Cromwell Group
annual
report
2009
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 3229 9860
Website: www.computershare.com.au
E-mail: web.queries@computershare.com.au
This document is issued by
Cromwell Group consisting of
Cromwell Corporation Limited ABN 44 001 056 980 and 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 Group Profile
Cromwell Group is a stapled security (ASX: CMW) consisting of an Australian Real Estate Investment Trust and a
successful Australian property funds management business. The Group has a track record for developing high quality,
high yielding investment products and delivering strong returns to investors.
Cromwell Group holds a $1.2 billion portfolio of Australian commercial property. With a 99.8% occupancy level and
a heavy weighting towards government and blue-chip tenants this portfolio provides a stable income stream that
contributes the majority of the Group’s operating earnings.
One of Cromwell’s competitive advantages is its internalised asset and facilities management capability. The property
team’s experience and approach to commercial asset management puts Cromwell at the forefront of the industry and
the internalised model creates a link between investors, the assets and their tenants. The team’s charter is to constantly
improve tenant satisfaction, property income returns and capital value.
Cromwell surprised the investment community in FY 2009 by raising in excess of $50 million for a single property syn-
dicate in a market widely considered to be one of the most challenging in decades. This achievement is attributed to a
strong funds management brand, loyal investors and Cromwell’s ability to identify and secure high quality assets which
offer real opportunities for investors.
Current unlisted investment funds under management include:
Cromwell Property Fund ARSN 119 080 410 (“CPF”)
Cromwell Phoenix Property Securities Fund ARSN 129 580 267 (“PSF”)
Cromwell Riverpark Trust ARSN 135 002 336 (“CRT”)
Units in the DPT, CPF, PSF and CRT are issued by Cromwell Property Securities Limited. Before making an investment decision about any Cromwell unlisted fund you should
read the Product Disclosure Statement for the fund which is available from www.cromwell.com or by calling us on 1800 334 533. 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 document are also forward-looking and are not guarantees of future performance. Actual results could differ
materially from those expressed.
Contents
Chairman’s Review
Performance Highlights
CEO’s Review
Directors’ Report
Auditor’s Independence Declaration
Income Statements
Balance Sheets
Statements of Changes in Equity
1
2
6
8
27
28
29
30
Cash Flow Statements
Notes to the Financial Statements
Directors’ Declaration
Audit Report
Corporate Governance Statement
Securityholder Information
Directory
32
33
89
90
92
98
101
Chairman’s review
We are pleased to report that our under-
lying business has performed strongly in a
challenging economy and an environment
especially difficult for the A-REIT sector.
The Group earned $63.8 million, or
9.1 cents per stapled security, from its
operations, which is a testament to the
quality of its property portfolio and the
skills of management. These earnings
are in line with guidance given during the
year and have allowed us to pay security-
holders a 9 cent per security distribution
for the year.
Despite its strong operating earnings per-
formance, Cromwell reported a statutory
net loss of $113.5 million after tax. This
was due mainly to non-cash downward
revaluations on investment property and
interest rate hedges and a write down of
its listed property securities investments.
Overall, the Group is in a relatively com-
fortable capital position with all debt in
Australian dollars, no exposure to offshore
banks and no debt due to be refinanced
before March 2011.
I would like to thank my fellow board
members for their valuable input through-
out the year and also Paul Weightman and
his hard working, talented team. I believe
we can continue to build upon the Group’s
important achievements this year in an
improving economic environment.
Cromwell has once again demonstrated
that it is a manager for all seasons, riding
out the greatest financial crisis of most of
our lifetimes to deliver on its core promise
of a reliable distribution for investors.
Geoffrey H Levy, AO
Chairman
Given the weak property market over the
past year and the capital-constrained envi-
ronment, this steady earnings result is a
fitting reward for the conservative strategy
that Cromwell has pursued regardless of
changing investment fashions.
Since its inception more than a decade ago,
Cromwell has focused on its core strengths
of Australian commercial property and
retail funds management, and continues
to do so.
Cromwell’s high-quality Australian property
portfolio continues to provide solid, reliable
earnings for the Group, underpinning an
earnings result that was almost entirely
comprised of recurring property and funds
management income.
The portfolio has no offshore assets, is
heavily weighted towards office markets
and enjoys minimal vacancy with quality
tenants and a long average lease term.
In order to take advantage of opportuni-
ties in the market without stretching its
balance sheet, Cromwell has succeeded in
establishing the only significant new syn-
dicate in the property sector nationwide,
the Cromwell Riverpark Trust. Cromwell
has raised more than $60 million from
retail investors so far and the Trust has
acquired a $173 million office building
being constructed at 33 Breakfast Creek
Road, Newstead in Brisbane. The com-
pleted property will be underpinned by
a new 15 year lease from Queensland
Government owned electricity supplier
Energex and has allowed Cromwell to
expand its funds under management with
minimal risk.
CROMWELL GROUP Annual Report 2009
1
Performance Highlights
|
Strong Operating Earnings
|
Financial Position
Operating earnings of 9.1 cps and distributions of
»
NTA of $0.76 per security
»
9.0 cps in line with guidance
Earnings predominantly from property, with 99%
»
from recurring income
Security price implies 9% discount to asset
»
values and no value for funds management
business [1]
Represents 13.0% yield on 8.0 cps distribution
»
[1]
Results Summary
FY09
FY08
Portfolio Summary[2]
JUN-09
JUN-08
Statutory accounting profit/(loss)
$(113.5) m
$119.9 m
$70.8 m ▼ 10%
10.1 cps ▼ 9%
Total Value
Geography
Number of properties
81% ▲ 18%
Occupancy
10.0 cps ▼ 10%
$1.01 ▼ 24%
44% ▲ 9%
WALT
WACR
NLA
$1.17 b
Aust.
25
99.8%
5.1 yrs
8.40%
468,181 m2
$1.18 b ▼ 0.8%
Unchanged
Aust.
24 ▲ 4.2%
Unchanged
99.8%
5.9 yrs ▼ 13.6%
7.40% ▲ 13.5%
455,709 m2 ▲ 2.7%
Operating earnings
Operating EPS
% from recurring income
Distributions per security
NTA per security
Gearing
$63.8 m
9.1 cps
99%
9.0 cps
$0.76
53%
Major FY09 ASX Announcements
July 29, 2008 Announcement of a major new lease at the landmark 101 Grenfell Street building in Adelaide to the Government
of South Australia. The new 10 year lease covers appoximately 90 per cent of the building.
December 17, 2008 Cromwell completes early repurchase of $129 million of CMBS Notes at a discount.
January 13, 2009 Cromwell temporarily suspends applications to, and withdrawals from, the unlisted Cromwell Property Fund. The
suspension was due to a lack of property transactions in the broader market which created uncertainty around
valuations and prevented accurate unit pricing.
January 23, 2009 Announcement to extend the on-market buyback of up to 10 per cent of issued capital for a further 12 months as
part of capital management program.
February 18, 2009 Announcement of strong operating earnings of $36.48 million for the half year to December 31 or 5.2 cents per
share.
February 25, 2009 Launch of a PDS to raise $91 million in a new unlisted trust - the Cromwell Riverpark Trust.
April 22, 2009 Cromwell finalises repayment in full of CMBS program funded by a three-year $452 million syndicated loan
facility from three major banks.
(1) Based on closing price of $0.615 cents on 31 August 2009
(2) Includes 2/3 of TGA asset accounted for as investment in associate
2
CROMWELL GROUP Annual Report 2009
|
Statutory accounting loss impacted by:
|
Debt Position
Investment property revaluations
»
No debt expiries until March 2011
»
Interest hedge revaluations
»
Aim to maintain gearing below 55%
»
Write-downs of listed property investments
»
All debt in Australian dollars with Australian
»
banks
Profit summary – Composition of operating profit
$12.6m
$6.3m
$(1.6m)
$(13.9m)
$(0.3m)
$63.8m
A$ million
$56.3m
$4.5m
80
60
40
20
0
Net
property
income
Net funds
management
income
Investment
income
Other
revenue
Net
development
income
Unallocated
overhead
Tax
Operating
profit
Operating profit – Reconciliation to statutory accounting loss
A$ million
$63.8m
$(104.3m)
100
50
0
-50
-100
-150
$(22.5m)
$(20.2m)
$(11.5m)
$(18.8m)
$(113.5m)
Operating
profit
FVA
investment
properties
FVA
interest
hedges
Share of equity
accounted loss
Inventory
impairment
Other
Statutory
accounting loss
CROMWELL GROUP Annual Report 2009
3
Performance Highlights continued
Australian portfolio weighted to CBD office markets and minimal exposure to troubled sectors
»
Peak to trough fall in values of 8.6% for Cromwell vs. PCA/IPD average of 25.9%
»
[1]
Income underpinned by strong tenant quality and long average lease term
»
Strong exposure to Melbourne and Canberra markets has underpinned performance
»
Tenant Industry Diversification by Gross Income
Historical Weighted Average Cap Rate
Resources 2.3%
Real Estate 0.7%
Prof. Services 2.8%
Other 11.0%
Logistics 3.6%
Agriculture 4.8%
IT 2.1%
Retail 5.2%
Telco’s 2.6%
Cinema 3.5%
Construction 2.9%
Education 5.8%
Financials 0.7%
Government 52.0%
Geographic Diversification by Gross Income
9%
8%
7%
6%
SA 8%
TAS 4%
VIC 28%
WA 1%
QLD 18%
NSW 13%
ACT 28%
Cromwell Managed Properties
Benchmark (PCA/IPD All Fund Universe excl.
Super & Major Regional Shopping Centres)
Universe (IPD Australian All-Funds)
Jun 06 Dec 06
Jun 07
Dec 07
Jun 08
Dec 08
Jun 09
Tenant Classification by Gross Income
Government Associate 4%
ACT State Government 1%
South Australian State Government 6%
Victorian State Government 1%
Queensland State Government 3%
Federal Government 37%
Government
Governement
Authority
Authority
52%
52%
(1) PCA/IPD Australian Property Index
4
CROMWELL GROUP Annual Report 2009
Foreign 10%
ASX Other 4%
ASX200 17%
Listed
Co/Subsidiary
31%
Private Company 17%
|
Earnings Guidance
|
Outlook
Highly predictable property earnings in FY10
»
Aim to continue outperformance in property and
»
Can maintain operating earnings of 9.0 cps with
»
securityholder returns
minimal transactional activity
Consolidation in the A-REIT sector in coming year
»
Forecast distributions of 8.0 cps in FY10
»
(2.0 cps paid quarterly)
“likely” given market conditions
Will continue to offer unlisted investments
»
Cromwell vs. Benchmark Annualised Property Returns
Total securityholder returns
1 yr
3 yrs
5 yrs
9 yrs
-3%
0%
3%
6%
9%
12%
15%
Cromwell Managed Properties
Benchmark (PCA/IPD All Fund Universe excl.
Super & Major Regional Shopping Centres)
Outperformance
Annual Return
60%
50%
40%
30%
20%
10%
0%
-10%
-20%
-30%
-40%
Cromwell
S&P/ASX All Ords
S&P/ASX300 A-REIT
49.8%
40.7%
6.7%
6.0%
-3.8%
-12.9%
-8.7%
-0.5%
-21.3%
-22.1%
-23.1%
-42.1%
1 Year
3 Years
5 Years
8 Years
Lease Expiry Profile – % Gross Income
Security Price vs. NTA per Security
40%
30%
20%
10%
37.7%
17.1%
4.6%
0.3%
9.2%
6.1%
7.6% 7.8%
9.6%
0%
Vacant
FY10
FY11
FY12
FY13
FY14
FY15
Thereafter
FY16
Security Price
NTA
A$
$1.60
$1.40
$1.20
$1.00
$0.80
$0.60
$0.40
$0.20
$0
Dec 06
Jun 07
Dec 07
Jun 08
Dec 08
Jun 09
CROMWELL GROUP Annual Report 2009
5
CEO’s Review
|
Key Points
Focus on consistent long term returns
»
Minimal impact of global financial crisis on earnings and distributions
»
In a position to continue to take advantage of opportunities
»
In large part this has been due to the
conservative and defensive nature of the
Cromwell portfolio. Cromwell Group
has maintained a wholly domestic port-
folio with a heavy weighting to CBD office
markets, in particular Melbourne and
Canberra, which have proven to be resil-
ient in the current economic downturn.
The vast majority of Cromwell’s recurring
income is derived from Government and
strong listed companies.
Cromwell’s statutory accounting loss of
$113.5 million included negative revalua-
tion adjustments on investment property
of $104.3 million, a negative fair value
adjustment of $22.5 million in interest
hedges, and a write down of listed property
security investments of $6.8 million. Peak
to trough falls in values of the Cromwell
portfolio have been in the order of 8.6%,
compared to the PCA/IPD average of
25.9% [1]. It is the view of the Board that
capitalisation rates for prime, well let
commercial property have plateaued.
Whilst there will be a continuing impact
on valuations from falling market rentals
in an number of markets, the Cromwell
portfolio is well positioned and will be
minimally affected because of its strong
tenant profile and long weighted average
lease expiry, (in excess of 5 years).
Cromwell Group Operating Earnings for
the 2009 financial year were 9.1 cents per
security and distributions were 9.0 cents
per security. In an environment in which
many of our peers’ distributions were
slashed or ceased altogether, Cromwell’s
ability to maintain earnings and distri-
butions is testament to the quality of its
underlying recurring income, with 99% of
Cromwell Group 2009 earnings coming
from property rentals and recurring funds
management fees.
We refinanced our debt well in advance of
the April 2009 expiry of our CMBS facility
with the result that the Group’s major
debt facilities have been extended until
March 2011 at least. All of Cromwell’s
debt is denominated in Australian dollars,
with Australian banks, and is maintained
within loan to value and interest cover
covenants.
T h e C ro m we l l Fu n d s M a n a g e m e n t
business continued to provide reliable
earnings for the Group in the 2009 year
from its ongoing funds and p roperty
management activities. In addition,
Cromwell undertook the syndication of the
Riverpark building at Newstead, Brisbane
in 2009, raising more than $50 million
from investors in 4 months and acquir-
ing the property in July. In doing so, we
have expanded our distribution network
and investor base, and are well placed
to take advantage of changing sentiment
and grow our business in circumstances
where our major competitors have dis-
continued or significantly reduced their
operations.
Cromwell Group continued to benefit in
the 2009 financial year from the deci-
sions which were made at the peak of
the property market: to sell a significant
portion of our portfolio; reduce debt; and
build cash reserves. As a result of those
decisions, Cromwell has been able to buy
property on balance sheet and for syndi-
cation on attractive terms at the bottom of
the market. However, most importantly,
and unlike most of its peers, Cromwell
has avoided the need to raise capital on a
highly dilutive basis to retire debt and has
preserved the value of security holders’
interests. Indeed, the net tangible assets
(NTA) per Cromwell Group security at
the date of this report were equivalent to
the NTA per security when the Cromwell
stapled Group was created in December
2006.
6
CROMWELL GROUP Annual Report 2009
CROmwELL HAS mAInTAInED A wHOLLy DOmESTIC PORTFOLIO wITH A HEAvy
wEIGHTInG TO CBD OFFICE mARkETS wHICH HAvE PROvEn TO BE vERy RESILIEnT In THE
CURREnT ECOnOmIC DOwnTURn
I remain delighted in being able to present
to you a Group with quality assets and
sources of income, and which has con-
fidence in its ability to take advantage of
current market conditions and opportuni-
ties as they develop.
Paul Weightman
CEO
Particularly pleasing is Cromwell’s rela-
tive performance against recognised
benchmarks including the PCA/IPD All
Fund Universe (excl Super & Regional
Shopping Centres) and the ASX 300
A-REIT Index. Cromwell has outper-
formed each of those benchmarks over 1,
3, 5 and 8 year periods.
Cromwell’s gearing level has moved from
35% at the peak of the market to 53% at
what we believe to be close to the trough.
At the same time Cromwell has improved
the quality of our portfolio, acquired addi-
tional accretive assets and not had to
undertake a capital raising, let alone a
capital raising that is massively dilutive to
yield and security holder value.
Gearing levels should be assessed relative
to the quality of assets, cash flows and
income. Cromwell has no foreign assets
and minimal development exposure. Our
assets are income producing with secure,
predictable income streams.
Cromwell is comfortable that we are
better able to manage our gearing than
other A-REITs because of our ability to
syndicate assets through our funds man-
agement business. We also believe our
debt structure is better and more dis-
ciplined than most of our peers – being
siloed, limited recourse, with no unse-
cured debt and no unmanageable cov-
enants.
Despite the volatility in A-REIT secu-
rity prices over the last 12 months, and
the massive reduction in values which
occurred in early 2009, the Cromwell
Group security price recovered to be
within 15% of its price at the date of my
last report. We believe the current price
of $0.615 [2] represents exceptional value,
trading at a discount of 19% to NTA and a
yield of 13%.
The impact of the Global Financial Crisis
on the A-REIT sector has been severe.
However, Australia has been affected
to a far more limited extent than other
markets. Cromwell, as one of the few
defensive, domestic A-REITs, has been
affected to a more limited extent that
most of our peers. Cromwell’s view is
that there is likely to be a wave of consoli-
dation in the sector in the next 12 months,
and that we are well placed to take advan-
tage of opportunities which may arise.
In addition to our focus on potential
corporate activity, Cromwell will continue
to concentrate on fundamentals in the
year ahead - minimising lease expiries,
maintaining quality tenants and the integ-
rity of our quality income stream, and
continuing to grow our funds manage-
ment activities.
[1] PCA/IPD Australian Property Index.
[2] Closing market price on 31 August 2009.
CROMWELL GROUP Annual Report 2009
7
Geoffrey Levy
CHAIRMAN
Paul Weightman
Daryl Wilson
Michelle McKellar
CHIEF EXECUTIVE OFFICER
FINANCE DIRECTOR
NON-EXECUTIVE DIRECTOR
Ms Michelle McKellar – Non-Executive
Director – Appointed March 2007
Ms McKellar has a wealth of property and
portfolio management experience, having
held a number of senior positions with
Intro International Limited (now Jen Retail
Properties) and CB Richard Ellis through-
out Asia-Pacific. She is a Senior Member
of the Property and Land Economy Insti-
tute and runs her private property com-
panies. Ms McKellar is a member of
Cromwell’s Nomination & Remuneration,
Audit & Risk and Investment Commit-
tees.
Mr David Usasz – Non-Executive Director
– Appointed April 2007
Mr Usasz has 20 years experience as
partner with PricewaterhouseCoopers
and has been involved in merger and
acquisition advice, accounting and finan-
cial consultancy, specialising in corporate
reorganisations. He holds a Bachelor of
Commerce and is a Fellow of the Insti-
tute of Chartered Accountants. Mr Usasz
is Chairman of Cromwell’s Audit & Risk
Committee and a member of Cromwell’s
Nomination & Remuneration Committee.
Directors’ Report
1. Directors & Officers
The Directors of Cromwell Corporation
Limited (“the Company”) present their
report for Cromwell Group (“the Group”)
consisting of Cromwell Corporation
Limited and its controlled entities for
the year ended 30 June 2009.
The shares of the Company and units
of Cromwell Diversified Property Trust
(“the Trust”) are combined and issued
as stapled securities in the Group.
The shares of the Company and units of
the Trust cannot be traded separately
and can only be traded as stapled
securities.
(a) 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 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
was appointed an Officer in the Order of
Australia in the Queen’s Birthday Honours
List in June 2005.
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 chartered accounting firm Douglas
Heck and Burrell, specialising in property
investment, taxation 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 & Remunera-
tion Committee, Chairman of Cromwell’s
Investment Committee and a member of
Cromwell’s Audit & Risk Committee.
8
CROMWELL GROUP Annual Report 2009
Robert Pullar
David Usasz
Richard Foster
Nicole Riethmuller
NON-EXECUTIVE DIRECTOR
NON-EXECUTIVE DIRECTOR
EXECUTIVE DIRECTOR
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 exten-
sive experience in property development
and investment, financial structuring,
public listings, mergers and acquisi-
tions, 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 companies in the property,
energy and retail sectors. Mr Weightman
is a member of Cromwell’s Investment
Committee.
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 professional 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 business and the
Group’s investment products. Mr Foster
is a member of Cromwell’s Investment
Committee.
Mr Daryl Wilson – Finance Director –
Appointed 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 experience in senior finance roles.
Mr Wilson has led the development of
Cromwell’s funds management capabili-
ties, and has primary responsibility for
the finance function. He holds a Bachelor
of Commerce and a Diploma of Finan-
cial Planning. Mr Wilson is a member of
Cromwell’s Investment Committee.
All Directors of the Company are also
Directors of Cromwell Property Securities
Limited.
(b) Directorships of other listed
entities in last 3 years
Mr. Geoffrey Levy has been a Director of
Specialty Fashion Group since 8 April 2005.
Mr. Levy was a director of Ten Network
Holdings from 3 April 1998 until his resig-
nation from the Board on 25 October 2007
and a director of STW Group Limited from
24 November 1993 until his resignation
from the Board on 1 July 2008.
Mr Usasz has been a director of Queens-
land Mining Corporation Limited since
15 June 2007.
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.
