Eagers Automotive Limited
Annual Report 2014

Plain-text annual report

I A.P. Eagers ANNUAL REPORT 20145 YEAR FINANCIAL SUMMARY Year ended 31 December OPERATING RESULTS REVENUE EBITDA Depreciation and amortisation Impairment charge EBIT Finance Costs PROFIT BEFORE TAX Income tax expense Non-controlling interest in subsidiary ATTRIBUTABLE PROFIT AFTER TAX OPERATING STATISTICS Basic earnings per share – cents Dividends per share – cents Dividend franking – % As at 31 December FUNDS EMPLOYED Contributed equity Reserves Retained earnings Non-controlling interest in subsidiary Total equity Non-current liabilities Current liabilities Total liabilities TOTAL FUNDS EMPLOYED REPRESENTED BY Property plant and equipment Intangibles Available-for-sale investments Other non-current assets Property assets held for resale Other current assets TOTAL ASSETS OTHER STATISTICS Net tangible asset backing per share- $ Shares on issue – '000 Number of shareholders Total Debt (see note below) Net debt (total debt less bailment finance less cash) – $'000 Gearing ratio (debt/debt plus equity) – % Gearing ratio (net debt/net debt plus total equity) – % 2014 $'000 2013 $'000 2012 $'000 2011 $'000 2010 $'000 2,858,113 138,081 (12,583) (578) 124,920 (22,080) 102,840 (26,150) (460) 76,230 2,672,813 122,252 (12,354) - 109,898 (23,188) 86,710 (22,748) (353) 63,609 2,642,535 114,819 (11,595) 323 103,547 (24,812) 78,735 (23,184) (181) 55,370 2,398,695 98,272 (11,161) (3,228) 83,883 (25,730) 58,153 (17,864) (95) 40,194 1,810,760 75,680 (9,254) 3 66,429 (21,131) 45,298 (13,661) (72) 31,565 43.0 27.0 100 2014 $'000 242,070 99,020 242,480 7,486 591,056 241,875 525,067 766,942 1,357,998 292,485 165,733 234,391 30,233 27,781 607,375 1,357,998 36.4 23.0 100 2013 $'000 231,205 108,612 198,369 939 539,125 246,082 431,658 677,740 1,216,865 344,956 125,259 195,195 5,764 21,612 524,079 1,216,865 34.0 20.0 100 2012 $'000 206,277 90,636 171,113 510 468,536 238,192 471,350 709,542 1,178,078 350,862 117,521 162,590 3,926 23,963 519,216 1,178,078 2.38 178,519 4,517 579,799 2.34 176,548 4,636 514,889 2.06 170,687 4,300 513,332 25.5 16.0 100 2011 $'000 162,047 74,329 143,795 444 380,615 186,949 364,196 551,145 931,760 336,544 118,011 2,345 4,245 20,622 449,993 931,760 1.67 156,805 3,941 416,497 21.1 12.8 100 2010 $'000 163,340 71,142 125,334 401 360,217 191,835 347,676 539,511 899,728 335,611 115,900 - 7,803 20,250 420,164 899,728 1.55 157,290 4,073 409,920 198,467 49.5 199,001 48.8 200,674 52.3 150,847 52.2 169,412 53.2 25.1 27.0 30.0 28.3 32.0 Note: Leasebook liabilities are excluded from ‘Total debt’ and debt calculations as they are specifically matched against leasebook receivables (refer note 22 of 2014 financial statements). Bailment Finance Bailment finance is a form of financing peculiar to the motor industry, which is provided by financiers on a vehicle by vehicle basis. It is short-term in nature, is generally secured by the vehicle being financed and is principally represented on the borrower’s balance sheet as vehicle inventory with the liability reflected under current liabilities. Because of its short-term nature, it is excluded from net debt and the corresponding gearing ratio.  CONTENTS Company Profile Board of Directors Executive Management Directors’ Report Auditor’s Declaration of Independence Corporate Governance Statement Financial Statements Notes to and forming part of the Financial Statements Directors’ Declaration Independent Auditor’s Report Shareholder Information Corporate Directory 2 3 3 4 18 19 23 29 87 88 90 92 ANNUAL GENERAL MEETING Our Annual General Meeting will be held at our registered office, 80 McLachlan Street, Fortitude Valley, Queensland, on Wednesday 20 May 2015 at 9.00 am. FINANCIAL CALENDAR Financial year end 31 December 2014 Full year results announced 25 March 2015 Record date for final dividend 2 April 2015 Payment date for final dividend 17 April 2015 Annual General Meeting 20 May 2015 A.P. Eagers ANNUAL REPORT 2014 1 COMPANY PROFILE About Us Origins A.P. Eagers Limited is a pure automotive retail group with our main operations in south-east Queensland, Adelaide, Darwin, Melbourne, Sydney and the Newcastle/Hunter Valley region of New South Wales. We represent a diversified portfolio of automotive brands, including all 12 of the top 12 selling car brands in Australia and 8 of the top 9 selling luxury car brands. In total, we represent 27 car brands and 11 truck and bus brands. Our core business consists of the ownership and operation of motor vehicle dealerships. We provide full facilities including the sale of new and used vehicles, service, parts and the facilitation of allied consumer finance. To complement our vehicle dealerships, we also operate a substantial motor vehicle auction business, Brisbane Motor Auctions. Our operations are generally provided through strategically clustered dealerships, the majority of which are situated on properties owned by us, with the balance leased. We own $278 million of prime real estate positioned in high profile, main road locations in Brisbane, Sydney, Melbourne, Adelaide and Newcastle. With 3,500 employees and 4,550 shareholders, our sales revenue is running at $2.8 billion per annum. Dividends and EPS Growth We have paid a dividend to shareholders every year since listing in 1957, and a record dividend in 13 of the past 14 years. A.P. Eagers also has a track record of delivering Earnings Per Share (EPS) growth from acquisitions. Further information about our acquisition growth can be viewed on our website, www.apeagers.com.au. Our origins trace back to 1913 when Edward Eager and his son, Frederic, founded their family automotive business, E.G. Eager & Son Ltd, which continues today as a wholly-owned subsidiary of A.P. Eagers Limited. After establishing the first motor vehicle assembly plant in Queensland in 1922, the business secured the distributorship of General Motors’ products in Queensland and northern New South Wales in 1930 and listed as a public company in 1957 under the name Eagers Holdings Limited. A merger in 1992 with the listed A.P. Group Limited saw the addition of a number of new franchises and our name change to A.P. Eagers Limited. Further new franchises and geographic diversification have since followed. Growth Since 2000, our sales revenue has increased from $500 million to $2.8 billion, profit after tax has increased from $4.3 million to $76.7 million and the number of employees has increased from 600 to 3,500. Our operations expanded into the Northern Territory with the acquisition of Bridge Toyota in 2005. In 2007, we established ourselves on the Gold Coast with the acquisition of Surfers City Holden. The addition of Kloster Motor Group in the Newcastle/Hunter Valley region in 2007 heralded our advance into New South Wales. Our operations in that state grew with the acquisition of Bill Buckle Auto Group in Sydney’s northern beaches region including Brookvale in 2008. In 2010, we acquired the publicly listed Adtrans Group Limited, representing our direct entry into the South Australian and Victorian markets. Adtrans is South Australia’s premier car retailer and operates truck and bus dealerships in New South Wales, Victoria and South Australia. We also acquired Caloundra City Autos Group in Queensland’s growing Sunshine Coast region in 2010. 2 Further expansion of our truck and bus operations occurred in late 2010 with the addition of six new franchises in New South Wales, Victoria and South Australia. In 2012, we established Carzoos to provide used car customers with a 48 hour money-back guarantee and other benefits. Daimler Trucks Adelaide and Eblen Motors were acquired in 2011 and Main North Nissan and Renault and Unley Nissan and Renault, Adelaide, were acquired in 2013, to complement our existing operations in South Australia. A strategic holding in listed Automotive Group Holdings Limited (AHE) was acquired in 2012, providing A.P. Eagers with exposure to the West Australian market. This investment represented 19.9% of AHE, valued at $232 million, at the end of 2014. Northern Beaches Land Rover and Jaguar were added to our Bill Buckle operations at Brookvale during 2013. A new business, Precision Automotive Technology, was established in 2013 to source and distribute our own range of car care products (paint protection, interior protection, electronic rust protection and window tint products) under the brand names, Perfexion and 365+. In 2014, our Queensland operations expanded through the acquisitions of Ian Boettcher Motors representing Mazda, Nissan, Volkswagen, Suzuki and Proton in Ipswich, and the Craig Black Group representing Toyota, Hyundai, Volkswagen, Mitsubishi and Great Wall at multiple locations in south-west and central Queensland. Volvo Sunshine Coast and Reynella Subaru were also added to the group during 2014. Further Information Please visit www.apeagers.com.au for further information about A.P. Eagers Limited. A.P. Eagers ANNUAL REPORT 2014BOARD OF DIRECTORS Timothy Boyd Crommelin BCom, FSIA, FSLE Peter William Henley FAIM, MAICD Chairman, Member of Audit, Risk & Remuneration Committee Director, Member of Audit, Risk & Remuneration Committee Independent, non-executive Director since February 2011. Executive Chairman of Morgans Financial Ltd. Director of Senex Energy Ltd (appointed October 2010) and Australian Cancer Research Foundation. Chairman of the Advisory Board of the Australian National University Investment Committee. Member of the University of Queensland Senate. Former Alternate Director of Ausenco Ltd (appointed February 2013, retired May 2013). Mr Crommelin has broad knowledge of corporate finance, risk management and acquisitions and over 40 years’ experience in the stockbroking and property industry. Martin Andrew Ward BSc (Hons), FAICD Managing Director, Chief Executive Officer Joined the Company in July 2005. Appointed Chief Executive Officer in January 2006. Appointed Managing Director in March 2006. Motor vehicle dealer. Director of Australian Automotive Dealer Association Limited (appointed January 2014). Mr