts of deductible and taxable temporary differences to measure the deferred tax asset or liability. An exception is made
for certain temporary differences arising from the initial recognition of an asset or a liability. No deferred tax asset or liability is recognised
in relation to these temporary differences if they arose in a transaction, other than a business combination, that at the time of the transac-
tion did not affect either accounting profit or taxable profit or loss.
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 liabilities and assets are not recognised for temporary differences between the carrying amount and tax bases of investments
in controlled entities where the parent entity is able to control the timing of the reversal of the temporary differences and it is probable that
the differences will not reverse in the foreseeable future.
Current and deferred tax balances attributable to amounts recognised directly in equity are also recognised directly in equity.
Tax consolidation
The Company and its wholly-owned entities (this excludes the Trust and its controlled entities) have formed a tax-consolidated group with
effect from 1 July 2003 and are, therefore, taxed as a single entity from that date. The head entity within the tax-consolidated group is
Cromwell Corporation Limited.
Current tax expense/income, deferred tax liabilities and deferred tax assets arising from temporary differences of the members of the tax-
consolidated group are recognised in the separate financial statements of the members of the tax-consolidated group, using the ‘separate
taxpayer within group’ approach by reference to the carrying amounts of assets and liabilities in the separate financial statements of each
entity and the tax values applying under tax consolidation.
Any current tax liabilities or assets and deferred tax assets arising from unused tax losses of the subsidiaries are assumed by the head
entity in the tax-consolidated group and are recognised as amounts payable (receivable) to (from) other entities in the tax-consolidated
group in conjunction with any tax funding arrangement amounts referred to in the following section. Any difference between these amounts
is recognised by the Company as an equity contribution or distribution.
The Company recognises deferred tax assets arising from unused tax losses of the tax-consolidated group to the extent that it is probable
that future taxable profits of the tax-consolidated group will be available against which the asset can be utilised. Any subsequent period
adjustment to deferred tax assets arising from unused tax losses, as a result of revised assessments of the probability of recoverability, is
recognised by the head entity only.
Nature of tax funding arrangements and tax sharing arrangements
The head entity, in conjunction with other members of the tax-consolidated group, has entered into a tax funding arrangement, which sets
out the funding obligations of members of the tax-consolidated group in respect of tax amounts. The tax funding arrangements require
payments to/from the head entity equal to the current tax liability (asset) assumed by the head entity and any tax-loss deferred tax asset
assumed by the head entity, resulting in the head entity recognising an inter-entity receivable (payable) equal in amount to the tax liability
(asset) assumed. The inter-entity receivable (payable) are at call.
34
CrOMWELL GrOUP annual report 2008
Contributions to fund the current tax liabilities are payable as per the tax funding arrangement and reflect the timing of the head entity’s
obligation to make payments for tax liabilities to the relevant tax authorities.
The head entity, in conjunction with other members of the tax-consolidated group, has also entered into a tax sharing agreement. The tax
sharing agreement provides for the determination of the allocation of income tax liabilities between the entities should the head entity
default on its tax payment obligations. No amounts have been recognised in the financial statements in respect of this agreement, as
payment of any amounts under the tax sharing agreement is considered remote.
(e) Cash and cash equivalents
Cash and cash equivalents includes cash on hand, deposits held at call with financial institutions, other short-term highly liquid invest-
ments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an
insignificant risk of changes in value.
(f) Trade and other receivables
Trade and other receivables are recognised initially at fair value and subsequently measured at amortised cost, less provision for doubtful
debts. Receivables relating to operating leases of investment properties are due on the first day of each month, payable in advance. Other
receivables are usually due for settlement no more than 90 days from the date of recognition.
Collectibility of trade and other receivables is reviewed on an ongoing basis. Debts which are known to be uncollectible are written off. A
provision for doubtful debts is established when there is objective evidence that the Group will not be able to collect all amounts due accord-
ing to the original terms of trade and other receivables. The amount of the provision is the difference between the asset’s carrying amount
and the present value of estimated future cash flows, discounted at the original effective interest rate. Cash flows relating to short-term
trade and other receivables are not discounted if the effect of discounting is immaterial. The amount of the provision is recognised in the
income statement.
(g) Inventories
Development properties held for resale are stated at the lower of cost and net realisable value. Cost is assigned by specific identification
and includes the cost of acquisition, and development and borrowing costs during development. When development is completed borrow-
ing costs and other holding charges are expensed as incurred.
Borrowing costs included in the cost of development properties held for resale are those costs that would have been avoided if the expendi-
ture on the acquisition and development of the properties had not been made. Borrowing costs incurred while active development is inter-
rupted for extended periods are recognised as expenses.
(h) Investment properties
This represents the Group’s investment in various commercial, industrial and retail properties. Investment property is property which is
held either to earn income or for capital appreciation or both. Initially, investment property is measured at cost including transaction costs.
The investment property is subsequently measured at fair value, with any change therein recognised in profit or loss. As part of the process
of determining fair value, an external, independent valuer, having an appropriate recognised professional qualification and recent experi-
ence in the location and category of property being valued, values individual properties at least every two years on a rotation basis or on a
more regular basis if considered appropriate and as determined by management in accordance with the valuation policy of the Group. In
addition, the Group has utilised internal valuation processes for determining fair value during the period.
These valuation processes are taken into consideration when determining the fair value of the investment properties. The fair value is based
on market values, being the estimated amount for which a property could be exchanged on the date of valuation between a willing buyer
and a willing seller in an arms length transaction after proper marketing wherein the parties had each acted knowledgably, prudently and
without compulsion.
StrENGtH - CONFIDENCE - OPPOrtUNIty
35
notes to the financial statements continued
The valuations are prepared by considering the capitalisation of net income and the discounting of future cash flows to their present value.
These methods incorporate assumptions of future rental income and costs, appropriate capitalisation and discount rates and also consider
market evidence of transaction prices for similar investment properties. A table showing the range of yields applied for each type of prop-
erty in the current period is included below.
Property Sector
Commercial offices
Industrial
Retail
Yields
6.25% - 9.25%
7.00% - 8.00%
8.50% - 9.00%
Valuations reflect, where appropriate:
−
the type of tenants actually in occupation or responsible for meeting lease commitments or likely to be in occupation after letting of
vacant accommodation and the market’s general perception of their credit-worthiness;
the allocation of maintenance and other operating cost responsibilities between lessor and lessee; and
the remaining economic life of the property.
−
−
(i) Investments and other financial assets
The Group classifies its investments as either financial assets at fair value through profit or loss, loans and receivables, held-to-maturity
investments, or available-for-sale financial assets. The classification depends on the purpose for which the investments were acquired.
Management determines the classification of its investments at initial recognition.
Financial assets at fair value through profit or loss
Financial assets at fair value through profit or loss are financial assets held for trading which are acquired principally for the purpose of
selling in the short term with the intention of making a profit. Derivatives are also categorised as held for trading unless they are desig-
nated as hedges.
Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They
arise when the Group provides money, goods or services directly to a debtor with no intention of selling the receivable. They are included in
current assets, except for those with maturities greater than 12 months after the balance sheet date, which are classified as non-current
assets.
Held-to-maturity investments
Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturities that the Group’s
management has the positive intention and ability to hold to maturity.
Available-for-sale financial assets
Available-for-sale financial assets are non-derivatives that are either designated in this category or not classified in any of the other cat-
egories. They are included in non-current assets unless management intends to dispose of the investment within 12 months of the balance
sheet date.
Regular purchases and sales of investments are recognised on trade date – the date on which the Group commits to purchase or sell the
asset. Investments are initially recognised at fair value plus transaction costs for all financial assets not carried at fair value through profit
or loss. Financial assets carried at fair value through profit or loss are initially recognised at fair value and transaction costs are expensed
in the income statement. Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or
have been transferred and the Group has transferred substantially all the risks and rewards of ownership.
Available-for-sale financial assets and financial assets at fair value through profit and loss are subsequently carried at fair value. Loans,
receivables and held-to-maturity investments are carried at amortised cost using the effective interest method. Gains or losses arising
from changes in the fair value of the ‘financial assets at fair value through profit or loss’ category, including interest and dividend income,
are presented in the income statement in the period in which they arise. Changes in the fair value of securities classified as available-for-
36
CrOMWELL GrOUP annual report 2008
sale are recognised in equity. When securities classified as available-for-sale are sold or impaired, the accumulated fair value adjustments
recognised in equity are included in the income statement as gains or losses from investment securities.
The Group assesses at each balance date whether there is objective evidence that a financial asset or group of financial assets is impaired.
In the case of equity securities classified as available-for-sale, a significant or prolonged decline in the fair value of a security below its cost
is considered in determining whether the security is impaired. If any such evidence exists for available-for-sale financial assets, the cumu-
lative loss – measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial
asset previously recognised in profit and loss – is removed from equity and recognised in the income statement. Impairment losses recog-
nised in the income statement on equity instruments classified as available-for-sale are not reversed through the income statement.
(j) Property, plant and equipment
Property, plant and equipment is stated at historical cost less depreciation. Historical cost includes expenditure that is directly attributable
to the acquisition of the items.
Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that
future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs
and maintenance are charged to the income statement during the financial period in which they are incurred.
Depreciation is calculated using the straight-line method to allocate cost of assets, net of their residual values, over their estimated useful
lives, as follows:
Class
Plant and equipment
Leasehold improvements
Leased plant and equipment
Rate
10-40%
10%
10-40%
The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date.
An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its esti-
mated recoverable amount (note 1(l)).
Gains and losses on disposals are determined by comparing proceeds with carrying amount. These are included in the income state-
ment.
Property that is being constructed or developed for future use as investment property is accounted for as property, plant and equipment
and is stated at cost until construction of the development is complete. At this time it is remeasured to fair value and reclassified as invest-
ment property. Any gain or loss arising on remeasurement is recognised in profit or loss.
(k) Intangible assets
Software assets have a finite useful life and are carried at cost less accumulated amortisation and impairment losses. Amortisation is cal-
culated using the straight-line method to allocate the cost of software over its estimated useful lives of 3 years on average.
(l) Impairment of assets
Goodwill and intangible assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment, or
more frequently if events or changes in circumstances indicate that they might be impaired.
At each reporting date, and whenever events or changes in circumstances occur, the Group assesses whether there is any indication that
any other asset may be impaired. Where an indicator of impairment exists, the Group makes a formal estimate of recoverable amount. Where
the carrying amount of an asset exceeds its recoverable amount, the asset is considered impaired and an impairment loss is recognised for
the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair
value less costs to sell and value in use.
StrENGtH - CONFIDENCE - OPPOrtUNIty
37
notes to the financial statements continued
For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash inflows
which are largely independent of the cash inflows from other assets or groups of assets (cash generating units). Assets other than goodwill
that suffer an impairment are reviewed for possible reversal of the impairment at each reporting date.
(m) Fair value estimation
The fair value of financial assets and financial liabilities must be estimated for recognition and measurement or for disclosure purposes.
The fair value of financial instruments traded in active markets (such as publicly traded derivatives, and trading and available-for-sale secu-
rities) is based on quoted market prices at the balance sheet date. The quoted market price used for financial assets held by the Group is
the current bid price; the appropriate quoted market price for financial liabilities is the current ask price.
The fair value of financial instruments that are not traded in an active market (for example, over-the-counter derivatives) is determined
using valuation techniques. The Group uses a variety of methods and makes assumptions that are based on market conditions existing at
each balance date. Quoted market prices or dealer quotes for similar instruments are used for long-term debt instruments held. Other
techniques, such as estimated discounted cash flows, are used to determine fair value for the remaining financial instruments.
The carrying value less impairment provision of trade and other receivables and payables are assumed to approximate their fair values due
to their short-term nature. The fair value of financial liabilities for disclosure purposes is estimated by discounting the future contractual
cash flows at the current market interest rate that is available to the Group for similar financial instruments.
(n) Business combinations
The purchase method of accounting is used to account for all business combinations regardless of whether equity instruments or other
assets are acquired. Cost is measured as the fair value of the assets given, shares issued or liabilities incurred or assumed at the date of
exchange plus costs directly attributable to the acquisition. Where equity instruments are issued in an acquisition, the value of the instru-
ments is their published market price as at the date of exchange unless, in rare circumstances, it can be demonstrated that the published
price at the date of exchange is an unreliable indicator of fair value and that other evidence and valuation methods provide a more reliable
measure of fair value. Transaction costs arising on the issue of equity instruments are recognised directly in equity.
Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair
values at the acquisition date, irrespective of the extent of any minority interest. The excess of the cost of acquisition over the fair value of
the Group’s share of the identifiable net assets acquired is recorded as goodwill. If the cost of the acquisition is less than the Group’s share
of the fair value of the identifiable net assets of the subsidiary acquired, the difference is recognised directly in the income statement, but
only after a reassessment of the identification and measurement of the net assets acquired.
Where settlement of any part of cash consideration is deferred, the amounts payable in the future are discounted to their present value as
at the date of exchange. The discount rate used is the entity’s incremental borrowing rate, being the rate at which a similar borrowing could
be obtained from an independent financier under comparable terms and conditions.
(o) Lease incentives
Prospective lessees may be offered incentives as an inducement to enter into non-cancellable operating leases. These incentives may take
various forms including up front cash payments, rent free periods, or a contribution to certain lessee costs such as fit out costs or relocation
costs. They are recognised as an asset in the balance sheet as a component of the carrying amount of investment property and amortised
over the lease period as a reduction of rental income.
(p) Initial direct leasing costs
Initial direct leasing costs incurred by the Group in negotiating and arranging operating leases are recognised as an asset in the balance
sheet as a component of the carrying amount of investment property and are amortised as an expense on a straight-line basis over the
lease term.
(q) Repairs and maintenance
Repairs and maintenance costs and minor renewals are charged as expenses when incurred.
38
CrOMWELL GrOUP annual report 2008
(r) Derivative financial instruments
The Group is exposed to changes in interest rates and uses interest rate swaps to hedge these risks. Such derivative financial instruments
are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently remeasured to fair value
at balance date. Derivatives are carried as assets when their fair value is positive and as liabilities when their fair value is negative.
The Group enters into interest rate swap agreements that are used to convert certain variable interest rate borrowings to fixed interest rates
or vice versa. The swaps are entered into with the objective of hedging the risk of adverse interest rate fluctuations. While the Group has
determined that these arrangements are economically effective, they have not satisfied the documentation, designation and effectiveness
tests required by accounting standards. As a result, they do not qualify for hedge accounting and gains or losses arising from changes in fair
value are recognised immediately in the income statement.
(s) Trade and other payables
Trade and other payables are recognised initially at fair value and subsequently measured at amortised cost. These amounts represent
liabilities for goods and services provided to the Group prior to the end of the year and which are unpaid. The amounts are usually unse-
cured and paid within 30-60 days of recognition.
(t) Borrowings and borrowing costs
Borrowings are initially recognised at fair value, net of transaction costs incurred. Borrowings are subsequently measured at amortised
cost using the effective interest rate method. Under this method fees, costs, discounts and premiums directly related to the financial liability
are spread over its expected life. Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settle-
ment of the liability for at least 12 months after the balance sheet date.
Borrowing costs incurred for the construction of a qualifying asset are capitalised during the period of time that is required to complete and
prepare the asset for its intended use or sale. Other borrowing costs are expensed. Where funds are borrowed specifically for the acquisi-
tion, construction or production of a qualifying asset the amount of borrowing costs capitalised is the actual borrowing costs incurred on that
borrowing net of any interest earned on those borrowings. Where funds are borrowed generally the capitalisation rate used to determine the
amount of borrowing costs to capitalise is the weighted average interest rate applicable to the Group’s outstanding borrowings during the
year.
In prior periods, the units on issue in the Trust were classified as a financial liability under AASB 132 Financial Instruments: Disclosure and
Presentation, due to the fixed life of the Trust. Consequently, distributions to Trust members (while the units were classified as a liability)
have been recognised as finance costs. The Trust’s constitution was amended on 1 June 2007 to remove the fixed life of the Trust. According-
ly, from that date units on issue are classified as a minority interest in equity and distributions are no longer expensed as finance costs.
(u) Financial guarantee contracts
Financial guarantee contracts are recognised as a financial liability at the time the guarantee is issued. The liability is initially measured
at fair value and subsequently at the higher of the amount determined in accordance with AASB 137 Provisions, Contingent Liabilities and
Contingent Assets and the amount initially recognised less any cumulative amortisation.
The fair value of financial guarantees is determined as the present value of the difference in net cash flows between the contractual pay-
ments under the debt instrument and the payments that would be required without the guarantee, or the estimated amount that would be
payable to a third party for assuming the obligations. Where guarantees in relation to loans or other payables of subsidiaries or associates
are provided for no compensation, the fair values are accounted for as contributions and recognised as part of the cost of the investment.
(v) Provisions
Provisions are recognised when:
a) the Group has a present legal or constructive obligation as a result of past events;
b) it is probable that an outflow of resources will be required to settle the obligation; and
c) the amount has been reliably estimated.
Provisions are not recognised for future operating losses.
StrENGtH - CONFIDENCE - OPPOrtUNIty
39
notes to the financial statements continued
(w) Employee benefits
Wages and salaries, annual leave and sick leave
Liabilities for wages and salaries, including non-monetary benefits, annual leave and accumulating sick leave expected to be settled within
12 months of the reporting date are recognised 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.
Long service leave
The liability for long service leave 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 government bonds with terms to maturity and currency that match, as closely as possible, the estimated
future cash outflows.
Superannuation
Contributions are made by the Group to defined contribution superannuation funds. Contributions are charged as expenses as they become
payable.
Share-based payments
The fair value of options granted is recognised as an employee benefit expense with a corresponding increase in equity. The fair value is
measured at grant date and recognised over the period during which the employees become unconditionally entitled to the options.
The fair value at grant date is determined using an option pricing model that takes into account the exercise price, the term of the option,
the share price at grant date and expected price volatility of the underlying share, the expected dividend yield and the risk-free interest rate
for the term of the option.
The fair value of the options granted is adjusted to reflect market vesting conditions, but excludes the impact of any non-market vesting con-
ditions (for example, profitability and sales growth targets). Non-market vesting conditions are included in assumptions about the number
of options that are expected to become exercisable. At each balance sheet date, the entity revises its estimate of the number of options that
are expected to become exercisable. The employee benefit expense recognised each period takes into account the most recent estimate.
The impact of the revision to original estimates, if any, is recognised in the income statement with a corresponding adjustment to equity.
Bonus plans
The Group recognises a liability and an expense for bonuses where contractually obliged or where there is a past practice that has created
a constructive obligation.
(x) Leases (as lessee)
Leases of assets where the Group has substantially all the risks and rewards of ownership are classified as finance leases. Finance leases are
capitalised at the lease’s inception at the lower of the fair value of the leased property and the present value of the minimum lease payments.
The corresponding rental obligations, net of finance charges, are included in liabilities. Each lease payment is allocated between the liability
and finance cost. The finance cost is charged to the income statement over the lease period so as to produce a constant periodic rate of inter-
est on the remaining balance of the liability for each period. The depreciable assets acquired under finance leases are depreciated over the
estimated useful life of the asset. Where there is no reasonable certainty that the lessee will obtain ownership, the asset is depreciated over
the shorter of the lease term and the asset’s useful life.
Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases.
Payments made under operating leases (net of any incentives received from the lessor) are charged to the income statement on a straight-
line basis over the period of the lease.
40
CrOMWELL GrOUP annual report 2008
(y) Leasehold improvements
The cost of improvements to or on leasehold properties is amortised over the unexpired period of the lease or the estimated useful life of
the improvement to the Group, whichever is the shorter. The amortisation rate for leasehold improvements is set out in note 1(j).
(z) Contributed equity
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as
a deduction, net of tax, from the proceeds.
When share capital recognised as equity is repurchased, the amount of the consideration paid, including directly attributable costs, is rec-
ognised as a deduction from total equity. In the Company’s financial statements, the transactions of the Employee Share Ownership Plan
(ESOP) are treated as being executed directly by the Company. Accordingly, shares held by the ESOP are recognised as treasury shares and
deducted from equity.
(aa) Dividends/distributions
Provision is made for the amount of any dividend/distribution declared, being appropriately authorised and no longer at the discretion of
the Group, on or before the end of the financial year but not distributed at balance date.
(ab) Earnings per share
Basic earnings per share
Basic earnings per share is calculated by dividing the profit attributable to equity holders of the Company, excluding any costs of servicing
equity other than ordinary shares, by the weighted average number of ordinary shares outstanding during the financial year, adjusted for
bonus elements in ordinary shares issued during the year.
Diluted earnings per share
Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account the after income
tax effect of interest and other financing costs associated with dilutive potential ordinary shares and the weighted average number of shares
assumed to have been issued for no consideration in relation to dilutive potential ordinary shares.
(ac) Goods and services tax
Revenues, expenses and assets are recognised net of the amount of goods and services tax (GST), except:
−
where the amount of GST incurred is not recoverable from the taxation authority, it is recognised as part of the cost of acquisition of an
asset or as part of an item of expense; or
for receivables and payables which are recognised inclusive of GST.
−
The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables.
(ad) Comparatives
Where necessary, comparative figures have been adjusted to conform with changes in presentation in the current year.
(ae) Rounding of amounts
The Company is of a kind referred to in Class Order 98/0100, issued by the Australian Securities and Investments Commission, relating to
the “rounding off” of amounts in the financial report. Amounts in the financial report have been rounded off in accordance with that Class
Order to the nearest thousand dollars, or in certain cases, to the nearest dollar.
StrENGtH - CONFIDENCE - OPPOrtUNIty
41
notes to the financial statements continued
(af) New accounting standards and interpretations
Relevant accounting standards and interpretations that have recently been issued or amended but are not yet effective and have not been
adopted for the annual reporting period ended 30 June 2008 are as follows:
Standard/Interpretation
Application date of
standard
Application date for
the Group
AASB 3 Business Combinations – revised and consequential amendments to other
accounting standards resulting from its issue
1 Jul 2009
1 Jul 2009
AASB 8 Operating Segments and consequential amendments to other accounting standards
resulting from its issue
1 Jan 2009
1 Jul 2009
AASB 101 Presentation of Financial Statements – revised and consequential amendments
to other accounting standards resulting from its issue
AASB 123 Borrowing Costs - revised and consequential amendments to other accounting
standards resulting from its issue
AASB 127 Consolidated and Separate Financial Statements - revised and consequential
amendments to other accounting standards resulting from its issue
AASB 2008-1 Amendments to Australian Accounting Standard – Share-based Payments:
Vesting Conditions and Cancellations
AASB 2008-2 Amendments to Australian Accounting Standards – Puttable Financial
Instruments and Obligations arising on Liquidation
AASB 2008-5 Amendments to Australian Accounting Standards arising from the Annual
Improvements Project
AASB 2008-6 Further Amendments to Australian Accounting Standards arising from
the Annual Improvements Project
AASB 2008-7 Amendments to Australian Accounting Standards – Cost of an Investment
in a Subsidiary, Jointly Controlled Entity or Associate
Interpretation 13 Customer Loyalty Programs
IFRIC 15 Agreements for the Construction of Real Estate
1 Jan 2009
1 Jul 2009
1 Jan 2009
1 Jul 2009
1 Jul 2009
1 Jul 2009
1 Jan 2009
1 Jul 2009
1 Jan 2009
1 Jul 2009
1 Jan 2009
1 Jul 2009
1 Jul 2009
1 Jul 2009
1 Jan 2009
1 Jul 2009
1 Jul 2008
1 Jan 2009
1 Jul 2008
1 Jul 2009
The Directors anticipate that the adoption of these Standards and Interpretations in future periods may have the following impacts:
The revised AASB 3 applies prospectively for all business combinations after it becomes effective. It introduces a number of changes which
may have a significant impact on accounting for future business combinations. For example, it allows a choice for measuring non-control-
ling interests (minority interest) in an acquiree – either fair value or at the proportionate share of the acquiree’s net identifiable assets. It
also requires acquisition related costs to be accounted for separately from the business combination – which will usually mean they will be
expensed. The directors have not yet assessed the impact the revised standard will have in future periods.
AASB 8 may impact segment disclosures. It is not expected to impact the amounts included in the financial statements except that it may
impact the level at which goodwill, if any, is tested for impairment.
The revised AASB 101 is only expected to affect the presentation and disclosure of the financial report.
The revised AASB 123 will require that borrowing costs associated with qualifying assets be capitalised. The directors do not expect the
revised standard will have a material impact as the Group has already adopted the allowed alternative treatment of capitalising borrowing
costs attributable to qualifying assets.
The revised AASB 127 introduces a number of changes including requiring that changes in an ownership interest in a subsidiary that do
not result in a loss of control be accounted for as equity transactions and net income being attributed to the parent and the non-controlling
interests even if this results in the non-controlling interests having a deficit balance. The directors have not yet assessed the impact the
revised standard will have in future periods.
42
CrOMWELL GrOUP annual report 2008
AASB 2008-1 introduces a number of amendments in accounting for share-based payments including clarifying that vesting conditions com-
prise service conditions and performance conditions only. The Group may have or enter into share-based payment arrangements that could
be affected by these amendments. However, the directors have not yet assessed the impact, if any.
AASB 2008-2 introduces amendments that allow an entity that issues certain puttable financial instruments to classify them as equity
rather than financial liabilities. As the consolidated Group does not have any such financial instruments, these amendments are not expect-
ed to have an impact on the financial report in future years.
AASB 2008-5 and AASB 2008-6 – These amendments introduce various changes to IFRSs. The directors have not yet assessed the impact
of the amendments, if any.
AASB 2008-7 introduces amendments that result in all dividends from a subsidiary, jointly controlled entity or associate being recognised
in the separate financial statements of an investor as income.
Interpretation 13 - This interpretation deals with accounting for customer loyalty programmes. As the Group does not have any such pro-
grammes, the interpretation is not expected to have an impact on the financial report.
IFRIC 15 – This interpretation deals with accounting by real estate developers providing construction services. The directors have not yet
assessed the impact of the amendments, if any.
2. Critical Accounting estimates and Judgements
Critical accounting estimates and judgements are:
a) Estimates of fair value of interest rate derivatives. The fair value of interest rate derivatives has been determined by a third party
financial institution by assessing the net present value of future cash flows of the interest rate derivatives based on certain assumptions
including market expectations of interest rates and discount rates.
b) Assumptions underlying management’s estimates of fair value. The Group has investment properties with a carrying amount of approxi-
mately $1,120,716,000 (2007: $927,113,000) representing estimated fair value. In addition, the carrying amount of the Group’s investment
in jointly controlled entity/associate of approximately $80,593,000 (2007: $66,245,000) also reflects investment properties carried at fair
value. These carrying amounts reflect certain assumptions about expected future rentals, rent-free periods, operating costs and appropri-
ate discount and capitalisation rates. In forming these assumptions, the independent valuers considered information about current and
recent sales activity, current market rents and discount and capitalisation rates, for properties similar to those owned by the Group.
Consolidated
Parent
2008
$’000
2007
$’000
2008
$’000
2007
$’000
3. gain on sale of investment properties
Net proceeds from sale of investment properties
Carrying value of investment properties sold and other costs
of sale
190,064
(182,594)
32,745
(27,782)
Gain on sale of investment properties
7,470
4,963
4. employee Benefits expense
Wages and salaries including on costs
Contributions to defined contribution plans
Equity settled share-based payments
Increase in liability for long service and annual leave
8,115
512
95
289
9,011
7,039
405
282
164
7,890
–
–
–
329
–
73
–
402
–
–
–
66
–
282
–
348
StrENGtH - CONFIDENCE - OPPOrtUNIty
43
notes to the financial statements continued
5. finance Costs (excluding unitholders)
Total interest
Less: interest capitalised
Interest expense
Amortisation of loan establishment costs
Finance costs (excluding unitholders)
6. income tax
Income tax expenses/(credit)
Current tax
Deferred tax
Prior year tax losses recognised
Adjustment in relation to prior periods
Numerical reconciliation of income tax expenses/(credit)
to prima facie tax
Profit before income tax and unitholders’ finance costs
Unitholders’ finance costs
Profit before income tax
Tax at the Australian tax rate of 30% (2007: 30%)
Tax effect of amounts which are not deductible (taxable)
in calculating taxable income:
Non–taxable trust income
Non–deductible expenses
Non–taxable partnership income
Non–assessable income
Prior year tax losses recognised (note 20)
Adjustment in relation to prior periods
Income tax expense/(credit)
Unrecognised deferred tax assets
Deferred tax assets have not been recognised in respect
of the following items:
Consolidated
Parent
2008
$’000
2007
$’000
2008
$’000
2007
$’000
33,111
(2,186)
30,925
890
31,815
23,712
(286)
23,426
1,089
24,515
37
–
37
–
37
6,100
103
(2,959)
98
3,342
123,243
–
123,243
36,973
(26,567)
43
(4,099)
(147)
(2,959)
98
3,342
2,451
(311)
(2,870)
7
(723)
113,234
(98,265)
14,969
4,491
(2,122)
63
–
(292)
(2,870)
7
(723)
4,414
130
(2,959)
(577)
1,008
19,394
–
19,394
5,818
–
24
(698)
(600)
(2,959)
(577)
1,008
148
–
148
–
148
1,792
(202)
(2,870)
7
(1,273)
5,089
–
5,089
1,527
–
63
–
–
(2,870)
7
(1,273)
Tax losses
14,020
17,003
14,020
17,003
The tax losses do not expire under current tax legislation. Deferred tax assets have not been recognised in respect of these items because
it is not probable that future taxable profit will be available against which the consolidated entity can utilise the benefits from the deferred
tax assets. All unused tax losses were incurred by Australian entities.
Amounts recognised directly in equity
Refer to note 20 for the aggregate deferred tax relating to items that are charged or credited to equity.
44
CrOMWELL GrOUP annual report 2008
Tax consolidation
Refer note 1(d) for details regarding the relevance of the tax consolidation system to the consolidated entity, the tax funding arrangements
and other information.
No amounts were recognised during the year (2007: $nil) as tax consolidation contributions by, or distributions to, equity participants (refer
note 38 for further information).
7. Cash and Cash equivalents
Cash at bank
Deposits
Consolidated
Parent
2008
$’000
2007
$’000
2008
$’000
2007
$’000
5,499
2,784
8,283
14,797
3,048
17,845
112
593
705
35
–
35
Cash at bank is earning variable interest at market rates with a weighted average of 6.95% at 30 June 2008 (2007: 6.00%). The deposits are
earning variable interest at market rates with a weighted average of 7.53% at 30 June 2008 (2007: 6.35%). The deposits have an average
period to maturity of 30 days. At balance date cash and deposits were held with Australian financial institutions.
8. trade and other receivables
Trade and other receivables
Loans
– associate
– other persons
Amounts owing by controlled entities (refer note 38)
3,750
40,052
4,671
–
48,473
9,305
11,972
3,065
–
24,342
345
–
–
22,592
22,937
2,001
–
–
4,698
6,699
Trade and other receivables mainly comprise amounts owing by tenants of the Group’s investment properties and other managed invest-
ment schemes. Trade and other receivables are usually non-interest bearing, unsecured and generally payable on no more than 30 day
terms.
The net fair values of trade and other receivables approximate their carrying values.
Loan – associate
Cromwell Accumulation Fund
The Trust provided a loan of $13,572,000 to Cromwell Accumulation Fund (a subsidiary of Cromwell Property Fund) during the 2007 year
to fund the acquisition of investment properties. Subsequently, further advances of $900,000 were made and repayments of $2,500,000
were received prior to 30 June 2007. The loan was repaid in full during the 2008 financial year. The loan was unsecured, at call with no fixed
repayment terms and earned interest at a floating rate.
Cromwell Property Fund and its subsidiaries
The Trust provided a loan of $30,000,000 to Cromwell Property Fund during the 2008 year. Prior to balance date, the Cromwell Property
Fund had made repayments of $5,000,000. The loan is unsecured, at call with no fixed repayment terms and earns interest at a variable
rate (capped at 8%) which was 8% at balance date.
Cromwell Paclib Nominees Pty Ltd, a subsidiary of the Parent, provided loans of $15,052,000 to Cromwell Property Fund and its subsidiaries
during the year. The loans are unsecured, at call with no fixed repayment terms and earn interest at a variable rate (BBSW) plus a margin
of 1.50%, which was 9.05% at balance date.
StrENGtH - CONFIDENCE - OPPOrtUNIty
45
notes to the financial statements continued
Amounts owing by controlled entities
Cromwell Paclib Nominees Pty Ltd
The parent provided a loan of $20,167,000 to Cromwell Paclib Nominees Pty Ltd during the 2008 year. The loan is unsecured, at call with no
fixed repayment terms, repayable in cash and earns interest at a variable rate (BBSW) plus a margin of 1.50%, which was 9.05% at balance
date.
Other controlled entities
These amounts are generally non-interest bearing, unsecured and repayable in cash at call.
Past due but not impaired receivables
As of 30 June 2008, trade and other receivables of $7,026,000 (2007: $8,338,000) were past due but not impaired. These relate to a number
of tenants for whom there is no recent history of default and the $4,671,000 (2007: $3,065,000) loan to a property developer. In December
2007, the Group utilised its security to become mortgagee in possession of the property. The Group expects to take ownership of the prop-
erty during 2009. Based on a valuation of the property conducted in April 2008 the Group expects to fully realise this receivable. No other
significant receivables are past due but not impaired. As of 30 June 2008, no receivables relating to the Parent were past due.
Impaired receivables
No receivables have been determined to be impaired.
Consolidated
Parent
2008
$’000
2007
$’000
2008
$’000
2007
$’000
9. other financial Assets
Restricted cash
25,700
121
–
–
Restricted cash held on bank deposit at 30 June 2008 is used to provide security in relation to the CMBS borrowings (see note 23).
Restricted cash earns interest at floating rates with a weighted average rate at 6.95% (2007: 5.95%) at 30 June 2008.
The net fair values of other financial assets approximate their carrying values.
46
CrOMWELL GrOUP annual report 2008
Consolidated
Parent
2008
$’000
2007
$’000
2008
$’000
2007
$’000
10. derivative financial instruments
Interest rate swaps – at fair value
19,367
13,498
11. inventories
Current
Development property – at cost
Land *
Construction costs (refer note 17)
Capitalised interest
Development property – at net realisable value
Construction costs (refer note 17)
* Relating to Bundall Corporate Centre (refer note 17)
12. other Current Assets
–
1,990
–
1,990
2,040
4,030
9,540
1,848
625
12,013
–
12,013
Prepayments
2,027
1,108
13. investment properties Classified as held for sale
Investment properties – at fair value
–
156,452
Movement in assets held for sale
Balance at 1 July
Transfer from investment properties
Disposal of held for sale assets
Balance at 30 June
156,452
–
(156,452)
–
–
156,452
–
156,452
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1,140
–
–
1,140
–
1,140
–
–
–
–
–
–
During the year, settlements of the investment properties at 59 Goulburn Street, Sydney and the Bundall Corporate Centre were finalised.
StrENGtH - CONFIDENCE - OPPOrtUNIty
47
notes to the financial statements continued
Consolidated
Parent
2008
$’000
2007
$’000
2008
$’000
2007
$’000
14. investment properties
Investment properties – at fair value
1,120,716
927,113
Movement in investment properties
Balance at 1 July
Balances assumed at stapling (refer note 33)
Additions at cost
– Acquisition price
– Transaction costs
– Improvements
Disposal – property held by the Trust
Deconsolidation of CAF (refer note 34)
Deconsolidation of CPF (refer note 34)
Transfer to assets held for sale
Straight–lining rentals
Lease incentives
Leasing costs
Net gain from fair value adjustments
Balance at 30 June
Amounts recognised in profit and loss for investment
properties
Rental and outgoings from investment properties
Direct operating expense from properties that generated
rental income
927,113
–
166,025
13,259
3,215
(24,603)
–
–
–
735
(369)
692
34,649
1,120,716
–
1,388,280
22,725
1,356
1,224
(27,283)
(23,968)
(350,985)
(156,452)
1,374
493
570
69,779
927,113
89,658
(16,497)
60,702
(11,923)
73,161
48,779
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Assets pledged as security
Loans (refer note 23) are secured by fixed and floating charges over each investment property plus charges over any building document,
lease document, performance bond and bank guarantee in addition to a real property mortgage over each property.
48
CrOMWELL GrOUP annual report 2008
Leases as a lessor
The investment properties are generally leased to tenants on long term operating leases with rentals payable monthly. Minimum lease
payments under the non-cancellable operating leases of the investment properties not recognised in the financial statements are receiv-
able as follows:
Within one year
Later than one year but not later than five years
Later than five years
Details of investment properties are set out below.