(c) Company Secretaries
Ms Nicole Riethmuller – Appointed
November 2008
Ms Riethmuller has 14 years experience
as a corporate lawyer having worked
primarily in the financial services indus-
try. Prior to joining Cromwell, Nicole
was General Counsel at the Queensland
Investment Corporation where she headed
the in-house legal team. Before that
she was a Senior Associate in the Funds
Management team at Minter Ellison
lawyers in Sydney. Nicole has also been a
lawyer and Assistant Company Secretary
at Queensland Sugar Corporation. She
has a Bachelor of Laws and a Bachelor of
Commerce from the University of Queens-
land.
Ms Suzanne Morgan – Appointed
January 2007; Resigned November 2008
Ms Morgan was the Company Secretary
for the Cromwell Group from 25 January
2007 until her resignation on 11 Novem-
ber 2008. Ms Morgan joined Cromwell in
2006 as the Cromwell Group’s Corporate
Legal Counsel. She has over 12 years
experience as an in-house corporate legal
lawyer having worked primarily in the
banking and financial services industry.
Ms Morgan has a Bachelor of Laws and
an Associate Diploma in Applied Finance
and Investment from the Securities Insti-
tute of Australia.
CROMWELL GROUP Annual Report 2009
9
Directors’ Report continued
(d) Directors’ Meetings
The number of Directors’ meetings (including meetings of committees of the Board) and number of meetings attended by each of the
Directors of the Company during the financial year were:
Director
Board
Nomination &
Remuneration
Committee
Audit & Risk
Committee
Investment
Committee
Geoffrey Levy
Robert Pullar
Michelle McKellar
David Usasz
Paul Weightman
Richard Foster
Daryl Wilson
A
14
13
15
14
15
15
15
B
15
15
15
15
15
15
15
A
–
2
1
2
–
–
–
B
–
2
2
2
–
–
–
A
–
4
6
6
–
–
–
B
–
6
6
6
–
–
–
A
–
1
2
–
2
2
2
B
–
2
2
–
2
2
2
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
management 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.
Dividend
per
Security
Distribution
per Security
Total per
Security
Total
$’000
Franked
amt per
Security
Record
Date
Payment
Date
–
–
–
–
–
–
–
–
1.00¢
1.00¢
2.50¢
2.50¢
2.50¢
1.50¢
9.00¢
2.50¢
2.50¢
2.50¢
1.50¢
9.00¢
2.50¢
2.50¢
2.50¢
1.50¢
9.00¢
2.50¢
2.50¢
2.50¢
2.50¢
10.00¢
17,577
17,577
17,577
10,546
63,277
17,574
17,651
17,628
17,583
70,436
–
–
–
–
–
–
–
–
0.50¢
0.50¢
01/10/08
31/12/08
14/04/09
30/06/09
02/10/07
31/12/07
31/03/08
30/06/08
14/11/08
16/02/09
15/05/09
31/08/09(1)
15/11/07
15/02/08
15/05/08
29/08/08
3. Dividends/ Distributions
2009
Interim distribution
Interim distribution
Interim distribution
Final distribution
2008
Interim distribution
Interim distribution
Interim distribution
Final dividend/distribution
(1) Expected payment date
10
CROMWELL GROUP Annual Report 2009
4. Review of Operations
(a) Financial Performance
The Group delivered a loss attributable to securityholders after tax and external minority interests of $113,511,000 for the year ended
30 June 2009 compared with a profit of $107,997,000 for the previous year. Despite the statutory result, and in what has been an
extremely challenging period, underlying operating profit for the Group remained very resilient.
The statutory accounting loss was impacted by a number of substantial non-cash items. These included:
|
|
|
|
A decrease in the fair value of the Group’s investment properties of $104,288,000 which represented a decrease of approximately
9% in the value of investment properties(1);
A share of losses of $13,231,000 arising from investments in unlisted property funds managed by the Group, mainly due to falls in
the fair value of the underlying investment property held by the funds;
A decrease in fair value of the interest rate derivatives of $22,479,000 primarily due to the effect of substantial decreases in under-
lying short and long-term variable interest rates during the year; and
Write-downs in the value of listed investments ($6,770,000), property development inventories ($11,463,000) and receivables
($4,890,000) all of which were impacted by the difficult climate.
(1) Includes adjustment to June 2008 carrying value for remaining cost to complete of Synergy investment property.
Other significant items impacting the operating results for the year included:
|
|
|
|
Rental income and recoverable outgoings of $112,522,000 increased by 26% on the previous year, mainly due to the acquisition of
the Tuggeranong Office Park in June 2008;
Lower income and costs associated with funds management and development, due to much lower levels of activity;
Other income of $6,217,000 included income received from settlement of a dispute with the Queensland Office of State Revenue
with regards to the Stapling transaction in 2006 and a discount negotiated on the early repayment of part of the CMBS notes on
issue in November 2008; and
Finance costs of $50,294,000 increased by 58% on the previous year, due to a combination of additional borrowings in relation to
the Tuggeranong investment property coupled with additional interest costs during a 5 month period between drawdown of a new
loan facility for $452,000,000 and repayment of $300,000,000 of the existing CMBS notes.
CROMWELL GROUP Annual Report 2009
11
Directors’ Report continued
(b) Operating Profit
The loss for the year includes a number of items which, in the opinion of the Directors, need to be adjusted for in order to allow secu-
rityholders to gain a better understanding of the Group’s profit from operations. A reconciliation of profit from operations, as assessed
by the Directors, to the reported net profit/(loss) for the year is as follows:
Consolidated
Profit from operations (1)
Reconciliation to profit/(loss) for the year
Gain on sale of investment properties
Property development – minority interest share
Fair value adjustments/write–downs:
Investment properties
Interest rate derivatives
Investments at fair value through profit and loss
Available for sale financial assets
Inventory
Investment in associate
Loan receivable
Non–cash property investment income:
Straight–line lease income
Lease incentive and lease cost amortisation
Amortisation of finance costs
Other non–cash expenses:
Employee options expense
Amortisation and depreciation
Relating to equity accounted investments (2)
Gain on dilution of interest in associate
Net tax/losses incurred/(utilised) (3)
Net profit/(loss) for the year
Attributable to:
Company shareholders
Trust unitholders – minority interest
Net profit/(loss) attributable to stapled securityholders
External minority interests
2009
$’000
63,761
–
–
(104,288)
(22,479)
(3,107)
(3,663)
(11,463)
(232)
(4,890)
1,716
(4,303)
(1,415)
(233)
(545)
(20,237)
–
(2,133)
(113,511)
(18,971)
(94,540)
(113,511)
–
(113,511)
2008
$’000
70,791
7,470
11,904
34,649
4,479
–
(9,011)
–
–
–
–
735
(4,182)
(890)
(73)
(470)
4,618
826
(945)
119,901
19,440
88,557
107,997
11,904
119,901
(1) Includes other income of $6,217,000 (2008: $nil).
(2) Comprises fair value adjustments included in share of profit of equity accounted entities.
(3) Comprises change in value of deferred tax asset due to recognition of future tax benefits associated with carried forward tax losses.
Profit from operations for the year was $63,761,000 (2008: $70,791,000). Given the turmoil in global markets and economies experi-
enced during the year, this is considered an exceptional result. The results reflected a higher contribution from the property portfolio,
coupled with lower contributions from funds management and development activities.
The performance of the investment property portfolio remained strong during the year, and reflects Cromwell Group’s commitment to
an in-sourced management model, with significant benefits attached to the integrated property management and tenant relationship
management activities. High renewal rates with tenants continue to be achieved, and the portfolio was 99% leased at year-end, with a
5.1 year weighted average lease term. Importantly, tenant quality is also exceptional, with 51% of rental income at balance date under-
pinned by Government or Government owned/funded entities, and a further 31% from listed companies or their subsidiaries.
12
CROMWELL GROUP Annual Report 2009
(c) Earnings per Stapled Security
Basic/diluted operating earnings per stapled security (1) (2)
Basic/diluted earnings/(loss) per stapled security (2)
(1) Based on profits from operations disclosed above.
(2) Excludes external minority interests.
Consolidated
2009
Cents
9.1
(16.1)
2008
Cents
10.1
15.3
Basic operating earnings attributable to stapled securityholders were 9.1 cents (2008: 10.1 cents). Distributions paid for the year were
9.0 cents (2008: 10.0 cents), including a June quarter distribution of 1.5 cents per stapled security to be paid on 31 August 2009.
(d) Financial Position
Total assets ($’000)
Net assets ($’000)
Net tangible assets ($’000) (1)
Net debt ($’000) (2)
Gearing (%) (3)
Securities issued (’000)
NTA per security
Consolidated
2009
1,308,823
539,593
537,358
656,195
53%
702,943
$0.76
2008
1,368,523
715,236
710,938
589,465
44%
702,816
$1.01
(1) net 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.
NTA per security has decreased during the year, from $1.01 to $0.76, primarily as a result of the decreases in fair value of the invest-
ment properties and other non-cash items noted above. NTA per security remains at approximately the same level as when the Group
was stapled in December 2006.
Construction of the Synergy office building in Brisbane was completed on schedule and on budget in November 2008, with no other
changes to the composition of the property portfolio during the year.
During the year the Group completed the refinance of the CMBS notes with the drawdown of a new 3 year syndicated debt facility for
$452,000,000, which expires in 2011. The Group now has no debt facilities expiring until March 2011. Gearing at balance date was 53%
(2008: 44%). The increase was primarily as a result of the decreases in fair value of investment property and other non-cash items.
(e) Outlook
The outlook remains positive for the Group, despite the continuing market volatility. The proportion of earnings from recurring sources
of property investment and funds management was higher during the current year, and this is expected to continue in the coming
year.
The Groups’ property portfolio is expected to continue to deliver stable earnings. Growth in funds under management and funds man-
agement earnings via the Group’s retail distribution is expected to return during the 2010 year, commencing with the settlement of the
Cromwell Riverpark Trust in July 2009, for which the Group raised over $50 million from external investors to date.
The portfolio values have been very resilient compared to others, and this is expected to continue. The Group aims to maintain gearing
below the target maximum of 55% through a combination of some sales of smaller non-core assets and prudent capital management.
CROMWELL GROUP Annual Report 2009
13
Directors’ Report continued
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 42 of the financial report, no matter or circumstance has arisen since 30 June 2009 that has significantly
affected or may significantly affect:
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|
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the Group’s operations in future financial years; or
the results of those operations in future financial years; or
the Group’s state of affairs in future financial years.
7. Likely Developments
The Group will continue to pursue activities which increase profitability of the Group, and create value for securityholders. Further
information 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
Territory relevant to the Group.
9. Directors’ Interests
The interests of current Directors in securities of the Company are as follows:
Geoffrey Levy (1)
Robert Pullar
Michelle McKellar
David Usasz
Paul Weightman
Richard Foster
Daryl Wilson
Stapled
Securities
370,000
14,000,000
300,000
1,877,580
15,464,167
5,349,598
2,215,006
39,576,351
Performance Rights
Options over
Securities
–
–
–
–
738,733
–
344,200
1,082,933
–
–
–
–
–
–
–
–
(1) mr GH Levy is a director of mZL Investments Pty Ltd, which is the manager of the mZL Opportunity Fund, which owned 862,995 (2008: 462,963) stapled securities in the Cromwell
Group. mr GH Levy has indirect beneficial ownership of the shares as a unitholder in the fund.
14
CROMWELL GROUP Annual Report 2009
10. Options
(a) Securities 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:
Date granted
Exercise date
Exercise price
Expiry date
Number of options
18/09/07
18/09/07
18/09/07
06/12/07
19/12/09 – 19/01/10
19/12/10 – 19/01/11
19/12/10 – 19/01/11
07/03/11 – 07/04/11
$1.21
$1.21
$0.00
$1.21
19/01/10
19/01/11
19/01/11
07/04/11
289,150
2,811,434
8,600
1,082,933
4,192,117
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 Right holders have a matching in-substance option for units in Cromwell Diversified Property Trust as a
result of the Group’s stapling arrangement.
(b) Securities 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 during the year and up to the
date of this report.
(c) Securities 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:
Date granted
Exercise date
Exercise price
Expiry date
Number of options
28/08/05
01/07/08 – 30/09/09
34.8¢
30/09/09
141,875
(d) Movement in number of options
Balance at 1 July 2008
Vested and exercised prior to year end
Balance at 30 June 2009
Number of options
268,707
(126,832)
141,875
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.
CROMWELL GROUP Annual Report 2009
15
Directors’ Report continued
11. Remuneration Report
The remuneration report outlines the remuneration practices for the Directors and Executives which include Key Management person-
nel (“KMP”) and the five highest paid executives.
The remuneration report is set out under the following main headings:
(a) Remuneration principles
(b) Details of remuneration
(c) Performance assessment
(d) Share-based compensation
(e) Employment contracts and termination provisions
(a) Remuneration principles
(i) Governance
The Group has appointed a nomination and remuneration committee (“Committee”). The Committee has overall responsibility for the
remuneration strategies of the Group. The Committee also advises the Board on remuneration policy and practices. The Committee is
chaired by Mr RJ Pullar, a non-executive director. External consultants are appointed to advise the Committee as required.
(ii) Policy
The Group aims to remunerate competitively and appropriately such that it attracts, retains and motivates the highest calibre employ-
ees. 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.
Executive remuneration is benchmarked periodically against the market, based on national remuneration levels for similar companies
taking into account factors such as number of employees, revenue and market capitalisation/total assets. The Group seeks to align all
of its key performance metrics for employees with the objectives set by the Board at the beginning of each financial year, such that all
service agreements and key performance indicators for both executives and non-executives align with these objectives.
Performance is assessed not less than annually in light of performance against individual and Group related goals. The Group looks
to mitigate risk by conservatively balancing the base pay to short term and long term incentives ratio. Long term incentives are paid
by way of security based compensation. The remuneration of individual employees is structured in such a way that it reflects the indi-
vidual’s previous experience, qualifications, responsibility and performance. The employment or remuneration of any executive of the
Group is not influenced by the executive’s shareholding in the Group.
Executive Remuneration
The executive remuneration framework has three components:
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|
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base pay and benefits, including superannuation
short term incentives
long-term incentives
Base pay 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.
Short term and long term incentives are linked to the achievement of individual objectives, both financial and non-financial, which are
relevant to meeting the Group’s business objectives.
16
CROMWELL GROUP Annual Report 2009
Short term incentives are generally paid as cash bonuses. Cash bonus entitlements are assessed and paid based on the actual perfor-
mance against the relevant key performance indicator targets. For all executives except the Chief Executive Officer, 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 Commit-
tee or the Board.
Long term incentives comprise participation in equity compensation plans. The Group established a Performance Rights Plan (“PRP”)
during the 2008 year. The PRP 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. Eligibility for the PRP is
approved having regard to individual circumstances and performance.
Performance Rights generally vest in 3 years. Until the Performance Rights have vested, the employee cannot sell or otherwise deal
with the Performance Rights except in certain limited circumstances. An employee must remain employed by the Group in order for the
Performance Rights to vest. Any Performance Rights which have not yet vested on an employee leaving service must be forfeited.
The number of key management personnel participating in the PRP during the year was 10 (2008: 10). The number of Performance
Rights allocated to key management personnel at balance date was 2,663,982 (2008: 4,188,900).
The Group established the Cromwell Employee Share Ownership Plan (“ESOP”) during the 2003 year. No grants were made under the
ESOP during the 2008 or 2009 years, and it is not intended that any further grants will be made under this plan in the future. Under
the ESOP, eligible employees were allocated shares in the Company. The shares were acquired by the eligible employees at the time
of allocation, funded by a loan from the Company to the eligible employee. The loan was limited recourse to the shares only and inter-
est was payable on the loan at the rate prescribed by the ATO for fringe benefit 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 ESOP 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 ESOP 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.
The number of key management personnel participating in the ESOP in the 2009 year was 1 (2008: 1). The number of stapled securities
allocated to key management personnel under the ESOP at balance date was 141,875 (2008: 250,950).
Directors’ remuneration
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 $700,000 per annum in total for 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
superannuation (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.
Annual fees to Non-executive Directors for Board and Board Committees for 2009 are shown in the table below:
Chairman
Non-Executive Director
Audit & Risk Committee – Chairman
Audit & Risk Committee – Member
Nomination & Remuneration Committee – Chairman
Nomination & Remuneration Committee – Member
Investment Committee
2009
$
150,000
75,000
18,000
7,500
12,000
5,000
–
CROMWELL GROUP Annual Report 2009
17
Directors’ Report continued
(b) Details of remuneration
Remuneration paid, payable, or otherwise made available, directly or indirectly, to key management personnel is set out below. 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.
Key management personnel during the year were:
Non-Executive Directors:
Mr G H Levy (AO)
Mr R J Pullar
Ms M A McKellar
Mr D E Usasz
Executive Directors:
Mr PL Weightman
Mr DJ Wilson
Mr WR Foster
Chairman
Director
Director
Director
Chief Executive Officer
Chief Financial Officer
Director – Acquisitions
Other Key Management Personnel:
Mr PW Howard
Ms SM Morgan (1)
Mr DA Gippel
Ms MC McLaughlin
Mr MJ Blake
Mr PJ McDonnell
Mr PJ Cowling
Ms N E Riethmuller (2)
Ms J A Clark
(1) Resigned 11 november 2008
(2) Appointed 11 november 2008
Chief Operating Officer
Company Secretary
Structured Finance Manager
National Head of Investor Relations
National Head of Distribution
National Asset Manager
Associate Director – Transactions
General Counsel/Company Secretary
Transactions Manager
18
CROMWELL GROUP Annual Report 2009
Short-
term
benefits
Short-
term
benefits
Short-
term
benefits
Short-
term
benefits
Post-
employ-
ment
Long-
term
benefits
2009
Non-Executive Directors
GH Levy
RJ Pullar
MA McKellar
DE Usasz
Executive Directors
PL Weightman
WR Foster
DJ Wilson
Other key management personnel
PW Howard
SM Morgan (1)
DA Gippel
MC McLaughlin
MJ Blake
PJ McDonnell
PJ Cowling
NE Riethmuller (2)
JA Clark (3)
Cash
salary and
fees
$
Accrued
leave (4)
Cash
bonus
Non-cash
benefits
Super-
annuation
$
$
$
$
137,615
92,500
84,404
89,908
678,355
195,000
386,256
235,049
88,662
246,956
182,092
236,038
200,000
250,926
158,654
152,912
3,415,327
–
–
–
–
77,688
–
14,668
9,110
(6,691)
1,841
1,652
(4,672)
3,077
(8,340)
3,070
588
91,991
–
–
–
–
–
–
75,000
–
–
75,000
–
–
–
–
–
–
150,000
–
2,000
–
–
157,900
–
–
–
–
19,568
–
–
–
–
–
7,123
186,591
12,385
–
7,596
8,092
14,718
–
14,485
13,745
12,550
13,745
13,745
13,745
13,745
13,745
10,309
12,367
174,972
Long
service
leave
$
–
–
–
–
7,369
–
19,181
851
(1,689)
8,003
3,461
4,743
2,438
3,803
255
2,074
50,489
(1) Resigned on 11 november 2008
(2) Appointed on 11 november 2008
(3) Became key management Person on 1 July 2009
(4) Comprises movement in annual leave entitlements
Share-
based
pay-
ments
Total
Remu-
neration
% of
Remu-
neration
that is
perfor-
mance
based
Options
$
$
%
–
–
–
–
28,725
–
13,384
–
(3,610)
31,450
13,733
17,654
10,453
12,149
–
5,556
129,494
150,000
94,500
92,000
98,000
964,755
195,000
522,974
258,755
89,222
396,563
214,683
267,508
229,713
272,283
172,288
180,620
4,198,864
–
–
–
–
3%
–
17%
–
–
27%
6%
7%
5%
4%
–
3%
CROMWELL GROUP Annual Report 2009
19
Directors’ Report continued
Short-
term
benefits
Short-
term
benefits
Short-
term
benefits
Short-
term
benefits
Post-
employ-
ment
Long-
term
benefits
Share-
based
pay-
ments
Total
Remu-
neration
% of
Remu-
neration
that is
perfor-
mance
based
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
Cash
salary and
fees
$
Accrued
leave (4)
Cash
bonus
Non-cash
benefits
Super-
annuation
$
$
$
$
Long
service
leave
$
Options
$
$
%
28,670
77,354
72,150
72,812
614,252
250,000
386,871
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
–
–
–
–
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
–
–
–
–
1%
–
6%
–
–
2%
5%
21%
20%
2%
2%
(1) Appointed on 17 April 2008
(2) Resigned on 22 February 2008
(3) Appointed on 31 march 2008
(4) Comprises movement in annual leave entitlements
(c) Performance assessment
Performance linked remuneration includes both short term and long term incentives. Performance remuneration seeks to link the
overall level of executive reward with the performance of the Group over a number of years, with greater emphasis given to the current
year. Performance is monitored through the identification of performance criteria which must be met for each executive.
Short term incentives
Executives receive performance related cash bonuses which are linked to the achievement of individual objectives relevant to their busi-
ness unit and the Group’s business objectives.
Although the performance criteria may be different for each executive the overriding principles involve assessment of performance
against the following areas:
Financial
Including Group’s financial performance and performance of the individual executive’s business unit, with concen-
tration on operating profit per security as assessed by the Directors and set out in part 4 of the Directors Report and
Total Shareholder Returns (“TSR”) relative to peers.
Non-Financial
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 obligations and meeting standards of professional conduct.