Ward was formerly the Chief Executive Officer of Ford Motor Company’s Sydney Retail Joint Venture. Nicholas George Politis BCom Director Non-executive Director since May 2000. Motor vehicle dealer. Executive Chairman of WFM Motors Pty Ltd, A.P. Eagers Limited’s largest shareholder. Mr Politis is Director of a substantial number of other proprietary limited companies and has vast automotive retail industry experience. Independent, non–executive Director since December 2006. Director of Thorn Group Ltd (appointed May 2007). Former Deputy Chairman of MTQ Insurance Services Ltd. Former Chairman and Chief Executive Officer of GE Money Motor Solutions. Mr Henley has over 30 years’ local and international experience in the financial services industry. Daniel Thomas Ryan BEc, MBus, FAICD Director Non-executive Director since January 2010. Director and Chief Executive Officer of WFM Motors Pty Ltd, A.P. Eagers Limited’s largest shareholder, and Director of a substantial number of other proprietary limited companies. Mr Ryan has significant management experience in automotive, transport, manufacturing and retail industries. David Arthur Cowper BCom, FCA Director, Chairman of Audit, Risk & Remuneration Committee Independent, non-executive Director since July 2012. Chartered Accountant, with more than 35 years in the profession. Former partner of Horwath Chartered Accountants and Deloitte Touche Tohmatsu. Former Chairman of Horwath’s motor industry specialisation unit for six years. Mr Cowper’s area of professional specialisation while at Horwath and Deloitte was in providing audit, financial and taxation services to public and large private companies in the motor industry. EXECUTIVE MANAGEMENT Keith Thomas Thornton BEc General Manager QLD & NT Licensed motor dealer. Responsible for all operational issues in Queensland and Northern Territory since June 2007, having overseen the group’s new and used vehicle operations since December 2005 and held dealership General Manager roles since joining the group in 2002. Retail and wholesale operations experience in volume, niche and prestige industry sectors. Prior industry experience with various manufacturers. Stephen Graham Best BBus, Grad Dip Mgt, FIPA, GAICD Chief Financial Officer Commenced in October 2007. Responsible for the group’s accounting, taxation, internal audit, treasury and information technology functions. Previous senior finance and commercial roles in the resources industry with MIM Holdings Limited, Xstrata PLC and Consolidated Rutile Limited. Denis Gerard Stark LLB, BEc General Counsel & Company Secretary Commenced in January 2008. Responsible for overseeing the company secretarial, legal, work health & safety, insurance and investor relations functions and property portfolio. Admitted as a solicitor in Queensland in 1994 and in Victoria in 1997. Affiliate of Chartered Secretaries Australia. Previous company secretarial and senior executive experience with public companies. 3 A.P. Eagers ANNUAL REPORT 2014DIRECTORS’ REPORT The Directors present their report together with the consolidated financial report of the group being A.P. Eagers Limited ABN 87 009 680 013 (“the Company”) and its controlled entities, for the year ended 31 December 2014 and the auditor’s report thereon. DIRECTORS The Directors of the Company at any time during or since the end of the year, and their qualifications, experience and special responsibilities, are detailed on page 3. DIRECTORS’ MEETINGS The number of Directors’ meetings (including meetings of committees of Directors) and number of meetings attended by each Director during the year were: Board Meetings Audit, Risk & Remuneration Committee Meetings Held Attended Held Attended 11 11 11 11 11 11 9 9 11 9 9 9 4 - - 4 - 4 3 - - 4 - 4 T B Crommelin(1) N G Politis M A Ward P W Henley(1) D T Ryan D A Cowper(1) (1) Audit, Risk & Remuneration Committee members. COMPANY SECRETARY The Company Secretary and his qualifications and experience are detailed on page 3. PRINCIPAL ACTIVITIES The group’s principal activities during the year consisted of the selling of new and used motor vehicles, distribution and sale of parts and accessories, repair and servicing of vehicles, provision of extended warranties and car care products, facilitation of finance and leasing in respect of motor vehicles, ownership of property and investments. The products and services supplied by the group were associated with, and integral to, the group’s motor vehicle dealership operations. There were no significant changes in the nature of the group’s activities during the year. 4 A.P. Eagers ANNUAL REPORT 2014 DIRECTORS’ REPORT (continued) FINANCIAL & OPERATIONAL REVIEW The Directors of the Company are pleased to report a record 2014 statutory Net Profit Before Tax of $102.8 million. This compares to a Net Profit Before Tax of $86.7 million in 2013. Net Profit After Tax was $76.7 million in 2014 compared to $64.0 million in 2013. Continued increases in used car profitability and related finance/insurance income, improved NSW car dealership trading results, additional contributions from recent acquisitions, and gains on sale of businesses and property, more than offset a disappointing truck division result. Profit Comparison Statutory EPS (basic) cents Statutory profit after tax Statutory profit before tax Impairment adjustments(1) Freehold Property adjustments (reversal) Goodwill impairment Business acquisition costs(2) Underlying profit before tax Underlying profit after tax(3) Underlying EPS (basic) cents Full Year to December 2014 Full Year to December 2013 $ Million $ Million % Change 43.0 76.7 102.8 0.6 - 2.8 106.2 79.0 44.3 36.4 64.0 86.7 - - 0.6 87.3 64.4 36.6 18% 20% 19% - - 366% 22% 23% 21% Notes (1) Represents the aggregate value of freehold property fair value adjustments (positive and negative) to the Statement of Profit and Loss. (2) Business acquisition costs include taxes, legal and other costs associated with business acquisitions. (3) Underlying profit after tax includes the adjustments per Notes (1) above, and the related tax impact at 30% equating to $1.0 million in 2014 (2013: $0.2 million). 5 A.P. Eagers ANNUAL REPORT 2014 DIRECTORS’ REPORT (continued) External Environment Business Initiatives According to Federal Chamber of Automotive Industry statistics, Australia’s new motor vehicle sales decreased by 2.0% in 2014 to 1,113,224 units compared to 2.2% growth in 2013. This represents the second highest year of sales only exceeded by the record year in 2013. In response to further contraction in the resources sector, new vehicle sales in Queensland, Northern Territory and Western Australia decreased on the previous year by 4.1%, 3.5%, and 8.1% respectively. New South Wales was the only state to record increased sales at 1.5%. The severe hail storm event in Queensland in November 2014, which damaged some 60,000 vehicles, resulted in a 5.8% uplift in the Queensland market in December 2014, and the replacement of damaged vehicles is expected to have a positive effect on vehicle sales in the first quarter of 2015. Business sales decreased by 6.6% in 2014, private sales were steady at 0.5% growth and government sales grew by 3.4% after declining by 20.2% in 2013. Luxury brands such as Audi, BMW, Mercedes Benz, Land Rover and Porsche all recorded record annual sales as their respective lower priced product offerings captured market share. Australian manufactured vehicles represented only 9.0% (2013: 10.4%) of new cars sold in the national market in 2014. The 2014 year includes a full year contribution from the Main North and Unley Nissan/Renault business acquired in September 2013, and performance from this business has exceeded our expectations. The Company acquired the Ian Boettcher Motors business in Ipswich Queensland in July 2014, representing Mazda, Nissan, Volkswagen, Suzuki and Proton. In October 2014 the Craig Black Group operating multiple locations in South West and Central Queensland, representing Toyota, Hyundai, Volkswagen, Mitsubishi, and Great Wall was acquired. Combined these groups will increase annual group sales by approximately 15%. Additional Subaru brand representation at Reynella, South Australia and Kedron, Queensland was established during the year, as was a Volvo representation on the Sunshine Coast. The used car trading performance was particularly encouraging with the Carzoos branding and sales management processes instigated in 2012, driving consistent and sustained improvements in used car profitability. A significant storm event occurred on 27 November causing extensive hail damage to vehicles over a large area of Brisbane. The Company is fully insured for such events, and a rapid response from our staff, our insurer Allianz and suppliers, meant that the disposal process for the 2,200 vehicles affected commenced within a week of the event. As at the end of December 2014, the majority of the hail insurance claim, which offsets additional cost and loss of income in car dealerships due to the repair, write-off and diminished vehicle value, was paid. In total some 60,000 vehicles in the Brisbane area are subject to insurance claims and the vehicle replacement and repair activity will be a benefit to trading in the first quarter of 2015. The Company entered into an unconditional put and call option for the sale of our 80 McLachlan Street, Fortitude Valley site at a value of $22.2 million in the period, with settlement deferred for two years. The luxury brands located on this site will be relocated to redeveloped facilities on existing land holdings in Newstead. Fully developed car dealership properties in Adelaide and Newcastle were sold and leased back on favourable terms yielding proceeds of $33.5 million. A contract for the sale of two sites suitable for high density residential development in Woolloongabba became unconditional in September 2014. Total sale consideration of $35.9 million will be realised in staged payments over the next three to five years. A gain on sale of $2.2 million, representing the difference between