Title
Acquisition (1)
Date Price
Consolidated
Parent
2007
$’000
81,020
223,065
114,200
418,285
2008
$’000
2007
$’000
–
–
–
–
–
–
–
–
Independent
valuation/
sale amount
Carrying
amount
Fair value
adjustment
2008
$’000
90,260
296,670
173,995
560,925
Most
recent
inde-
pendent
valuation
date (2)
$’000
2008
$’000
2007
$’000
2008
$’000
2007
$’000
2008
$’000
2007
$’000
Sold
9,700
17,778 Dec 2007
30,420 Dec 2007
Jun 2008
34,000 Dec 2007
8,900 Dec 2007
Properties held by CDPT:
27,300
Freehold Feb 2003
NQX Property, QLD
42,000
Henry Waymouth Centre, SA
Freehold Apr 2003
11,260
Hellman Distribution Centre, VIC Freehold Jun 2003
41,000
Freehold Jun 2004
Wesfarmers Woolstore, VIC
11,000
Freehold Jun 2004
Village Geelong Cinema, VIC
–
31,900
Freehold Jun 2004
Village City Centre, VIC
18,100
15,900 Dec 2007
Freehold Jun 2004
Vodafone House, TAS
15,450
16,000 Dec 2007
Freehold Jun 2004
Hobart Cinema Complex, TAS
3,100
3,500 Dec 2007
Freehold Jun 2004
Village Launceston, TAS
–
2,300
Freehold Jun 2004
Heildelberg House, QLD
12,000
9,900 Dec 2007
Freehold Jun 2004
Albury Cinema Centre, NSW
12,500
Jun 2007
7,600
Freehold Jun 2004
Spicers Paper, WA
–
Sold
11,100
Freehold Jun 2004
Bird Cameron Building, WA
15,400
Jun 2008
10,900
Freehold Jun 2004
Elders Woolstore, SA
Freehold Dec 2004 133,000 Dec 2007 183,500
700 Collins Street, VIC
44,450
41,000
Freehold Feb 2005
Forsyth Centre, VIC
35,500
35,530
Leasehold July 2005
Centenary House, ACT
44,000
Freehold Dec 2005
Bundall Corporate Centre, QLD
–
Jun 2008 110,000
88,000
Freehold Dec 2005
380 LaTrobe Street, VIC
Jun 2008
Freehold Jan 2006
101 Grenfell St, SA
36,800
30,375
Jun 2008 142,000
Freehold Mar 2006 102,650
475 Victoria Av, NSW
761,360
684,453
Jun 2008
Jun 2008
Sold
Sold
25,000
38,500
11,900
41,000
10,500
–
16,500
15,450
3,400
3,000
10,600
12,500
21,600
15,800
161,300
47,000
40,750
64,400
95,000
35,000
125,500
794,700
27,301
42,035
11,260
41,074
11,001
–
18,054
15,573
3,139
–
12,011
12,491
–
15,400
183,479
44,450
35,500
–
110,000
36,800
142,000
761,568
25,052
38,501
11,900
41,144
10,500
–
16,531
15,476
3,430
3,003
10,922
12,500
21,600
15,800
161,263
47,000
41,198
64,400
95,538
35,000
127,080
797,838
2,243
3,500
(613)
(230)
488
–
1,584
(175)
(331)
–
1,077
–
–
(481)
22,272
(2,550)
(6,025)
–
14,517
1,215
13,178
49,669
2
(27)
805
–
–
(198)
30
9
3
–
(79)
4,315
5,562
2,337
12
–
5
12,901
43
3,997
126
29,843
(1) Comprises original acquisition date and price for the Trust which was prior to the stapling transaction in December 2006.
(2) Most recent independent valuation obtained by the Trust.
StrENGtH - CONFIDENCE - OPPOrtUNIty
49
notes to the financial statements continued
Title
Acquisi-
tion
date (1)
Acquisi-
tion
price (1)
Most
recent
inde-
pendent
valuation
date (2)
Independent
valuation/
sale amount
Carrying
amount
Carrying
amount
Fair value
adjustment
$’000
2008
$’000
2007
$’000
2008
$’000
2007
$’000
2008
$’000
2007
$’000
Properties held by Controlled
Entities: (3)
Freehold Jun 2001
200 Mary St, Brisbane, QLD
59 Goulburn St, Sydney NSW
Freehold May 2002
Terrace Office Park, Brisbane, QLD Freehold Jun 1999
243 Northbourne Ave, Canberra, ACT Leasehold Nov 2001
Quadrant Building, Canberra, ACT Leasehold Jun 2000
Scrivener Building, Canberra, ACT Leasehold Jun 2000
Leasehold Jun 2008
Tuggeranong Office Park, ACT
Total investment properties (including amounts
classified as held for sale)
Sold
29,250 Jun 2008
67,800
13,600 Jun 2008
23,550 Jun 2008
5,800 Jun 2008
10,750 Jun 2008
166,025 Jun 2008
316,775
100,000
–
36,000
34,000
10,350
12,800
166,025
359,175
100,000
92,052
36,000
33,200
9,750
14,725
–
285,727
100,000
–
35,973
34,000
10,350
12,800
166,025
359,148
100,000
92,052
36,000
33,200
9,750
14,725
–
285,727
(420)
–
–
413
166
(1,920)
(13,259)
(15,020)
22,035
2,697
8,693
3,991
595
1,925
–
39,936
1,001,228
1,120,535 1,080,427 1,120,716 1,083,565
34,649
69,779
Less investment properties classified as held for sale
Total investment properties
– (156,452)
927,113
1,120,716
(1) Comprises original acquisition date and price for the Syndicates, CAF and CPF which was mostly prior to the merger and stapling
transactions in December 2006.
(2) Most recent independent valuation obtained by the Syndicates, CAF and CPF.
(3) Investment properties held by Syndicates were acquired by the Group following the merger and stapling transactions in December 2006.
(4) Investment properties held by CAF are no longer part of the Group following the disposal of CAF in June 2007 (refer to note 34).
(5) Investment properties held by CPF are no longer part of the Group following the loss of control of CPF in February 2007 (refer to note 34).
Valuation basis
Independent valuations of properties were carried out by qualified valuers with relevant experience in the types of property being valued.
Independent valuations are carried out at least every two years.
The value of investment properties is measured on a fair value basis, being the amounts for which the properties could be exchanged
between willing parties in an arm’s length transaction, based on current prices in an active market for similar properties in the same loca-
tion and condition and subject to similar leases. In assessing the value of the investment properties, the independent valuers have consid-
ered both discounted cash flow and capitalisation methodologies. In addition, the Group has utilised similar internal valuation processes
for determining fair value where independent valuations are not obtained.
50
CrOMWELL GrOUP annual report 2008
15. Available-for-sale financial Assets
Listed securities
– Equity securities – at fair value
Interests in managed investment scheme
Cromwell Diversified Property Trust
Movement in available–for–sale financial assets
Balance at 1 July
Additions – at cost
Revaluation – fair value adjustment
Consolidation adjustment upon stapling *
Balance at 30 June
Consolidated
Parent
2008
$’000
2007
$’000
2008
$’000
2007
$’000
11,457
–
11,457
–
21,337
(9,880)
–
11,457
–
–
–
3,213
–
1,695
(4,908)
–
–
275
275
275
–
–
–
275
–
275
275
275
–
–
–
275
In 2008, the movements in the fair value of available-for-sale financial assets is attributable to the Trust unitholders (refer note 30). In 2007, the
movement was attributable to Company shareholders (refer note 28).
* Elimination relates to interests held in Cromwell Mary Street Planned Investment prior to Stapling (refer note 33).
16. investments in Jointly Controlled entity and Associate
The Group has an investment in a jointly controlled entity, Cromwell TGA Planned Investment (“TGA”), and an associate, Cromwell Property
Fund (“CPF”). The CPF was originally a controlled entity. Control was lost in February 2007 following the issue of units, by the CPF, to exter-
nal unitholders (refer note 34). These entities were formed in Australia and their principal activity is property investment.
The Group holds a two-thirds interest in TGA which is held by the Trust. The remaining one-third interest was acquired by CPF during the
year from an external investor. The Group exercises joint control over TGA, but neither the Group nor the CPF has control in its own right,
irrespective of their ownership interest, as both the Group and the CPF must consent to the strategic, financial and operating decisions
relating to TGA.
At 30 June 2008 the Group held 18% of the issued units of CPF. The Group is considered to have significant influence over the CPF due to its
investment being the single largest investment in the CPF, with the next largest representing less than 1% of the issued units of CPF.
StrENGtH - CONFIDENCE - OPPOrtUNIty
51
notes to the financial statements continued
The investments are accounted for in the consolidated financial statements using the equity method of accounting. Information relating to
the investments is detailed below:
Equity accounting information
Investments accounted for using the equity method:
TGA – jointly controlled entity
CPF – associate
Ownership Interest
Consolidated
2008
%
67%
18%
2007
%
67%
22%
2008
$’000
58,569
22,024
80,593
2007
$’000
52,349
13,896
66,245
Movement in the carrying value of the Group’s interest in its investments accounted for using the equity method during the 2008 and 2007
financial years was as follows:
2008 – Consolidated
Balance 1 July
Additions – at cost
Gain on dilution (1)
Share of profit/(loss) (2)
Distributions received
Balance 30 June
2007 – Consolidated
Investments acquired on stapling (refer note 33)
Transfer from controlled entity (refer note 34)
Gain on dilution (1)
Share of profit
Distributions received
Balance 30 June
CPF
$’000
TGA
$’000
Total
$’000
13,896
10,000
826
(630)
(2,068)
22,024
–
7,921
6,341
244
(610)
13,896
52,349
–
–
10,987
(4,767)
58,569
52,211
–
–
2,174
(2,036)
52,349
66,245
10,000
826
10,357
(6,835)
80,593
52,211
7,921
6,341
2,418
(2,646)
66,245
(1) The gain on dilution of $826,000 (2007: $6,341,000) was recognised on the basis of the Group’s interest in the net assets attributable to
unitholders of the CPF increasing since deconsolidation following the raising of additional funds from external unitholders.
(2) TGA’s 2008 share of profit includes gain on fair value adjustment to investment property.
52
CrOMWELL GrOUP annual report 2008
Details of the Group’s share of jointly controlled entity’s/associate’s financial information at balance date are as follows:
2008
2007
Assets
Current assets
Non–current assets
Investment properties – at fair value
Other
Total non–current assets
Total assets
Liabilities
Current liabilities
Borrowings
Other
Total current liabilities
Non–current liabilities
Borrowings
Other
Total non–current liabilities
Total liabilities
Net assets
Revenue
Expenses
Share of profit/(loss)
CPF
$’000
2,554
70,812
13,139
83,951
86,505
(11,249)
(1,875)
(13,124)
(51,357)
–
(51,357)
(64,481)
22,024
8,175
(8,805)
(630)
TGA
$’000
245
58,624
–
58,624
58,869
–
(300)
(300)
–
–
–
(300)
58,569
11,410
(423)
10,987
CPF
$’000
2,767
84,291
4,723
89,014
91,781
(47,290)
(1,730)
(49,020)
(28,865)
–
(28,865)
(77,885)
13,896
6,938
(6,694)
244
TGA
$’000
406
52,068
–
52,068
52,474
–
(125)
(125)
–
–
–
(125)
52,349
2,367
(193)
2,174
The reporting dates of the jointly controlled entity and associate are the same as for the Group. The proportion of voting power
held equates to the proportion of ownership interest held except for TGA for which both the Group and the CPF must consent to
the strategic, financial and operating decisions. The jointly controlled entity and associate do not recognise income tax expense or
liabilities given their nature.
Investments in equity accounted entities are initially accounted for (recognised) at cost by the relevant entity holding the interest.
The carrying amount is reduced where the fair value of the underlying interest, primarily representing an indirect interest in a share
of an investment property, is less than cost or the equity accounted carrying amount.
There were no investments in jointly controlled entities or associates by the parent.
StrENGtH - CONFIDENCE - OPPOrtUNIty
53
notes to the financial statements continued
Consolidated
Parent
2008
$’000
2007
$’000
2008
$’000
2007
$’000
17. investments in Controlled entities
Shares in subsidiaries – at cost
–
–
475
475
Shares in subsidiaries
Name
Cromwell Property Securities Limited
Cromwell Property Services Pty Ltd
Marcoola Developments Pty Ltd
Votraint No. 662 Pty Ltd
Peels Trust
Cromwell Capital Limited
Cromwell Finance Limited
Cromwell Operations Pty Ltd
Bundall Corporate Centre Holdings Pty Ltd
Bundall Corporate Centre Partnership
Cromwell Paclib Nominees Pty Ltd
Trust and its controlled entities
Name
Country
of Formation
Equity
Holding
2008
%
2007
%
Carrying Value
of Parent’s Investment
2007
2008
$’000
$’000
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
100
100
100
100
100
100
100
100
50
50
50
100
100
100
100
100
100
100
100
50
50
–
345
–
30
–
–
–
100
–
–
–
–
475
345
–
30
–
–
–
100
–
–
–
–
475
Country
of Formation
Equity
Holding
2008
%
2007
%
Cromwell CMBS Pty Ltd
Cromwell Loan Note Pty Ltd
Cromwell Holding Trust No 1
Cromwell Holding Trust No 2
Cromwell Holding Trust No 4
Terrace Office Park Property Trust/Planned Investment
Cromwell Mary Street Property Trust/Planned Investment
Cromwell Goulburn Street Property Trust/Planned Investment
Cromwell Northbourne Planned Investment
Cromwell Planned Investment #3
Tuggeranong Head Trust
Tuggeranong Trust
Cromwell Phoenix Property Securities Fund
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
–
–
–
* The Trust and its controlled entities listed above are consolidated as part of the Group as required under accounting standards (refer to note
1(b)). The Trust owns 100% of each of its controlled entities except for Cromwell Phoenix Securities Fund (94%) and Cromwell Mary Street
Planned Investment (92%). The other 8% of Cromwell Mary Street Planned Investment is held by a subsidiary of the parent (being Cromwell
Property Securities Limited). The units in the Trust are stapled with the shares of the parent as described in note 33.
54
CrOMWELL GrOUP annual report 2008
Cromwell Property Securities Limited (“CPS”) holds an Australian Financial Services Licence (AFSL) and acts as responsible entity for the
managed investment schemes managed by the Group. The AFSL requires CPS to maintain net tangible assets of $5 million. As such CPS
is restricted from paying dividends to the parent entity that would breach its licence conditions. Refer also to note 35.
Bundall Corporate Centre Holdings Pty Ltd (“BCCH”) is the nominee for the Bundall Corporate Centre Partnership which the parent entity
holds a 50% interest but controls through the appointment of a chairman with a casting vote. The partnership was formed during the 2006
financial year to lease property at Bundall on the Gold Coast from Cromwell Diversified Property Trust. Under the arrangement the part-
nership was to develop the land. The property was sold in October 2007 and the partnership realised profit of $25,008,000 which was shared
between the parent and the external minority interest. Apart from the holding of the land and subsequent sale, the partnership has had no
other significant trading. In particular, it has had no other significant revenue, expense or equity contributions.
Cromwell Paclib Nominees Pty Ltd (“CPN”) was formed in the current year. The parent holds a 50% interest but controls CPN through the
appointment of a chairman with a casting vote. CPN was formed to develop property held by Cromwell Property Fund and its subsidiar-
ies under a development lease with development costs (included in inventories – note 11). The parent has provided loans to CPN totalling
$20,167,000 (note 8). CPN has provided loans totalling $15,052,000 to Cromwell Property Fund and its subsidiaries (note 8). Several lots
of land being developed by CPN are currently under contract at balance date. Any profit earned will be shared between the parent and the
external minority interest. Apart from the loans and inventory, CPN has had no other significant trading. In particular, it has had no signifi-
cant revenue, expenses or equity contributions.
18. other financial Assets
Non-current
Convertible financing units
Consolidated
Parent
2008
$’000
2007
$’000
2008
$’000
2007
$’000
–
61,250
–
–
During the 2008 year the Cromwell Property Fund repaid the 61,250,000 convertible financing units (“CFUs”) held by the Group. All CFUs on
issue were held by the Group and were repaid at their issue price of $1 each.
The net fair values of other financial assets approximate their carrying values.
19. property plant and equipment
Property under construction – at cost
Leasehold improvements – at cost
Accumulated depreciation
Plant and equipment – at cost
Accumulated depreciation
Plant and equipment under finance lease – at cost
Accumulated depreciation
42,155
992
(288)
704
1,105
(672)
433
514
(227)
287
43,579
8,507
697
(213)
484
990
(525)
465
514
(176)
338
9,794
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
StrENGtH - CONFIDENCE - OPPOrtUNIty
55
notes to the financial statements continued
Total
$’000
9,794
34,101
(25)
(291)
43,579
1,403
33,186
(24,535)
(260)
9,794
–
–
Reconciliations of the carrying amounts of each class of property, plant and equipment are set out below.
Consolidated
Plant and Equipment
Property Under
Construction
$’000
Leasehold
Improvements
$’000
Owned
$’000
Under
Lease
$’000
465
144
(19)
(157)
433
494
172
(38)
(163)
465
–
–
338
–
–
(51)
287
376
2
–
(40)
338
–
–
Carrying amount at 1 July 2007
Additions
Disposals
Depreciation
Carrying amount at 30 June 2008
Carrying amount at 1 July 2006
Additions
Disposals
Depreciation
Carrying amount at 30 June 2007
Parent
Carrying amount at 30 June 2008
Carrying amount at 30 June 2007
(1) Represented by:
Acquired on stapling
Additions at cost:
- Acquisition price
- Transaction costs
- Construction costs
- Holding costs
- Capitalised interest
8,507
33,648 (1)
–
–
42,155
–
33,004 (1)
(24,497) (2)
–
8,507
–
–
2008
$’000
–
–
8
30,965
489
2,186
33,648
484
309
(6)
(83)
704
533
8
–
(57)
484
–
–
2007
$’000
24,163
7,100
364
225
866
286
33,004
(2) Disposal of $24,497,000 was recognised on sale of units in Cromwell Accumulation Fund – refer note 34.
Contractual commitments for the acquisition of property, plant and equipment are disclosed in note 40.
Assets pledged as security
Loans (refer note 23) are secured by a registered floating charge over the assets of the Trust.
56
CrOMWELL GrOUP annual report 2008
Consolidated
Parent
2008
$’000
2007
$’000
2008
$’000
2007
$’000
20. deferred tax Assets
Deferred tax assets
3,846
5,005
5,379
5,860
Deferred tax assets and liabilities are attributable to the following:
Interests in managed investment schemes
Payables
Employee benefits
Provisions
Other accruals and sundry items
Tax losses recognised
Movements
Balance at 1 July
Reduction in current tax liability on use of tax losses
previously recognised
(Debit)/credit to income statement
Prior year tax losses recognised (note 6)
Charged to reserve (note 28)
Adjustments in relation to prior periods
Balance at 30 June
(1,860)
27
279
30
145
5,225
3,846
5,005
(3,904)
(103)
2,959
–
(111)
3,846
(1,562)
86
186
30
676
5,589
5,005
3,902
(1,569)
311
2,870
(509)
–
5,005
(7)
17
–
–
144
5,225
5,379
5,860
(3,904)
(130)
2,959
–
594
5,379
(13)
–
–
–
284
5,589
5,860
4,357
(1,569)
202
2,870
–
–
5,860
The benefit of temporary differences and prior year tax losses recognised as a deferred tax asset was based on projected earnings over
a limited period that the directors considered to be probable. Projected earnings have been re-assessed at each reporting date. There remains
a significant amount of tax losses that have not been recognised as a deferred tax asset (refer note 6).
21. intangible Assets
Software – at cost
Accumulated amortisation
1,111
(659)
452
849
(481)
368
–
–
–
–
–
–
Software has been acquired externally. Amortisation of software is included in amortisation/depreciation expense in the income statement.
Reconciliations of the carrying amounts of software are set out below:
Carrying amount at 1 July
Additions – acquired separately
Disposals
Amortisation
Carrying amount at 30 June
368
263
–
(179)
452
339
230
(47)
(154)
368
–
–
–
–
–
–
–
–
–
–
StrENGtH - CONFIDENCE - OPPOrtUNIty
57
notes to the financial statements continued
Consolidated
Parent
2008
$’000
2007
$’000
2008
$’000
2007
$’000
22. trade and other payables
Trade payables and accruals
Security deposits
5,555
176
5,731
13,530
390
13,920
1,199
–
1,199
Trade and other payables are generally unsecured, non-interest bearing and paid within 30-60 days of recognition.