20
CROMWELL GROUP Annual Report 2009
Long term incentives
The Group has established a Performance Rights Plan. For executives, the ability to exercise the Performance Rights is conditional on
the executive meeting internal performance hurdles, remaining employed by the Group for a specified period and reaching a year on
year TSR of 13%. TSR is defined as being the amount of dividends/distributions paid/payable by the Group during the period and the
change in the price at which securities in the Group are traded between the beginning and the end of the period.
The operating earnings for the past two years and TSR for the last one, three and five years are shown below.
Operating profit
Operating profit (as assessed by the Directors – see part 4(b) above)
Operating profit per security
Change over previous year
TSR
TSR – Group
TSR – S&P/ASX 300 A-REIT index
Over/(Under) performance
Consolidated
2009
2008
$63,761,000
9.1 cents
(10%)
$70,791,000
10.1 cents
91%
1 Year
(21%)
(42%)
21%
3 Year
(13%)
(23%)
10%
5 Year
50%
(9%)
59%
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 year, and the percentage that was forfeited because the person did not meet the service and perfor-
mance criteria is set out below. No part of the bonus is payable in future years. The options are subject to vesting conditions as outlined
above (under the heading of long term incentives).
Name
PL Weightman
DJ Wilson
WR Foster
SM Morgan
PW Howard
DA Gippel
PJ McDonnell
PJ Cowling
MJ Blake
MC McLaughlin
NE Riethmuller
JA Clark
Cash
Bonus
Paid
Cash
Bonus
Forfeited
Year
Options
Granted
Options
Vested
in 2009
Options
Forfeited
%
–
75%
–
–
–
100%
–
–
–
–
–
–
%
100%
25%
–
–
–
–
–
–
100%
100%
–
–
2008
2008
–
2008
–
2008
2008
2008
2008
2008
–
2008
%
–
–
–
–
–
–
–
–
–
–
–
–
%
33%
33%
–
100%
–
33%
33%
33%
33%
33%
–
–
Years in
which
options
may vest
2011
2011
–
2011
–
2010-2011
2011
2011
2011
2011
–
2011
Minimum
total value
of grant to
vest
$
Maximum
total value
of grant to
vest
$
–
–
–
–
–
–
–
–
–
–
–
–
65,747
30,634
–
–
–
45,916
21,214
24,147
35,828
27,871
–
13,815
CROMWELL GROUP Annual Report 2009
21
Directors’ Report continued
(d) Share-based compensation
Details of the Performance Rights Plan and the Employee Share Ownership Plan are set out at part (a) of the remuneration report.
No further securities are expected to be granted under the Employee Share Ownership Plan.
In prior years an allocation of options was granted to executive Directors and executives as share based compensation. All Directors
and executives of the Company and its controlled entities are considered for participation in the Performance Rights Plan subject to a
minimum period of service, which may be waived by the Committee. Participation by Directors is subject to securityholder approval.
Consideration for granting options, grant periods, vesting and exercise dates, exercise periods and exercise prices are determined by
the Board or Committee in each case. Options granted under the Employee Share Ownership 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 terms and conditions of each grant of options under the Performance Rights Plan affecting remuneration in the previous, this or
future reporting periods are as follows:
Grant Date
Expiry Date
Exercise Price
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
$1.21
$1.21
No. of Options
Granted
Assessed Value per
Option at Grant Date
407,500
2,439,300
92,100 *
1,624,400
9.2¢
10.6¢
15.0¢
8.9¢
* Granted to JA Clark who became a kmP on 1 July 2008.
No options under the Performance Rights Plan were granted during the 2009 year.
The terms and conditions of each grant of options under the Employee Share Ownership Plan affecting remuneration in the previous,
this or future reporting periods are as follows:
Grant Date
Expiry Date
Exercise Price
28/08/2005
30/09/2009
34.8¢
No of Options
Granted (1)
2,000,000
Assessed Value per
Option at Grant Date
10.0¢
(1) The options were granted for no cash consideration, prior to the 0.8879:1 share reconstruction and stapling transaction undertaken in December 2006.
As a result of the stapling transaction during the 2007 year, all outstanding options at that time became vested and exercisable. Of the
above 2,000,000 options, 1,000,000 were exercised at that time. The remaining 1,000,000 options were held by PJ Cowling and were
reconstructed to 887,900 options at stapling.
No options under the Employee Share Ownership Plan were granted during the 2008 or 2009 years.
22
CROMWELL GROUP Annual Report 2009
Details of changes during the 2009 year in Performance Rights which were provided to Key Management Personnel under the Perfor-
mance Rights Plan are set out below.
Opening
balance
Granted
during year
Vested during
year
Exercised
during the year
Forfeited
during year
Closing
balance
2009
PL Weightman
DJ Wilson
SM Morgan
DA Gippel
PJ McDonnell
PJ Cowling
MJ Blake
MC McLaughlin
J A Clark *
1,108,100
516,300
229,200
792,000
300,200
341,700
507,000
394,400
92,100
4,281,000
–
–
–
–
–
–
–
–
–
–
* JA Clark became a kmP on 1 July 2008.
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(369,367)
(172,100)
(229,200)
(331,917)
(100,067)
(113,900)
(169,000)
(131,467)
–
(1,617,018)
738,733
344,200
–
460,083
200,133
227,800
338,000
262,933
92,100
2,663,982
As the TSR for 2008 was below the hurdle of 13% all executive Performance Rights relating to that year were forfeited by executives. As
the review dates for Performance Rights occur in September and December each year, the impact of the 2009 TSR will be reviewed in
those months and Performance Rights will be forfeited if required.
The assessed fair value at grant date of Performance Rights granted is allocated equally over the period from grant date to vesting date,
and the amount is included in the remuneration tables above. 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 security price at grant date and expected price volatility of the underlying securities, the expected dividend/
distribution 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 conditions are independently 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 security price at grant date and expected price vola-
tility of the underlying securities, the expected dividend/distribution yield and the risk-free interest rate for the term of the option.
No Performance Rights were granted during the 2009 year. All Performance Rights granted during 2008 were for no consideration and
vest over time. The model inputs for Performance Rights granted during the 2008 year are disclosed in Note 36.
Details of changes during the 2009 year in options which were provided to Key Management Personnel under the ESOP are set
out below.
Opening
balance
Granted
during year
Vested
during year
Exercised during
the year
Lapsed during
year
Closing
balance
2009
PJ Cowling
250,950
–
–
(109,075)
–
141,875
For each option exercised one ordinary stapled security in Cromwell Corporation Limited was issued. The amount paid per share was
34.8¢.
No amounts are unpaid.
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.
CROMWELL GROUP Annual Report 2009
23
Directors’ Report continued
Further details relating to options are set out below:
Name
GH Levy
RJ Pullar
MA McKellar
DE Usasz
PL Weightman
WR Foster
DJ Wilson
PW Howard
SM Morgan
DA Gippel
MC McLaughlin
MJ Blake
PJ McDonnell
PJ Cowling
NE Riethmuller
JA Clark
Remuneration
consisting of
options (1)
Value at grant
date (2)
$
Value at exercise
date (3)
$
Value at lapse
date (4)
$
0%
0%
0%
0%
3%
0%
3%
0%
0%
7%
6%
7%
5%
4%
0%
3%
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
18,754
–
–
–
–
–
–
32,874
–
15,317
–
24,295
32,331
13,936
17,914
10,607
12,073
–
–
(1) The percentage of the value of remuneration consisting of options, based on the value of options expensed during the current year.
(2) The value at grant date calculated in accordance with AASB 2 Share-based Payment of options granted during the year as part of remuneration.
(3) 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.
(4) 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.
(e) Employment contracts and termination provisions
Termination
There are no fixed terms in executive employment contracts. Where an employee is guilty of misconduct, fraud or serious
or repeated breaches of the employee code of conduct, the Group may terminate immediately without notice. In the event of
termination of employment by the Group for other reasons, termination payments are payable if minimum notice periods are
not adhered to.
Notice periods for executives are as follows:
CEO, Finance Director, Structured Finance Manager
All other executives
Notice Period
6 months
3 months
On termination, a portion of short term incentives may also be paid at the discretion of the CEO, or the Board in the case of
termination of the CEO. In addition, other statutory entitlements such as accrued leave may be taken as termination benefits.
Employment Contract – Chief Executive Officer
Remuneration and other terms of employment for Paul Weightman, Chief Executive Officer, are formalised in an employment
agreement. 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 2009 year of $850,000, thereafter to be reviewed annually by the remuneration
committee.
|
Performance cash bonus of up to $150,000 with targets to be reviewed annually by the remuneration committee.
24
CROMWELL GROUP Annual Report 2009
Employment Contract – Finance Director
Remuneration and other terms of employment for Daryl Wilson, Chief Financial Officer, are formalised in an employment
agreement. 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 2009 year of $400,000, to be reviewed annually by the remuneration committee.
Performance cash bonus of up to $100,000 with targets to be reviewed annually by the remuneration committee.
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 the Company 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 secre-
tary. 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 an insurance 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 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.
CROMWELL GROUP Annual Report 2009
25
Directors’ Report continued
14. Auditor
Johnston Rorke continues in office in accordance with section 327 of the Corporations Act 2001.
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.
The Directors have considered the position and, in accordance with advice received from the Audit & Risk Committee, are satisfied
that the provision of the non-audit services is compatible with the general standard of independence for auditors imposed by the
Corporations Act 2001. The Directors are satisfied that the provision of non-audit services by the auditor, 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 & Risk Committee to ensure they do not impact the impartiality and objectivity of the auditor.
Details of the amounts paid or payable to the auditor and its related parties for non-audit services are set out below:
Non-audit Services
Tax compliance services
Other
Total remuneration for non-audit services
Consolidated
2009
$
860
3,200
4,060
2008
$
48,350
9,100
57,450
The auditor receives remuneration for audit and other services relating to other entities 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
$97,500 (2008: $85,000).
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 21st day of August 2009
26
CROMWELL GROUP Annual Report 2009
Auditor’s Independence Declaration
The Directors
Cromwell Corporation Limited
Level 19
200 Mary Street
BRISBANE QLD 4000
The Directors
Cromwell Corporation Limited
Level 19
200 Mary Street
BRISBANE QLD 4000
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:
Auditor’s Independence Declaration
(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.
As lead engagement partner for the audit of the financial report of Cromwell Corporation Limited for the financial year ended
30 June 2009, I declare that, to the best of my knowledge and belief, there have been:
(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
RCN WALKER
Partner
Brisbane, Queensland
21 August 2009
Brisbane, Queensland
19 August 2008
JOHNSTON RORKE
Chartered Accountants
J J Evans
Partner
Liability limited by a scheme approved under Professional Standards Legislation
CROMWELL GROUP Annual Report 2009
27
Liability limited by a scheme approved under Professional Standards Legislation
17
Income Statements for the year ended 30 June 2009
Revenue and other income
Rental income and recoverable outgoings
Funds management fees
Property development sales
Distributions
Dividends from controlled entities
Interest
Other revenue
Share of profits of equity accounted entities
Gain on sale of investment properties
Net gain from fair value adjustments to:
Interest rate derivatives
Investment properties
Gain on dilution of interest in associate
Other income
Total revenue and other income
Expenses
Property expenses and outgoings
Property development costs
Amortisation/depreciation:
Property, plant and equipment
Intangibles
Funds management commissions
Employee benefits expense
Premises rental – minimum lease payments
Finance costs
Management fees – controlled entity
Share of losses of equity accounted entities
Net loss from fair value adjustments to:
Interest rate derivatives
Investment properties
Investments at fair value through profit and loss
Decrease in recoverable amount:
Available–for–sale financial assets
Jointly controlled entity/associates
Property development inventories
Loans receivable
Other expenses
Total expenses
Profit/(loss) before income tax
Income tax expense
Profit/(loss)
Attributable to:
Company shareholders
Trust unitholders – minority interest
External minority interests
Profit/(loss)
Basic earnings/(loss) per company share
Diluted earnings/(loss) per company share
Notes
Consolidated
Company
2009
$’000
–
–
–
25
3,500
1,479
–
–
–
–
–
–
–
5,004
–
–
–
–
–
712
–
488
2,860
–
–
–
–
–
234
–
15,300
176
19,770
(14,766)
1,855
(16,621)
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
2009
$’000
112,522
4,863
2,847
658
–
11,973
44
–
–
–
–
–
6,217
139,124
17,545
3,874
251
294
385
10,196
149
50,294
–
13,231
22,479
104,288
3,107
3,663
232
11,463
4,890
3,836
250,177
(111,053)
2,458
(113,511)
(18,971)
(94,540)
–
(113,511)
(2.7¢)
(2.7¢)
18
4
15
18
5
13
20
22
6
7
18
15
18
13
10
8
33
33
2008
$’000
89,658
14,747
38,000
1,348
–
10,553
84
10,357
7,470
4,479
34,649
826
–
212,171
16,497
13,594
291
179
2,502
9,011
104
31,815
–
–
–
–
–
9,011
–
1,200
–
4,724
88,928
123,243
3,342
119,901
19,440
88,557
11,904
119,901
2.8¢
2.8¢
The above income statements should be read in conjunction with the accompanying notes.
28
CROMWELL GROUP Annual Report 2009
Balance Sheets as at 30 June 2009
Current Assets
Cash and cash equivalents
Trade and other receivables
Current tax assets
Other financial assets
Derivative financial instruments
Inventories
Other current assets
Total current assets
Non-Current Assets
Trade and other receivables
Investment properties
Available-for-sale financial assets
Investments at fair value through profit and loss
Investments in jointly controlled entity and associates
Investments in controlled entities
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
Derivative financial instruments
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
(Carried forward loss)/undistributed income
Total equity attributable to unitholders
External minority interest
Total equity attributable to securityholders
Notes
Consolidated
Company
2009
$’000
66,653
23,820
74
–
–
–
2,771
93,318
30,062
1,117,175
3,547
2,919
58,295
–
1,272
1,721
514
1,215,505
1,308,823
16,424
81,201
10,546
–
3,112
7,804
8,131
127,218
641,647
365
642,012
769,230
539,593
43,688
3,256
(38,371)
8,573
531,853
–
(833)
531,020
–
539,593
9
10
11
12
13
14
10
15
16
17
18
19
20
21
22
23
24
25
12
26
27
24
26
28
29
30
31
31
31
31
2008
$’000
8,283
23,473
–
25,700
19,367
4,030
2,027
82,880
25,000
1,120,716
7,210
4,247
80,593
–
43,579
3,846
452
1,285,643
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
2009
$’000
1,771
15,287
74
–
–
–
–
17,132
–
–
275
–
3
575
–
1,735
–
2,588
19,720
116
16,600
–
–
–
–
–
16,716
–
–
–
16,716
3,004
43,688
916
(41,600)
3,004
–
–
–
–
–
3,004
2008
$’000
705
22,937
–
–
–
–
–
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
The above balance sheets should be read in conjunction with the accompanying notes.
CROMWELL GROUP Annual Report 2009
29
Statements of Changes in Equity for the year ended 30 June 2009
Attributable to Equity Holders of the Company
Notes
Con-
tributed
Equity
Accu-
mulated
Losses
Available-
for-Sale
Reserve
Share
Based
Payments
Reserve
Total
Minority
Interest
Minority
Interest
Total
Equity
$’000
$’000
$’000
$’000
$’000
$’000
$’000
(Trust)
(External)
(Consoli-
dated)
$’000
43,644
(18,800)
2,340
683
27,867
687,969
(600)
715,236
Consolidated
Balance at 1 July 2008
Changes in the fair value of available-for-
sale financial assets
Net income/(expense) recognised directly
in equity
Profit/(loss)
Total recognised income and expense
Transactions with equity holders:
Dividends/distributions paid/declared
Contributions of equity
Transfer from minority interest
Employee share options
Total transactions with equity holders
Balance at 30 June 2009
Balance at 1 July 2007
Changes in the fair value of available-for-
sale financial assets
Net income/(expense) recognised directly
in equity
Profit/(loss)
Total recognised income and expense
Transactions with 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
Total transactions with equity holders
Balance at 30 June 2008
31
32
28
29
31
32
28,31
28,31
28
29
–
–
–
–
–
44
–
–
44
43,688
–
–
(18,971)
(18,971)
–
–
(600)
–
(600)
(38,371)
–
–
–
–
–
–
–
–
–
2,340
–
–
–
–
–
–
–
233
233
916
–
–
868
868
(18,971)
(18,971)
(94,540)
(93,672)
–
44
(600)
233
(323)
8,573
(63,277)
–
–
–
(63,277)
531,020
43,347
(31,212)
2,340
610
15,085
657,979
–
–
–
–
–
–
600
–
600
–
–
–
–
868
868
(113,511)
(112,643)
(63,277)
44
–
233
(63,000)
539,593
673,064
(868)
(868)
–
–
–
–
–
535
(215)
(23)
–
–
297
43,644
–
–
19,440
19,440
(7,028)
–
–
–
–
–
(7,028)
(18,800)
–
–
–
–
–
–
–
–
–
–
–
2,340
–
–
–
–
–
–
–
–
73
–
73
683
–
–
19,440
19,440
(7,028)
535
(215)
(23)
73
–
(6,658)
27,867
(868)
(868)
88,557
87,689
11,904
11,904
119,901
119,033
(63,408)
10,152
(4,443)
–
–
–
(57,699)
687,969
–
–
–
–
–
(12,504)
(12,504)
(600)
(70,436)
10,687
(4,658)
(23)
73
(12,504)
(76,861)
715,236
The above statements of changes in equity should be read in conjunction with the accompanying notes.
30
CROMWELL GROUP Annual Report 2009
Company
Balance at 1 July 2008
Net income recognised directly in equity
Loss
Total recognised income and expense for the year
Transactions with equity holders:
Dividends paid/declared
Contributions of equity
Employee share options
Total transactions with equity holders
Balance at 30 June 2009
Balance at 1 July 2007
Net income recognised directly in equity
Profit
Total recognised income and expense for the year
Transactions with equity holders:
Dividends paid/declared
Contributions of equity
Share buy-back
Share buy-back transaction costs
Employee share options
Total transactions with equity holders
Balance at 30 June 2008
Notes Contributed
Equity
Accumulated
Losses
Share Based
Payments
Reserve
Total
$’000
$’000
$’000
$’000
43,644
–
–
–
–
44
–
44
43,688
43,347
–
–
–
–
535
(215)
(23)
–
297
43,644
(24,979)
–
(16,621)
(16,621)
–
–
–
–
(41,600)
(36,337)
–
18,386
18,386
(7,028)
–
–
–
–
(7,028)
(24,979)
32
28
29
32
28
28
28
29
683
–
–
–
–
–
233
233
916
610
–
–
–
–
–
–
–
73
73
683
19,348
–
(16,621)
(16,621)
–
44
233
277
3,004
7,620
–
18,386
18,386
(7,028)
535
(215)
(23)
73
(6,658)
19,348
The above statements of changes in equity should be read in conjunction with the accompanying notes.
CROMWELL GROUP Annual Report 2009
31
Cash Flow Statements for the year ended 30 June 2009
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/(used in) operating activities
Cash Flows From Investing Activities
Payments for investment properties
Proceeds from sale of investment properties
Payments for property, plant and equipment
Payments for investment in associate
Payments for investment in controlled entity
Payments for other financial assets
Proceeds from other financial assets
Payments for available-for-sale financial assets
Payments for investments at fair value through profit and loss
Proceeds from sale of investments at fair value through profit and loss
Payments for software
Loans to related entities
Repayment of loans by related entities
Loans to other persons
Refund of stamp duty on merger
Net cash provided by/(used in) investing activities
Cash Flows From Financing Activities
Proceeds from borrowings
Repayment of borrowings
Payment of loan transaction costs
Proceeds from issue of treasury shares/securities
Payments for buy-back of stapled securities
Buy-back transaction costs
Payment of dividends/distributions
Payment for derivative financial instruments
Payment of distributions to external minority interests
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
Notes
Consolidated
Company
2009
$’000
132,500
(44,114)
–
8,739
12,942
(48,031)
(2,605)
–
59,431
(15,480)
–
(37,489)
(237)
–
–
25,700
–
(2,411)
1,500
(362)
(5,062)
–
(219)
5,284
(28,776)
538,100
(437,356)
(2,759)
44
–
–
(70,314)
–
–
27,715
58,370
8,283
66,653
2008
$’000
162,392
(59,457)
–
7,808
10,450
(30,804)
(868)
–
89,521
(188,542)
190,064
(34,101)
(10,000)
–
(25,700)
61,371
(16,221)
(5,116)
–
(263)
(45,052)
16,972
(1,606)
–
(58,194)
164,780
(128,475)
(713)
234
(4,658)
(23)
(58,140)
(1,390)
(12,504)
(40,889)
(9,562)
17,845
8,283
2009
$’000
379
(4,684)
3,500
26
71
(435)
(2,605)
1,655
(2,093)
–
–
–
(237)
(100)
–
–
–
–
–
–
(10,304)
4,184
–
–
(6,457)
18,100
(1,500)
–
44
–
–
(7,028)
–
–
9,616
1,066
705
1,771
34
9
2008
$’000
25,526
(5,204)
2,000
13
393
(37)
(868)
661
22,484
–
–
–
–
–
–
–
–
–
–
–
(20,167)
4,158
–
–
(16,009)
–
(211)
–
234
(215)
(23)
(5,590)
–
–
(5,805)
670
35
705
The above cash flow statements should be read in conjunction with the accompanying notes.