the discounted present value of the staged payments and the written down value of the properties of $24.4 million, was recognised in 2014. The balance of $9.3 million will be recognised as interest income over the 5 year term of the contracts. The strategic 19.9% shareholding in Automotive Holdings Group Limited (“AHG”) as at 31 December was valued at $232.0 million based on their closing share price of $3.81. Whilst not included in the Company’s profit after tax, a before tax unrealised gain of $1.3 million has been recognised in the Statement of Comprehensive Income for the 2014 year. 6 A.P. Eagers ANNUAL REPORT 2014 DIRECTORS’ REPORT (continued) Financial Performance Dealership acquisitions and increased used vehicle volumes contributed to an increase in revenue from operations of 6% to $2,809 million in 2014. Other revenue includes a full year dividend from AHG of $12.1 million, compared to $10.0 million in 2013, and insurance claim proceeds of $19.5 million related to the 27 November 2014 Brisbane hail storm event. EBITDA increased by 12.9% to $138.1 million (2013: $122.3 million) and profit margins continued to trend upwards, with EBITDA/Revenue of 4.8% for 2014 compared to 4.6% in 2013 and NPBT/ Sales improving to 3.6% for 2014 from 3.2% in 2013. Further improvements in finance and insurance incentive- based earnings, used car trading and gains on the sale of businesses and properties were the main contributors to the improved margin performance. Results Summary Consolidated results Year Ended 31 December Revenue from operations Other revenue Total revenue Earnings before interest, tax, depreciation and amortisation and impairment (EBITDA) Depreciation and Amortisation Impairment charge/net reversal Earnings before interest and tax (EBIT) Borrowing costs Profit before tax Income tax expense Profit after tax Non-controlling interest in subsidiaries Attributable profit after tax A before tax profit on sale of $3.9 million was realised for properties in Newcastle, Adelaide and Woolloongabba, and a car dealership business in Brisbane in 2014, as compared to a $2.0 million gain in 2013. MTQ Insurance, in which AP Eagers holds a 20.7% interest via a holding company, was sold to Suncorp Insurance on the 29 August 2014. Part of the transaction consideration is deferred for two years, and AP Eagers expects to maintain its shareholding and significant influence in the holding company until that time. An after tax gain on sale of $3.8 million is included in the share of net profits of associates with the balance of $1.1 million representing operating net profit for the period until 29 August 2014. Borrowing costs declined by 4.8% to $22.1 million (2013: $23.2 million), with higher average debt being offset by lower margins and interest rates. Business acquisition costs relating to the Ian Boettcher Motors and Craig Black Group acquisitions of $2.8 million were expensed in the financial year, compared to $0.6 million in 2013. The Company’s net cash provided by operating activities was $98.1 million in 2014 (2013: $76.0 million), with the increase due to improved profitability and favourable insurance proceeds timing. Acquisitions were effectively funded through operating cash flow and the proceeds of asset sales. Increase/(Decrease) 2014 $’000 2013 $’000 2,808,607 2,652,133 49,506 20,680 2,858,113 2,672,813 138,081 122,252 (12,583) (12,354) (578) 124,920 (22,080) 102,840 (26,150) 76,690 (460) 76,230 0 - 109,898 (23,188) 86,710 (22,748) 63,962 (353) 63,609 5.9% 139.4% 6.9% 12.9% 1.9% 13.7% (4.8)% 18.6% 15.0% 19.9% 30.3% 19.8% Earnings per share – basic 43.0 cents 36.4 cents 18.1% 7 A.P. Eagers ANNUAL REPORT 2014 DIRECTORS’ REPORT (continued) Segments Financial Position Outlook and Strategy Update The profit contribution from the Company’s Car Retail segment was 19.7% higher at $68.8 million compared to $57.5 million in 2013. Improved used car profitability, better results from our NSW operations, and additional earnings from acquisitions were the primary contributors. The parts and service business was steady with the business successfully adapting to challenges from non- genuine parts providers and fixed/ capped price service programs. The National Truck division (Truck Retail segment) recorded a poor result providing a profit contribution of $3.5 million in 2014 compared to $8.4 million in 2013, the decrease due to significant used truck trading losses. The new heavy truck market shrunk by 1.2% (VFACTS) compared to 2013, and substantial price pressure on new and used trucks was evident. As the result of property sales the value of the property portfolio reduced to $278 million as at 31 December 2014 compared to $334 million as at 31 December 2013. Property segment profit contribution of $14.8m was lower than the previous year of $15.5 million, due primarily to negative fair value adjustments. Realised gains of $3.0m were partly offset by unrealised negative fair value adjustments of $2.2m. The unrealised gain on the AHG investment of $22.8 million recorded in 2013 was not repeated hence the contribution from the Investment segment was $10.6 million compared to $30.2 million in 2013. The Company’s financial position strengthened further during the year. EBITDA Interest Cover increased to 6.2 times as at 31 December 2014 compared to 5.2 times as at 31 December 2013, due to lower average interest rates and improved profit levels. Corporate debt (Term and Capital Loan Facility) net of cash on hand as at 31 December 2014 was lower at $190.2 million (2013: $199.0 million) and total debt including vehicle bailment and finance leases net of cash on hand was higher at $556.0 million as compared to $502.8 million at 31 December 2013. The increase was primarily due to additional bailment and motor vehicle finance leases associated with acquisitions. Total gearing (Debt /Debt + Equity), including bailment inventory financing and finance leases, was 49.5% as at 31 December 2014, as compared to 48.8% as at 31 December 2013. Bailment finance is cost effective short- term finance secured against vehicle inventory on a vehicle by vehicle basis. Gearing excluding bailment, finance leases and including cash on hand was 24.3% as at 31 December 2014 compared to 27.0% at the end of 2013. Total inventory levels closed the year at $469.2 million, with inventory associated with acquisitions being the primary reason for the increase as compared to 2013 at $409.7 million. The strategic 19.9% shareholding in AHG as at 31 December 2014 was valued at $232.0 million based on the closing share price of $3.81. Net tangible assets only increased marginally to $2.38 per share as at 31 December 2014, compared to $2.34 per share as at 31 December 2013, as the sale of tangible freehold property assets funded the acquisition of dealership intangible goodwill assets. Whilst there are a number of variables at play including less favourable exchange rates for some vehicle supply locations (no direct exposure to AP Eagers) and ongoing consumer and business confidence challenges, interest rates remain at historically very low levels, and manufacturer product offerings continue to be highly competitive both in terms of quality and value. Overall new vehicle sales are expected to remain stable on 2014 levels allowing sufficient opportunity for quality operators. Based on the 2014 acquisitions of the Ian Boettcher Motor Group and the Craig Black Group, it is anticipated that an 8% uplift in group revenue will be achieved in 2015. Key focus areas in 2015 are: • earnings accretive dealership and ancillary market acquisitions; • the ongoing development and optimisation of the Carzoos used car business model; • a substantial redevelopment of the Newstead, Queensland dealership location to include three luxury brands; • further rationalisation of our Parts business to reduce the cost base, improve efficiency and eliminate sub-economic business trading terms; and • a turnaround in the performance of our truck business. Our acquisition activities are a combination of opportunity and target based, with a reasonable expectation that suitable opportunities will be available for completion in 2015. 8 A.P. Eagers ANNUAL REPORT 2014 DIRECTORS’ REPORT (continued) DIVIDENDS Dividends paid to members during the financial year were as follows: Year ended 31 December Final ordinary dividend for the year ended 31 December 2013 of 15.0 cents (2012: 13.0 cents) per share paid on 16 April 2014 Interim ordinary dividend of 9.0 cents (2013: 8.0 cents) per share paid on 3 October 2014 2014 $'000 2013 $'000 26,516 22,246 15,954 42,470 14,124 36,370 A fully franked final dividend of 18 cents per share (2013: 15.0 cents) has been approved for payment on 17 April 2015 to shareholders who are registered on 2 April 2015 (Record Date). When combined with the interim dividend of 9.0 cents per share paid in October 2014, the total dividend based on 2014 earnings is 27 cents per share, fully franked (2013: 23 cents). The Company’s dividend reinvestment plan (DRP) will not operate in relation to the final dividend. SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS In the Directors’ opinion there was no significant change in the state of affairs of the group during the financial year that is not disclosed in this report or the consolidated financial report. MATTERS SUBSEQUENT TO THE END OF THE FINANCIAL YEAR The Directors are not aware of any matter or circumstance not dealt with in this report or the consolidated financial report that has arisen since the end of the year under review and has significantly affected or may significantly affect the group’s operations, the results of those operations or the state of affairs of the group in future financial years. ENVIRONMENTAL REGULATION The group’s property development and service centre operations are subject to various environmental regulations. Environmental licences are held for particular underground petroleum storage tanks. Planning approvals are required for property developments undertaken by the group in relevant circumstances. Authorities