The net fair values of trade and other payables approximate their carrying values.
23. Borrowings
Borrowings
Current
Secured
Commercial mortgage backed security notes
Loans – financial institutions
Debentures
Lease liabilities
Non–Current
Secured
Commercial mortgage backed security notes
Loans – financial institutions
Debentures
Lease liabilities
Unsecured
Property preference shares
Maturity profile of the principal amounts of current and
non–current borrowings together with estimated interest
thereon:
Due within one year
Due between one and five years
Due after five years
428,265
43,566
3,429
56
475,316
–
147,615
497
20
148,132
–
148,132
520,233
83,634
126,758
730,625
–
144,106
9,812
75
153,993
427,993
–
4,692
77
432,762
211
432,973
186,056
455,379
–
641,435
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
181
–
181
–
–
–
–
–
–
–
–
–
–
211
211
–
211
–
211
58
CrOMWELL GrOUP annual report 2008
Commercial Mortgage Backed Security (“CMBS”) Note Issue
The CMBS facility, repayable in April 2009, is secured by first registered mortgages over all investment properties held by the Group and a
registered floating charge over the assets of the Trust. Interest is payable to the note holders monthly in arrears at variable rates based on
a margin over the 30 day BBSW rate which was 7.55% (2007: 6.33%) at balance date.
The CMBS issue comprises five tranches rated by a recognised rating agency, comprising 266 million Class A notes (AAA), 42 million Class
B notes (AA), 43 million Class C notes (A), 56 million Class D notes (BBB) and 22 million Class E notes (BBB-). All $429,000,000 raised
through the CMBS issue (2007: $288,000,000) is effectively at fixed interest rates through interest rate swap arrangements.
Financial Institution Loans
Details regarding financial institution (bank) loans at balance date are as follows:
Loan on investment in Cromwell TGA Planned Investment (see note 16)
The Group has a $27,000,000 (2007: $27,000,000) loan in relation to its investment in Cromwell TGA Planned Investment. The loan is secured
by a first registered mortgage over the TGA property and a registered floating charge over the assets of the TGA (these assets are reflected
in the carrying value of the investment in jointly controlled entity). The loan was refinanced during 2008 and now matures in March 2011
and bears interest at a variable rate which was 8.40% (2007: 6.89%) at balance date. The loan is effectively fixed through interest rate swap
arrangements to August 2010.
Loan on property under construction (see note 19)
The Group has a $40,261,000 (2007: $nil) loan in relation to property under construction. The loan is secured by a registered floating charge
over the assets of the Trust specific to the land at 79-88 Musk Ave in Kelvin Grove Urban Village, being the property under construction. The
loan matures in May 2009 and bears interest at a variable rate which was 8.25% at balance date.
Loan on investment in Tuggeranong Office Park (see note 14)
The Group has a $124,519,000 (2007: $nil) loan in relation to an investment property in Tuggeranong Office Park. The loan is secured by
a first registered mortgage over the investment property and a registered floating charge over the assets of Tuggeranong Trust. The loan
matures in June 2015 with $830,125 being repayable each quarter until June 2013. The loan bears variable interest which was 8.73% at
balance date.
The amounts of the CMBS note issue and loans shown above comprise the gross values of the respective borrowings. Under accounting
standards the amounts recognised in the balance sheet are net of transaction costs which are subsequently amortised using the effective
interest method.
Debentures
Cromwell Finance Limited (“CFL”), a controlled entity, has issued fixed interest debentures. The terms of the debentures varies between
1 – 3 years from issue date. The debentures are secured by a first ranking charge over all of the assets of CFL. The assets of CFL comprise
cash and cash equivalents of $117,000 (2007: $381,000) and loans receivable from other Group entities of $4,276,000 (2007: $14,718,000).
Payment of interest and principal is guaranteed by Cromwell Corporation Limited. The proceeds of the debentures are principally used to
assist in property and property finance related transactions. The interest rate is fixed for the term of each debenture and is payable at an
effective rate of 8% (2007: 8%). Interest is payable monthly in arrears and principal is repayable at varying times throughout the year on
maturity of the relevant debentures.
Lease Liabilities
Lease liabilities are effectively secured as the rights to the relevant assets (being leased property, plant and equipment) revert to the lessor
or financier in the event of default.
Finance Facilities
At 30 June 2008 the Group had unused finance facilities totalling $51,239,000 (2007: $nil). This facility is restricted to the property under
construction (refer note 19 and 40).
StrENGtH - CONFIDENCE - OPPOrtUNIty
59
notes to the financial statements continued
Interest Rate Risk
The Group’s exposure to interest rate risk and the effective weighted average interest rate by maturity periods is set out in the following
table.
Floating
interest
rate
$’000
428,265
191,181
–
–
(456,000)
163,446
7.15%
427,993
144,106
–
–
–
(315,255)
256,844
6.28%
Fixed interest rate maturing in
1 year
or less
$’000
Over 1 to
2 years
$’000
Over 2 to 3
years
$’000
Over 3 to 4
years
$’000
Over 4 to
5 years
$’000
Over
5 years
$’000
Total
$’000
–
–
3,429
56
246,015
249,500
6.15%
–
–
9,812
75
211
5,820
15,918
6.81%
–
–
497
20
15,060
15,577
5.72%
–
–
4,692
77
–
99,450
104,219
5.45%
–
–
–
–
76,745
76,745
5.53%
–
–
–
–
–
15,060
15,060
5.59%
–
–
–
–
–
–
–
–
–
–
–
–
76,745
76,745
5.50%
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
118,180
118,180
5.89%
–
–
–
–
–
118,180
118,180
5.81%
428,265
191,181
3,926
76
–
623,448
427,993
144,106
14,504
152
211
–
586,966
2008
CMBS note issue
Financial institution loans
Debentures
Lease liabilities
Interest rate swaps *
Weighted average interest rate %
2007
CMBS note issue
Financial institution loans
Debentures
Lease liabilities
Property preference shares
Interest rate swaps *
Weighted average interest rate %
* notional principal amounts
The net fair values of borrowings approximate their carrying values.
Consolidated
Parent
2008
$’000
2007
$’000
2008
$’000
2007
$’000
24. dividends/distributions payable
Dividends/distributions payable
17,583
15,740
7,028
5,590
Distributions payable relate to June quarter distribution declared in June 2008.
25. provisions
Current
Employee benefits
Non–Current
Employee benefits
Restoration
60
CrOMWELL GrOUP annual report 2008
738
177
100
277
526
94
100
194
–
–
–
–
–
–
–
–
Restoration
The Group’s operating leases of its premises requires the asset to be returned to the lessor in a lease stipulated condition. The operating
lease payments do not include an element for the refurbishment costs. A provision for refurbishment costs (make good obligations) is rec-
ognised over the period of the lease, measured at each reporting date as the expected cost of returning the asset to its agreed condition.
Movements in provision for restoration were as follows:
Consolidated
Parent
2008
$’000
100
–
100
–
3,314
3,314
2007
$’000
92
8
100
3
3,859
3,862
2008
$’000
2007
$’000
–
–
–
–
–
–
–
–
–
–
–
–
Balance 1 July
Additional provisions recognised
Balance 30 June
26. other Current Liabilities
Lease incentive
Unearned income
Unearned income comprises rent paid in advance by tenants.
27. Contributed equity
Share Capital
702,816,227 (2007: 698,783,980) fully paid ordinary shares
43,644
43,347
43,644
43,347
Effective 1 July 1998, the corporations legislation in place abolished the concepts of authorised capital and par value shares. Accordingly,
the Company does not have authorised capital or par value in respect of its issued shares.
StrENGtH - CONFIDENCE - OPPOrtUNIty
61
notes to the financial statements continued
Movements in ordinary share capital
Balance – 30 June 2006
Issue of treasury shares to employees for cash on exercise of options
Reconstruction of issued equity on a 0.8879:1 basis prior to stapling – refer note 33
Issue of shares for stapling – refer note 33
Shares issued as payment to advisor
DRP issue – 20 March 2007 (1)
DRP issue – 21 May 2007 (1)
Issue of treasury shares to employees for cash on exercise of options
Balance – 30 June 2007
DRP issue – 31 August 2007 (1)
DRP issue – 15 November 2007 (1)
DRP issue – 15 February 2008 (1)
Share buy–back – 13 February 2008 to 26 June 2008 (2)
Issue of treasury shares to employees for cash on exercise of options
Share buy–back transaction costs
Balance – 30 June 2008
No. of Shares
$’000
152,329,146
3,145,000
(17,428,250)
556,969,129
695,015,025
462,963
1,485,360
1,718,992
101,640
698,783,980
3,218,140
3,109,201
2,602,859
(5,565,342)
667,389
–
702,816,227
42,391
748
–
139
43,278
8
28
32
1
43,347
84
87
130
(215)
234
(23)
43,644
(1) The Group has established a distribution reinvestment plan (DRP) under which stapled security holders may elect to have all or part of their
dividend/distribution entitlements satisfied by the issue of new stapled securities rather than being paid in cash. The DRP was suspended
following the December 2007 quarterly distribution.
(2) The Group announced an on-market buy-back of up to 69 million stapled securities in January 2008.
The basis of allocation of the issue price of stapled securities issued post stapling is determined by agreement between the Company and
the Trust as set out in the Stapling Deed.
Treasury shares are held by the Employee Share Ownership Plan (ESOP) (refer note 42). Total number of fully paid ordinary shares at
balance date comprises:
Ordinary shares as shown above
Treasury shares held by ESOP
2008
Number
2007
Number
702,816,227
268,707
703,084,934
698,783,980
936,096
699,720,076
62
CrOMWELL GrOUP annual report 2008
Stapled Securities
The ordinary shares of the Company are stapled with the units of the Trust. These entitle the holder to participate in dividends and distri-
butions as declared from time to time and the proceeds on winding up. On a show of hands every holder of stapled securities present at a
meeting in person, or by proxy, is entitled to one vote, and upon a poll each stapled security is entitled to one vote.
A reconciliation of the stapled number of ordinary shares of the Company and ordinary units of the Trust is as follows:
Ordinary shares / ordinary units
Treasury stapled securities held by ESOP *
Unstapled units (held by the Company)
2008
Company
Number
702,816,227
268,707
–
703,084,934
2008
Trust
Number
703,360,040
–
(275,106)
703,084,934
2007
Company
Number
698,783,980
636,096
–
699,720,076
2007
Trust
Number
699,995,182
–
(275,106)
699,720,076
* The ESOP holds a similar number of Trust units which are included in the total of 703,084,934 (2007: 699,995,182) units.
Options
Information relating to the Employee Share Ownership Plan (ESOP) and Performance Rights Plan (PRP), including details of options issued,
exercised and lapsed during the financial year, is set out in note 42.
28. reserves
Share based payments
Available–for–sale financial assets revaluation reserve
Movements in reserves
Share based payments
Balance at 1 July
Options expensed
Balance at 30 June
Consolidated
Parent
2008
$’000
2007
$’000
2008
$’000
2007
$’000
683
2,340
3,023
610
73
683
610
2,340
2,950
328
282
610
683
–
683
610
73
683
610
–
610
328
282
610
The share based payments reserve is used to recognise the fair value of options issued for goods and services including employee
services.
Available–for–sale financial assets revaluation reserve
Balance at 1 July
Revaluation – gross
– deferred tax
Balance at 30 June
2,340
–
–
2,340
1,154
1,695
(509)
2,340
–
–
–
–
–
–
–
–
Changes in the fair value of investments classified as available-for-sale are taken to the available-for-sale financial assets revaluation
reserve. Amounts are recognised in profit or loss when the associated assets are disposed/sold or impaired. The balance at year end com-
prises a reserve of a subsidiary attributable to its pre-stapling interest in a Syndicate which continues to be held.
StrENGtH - CONFIDENCE - OPPOrtUNIty
63
notes to the financial statements continued
29. Accumulated Losses
Movements in accumulated losses
Accumulated losses at 1 July
Net profit for the year
Dividends paid/payable
Accumulated losses at 30 June
30. Minority interests
Equity attributable to unitholders:
Contributed equity
Reserves
Undistributed income
External minority interest
Consolidated
Parent
2008
$’000
2007
$’000
2008
$’000
2007
$’000
(31,212)
19,440
(7,028)
(18,800)
(27,248)
8,620
(12,584)
(31,212)
(36,337)
18,386
(7,028)
(24,979)
(30,115)
6,362
(12,584)
(36,337)
Consolidated
2008
$’000
2007
$’000
531,853
130,966
25,150
687,969
526,145
131,834
–
657,979
(600)
–
Losses attributable to external minority interest have been recognised on the basis that the external minority interest has a binding obliga-
tion and is able to make an additional investment to cover the losses.
64
CrOMWELL GrOUP annual report 2008
Application of AASB Interpretation 1002 Post-Date-of-Transition Stapling Arrangements and AASB 3 Business Combinations requires,
for stapling arrangements which do not involve one of the combining entities obtaining an ownership interest in another combining entity,
the net assets and profit or loss of the consolidated acquiree to be identified as minority interests. Even though the interests of the equity
holders of the identified acquiree (the Trust) are treated as minority interests (as above) the equity holders of the acquiree are also equity
holders in the acquirer (the Company) by virtue of the stapling arrangement.
Consolidated
Movements in contributed equity – unitholders
Balance at 1 July
Transferred from net assets attributable to unitholders
DRP issues
Buyback of units
Other contribution
Balance at 30 June
Movements in reserve – unitholders
Available–for–sale financial assets revaluation reserve
Balance at 1 July
Revaluation
Impairment loss transferred to income statement
Balance at 30 June
General reserve
Balance at 1 July
Transfer from net assets attributable to unitholders
Transfer to undistributed income
Balance at 30 June
Movement in undistributed income – unitholders
Balance at 1 July
Profit for the year
Distributions paid/payable
Transfer from general reserve
2008
$’000
526,145
–
10,151
(4,443)
–
531,853
–
(9,879)
9,011
(868)
131,834
–
–
131,834
130,966
–
88,557
(63,407)
–
25,150
2007
$’000
–
526,119
–
–
26
526,145
–
–
–
–
–
134,912
(3,078)
131,834
131,834
–
7,072
(10,150)
3,078
–
Up to 1 June 2007 the minority interests in contributed equity and reserves were recorded as a liability, net assets attributable to unithold-
ers. On 1 June 2007 the constitution of the Trust was amended and net assets attributable to unitholders were transferred to contributed
equity and reserves. A reconciliation of the movement is as follows:
Opening net assets attributable to unitholders – note 33
Distributions before 1 June 2007 – note 31
Unitholders’ finance costs
Other
Reclassified on 1 June 2007:
Transfer to contributed equity
Transfer to reserves
$’000
583,970
(20,928)
98,265
(276)
661,031
526,119
134,912
661,031
StrENGtH - CONFIDENCE - OPPOrtUNIty
65
notes to the financial statements continued
31. dividends/distributions
Dividends paid/payable
Final dividend for the year ended 30 June 2006 of 4.5 cents per fully paid ordinary share paid
on 12 October 2006:
– Fully franked based on tax paid @ 30% – 1.5 cents per share
– Unfranked – 3.0 cents per share
Interim dividend (stapling) of 0.1 cents per fully paid ordinary share paid on 18 December 2006 (fully
franked based on tax paid @ 30%) (1)
Final dividend for the year ended 30 June 2008 of 1.0 cents (2007: 0.8 cents) per fully paid ordinary
share, declared with a record date of 24 June 2008 (2007: 29 June 2007) and paid/payable on 29
August 2008 (2007: 31 August 2007):
– Fully franked based on tax paid @ 30% – 0.50 cents per share (2007: 0.27 cents per share)
– Unfranked – 0.50 cents per share (2007: 0.53 cents per share)
Franked dividends
Franking credits available for subsequent financial years based on a tax rate of 30% (2007 – 30%)
Parent
2008
$’000
2007
$’000
–
–
–
3,514
3,514
7,028
690
2,285
4,570
139
1,863
3,727
12,584
63
The above amounts represent the balance of the franking account as at the end of the financial year, adjusted for:
(a) franking credits that will arise from the payment of the amount of the provision for income tax;
(b) franking debits that will arise from the payment of dividends recognised as a liability at the reporting date; and
(c) franking credits that will arise from the receipt of dividends recognised as receivables at the reporting date.
Distributions paid/payable by the Trust
At stapling:
Interim stapling distribution of 0.025 cents per fully paid ordinary unit paid on 18 December 2006 (1)
After stapling up to 1 June 2007 (2)
Interim distribution of 1.5 cents per fully paid stapled security paid on 20 March 2007
Interim distribution of 1.5 cents per fully paid stapled security paid on 21 May 2007
After 1 June 2007 (3)
Final distribution for the year ended 30 June 2007 of 1.45 cents per fully paid stapled security,
declared with a record date of 29 June 2007 and paid on 31 August 2007
Interim distribution of 2.5 cents per fully paid stapled security paid on 15 November 2007
Interim distribution of 2.5 cents per fully paid stapled security paid on 15 February 2008
Interim distribution of 2.5 cents per fully paid stapled security paid on 15 May 2008
Final distribution for the year ended 30 June 2008 of 1.5 cents per fully paid stapled security,
declared with a record date of 24 June 2008 and payable on 29 August 2008
Consolidated
2008
$’000
2007
$’000
–
–
–
–
–
17,574
17,651
17,628
10,555
63,408
139
10,458
10,470
20,928
10,150
–
–
–
–
–
(1) Applied to subscribe for shares in Cromwell Corporation Limited on behalf of unitholders.
(2) These distributions are included in unitholders’ finance costs in the income statement. This treatment is due to the limited life
of the Trust up to 1 June 2007.
(3) This distribution is recognised in the consolidated statement of changes in equity due to the amendment of the Trust’s constitution
on 1 June 2007.
(4) All distributions from the Trust are unfranked.
66
CrOMWELL GrOUP annual report 2008
The determination of the Trust’s distributable income excludes unrealised gains including fair value increments to investment properties.
Dividends/distributions paid in cash, payable at balance date or satisfied by the issue of securities under the reinvestment plan during the
years ended 30 June 2008 and 2007 were as follows:
Consolidated
Parent
2008
$’000
58,140
10,453
17,583
86,176
2007
$’000
24,232
3,690
15,740
43,662
2008
$’000
5,590
–
7,028
12,618
2007
$’000
6,994
–
5,590
12,584
Paid in cash (1)
Satisfied by issue of securities (2)
Payable at balance date
(1) Excludes distributions paid at stapling in 2007.
(2) Recognised, in part, by both the Company and the Trust.