32
CROMWELL GROUP Annual Report 2009
notes to the Financial Statements for the year ended 30 June 2009
1. Summary of Significant Accounting Policies
Cromwell Group was formed by the stapling of two entities comprising Cromwell Corporation Limited (‘the Company’) and its con-
trolled 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 unitholders and shareholders are identical. Both the Responsible Entity of the Trust and the Company must at all times act in the
best interests 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.
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 Company”) and Cromwell Group, the stapled consolidated entity consisting
of Cromwell Corporation Limited and its controlled entities and Cromwell Diversified Property Trust and its controlled entities.
The principal accounting polices adopted in the preparation of the financial report are set out below. These policies have been consis-
tently 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.
(i) Compliance with IFRS
The financial report complies with the International Financial Reporting Standards (IFRS) and interpretations adopted by the Interna-
tional Accounting Standards Board.
(ii) Historical cost convention
The financial report is prepared on the historical cost basis except for the following:
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investment properties are measured at fair value
derivative financial instruments are measured at fair value
available-for-sale financial assets and investments at fair value through profit and loss are measured at fair value
The methods used to measure fair values are discussed further below.
(iii) 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.
(iv) Critical accounting estimates
The preparation of financial statements requires management to make judgements, estimates and assumptions that affect the applica-
tion of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these
estimates.
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.
CROMWELL GROUP Annual Report 2009
33
notes to the Financial Statements continued
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:
Estimates of fair value of investment properties
The Group has investment properties with a carrying amount of approximately $1,117,175,000 (2008: $1,120,716,000) representing
estimated fair value at balance date. In addition, the carrying amount of the Group’s investments in jointly controlled entity/associate
of approximately $58,295,000 (2008: $80,593,000) also reflect underlying investment properties of the jointly controlled entity/associate
carried at fair value. These investment properties represent a significant proportion of the total assets of the Group.
Fair value is determined within a range of reasonable estimates utilising both capitalisation of net market income and discounted future
cash flow methodologies and comparing the results to market sales evidence.
The best evidence of fair value is considered to be current prices in an active market for similar properties, however recent global eco-
nomic and financial turmoil has had an impact on many classes of real estate, including commercial real estate in Australia. The most
significant impact has been a reduction in the availability of capital (debt and equity) for real estate assets. This reduction in available
capital has led to falls in asset values and a relatively low level of transactions in most markets, such that there are not necessarily a
large number of comparable market transactions. Where sufficient market information is not available, or to supplement this informa-
tion, management considers other relevant information including:
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Current prices for properties of a different nature, condition or location, adjusted to reflect those differences;
Recent prices of similar properties in a less active market, with adjustments to reflect changes in economic conditions or other
factors;
Capitalised income calculations based on an assessment of current net market income based on current leases in place for that
property or other similar properties, a capitalisation rate taking into account market evidence for similar properties and adjust-
ment for short term vacancy or lease expiries, incentive costs and capital expenditure requirements; and
Discounted cash flow forecasts including estimates of future cash flows based on current leases in place for that property, histori-
cal operating expenses, reasonable estimates of current and future rents and operating expenses based on external and internal
assessments and using discount rates that appropriately reflect the degree of uncertainty and timing inherent in current and
future cash flows.
The fair values adopted for investment properties have been supported by a combination of independent external valuations and detailed
internal valuations, which are considered to reflect market conditions at balance date.
Key factors which impact assessments of value at each balance date include capitalisation rates, vacancy rates and weighted average
lease terms. Details of these factors at each balance date were as follows:
% Value of Portfolio
by Sector
Weighted Average
Cap Rate
Weighted Average
Lease Term
Occupancy
2009
86%
11%
3%
100%
2008
84%
12%
4%
100%
2009
8.23%
9.07%
10.45%
8.40%
2008
7.33%
7.58%
8.43%
7.40%
2009
5.4 yrs
3.1 yrs
5.1 yrs
5.1 yrs
2008
6.3 yrs
3.2 yrs
6.1 yrs
5.9 yrs
2009
99.6%
100.0%
100.0%
99.8%
2008
99.6%
100.0%
100.0%
99.8%
Commercial
Industrial
Retail/Entertainment
Total
Estimates of fair value take into account factors and market conditions evident at balance date. Ongoing uncertainty and changes in
global market conditions in the future may impact fair values in the future.
Estimates of fair value of interest rate derivatives
The fair value of interest rate derivatives has been determined using a pricing model based on discounted cash flow analysis and incor-
porating assumptions supported by market data at balance date including market expectations of future interest rates and discount
rates, and taking into account estimates prepared by external counterparties. Whilst certain derivatives may not be quoted on an active
market, management have determined a value for those derivatives using market data adjusted for any specific features of the deriva-
tives. All counterparties to interest rate derivatives are Australian financial institutions.
34
CROMWELL GROUP Annual Report 2009
(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
December 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 consider-
ation payable by the 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; 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 as at 30 June 2009 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.
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 subsid-
iaries 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.
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 receiv-
ables, 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. Unrealised 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.
CROMWELL GROUP Annual Report 2009
35
notes to the Financial Statements continued
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 recogn-
ised 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 state-
ments under the appropriate headings.
(c) Revenue recognition
Rental revenue
Rental revenue from investment property is recognised on a straight-line basis over the lease term. Rental revenue not received at
reporting date is reflected in the balance sheet as a receivable or if paid in advance, as rent in advance (unearned income). Lease incen-
tives 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.
Funds management revenue
Acquisition and capital raising fee revenue is recognised at settlement of the relevant property or proportionately as the equity inter-
ests are issued/sold to external investors as appropriate. Management fee revenue is recognised on a proportional basis over time as
services are performed.
Other
Property development sales revenue is recognised on settlement of the relevant property.
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.
36
CROMWELL GROUP Annual Report 2009
(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
distributed 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 state-
ments 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 prob-
able 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 recov-
erability, 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.
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.
CROMWELL GROUP Annual Report 2009
37
notes to the Financial Statements continued
(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 doubt-
ful 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
according to the original terms of trade and other receivables. The amount of the provision is the difference between the asset’s carry-
ing 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 identifica-
tion and includes the cost of acquisition, and development and borrowing costs during development. When development is completed
borrowing 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
expenditure on the acquisition and development of the properties had not been made. Borrowing costs incurred while active develop-
ment is interrupted for extended periods are recognised as expenses.
(h) Investment 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 experience 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 at balance date.
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 knowledga-
bly, prudently and without compulsion.
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.
Valuations reflect, where appropriate:
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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.
Further information on assumptions underlying management’s assessment of fair value is contained in note 1(a)(iv).
38
CROMWELL GROUP Annual Report 2009
(i) Investments and other financial assets
The Group classifies its investments as either financial assets at fair value through profit or loss 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
designated as hedges. Financial assets at fair value through profit or loss also includes financial assets which upon initial recognition
are designated as such.
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
categories. 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. 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-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 cumulative 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 recognised 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 attribut-
able 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 prob-
able 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.
CROMWELL GROUP Annual Report 2009
39
notes to the Financial Statements continued
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
10–67%
18%
8–37%
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
estimated recoverable amount (note 1(l)).
Gains and losses on disposals are determined by comparing proceeds with carrying amount. These are included in the income
statement.
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
investment 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
calculated 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.
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
securities) 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.
40
CROMWELL GROUP Annual Report 2009
(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
instruments 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 borrow-
ing 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.
(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 instru-
ments 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
unsecured and paid within 30-60 days of recognition.
CROMWELL GROUP Annual Report 2009
41
notes to the Financial Statements continued
(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 settlement 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
acquisition, 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 outstand-
ing borrowings during the year.
(u) Financial guarantee contracts
Financial guarantee contracts are recognised as a financial liability at the time the guarantee is issued. The liability is initially mea-
sured 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
payments 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:
– the Group has a present legal or constructive obligation as a result of past events;
– it is probable that an outflow of resources will be required to settle the obligation; and
– the amount has been reliably estimated.
Provisions are not recognised for future operating losses.
(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.
42
CROMWELL GROUP Annual Report 2009
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
conditions (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 allo-
cated 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 interest 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.
(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
recognised 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/(loss) 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.
CROMWELL GROUP Annual Report 2009
43
notes to the Financial Statements continued
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.
(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 year are as follows:
Standard/Interpretation
Applica-
tion date of
standard
Application
date for the
Group
AASB 3 Business Combinations – revised and consequential amendments to other accounting standards resulting from its issue
AASB 8 Operating Segments and consequential amendments to other accounting standards resulting from its issue
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 2008-5 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
AASB 2009-8 Amendments to Australian Accounting Standards – Group Cash-settled Share-based Payment Transactions
1 Jul 2009
1 Jan 2009
1 Jul 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 Jan 2009
1 Jul 2009
1 Jul 2009
1 Jul 2009
1 Jul 2009
1 Jan 2009
1 Jul 2009
1 Jan 2010
1 Jul 2010
The Directors anticipate that the adoption of these Standards and Interpretations in future years 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-controlling interests (minority interest) in an acquiree – either fair value or at the proportionate share of the acquiree’s net identifi-
able 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.
44
CROMWELL GROUP Annual Report 2009
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.
AASB 2008-1 introduces a number of amendments in accounting for share-based payments including clarifying that vesting conditions
comprise 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 2008-5 and AASB 2008-6 – These amendments introduce various changes to IFRSs. The Directors have not yet assessed the
further 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 recogn-
ised in the separate financial statements of an investor as income.
AASB 2009-8 introduces amendments to incorporate the requirements previously included in Interpretation 8 and Interpretation 11.
The amendments require an entity that receives goods and services in share-based payment arrangements to account for those goods
or services no matter which entity in the Group settles the transaction, and no matter whether the transaction is settled in shares or
cash. The Directors have not yet assessed the further impact of the amendments, if any.
2. 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:
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ensure that Group entities comply with capital and dividend/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 creditworthiness;
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:
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sufficient funds and financing facilities are available, on a cost effective basis, to implement the Group’s strategies; and
dividends/distributions to members are made within the stated policy.
The Group is able to alter its capital mix by:
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issuing new stapled securities;
activating its dividend/distribution reinvestment plan;
adjusting the amount of dividends/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 creditworthy insurers.
CROMWELL GROUP Annual Report 2009
45
notes to the Financial Statements continued
Cromwell Property Securities Limited (“CPS”) holds an Australian Financial Services Licence (AFSL) and acts as responsible entity for
managed investment schemes, other than Cromwell Hybrid Property Fund, 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 34). CPS monitors its net tangible assets on an ongoing basis
to ensure it continues to meet its licence requirements. CPS complied with its AFSL requirements during 2009 and 2008.
Cromwell Funds Management Limited (“CFM”) holds an Australian Financial Services Licence (AFSL) and acts as responsible entity for
Cromwell Hybrid Property Fund. The AFSL requires CFM to maintain net tangible assets of $50,000. As such CFM 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 34). CFM monitors its net tangible assets on an ongoing basis to ensure it continues to meet its licence requirements.
CFM complied with its AFSL requirements during 2009.
The Group and the Company 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 each balance date were as follows:
Total borrowings
Less: cash and cash equivalents and restricted cash
Net debt
Total assets
Less: intangible assets and deferred tax assets
Less: cash and cash equivalents and restricted cash
Adjusted assets
Gearing ratio
3. Financial Risk management
Consolidated
Company
2009
$’000
722,848
66,653
656,195
1,308,823
2,235
66,653
1,239,935
53%
2008
$’000
623,448
33,983
589,465
1,368,523
4,298
33,983
1,330,242
44%
2009
$’000
16,600
1,771
14,829
19,720
1,735
1,771
16,214
91%
2008
$’000
–
705
(705)
29,771
5,379
705
23,687
N/A
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 Directors who monitor the oper-
ating compliance and performance as required. The Group has policies for overall risk management as well as policies covering 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.
46
CROMWELL GROUP Annual Report 2009
The Group and the Company hold the following financial instruments:
Financial Assets
Cash and cash equivalents (1)
Trade and other receivables (1)
Derivative financial instruments (2)
Available-for-sale financial assets
Investments at fair value through profit and loss (3)
Other financial assets (1)
Total financial assets
Financial Liabilities
Trade and other payables (3)
Derivative financial instruments (2)
Borrowings (4)
Dividends/Distributions payable (4)
Total financial liabilities
(1) Loans and receivables
(2) At fair value – held for trading
(3) At fair value – designated
(4) At amortised cost
Consolidated
Company
2009
$’000
66,653
53,882
–
3,547
2,919
–
127,001
16,424
3,112
722,848
10,546
752,930
2008
$’000
8,283
48,473
19,367
7,210
4,247
25,700
113,280
5,731
–
623,448
17,583
646,762
2009
$’000
1,771
15,287
–
275
–
–
17,333
116
–
16,600
–
16,716
2008
$’000
705
22,937
–
275
–
–
23,917
1,199
–
–
7,028
8,227
(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 Company have exposure to credit risk on all financial assets included in their balance sheets
except available-for-sale financial assets and investments at fair value through profit and loss.
The Group and the Company manage this risk by:
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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 Company are comfortable with the
underlying 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 at balance date is the carrying amount of financial assets recognised in the balance sheets of
the Group and the Company plus undrawn loan commitments described in note 39. The Group and the Company 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.
The ageing analysis of receivables past due at balance date but not impaired is as follows:
1 to 3 months
3 to 6 months
Over 6 months
Consolidated
Company
2009
$’000
1,358
–
2,847
4,205
2008
$’000
2,045
–
4,981
7,026
2009
$’000
–
–
–
–
2008
$’000
–
–
–
–
CROMWELL GROUP Annual Report 2009
47
notes to the Financial Statements continued
The Group and Company had the following concentrations of credit risk at balance date:
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the Group has amounts owing from Cromwell Property Fund of $48,405,000 (2008: $40,052,000) (refer note 10);
the Company has $15,287,000 (2008: $22,592,000) in loans to controlled entities, net of provision for impairment (refer note 10);
cash and cash equivalents which is primarily held with Westpac Banking Corporation and ANZ bank;
loan commitments as described in note 39; and
in 2008 other concentrations of credit risk related to restricted cash which was held with Westpac Banking Corporation and deriva-
tive interest rate swaps which were 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.
The current weighted average debt maturity of the Group is 2.8 years (2008: 2.2 years). The current weighted average debt maturity of
the Company is less than 1 year (2008: Company had no borrowings in 2008).
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
Company
2009
$’000
141,313
597,481
121,679
860,473
2008
$’000
543,547
83,634
126,758
753,939
2009
$’000
16,831
–
–
16,831
2008
$’000
8,227
–
–
8,227
(c) Market Risk
(i) 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 and investments at fair value through profit and loss. Neither the Group nor the Company 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 balance date, had the ASX All Ordinaries index increased/decreased by 20% (2008: 10%) with
all other variables 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 $1,294,000 (2008: $1,146,000) higher/lower.
Company sensitivity
The Company had no significant exposure to price risk on equity securities in 2009 or 2008.
(ii) Interest rate risk
The Group’s interest-rate risk primarily arises from borrowings. Borrowings issued at variable rates expose the Group to cash flow
interest-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, 37% (2008: 73%) of the Group’s borrowings
were effectively hedged due to the expiry of interest rate swaps with notional principal amounts of $246,015,000 in June 2009.
The Group manages its cash flow interest-rate risk by using floating-to-fixed interest rate swaps. Such interest rate swaps have the
economic effect of converting borrowings from floating rates to fixed rates. Generally, the Group raises long term borrowings at float-
ing 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.
48
CROMWELL GROUP Annual Report 2009
The fixed interest rates range between 4.88% and 5.95% (2008: 5.30% and 6.69%) and the variable rates are at the 30 day bank bill swap
bid rate which at balance date was 3.20% (2008: 7.66%). At balance date, 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
Company
2009
$’000
71,060
76,745
–
–
–
118,180
265,985
2008
$’000
246,015
15,060
76,745
–
–
118,180
456,000
2009
$’000
–
–
–
–
–
–
–
2008
$’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.
The Group had no fixed rate borrowings at balance date. In the prior year the Group’s fixed rate borrowings related to fixed interest
debentures issued by a subsidiary and which bore interest at 8% and were measured at amortised cost. The fixed rate debentures were
repaid in full during the current year.
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 24.
Group sensitivity
At balance date, if interest rates had changed by +/– 100 basis points from the year end rates with all other variables held constant,
profit would have been $1,627,000 higher/lower (2008 – change of 100 bps: $9,933,000 higher/lower), mainly as a result of increase/
decrease in the fair value of interest rate swaps. Equity would have been $1,627,000 higher/lower (2008: $9,933,000 higher/lower)
mainly as a result of an increase/decrease in the fair value of interest rate swaps.
Company sensitivity
At balance date, if interest rates had changed by +/– 100 basis points from the year end rates with all other variables held constant,
profit would have been $111,000 higher/lower (2008 – change of 100 bps: $209,000 higher/lower), mainly as a result of increase/
decrease in interest income. Equity would have been $111,000 higher/lower (2008: $209,000 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/payable at variable rates.
CROMWELL GROUP Annual Report 2009
49
notes to the Financial Statements continued
Consolidated
Company
2009
$’000
2008
$’000
2009
$’000
2008
$’000
4. Gain on Sale of Investment Properties
Net proceeds from sale of investment properties
Carrying value of investment properties sold and other costs of sale*
Gain on sale of investment properties
–
–
–
190,064
(182,594)
7,470
* Includes $156,452,000 of investment properties previously classified as held for sale in prior years.
–
–
–
–
–
–
479
–
233
–
712
488
–
488
–
488
–
–
–
–
–
–
329
–
73
–
402
37
–
37
–
37
5,284
933
6,217
9,226
562
233
175
10,196
–
–
–
8,115
512
95
289
9,011
50,461
(1,582)
48,879
1,415
50,294
33,111
(2,186)
30,925
890
31,815
964
(1,465)
2,983
(24)
2,458
6,100
103
(2,959)
98
3,342
(1,119)
53
2,983
(62)
1,855
4,414
130
(2,959)
(577)
1,008
5. Other Income
Refund of stamp duty paid on merger
Other
Other income
6. 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
Employee benefits expense
7. Finance Costs
Total interest
Less: interest capitalised
Interest expense
Amortisation of loan transaction costs
Finance costs
8. Income Tax Expense
(a) Income tax expense
Current tax
Deferred tax
Prior year tax losses (recognised)/written off
Adjustment in relation to prior periods
Income tax expense
50
CROMWELL GROUP Annual Report 2009
(b) Numerical reconciliation of income tax expenses to prima facie tax
Consolidated
Company
Profit/(loss) before income tax
Tax at the Australian tax rate of 30% (2008: 30%)
Tax effect of amounts which are not deductible/ (taxable) in calculating taxable income:
Non-taxable trust (income)/loss
Non–deductible expenses
Non-deductible loan impairment
Share of partnership (income)/loss
Non-assessable income
Losses (recognised)/written off (note 21)
Adjustment in relation to prior periods
Income tax expense
2009
$’000
(111,053)
(33,316)
29,067
155
–
3,593
–
2,983
(24)
2,458
2008
$’000
123,243
36,973
(26,567)
43
–
(4,099)
(147)
(2,959)
98
3,342
2009
$’000
(14,766)
(4,430)
–
140
4,590
(316)
(1,050)
2,983
(62)
1,855
2008
$’000
19,394
5,818
–
24
–
(698)
(600)
(2,959)
(577)
1,008
(c) Unrecognised deferred tax assets
Deferred tax assets have not been recognised in respect of the following items:
Tax losses
17,009
14,020
17,009
14,020
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.
(d) Amounts recognised directly in equity
Refer to Note 21 for the aggregate deferred tax relating to items that are charged or credited to equity.
(e) Tax consolidation
Refer note 1(d) for details regarding the relevance of the tax consolidation system to the consolidated entity, the tax funding arrange-
ments and other information.
No amounts were recognised during the year (2008: $nil) as tax consolidation contributions by, or distributions to, equity participants
(refer Note 37 for further information).
9. Cash and Cash Equivalents
Cash at bank
Deposits
Cash and cash equivalents
66,653
–
66,653
5,499
2,784
8,283
1,771
–
1,771
112
593
705
Cash at bank held with Australian financial institutions earns variable interest at market rates with a weighted average of 3.85% at balance
date (2008: 6.95%). Deposits held with Australian financial institutions at 30 June 2008 earned variable interest at market rates with a
weighted average of 7.53%.
CROMWELL GROUP Annual Report 2009
51
notes to the Financial Statements continued
10. Trade and Other Receivables
Current Assets
Trade and other receivables:
Jointly controlled entity/associates
Other entities
Loans:
Controlled entities
Associates
Other entities
Provision for impairment of receivables
Trade and other receivables – current
Non-Current Assets
Loans:
Associates
Trade and other receivables – non-current
Consolidated
Company
2009
$’000
2008
$’000
2009
$’000
2008
$’000
4,802
3,966
–
15,052
4,890
(4,890)
23,820
405
3,345
–
15,052
4,671
–
23,473
–
–
30,587
–
–
(15,300)
15,287
–
345
22,592
–
–
–
22,937
30,062
30,062
25,000
25,000
–
–
–
–
Trade and other receivables – other entities mainly comprises amounts owing by tenants of the Group’s investment properties and
recoverable costs owing by other managed investment schemes. These amounts are usually non-interest bearing, unsecured and
generally payable on no more than 30 day terms.