are provided with appropriate details and to the Directors’ knowledge developments during the year were undertaken in compliance with planning requirements in all material respects. Management works with regulatory authorities, where appropriate, to assist compliance with regulatory requirements. There were no material adverse environmental issues during the year to the Directors’ knowledge. REMUNERATION REPORT 1. Principles Used to Determine Remuneration The board as a whole is responsible for recommending and reviewing the remuneration arrangements of non-executive Directors, whilst the board (excluding the Chief Executive Officer) reviews the performance of the Chief Executive Officer on a continual basis and ensures the reward framework is appropriate. To assist the board, the Audit, Risk & Remuneration Committee reviews and makes recommendations regarding these remuneration arrangements. The Chief Executive Officer in consultation with the Chairman reviews the performance of the group’s senior executives on an ongoing basis and ensures the appropriateness of their reward framework. Remuneration packages are intended to properly reflect the individual’s duties and responsibilities, be competitive in attracting, retaining and motivating staff of the highest quality and be aligned to shareholder interests. The remuneration framework for executives has been developed to provide, where appropriate, a high proportion of “at risk” remuneration. This is designed to reflect competitive reward for contribution to growth in group profits and shareholder wealth. In considering the impact of the group’s performance on shareholder wealth, the Directors have regard to various factors including the following metrics: NPAT ($’000) Earnings per share – basic (c) Dividend per share (c) Share Price at year end ($) 2014 76,690 43.0 27.0 5.98 2013 63,962 36.4 23.0 4.96 2012 55,551 34.0 20.0 4.38 2011 40,289 25.5 16.0 2.36 2010 31,637 21.1 12.8 2.50 9 A.P. Eagers ANNUAL REPORT 2014 The performance rights and options are divided into separate tranches for each annual performance period. Each tranche of options may be further divided into sub-tranches. The tranches and sub-tranches are tested against the performance hurdles for the relevant performance period. (i) Performance Hurdles Pre-determined performance hurdles for the relevant performance period must be achieved for performance rights and options granted to key management personnel to vest. Performance hurdles include: • • • the Company must meet the applicable Earnings Per Share (EPS) hurdle (as described below). the Company must meet any prescribed interest cover ratio. the executive must remain permanently employed by the group. (Where the executive has sacrificed payments into the EIP in return for rights or options, cessation of employment during the performance period may result in a prorated proportion of the rights or options remaining on issue to be tested at the end of the performance period but without the ability for any further re-testing All performance hurdles for a performance period must be met for the relevant rights and options to vest. The board does, however, retain discretion to waive hurdles in exceptional circumstances where it is believed to be in the Company’s best interests to do so. DIRECTORS’ REPORT (continued) 2. Non-executive Directors’ Remuneration Framework Non-executive Directors are remunerated for their services by way of fees (and where applicable, superannuation) from the maximum amount approved by shareholders in general meeting for that purpose, currently $500,000 per annum, which was fixed at the annual general meeting in 2007. For the year under review, non-executive Director fees were $75,000 per annum plus superannuation benefits, and the Chairman’s fee was $95,000 per annum plus superannuation. The board, with the assistance of the Audit, Risk & Remuneration Committee, periodically reviews non- executive Director fees taking into account relevant market conditions. Non-executive Directors do not participate in schemes designed for the remuneration of executives, equity schemes or retirement allowance programmes, nor do they receive performance based bonuses. 3. Executives’ Remuneration Framework (a) Base Pay Each executive is offered a competitive base pay to reflect the market for a comparable role. Base pay is reviewed annually and on promotion to ensure it remains competitive with the market. It may be delivered as a combination of cash and superannuation that the executive elects to salary sacrifice. (b) Benefits Executives receive benefits including the provision of fully maintained motor vehicles, personal health and fitness programs and, in the case of the Chief Executive Officer, personal insurance. Retirement benefits are delivered under superannuation funds providing accumulation benefits. No lump sum defined benefits are provided. 10 (c) Short-term Performance Incentives (i) Incentive Pool / Bonus A short-term incentive pool is available for allocation by the Chairman or Chief Executive Officer to non-commission based key management personnel executives being the Chief Executive Officer, Company Secretary and Chief Financial Officer. The allocations are determined on a discretionary basis during annual review after considering the achievements and performances of the individual executives and group. (ii) Commission Structure With the exception of the Chief Executive Officer and non-commission based executives, remuneration for senior executives is structured around measurable business performance factors linked to business strategies and designed to improve shareholder value. This commission structure is set at a percentage of net profit before tax of a business unit or business group. (d) Executive Incentive Plan (EIP) The EIP was approved by shareholders at the annual general meeting in 2013. It is intended as both a long- term and short-term incentive, focussing on corporate performance and the creation of shareholder value over multi-year periods. Through the EIP, executives are driven to improve the Company’s performance and shareholder return. This is accomplished through the grant of performance rights and options which reward the achievement of pre-determined group performance hurdles and allow executives to share in the Company’s growth. A performance right is a right to be given a fully paid ordinary share in the Company at a nil exercise price upon the achievement of performance hurdles. An option is a right to be given a fully paid ordinary share in the Company upon payment of an exercise price and achievement of performance hurdles. In general, the exercise price is the market share price at or about the grant date or when the executive agreed in principle to participate in the plan. A.P. Eagers ANNUAL REPORT 2014 DIRECTORS’ REPORT (continued) (ii) EPS Hurdles A separate EPS performance hurdle applies for each tranche or sub-tranche of performance rights and options granted to key management personnel. These EPS hurdles were pre-determined using a base-line EPS when the participant agreed to join the plan. In general, the Company must achieve a minimum of 7% annual compound growth in diluted EPS above the base- line before any performance rights or options will vest for the performance period, with 10% annual compound growth required for all performance rights and options to vest for the period. As these “at risk” earnings are demonstrably linked to the creation of shareholder value, it is considered that if an EPS hurdle is not achieved at the end of a 12 month performance period, re-testing would be appropriate to allow for market reaction to the Company’s longer term strategic initiatives. If the EPS hurdle is not achieved at the end of the initial 12 month performance period, re-testing would take place 12 months later. If the EPS hurdle is not achieved on the re-test, it may be re-tested a second time a further 12 months later. There cannot be more than two re-tests. Performance rights and options immediately lapse if they do not vest on the second re-test. (iii) CEO’s Participation in EIP (2010 to 2014) At the Company’s annual general meeting in 2010, shareholders approved the Chief Executive Officer, Mr Ward, participating in the EIP for the five years from 2010 to 2014. With 98.2% of proxy votes in favour or at the Chairman’s discretion, shareholders approved the following: • Mr Ward’s performance hurdles are measured over the five year period 2010 to 2014. • Before any of Mr Ward’s performance rights or options will vest for an individual year, the Company must achieve at least 7% annual compound growth in diluted EPS above the base-line EPS. The base-line was set when Mr Ward agreed to join the plan in mid-2009 at 16% above the average normalised basic EPS for the previous three years. • For 100% of Mr Ward’s performance rights and options to vest for the five years, the Company must achieve at least 10% annual compound growth in diluted EPS above the base-line. • The number of performance rights and options granted to Mr Ward was scaled back to reflect only 4.5 years’ value, even though his performance would be measured over a full five year period. This scaling back occurred because, at the time of the 2010 annual general meeting, his previous five year equity incentive plan was due to expire mid-year on 30 June 2010. The cost to the Company of Mr Ward’s participation in the EIP is calculated as follows: • If 100% of the performance rights and options were to vest over the five year period (requiring at least 10% annual compound growth in diluted EPS for five years), the recognised cost of the plan would average $850,000 per annum for 4.5 years, or $3.825 million in total over 4.5 years. However, accounting standards require that the cost be recognised, as shown in the remuneration table on page 14, based on the progressive recognition of each share option grant over its expected vesting period, which results in a higher overall cost of the EIP in the earlier years and a lower cost in later years. On the assumption that all performance hurdles are achieved over the five year EIP period, the total cost recognised in each year is shown in the following graphs. • If no performance hurdles at all were to be achieved over the five year period, then no performance rights or options would vest and the plan would cost the Company zero dollars. • By way of comparison, if only 50% of the performance rights and options by value were to vest each year over the five year period (requiring 9% annual compound growth in diluted EPS for five years), the cost of the plan would be on average $425,000 per annum for 4.5 years (or $1,912,500 in total over 4.5 years). s ’ 0 0 0 $ 1500 1200 900 600 300 0 0 7 3 9 1 3 4 , 1 0 5 8 3 2 4 6 8 1 s ’ 0 0 0 $ 1500 1200 900 600 300 0 0 5 2 4 0 5 8 0 5 8 0 5 8 0 5 8 2009 2010 2011 2012 2013 2014 2009 2010 2011 2012 2013 2014 Accounting accrual cost of CEO’s participation in EIP – progressive recognition based, assuming all performance hurdles are achieved. Average annual cost of CEO’s participation in EIP, assuming all performance hurdles are achieved. 