32. earnings per share
Basic earnings per share
Diluted earnings per share
Earnings used to calculate basic and diluted earnings per share
Profit for the year
Profit attributable to minority interests
Profit attributable to ordinary equity holders of the company used in calculating basic/diluted
earnings per share
Consolidated
2008
2007
2.77¢
2.77¢
1.24¢
1.24¢
$’000
$’000
119,901
(100,461)
15,692
(7,072)
19,440
8,620
Number
of Shares
Number
of Shares
Weighted average number of ordinary shares used in calculating basic earnings per share
Effect of dilutive securities:
Director and employee share options
702,988,443
694,363,728
180,150
682,365
Weighted average number of ordinary shares and potential ordinary shares used in calculating
diluted earnings per share
703,168,593
695,046,093
Options granted under the Employee Share Ownership Plan and the Performance Rights Plan are considered to be potential ordinary shares
and have been included in the determination of diluted earnings per share to the extent to which they are dilutive. The options have not been
included in the determination of basic earnings per share. Details relating to the options are set out in note 42.
The weighted average number of ordinary shares used in calculating basic and diluted earnings per share for the prior year includes adjust-
ments for the pre-stapling reconstruction and stapling issue of 556,969,129 ordinary shares as these transactions were not associated with
a corresponding change in resources.
StrENGtH - CONFIDENCE - OPPOrtUNIty
67
notes to the financial statements continued
33. Business Combination / stapling
(a) Summary of Acquisition
On 19 December 2006 the Company, under the provisions of a Stapling Deed, stapled all its issued ordinary shares with the issued units
of the Trust to form the Cromwell Group. Prior to the stapling, between 13 December 2006 and 15 December 2006, the Trust merged with
five other Cromwell managed investment schemes collectively referred to as the Syndicates. These Syndicates were Cromwell Mary Street
Planned Investment, Terrace Office Park Planned Investment, Cromwell Planned Investment No. 3, Cromwell Northbourne Planned Invest-
ment and Cromwell Goulburn Street Planned Investment. Each of these Syndicates also had an associated trust, which also participated
in the Merger.
On 19 December 2006 each Company share was consolidated into 0.8879 restructured shares. A stapling dividend of $0.001 was paid to
each shareholder for each restructured share held. The Company, on behalf of each shareholder, applied the stapling dividend to sub-
scribe for one unit in the Trust for $0.001 each. On receipt of the subscription amount, Cromwell Property Securities Limited (“CPS”), a
100% owned subsidiary of the Company and the Responsible Entity of the Trust, issued to each shareholder one unit in the Trust for each
restructured share held. In addition, on 19 December 2006, the Trust paid a stapling distribution to each unitholder of the Trust of $0.00025
per unit. CPS, on behalf of the unitholders of the Trust, applied the stapling distribution to subscribe for one restructured share in the
Company for $0.00025 each. On receipt of the subscription amount, the Company issued to each unitholder one share in the Company for
each unit held.
The provisions of the Stapling Deed, the Company Replacement Constitution and amended Trust Constitution together took effect from 19
December 2006 and by operation of these documents each restructured share became stapled to one Trust unit.
For relevant stapling arrangements Australian Accounting Standards require an acquirer to be identified and the general principles in AASB
3 Business Combinations to be applied. In relation to the stapling of the Company and the Trust, the Company has been identified as the
acquirer. The following additional accounting principles have also been applied:
(i) no goodwill has been recognised on acquisition of the Trust because no direct ownership interest was acquired by the Company in the
Trust;
(ii) the equity issued by the Company to the Trust unitholders to give effect to the transaction is recognised at the dollar value of the con-
sideration paid by the Trust unitholders. This is because the issue of shares by the Company was administrative in nature rather than
for the purposes of the Company acquiring an ownership interest in the Trust. The consideration paid by the Trust unitholders was a
nominal amount of $139,242. The issue of units by the Trust to the Company shareholders was treated similarly; and
(iii) the issued units of the Trust are not owned by the Company. As the Trust was a limited life trust its issued units were treated as a liability
rather than equity until amendment of the Trust constitution on 1 June 2007 and were presented as net assets attributable to unithold-
ers in the balance sheet. Following the amendment to the Trust’s constitution the net assets of the Trust are now identified as minority
interests and presented as such in the consolidated balance sheet within equity.
The Trust contributed revenue and other income of $150,375,000 and profit before unitholders’ finance costs of $107,199,000 to the Group
for the period from 19 December 2006 to 30 June 2007. It also contributed net profit of $7,072,000 to the Group for the same period. If the
acquisition had occurred on 1 July 2006, consolidated revenue and other income and consolidated profit before unitholders’ finance costs for
the year ended 30 June 2007 would have been $290,537,000 and $201,415,000 respectively. The net profit would not have changed given the
limited life nature of the Trust resulted in it recording no net profit (as the ‘profits’ are reflected in unitholders’ finance costs while the issued
units are treated as a liability).
68
CrOMWELL GrOUP annual report 2008
(b) Assets and Liabilities Acquired
The assets and liabilities arising from the acquisition of the Trust at the date of stapling were as follows:
Cash and cash equivalents
Trade and other receivables
Other financial assets
Derivative financial assets
Other assets
Property, plant and equipment
Investment properties
Investment in jointly controlled entity
Deposits and preliminary costs
Lease receivable
Trade and other payables
Other liabilities
Borrowings
Net assets attributable to unitholders (1)
Net assets
Acquiree’s
Carrying
Amount
$’000
11,761
3,646
110
12,439
921
24,163
1,388,280
52,211
2,273
8,400
(23,690)
(4,957)
(891,587)
(583,970)
–
Fair
Value
$’000
11,761
3,646
110
12,439
921
24,163
1,388,280
52,211
2,273
8,400
(23,690)
(4,957)
(891,587)
(583,970)
–
(1) At the date of stapling the Trust had a limited life. Accordingly, under AASB 132 unitholders’ interests were treated as a liability.
(c) Inflow/Outflow of Cash
Inflow/outflow of cash on acquisition, net of cash acquired:
Payment by the Company for 139,083,632 units in the Trust
Payment by the Trust for 556,969,129 shares in the Company
Cash balances acquired
Net cash inflow
34. subsidiaries deconsolidated/disposed
Consolidated
$’000
Parent
$’000
(139)
139
11,761
11,761
(139)
139
–
–
Cromwell Property Fund (“CPF”)
CPF was a subsidiary of the Trust at the date of stapling. A Product Disclosure Statement (PDS) was issued by CPF prior to the date of sta-
pling to raise capital from external investors. These funds were used to purchase additional investment properties and repay short term
loans associated with the purchase of investment properties. External investors have subscribed for units in CPF via the PDS, diluting the
Trust’s ownership interest. At 30 June 2007 the Trust’s ownership interest in CPF was 22%.
StrENGtH - CONFIDENCE - OPPOrtUNIty
69
notes to the financial statements continued
As a result of the above the Trust lost control of CPF on 12 February 2007 at which time the following net assets of CPF were deconsoli-
dated from the Group:
Cash and cash equivalents
Trade and other receivables
Other assets
Derivative financial instruments
Investment properties
Trade and other payables
Other current liabilities – unearned revenue
Other liabilities – CFUs
Borrowings – financial institutions/other lenders
Net assets attributable to unitholders – the Trust
Net assets attributable to external unitholders
Net assets deconsolidated
Outflow of cash on deconsolidation
Cash received on deconsolidation
Less: cash balances deconsolidated
Net cash outflow
$’000
6,060
859
607
3,358
350,985
(4,472)
(1,236)
(61,250)
(278,822)
(7,921)
(8,168)
–
–
(6,060)
(6,060)
Since deconsolidation, the Group has accounted for CPF using the equity method of accounting – refer note 16.
Cromwell Accumulation Fund (“CAF”)
The CAF was formed on 10 November 2006. The CAF issued 700 units at $1 each. All units were acquired by the Trust. During the year the
CAF acquired land at Lenore Lane, Erskine Park, NSW and investment property at Percival Road, Smithfield, NSW. The land at Erskine Park
was classified as property under construction and development.
On 14 June 2007 the Trust effectively disposed of the units in CAF to CPF at cost of $700. The net assets disposed of are as follows:
Cash and cash equivalents
Trade and other receivables
Other assets
Investment properties
Property, plant and equipment (property under construction and development)
Trade and other payables
Other current liabilities – unearned revenue
Borrowings – financial institutions
Borrowings – from the Trust
Net assets disposed
Outflow of cash on disposal, net of cash disposed
Cash consideration received
Less: cash balances disposed
Net cash outflow
70
CrOMWELL GrOUP annual report 2008
$’000
23
5
304
23,968
24,497
(663)
(150)
(34,412)
(13,572)
–
1
(23)
(22)
Consolidated
Parent
2008
$’000
2007
$’000
2008
$’000
2007
$’000
35. Cashflow information
(a) Reconciliation of Profit for the Year to Net Cash Provided by Operating Activities
Profit for the year
Tax expense/(credit)
Tax paid
Reimbursements received from tax consolidated entities
Finance costs – unitholders
Amortisation and depreciation
Amortisation (loan establishment costs)
Share of profits of jointly controlled entity/associate
(net of distributions)
Gain on sale of investment properties
Share based payments
Net gain on fair value adjustments of:
Investment properties
Interest rate derivatives
Gain on dilution of interest in associate
Decrease to recoverable amount:
Available–for–sale financial assets
Property development inventories
Straight–line rentals
Other
Changes in operating assets and liabilities*:
(Increase)/decrease:
- Trade and other debtors
- Prepayments
- Inventories
Increase/(decrease):
- Trade and other payables
- Provisions
- Unearned revenue
Net cash provided by operating activities
* Net of effects of acquisition/disposal of subsidiaries.
119,901
3,342
(868)
–
–
470
890
(3,522)
(7,470)
73
(34,649)
(4,479)
(826)
9,011
1,200
(735)
25
5,555
(919)
6,783
(8,190)
295
(548)
85,339
(b) Non–Cash Activities
– Securities issued on reinvestment of distributions (1)
– Securities issued as payment to advisor (1)
– Acquisition of plant and equipment by means of finance lease
10,453
–
–
15,692
(723)
(956)
–
98,265
414
1,089
228
(4,963)
282
(69,779)
(4,610)
(6,341)
–
–
–
286
(6,449)
(799)
(1,965)
7,483
172
288
27,614
3,690
500
2
18,386
1,008
(868)
661
–
–
–
–
–
73
–
–
–
–
–
–
–
1,066
–
1,140
1,018
–
–
22,484
301
–
–
6,362
(1,273)
(956)
1,106
–
–
–
–
–
282
–
–
–
–
–
–
–
153
124
–
(479)
–
–
5,319
60
8
–
(1) Recognised in part by both the Company and the Trust (the Trust’s share is included in minority interest while the Company’s share is
included in share capital).
In addition to the above notes 33 and 34 detail other 2007 non-cash acquisitions and disposals.
(c) Finance Facilities
Refer to note 23 for information on finance facilities.
StrENGtH - CONFIDENCE - OPPOrtUNIty
71
notes to the financial statements continued
(d) Cash held by Cromwell Property Securities Limited (“CPSL”)
At 30 June 2008 cash was held by CPSL, a controlled entity, of $2,432,000 (2007: $3,306,000). Of this amount, approximately $500,000 (2007:
$500,000) was held as part of the net tangible assets (NTA) required to be maintained by CPSL under its Australian Financial Services
Licence (AFSL). As such, the cash is effectively restricted in its use as it cannot readily be used to meet expenses and obligations of other
Group entities without consideration of the AFSL requirements. Other assets are also required to be maintained to meet CPSL’s minimum
NTA requirements.
Consolidated
Parent
2008
$’000
2007
$’000
2008
$’000
2007
$’000
36. Key Management personnel disclosures
(a) Key Management Personnel Compensation
Short–term employee benefits
Post–employment benefits
Other long–term benefits
Share–based payments
Total
3,251,081
309,440
44,504
61,111
3,666,136
3,284,660
142,068
11,708
205,474
3,643,910
1,661,780
210,468
18,461
18,559
1,909,268
1,886,450
61,503
2,777
4,441
1,955,171
Key management personnel compensation for the parent comprises amounts paid to directors of the parent principally by subsidiaries.
(b) Equity Instrument Disclosures Relating to Key Management Personnel
Option holdings
The numbers of options over ordinary shares in the Company held during the financial year by each director of Cromwell Corporation
Limited and other key management personnel of the Group, including their personally related parties, are set out below.
Balance
at 1 July
Granted during
the year as
compensation
Exercised during
the year
Other
changes
Balance
at 30 June
Vested
Not Vested
2008
Name
Directors
GH Levy
PL Weightman
RJ Pullar
MA McKellar
DE Usasz
DJ Wilson
WR Foster
–
–
–
–
–
–
–
–
1,108,100
–
–
–
516,300
–
Other key management personnel of the Group
SM Morgan
PA Cronan
PW Howard
DA Gippel
MC McLaughlin
MJ Blake
PJ McDonnell
PJ Cowling
–
–
–
–
–
–
–
887,900
229,200
282,300
–
792,000
394,400
507,000
300,200
341,700
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(636,950)
–
–
–
–
–
–
–
–
(282,300)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
250,950
–
1,108,100
–
–
–
516,300
–
229,200
–
–
792,000
394,400
507,000
300,200
341,700
At 30 June 2008, options entitle the holder to acquire stapled securities in the Group – refer note 42.
72
CrOMWELL GrOUP annual report 2008
Balance
at 1 July
Granted during
the year as
compensation
Exercised during
the year
Restructured
on stapling
Balance
at 30 June
Vested
Not Vested
2007
Name
Directors
PL Weightman
RL Stiles (1)
RJ Pullar
MA McKellar
DE Usasz
DJ Wilson
WR Foster
–
–
–
–
–
500,000
–
Other key management personnel of the Group
SM Morgan
PA Cronan
DA Gippel
MC McLaughlin
MJ Blake
PJ McDonnell
PJ Cowling
–
–
–
375,000
750,000
–
2,000,000
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(500,000)
–
–
–
–
(375,000)
(750,000)
–
(1,000,000)
–
–
–
–
–
–
–
–
–
–
–
–
–
(112,100)
–
–
–
–
–
–
–
–
–
–
–
–
–
887,900
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(1) Resigned as director 26 April 2007; retired 30 June 2007.
At 30 June 2007, options entitle the holder to acquire stapled securities in the Group – refer note 42.
Vested options are exercisable.
Share holdings
The numbers of shares in the Company held during the financial year by each director of Cromwell Corporation Limited and other key man-
agement personnel of the Group, including their personally related parties, are set out below.
Ordinary share holdings
2008
Name
Directors
GH Levy *
PL Weightman
RJ Pullar
MA Mckellar
DE Usasz
DJ Wilson
WR Foster
Other key management personnel of the Group
SM Morgan
PA Cronan
PW Howard
DA Gippel
MC McLaughlin
MJ Blake
PJ McDonnell
PJ Cowling
Balance
at 1 July
On exercise
of options
Net changes –
purchases (sales)
Balance
at 30 June
–
15,364,167
13,545,269
20,000
1,490,400
2,205,982
5,349,598
–
–
–
547,264
457,140
1,966,712
–
1,331,850
–
–
–
–
–
–
–
–
–
–
–
–
–
–
636,950
–
100,000
454,731
100,000
57,202
9,024
–
–
–
–
–
10,011
8,900
–
–
–
15,464,167
14,000,000
120,000
1,547,602
2,215,006
5,349,598
–
–
–
547,264
467,151
1,975,612
–
1,968,800
* Mr GH Levy is a director of MZL Investments Pty Ltd, which is the manager of the MZL Opportunity Fund, which owns 462,963 stapled
securities in the Cromwell Group. Mr GH Levy has no beneficial ownership of the shares.
StrENGtH - CONFIDENCE - OPPOrtUNIty
73
notes to the financial statements continued
Balance
at 1 July
On exercise
of options
Net changes –
purchases (sales)
Restructured
on stapling
Net changes –
purchases (sales)
Balance
at 30 June
2007
Name
Directors
PL Weightman
RL Stiles (1)
RJ Pullar
MA McKellar (2)
DE Usasz (2)
DJ Wilson
WR Foster
16,233,997
5,141,362
13,301,764
–
1,660,000
1,663,328
6,025,000
–
–
–
–
–
500,000
–
Other key management personnel of the Group
PA Cronan
SM Morgan
DA Gippel
MC McLaughlin
MJ Blake
PJ McDonnell
PJ Cowling
–
–
616,357
125,000
1,239,764
20,000
500,000
–
–
–
375,000
750,000
–
1,000,000
–
(135,000)
–
–
–
–
–
–
–
–
–
–
(20,000)
–
(1,819,830)
(561,211)
(1,491,127)
–
(186,086)
(242,508)
(675,402)
–
–
(69,093)
(56,049)
(223,052)
–
(168,150)
950,000
(14,102)
1,734,632
20,000
16,486
285,162
–
–
–
–
13,189
200,000
–
–
15,364,167
4,431,049
13,545,269
20,000
1,490,400
2,205,982
5,349,598
–
–
547,264
457,140
1,966,712
–
1,331,850
(1) Resigned as director 26 April 2007; retired 30 June 2007.
(2) Balance at 1 July is balance at date of appointment.
There were no shares granted during 2008 or 2007 as compensation.
At 30 June 2008 the balances above for the directors and other key management personnel represent the number of stapled securities of
the Group held by them.
Property preference share holdings
The numbers of property preference shares in the Company held during the financial year by each director of Cromwell Corporation Limited
and other key management personnel of the Group, including their personally related parties, are set out below.
Balance
at 30 June 2006
Net Change
Other
Balance
at 30 June 2007
Net Change
Other
Balance
30 June 2008
Directors
GH Levy
PL Weightman
RL Stiles (1)
RJ Pullar
MA McKellar
DE Usasz
DJ Wilson
WR Foster
–
3,500
2,500
1,000
–
–
2,000
–
Other key management personnel of the Group
SM Morgan
PA Cronan
PW Howard
DA Gippel
MC McLaughlin
MJ Blake
PJ McDonnell
PJ Cowling
–
–
–
2,000
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
3,500
2,500
1,000
–
–
2,000
–
–
–
–
2,000
–
–
–
–
–
(3,500)
(2,500)
(1,000)
–
–
(2,000)
–
–
–
–
(2,000)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(1) Resigned as director 26 April 2007; retired 30 June 2007.
All property preference shares were redeemed by the Company during 2008.
74
CrOMWELL GrOUP annual report 2008
(c) Loans – Key Management Personnel
In March 2006 the Group provided Citimark Pty Ltd, a company associated with Robert Pullar (a director of Cromwell Corporation Limited),
a $3,500,000 loan facility to fund the refurbishment of the former Brisbane Magistrates Court building at 179 North Quay. The loan was
secured by a registered second mortgage over the development property. Interest was charged at 15% fixed per annum and capitalised up to
$515,000, thereafter payable monthly in arrears. The loan was repaid on 6 December 2006. Total interest received in 2007 was $238,000.
No other loans were made during the year or the prior year to key management personnel and no loans were outstanding at the report-
ing date.