Trade and other receivables – jointly controlled entity/associates mainly comprises June 2009 distributions receivable and an amount of
$2,847,000 owing by Cromwell Property Fund in relation to the sale of property development inventory. These receivables are payable
in cash.
(a) Loans – associates
Cromwell Property Fund
The Group advanced $5,000,000 (2008: $30,000,000) to Cromwell Property Fund (“CPF”) during the year under the loan facility between
the Group and CPF. During the year CPF made no repayments (2008: $5,000,000). The loan is unsecured, repayable in cash in 2010 and
earns interest at a floating rate plus margin of 0.7% capped at 8.00%, which was 3.91% (2008: 8.00%) at balance date. The comparative
has been represented this year as the loan facility does not fall due until 2010.
Cromwell Paclib Nominees Pty Ltd, a subsidiary of the Company, provided loans of $15,052,000 to Cromwell Property Fund and its
subsidiaries during the prior year. The loans are unsecured, at call, repayable in cash, with no fixed repayment terms and earn interest
at a variable rate (BBSW) plus a margin of 1.50%, which was 4.71% (2008: 9.05%) at balance date.
Phoenix Portfolio Pty Ltd
During the 2009 year the Group made a 50% investment in Phoenix Portfolios Pty Ltd and made a finance facility of $62,000 available to
the company which was fully drawn at balance date. The loan is unsecured, repayable in cash in 2011 and earns interest at a variable
rate (BBSW) plus a margin of 3.00%, which was 6.25% at balance date.
(b) Loans – controlled entities
Cromwell Paclib Nominees Pty Ltd
The Company advanced $2,854,000 to Cromwell Paclib Nominees Pty Ltd during the 2009 year (2008: $20,167,000). The loan is unse-
cured, 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 4.71% at balance date.
52
CROMWELL GROUP Annual Report 2009
Other controlled entities
During the year the Company advanced $7,450,000 (2008: $nil) to other controlled entities and received $4,184,000 (2008: $4,158,000)
in repayments. These amounts are generally non-interest bearing, unsecured and repayable in cash at call.
(c) Past due but not impaired receivables
At balance date, trade and other receivables of $4,205,000 (2008: $7,026,000) were past due but not impaired. These relate to a number
of tenants for whom there is no recent history of default ($1,358,000) and Cromwell Property Fund ($2,847,000). At balance date, no
receivables relating to the Company were past due.
(d) Impaired receivables
Group
In 2009 a loan to a property developer of $4,890,000 (2008: loan balance $4,671,000) was deemed fully impaired and was written down
accordingly. In December 2007, the Group utilised its security to become mortgagee in possession of the collateral property. The
impairment was based on an estimate of the net proceeds expected to be recovered on the sale of the collateral property (estimated at
$12,358,000) after paying selling costs and the amount owing to the first mortgage security holder.
Company
The Company has recognised a provision for impairment of $14,300,000 (2008: $nil) in relation to its loan to CPN on the basis of the
value of property development inventory held by CPN and associated liabilities under the development leases. In addition, the Company
has recognised a provision for impairment of $1,000,000 (2008: $nil) in relation to its loan to another controlled entity on the basis of
its underlying net assets.
Movements in the provision for impairment are as follows:
Balance at 1 July
Provision for impairment recognised during the year
Balance at 30 June
Consolidated
Company
2009
$’000
–
4,890
4,890
2008
$’000
–
–
–
2009
$’000
–
15,300
15,300
2008
$’000
–
–
–
The provision has been recognised as “decrease in recoverable amount – loans receivable” in the income statements.
11. Other Financial Assets
Restricted cash
–
25,700
–
–
In 2008 restricted cash was held with an Australian financial institution and earned interest at floating rates with a weighted average
rate of 6.95%. Restricted cash was held on bank deposit and used to provide security in relation to the CMBS Note Issue which was
repaid during the year (refer note 24).
CROMWELL GROUP Annual Report 2009
53
notes to the Financial Statements continued
12. Derivative Financial Instruments
Current Assets
Interest rate swaps – at fair value
Current liabilities
Interest rate swaps – at fair value
13. Inventories
Development property – at cost
Construction costs
Development property – at net realisable value
Construction costs
Inventories
Movement in inventories/provision for property development liabilities
Balance at 1 July
Project costs incurred
Transferred to profit and loss
Impairment – property development inventories/provision
Recognition of provision (see note 26)
Inventories
Consolidated
Company
2009
$’000
2008
$’000
2009
$’000
2008
$’000
–
19,367
3,112
–
–
–
–
1,990
2,040
4,030
–
–
–
–
–
–
–
–
–
–
Consolidated
2009
$’000
4,030
4,328
(3,874)
(11,463)
(6,979)
6,979
–
2008
$’000
12,013
6,811
(13,594)
(1,200)
4,030
–
4,030
14. Other Current Assets
Prepayments
2,771
2,027
–
–
Consolidated
Company
2009
$’000
2008
$’000
2009
$’000
2008
$’000
54
CROMWELL GROUP Annual Report 2009
Consolidated
Company
2009
$’000
2008
$’000
2009
$’000
2008
$’000
15. Investment Properties
Investment properties at fair value
1,117,175
1,120,716
(a) Movement in investment properties
Balance at 1 July
Additions at cost
Acquisition price
Transfer from property plant and equipment
Transaction costs
Improvements
Disposals
Straight-lining rentals
Lease costs and incentives
Amortisation of lease costs and incentives
Net gain/(loss) from fair value adjustments
Balance at 30 June
(b) Amounts recognised in profit and loss for investment properties
Rental and outgoings from investment properties
Direct operating expense from properties that generated rental income
1,120,716
927,113
–
79,545
55
10,197
–
1,716
13,537
(4,303)
(104,288)
1,117,175
166,025
–
13,259
3,215
(24,603)
735
4,505
(4,182)
34,649
1,120,716
112,522
(17,545)
94,977
89,658
(16,497)
73,161
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(c) Assets pledged as security
Borrowings (refer Note 24) 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.
(d) 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
receivable as follows:
Within one year
Later than one year but not later than five years
Later than five years
93,841
310,616
164,426
568,883
90,260
296,670
173,995
560,925
–
–
–
–
–
–
–
–
(e) 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 mostly carried out at least annually but no later than 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 location and condition and
subject to similar leases. In assessing the value of the investment properties, the independent valuers have considered 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. Further information on assumptions underlying management’s assessment
of fair value is contained in note 1(a)(iv).
CROMWELL GROUP Annual Report 2009
55
notes to the Financial Statements continued
(f) Details of investment properties
Title
Acquisi-
tion
date (1)
Acqui-
sition
price (1)
Jun 2001
Freehold
Freehold
Jun 1999
Leasehold Nov 2001
Jun 2000
Leasehold
Jun 2000
Leasehold
Feb 2003
Freehold
Apr 2003
Freehold
Jun 2003
Freehold
Jun 2004
Freehold
Jun 2004
Freehold
Jun 2004
Freehold
Jun 2004
Freehold
Jun 2004
Freehold
Jun 2004
Freehold
Jun 2004
Freehold
Jun 2004
Freehold
Dec 2004
Freehold
Feb 2005
Freehold
July 2005
Leasehold
Dec 2005
Freehold
Freehold
Jan 2006
Freehold Mar 2006
Nov 2008
Freehold
Jun 2008
Leasehold
$’000
29,250
13,600
23,550
5,800
10,750
17,778
30,420
9,700
34,000
8,900
15,900
16,000
3,500
9,900
7,600
10,900
133,000
41,000
35,530
88,000
30,375
102,650
85,727
166,025
929,855
Most
recent
inde-
pendent
valua-
tion date
Apr 2009
Dec 2008
Jun 2009
Jun 2009
Jun 2009
Dec 2008
Dec 2008
Jun 2009
Dec 2008
Dec 2008
Jun 2009
Dec 2008
Dec 2008
Dec 2008
Dec 2008
Apr 2009
Dec 2008
Dec 2008
Jun 2009
Jun 2009
May 2009
May 2009
Dec 2008
May 2009
Independent
valuation
amount
Carrying amount
Fair value
adjustment
2009
$’000
90,000
33,500
34,000
9,700
11,000
24,000
40,000
8,425
36,500
10,300
12,500
14,400
3,150
11,900
10,000
14,100
167,750
39,000
33,500
102,800
36,500
135,000
83,500
170,000
1,131,525
2008
$’000
100,000
36,000
34,000
10,350
12,800
27,300
42,000
11,260
41,000
11,000
18,100
15,450
3,100
12,000
12,500
15,400
183,500
44,450
35,500
110,000
36,800
142,000
–
166,025
2009
$’000
90,000
32,000
34,000
9,700
11,000
23,400
38,250
8,425
37,300
9,800
12,500
13,000
3,000
10,900
9,800
14,100
162,000
37,500
33,500
102,800
36,500
135,000
82,700
170,000
1,120,535 1,117,175
2008
$’000
100,000
35,973
34,000
10,350
12,800
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
–
166,025
1,120,716
2009
$’000
(10,637)
(4,552)
(360)
(702)
(1,787)
(3,847)
(3,785)
(2,736)
(3,788)
(1,201)
(5,399)
(2,821)
(139)
(1,126)
(2,677)
(1,340)
(21,648)
(6,952)
(3,268)
(7,031)
(5,492)
(7,829)
(8,260)
3,089
(104,288)
2008
$’000
(420)
–
413
166
(1,920)
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
–
(13,259)
34,649
200 Mary St, QLD
Terrace Office Park, QLD
243 Northbourne Ave, ACT
Quadrant Building, ACT
Scrivener Buildings, ACT
NQX Property, QLD
Henry Waymouth Centre, SA
Hellman Distribution Centre, VIC
Wesfarmers Woolstore, VIC
Village Geelong Cinema, VIC
Vodafone House, TAS
Hobart Cinema Complex, TAS
Village Launceston, TAS
Albury Cinema Centre, NSW
Spicers Paper, WA
Elders Woolstore, SA
700 Collins Street, VIC
Forsyth Centre, VIC
Centenary House, ACT
380 LaTrobe Street, VIC
101 Grenfell St, SA
475 Victoria Av, NSW
Synergy Building, QLD
Tuggeranong Office Park, ACT
Total investment properties
(1) Comprises original acquisition date and price for Cromwell Diversified Property Trust or the relevant Syndicate which was mostly prior to the merger and stapling transactions in
December 2006.
56
CROMWELL GROUP Annual Report 2009
16. Available-for-sale Financial Assets
Listed equity securities at fair value
Interests in Cromwell Diversified Property Trust
Available-for-sale financial assets
Consolidated
Company
2009
$’000
2008
$’000
2009
$’000
2008
$’000
3,547
–
3,547
7,210
–
7,210
–
275
275
–
275
275
Movements in the fair value of available-for-sale financial assets are taken to a reserve.
17. Investments at Fair value Through Profit and Loss
Listed equity securities at fair value
2,919
4,247
–
–
These investments are designated at fair value through profit and loss. Gains and losses are shown in the income statement.
18. Investments in Jointly Controlled Entity and Associates
The Group has investments in a jointly controlled entity, Cromwell TGA Planned Investment (“TGA”), and two associates, Cromwell
Property Fund (“CPF”) and Phoenix Portfolios Pty Ltd (“Phoenix”). These entities were formed in Australia and their principal activities
are property investment (TGA and CPF) and investment management (Phoenix).
The reporting dates of the jointly controlled entity and associates 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. TGA and CPF 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, which for TGA and CPF primarily represents an indirect
interest in a share of investment properties, is less than cost or the equity accounted carrying amount.
(a) Investments – Company
Phoenix – associate
Ownership Interest
Company
2009
%
50
2008
%
–
2009
$’000
3
2008
$’000
–
The Company acquired 50% of the shares of Phoenix during the year for a cost of $237,000. At balance date the Company recognised a
decrease in recoverable amount of $234,000 to the carrying amount of the investment on the basis of the underlying assets and liabili-
ties of Phoenix.
CROMWELL GROUP Annual Report 2009
57
notes to the Financial Statements continued
(b) Investments – Consolidated
The investments are accounted for in the consolidated financial statements using the equity method of accounting. Information relating
to the investments is detailed below:
Investments accounted for using the equity method:
TGA – jointly controlled entity
CPF – associate
Phoenix – associate
Ownership Interest
Consolidated
2009
%
67
18
50
2008
%
67
18
–
2009
$’000
51,850
6,442
3
58,295
2008
$’000
58,569
22,024
–
80,593
TGA
The Group holds a 67% (2008: 67%) interest in TGA. The remaining 33% interest was acquired by CPF during the 2008 year from an
external investor. The Group exercises joint control over TGA, but neither the Group nor CPF has control in its own right, irrespective
of their ownership interest, as both the Group and CPF must consent to the strategic, financial and operating decisions relating to TGA.
TGA has no borrowings and no material liabilities.
CPF
CPF was originally a controlled entity. Control was lost in February 2007 following continuing issues of units to external investors under
a Product Disclosure Statement.
At balance date the Group held 18% (2008: 18%) of the issued units of CPF. The Group is considered to have significant influence over
CPF due to it being the single largest investor in the CPF, with the next largest investor holding 1.3% (2008: less than 1%) of the issued
units of CPF.
Phoenix
The Group holds a 50% interest in Phoenix which was acquired in the 2009 financial year.
(c) Movement in consolidated carrying amount of investment in jointly controlled entity and associates
2009 – Consolidated
Balance at 1 July 2008
Additions – at cost
Share of profit/(loss) (2)
Distributions received
Decrease to recoverable amount
Balance at 30 June 2009
2008 – Consolidated
Balance at 1 July 2007
Additions – at cost
Gain on dilution (1)
Share of profit/(loss) (2)
Distributions received
Balance at 30 June 2008
Phoenix
$’000
–
237
(2)
–
(232)
3
–
–
–
–
–
–
CPF
$’000
22,024
–
(13,332)
(2,250)
–
6,442
13,896
10,000
826
(630)
(2,068)
22,024
TGA
$’000
58,569
–
103
(6,822)
–
51,850
52,349
–
–
10,987
(4,767)
58,569
Total
$’000
80,593
237
(13,231)
(9,072)
(232)
58,295
66,245
10,000
826
10,357
(6,835)
80,593
(1) The gain on dilution of $nil (2008: $826,000) was recognised on the basis of the Group’s interest in the net assets attributable to unitholders of the CPF increasing since decon-
solidation following the raising of additional funds from external unitholders.
(2) Share of profit/(loss) includes gain/(loss) on fair value adjustment to investment property.
58
CROMWELL GROUP Annual Report 2009
(d) Share of assets and liabilities of jointly controlled entity and associates – Consolidated
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
Total non–current liabilities
Total liabilities
Net assets
Phoenix
$’000
2009
CPF
$’000
TGA
$’000
Phoenix
$’000
41
–
8
8
49
31
15
46
–
–
46
3
813
1,619
56,265
11,124
67,389
68,202
(52,405)
(9,355)
(61,760)
–
–
(61,760)
6,442
51,667
–
51,667
53,286
–
(1,436)
(1,436)
–
–
(1,436)
51,850
–
–
–
–
–
–
–
–
–
–
–
–
2008
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
(e) Share of revenues, expenses and results of jointly controlled entity and associates – Consolidated
Revenue (1)
Expenses (1)
Share of profit/(loss)
(1) Includes fair value adjustment to investment properties.
Phoenix
$’000
37
(39)
(2)
2009
CPF
$’000
7,788
(21,120)
(13,332)
TGA
$’000
5,497
(5,394)
103
Phoenix
$’000
–
–
–
2008
CPF
$’000
8,175
(8,805)
(630)
(f) Assets pledged as security
Borrowings (refer note 24) are secured by a registered floating charge over the investments.
TGA
$’000
245
58,624
–
58,624
58,869
–
(300)
(300)
–
–
(300)
58,569
TGA
$’000
11,410
(423)
10,987
CROMWELL GROUP Annual Report 2009
59
notes to the Financial Statements continued
Consolidated
Company
2009
$’000
2008
$’000
2009
$’000
2008
$’000
19. Investments in Controlled Entities
Shares in subsidiaries – at cost
–
–
575
475
Details of investment in Controlled Entities
The Company’s investment in controlled entities are shown below, all of which are domiciled in Australia.
Equity Holding
Carrying Value of
Company’s Investment
2009
%
100
100
100
100
100
100
100
50
50
50
100
2008
%
100
100
100
100
100
100
100
50
50
50
–
2009
$’000
345
–
30
–
–
100
–
–
–
–
100
575
2008
$’000
345
–
30
–
–
100
–
–
–
–
–
475
Investments in controlled entities
Name
Cromwell Property Securities Limited
Cromwell Property Services Pty Ltd
Marcoola Developments Pty Ltd
Votraint No. 662 Pty Ltd
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
Cromwell Funds Management Limited
Trust and its controlled entities (1)
Name
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
CDPT Finance Pty Ltd
(1) 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 Property Securities Fund (83%) (2008: 94%) and Cromwell mary Street Planned Investment (92%) (2008: 92%). The other
8% of Cromwell mary Street Planned Investment is held by a subsidiary of the Company (being Cromwell Property Securities Limited). The units in the Trust are stapled with the
shares of the Company as described in note 28.
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 at least $5 million (2008:
$5 million). As such CPS is restricted from paying dividends to the Company that would breach its licence conditions.
60
CROMWELL GROUP Annual Report 2009
Bundall Corporate Centre Holdings Pty Ltd (“BCCH”) is the nominee for the Bundall Corporate Centre Partnership which the Company
holds a 50% interest but controls through the appointment of a chairman with a casting vote. The partnership was formed during the 2006
year to lease property at Bundall on the Gold Coast from Cromwell Diversified Property Trust. Under the arrangement the partnership
was to develop the land. The property was sold in October 2007 for $38,000,000 at a cost of sales of $13,594,000. The partnership profit
was shared between the Company and the 50% external minority interest. Apart from the holding of the land and subsequent sale, the
partnership has had no other significant trading and no equity contributions.
Cromwell Paclib Nominees Pty Ltd (“CPN”) was formed in the 2008 year. The Company 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 (“CPF”) under
development leases. Development costs are included in inventories (see note 13). Any profit is to be shared between the Company and the
50% external minority interest. The Company has provided loans to CPN totalling $23,021,000 (2008: $20,167,0000) (see note 10). CPN has
provided loans totalling $15,052,000 (2008; $15,052,000) to CPF (see note 10). Apart from the loans and inventory, CPN has had no other
significant trading. In particular, it has had no other significant revenue, expenses or equity contributions.
Cromwell Funds Management Limited (“CFM”) was formed in the current year. CFM issued 100,000 shares at $1 each for cash. All shares
are owned by the Company. CFM holds an Australian Financial Services Licence (AFSL) and acts as responsible entity for Cromwell Hybrid
Property Fund. The AFSL requires CFM to maintain net tangible assets of at least $50,000. As such CFM is restricted from paying divi-
dends to the Company that would breach its licence conditions.
20. 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
Property, plant and equipment
Consolidated
Company
2009
$’000
2008
$’000
2009
$’000
2008
$’000
–
1,172
(422)
750
1,150
(772)
378
267
(123)
144
1,272
42,155
992
(288)
704
1,105
(672)
433
514
(227)
287
43,579
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
CROMWELL GROUP Annual Report 2009
61
notes to the Financial Statements continued
(a) Movement in property, plant and equipment
Reconciliations of the carrying amounts of each class of property, plant and equipment are set out below.
Consolidated
Property Under
Construction
Leasehold
Improvements
Plant and Equipment
Total
Owned
Under Lease
Balance at 1 July 2008
Additions
Transfer to investment properties
Transfers
Disposals
Depreciation
Balance at 30 June 2009
Balance at 1 July 2007
Additions
Disposals
Depreciation
Balance at 30 June 2008
Company
Balance at 30 June 2009
Balance at 30 June 2008
$’000
42,155
37,390
(79,545)
–
–
–
–
8,507
33,648
–
–
42,155
–
–
$’000
704
9
–
103
–
(66)
750
484
309
(6)
(83)
704
–
–
$’000
433
90
–
–
–
(145)
378
465
144
(19)
(157)
433
–
–
(b) Additions relating to property under construction
Additions at cost
Transaction costs
Construction costs
Holding costs
Capitalised interest
$’000
287
–
–
(103)
–
(40)
144
338
–
–
(51)
287
–
–
$’000
43,579
37,489
(79,545)
–
–
(251)
1,272
9,794
34,101
(25)
(291)
43,579
–
–
Consolidated
2009
$’000
–
35,591
217
1,582
37,390
2008
$’000
8
30,965
489
2,186
33,648
Contractual commitments for the acquisition of property, plant and equipment are disclosed in note 39.
62
CROMWELL GROUP Annual Report 2009
21. Deferred Tax Assets
Deferred tax assets
Deferred tax assets and liabilities are attributable to the following:
Interests in managed investment schemes
Receivables
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
Losses (recognised)/written off
Adjustments in relation to prior periods
Balance at 30 June
Consolidated
Company
2009
$’000
2008
$’000
2009
$’000
2008
$’000
1,721
3,846
1,735
(1,870)
1,467
36
331
30
102
1,625
1,721
3,846
(618)
1,465
(2,983)
11
1,721
(1,860)
–
27
279
30
145
5,225
3,846
5,005
(3,904)
(103)
2,959
(111)
3,846
(13)
–
20
–
–
103
1,625
1,735
5,379
(618)
(53)
(2,983)
10
1,735
5,379
(7)
–
17
–
–
144
5,225
5,379
5,860
(3,904)
(130)
2,959
594
5,379
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 8).