11 A.P. Eagers ANNUAL REPORT 2014 DIRECTORS’ REPORT (continued) (iv) CEO’s Participation in EIP (2015 to 2019) At the Company’s annual general meeting in 2014, shareholders approved Mr Ward participating in the EIP for a further five years from 2015 to 2019. This replaces his initial five years in the EIP which expired at the end of 2014. With 96.6% of proxy votes at the 2014 annual general meeting in favour or at the Chairman’s discretion, shareholders approved the following: • Mr Ward’s performance hurdles are measured over the five year period 2015 to 2019. Chief Executive Officer • Before any of Mr Ward’s (v) Grants to Key Management Personnel performance rights or options will vest for an individual year, the Company must achieve at least 7% annual compound growth in diluted EPS from 2013. • For 100% of Mr Ward’s performance rights and options to vest for the five years, the Company must achieve at least 10% annual compound growth in diluted EPS from 2013. • There will be no increase to the average annual cost to the Company of Mr Ward’s participation in the EIP from 2015 to 2019 above the average annual cost for the previous five years. The following tables show details of current grants of performance rights and options over unissued shares, which were granted to key management personnel in or before the year under review. No rights or options were granted to key management personnel during the year under review except as shown in these tables. No rights or options were forfeited, and no options were exercised, by key management personnel during the year under review. No. of performance rights granted No. of options granted End of 1st performance period Fair value of each performance right Fair value of each option Status Tranche No. 1 2 3 4 5 6 7 8 9 10 Grant Date 28 May 2010 28 May 2010 28 May 2010 28 May 2010 36,890 82,440 89,000 94,890 416,665 31 Dec 2010 815,215 31 Dec 2011 810,810 31 Dec 2012 815,215 31 Dec 2013 28 May 2010 105,140 797,870 31 Dec 2014 4 July 2014 4 July 2014 4 July 2014 4 July 2014 4 July 2014 83,661 87,268 91,006 94,866 99,067 467,032 31 Dec 2015 452,127 31 Dec 2016 447,368 31 Dec 2017 420,792 31 Dec 2018 416,666 31 Dec 2019 General Manager Queensland and Northern Territory $0.808 Vested without re-testing $0.812 Vested without re-testing $0.810 Vested without re-testing $0.802 Vested without re-testing $0.806 Vested without re-testing $2.400 $2.286 $2.176 $2.072 $1.972 $5.080 $4.870 $4.670 $4.480 $4.290 $0.910 $0.940 $0.950 $1.010 $1.020 Unvested Unvested Unvested Unvested Unvested Status No. of performance rights granted No. of options granted End of 1st performance period Fair value of each performance right Fair value of each option 22,590 48,015 50,950 54,115 57,515 19,685 20,533 21,413 22,321 23,310 104,165 31 Dec 2010 203,805 31 Dec 2011 202,705 31 Dec 2012 203,805 31 Dec 2013 199,470 31 Dec 2014 109,890 31 Dec 2015 106,382 31 Dec 2016 105,263 31 Dec 2017 99,009 31 Dec 2018 98,039 31 Dec 2019 $1.660 $1.562 $1.472 $1.386 $1.304 $5.080 $4.870 $4.670 $4.480 $4.290 $0.360 Vested without re-testing $0.368 Vested without re-testing $0.370 Vested without re-testing $0.368 Vested without re-testing $0.376 Vested without re-testing $0.910 $0.940 $0.950 $1.010 $1.020 Unvested Unvested Unvested Unvested Unvested Grant Date 28 August 2009 28 August 2009 28 August 2009 28 August 2009 28 August 2009 4 July 2014 4 July 2014 4 July 2014 4 July 2014 4 July 2014 Tranche No. 1 2 3 4 5 6 7 8 9 10 12 A.P. Eagers ANNUAL REPORT 2014 DIRECTORS’ REPORT (continued) Chief Financial Officer Tranche No. 1 2 3 4 5 6 7 8 9 10 Grant Date 28 August 2009 28 August 2009 28 August 2009 28 August 2009 28 August 2009 4 July 2014 4 July 2014 4 July 2014 4 July 2014 4 July 2014 No. of performance rights granted No. of options granted End of 1st performance period Fair value of each performance right Fair value of each option Status $0.360 Vested without re-testing $0.368 Vested without re-testing $0.370 Vested without re-testing $0.368 Vested without re-testing $0.376 Vested without re-testing 30,120 32,010 33,965 36,075 38,345 14,763 15,400 16,059 16,741 17,482 138,890 31 Dec 2010 135,870 31 Dec 2011 135,135 31 Dec 2012 135,870 31 Dec 2013 132,980 31 Dec 2014 82,417 31 Dec 2015 79,787 31 Dec 2016 78,947 31 Dec 2017 74,257 31 Dec 2018 73,529 31 Dec 2019 $1.660 $1.562 $1.472 $1.386 $1.304 $5.080 $4.870 $4.670 $4.480 $4.290 $0.910 $0.940 $0.950 $1.010 $1.020 General Counsel & Company Secretary Tranche No. 1 2 3 4 5 6 7 8 9 10 Grant Date 27 March 2013 27 March 2013 27 March 2013 27 March 2013 27 March 2013 4 July 2014 4 July 2014 4 July 2014 4 July 2014 4 July 2014 No. of performance rights granted No. of options granted End of 1st performance period Fair value of each performance right Fair value of each option - - - - - 2,460 2,566 2,676 2,790 2,913 26,880 31 Dec 2013 26,880 31 Dec 2014 26,040 31 Dec 2015 25,510 31 Dec 2016 25,250 31 Dec 2017 13,736 31 Dec 2015 13,297 31 Dec 2016 13,157 31 Dec 2017 12,376 31 Dec 2018 12,254 31 Dec 2019 - - - - - $5.08 $4.87 $4.67 $4.48 $4.29 $0.93 $0.93 $0.96 $0.98 $0.99 $0.91 $0.94 $0.95 $1.01 $1.02 (1) EPS performance hurdle was satisfied, but vesting remains subject to continued employment until 31 March 2015. Further details of the performance rights and options granted under the EIP are specified in notes 34 and 35 to the consolidated financial report. 4. Hedging 5. Executive Employment Agreements a) The board has adopted a policy which prohibits any Director or employee who participates in an equity plan from using derivatives, hedging or similar arrangements to reduce or eliminate the risk associated with the plan in relation to unvested securities or securities that are subject to trading restrictions, without the Chairman’s approval. Any breach will result in forfeiture or lapsing of the unvested securities or additional performance hurdles or trading restrictions being imposed, at the board’s discretion. Executives who are key management personnel are employed under common employment agreements. The agreements do not have a finite term, can be terminated by either employer or employee giving notice within a range of four to twelve weeks and do not contain any termination payment arrangements. The board has discretion to extend the termination notice period that may be given to an executive and to make payments upon termination, as appropriate. The Chief Executive Officer’s employment agreement differs from that of other executives as follows: The Company may terminate the Chief Executive Officer’s employment if he is unable to satisfactorily perform his duties due to illness, injury or accident for a period of six months or for cause. Termination for any other reason may entitle the Chief Executive Officer to a termination benefit equivalent to two times annual remuneration at the time of termination, subject to any limit imposed by law. b) The Chief Executive Officer may terminate his employment agreement on six months’ notice unless otherwise agreed with the Company. 13 Unvested Unvested Unvested Unvested Unvested Status Unvested(1) Unvested(1) Unvested Unvested Unvested Unvested Unvested Unvested Unvested Unvested A.P. Eagers ANNUAL REPORT 2014 DIRECTORS’ REPORT (continued) 6. Details of Remuneration Key management personnel include Directors and executives who have authority and responsibility for planning, directing and controlling the activities of the group. Remuneration details of key management personnel are set out in the following tables. 