(d) Other Transactions with Key Management Personnel
The Trust has entered into a development agreement with Citimark Properties Limited (“Citimark”), a company related to Mr. Robert Pullar,
who is a director of the Company. Under the agreement, Citimark will develop a commercial office building in Kelvin Grove, Brisbane in
accordance with specified terms, and to agreed standards. The land was acquired by the Trust for $7,100,000 in June 2007, and construction
is underway (included in property under construction – refer note 19). Under the development agreement, the Trust will reimburse Citimark
for the costs of the project, and pay certain fees contingent upon the outcomes of certain events, primarily total construction costs of the
property and leasing outcomes. Citimark has provided a rental guarantee to the Trust over the entire property for 18 months from the date
construction is complete. The total budgeted construction costs for the project are $82,069,000. During 2008 the Trust paid $31,303,340
(2007: $nil) to Citimark for development costs.
The Company rents an apartment, located at 185 Macquarie Street, Sydney, which is owned by Mr. Paul Weightman, a director of the
Company. Total rent paid during 2008 was $88,400 (2007: $nil). The payment of rent is on normal commercial terms and conditions and at
market rates.
Consolidated
Parent
2008
$’000
2007
$’000
2008
$’000
2007
$’000
37. Auditor’s remuneration
During the year the following fees were paid or payable
for services provided by the auditor of the Group
(Johnston Rorke) and its related practices:
Audit Services
Johnston Rorke
Audit and review of financial reports
under the Corporations Act 2001
Audit of a controlled entity’s AFS licence
Audit of controlled entities’ compliance plans
Total remuneration for audit services
Other Services
Related practice of Johnston Rorke
Investigating accountant’s report for merger and stapling
Johnston Rorke
Tax compliance services
Other
Total remuneration for other services
332,000
5,000
23,000
360,000
261,000
4,000
40,000
305,000
67,500
–
–
67,500
70,000
–
–
70,000
–
200,000
–
200,000
48,350
9,100
57,450
17,620
–
217,620
23,740
–
23,740
11,180
–
211,180
The auditor receives remuneration for audit and other services relating to other entities (schemes) for which Cromwell Property Securities
Limited, a controlled entity, acts as responsible entity. The remuneration is disclosed in the relevant entity’s financial reports and totalled
$85,000 (2007: $42,500).
StrENGtH - CONFIDENCE - OPPOrtUNIty
75
notes to the financial statements continued
38. related parties
Parent Entity and Subsidiaries
Cromwell Corporation Limited is the ultimate parent entity in the Group. Details of subsidiaries are set out in note 17.
Key Management Personnel
Disclosures relating to key management personnel are set out in note 36.
Transactions with Subsidiaries
Current tax payable assumed from wholly–owned tax consolidated entities
Tax losses assumed from wholly–owned tax consolidated entities
Parent
2008
$’000
1,655
–
2007
$’000
660
–
Transactions between the parent and its subsidiaries also included:
−
Loans between the parent and its subsidiaries (refer cash flow statement and note 8). All loans are interest free (except as set out in
note 8), unsecured, with no set repayment terms other than being repayable at call in cash. The parent received $805,130 (2007: $nil) in
interest payments during the year from the loan to Cromwell PacLib Nominees Pty Ltd;
Performance bonus fees paid to the parent by the Trust of $2,979,612 (2007: $nil);
Management fees paid by the parent entity to a controlled entity (refer income statement);
Dividends paid to the parent entity by a controlled entity of $2,000,000 (2007: $nil); and
Transactions between Cromwell Corporation Limited and its wholly-owned controlled entities in accordance with the tax funding agree-
ment (refer note 1(d) – being recognition of receivables and payables in relation to current tax payable and tax losses assumed as dis-
closed above).
−
−
−
−
In addition to the above, certain subsidiaries utilise operating leased assets for which the parent is the lessee. As such the subsidiaries pay
the lease rentals directly to the lessor and recognise the associated lease rental expense.
Transactions with Jointly Controlled Entity and Associate
Transactions between the Group and its jointly controlled entity and associate also included:
−
−
Loans between the Group and its associate (refer note 8);
The Group held 61,250,000 convertible financing units issued by its associate (refer note 18). The Group received $3,229,293 (2007:
$1,737,000) in interest payments during the year on these units;
The Group received $6,835,000 (2007: $2,646,000) in distributions from its jointly controlled entity and associate during the year (refer
note 16);
The Group charged its associate $9,901,746 (2007: $4,020,000) acquisition, capital raising, finance structuring, registry services and
accounting services fees during the year, of which the parent charged $5,992,543 (2007: $2,321,000); and
The Group charged its jointly controlled entity and associate $3,828,121 (2007: $1,118,000) management fees during the year.
−
−
−
76
CrOMWELL GrOUP annual report 2008
Transactions with Managed Investment Schemes (managed by the consolidated entity)
Cromwell Property Securities Limited (“CPS”) is the responsible entity of a number of managed investment schemes. The Group derives a
range of benefits from schemes managed by CPS including management and acquisition fees. The disclosure below includes the fees and
other transactions with the managed investment schemes up to the date of stapling (in December 2006) as after that date the majority of
the relevant schemes became part of the Group. For those schemes which are not part of the Group after that date, TGA and CPF (refer note
16), fees and transactions after stapling are disclosed above as being transactions with jointly controlled entity and associate.
(a) Cromwell Diversified Property Trust (“CDPT”)
During the 2007 financial year the Group charged CDPT the following fees and received the following distributions:
Revenue from CDPT:
– Acquisition and capital raising fees
– Management fees
– Distributions
During the 2007 financial year the following loans were provided to CDPT and repaid:
Balance at beginning of the year
Loans provided to CDPT
Loans repaid by CDPT
Consolidation adjustment upon stapling (1)
Balance at end of year
2007
$’000
2,149
3,386
5,535
12
5,547
–
6,000
–
(6,000)
–
(1) The loan balance of $6,000,000 was included in borrowings of CDPT (the Trust) assumed by the Group upon stapling and, as such, is
eliminated on consolidation.
(b) Other Managed Investment Schemes
During the 2007 financial year the Group charged other schemes (excluding CDPT), for which it acts as responsible entity, the following fees
and received the following distributions:
Revenue:
– Acquisition and capital raising fees (Cromwell Property Fund)
– Management fees
– Distributions
– Mary Street Planned Investment
– Cromwell TGA Planned Investment
1,886
1,802
65
–
3,753
Other managed investment schemes include Cromwell Property Fund and Cromwell TGA Planned Investment (refer note 16).
Acquisition and capital raising fees charged to managed investment schemes are shared between the parent entity and a controlled
entity.
StrENGtH - CONFIDENCE - OPPOrtUNIty
77
notes to the financial statements continued
39. segment information
(a) Description of Segments
Business segments
The Group is organised into the following divisions by product and service type.
Property Investment
The Trust and its controlled entities invest directly in properties located throughout Australia.
Property Funds Management
The Company and its controlled entities establish and manage property trusts and funds throughout Australia.
Property Development
The Company and its controlled entities develop commercial land throughout Australia for sale to external purchasers.
Geographical segments
The Group operates entirely within Australia.
78
CrOMWELL GrOUP annual report 2008
(b) Primary Reporting Format – Business Segments
2008
Property
Investment
$’000
Property Funds
Management
Property
Development
Consolidated
$’000
$’000
$’000
Segment revenue and other income
Sales to external customers
Intersegment sales
Total sales revenue
Share of profits of equity accounted entities
Gain on dilution of interest in associate
Gain on sale of investment property
Gain on fair value adjustments
Total segment revenue and other income
Intersegment elimination
Unallocated revenue
Consolidated revenue and other income
Segment result
Segment result
Intersegment elimination
Unallocated revenue less unallocated expenses
Finance costs (excluding unitholders)
Profit before income tax
Income tax expense
Profit for the year
Segment assets and liabilities
Segment assets
Intersegment elimination
Unallocated assets
Total assets
Segment liabilities
Intersegment elimination
Borrowings (1)
Unallocated liabilities
Total liabilities
89,658
676
90,334
10,357
826
7,470
39,128
148,115
14,747
12,176
26,923
–
–
–
–
26,923
38,000
–
38,000
–
–
–
–
38,000
109,359
15,469
21,898
1,321,341
13,842
4,047
19,172
8,887
645
Other segment information
Investments in jointly controlled entity and associate
Acquisitions of non–current segment assets
– Investment properties
– Property, plant and equipment
– Intangibles
Depreciation and amortisation expense
80,593
182,499
33,648
–
216,147
–
–
–
453
263
716
470
–
–
–
–
–
–
142,405
12,852
155,257
10,357
826
7,470
39,128
213,038
(12,852)
11,985
212,171
146,726
(19)
8,351
(31,815)
123,243
(3,342)
119,901
1,339,230
(1,069)
30,362
1,368,523
28,704
(1,061)
623,448
2,196
653,287
80,593
182,499
34,101
263
216,863
470
(1) In accordance with AASB 114 Segment Reporting, borrowings have not been allocated but predominantly relate to the property investment
segment.
StrENGtH - CONFIDENCE - OPPOrtUNIty
79
notes to the financial statements continued
(b) Primary Reporting Format – Business Segments (continued)
2007
Segment revenue and other income
Sales to external customers
Intersegment sales
Total sales revenue
Share of profits of equity accounted entities
Gain on dilution of interest in associate
Gain on sale of investment property
Gain on fair value adjustments
Total segment revenue and other income
Intersegment elimination
Unallocated revenue
Consolidated revenue and other income
Segment result
Segment result
Intersegment elimination
Unallocated revenue less unallocated expenses
Finance costs (excluding unitholders)
Stapling transaction costs
Profit before income tax and unitholders’ finance costs
Income tax credit
Unitholders’ finance costs
Profit for the year
Segment assets and liabilities
Segment assets
Intersegment elimination
Unallocated assets
Total assets
Segment liabilities
Intersegment elimination
Borrowings (1)
Unallocated liabilities
Total liabilities
Property
Investment
$’000
Property Funds
Management
Property
Development
Consolidated
$’000
$’000
$’000
60,363
162
60,525
2,418
6,341
4,963
74,389
148,636
14,701
4,982
19,683
–
–
–
–
19,683
10,400
–
10,400
–
–
–
–
10,400
130,874
11,545
4,916
1,203,680
13,949
12,293
27,157
7,799
514
85,464
5,144
90,608
2,418
6,341
4,963
74,389
178,719
(5,144)
2,871
176,446
147,335
(88)
(2,449)
(24,515)
(7,049)
113,234
723
(98,265)
15,692
1,229,922
(1,023)
66,255
1,295,154
35,470
(1,228)
586,966
882
622,090
66,245
25,305
9,023
230
34,558
414
Other segment information
Investments in jointly controlled entity and associate
Acquisitions of non–current segment assets
– Investment properties
– Property, plant and equipment
– Intangibles
Depreciation and amortisation expense
66,245
25,305
8,841
–
34,146
–
–
–
182
230
412
414
–
–
–
–
–
–
(1) In accordance with AASB 114 Segment Reporting, borrowings have not been allocated but predominantly relate to the property investment
segment.
The acquisitions of non-current segment assets shown above excludes the acquisition on stapling disclosed in note 33. The stapling acqui-
sition related to the property investment segment.
80
CrOMWELL GrOUP annual report 2008
(c) Notes to and Forming Part of the Segment Information
Accounting policies
Segment information is prepared in conformity with the accounting policies of the Group as disclosed in note 1 and Accounting Standard
AASB 114 Segment Reporting.
Segment revenues, expenses, assets and liabilities are those that are directly attributable to a segment and the relevant portion that can
be allocated to the segment on a reasonable basis. Segment assets include all assets used by a segment and consist primarily of operat-
ing cash, receivables, inventories, investment properties, plant and equipment and other intangible assets, net of related provisions. While
most of these assets can be directly attributable to individual segments, the carrying amounts of certain assets used jointly by segments are
allocated based on reasonable estimates of usage. Segment liabilities consist primarily of trade and other payables, employee benefits and
provisions. Segment assets and liabilities do not include income taxes.
Inter-segment transactions
Segment revenues, expenses and results include transfers between segments. Such transfers are priced on an “arms-length” basis and
are eliminated on consolidation.
Equity-accounted investments
The Group has an investment in an Australian jointly controlled entity (Cromwell TGA Planned Investment) and an Australian associate
(Cromwell Property Fund) which are accounted for using the equity method and included in the property investment segment.
Consolidated
Parent
2008
$’000
2007
$’000
2008
$’000
2007
$’000
40. Commitments for expenditure
Finance Leases
Commitments in relation to finance leases are payable
as follows:
Within one year
Later than one year but not later than five years
Minimum lease payments
Future finance charges
Recognised as a liability
Representing lease liabilities
Current
Non–current
60
20
80
(4)
76
56
20
76
82
81
163
(11)
152
75
77
152
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Finance leases comprise leases over items of plant and equipment under normal commercial terms and conditions.
Operating Leases
Commitments for minimum lease payments in relation
to non–cancellable operating leases in existence at the
reporting date but not recognised as liabilities are payable
as follows:
Within one year
Later than one year but not later than five years
60
63
123
29
37
66
20
471
491
95
50
145
Operating leases primarily comprised the lease of the Group’s premises. During 2008 the Group took up an option to lease the premises
for a further 3 years, expiring August 2010, with an option for a further 3 years, with rentals increasing at 4% per annum. The lease is
with a subsidiary of the Trust and as such the commitment is no longer recognised on consolidation following stapling. Operating lease
commitments of the parent entity are paid for and recognised as expenses by a controlled entity as from 1 July 2004.
StrENGtH - CONFIDENCE - OPPOrtUNIty
81
notes to the financial statements continued
Consolidated
Parent
2008
$’000
2007
$’000
2008
$’000
2007
$’000
Capital Expenditure Commitments
Commitments in relation to capital expenditure contracted
for at the reporting date but not recognised as liabilities are
payable as follows:
Within one year
Later than one year but not later than five years
50,127
–
50,127
50,805
30,625
81,430
–
–
–
–
–
–
41. Contingent Liabilities
Cromwell Corporation Limited has provided guarantees in respect of debentures issued by its controlled entities which had a carrying value
of $3,926,000 at 30 June 2008 (2007: $14,504,000).
42. share Based payments
Employee Share Option Plan
An Employee Share Ownership Plan (ESOP) was established in June 2003 by the directors of the parent entity. All full-time and part-time
employees who meet minimum service requirements, including directors of Cromwell Corporation Limited and its controlled entities, are
eligible to participate in the Plan at the discretion of the Board. Participation of the directors is subject to shareholder approval. Usually,
options granted under the ESOP vest in equal tranches annually between grant date and expiry date. Once vested each tranche must be
exercised within a certain period. The options lapse if not exercised.
Under the ESOP interest is charged on a notional employee loan which effectively increases the exercise price. Dividends paid by the parent
entity on the treasury shares held by the ESOP effectively reduces the options’ exercise price.
The shares allocated to employees under the ESOP are to be transferred at the end of the respective period. If any of the shares have not
been acquired by the end of each period, the right to acquire those shares will not be carried forward, but will automatically lapse. The right
to acquire any additional shares will lapse on the date the employee ceases employment with the Group. The exercise price of options is
to be settled in cash.
Options are granted for no consideration, vest over time and are exercisable by expiry.
Under AASB 2 “Share based Payment”, the rights granted to employees to shares acquired by the plan are treated as options for account-
ing purposes.
82
CrOMWELL GrOUP annual report 2008
Set out below are summaries of options granted and exercised.
Grant
Date
Expiry
Date
Exercise price
(cents)
Balance
at start
of the year
Granted
during
the year
Exercised
during
the year
Reconstructed
during
the year
Balance
at year end
2008
28/8/2005
28/8/2005
30/6/2009
30/9/2009
30.9¢
30.9¢
Weighted average exercise price (cents)
2007
27/11/2003
28/8/2005
28/8/2005
31/10/2005
26/11/2006
30/6/2009
30/9/2009
30/6/2009
10.0¢
30.9¢
30.9¢
40.0¢
Weighted average exercise price (cents)
48,196
887,900
936,096
34.8¢
500,000
1,438,750
2,000,000
375,000
4,313,750
29.3¢
–
–
–
–
–
–
–
–
–
–
(30,439)
(636,950)
(667,389)
34.8¢
(500,000)
(1,371,640)
(1,000,000)
(375,000)
(3,246,640)
28.7¢
–
–
–
–
–
(18,914)
(112,100)
–
–
–
17,757
250,950
268,707
34.8¢
–
48,196
887,900
–
936,096
34.8¢
Notes:
(1) At 30 June 2008 all options (2007: all) were vested and exercisable with a weighted average exercise price of 34.8 cents (2007: 34.8 cents).
All options became vested and exercisable on approval of the stapling by shareholders and unitholders in December 2006.
(2) The weighted average remaining contractual life of share options outstanding at the end of the year was 1.3 years (2007: 2.3 years).
(3) No options were granted in 2008. The assessed fair value of options granted in 2006 was 10.1 cents for options exercisable at 30.9 cents
and 7.1 cents for options exercisable at 40 cents.
(4) 667,389 options were exercised on 30 June 2008 (2007: 3,145,000 options were exercised on 19 December 2006 (stapling date) and
101,640 options were exercised on 30 June 2007). 667,389 shares (2007: 3,246,640 shares) were issued to employees on exercise of the
options. The aggregate proceeds received from employees on the exercise of options and recognised as issued capital was $234,000 (2007:
$749,000) for the Company and $nil (2007: $26,000) for the Trust. The fair value of securities issued at the option exercise date was $521,000
(that is the weighted average share price at the date of exercise was $0.78 per security) (2007 - $3,602,000; $1.11 per security).
(5) As a result of the stapling transaction (refer note 33) all outstanding options under the ESOP became vested and exercisable. Options not
exercised were subject to the same reconstruction as ordinary issued shares. Although vested, any options not exercised at stapling are still
subject to the same exercisable timetable as prior to stapling.
To 30 June 2008 no options granted under the ESOP have lapsed, been forfeited or expired.
Fair Value of Options Granted
The fair values at grant date were determined using a Black-Scholes option pricing model that takes into account the exercise price, the
term of the option, the share price at grant date and expected price volatility of the underlying share, the expected dividend yield and the
risk-free interest rate for the term of the option.
StrENGtH - CONFIDENCE - OPPOrtUNIty
83
notes to the financial statements continued
The model inputs for options granted during the year ended 30 June 2006 included:
Exercise price (cents)
Grant date
Share price at grant date
Expected price volatility of the company’s shares
Expected dividend yield
Risk free interest rate
Expiry date
Options Granted
30.9¢
28/8/05
34¢
90%
3.66%
5.0%
30/6-30/9/09
40¢
31/10/05
38¢
90%
3.66%
5.18%
30/6/09
The expected price volatility is based on the historic volatility (based on the remaining life of the options), adjusted for any expected changes
to future volatility due to publicly available information.
No options were granted during the 2008 financial year under the ESOP.
Performance Rights Plan
A Performance Rights Plan (PRP) was established in September 2007 by the directors of the parent entity. All full-time and part-time
employees who meet minimum service, remuneration and performance requirements, including executive directors of Cromwell Corpora-
tion Limited, are eligible to participate in the PRP at the discretion of the Board. Participation in the PRP by executive directors is subject
to securityholder approval. The PRP is designed to provide long-term incentives for senior managers and executive directors to continue
employment and deliver long-term securityholder returns.