22. Intangible Assets
Software – at cost
Accumulated amortisation
Intangible assets
1,467
(953)
514
1,111
(659)
452
–
–
–
Software has been acquired externally. Amortisation of software is included in amortisation expense in the income statement.
Reconciliations of the carrying amounts of software are set out below:
Balance at 1 July
Additions – acquired separately
Disposals
Amortisation
Balance at 30 June
452
362
(6)
(294)
514
368
263
–
(179)
452
–
–
–
–
–
–
–
–
–
–
–
–
–
CROMWELL GROUP Annual Report 2009
63
notes to the Financial Statements continued
23. Trade and Other Payables
Trade payables and accruals
Tenant security deposits
Other payables
Trade and other payables
Consolidated
Company
2009
$’000
2008
$’000
2009
$’000
2008
$’000
7,934
181
8,309
16,424
5,555
176
–
5,731
116
–
–
116
1,199
–
–
1,199
Trade and other payables are generally unsecured, non-interest bearing and paid in cash within 30-60 days of recognition.
24. Borrowings
Current
Secured
CMBS Notes
Loans – financial institutions
Debentures
Lease liabilities
Unsecured
Loan payable to Cromwell Diversified Property Trust (1)
Borrowings – current
Non-Current
Secured
Loans – financial institutions
Debentures
Lease liabilities
Borrowings – non-current
(1) See note 37.
–
81,181
–
20
–
81,201
641,647
–
–
641,647
428,265
43,566
3,429
56
–
475,316
147,615
497
20
148,132
–
–
–
–
16,600
16,600
–
–
–
–
–
–
–
–
–
–
–
–
–
–
The amounts of the loans shown above comprise the net 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.
64
CROMWELL GROUP Annual Report 2009
(a) Borrowing Details
Details of borrowings of the Group at balance date are set out below:
Facility
Note
Secured
Bank Loan – Syndicate Finance
CMBS note issue
Bank loan – Tuggeranong (Tranche 1)
Bank loan – Tuggeranong (Tranche 2)
Bank loan – Synergy
Bank loan – TGA
Bank loan – Mary Street
Lease liabilities
Debentures
Total facilities
Less unamortised transaction costs
Total borrowings
(i)
(ii)
(iii)
(iii)
(iv)
(v)
(vi)
(vii)
(viii)
Yes
–
Yes
Yes
Yes
Yes
Yes
Yes
–
Maturity
Date
Nov 2011
–
June 2015
June 2013
July 2009
Mar 2011
Aug 2011
Oct 2009
–
Facility
Utilised
Facility
Utilised
2009
$’000
452,000
–
107,916
13,282
77,861
25,946
49,500
20
–
726,525
2009
$’000
452,000
–
107,916
13,282
77,861
25,946
48,500
20
–
725,525
(2,677)
722,848
2008
$’000
–
429,000
107,916
16,602
93,500
27,000
–
76
3,926
678,020
2008
$’000
–
429,000
107,916
16,602
40,261
27,000
–
76
3,926
624,781
(1,333)
623,448
(i) Bank Loan – Syndicate Finance
The Syndicate finance facility is secured by first registered mortgages over the majority of the investment properties held by
the Group and a registered floating charge over the assets of the Trust. Interest is payable monthly in arrears at variable rates
based on a margin over the 30 day BBSW rate and was 4.2% at balance date. An amount of $238,985,000 was effectively fixed
at balance date through interest rate swap arrangements which expire in Jul-09 ($56,000,000), Nov-09 ($15,060,000), Jul-10
($49,745,000), Feb-16 ($31,730,000) and Sep-17 ($86,450,000).
(ii) CMBS Note Issue
The CMBS facility was fully repaid during the 2009 year from the proceeds of the Syndicate Finance Facility.
(iii) Bank Loan – Tuggeranong
The Group has a $121,198,000 (2008: $124,518,000) loan in relation to its investment 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 first tranche of the loan matures in June 2015. The second tranche matures in June 2013 with $830,000
repayable each quarter until June 2013. The loan bears interest at a variable rate based on a margin over the 30 day BBSW rate
which for tranche 1 was 4.53% and for tranche 2 was 4.27% (2008: both tranche 1 and 2 were 8.73%) at balance date.
(iv) Bank Loan – Synergy
The Group has a $77,861,000 (2008: $40,261,000) loan in relation to the Synergy investment property. The loan is secured by a regis-
tered floating charge over the assets of the Group specific to the Synergy investment property. The loan matured on 31 July 2009 and
was extended for a further 2 years (see note 42). The loan bears interest at a variable rate based on a margin over the 30 day BBSW rate
which was 6.7% (2008: 8.25%) at balance date.
(v) Bank Loan – TGA
The Group has a $25,946,000 (2008: $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 TGA. These assets are
reflected in the carrying value of the investment in jointly controlled entity. The loan bears interest at a variable rate based on a margin
over the 30 day BBSW rate which was 3.77% (2008: 8.40%) at balance date. The loan was effectively fixed at balance date through inter-
est rate swap arrangements to August 2010.
CROMWELL GROUP Annual Report 2009
65
notes to the Financial Statements continued
(vi) Bank Loan – Mary Street
The Group has a $49,500,000 (2008: $nil) facility secured over the 200 Mary Street investment property. The loan has been drawn down
in two tranches, Tranche 1 for $20,000,000 and Tranche 2 for $28,500,000. The loan bears interest at a variable rate based on a margin
over the 30 day BBSW rate and for tranche 1 was 4.49% and for tranche 2 was 5.04% at balance date.
(vii) 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.
(viii) Debentures
All debentures were repaid during 2009.
(b) Maturity Profile
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
Consolidated
Company
2009
$’000
109,062
584,342
112,524
805,928
2008
$’000
520,233
83,634
126,758
730,625
2009
$’000
16,715
–
–
16,715
2008
$’000
–
–
–
–
(c) Unused Finance Facilities
At balance date the Group had unused finance facilities totalling $1,000,000 (2008: $53,239,000).
(d) 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
722,828
–
(265,985)
456,843
4.78%
428,265
191,181
–
–
(456,000)
163,446
7.15%
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
–
20
71,060
71,080
5.06%
–
–
3,429
56
246,015
249,500
6.15%
–
–
76,745
76,745
5.56%
–
–
497
20
15,060
15,577
5.72%
–
–
–
–
–
–
–
–
–
76,745
76,745
5.53%
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
118,180
118,180
5.94%
–
–
–
–
118,180
118,180
5.89%
Total
$’000
722,828
20
–
722,848
428,265
191,181
3,926
76
–
623,448
2009
Financial institution loans
Lease liabilities
Interest rate swaps (1)
Weighted average interest rate %
2008
CMBS note issue
Financial institution loans
Debentures
Lease liabilities
Interest rate swaps (1)
Weighted average interest rate %
(1) notional principal amounts
66
CROMWELL GROUP Annual Report 2009
Consolidated
Company
2009
$’000
2008
$’000
2009
$’000
2008
$’000
25. Dividends/Distributions Payable
Dividends/distributions payable
10,546
17,583
–
7,028
Distributions payable relate to June quarter distributions declared in June and payable in August of each year.
26. Provisions
Current
Employee benefits
Property development
Non-Current
Employee benefits
Restoration
Provisions
Movement in provisions – Consolidated
Balance at 1 July
Additional provisions recognised
Balance at 30 June
825
6,979
7,804
265
100
365
738
–
738
177
100
277
–
–
–
–
–
–
–
–
–
–
Property Development
Restoration
2009
$’000
–
6,979
6,979
2008
$’000
–
–
–
2009
$’000
100
–
100
2008
$’000
100
–
100
Property development
Cromwell Paclib Nominees Pty Ltd (“CPN”), a controlled entity (see note 19) has entered into development agreements with Cromwell
Property Fund (“CPF”) in respect of certain properties leased from CPF. Under the development agreements CPN can develop the land
on the basis that CPF would fully recover its cost. At 30 June 2009 the Group assessed the recoverable amount of the properties held by
CPF at less than CPF’s cost and has provided for the difference (see note 13). The recoverable amount of these properties was assessed
on the basis of their expected realisation values without further development.
Restoration
The Group’s operating leases of its premises requires the asset to be returned to the lessor in a lease stipulated condition. The operat-
ing lease payments do not include an element for the refurbishment costs. A provision for refurbishment costs (make good obligations)
is recognised over the period of the lease, measured at each reporting date as the expected cost of returning the asset to its agreed
condition.
CROMWELL GROUP Annual Report 2009
67
notes to the Financial Statements continued
27. Other Current Liabilities
Unearned income
8,131
3,314
–
–
Consolidated
Company
2009
$’000
2008
$’000
2009
$’000
2008
$’000
Unearned income primarily comprises rent paid in advance.
28. Contributed Equity
(a) Share Capital
702,943,059 (2008: 702,816,227) fully paid ordinary shares
43,688
43,644
43,688
43,644
Effective 1 July 1998, the corporations legislation in place abolished the concepts of authorised capital and par value shares. Accord-
ingly, the Company does not have authorised capital or par value in respect of its issued shares.
Movements in ordinary share capital
Balance at 1 July 2008
Issue of treasury shares to employees for cash on exercise of options
Balance at 30 June 2009
Balance at 1 July 2007
Reinvestment of dividends/ distributions (1)
Share buy-back (2)
Issue of treasury shares to employees for cash on exercise of options
Share buy-back transaction costs
Balance at 30 June 2008
No. of Shares
$’000
702,816,227
126,832
702,943,059
698,783,980
8,930,200
(5,565,342)
667,389
–
702,816,227
43,644
44
43,688
43,347
301
(215)
234
(23)
43,644
(1) The Group has established a dividend/distribution reinvestment plan (DRP) under which stapled security holders may elect to have all or part of their dividend/distribution entitle-
ments satisfied by the issue of new stapled securities rather than being paid in cash. The DRP was suspended in march 2008.
(2) The Group announced an on-market buy-back of up to 69 million stapled securities in January 2008 and acquired the securities between 13 February 2008 and 26 June
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 36). Total number of fully paid ordinary shares at
balance date comprises:
Ordinary shares as shown above
Treasury shares held by ESOP
68
CROMWELL GROUP Annual Report 2009
2009
Number
702,943,059
141,875
703,084,934
2008
Number
702,816,227
268,707
703,084,934
(b) 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
distributions 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)
2009
2009
2008
2008
Company
Number
702,943,059
141,875
–
703,084,934
Trust
Number
703,360,040
–
(275,106)
703,084,934
Company
Number
702,816,227
268,707
–
703,084,934
Trust
Number
703,360,040
–
(275,106)
703,084,934
* The ESOP holds a similar number of Trust units which are included in the total of 703,084,934 (2008: 703,084,934) units.
(c) Options
Information relating to the Employee Share Ownership Plan and Performance Rights Plan, including details of options issued, exercised
and lapsed during the financial year, is set out in note 36.
29. Reserves
Share based payments
Available-for-sale financial assets revaluation reserve
Reserves
Movements in reserves
Share based payments
Balance at 1 July
Options expensed
Balance at 30 June
Consolidated
Company
2009
$’000
2008
$’000
2009
$’000
2008
$’000
916
2,340
3,256
683
233
916
683
2,340
3,023
610
73
683
916
–
916
683
233
916
683
–
683
610
73
683
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
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
comprises a reserve of a subsidiary attributable to its pre-stapling interest in a Syndicate which continues to be held. There was no
movement in the available-for-sale financial assets revaluation reserve over the last two financial years.
CROMWELL GROUP Annual Report 2009
69
notes to the Financial Statements continued
30. Accumulated Losses
Accumulated losses
Movements in accumulated losses
Balance at 1 July
Profit/(loss) for the year
Transfer from minority interest (external)
Dividends paid/payable
Balance at 30 June
31. minority Interests
Equity attributable to unitholders:
Contributed equity
Reserves
(Carried forward loss)/undistributed income
Equity attributable to unitholders
External minority interest
Consolidated
Company
2009
$’000
2008
$’000
2009
$’000
2008
$’000
(38,371)
(18,800)
(41,600)
(24,979)
(18,800)
(18,971)
(600)
–
(38,371)
(31,212)
19,440
–
(7,028)
(18,800)
(24,979)
(16,621)
–
–
(41,600)
(36,337)
18,386
–
(7,028)
(24,979)
Consolidated
2009
$’000
2008
$’000
531,853
–
(833)
531,020
–
531,853
130,966
25,150
687,969
(600)
Losses attributable to external minority interest were recognised on the basis that the external minority interest had a binding obliga-
tion and was able to make an additional investment to cover the losses. These losses were transferred to the Group during the current
year.
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.
70
CROMWELL GROUP Annual Report 2009
Movements in contributed equity – unitholders
Balance at 1 July
DRP issues
Buyback of units
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
Other
Balance at 30 June
General reserve
Balance at 1 July
Transfer to (carried forward loss)/undistributed income
Balance at 30 June
Total reserves – unitholders
Movement in (carried forward loss)/undistributed income – unitholders
Balance at 1 July
Profit/(loss) for the year
Distributions paid/payable
Transfer from general reserve
Balance at 30 June
Consolidated
2009
$’000
2008
$’000
531,853
–
–
531,853
(868)
(3,663)
3,663
868
–
131,834
(131,834)
–
–
25,150
(94,540)
(63,277)
131,834
(833)
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
CROMWELL GROUP Annual Report 2009
71
notes to the Financial Statements continued
32. Dividends/Distributions
Dividends paid/payable by the Company
Final dividend for the year ended 30 June 2008 of 1.0 cents per fully paid ordinary share, declared with a record date
of 24 June 2008 and paid/payable on 29 August 2008:
Fully franked based on tax paid @ 30% – 0.50 cents per share
Unfranked – 0.50 cents per share
Company
2009
$’000
2008
$’000
–
–
–
3,514
3,514
7,028
No dividend was declared by the Company during 2009.
Franking credits
Franking credits available for subsequent years based on a tax rate of 30% (2008 – 30%)
1,025
690
The above amounts represent the balance of the franking account as at the end of the financial year, adjusted for:
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franking credits that will arise from the payment of the amount of the provision for income tax;
franking debits that will arise from the payment of dividends recognised as a liability at the reporting date, and
franking credits that will arise from the receipt of dividends recognised as receivables at the reporting date.
Distributions paid/payable by the Trust
Interim distribution of 2.5 cents per stapled security paid on 15 November 2007
Interim distribution of 2.5 cents per stapled security paid on 15 February 2008
Interim distribution of 2.5 cents per stapled security paid on 15 May 2008
Final distribution of 1.5 cents per stapled security paid on 29 August 2008
Interim distribution of 2.5 cents per stapled security paid on 14 November 2008
Interim distribution of 2.5 cents per stapled security paid on 16 February 2009
Interim distribution of 2.5 cents per stapled security paid on 15 May 2009
Final distribution of 1.5 cents per stapled security payable on 31 August 2009
Consolidated
2009
$’000
–
–
–
–
17,577
17,577
17,577
10,546
63,277
2008
$’000
17,573
17,651
17,628
10,555
–
–
–
–
63,407
All distributions from the Trust are unfranked. The determination of the Trust’s distributable income excludes unrealised gains/(losses)
including fair value adjustments to investment properties.
72
CROMWELL GROUP Annual Report 2009
Dividends/distributions paid in cash, payable at balance date or satisfied by the issue of securities under the reinvestment plan during
the past two years were as follows:
Consolidated
Company
2009
$’000
70,314
–
10,546
80,860
2008
$’000
58,140
10,453
17,583
86,176
2009
$’000
7,028
–
–
7,028
2008
$’000
5,590
–
7,028
12,618
Paid in cash (1)
Satisfied by issue of securities (2)
Payable at balance date
(1) Includes June dividends/distributions from prior year paid in August.
(2) Recognised, in part, by both the Company and the Trust.
33. Earnings/(Loss) per Share
Basic earnings/(loss) per share
Diluted earnings/(loss) per share
Earnings used to calculate basic and diluted earnings per share
Profit/(loss) for the year
Profit/(loss) attributable to minority interests
Profit/(loss) attributable to ordinary equity holders of the company used in calculating
basic/diluted earnings/(loss) per share
Weighted average number of ordinary shares used in calculating basic earnings/(loss) per share
Effect of dilutive securities:
Director and employee share options
Weighted average number of ordinary shares and potential ordinary shares used in calculating
diluted earnings/(loss) per share
Consolidated
2009
2008
(2.7¢)
(2.7¢)
2.8¢
2.8¢
$’000
$’000
(113,511)
94,540
119,901
(100,461)
(18,971)
19,440
Number
of Shares
702,816,227
Number
of Shares
702,988,443
63,006
180,150
702,879,233
703,168,593
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/(loss) per share to the extent to which they are dilutive. The
options have not been included in the determination of basic earnings/(loss) per share. Details relating to the options are set out in
note 36.
CROMWELL GROUP Annual Report 2009
73
notes to the Financial Statements continued
Consolidated
Company
2009
$’000
2008
$’000
2009
$’000
2008
$’000
34. Cashflow Information
(a) Reconciliation of profit/(loss) to net cash provided by operating activities
Net profit/(loss)
Tax expense
Tax paid
Reimbursements received from tax consolidated entities
Amortisation and depreciation
Amortisation (loan transaction costs)
Amortisation of lease costs and incentives
Share of profits/(losses) of jointly controlled entity/associates (net of distributions)
Gain on sale of investment properties
Share based payments
Net gain on fair value adjustments of:
(113,511)
2,458
(2,605)
–
545
1,415
4,303
22,303
–
233
119,901
3,342
(868)
–
470
890
4,182
(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)
89,521
(16,621)
1,855
(2,605)
1,655
–
–
–
–
–
233
–
–
–
–
–
–
234
15,300
–
–
–
(1,061)
–
–
(1,083)
–
–
(2,093)
18,386
1,008
(868)
661
–
–
–
–
–
73
–
–
–
–
–
–
–
–
–
–
–
1,066
–
1,140
1,018
–
–
22,484
104,288
22,479
3,107
–
3,663
11,463
232
4,890
(1,716)
(5,284)
6
(5,016)
(744)
(454)
2,384
175
4,817
59,431
–
10,453
–
301
Investment properties
Interest rate derivatives
Investments at fair value through profit and loss
Gain on dilution of interest in associate
Decrease to recoverable amount:
Available-for-sale financial assets
Property development inventories
Jointly controlled entity/associates
Loans receivable
Straight-line rentals
Refund of stamp duty paid on merger
Other
Changes in operating assets and liabilities:
(Increase)/decrease:
Trade and other receivables
Prepayments
Inventories*
Increase/(decrease):
Trade payables and accruals
Provisions (employee benefits/restoration)
Unearned revenue
Net cash provided by operating activities
* Prior to decrease to recoverable amount.
(b) Non-cash activities
Securities issued on reinvestment of distributions (1)
(1) Recognised in part, by both the Company and the Trust.
(c) Finance facilities
Refer to note 24 for details of unused finance facilities.
(d) Cash held by Cromwell Property Securities Limited (“CPS”)
At balance date cash was held by CPS, a controlled entity, of $2,746,000 (2008: $2,432,000). Of this amount, approximately $500,000
(2008: $500,000) was held as part of the $5 million net tangible assets (NTA) required to be maintained by CPS 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.
74
CROMWELL GROUP Annual Report 2009
(e) Cash held by Cromwell Funds Management Limited (“CFM”)
At balance date cash was held by CFM, a controlled entity, of $101,000 (2008: $nil). Of this amount, approximately $50,000 (2008: $nil)
was held as part of the $50,000 net tangible assets (NTA) required to be maintained by CFM 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.
35. key management Personnel Disclosures
(a) Key management personnel compensation
Short-term employee benefits
Post-employment benefits
Other long-term benefits
Share-based payments
Consolidated
Company
2009
$
3,843,909
174,972
50,489
129,494
4,198,864
2008
$
3,402,126
158,395
44,504
61,111
3,666,136
2009
$
1,991,294
57,276
26,550
42,109
2,117,229
2008
$
1,810,515
61,733
18,461
18,559
1,909,268
Key management personnel compensation for the Company comprises amounts paid to directors of the Company principally by subsidiaries.
(b) Equity instrument disclosures relating to key management personnel
(i) 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.
Name
2009
Directors:
GH Levy
PL Weightman
RJ Pullar
MA McKellar
DE Usasz
DJ Wilson
WR Foster
Other key management personnel of the Group:
PW Howard
SM Morgan
DA Gippel
MC McLaughlin
MJ Blake
PJ McDonnell
PJ Cowling
NE Riethmuller
JA Clark*
Balance at
1 July
Granted
during
the year as
compensation
Exercised
during
the year
Forfeited
during
the year
Balance
at 30 June
Vested
Balance
at 30 June
Not Vested
–
1,108,100
–
–
–
516,300
–
–
229,200
792,000
394,400
507,000
300,200
592,650
–
92,100
4,531,950
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(109,075)
–
–
(109,075)
–
(369,367)
–
–
–
(172,100)
–
–
(229,200)
(331,917)
(131,467)
(169,000)
(100,067)
(113,900)
–
–
(1,617,018)
–
–
–
–
–
–
–
–
–
–
–
–
–
141,875
–
–
141,875
–
738,733
–
–
–
344,200
–
–
–
460,083
262,933
338,000
200,133
227,800
–
92,100
2,663,982
* JA Clark became a kmP on 1 July 2008.