2014 Directors T B Crommelin Chairman M A Ward Managing Director N G Politis Non-executive Director P W Henley Non-executive Director D T Ryan Non-executive Director D A Cowper Non-executive Director Executives K T Thornton General Manager Qld & NT S G Best Chief Financial Officer D G Stark General Counsel & Company Secretary Short-term benefits Post-employment benefits Share-based payments Salary & fees Bonus & commissions Non-monetary & other benefits(2) Superannuation benefits Performance Rights & Options(1) $ $ $ $ $ Performance- related percentage % Total $ 95,000 - 742 8,906 - 104,648 925,000(4) 110,000 105,853 25,000 421,657(3) 1,587,510 75,000 75,000 75,000 75,000 - - - - 742 742 742 742 7,031 7,031 7,031 7,031 - - - - 82,773 82,773 82,773 82,773 1,320,000 110,000 109,564 62,030 421,657 2,023,251 200,000 616,930 68,693 18,783 83,681 988,087 325,303 99,000 76,395 30,503 60,417 591,618 263,338 79,500 36,888 24,690 31,944 436,360 788,641 795,430 181,976 73,976 176,042 2,016,065 - 33 - - - - 71 27 26 (1) Performance rights and options granted under the EIP are valued using a binomial tree methodology. A pre-determined value of the portion of the rights and options attributable to the year under review has been expensed in the income statement in conformity with AASB 2 and reflected in each recipient’s remuneration. In each year, performance rights and options vested under the EIP for the previous year. Vesting is subject to the achievement of performance hurdles as previously detailed in this Remuneration Report. (2) Includes benefits such as the provision of motor vehicles, insurance policy costs and the movement in the provision for the individual’s employee entitlements. The share-based payment is based on progressive recognition of each award grant over its expected vesting period, which results in an increased cost in the earlier years of the EIP and a reduced cost in later years on the assumption that all performance hurdles will be achieved over the five year period. For further details, refer to commentary on page 11 under the heading “CEO’s Participation in EIP”. As announced in December 2014, Mr Ward’s annual base salary increased to $1,200,000 on 1 January 2015. It had not been reviewed since late 2010. Since then the Company has grown significantly, with market capitalisation increasing from less than $400 million to over $1 billion, and earnings per share and dividends per share having doubled. The increased salary reflects a 14% increase above Mr Ward’s average total remuneration during the four years from 2010 to 2013. No further increase to his base salary is intended for the next five years. (3) (4) 14 A.P. Eagers ANNUAL REPORT 2014 DIRECTORS’ REPORT (continued) 2013 Directors T B Crommelin (4) Chairman M A Ward Managing Director N G Politis Non-executive Director P W Henley Non-executive Director D T Ryan Non-executive Director D A Cowper Non-executive Director B W Macdonald (4) Chairman Executives K T Thornton General Manager Qld & NT S G Best Chief Financial Officer D G Stark General Counsel & Company Secretary Short-term benefits Post-employment benefits Share-based payments Salary & fees Bonus & commissions Non-monetary & other benefits(2) Superannuation benefits Performance Rights & Options(1) $ $ $ $ $ Total $ Performance- related percentage % 86,666 - 790 7,922 - 95,378 925,000 100,000 133,221 25,000 422,871 (3) 1,606,092 66,250 75,000 75,000 75,000 33,858 - - - - - 790 790 790 790 329 6,053 6,844 6,844 6,844 - - - - - - 73,093 82,634 82,634 82,634 34,187 1,336,774 100,000 137,500 59,507 422,871 2,056,652 200,000 548,535 77,696 17,775 62,740 906,746 306,671 93,000 32,271 27,988 41,827 501,757 253,337 76,500 22,851 23,127 25,000 400,815 760,008 718,035 132,818 68,890 129,567 1,809,318 - 33 - - - - - 67 27 25 (1) (2) (3) Performance rights and options granted under the EIP are valued using a binomial tree methodology. A pre-determined value of the portion of the rights and options attributable to the year under review has been expensed in the income statement in conformity with AASB 2 and reflected in each recipient’s remuneration. In each year, performance rights and options vested under the EIP for the previous year. Vesting is subject to the achievement of performance hurdles as previously detailed in this Remuneration Report. Includes benefits such as the provision of motor vehicles, insurance policy costs and the movement in the provision for the individual’s employee entitlements. The share-based payment is based on progressive recognition of each award grant over its expected vesting period, which results in an increased cost in the earlier years of the EIP and a reduced cost in later years on the assumption that all performance hurdles will be achieved over the five year period. For further details, refer to commentary on page 11 under the heading “CEO’s Participation in EIP”. (4) Mr Crommelin was appointed Chairman on the retirement of Mr Macdonald on 8 May 2013. 15 A.P. Eagers ANNUAL REPORT 2014 DIRECTORS’ REPORT (continued) 7. Relevant Interest in shares held by key management personnel 2014 Directors M A Ward N G Politis P W Henley D T Ryan T B Crommelin D A Cowper Executives K T Thornton S G Best D G Stark 2013 Directors B W Macdonald(1) M A Ward N G Politis P W Henley D T Ryan T B Crommelin D A Cowper Executives K T Thornton S G Best D G Stark At 01-Jan-14 Dividend Reinvestment Plan Executive Incentive Plan Purchases Sales 2,759,280 65,157,552 104,215 - 332,242 8,248 336,505 138,710 71,244 68,907,996 - - - - - - - - - - 94,890 - - - - - 54,115 36,075 - - 928,044 3,000 - 6,987 - - - - 185,080 938,031 - - - - - - - - - - At 31-Dec-14 2,854,170 66,085,596 107,215 - 339,229 8,248 390,620 174,785 71,244 70,031,107 At 01-Jan-13 Dividend Reinvestment Plan Executive Incentive Plan Purchases Sales At 31-Dec-13 421,875 2,788,280 - - - 89,000 62,817,353 1,948,310 101,085 - 322,269 8,000 285,555 104,745 53,450 3,130 - 9,973 248 - - 2,139 - - - - - 50,950 33,965 15,655 - - 391,889 - - - - - - - - 421,875 (118,000) - - - - - - - - 2,759,280 65,157,552 104,215 - 332,242 8,248 336,505 138,710 71,244 66,902,612 1,963,800 189,570 391,889 (118,000) 69,329,871 (1) Mr Macdonald retired as a Director on 8 May 2013. 16 A.P. Eagers ANNUAL REPORT 2014 DIRECTORS’ REPORT (continued) DIRECTORS’ INTERESTS The relevant interest of each Director in the shares, rights and options issued by the Company as at the date of this report are as follows: T B Crommelin N G Politis M A Ward P W Henley D T Ryan D A Cowper Ordinary Shares (fully paid) Share Options Performance Rights 339,229 66,116,874 2,854,170 109,625 - 8,248 - - - - 5,859,760(1) 561,008 (1) - - - - - - (1) Share options and performance rights vest only if performance hurdles are met in accordance with the Executive Incentive Plan, as described in the Remuneration Report. ROUNDING OF AMOUNTS TO NEAREST THOUSAND DOLLARS The Company is of a kind referred to in Class Order 98/100 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 in accordance with that Class Order. This report is made in accordance with a resolution of the Directors. Martin Ward Director Brisbane, 25 March 2015 SHARES UNDER OPTION 3,630,075 options and 750,824 performance rights were granted by the Company over unissued shares during the year under review. A further 957,862 options and 130,492 performance rights have been granted since the end of the year. No shares were issued as a result of the exercise of options and 221,155 fully paid shares were issued on the vesting of performance rights during or since the year under review. The Directors have not disclosed details of the nature of the liabilities covered or the amount of the premiums paid in respect of the insurance contracts as such disclosure is prohibited under the terms of the contracts. AUDITOR Deloitte Touche Tohmatsu continues in office as auditor of the group in accordance with section 327 of the Corporations Act 2001. INDEMNIFICATION AND INSURANCE NON-AUDIT SERVICES The Company’s constitution provides that, to the extent permitted by law, the Company must indemnify each person who is or has been a Director or Secretary against liability incurred in or arising out of the discharge of duties as an officer of the Company or out of the conduct of the business of the Company and specified legal costs. The indemnity is enforceable without the person having to incur any expense or make any payment, is a continuing obligation and is enforceable even though the person may have ceased to be an officer of the Company. At the start of the financial year under review and at the start of the following financial year, the Company paid insurance premiums in respect of Directors and Officers liability insurance contracts. The contracts insure each person who is or has been a Director or executive officer of the Company against certain liabilities arising in the course of their duties to the Company and its controlled entities. A copy of the auditor’s Independence Declaration as required under section 307C of the Corporations Act 2001 is attached and forms part of this report. The Company may decide to employ its auditor on assignments additional to their statutory audit duties where the auditor’s expertise or experience with the group is important. Details of the amounts paid or payable to the auditor for audit and non-audit services provided to the group during the year are set out in note 32 to the consolidated financial report. In accordance with advice received from the Audit, Risk & Remuneration Committee, the Directors are satisfied that the provision of the non-audit services was compatible with the general standard of independence for auditors imposed by the Corporations Act 2001 and did not compromise the auditor independence requirements of the Act because all non-audit services were reviewed by the Committee to ensure they did not impact the partiality and objectivity of the auditor. 17 A.P. Eagers ANNUAL REPORT 2014 AUDITOR’S DECLARATION OF INDEPENDENCE 18 A.P. Eagers ANNUAL REPORT 2014CORPORATE GOVERNANCE STATEMENT This statement outlines our corporate governance practices against the recommendations of the ASX Corporate Governance Council. We have followed the Council’s recommendations throughout 2014 except as referred to below. The following is current as at 31 December 2014 and has been approved by the board. Principle 1 Lay solid foundations for management and oversight We have a dynamic board which, over many years, has developed and implemented policies and practices designed to promote a culture of good corporate governance. The board’s key responsibilities are listed in our board charter, which is available on our website. The charter includes a delegation of powers to the Chief Executive Officer for day-to-day business. In recognition of the benefits of having a board that is able to act quickly, effectively and efficiently, specific delegated functions are not itemised in the charter (ASX recommendation 1.1). The process for evaluating performance of our senior executives is disclosed in the remuneration report. Evaluations have taken place during the reporting period in accordance with that process. Principle 2 Structure the board to add value Independence Our board consists of six Directors, including five non-executive Directors. The Managing Director, Mr Ward, is the only executive Director. Three of the six Directors, rather than a majority, are considered to be independent in terms of our board charter (ASX recommendation 2.1). Messrs