Under the PRP, eligible employees are allocated performance rights. Each performance right enables the participant to acquire a stapled
security in Cromwell Group, at a future date and exercise price, subject to conditions. The number of performance rights allocated to
each participant is set by the Nomination and Remuneration Committee and based on individual circumstances and performance.
The amount of securities that will vest under the PRP depends on a combination of factors which may include the Group’s total security-
holder returns (including share price growth, dividends and capital returns), internal performance measures and the participant’s contin-
ued employment.
Securities allocated under the PRP generally vest in 3 years. Until securities have vested, the participant cannot sell or otherwise deal with
the securities except in certain limited circumstances. It is a condition of the PRP that a participant must remain employed by the Group in
order for securities to vest. Any securities which have not yet vested on a partipant leaving employment must be forfeited.
Under AASB 2 “Share based Payment”, the rights granted to employees to securities acquired by the plan are treated as options for
accounting purposes.
84
CrOMWELL GrOUP annual report 2008
Set out below are summaries of performance rights granted and exercised.
Grant
Date
Expiry
Date
Exercise
price
(cents)
Balance
at start
of the year
Granted
during
the year
Lapsed
during
the year
Exercised
during
the year
Balance
at year end
2008
18/09/2007
18/09/2007
18/09/2007
06/12/2007
19/01/2010
19/01/2011
19/01/2011
07/04/2011
$1.21
$1.21
$0.00
$1.21
Weighted average exercise price
–
–
–
–
–
–
492,900
4,255,100
8,600
1,624,400
6,381,000
$1.21
–
(368,300)
–
–
(368,300)
–
–
–
–
–
–
–
492,900
3,886,800
8,600
1,624,400
6,012,700
$1.21
Notes:
(1) At 30 June 2008 no performance rights were vested and exercisable.
(2) The weighted average remaining contractual life of performance rights outstanding at the end of the year was 2.7 years.
(3) All performance rights were granted in 2008. The assessed fair value of performance rights granted was as follows:
– 14.3 cents for performance rights with non-market based vesting conditions expiring on 19/01/2010
– nil cents for all performance rights with market based vesting conditions expiring on 19/01/2010
– 15.0 cents for performance rights with non-market based vesting conditions expiring on 19/01/2011
– nil cents for performance rights with market based vesting conditions expiring on 19/01/2011
– 96.9 cents for performance rights with $nil exercise price
– nil cents for performance rights with market based vesting conditions expiring on 07/04/2011
Fair Value of Performance Rights Granted
The fair values at grant date for performance rights with no market based vesting conditions were determined using a Black-Scholes option
pricing model that takes into account the exercise price, the term of the option, the share price at grant date and expected price volatility
of the underlying share, the expected dividend yield and the risk-free interest rate for the term of the option. The fair values at grant date
for performance rights with market based vesting conditions were determined using a Monte Carlo simulation (TSR hurdle) and the Black-
Scholes option pricing model that takes into account the exercise price, the term of the option, the share price at grant date and expected
price volatility of the underlying share, the expected dividend yield and the risk-free interest rate for the term of the option.
The model inputs for performance rights granted during the year ended 30 June 2008 included:
Market based vesting conditions
Performance Rights Granted
Exercise price
Grant date
Share price at grant date
Expected price volatility of the company’s shares
Expected dividend yield
Risk free interest rate
Expiry date
$1.21
18/9/2007 – 6/12/2007
$1.25
23%
8.06%
6.22%
19/1/2010 – 7/4/2011
Non-market based vesting conditions
Performance Rights Granted
Exercise price
Grant date
Share price at grant date
Expected price volatility of the company’s shares
Expected dividend yield
Risk free interest rate
Expiry date
$1.21
18/09/07
$1.26
23%
8.06%
6.26%
19/1/2010
$1.21
18/09/07
$1.26
23%
8.06%
6.22%
19/1/2011
–
18/09/07
$1.26
23%
8.06%
6.22%
19/1/2011
$1.21
6/12/2007
$1.25
23%
8.06%
6.22%
7/4//2011
StrENGtH - CONFIDENCE - OPPOrtUNIty
85
notes to the financial statements continued
The expected price volatility is based on the historic volatility (based on the remaining life of the options), adjusted for any expected changes
to future volatility due to publicly available information.
Tax Exempt Plan
The Tax Exempt Plan enables eligible employees to acquire up to $1,000 of stapled securities (on-market) in a tax effective manner within
a 12 month period. Eligibility for the Tax Exempt Plan is approved by the Board having regard to individual circumstances and performance.
No directors or KMP are eligible for the Tax Exempt Plan.
Expenses relating to the plan are recorded in employee benefits expense and all securities are purchased on-market.
Expenses arising from share-based payment transactions
Total expenses arising from share based transactions recognised during the year as part of employee benefits expense were as follows:
Options issued under employee share plan
Rights issued under performance rights plan
Tax exempt plan
Consolidated
Parent
2008
$’000
12
61
22
95
2007
$’000
282
–
–
282
2008
$’000
12
61
–
73
2007
$’000
282
–
–
282
As noted above the stapling transaction accelerated the vesting of options. Accordingly, the related remaining share option expense was
also recognised in the 2007 year.
43. Capital risk Management
The Group’s capital management strategy seeks to maximise securityholder value through optimising the level and use of capital resources
and the mix of debt and equity funding.
The Group’s capital management objectives are to:
−
−
−
−
−
ensure that Group entities comply with capital and distribution requirements of their constitutions and/or trust deeds;
ensure sufficient capital resources to support the Group’s operational requirements;
continue to support the Group’s credit worthiness;
comply with capital requirements of relevant regulatory authorities; and
safeguard the Group’s ability to continue as a going concern.
The Group monitors the adequacy of its capital requirements, cost of capital and gearing (i.e. debt/equity mix) as part of its overall strategic
plan. The Group’s capital structure is continuously reviewed to ensure:
−
sufficient funds and financing facilities are available, on a cost effective basis, to implement the Group’s property acquisition and prop-
erty development strategies; and
distributions to members are made within the stated distribution policy.
−
The Group is able to alter its capital mix by:
−
−
−
−
−
issuing new stapled securities;
activating its distribution reinvestment plan;
adjusting the amount of distributions paid to members;
activating its security buyback program; and
selling assets to reduce borrowings.
The Group also protects its equity in assets by taking out insurance cover with credit worthy insurers.
86
CrOMWELL GrOUP annual report 2008
Cromwell Property Securities Limited (“CPS”) holds an Australian Financial Services Licence (AFSL) and acts as responsible entity for the
managed investment schemes managed by the Group. The AFSL requires CPS to maintain net tangible assets of $5 million. As such CPS is
restricted from paying dividends to the parent entity that would breach its licence conditions and holds cash as part of its required minimum
net tangible assets (see note 35). CPS monitors its net tangible assets on an ongoing basis to ensure it continues to meet its licence require-
ments. CPS complied with its AFSL requirements during 2008 and 2007.
The Group and the Parent monitor capital on the basis of the gearing ratio. The ratio is calculated as net debt divided by adjusted assets.
Net debt is calculated as total borrowings less cash and cash equivalents and restricted cash. Adjusted assets are calculated as total assets
less cash and cash equivalents, restricted cash and intangible assets. The gearing ratios at 30 June 2008 and 2007 were as follows:
Consolidated
Parent
Total borrowings
Less: cash and cash equivalents and restricted cash
Net debt
Total assets
Less: cash and cash equivalents and restricted cash
Adjusted assets
2008
$’000
623,448
33,983
589,465
1,368,523
38,281
1,330,242
2007
$’000
586,966
17,966
569,000
1,295,154
23,336
1,271,818
Gearing ratio
44%
45%
2008
$’000
–
705
(705)
29,771
6,084
23,687
N/A
2007
$’000
211
35
176
14,484
5,895
8,589
2%
44. financial risk Management
The Group’s activities expose it to a variety of financial risks; credit risk, liquidity risk and market risk (interest rate risk and price risk). The
Group’s overall risk management program focuses on managing these risks and seeks to minimise potential adverse effects on the financial
performance of the Group. The Group uses derivative financial instruments such as interest rate swaps to hedge certain risk exposures. The
Group seeks to deal only with creditworthy counterparties. Liquidity risk is monitored through the use of future rolling cash flow forecasts.
The Group’s management of treasury activities is centralised and governed by policies approved by the board of directors who monitor the
operating compliance and performance as required. The board provides principles for overall risk management, as well as policies cover-
ing specific areas, such as identifying risk exposure, analysing and deciding upon strategies, performance measurement, the segregation
of duties and other controls around the treasury and cash management functions.
StrENGtH - CONFIDENCE - OPPOrtUNIty
87
notes to the financial statements continued
The Group and the parent entity hold the following financial instruments:
Consolidated
Parent
2008
$’000
8,283
48,473
19,367
11,457
25,700
113,280
5,731
623,448
17,583
646,762
2007
$’000
17,845
24,342
13,498
–
61,371
117,056
13,920
586,966
15,740
616,626
2008
$’000
705
22,937
–
275
–
23,917
1,199
–
7,028
8,227
2007
$’000
35
6,699
–
275
–
7,009
181
211
5,590
5,982
Financial Assets
Cash and cash equivalents (1)
Trade and other receivables (1)
Derivative financial instruments (2)
Available–for–sale financial assets
Other financial assets (1)
Financial Liabilities
Trade and other payables (3)
Borrowings (3)
Dividends/Distributions payable (3)
(1) loans and receivables
(2) At fair value – held for trading
(3) At amortised cost
(a) Credit Risk
Credit risk is the risk that a counterparty will default on its contractual obligations under a financial instrument and result in a financial loss
to the Group. The Group and the Parent has exposure to credit risk on all financial assets included in their balance sheets except available-
for-sale financial assets.
The Group and the Parent manage this risk by:
−
−
−
−
establishing credit limits for customers and managing exposure to individual entities;
monitoring the credit quality of all financial assets in order to identify any potential adverse changes in credit quality;
derivative counterparties and cash transactions, when utilised, are transacted with high credit quality financial institutions;
providing loans as an investment in controlled entities and associates where the Group and the Trust are comfortable with the underly-
ing property exposure;
regularly monitoring loans and receivables on an ongoing basis; and
regularly monitoring the performance of controlled entities and associates on an ongoing basis.
−
−
The maximum exposure to credit risk as at 30 June 2008 is the carrying amounts of financial assets recognised in the balance sheets of the
Group and the Trust. The Group and the Trust hold no significant collateral as security. There are no significant financial assets that have
had renegotiated terms that would otherwise have been past due or impaired.
88
CrOMWELL GrOUP annual report 2008
The ageing analysis of receivables past due at balance date is as follows:
1 to 3 months
3 to 6 months
Over 6 months
Consolidated
Parent
2008
$’000
2,045
–
4,981
7,026
2007
$’000
5,183
–
3,155
8,338
2008
$’000
2007
$’000
–
–
–
–
–
–
–
–
The Group and Parent have no significant concentrations of credit risk except for the following:
−
−
−
the Group has amounts owing from Cromwell Property Fund of $40,052,000 (2007: $73,222,000) (refer notes 8 and 18);
the Parent has $22,595,000 (2007: $4,698,000) in loans to controlled entities (refer note 8); and
other concentrations of credit risk relate to restricted cash which is held with Westpac Banking Corporation and derivative interest rate
swaps which are held with the same financial institution.
(b) Liquidity risk
Prudent liquidity risk management implies maintaining sufficient cash reserves and finance facilities to meet the ongoing operational
requirements of the business. It is the Group’s policy to maintain sufficient funds in cash and cash equivalents to meet expected near term
operational requirements. The Group prepares and monitors rolling forecasts of liquidity requirements on the basis of expected cash flow.
The Group monitors the maturity profile of borrowings and puts in place strategies designed to ensure that all maturing borrowings are
refinanced in the required timeframes.
Contractual maturity of financial liabilities, including interest thereon, is as follows:
Due within one year
Due between one and five years
Due after five years
Consolidated
Parent
2008
$’000
543,547
83,634
126,758
753,939
2007
$’000
215,716
455,379
–
671,095
2008
$’000
8,227
–
–
8,227
2007
$’000
5,771
211
–
5,982
StrENGtH - CONFIDENCE - OPPOrtUNIty
89
notes to the financial statements continued
(c) Market risk
Price risk
The Group is exposed to equity securities price risk. This arises from investments held by the Group classified on the balance sheet as
available-for-sale financial assets. Neither the Group nor the Parent are exposed to commodity price risk. The majority of the Group’s equity
investments are publicly traded and are included in the ASX All Ordinaries index.
Group sensitivity
Based on the financial instruments held at 30 June 2008, had the ASX All Ordinaries index increased/decreased by 10% with all other vari-
ables held constant and all the Group’s equity instruments moved in correlation with the index, the impact on the Group’s profit and equity
for the year would have been $1,146,000 higher/lower. The Group had no exposure to price risk on equity securities in 2007.
Parent sensitivity
The Parent had no exposure to price risk on equity securities in 2008 or 2007.
Interest rate risk
The Group’s interest-rate risk primarily arises from borrowings. Borrowings issued at variable rates expose the Group to cash flow inter-
est-rate risk. Borrowings issued at fixed rates expose the Group to fair value interest-rate risk. The Group’s policy is to effectively maintain
hedging arrangements on not less than 50% of its borrowings. At balance date, 73% (2007: 54%) of the Group’s borrowings were effectively
hedged.
The Group manages its cash flow interest-rate risk by using floating-to-fixed interest rate swaps. Such interest rate swaps have the eco-
nomic effect of converting borrowings from floating rates to fixed rates. Generally, the Group raises long term borrowings at floating rates
and swaps a portion of them into fixed rates. Under the interest-rate swaps, the Group agrees with other parties to exchange, at specified
intervals (usually 30 days), the difference between fixed contract rates and floating-rate interest amounts calculated by reference to the
agreed notional principal amounts.
The fixed interest rates range between 5.30% and 6.69% (2007: 4.70% and 5.90%) and the variable rates are at the 30 day bank bill swap bid
rate which at balance date was 7.66% (2007: 6.40%). At 30 June 2008, the notional principal amounts and periods of expiry of the interest
rate swap contracts are as follows:
Less than 1 year
1–2 years
2–3 years
3–4 years
4–5 years
Greater than 5 years
Consolidated
Parent
2008
$’000
246,015
15,060
76,745
–
–
118,180
456,000
2007
$’000
5,820
99,450
15,060
76,745
–
118,180
315,255
2008
$’000
2007
$’000
–
–
–
–
–
–
–
–
–
–
–
–
–
–
The Group’s interest rate swaps do not meet the accounting requirements to qualify for hedge accounting treatment. Gains or losses arising
from changes in fair value have been reflected in the income statement. Refer accounting policy at note 1(r).
The Group’s fixed rate borrowings relate to fixed interest debentures issued by a subsidiary and which bear interest at 8% (2007: 8%) and
are measured at amortised cost.
Information on borrowings, the maturity profile of borrowings including interest thereon and the effective weighted average interest rate
by maturity periods is set out in note 23.
90
CrOMWELL GrOUP annual report 2008
Group sensitivity
At 30 June 2008, if interest rates had changed by +/- 100 basis points from the year end rates with all other variables held constant, profit
would have been $9,933,000 higher/lower (2007 – change of 100 bps: $7,121,000 higher/lower), mainly as a result of an increase/decrease
in the fair value of interest rate swaps. Equity would have been $9,933,000 higher/lower (2007: $7,121,000 higher/lower) mainly as a result
of an increase/decrease in the fair value of interest rate swaps.
Parent sensitivity
At 30 June 2008, if interest rates had changed by +/- 100 basis points from the year end rates with all other variables held constant, profit
would have been $209,000 higher/lower (2007 – change of 100 bps: $nil higher/lower), mainly as a result of an increase/decrease in inter-
est income. Equity would have been $209,000 higher/lower (2007: $nil higher/lower) mainly as a result of an increase/decrease in interest
income.
(d) Fair value estimation
The fair value of financial assets and financial liabilities must be estimated for recognition and measurement or for disclosure purposes.
The fair value of financial instruments traded in active markets is based on quoted market prices at the reporting date. The quoted market
price used for financial assets held by the Group is the current bid price.
Derivative interest rate swaps classified as held for trading are fair valued by comparing the contracted rate to the current market rate for
a contract with the same remaining period to maturity.
The carrying value of loans and receivables and financial liabilities at amortised cost are assumed to approximate their fair value due to
either their short-term nature or their terms and conditions including interest receivable/payment at variable rates.
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notes to the financial statements continued
45. subsequent events
Since balance date and up to the date of this report, the following transactions have occurred:
Progress towards refinance of CMBS issue
The Group’s major borrowings, a $429,000,000 Commercial Mortgage Banked Security (“CMBS”) issue is due for repayment in April 2009.
Since balance date, offers have been received from 3 banks to provide a syndicated loan facility totalling $452,000,000, which would enable
the repayment of the CMBS issue in full.
The offers of finance have been approved by the banks credit committees, but are still subject to documentation and satisfaction of relevant
pre-conditions before the funding is able to be drawn. The Directors expect that the facility will be finalised on satisfactory terms, and that
it will be available to the Group prior to the scheduled repayment date of the CMBS issue.
The financial effects of subsequent events were not recognised as at 30 June 2008.
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CrOMWELL GrOUP annual report 2008
directors’ declaration
In the Directors’ opinion:
(a) the attached financial statements and notes and the Remuneration Report in the directors’ report are in accordance with the Corpora-
tions Act 2001, including:
(i) complying with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Regula-
tions 2001; and
(ii) giving a true and fair view of the company’s and consolidated entity’s financial position as at 30 June 2008 and of their performance,
for the financial year ended on that date; and
(b) the financial report also complies with International Financial Reporting Standards as disclosured is note (1)(a); and
(c) 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
The directors have been given the declarations by the chief executive officer and chief financial officer for the financial year ended 30 June
2008 required by section 295A of the Corporations Act 2001.
This declaration is made in accordance with a resolution of the directors.
P.L. Weightman
Director
Dated this 19th day of August 2008
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93
independent Auditor’s report
Independent Auditor’s Report to the Members of Cromwell Corporation Limited
The Directors
Cromwell Corporation Limited
Level 19
200 Mary Street
BRISBANE QLD 4000
Report on the Financial Report
We have audited the accompanying financial report of Cromwell Corporation Limited, which comprises the balance sheet as
at 30 June 2008, and the income statement, statement of changes in equity and cash flow statement for the year ended on that
date, a summary of significant accounting policies, other explanatory notes and the directors’ declaration for both Cromwell
Corporation Limited (the company) and the consolidated entity comprising the company and the entities it controlled at the
year’s end or from time to time during the financial year.
Auditor’s Independence Declaration
(i)
(ii)
As lead engagement partner for the audit of the financial report of Cromwell Corporation Limited for the financial year ended
30 June 2008, I declare that, to the best of my knowledge and belief, there have been:
no contraventions of any applicable code of professional conduct in relation to the audit.