At balance date, options entitle the holder to acquire stapled securities in the Group – refer note 36.
Vested options are exercisable.
CROMWELL GROUP Annual Report 2009
75
notes to the Financial Statements continued
Name
2008
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
Granted
during
the year as
compensation
Exercised
during
the year
Forfeited
during
the year
Balance
at 30 June
Vested
Balance
at 30 June
Not Vested
–
–
–
–
–
–
–
–
–
–
–
–
–
–
887,900
887,900
–
1,108,100
–
–
–
516,300
–
229,200
282,300
–
792,000
394,400
507,000
300,200
341,700
4,471,200
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(636,950)
(636,950)
–
–
–
–
–
–
–
–
(282,300)
–
–
–
–
–
–
(282,300)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
250,950
250,950
–
1,108,100
–
–
–
516,300
–
229,200
–
–
792,000
394,400
507,000
300,200
341,700
4,188,900
(ii) Share holdings
The numbers of 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.
Ordinary share holdings
Name
2009
Directors:
GH Levy (1)
PL Weightman
RJ Pullar
MA McKellar
DE Usasz
DJ Wilson
WR Foster
Other key management personnel of the Group:
PW Howard
SM Morgan
DA Gippel
MC McLaughlin
MJ Blake
PJ McDonnell
PJ Cowling
NE Riethmuller
JA Clark *
* JA Clark became a kmP on 1 July 2008.
76
CROMWELL GROUP Annual Report 2009
Balance
at
1 July
On exercise
of options
Net
purchases
(sales)
Balance
at
30 June
–
15,464,167
14,000,000
120,000
1,747,602
2,215,006
5,349,598
–
–
547,264
467,151
1,975,612
200,000
1,524,850
–
71,032
43,682,282
–
–
–
–
–
–
–
–
–
–
–
–
–
109,075
–
–
109,075
370,000
–
–
180,000
129,978
–
–
–
–
–
(157,536)
(200,000)
–
–
–
–
322,442
370,000
15,464,167
14,000,000
300,000
1,877,580
2,215,006
5,349,598
–
–
547,264
309,615
1,775,612
200,000
1,633,925
–
71,032
44,113,799
Name
2008
Directors:
GH Levy (1)
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
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
42,278,382
–
–
–
–
–
–
–
–
–
–
–
–
–
–
636,950
636,950
–
100,000
454,731
100,000
257,202
9,024
–
–
–
–
–
10,011
8,900
200,000
(443,950)
695,918
–
15,464,167
14,000,000
120,000
1,747,602
2,215,006
5,349,598
–
–
–
547,264
467,151
1,975,612
200,000
1,524,850
43,611,250
Comparative shareholdings have been amended for 2008 for purchases (400,000) and sales (443,950) by certain key management personnel not included in prior year.
(1) mr GH Levy is a director of mZL Investments Pty Ltd, which is the manager of the mZL Opportunity Fund, which owned 862,995 (2008: 462,963) stapled securities in the Cromwell
Group. mr GH Levy has indirect beneficial ownership of the shares as a unitholder in the fund.
There were no shares granted during 2009 or 2008 as compensation.
At balance date the numbers above for the directors and other key management personnel represent the number of stapled securities
of the Group held by them.
CROMWELL GROUP Annual Report 2009
77
notes to the Financial Statements continued
(iii) Property preference share holdings
All property preference shares were redeemed by the Company during 2008.
The numbers of property preference shares in the Company held during the 2008 year by each director of the Company and other key
management personnel of the Group, including their personally related parties, are set out below.
2008
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
DA Gippel
MC McLaughlin
MJ Blake
PJ McDonnell
PJ Cowling
Balance at
1 July 2007
Net Change
Other
Balance
30 June 2008
–
3,500
1,000
–
–
2,000
–
–
–
2,000
–
–
–
–
8,500
–
(3,500)
(1,000)
–
–
(2,000)
–
–
–
(2,000)
–
–
–
–
(8,500)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(c) Loans to key management personnel
No loans were made during the 2009 or 2008 year to key management personnel and no loans were outstanding at the reporting date.
(d) Other transactions with key management personnel
The Group entered into a development agreement in 2007 with Citimark Properties Limited (“Citimark”), an entity related to Mr. Robert
Pullar, who is a director of the Company. Under the agreement, Citimark developed the Synergy investment property in Kelvin Grove,
Brisbane in accordance with specified terms, and to agreed standards. Construction was completed in November 2008. Under the devel-
opment agreement, the Group reimbursed Citimark for the costs of the project, and paid fees contingent upon the outcomes of certain
events, primarily total construction costs of the property and leasing outcomes. Citimark provided a rental guarantee to the Group
over the entire property for 18 months from the date construction was complete. During the year the Group paid $49,706,942 (2008:
$31,303,340) to Citimark for development and construction costs and received $4,286,354 (2008: $nil) by way of rental guarantee.
The Group 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 2009 was $88,400 (2008: $88,400). The payment of rent is on normal commercial terms and conditions
and at market rates.
78
CROMWELL GROUP Annual Report 2009
36. Share Based Payments
(a) Performance Rights Plan
A Performance Rights Plan (PRP) was established in September 2007 by the Company. All full-time and part-time employees who
meet minimum service, remuneration and performance requirements, including executive Directors of Cromwell Corporation 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 Board or the Remuneration Committee and based on individual circumstances and
performance.
The amount of Performance Rights that will vest under the PRP depends on a combination of factors which may include the Group’s
total securityholder returns (including price growth, dividends and capital returns), internal performance measures and the participant’s
continued employment.
Performance Rights allocated under the PRP generally vest in 3 years. Until Performance Rights have vested, the participant cannot
sell or otherwise deal with the Performance Rights except in certain limited circumstances. It is a condition of the PRP that a participant
must remain employed by the Group in order for Performance Rights to vest. Any Performance Rights which have not yet vested on a
participant 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.
Set out below are summaries of Performance Rights granted and exercised.
Grant Date
Expiry Date
Exercise
price
Balance
at start of
the year
Granted during
the year
Lapsed during
the year
Exercised
during the year
Balance
at year end
2009
18/09/2007
18/09/2007
18/09/2007
06/12/2007
19/01/2010
19/01/2011
19/01/2011
07/04/2011
Weighted average exercise price
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
Weighted average exercise price
$1.21
$1.21
$0.00
$1.21
$1.21
$1.21
$0.00
$1.21
492,900
3,886,800
8,600
1,624,400
6,012,700
$1.21
–
–
–
–
–
–
–
–
–
–
–
–
492,900
4,255,100
8,600
1,624,400
6,381,000
$1.21
(203,750)
(1,075,366)
–
(541,467)
(1,820,583)
$1.21
–
(368,300)
–
–
(368,300)
$1.21
–
–
–
–
–
–
–
–
–
–
–
–
289,150
2,811,434
8,600
1,082,933
4,192,117
$1.21
492,900
3,886,800
8,600
1,624,400
6,012,700
$1.21
At balance date nil Performance Rights (2008: nil) were vested and exercisable.
The weighted average remaining contractual life of Performance Rights outstanding at the end of the year was 1.7 years (2008:
2.7 years).
CROMWELL GROUP Annual Report 2009
79
notes to the Financial Statements continued
All Performance Rights were granted in 2008. The assessed fair value of Performance Rights granted is as follows:
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14.3 cents for Performance Rights with non-market based vesting conditions expiring on 19/01/2010
9.2 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
10.6 cents for Performance Rights with market based vesting conditions expiring on 19/01/2011*
96.9 cents for Performance Rights with $nil exercise price
8.9 cents for Performance Rights with market based vesting conditions expiring on 07/04/2011*
* The assessed fair value of these Performance Rights was adjusted during the current year based on a review of the underlying model assumptions. In 2008 the assessed fair value
of these Performance Rights was $nil. The effect of the change on the income statement is immaterial.
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 security price at grant date and expected
price volatility of the underlying security, the expected dividend/distribution 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 security price at grant date and expected price volatility of the underlying security, the expected dividend/distribution 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
Exercise price
Grant date
Share price at grant date
Expected price volatility
Expected dividend yield
Risk free interest rate
Expiry date
TSR hurdle
Non-market based vesting conditions
Exercise price
Grant date
Share price at grant date
Expected price volatility
Expected dividend yield
Risk free interest rate
Expiry date
Performance Rights
Granted
$1.21
18/9/2007 – 6/12/2007
$1.25
23%
8.06%
6.22%
19/01/2010 – 07/04/2011
13%
Performance Rights Granted
$1.21
18/09/07
$1.26
23%
8.06%
6.26%
19/01/2010
$1.21
18/09/07
$1.26
23%
8.06%
6.22%
19/01/2011
–
18/09/07
$1.26
23%
8.06%
6.22%
19/01/2011
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.
(b) 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 perfor-
mance. 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.
80
CROMWELL GROUP Annual Report 2009
(c) Employee Share Ownership Plan
The Employee Share Ownership Plan (“ESOP”) was established in 2003 by the Company. No grants were made under the ESOP in the
2008 or 2009 years and it is not intended any further grants will be made by this plan in the future.
Under the ESOP, eligible employees were allocated shares in the Company. The shares were acquired by the eligible employees at the
time of allocation, funded by a loan from the Company 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 ESOP 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 ESOP 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.
As a result of the stapling transaction in December 2006 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.
Set out below are summaries of options granted and exercised.
Grant Date
Expiry Date
Exercise price
Balance at
1 July
Granted during
the year
Exercised
during the year
Balance at
30 June
2009
28/8/2005
28/8/2005
30/6/2009
30/9/2009
Weighted average exercise price (cents)
2008
28/8/2005
28/8/2005
30/6/2009
30/9/2009
Weighted average exercise price (cents)
34.8¢
34.8¢
34.8¢
34.8¢
17,757
250,950
268,707
34.8¢
48,196
887,900
936,096
34.8¢
–
–
–
–
–
–
–
–
(17,757)
(109,075)
(126,832)
34.8¢
(30,439)
(636,950)
(667,389)
34.8¢
–
141,875
141,875
34.8¢
17,757
250,950
268,707
34.8¢
At 30 June 2009 all options (2008: all) were vested and exercisable with a weighted average exercise price of 34.8 cents (2008: 34.8 cents).
All options became vested and exercisable on approval of the stapling by shareholders and unitholders in December 2006.
The weighted average remaining contractual life of share options outstanding at the end of the year was 0.3 years (2008: 1.3 years).
No options were granted in 2009 or 2008. The assessed fair value of options granted in 2006 was 10.1 cents.
126,832 options were exercised during 2009 (667,389 options were exercised during 2008). 126,832 shares (2008: 667,389 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 $44,000 (2008: $234,000) for the Company and $nil (2008: $nil) for the Trust. The fair value of secu-
rities issued at the option exercise date was $66,000 (that is the weighted average share price at the date of exercise was $0.52 per
security) (2008 – $521,000; $0.78 per security).
To 30 June 2009 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.
CROMWELL GROUP Annual Report 2009
81
notes to the Financial Statements continued
The model inputs for options granted during the year ended 30 June 2006 included:
Exercise price*
Grant date
Share price at grant date
Expected price volatility
Expected dividend yield
Risk free interest rate
Expiry date
* Prior to reconstruction on stapling
Options Granted
30.9¢
28/8/05
34¢
90%
3.66%
5.0%
30/6-30/9/09
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.
(d) 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:
Rights issued under Performance Rights Plan
Tax Exempt Plan
Options issued under Employee Share Ownership Plan
37. Other Related Party Transactions
Consolidated
Company
2009
$’000
233
–
–
233
2008
$’000
61
22
12
95
2009
$’000
233
–
–
233
2008
$’000
61
–
12
73
(a) Parent entity and subsidiaries
Cromwell Corporation Limited is the ultimate parent entity in the Group. Details of subsidiaries are set out in note 19.
(b) Transactions with subsidiaries
Current tax payable assumed from wholly-owned tax consolidated entities
Tax losses assumed from wholly-owned tax consolidated entities
Transactions between the parent and its subsidiaries also included:
Company
2009
$’000
2,124
–
2008
$’000
1,655
–
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|
|
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Loans between the parent and its subsidiaries (refer cash flow statement and note 10). All loans are interest free (except as set
out in note 10), unsecured, with no set repayment terms other than being repayable at call in cash. The parent received $1,407,944
(2008: $805,130) in interest payments during the year from the loan to Cromwell PacLib Nominees Pty Ltd;
Performance fees paid to the parent by the Trust of $nil (2008: $2,979,612);
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 $3,500,000 (2008: $2,000,000);
82
CROMWELL GROUP Annual Report 2009
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During the year the parent was advanced $18,100,000 from the Trust under a loan facility between the parent and the Trust and
made repayments of $1,500,000. The loan is unsecured, repayable in cash in 2009 and bears interest at a variable rate which was
4.2% at balance date. Interest paid to the Trust was $484,469 (2008: $nil). The loan facility was not in place in 2008; and
Transactions between Cromwell Corporation Limited and its wholly-owned controlled entities in accordance with the tax funding
agreement (refer Note 1(d) – being recognition of receivables and payables in relation to current tax payable and tax losses
assumed as disclosed 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.
(c) Transactions with jointly controlled entity and associates
Transactions between the Group and its jointly controlled entity and associates also included:
|
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Loans between the Group and its associates (refer note 10). The Group received interest of $2,468,144 (2008: $3,369,665) from its
associates;
The Group held 61,250,000 convertible financing units issued by Cromwell Property Fund during 2008. These were redeemed in
full by Cromwell Property Fund during 2008. The Group received $nil (2008: $3,229,293) in interest payments during the year on
the units;
The Group received $9,072,000 (2008: $6,835,000) in distributions from its jointly controlled entity and associate during the year
(refer note 18);
The Group charged Cromwell Property Fund $2,370,430 (2008: $9,901,746) acquisition, capital raising, finance structuring, registry
services and accounting services fees during the year, of which the parent charged $nil (2008: $5,992,543); and
|
The Group charged its jointly controlled entity and associates $1,837,684 (2008: $3,828,121) management fees during the year.
(d) 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. As a result of the stapling (in
December 2006) the majority of the relevant schemes became part of the Group. For those schemes which are not part of the Group
after that date, Cromwell TGA Planned Investment and Cromwell Property Fund (refer note 18), fees and transactions are disclosed
above as being transactions with jointly controlled entity and associates.
38. 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.
• Funds Management
The Company and its controlled entities establish and manage investment 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.
CROMWELL GROUP Annual Report 2009
83
notes to the Financial Statements continued
(b) Primary reporting format – Business segments
2009
Segment revenue and other income
Sales to external customers
Intersegment sales
Total sales revenue
Total segment revenue and other income
Intersegment elimination
Unallocated revenue
Consolidated revenue and other income
Segment result
Segment result before fair value adjustments, decreases to recoverable amount and share of
losses of equity accounted entities
Loss on fair value adjustments
Decrease to recoverable amount:
Available-for-sale financial assets
Jointly controlled entities/associates
Property development inventories
Loans receivable
Share of losses of equity accounted entities
Segment result
Intersegment elimination
Unallocated revenue less unallocated expenses
Finance costs
Loss before income tax
Income tax expense
Loss 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
Other segment information
Investments in jointly controlled entity and associates
Depreciation and amortisation expense
Acquisitions of non-current segment assets
Investment properties
Property, plant and equipment
Intangibles
Property
Investment
Funds
Management
Property
Development
Consolidated
$’000
$’000
$’000
$’000
112,522
865
113,387
4,863
12,540
17,403
2,847
–
2,847
120,232
13,405
133,637
133,637
(13,405)
18,892
139,124
84,680
6,825
(2,516)
88,989
(129,874)
(3,663)
–
–
–
(13,229)
(62,086)
–
–
(232)
–
(4,890)
(2)
1,701
–
–
–
(11,463)
–
–
(13,979)
1,264,175
17,629
2,869
35,980
2,851
7,247
58,292
–
10,252
37,390
–
47,642
3
545
–
99
362
461
–
–
–
–
–
–
(129,874)
(3,663)
(232)
(11,463)
(4,890)
(13,231)
(74,364)
(1,386)
14,991
(50,294)
(111,053)
(2,458)
(113,511)
1,284,673
(23,022)
47,172
1,308,823
46,078
304
722,848
–
769,230
58,295
545
10,252
37,489
362
48,103
(1) In accordance with AASB 114 Segment Reporting, borrowings have not been allocated but predominantly relate to the property investment segment.
84
CROMWELL GROUP Annual Report 2009
(b) Primary Reporting Format – Business segments (continued)
2008
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 before decreases to recoverable amount
Decrease to recoverable amount:
Available-for-sale financial assets
Property development inventories
Segment result
Intersegment elimination
Unallocated revenue less unallocated expenses
Finance costs
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
Other segment information
Investments in jointly controlled entity and associate
Depreciation and amortisation expense
Acquisitions of non-current segment assets
Investment properties
Property, plant and equipment
Intangibles
Property
Investment
Funds
Management
Property
Development
Consolidated
$’000
$’000
$’000
$’000
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
142,405
12,852
155,257
10,357
826
7,470
39,128
213,038
(12,852)
11,985
212,171
118,370
15,469
23,098
156,937
(9,011)
–
109,359
–
–
15,469
–
(1,200)
21,898
1,321,341
13,842
4,047
19,172
8,887
645
80,593
–
182,499
33,648
–
216,147
–
470
–
453
263
716
–
–
–
–
–
–
(9,011)
(1,200)
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
470
182,499
34,101
263
216,863
(1) In accordance with AASB 114 Segment Reporting, borrowings have not been allocated but predominantly relate to the property investment segment.
CROMWELL GROUP Annual Report 2009
85
notes to the Financial Statements continued
(c) Notes to and forming part of the segment information
(i) 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
operating cash, receivables, inventories, investment properties, plant and equipment and other intangible assets, net of related pro-
visions. 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.
(ii) 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.
(iii) Equity-accounted investments
The Group has an investment in an Australian jointly controlled entity (Cromwell TGA Planned Investment) and two Australian associ-
ates (Cromwell Property Fund and Phoenix Portfolios Pty Ltd). Cromwell TGA Planned Investment and Cromwell Property Fund are
accounted for using the equity method and included in the property investment segment. Phoenix Portfolios Pty Ltd is accounted for
using the equity method and included in the funds management segment.
39. Commitments for Expenditure
(a) 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
Consolidated
Company
2009
$’000
2008
$’000
2009
$’000
2008
$’000
20
–
20
–
20
20
–
20
60
20
80
(4)
76
56
20
76
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Finance leases comprise leases over items of plant and equipment under normal commercial terms and conditions.
(b) 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
69
173
242
60
63
123
831
237
1,068
20
471
491
86
CROMWELL GROUP Annual Report 2009
Operating leases primarily comprised the lease of the Group’s premises. The Company has entered into a number of leases with the
Trust and its subsidiaries and as such the commitment is no longer recognised on consolidation following stapling. Operating lease
commitments of the Company are paid for and recognised as expenses by a controlled entity.
(c) Capital expenditure commitments
Commitments in relation to capital expenditure contracted for at the reporting date but not recognised as liabilities are as follows:
Within one year
Consolidated
Company
2009
$’000
–
–
2008
$’000
50,127
50,127
2009
$’000
–
–
2008
$’000
–
–
(d) Loan facility to Cromwell Property Fund
The Group has provided a loan facility to Cromwell Property Fund of $30,000,000 (2008: $30,000,000) of which $30,000,000 had been
drawn at balance date (2008: $25,000,000).
(e) Loan facility to Cromwell Riverpark Trust and Unit Subscription Agreement
The Group has provided a loan facility of $30,000,000 to Cromwell Riverpark Trust (“CRT”) (2008: $nil) of which $nil had been drawn
down at balance date. The Group has also entered into a unit subscription agreement with CRT. Under the terms of the loan facility and
subscription agreement, CRT must repay the loan by 31 December 2009. Any loan principal outstanding at 31 December 2009 will be
converted into units under the subscription agreement – see also note 42(a).
40. Contingent Liabilities
The Directors are not aware of any material contingent liabilities of the Company or the Group.
41. 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 entities:
Consolidated
Company
2009
$
2008
$
2009
$
Audit Services
Johnston Rorke
Auditing or reviewing financial reports
Auditing of controlled entity’s AFS licence
Auditing of controlled entities’ compliance plans
Other Services
Johnston Rorke
Tax compliance services
Other
327,000
5,500
27,500
360,000
860
3,200
4,060
332,000
5,000
23,000
360,000
48,350
9,100
57,450
2008
$
67,500
–
–
67,500
93,500
–
–
93,500
–
–
–
23,740
–
23,740
The auditor receives remuneration for audit and other services relating to other entities 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
$97,500 (2008: $85,000).
CROMWELL GROUP Annual Report 2009
87
notes to the Financial Statements continued
42. Subsequent Events
Since balance date and up to the date of this report, the following transactions have occurred:
(a) Loan provided to Cromwell Riverpark Trust
On 8 July 2009 the Cromwell Riverpark Trust ARSN 135 002 336 (“CRT”) an unlisted single property trust, for which Cromwell Property
Securities Limited, a subsidiary of the Company, acts as Responsible Entity, settled the acquisition of land at 33 Breakfast Creek Road
in Newstead, Brisbane. A commercial building is currently being constructed on the land for Energex Limited, who will occupy 93% of
the property on completion under a 15 year agreement for lease.