Crommelin (Chairman), Henley and Cowper are regarded as independent of management and free of any business or other relationship that would materially interfere with their unfettered and independent judgement and ability to act in the best interests of the Company. Materiality thresholds are assessed on a case- by-case basis from the perspective of both the Company and each Director. In considering the question of independence, the board takes into account the ASX Corporate Governance Council’s guidelines and is not aware of any relationship that would affect the independence of the Directors whom it regards as independent. As an executive of the Company’s adviser, Morgans, Mr Crommelin brings extensive knowledge and expertise to our board in areas such as corporate finance, risk management and acquisitions. The board considers that his role with Morgans does not interfere with his independence as a Director of the Company in any material respect. Mr Henley, with over 30 years’ local and international experience in the financial services industry and a former Chairman and Chief Executive Officer of GE Money Motor Solutions, also provides substantial contribution as a Director of the Company. Mr Cowper brings a wealth of industry knowledge to the board, having specialised in providing audit, financial and taxation services to companies in the motor industry, chaired the motor industry specialisation unit of Horwath Chartered Accountants for six years and been the Company’s lead audit partner for seven years at Horwath and Deloitte Touche Tohmatsu until 2008. In addition to the independent Directors, the board derives significant benefit from the expertise and experience of Messrs Politis and Ryan. Mr Politis has vast industry experience and is a Director and controlling shareholder of the Company’s largest shareholder, WFM Motors Pty Ltd. Mr Ryan has significant management experience in the automotive and other industries and is a Director and Chief Executive Officer of WFM Motors Pty Ltd. This combination of Directors provides balance on the board. To assist in the proper discharge of their duties, Directors are entitled to obtain independent professional advice at the Company’s expense with the Chairman’s prior approval, not to be unreasonably withheld. Nomination Committee The board as a whole acts as a nomination committee and believes it is not necessary to establish a separate nomination committee or a formal policy for the nomination and appointment of Directors (ASX recommendations 2.4 and 2.6). If a vacancy occurs the board identifies candidates with appropriate knowledge, experience, expertise and competencies having regard to various factors including our strategic and operational requirements and the attributes and diversity of incumbent Directors. Candidates require a disposition that would enable them to offer and resolve differing views and ask discerning questions. They are made aware of the time commitments needed of our Directors. Appointments are made on a non-discriminatory basis. Newly appointed Directors are provided with an induction program to allow them to participate fully, actively and effectively in board decision- making at the earliest opportunity. Non-executive Directors are required to retire periodically and may re- submit themselves for re-election by shareholders in accordance with the Corporations Act, the ASX listing rules and the Company’s constitution. Board Evaluation Under the board charter, the Chairman is responsible for ensuring that board meetings are conducted competently and ethically and that Directors individually and as a group have opportunities to air differences, explore ideas and generate the collective views and wisdom necessary for the proper operation of the board and Company. In this context, the Chairman undertakes a continuous review of the performance and contribution of individual Directors, whilst the board as a whole conducts an ongoing evaluation of its performance and that of its committee. Details of each Director’s term in office, qualifications, professional skills, experience, expertise and responsibilities are set out on page 3. Principle 3 Promote ethical and responsible decision-making We have established a range of procedures, practices and policies rather than a specific code of conduct (ASX recommendation 3.1), which promote and encourage: • ethical and responsible decision-making 19 A.P. Eagers ANNUAL REPORT 2014CORPORATE GOVERNANCE STATEMENT (continued) • compliance with legal obligations • • the reporting of suspected violations of laws and unethical business practices the fair, impartial and prompt consideration at an appropriate level of any grievances raised by employees and other stakeholders These help to foster a culture of compliance and maintain confidence in the Company’s integrity. They are incorporated into an “Employee Information and Policy Manual” which is provided to all new employees and Directors. Diversity We recognise the value and inherent benefits in having a diverse workforce and our diversity policy is available on our website. The board has set the following objectives for achieving gender diversity: • Establishment of a Female Employee Network to support the professional development of women and discuss how more women might be attracted into our workforce. Our Female Employee Network is well established within the group. Meeting agendas are based on criteria established by the Workplace Gender Equality Agency. Recommendations from the network are for discussion with senior management and issues are actioned as appropriate. We are also working with a specialist training and development organisation for female leaders to: • • • increase and prepare the pipeline of female talent ready to move into more senior roles. support women in becoming champions of change for gender diversity. help us enhance our culture of gender diversity. • Review of payroll system to determine whether there is equity in pay for men and women doing similar roles in similar circumstances. 20 This annual review has concluded that equity in pay does exist in our group. The issue of equity in pay has also been considered by our Female Employee Network, with no issues of pay inequality identified. The salary data provided to the Workplace Gender Equality Agency in 2014 also demonstrates that we had equity in pay for people doing similar roles in similar circumstances. • Provision of diversity training for managers. Our Managing Workplace Behaviour training programme for managers continues across the group. In addition to raising the awareness of our commitment to our diversity policy and objectives, the training assists managers to identify how they can positively influence workplace diversity within their businesses. • Demonstrate our commitment to the diversity policy by widely communicating its content and these objectives. Our diversity policy and objectives are included within the content of the diversity training for managers and are discussed within team meetings. They have also been placed on our intranet site for all staff to view and on our internet site. The automotive industry has traditionally been more attractive to male than female employees. This is exacerbated in vehicle servicing and parts supply operations which employed 59% of our total 3,466 employees at the end of 2014. In our servicing and parts operations, 9% of employees were women. Whilst in our other operations, 32% of employees were women. 19% of our total employees and 8% of our 65 General Managers were women, with no female members of the board. Principle 4 Safeguard integrity in financial reporting Our Audit, Risk & Remuneration Committee is comprised of three independent non-executive Directors - Messrs Cowper (Committee Chairman), Henley and Crommelin. Committee members’ qualifications, experience and attendance at committee meetings are detailed on pages 3 and 4. The Committee Chairman may invite any member of management, the external or internal auditor or any other person to attend committee meetings. The committee may also meet with any person without management in attendance. As set out in the committee charter (which is available on our website), the committee reviews and makes recommendations to the board in relation to: • • • • Accounting Practices and Tax – annual and half yearly financial reports, significant accounting policy changes, the adequacy and effectiveness of reporting and accounting controls and practices and material taxation matters External Audit – the external auditor’s appointment (including procedures for the selection and appointment of the auditor and for the rotation of the audit engagement partner), fees, audit plan, performance, independence, provision of non-audit services and management letters Internal Audit – the internal audit charter, plan, reports and independence, the provision of non-audit services and any restrictions on the auditor Risk Management – the adequacy and effectiveness of risk management and internal control systems and the standard of corporate conduct in arms-length dealings and likely conflicts of interest • Remuneration matters Principle 5 Make timely and balanced disclosure We understand and respect that prompt disclosure of price-sensitive information is central to the efficient operation of the ASX’s securities market. Policies have been adopted requiring compliance with applicable regulatory requirements including ASX listing rules and noting both a legal and moral responsibility to conform with these obligations. A.P. Eagers ANNUAL REPORT 2014 CORPORATE GOVERNANCE STATEMENT (continued) ASX continuous disclosure obligations and any share transactions by Directors are considered at each scheduled board meeting as standing agenda items. Directors have also entered into agreements with the Company, which require them to provide all information necessary to enable the Company to comply with disclosure obligations. Our securities trading policy (which is available on the Company’s website) confirms