Directors’ responsibility for the financial report
The directors of the company are responsible for the preparation and fair presentation of the financial report in accordance
no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and
with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Act 2001.
This responsibility includes establishing and maintaining internal controls relevant to the preparation and fair presentation of
the financial report that is free from material misstatement, whether due to fraud or error; selecting and applying appropriate
accounting policies; and making accounting estimates that are reasonable in the circumstances. In Note 1, the directors also
state, in accordance with Australian Accounting Standard AASB 101 Presentation of Financial Statements, that compliance
with the Australian equivalents to International Financial Reporting Standards ensures that the financial report, comprising
the financial statements and notes, complies with International Financial Reporting Standards.
Auditor’s responsibility
Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance
with Australian Auditing Standards. These Auditing Standards require that we comply with relevant ethical requirements relat-
ing to audit engagements and plan and perform the audit to obtain reasonable assurance whether the financial report is free
from material misstatement.
JOHNSTON RORKE
Chartered Accountants
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report.
The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement
of the financial report, whether due to fraud or error. In making those risk assessments, the auditor considers internal control
relevant to the entity’s preparation and fair presentation of the financial report in order to design audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal
control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of account-
ing estimates made by the directors, as well as evaluating the overall presentation of the financial report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
J J Evans
Partner
Brisbane, Queensland
19 August 2008
Liability limited by a scheme approved under Professional Standards Legislation
94
CrOMWELL GrOUP annual report 2008
Liability limited by a scheme approved under Professional Standards Legislation
17
Independence
Independence
In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001.
In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001.
Auditor's opinion on the financial report
Auditor’s opinion
In our opinion:
(a)
In our opinion:
(a)
(b)
the financial report of Cromwell Corporation Limited is in accordance with the Corporations Act 2001, including:
(i) giving a true and fair view of the company’s and consolidated entity’s financial position as at 30 June 2008 and of their
the financial report of Cromwell Corporation Limited is in accordance with the Corporations Act 2001, including:
performance for the year ended on that date; and
(i)
(ii) complying with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Cor-
giving a true and fair view of the company’s and consolidated entity's financial position as at 30 June
2007 and of their performance for the year ended on that date; and
porations Regulations 2001; and
(ii)
the financial report also complies with International Financial Reporting Standards as disclosed in Note 1.
complying with Australian Accounting Standards (including the Australian Accounting Interpretations)
and the Corporations Regulations 2001; and
(b)
Report on the Remuneration Report
the consolidated financial report also complies with International Financial Reporting Standards as disclosed in
We have audited the Remuneration Report included in part 11 of the directors’ report for the year ended 30 June 2008. The
Note 1.
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.
Auditor's opinion on AASB 124 remuneration disclosures contained in the directors’ report
In our opinion the remuneration disclosures that are contained in the remuneration report in the directors’ report comply
with Australian Accounting Standard AASB 124 Related Party Disclosures.
Auditor’s opinion
In our opinion the Remuneration Report of Cromwell Corporation Limited for the year ended 30 June 2008, complies with
Section 300A of the Corporations Act 2001.
JOHNSTON RORKE
JOHNSTON RORKE
Chartered Accountants
Chartered Accountants
J J EVANS
Partner
J J Evans
Partner
Brisbane, Queensland
27 September 2007
Brisbane, Queensland
19 August 2008
Liability limited by a scheme approved under Professional Standards Legislation
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95
Corporate governance statement
The Cromwell Group through the various Boards and management is committed to meeting stakeholders’ expectations of sound corpo-
rate governance, while seeking to achieve superior financial performance and long term prosperity. The Board is proactive with respect to
corporate governance, and actively reviews developments to determine which corporate governance arrangements are appropriate for the
Group and its stakeholders.
The ASX Corporate Governance Council has Corporate Governance Principles and Recommendations which are designed to optimise cor-
porate performance and accountability in the interests of shareholders and the broader economy. The recommendations are not prescrip-
tive, however listed entities are required to disclose the extent of their compliance, and if any recommendations have not been followed,
must give reasons for not following them.
This statement sets out the extent to which the Group has followed the ASX recommendations during this financial year, identifies any of
the ASX recommendations which were not followed, and provides reasons for departure.
Copies of the Group’s corporate governance practices are available on its website at www.cromwell.com.au.
Principle 1 – Lay solid foundations for management and oversight
The Boards of Cromwell Corporation Limited, and Cromwell Property Securities Limited each have common membership. Responsibil-
ity for corporate governance and the internal working of each Group entity rests with the relevant Board. The Board has adopted a formal
charter which details the composition, values and functions of the Board.
The Board holds a scheduled meeting each month, and additional meetings are convened as required. Board papers are designed to focus
Board attention on key issues, and standing items include major strategic initiatives, corporate governance, compliance, reports from each
functional division and financial performance.
Each director has received a letter of appointment which details the key terms of their appointment.
Day-to-day management of the Group’s affairs and implementation of corporate strategy and policy initiatives are delegated by the Board to
committees and management. This has been formalised in the Board Charter and a Delegations of Authority policy.
Cromwell Property Securities Limited acts as responsible entity for a number of managed investment schemes. A compliance committee
comprised of a majority of external independent members monitors to what extent the responsible entity complies with each managed
investment scheme’s compliance plan and reports findings to the responsible entity.
A formal induction program allows senior executives to participate fully and actively in decision-making. The Group has an established
process for the performance review of all staff. The performance of key executives is evaluated at least annually, in addition to regular
feedback during the performance period. At the time of the reviews, the potential development of the executive is also discussed, along
with any training which could enhance the objectives being achieved. Both qualitative and quantitative measures are used in the evalua-
tion. A performance evaluation for the majority of key executives has taken place during the reporting period, and was subject to the review
process explained in this report.
What you can find on our website:
−
−
Corporate Governance Statement
Board Charter
96
CrOMWELL GrOUP annual report 2008
Principle 2 – Structure the board to add value
The Board is comprised of four non-executive independent directors and three executive directors. Therefore, a majority of the directors are
independent. Profiles of each director, including details of their skills, expertise and experience can be found in the directors’ report.
In line with the increased size and scale of the operations of the Group, Mr Geoff Levy was appointed as the non-executive Chairman of the
Group in April 2008. Mr Paul Weightman remains as the Group’s Chief Executive Officer.
Mr Levy was previously Executive Chairman of Investec Bank (Australia) Limited (Investec). Mr Levy continues to have a consulting role with
Investec and is currently the non-executive Deputy Chairman of Investec.
Having regard to the materiality thresholds adopted by the Board, Investec is considered a material advisor to the Group having advised on
the Group’s major restructure completed in December 2006.
Despite the relationship between Cromwell Group and Investec, the Board considers Mr Levy to be an independent director. For the follow-
ing reasons, the Board does not consider that Mr Levy’s relationship with Investec is such that it does or may interfere with his exercise of
independent judgement as a Board member:
a) Mr Levy is not a substantial shareholder of Cromwell or an officer of, or otherwise associated directly with, a substantial shareholder of
Cromwell;
b) Mr Levy has never been employed in an executive capacity by any member of the Cromwell Group;
c) Mr Levy does not have any material contractual relationships with any member of the Cromwell Group, other than as a director;
d) Investec staff involved in advising Cromwell on transactions have done so within strict Chinese Wall arrangements designed to ensure
information did not flow from the transaction team to other parts of Investec;
e) as a consultant to Investec, Mr Levy does not consult on matters relating to Cromwell or any member of the Cromwell Group; and
f) Investec does not currently provide finance to Cromwell or any member of the Cromwell Group.
The Group recognises that independent directors are important in assuring securityholders that the Board properly fulfill its role. The non-
executive directors are considered to meet the test of independence under the ASX Guidelines. Each year, the independent directors are
requested to confirm in writing their continuing status as an independent director, and that they have each undertaken to inform the Boards
as soon as practical if they think that their status as an independent director has or may have changed.
For each director, their qualifications, experience, special responsibilities and attendances at Board meetings are detailed in the directors’
report. The Board considers that its members comprise directors with an appropriate mix of skills, personal attributes and experience that
allow the directors individually and the Board collectively to discharge their duties effectively and efficiently. The Board is structured with
individuals who understand the business of the Group and the environment in which it operates, and who can effectively assess manage-
ment’s performance in meeting agreed objectives and goals.
On an ongoing basis, directors are provided with updates on legal and corporate developments relevant to the Group.
Independent professional advice
If considered warranted, the Board may resolve to obtain professional advice about the execution of the Board’s responsibilities at the
Group’s expense. Non-executive directors also have the right, at the Group’s expense, to seek independent professional advice, subject to
Board approval which will not be unreasonably withheld. Where appropriate, such advice is shared with the other directors.
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97
Corporate governance statement continued
Board Committees
Two Board Committees have been established to assist in the execution of the Boards’ responsibilities. The membership of each Commit-
tee and attendance at Board and Committee meetings is set out in the directors’ report.
It is the policy of the Board that the Nomination and Remuneration Committee, and the Audit and Risk Committee be comprised of inde-
pendent directors. Each committee has a charter which includes a description of their duties and responsibilities.
Performance of the Board
The Board undertakes an annual formal performance self assessment, which includes an assessment of the Board, Board Committees
and individual directors. All directors complete a questionnaire and are able to make comments or raise any issues they have regarding the
Board or a Board Committee’s operations. The results are compiled and discussed.
When a director vacancy occurs, the Board through the Nomination and Remuneration Committee, identifies the particular skills, expe-
rience and expertise that will best complement Board effectiveness, and then undertakes a process to identify candidates who can meet
those criteria. Appointment of directors is documented by way of a formal agreement between the Group and each director, dealing with
such issues as performance expectations, conflicts of interest, disclosure obligations, remuneration and Group policies.
Principle 3 – Promote ethical and responsible decision making
The Group’s directors and staff are required to maintain high ethical standards of conduct. The various practices and policies of the Group
reinforce this. All directors and employees are expected to act with integrity, striving at all times to enhance the reputation and perform-
ance of the Group.
To reinforce this culture the Group has established a Code of Conduct, designed to formally provide guidance in officer and employee atti-
tudes and behaviour and to maintain confidence in the integrity of the Group.
The Code of Conduct is made available to all directors and employees. Standards are communicated and reinforced at induction programs
and staff meetings.
Employees are encouraged to participate in appropriate training programs covering such areas as workplace health and safety, risk man-
agement, legal and compliance, privacy and confidentiality, trade practices legislation and corporate governance principles.
A policy on securities dealing is in place under which directors and staff are restricted in their ability to deal in the Group’s securities.
Appropriate black out periods are in place during which directors and staff are not permitted to trade.
What you can find on our website:
−
−
Code of Conduct
Securities Trading Policy
Principle 4 – Safeguard integrity in financial reporting
The Board has responsibility for the integrity of the Group’s financial reporting. To assist the Board in discharging this function the follow-
ing process has been adopted.
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CrOMWELL GrOUP annual report 2008
Audit and Risk committee
An Audit and Risk committee has been appointed by the Board, and has responsibility for overseeing the quality and integrity of the account-
ing, auditing and financial reporting practices of the Group. The Audit and Risk Committee is comprised of three independent directors. The
names, qualifications and attendance at meetings of the members of the Audit and Risk Committee is detailed in the directors’ report.
The responsibilities, roles, composition and structure of the Audit and Risk Committee are set out in its charter which is available on the
Group’s website.
The external auditor has declared its independence to the Board and the Committee. The Board is satisfied that the standards for auditor
independence and associated issues are complied with. The auditor attends the Group’s Annual General Meeting and is available to answer
securityholder questions on the conduct of the audit, and the content and preparation of the auditor’s report.
The Chief Executive Officer and the Chief Financial Officer state in writing to the Board that the Group’s financial reports present a true and
fair view, in all material respects, of the Group’s financial position and operational results and are in accordance with relevant accounting
standards.
Details of the risk monitoring duties of the Audit and Risk Committee are set out in principle 7 below.
What you can find on our website:
−
Audit and Risk Committee Charter
Principle 5 – Make timely and balanced disclosure
The Group believes that all stakeholders should be informed of all the major business events and risks that influence the Group in a timely
and widely available manner. The Group has a communications policy which is available on our website. This policy includes polices and
procedures in relation to disclosure and compliance with the disclosure requirements in the ASX Listing Rules.
It is the policy of the Group that any price-sensitive material for public announcement will be lodged with the ASX as soon as practical and
before external disclosure elsewhere and posted on the Group’s website as soon as practical after lodgement with the ASX.
The ASX liaison person is the Group’s company secretary.
What you can find on our website:
−
Communications Policy
Principle 6 – Respect the rights of shareholders
A communications policy has been developed and designed to not only comply with the ASX Guidelines but to generate and foster a long-
term close association with securityholders and investors in the Group’s financial products.
The Group aims to keep securityholders informed of the Group’s performance and all major developments in an ongoing manner. In this
regard, securityholders receive regular reports, and all documents that are released publicly are made available on the Group’s website.
The Group uses its website as a means of providing information to securityholders and the broader investment community.
Securityholders are also encouraged to participate in the annual general meeting to ensure a high level of accountability and identification
with the Group’s strategies and goals. Notices of meetings will be accompanied by explanatory notes on the items of business and together
they will seek to accurately and clearly explain the nature of the business of the meeting.
A copy of the AGM notice is sent to the Company’s external auditor as required by law. The current audit partner attends the AGM and is
available to answer questions from securityholders about the audit. The Chairman reminds securityholders of this opportunity at the com-
mencement of each AGM.
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99
Corporate governance statement continued
Principle 7 – Recognise and manage risks
The Group is exposed to risks in the markets in which it operates. The Group has a formalised risk management policy, and compliance
with the policy is monitored by the Audit and Risk Committee.
The committee is responsible for oversight of the risk management and internal control systems. Responsibilities include:
a) overseeing the establishment and implementation of risk management and internal compliance and control systems and ensuring there
is a mechanism for assessing the efficiency and effectiveness of those systems;
b) regularly reviewing and updating the risk profile; and
c) monitoring the effectiveness of the internal risk control system.
The Group has in place limits and a range of policies and procedures to monitor risks, and these are reviewed by the Audit and Risk Com-
mittee. The Board receives regular reports from the Audit and Risk Committee.
The risk management framework includes policies, limits and procedures applying across the Group. Risks are identified, and assessed
so that informed decisions on risk issues can be made. The objective of the Group’s approach to risk management is to manage the level
of risk within acceptable parameters, rather than seeking to eliminate risk.
The Group has adopted an Enterprise Risk Management Policy, which is a general statement of the Group’s philosophy with respect to risk
management practices. This policy is available on our website.
A compliance committee assists the Board of Cromwell Property Securities Limited in overseeing the risk management framework of the
registered managed investment schemes for which it acts as the responsible entity. The compliance committee monitors the compliance
plans and the underlying compliance framework. The Board receives regular reports from the compliance committee.
Chief Executive Officer and Chief Financial Officer Declaration
The Chief Executive Officer and the Chief Financial Officer provide the Board with written confirmation that:
1. their statement given to the Board on the integrity of the Group’s statements is founded on a sound system of risk management and
internal compliance and control which implements the policies adopted by the Board; and
2. the Group’s risk management and internal compliance and control system is operating effectively in all material respects in relation to
financial reporting risks.
Senior management have reported to the Board on the effectiveness of the management of the material business risks faced by the Group
for the year ending 30 June 2008. The Board has also received the declarations from the Chief Executive Officer and the Chief Financial
Officer described above.
What you can find on our website:
−
−
Audit and Risk Committee Charter
Enterprise Risk Management Policy
Principle 8 – Remunerate fairly and responsibly
The Group’s remuneration policy is determined by the Nomination and Remuneration Committee that makes recommendations to the
Board:
−
−
in the case of non-executive directors, for consideration of any increase by securityholders at the AGM; and
in the case of executives, for decision.
External professional advice is sought from experienced consultants, where appropriate, to assist in the committee’s and the Board’s
deliberations.
The Group’s remuneration policy links the nature and amount of executive directors’ and officers’ emoluments to the Group’s financial and
operational performance.
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CrOMWELL GrOUP annual report 2008
The Group operates a legacy Employee Share Ownership Plan, a Performance Rights Plan and a Tax Exempt Plan. The Group does not cur-
rently pay any other form of security-based remuneration.
Nomination and Remuneration Committee
The Board has established a formally constituted Nomination and Remuneration Committee operating under an approved written charter
that incorporates various responsibilities, including reviewing and recommending compensation arrangements for the directors, the Chief
Executive Officer and key executives, and setting remuneration policy.
The Nomination and Remuneration Committee was formally reconstructed as a Board subcommittee in July 2007.
Meetings of the committee are attended, by invitation, by appropriate professional advisers from time to time.
Minutes of all committee meetings are provided to the Board, and it is intended that the Chairman of the committee reports to the Board
after each committee meeting.
Details of the number of committee meetings and attendances by directors are included in the directors’ report.
Non-executive director remuneration
The structure of non-executive directors’ remuneration and that of executive directors is set out in the relevant section of the directors’
report.
Details of the nature and amount of each element of the remuneration of each director of the Group and other key management personnel
of the Group are disclosed in the relevant section of the directors’ report.
There is no retirement benefit scheme for non-executive directors other than payment of statutory superannuation. The Boards undertake
an annual review of its performance together with an assessment of the Group’s executive management.
Executive directors and senior executive remuneration
The Group’s remuneration policies and practices in relation to executive directors and senior executives are disclosed in the directors’
report. Further, details of the nature and amount of remuneration paid to those executives is set out in the directors’ report.
For executive directors and key staff, formal performance objectives are set annually with discussion on their performance taking place at
assessment time.
Managed funds
CPS is entitled to various fees for discharging the role of responsible entity. Further, various other Group entities are entitled to fees for
providing services to managed funds such as property and asset management, accounting, registry and transactional management.
All related party transactions are tested by reference to whether they meet market standards.
Fees are calculated in accordance with defined formula under the Constitutions for the schemes or agreements which have been assessed
as being on arms length terms. Fees are fully disclosed to investors at inception and continue to be disclosed to investors in regular report-
ing.
CPS is also entitled to be reimbursed from the funds for expenses incurred in the proper performance of its duties.
What you can find on our website:
−
Nomination and Remuneration Committee Charter
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securityholder information
The securityholder information set out below was applicable as at 29 August 2008.
Spread of stapled securityholders
Category (size of Holding)
1 – 1,000
1,001 – 5,000
5,001 – 10,000
10,001 – 100,000
100,001 and over
Unmarketable Parcels
The number of stapled securityholdings held in less than marketable parcels was 278.
Substantial Securityholders
Holder
APN Funds Management Limited
Number
of Holders
Number of
Securities
399
630
845
7,129
1,073
10,076
180,264
1,936,386
6,804,970
233,003,754
461,159,560
703,084,934
Stapled Securities
Date of Notice
43,464,477
27 Feb-08
Voting Rights
On a show of hands every member present at a meeting in person or by proxy shall have one vote and upon a poll each security shall have
one vote.
20 Largest Securityholders
RBC Dexia Investor Services Australia Nominees Pty Limited
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