On 30 June 2009, the Responsible Entity issued a supplementary product disclosure statement updating the product disclosure state-
ment (“PDS”) for the CRT which extended the offer period for units in the CRT until 31 December 2009.
Since balance date the Group has advanced the CRT $26,476,000 under its loan facility, which is unsecured (refer note 39), to enable
settlement of the land to occur. Additional funds raised under the PDS will be used to repay the advance. In the meantime, the Group
will earn a return equivalent to the CRT distribution rate (currently 8.25%pa). Pursuant to a subscription agreement entered into by the
Group (refer note 39), any remaining amount owed to the Group at 31 December 2009 will convert to class A units in the CRT.
The Responsible Entity expects to complete the balance of the CRT $91 million capital-raising before 31 December 2009. If that is the
case then the Group’s advance will be fully repaid and the Group will not hold any units in the CRT.
(b) Extension of Synergy debt facility
Since balance date the Group has refinanced the debt facility secured against the Synergy building in Brisbane with the existing finan-
cier for an additional 2 year term until July 2011 resulting in the Group having no debt facility expiries until March 2011.
(c) Sale of assets
Since balance date the Group has agreed terms for the sale of the Quadrant investment property for $9.7 million. The contract is
unconditional, with settlement expected by 30 September 2009.
The financial effects of subsequent events were not recognised at balance date.
88
CROMWELL GROUP Annual Report 2009
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
Corporations Act 2001, including:
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complying with Australian Accounting Standards (including the Australian Accounting Interpretations) and the
lations 2001; and
Corporations Regu-
giving a true and fair view of the company’s and consolidated entity’s financial position as at 30 June 2009 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 disclosed in 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.
The Directors have been given the declarations by the chief executive officer and chief financial officer for the financial year ended
30 June 2009 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 21st day of August 2009
CROMWELL GROUP Annual Report 2009
89
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
Auditor’s Independence Declaration
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 2009, 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.
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 the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and
no contraventions of any applicable code of professional conduct in relation to the audit.
(ii)
(i)
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 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 the financial report, comprising the financial
statements and notes, complies with International Financial Reporting Standards.
JOHNSTON RORKE
Chartered Accountants
Brisbane, Queensland
19 August 2008
J J Evans
Partner
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 relating to audit engagements and plan and perform the audit to obtain reasonable assurance
whether the financial report is free from material misstatement.
Liability limited by a scheme approved under Professional Standards Legislation
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 accounting estimates made by the
directors, as well as evaluating the overall presentation of the financial report.
17
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit
opinion.
Liability limited by a scheme approved under Professional Standards Legislation
90
CROMWELL GROUP Annual Report 2009
Independence
The Directors
Cromwell Corporation Limited
Level 19
200 Mary Street
BRISBANE QLD 4000
In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001.
Auditor’s Independence Declaration
Auditor’s opinion
In our opinion:
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)
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.
(a)
the financial report of Cromwell Corporation Limited is in accordance with the Corporations Act 2001, including:
(i)
(ii)
(b)
giving a true and fair view of the company’s and consolidated entity’s financial position as at 30 June 2009 and of their
performance for the year ended on that date; and
complying with Australian Accounting Standards (including the Australian Accounting Interpretations) and the
Corporations Regulations 2001; and
the financial report also complies with International Financial Reporting Standards as disclosed in Note 1.
Report on the Remuneration Report
We have audited the Remuneration Report included in part 11 of the director’s report for the year ended 30 June 2009.
The directors of the company are responsible for the preparation and presentation of the Remuneration Report in accordance
with Section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based
on our audit conducted in accordance with Australian Auditing Standards.
Brisbane, Queensland
19 August 2008
JOHNSTON RORKE
Chartered Accountants
J J Evans
Partner
Auditor’s opinion
In our opinion the Remuneration Report of Cromwell Corporation Limited for the year ended 30 June 2009, complies with Section
300A of the Corporations Act 2001.
Liability limited by a scheme approved under Professional Standards Legislation
17
JOHNSTON RORKE
Chartered Accountants
RCN WALKER
Partner
Brisbane, Queensland
21 August 2009
Liability limited by a scheme approved under Professional Standards Legislation
CROMWELL GROUP Annual Report 2009
91
Corporate Governance Statement
Cromwell Group through its Board, Board Committees and management is committed to meeting stakeholders’ expectations of sound
corporate governance, while seeking to achieve superior financial performance and long term prosperity.
The ASX Corporate Governance Council has Corporate Governance Principles and Recommendations which are designed to optimise
corporate performance and accountability in the interests of shareholders and the broader economy. The recommendations are not
prescriptive. However listed entities are required to disclose the extent of their compliance and, if any ASX 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.
Principle 1 – Lay solid foundations for management and oversight
The Boards of Cromwell Corporation Limited and Cromwell Property Securities Limited each have common membership. Responsibility
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 charter also details the role of the Chairman.
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.
Day-to-day management of the Group’s affairs and implementation of corporate strategy and policy initiatives are delegated by the
Board to management under the direction of the Chief Executive Officer. This has been formalised in the Board Charter and a Delega-
tions of Authority policy. The effectiveness of both these documents is reviewed by the Board annually.
Each director has received a letter of appointment which details the key terms of their appointment. The CEO and CFO (both of whom
are executive directors) have formal job descriptions and letters of appointment outlining the terms of their employment.
A formal induction program allows new senior executives to participate fully and actively in decision-making as soon as possible. The
Group has an established process for the performance review of all staff. The performance of key executives is evaluated at least annu-
ally, in addition to regular feedback during the performance period. At the time of the reviews, the professional development of the
executive is also discussed, along with any training which could enhance their performance. Both qualitative and quantitative measures
are used in the evaluation. A performance evaluation for each senior executive has taken place during the reporting period and was
subject to the review process explained elsewhere in this report.
Cromwell Property Securities Limited acts as responsible entity for a number of registered managed investment schemes. Cromwell
Funds Management Limited, a wholly owned subsidiary of Cromwell Corporation Limited, also has a financial services licence which
allows it to act as responsible entity for managed investment schemes. The roles and responsibilities of a responsible entity are set
out in the relevant scheme’s constitution and compliance plan. Day-to-day management of the schemes has been delegated to man-
agement, under the direction of the Chief Executive Officer. This has been formalised in the Delegations of Authority Policy mentioned
above.
A compliance committee comprised of a majority of external independent members monitors the extent to which the responsible
entity complies with each managed investment scheme’s compliance plan and reports findings to the responsible entity. The roles
and responsibilities of the compliance committee are outlined in a formal charter which is reviewed annually by the committee and the
Board.
What you can find on our website:
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Corporate Governance Statement
Board Charter
Compliance Committee Charter
92
CROMWELL GROUP Annual Report 2009
Principle 2 – Structure the board to add value
The Board is comprised of an independent Chairman, three other independent directors (David Usasz, Michelle McKellar and Robert
Pullar) and three executive directors (Paul Weightman, Daryl Wilson and Richard Foster). 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.
The Group recognises that independent directors are important in assuring securityholders that the Board properly fulfils its role. The
non-executive directors (including the Chairman) are considered to meet the test of independence under the ASX Guidelines. Each year
their independence is assessed and the independent directors also confirm to the Board, in writing, their continuing status as an inde-
pendent director. 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.
In assessing a director’s independent status, the Board has adopted a materiality threshold of 5% of the Group’s net operating income
or 5% of the Group’s net tangible assets (as appropriate).
Each director’s qualifications, experience, special responsibilities and Board meeting attendance is 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 warranted, the Board may resolve to obtain professional advice about the execution of the Board’s responsibilities at the Group’s
expense. Directors also have the right to seek independent professional advice. Subject to the Chairman’s approval, which will not be
unreasonably withheld, it will be at the Group’s expense. Where appropriate, such advice is shared with the other directors.
Board Committees
Three Board Committees have been established to assist in the execution of the Boards’ responsibilities. The membership of each Com-
mittee and attendance at Board and Committee meetings is set out in the directors’ report.
It is the policy of the Board that the Investment Committee, Nomination and Remuneration Committee and the Audit and Risk Commit-
tee consist of independent directors (other than the Chairman). Each committee has a charter which includes a description of its duties
and responsibilities.
The Board charter has a description of the Board’s policies and procedures for the selection, appointment and re-election of directors.
Performance of the Board
The Board has undertaken its annual formal performance assessment, which includes an assessment of the Board, Board Committees
and individual directors. All directors completed a questionnaire and were able to make comments or raise any issues they had regard-
ing the Board or a Board Committee’s operations. The results were compiled by the Company Secretary and discussed at a subsequent
Board meeting. The CEO and CFO also participated in an annual performance review with the Chairman (who had consulted with the
other directors). The review process was the same as for senior executives.
Directors are provided with a training session at least annually on key issues relevant to the Group’s operations. Directors also have
access to the internal training sessions provided by the Group’s General Counsel and / or Compliance Manager.
When a director vacancy occurs the Board, through the Nomination and Remuneration Committee, identifies the particular skills,
experience and expertise that will best complement Board effectiveness and then identifies 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. The Board’s policy and
procedure for the selection, appointment and re-election of directors are set out in the Board charter.
What you can find on our website:
|
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Remuneration and Nomination Committee Charter
Board Charter
CROMWELL GROUP Annual Report 2009
93
Corporate Governance Statement continued
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
performance of the Group.
To reinforce this culture the Group has established a Code of Conduct to provide guidance about the attitudes and behaviour necessary
to maintain stakeholder confidence in the integrity of the Group and comply with the Group’s legal obligations.
The Code of Conduct is made available to all staff and they are reminded of the importance of the Code of Conduct on a regular basis.
Appropriate standards are also communicated and reinforced to all employees at induction programs and staff meetings.
The Board has approved a Breach Reporting Policy and a Whistleblower’s Policy. The policies are on the Group’s intranet site and all staff
have been made aware of them. These policies actively encourage and support reporting to appropriate management of any actual or
potential breaches of the Group’s legal obligations and / or of the Code of Conduct.
Further, the Board has approved a Securities Trading Policy 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. All staff are
aware of the policy and receive training annually. The policy is reviewed annually.
Compliance with Board policies is monitored via monthly checklists completed by key management and by investigation following any
report of a breach by an employee. Compliance monitoring is undertaken by the Legal & Compliance team under the direction of the
Company Secretary / General Counsel who reports directly to the Board.
What you can find on our website:
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Code of Conduct
Securities Trading Policy
Whistleblower’s 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 fol-
lowing process has been adopted.
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
accounting, auditing, financial reporting and compliance and risk management 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 are detailed in the directors’ report.
The responsibilities, roles, composition and structure of the Audit and Risk Committee are set out in its charter. The charter includes informa-
tion on the procedures for selection and appointment of the external auditor and for the rotation of external audit engagement partners.
Minutes are kept of all Committee meetings, including meetings of the Audit and Risk Committee, and presented at the next Board
meeting. The Committee reports to the Board on all matters relevant to its role and responsibilities.
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 have been 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:
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Audit and Risk Committee Charter
External Auditor – selection, appointment and rotation
94
CROMWELL GROUP Annual Report 2009
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.
In particular, the Group ensures that any price-sensitive material for public announcement is lodged with the ASX before external dis-
closure elsewhere and posted on the Group’s website as soon as practical after lodgement with the ASX.
The Group has a market disclosure protocol which includes polices and procedures designed to ensure compliance with the disclosure
requirements in the ASX Listing Rules.
The ASX liaison person is the Group’s Company Secretary.
What you can find on our website:
Market Disclosure Protocol
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Principle 6 – Respect the rights of shareholders
The Group has a communications policy, approved by the Board, which has been designed 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 identifica-
tion 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
commencement of each AGM.
What you can find on our website:
Communications Policy
|
Principle 7 – Recognise and manage risks
The Group is exposed to various risks across its business operations and recognises the importance of effectively identifying and
managing those risks. To this end, 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. There are also a wide range of underlying policies and procedures which
are designed to mitigate the Group’s material business risks.
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.
Under the direction of the Chief Executive Officer, management is responsible for identifying relevant business risks, designing con-
trols to manage those risks and ensuring those controls are appropriately implemented. The risk management system operates in
accordance with the Australian / New Zealand Standard for Risk Management (AS/NZS 4360 Risk Management). Although management
is expected to identify new or emerging risks and put appropriate controls in place on an ongoing basis, at least annually the Legal &
Compliance team will co-ordinate a formal review by all business divisions of their business risks and mitigating controls.
The Legal & Compliance team monitors the adequacy of the risk management system and the Company Secretary reports to the Audit
and Risk Committee at least quarterly. Under the direction of the Company Secretary, the Legal & Compliance team also implement
and monitor compliance arrangements which have been designed to ensure that the Group meets its legal obligations. Those compli-
ance arrangements include key management staff completing a compliance checklist each month and independent compliance testing.
In this way the Legal & Compliance team, under the direction of the Company Secretary, fulfils the internal audit function within the
Cromwell Group.
CROMWELL GROUP Annual Report 2009
95
Corporate Governance Statement continued
The Audit and Risk 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.
Although the Board has delegated operational oversight of the risk management framework to the committee, the Board will satisfy
itself annually, or more frequently if required, that the risk management system is sound.
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 com-
pliance 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 have provided the Board with written confirmation that:
a. in their view, the Group is effectively managing its material business risks;
b. their statement given to the Board on the integrity of the Group’s statements (pursuant to section 295A of the Corporations Act) is
founded on a sound system of risk management and internal compliance and control which implements the policies adopted by the
Board; and
c. the Group’s risk management and internal compliance and control system is operating effectively in all material respects in relation
to the Group’s material business risks.
It should be noted that the declarations from the Chief Executive Officer and Chief Financial Officer are reasonable rather than absolute
assurances that the risk management and internal compliance and control system is operating effectively because it is impossible
for all weaknesses to be detected. The Chief Executive Officer and Chief Financial Officer must base their conclusions on their own
observations and judgement and the outcome of the compliance and controls testing and reviews undertaken by the Legal & Compli-
ance team.
What you can find on our website:
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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 which makes recommendations to
the Board:
a. in the case of non-executive directors, for consideration of any increase by securityholders at the AGM; and
b. 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’ remuneration to the Group’s financial
and operational performance.
The Group operates a legacy Employee Share Ownership Plan, a Performance Rights Plan and a Tax Exempt Plan. The Group does not
currently pay any other form of security-based remuneration. With the recent reforms to the taxation of employee share schemes these
plans are currently under review.
96
CROMWELL GROUP Annual Report 2009
Nomination and Remuneration Committee
The Board has established a 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.
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 the Chairman of the committee reports to the Board after each com-
mittee 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 person-
nel 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 under-
take an annual review of their performance.
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.
The Chief Executive Officer and the Chief Financial Officer are both eligible to participate in the Performance Rights Plan discussed
above. Their participation was approved by shareholders at a previous annual general meeting.
The Group’s Performance Rights Plan limits an executive’s right to deal with a performance right or create any third party interest in
a performance right. This, together with the forfeiture provisions and transfer restrictions, is considered sufficient to ensure that the
performance rights work to align an executive’s interests with those of the Group.
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 Constitution for the relevant schemes or agreements which have
been assessed as being on arm’s length or better terms. Fees are fully disclosed to investors at inception and continue to be disclosed
to investors in regular reporting.
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:
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Nomination and Remuneration Committee Charter
CROMWELL GROUP Annual Report 2009
97
Securityholder Information
The securityholder information set out below was applicable as at 31 August 2009.
Spread of stapled securityholders
Category (size of Holding)
1 – 1,000
1,001 – 5,000
5,001 – 10,000
10,001 – 100,000
10,001 – 9,999,999,999
Unmarketable Parcels
The number of stapled securityholdings held in less than marketable parcels was 312.
Substantial Securityholders
Holder
APN Funds Management Limited
Number of
Holders
Number of
Securities
417
753
907
7,326
1,121
10,524
210,197
2,322,258
7,348,403
243,102,734
450,101,342
703,084,934
Stapled
Securities
Date of
Notice
13,464,477
27 February 2008
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 pool each security shall
have one vote.
20 Largest Securityholders
RBC Dexia Investor Services Australia Nominees Pty Limited
HSBC Custody Nominees (Australia) Limited
AWJ Family Pty Ltd
RJP Family Pty Ltd
Stara Investments Pty Ltd
ANZ Nominees Limited
National Nominees Limited
Trial Developments Pty Ltd
Kovron Pty Ltd
Humgoda Investments Pty Ltd
Balcony Developments Pty Ltd
Panmax Pty Limited
RBC Dexia Investor Services Australia Nominees Pty Limited
Mr Phillip John Wallace & Ms Bernadette Mary Wallace
J P Morgan Nominees Australia Limited
Commercial Bureau Pty Ltd
Mr Humphrey Firkins & Mr Jamie Dorrington
Mr Bruce Wallace & Mrs Zelma Wallace
Cogent Nominees Pty Ltd
Sandhurst Trustees Ltd
98
CROMWELL GROUP Annual Report 2009
Number
of Stapled
Securities
Held
% Held
of Issued
Stapled
Securities
47,121,609
16,986,468
15,298,131
14,000,000
13,546,058
12,788,135
8,887,999
7,015,309
6,050,933
6,020,115
5,349,598
5,185,189
4,690,089
4,439,500
4,435,176
3,831,587
3,070,000
2,900,000
2,881,861
2,852,159
187,349,916
6.70%
2.42%
2.18%
1.99%
1.93%
1.82%
1.26%
1.00%
0.86%
0.86%
0.76%
0.74%
0.67%
0.63%
0.63%
0.54%
0.44%
0.41%
0.41%
0.41%
26.66%
Provision of information for Securityholders
Cromwell is committed to ensuring its securityholders are fully informed on the financial and operational status of the Group as well
as its future prospects, in accordance with the rules and guidelines of the Australian Securities Exchange (ASX) and other regulatory
bodies. The following information can also be found on the Cromwell website at www.cromwell.com.au.
ASX Listing
Cromwell Group is listed as a Stapled Security on the ASX (Code: CMW).
Securityholding Details
Securityholders can access information on their holdings and update their details through Cromwell’s share registry provider:
Computershare Investor Services Pty Limited
Level 19, 307 Queen Street, Brisbane QLD 4000
Telephone: 1300 550 841
Outside Australia: +61 3 9415 4310
Facsimile: (07) 3229 9860
Website: www.computershare.com.au
E-mail: web.queries@computershare.com.au
Securityholders can change or update details relating to their address, bank account and Tax File Number (TFN), Australian Business
Number (ABN) or exemption in a number of ways:
– Send written authorisation to the Registry quoting your SRN / HIN and signing the request;
– Log on to www.computershare.com.au; or
– Call the Registry.
You will have to verify your identity by providing your personal details. Bank detail changes must be requested in writing or electronically
and cannot be made over the phone.
Securityholders can also use the Computershare website to check current and previous holding balances, communication delivery
preferences, security prices, TFN/ABN details and to download a variety of forms.
Quoting of TFN, ABN or exemption details
Securityholders are not obliged to quote their TFN, ABN or exemption. However, if these details are not lodged with the registry,
Cromwell is obliged to deduct tax from unfranked portions of dividend payments and distribution payments up to the highest marginal
tax rate, depending on residency.
CROMWELL GROUP Annual Report 2009
99
Securityholder Information continued
Distributions/Dividends
Cromwell Group Dividends/Distributions
During the year the following distributions/dividends have been paid:
Quarter Ending
Amount per Security
Ex Date
30 September 2008
31 December 2008
31 March 2009
30 June 2009
2.50 cents
2.50 cents
2.50 cents
1.50 cents
25 September 2008
23 December 2008
6 April 2009
24 June 2009
Record Date
1 October 2008
31 December 2008
14 April 2009
30 June 2009
Payment Date
14 November 2008
16 February 2009
15 May 2009
31 August 2009
Further Information
The Cromwell website provides a comprehensive range of information on the company, past performance and products. The website
address is www.cromwell.com.au. Requests for further information about the Group, its dealings and key securityholder communica-
tions should be directed to:
Investor Relations Manager
Cromwell Group
GPO Box 1093, Brisbane Queensland 4001
Telephone: (07) 3225 7777
Facsimile: (07) 3225 7788
Email: cromwell@cromwell.com.au
100
CROMWELL GROUP Annual Report 2009
Directory
Board of Directors
Geoffrey H Levy
Robert J Pullar
Michelle A McKellar
David E Usasz
Paul L Weightman
W Richard Foster
Daryl J Wilson
Secretary
Nicole E Riethmuller
Share Registry
Computershare Investor Services Pty Ltd
Level 19
307 Queen Street
BRISBANE QLD 4000
Tel: 1300 550 841
Fax: (07) 3237 2147
Web: www.computershare.com.au
Registered Office
Level 19
200 Mary Street
BRISBANE QLD 4000
Tel: (07) 3225 7777
Fax: (07) 3225 7788
Web: www.cromwell.com.au
Listing
The company is listed on the
Australian Securities Exchange (ASX: CMW)
Auditor
Johnston Rorke
Chartered Accountants
Level 30, Central Plaza One
345 Queen Street
BRISBANE QLD 4000
Tel: (07) 3222 8444
Fax: (07) 3221 7779
Web: www.jr.com.au
CROMWELL GROUP Annual Report 2009
101