the agreement by Directors to inform the Company of changes in their relevant interests as soon as reasonably possible and within three business days. The Company Secretary oversees disclosure of information to the ASX. Principle 6 Respect the rights of shareholders Effective communication with shareholders is important. We keep shareholders properly informed through the following means notwithstanding the absence of a specific communications policy (ASX recommendation 6.1): • • reports to the ASX and media releases half year and full year profit announcements and market updates, as appropriate • annual reports • • Chairman and Chief Executive Officer addresses to our annual general meeting reports and announcements on our website Shareholders are encouraged to attend and participate in our annual general meeting by submitting questions and comments through the Chairman either before or during the meeting. The external auditor also attends our annual general meeting to answer questions about the audit and independent audit report. Principle 7 Recognise and manage risk Risk Management Framework We place a high priority on the identification of material risks and opportunities. By understanding and managing risk, greater certainty and confidence can be provided to shareholders, employees, customers, franchise partners and other stakeholders. Our risk management policy is available on our website. In accordance with the policy, we have established the following framework for the oversight and management of risk. The board is responsible for: • • • • overseeing our risk management function ensuring a sound system of risk oversight, management and internal control is in place ensuring material business risks are effectively managed monitoring and reporting on any material changes to our risk profile The Audit, Risk & Remuneration Committee assists the board by monitoring, assessing and reporting on the effectiveness of our risk management system and reviewing the internal audit function. The internal audit function operates independently of, but in consultation with, the external auditor. In addition, the Chief Financial Officer is responsible for the establishment, implementation and maintenance of our risk management system. These controls are intended to assist in managing risk at acceptable levels taking into account our objectives, business model, industry, market environment, ownership structure and appetite for risk. Group Risk Register Within the framework outlined above, management has designed and implemented a system of risk management and internal control. The system includes a group risk register methodology. Material business risks have been identified and prioritised so they may be managed appropriately. The Audit, Risk & Remuneration Committee monitors, reviews and reports to the board on our risk management performance. Through the committee, the executive has reported to the board on the effectiveness of our management of material business risks and it is satisfied that the risk management process enables material risks to be appropriately identified, prioritised, monitored and managed. Strategic risks and opportunities are reported to the board on an ongoing basis. CEO & CFO declaration The Chief Executive Officer and Chief Financial Officer have declared that in their opinion: • • • our financial records have been properly maintained in accordance with section 286 of the Corporations Act the financial statements comply with accounting standards the financial statements give a true and fair view of our financial position and performance The Chief Executive Officer and Chief Financial Officer have also confirmed that their declaration was founded on a sound system of risk management and internal control and that the system was operating effectively in all material respects in relation to financial reporting risks. Principle 8 Remunerate fairly and responsibly The Audit, Risk & Remuneration Committee reviews and makes recommendations on remuneration matters including arrangements for non-executive Directors and the Chief Executive Officer. The remuneration report details remuneration arrangements of Directors and senior executives. It clearly distinguishes the structure of non-executive Directors’ remuneration from that of the Chief Executive Officer and other senior executives. Consistent with the ASX Corporate Governance Council’s guidelines, there is no retirement benefits plan for non-executive Directors. Our securities trading policy prohibits participants in any employee equity plan from using derivatives, hedging or similar arrangements to reduce or eliminate risk in relation to securities that are unvested or subject to trading restrictions, without the Chairman’s approval. 21 A.P. Eagers ANNUAL REPORT 2014 22 A.P. Eagers ANNUAL REPORT 2014FINANCIAL STATEMENTS A.P. EAGERS LIMITED ABN 87 009 680 013 For the year ended 31 December 2014 Statement of Profit or Loss Statement of Profit or Loss and Other Comprehensive Income Statement of Financial Position Statement of Changes in Equity Statement of Cash Flows Notes to and forming part of the Financial Statements Directors’ Declaration Independent Auditor’s Report 24 25 26 27 28 29 87 88 23 A.P. Eagers ANNUAL REPORT 2014STATEMENT OF PROFIT OR LOSS FOR THE YEAR ENDED 31 DECEMBER 2014 Revenue Other gains and losses excluding impairment CONSOLIDATED 2014 $'000 2013 $'000 2,858,113 2,672,813 3,892 2,000 Note 3 4 Share of net profits of associate 40(d) 4,939 1,959 Changes in inventories of finished goods and work in progress Raw materials and consumables purchased Employee benefits expense Finance costs Depreciation and amortisation expense Impairment of non-current assets Other expenses Profit before tax Income tax expense Profit for the year Attributable to: Owners of the parent Non-controlling interests Earnings per share: Basic earnings per share Diluted earnings per share 59,463 (749) (2,385,160) (2,193,541) (244,776) (224,649) (22,080) (23,188) (12,583) (12,354) (578) - (158,390) (135,581) 5(a) 5(a) 5(b) 102,840 86,710 6 (26,150) (22,748) 76,690 63,962 27(b) 29(c) 76,230 460 76,690 63,609 353 63,962 Cents Cents 37 37 43.0 41.6 36.4 35.3 The above Statement of Profit or Loss is to be read in conjunction with the accompanying notes. 24 A.P. Eagers ANNUAL REPORT 2014 STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2014 Profit for the year Other Comprehensive Income Items that will not be reclassified subsequently to profit or loss: Note CONSOLIDATED 2014 $'000 2013 $'000 76,690 63,962 Gain on revaluation of property Income tax relating to items that will not be reclassified subsequently 27(a) 27(a) (1,692) 508 3,203 (961) Items that may be reclassified subsequently to profit or loss: Gain on revaluation of available for sale Investment Income tax expense Fair value gain/(loss) arising from cash flow hedges during the year Income tax (expense)/benefit 27(a) 27(a) 27(a) 27(a) Total other comprehensive income for the year Total comprehensive income for the year Total comprehensive income attributable to: Owners of the parent Non-controlling interests (1,184) 2,242 1,296 (389) 907 22,795 (6,839) 15,956 77 (24) 53 1,003 (300) 703 (224) 18,901 76,466 82,863 76,006 460 76,466 82,510 353 82,863 The above Statement of Profit or Loss and Other Comprehensive Income is to be read in conjunction with the accompanying notes. 25 A.P. Eagers ANNUAL REPORT 2014 STATEMENT OF FINANCIAL POSITION FOR THE YEAR ENDED 31 DECEMBER 2014 Current Assets Cash and cash equivalents Trade and other receivables Leasebook receivables Inventories Other Property assets held for sale Property sale receivable Total Current Assets Non-Current Assets Property sale receivables Other loans receivable Available-for-sale investments Investment in associate Property, plant and equipment Intangible assets Total Non-Current Assets Total Assets Current Liabilities Trade and other payables Derivative financial instruments Borrowings - bailment and finance lease payable Current tax liabilities Provisions Total Current Liabilities Non-Current Liabilities Borrowings - others Derivative financial instruments Deferred tax liabilities Provisions Total Non-Current Liabilities Total Liabilities Net Assets Equity Contributed equity Reserves Retained earnings Equity attributable to equity holders of the parent Non-controlling Interest Total Equity Note 8 9(a) 9(b) 10 11 11(a) 11(b) 12(a) 12(b) 13 14 15 16 17 18 19(a) 20 21 22(a) 18 23 24 26(a) 27(a) CONSOLIDATED 2014 $'000 2013 $'000 23,777 105,792 - 469,205 1,884 600,658 27,781 6,717 635,156 18,826 9,787 234,391 1,620 292,485 165,733 722,842 12,106 94,919 11 409,742 7,301 524,079 21,612 - 545,691 - 1,437 195,195 4,327 344,956 125,259 671,174 1,357,998 1,216,865 128,038 188 363,153 12,979 20,709 525,067 216,646 934 17,350 6,945 241,875 103,590 665 303,811 6,203 17,389 431,658 211,078 534 27,483 6,987 246,082 766,942 677,740 591,056 539,125 242,070 99,020 242,480 583,570 7,486 591,056 231,205 108,612 198,369 538,186 939 539,125 The above Statement of Financial Position is to be read in conjunction with the accompanying notes. 26 A.P. Eagers ANNUAL REPORT 2014 STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2014 CONSOLIDATED 2014 Balance at 1 January 2014 Asset revaluation reserve Hedging reserve Share- based payments reserve Investment revaluation reserve Retained earnings Attributable to owners of the parent Non Controlling Interest $'000 $'000 $'000 $’000 $'000 $'000 $'000 Issued capital $'000 Total $’000 231,205 73,278 (839) 4,883 31,290 198,369 538,186 939 539,125 Profit for the year Other comprehensive income/(loss) Total comprehensive income for the year - - - (1,184) - (1,184) Share based payments Transfer to retained earnings Issue of shares – others Issue of shares to staff Issue of shares to non- controlling entity Payment of dividend - - 9,788 1,077 - (10,426) - - - - - - - 53 53 - - - - - - - - - 2,135 - - (1,077) - - - 907 76,230 - 76,230 (224) 460 - 76,690 (224) 907 76,230 76,006 460 76,466 - - - - - - - 10,426 - - 2,135 - 9,788 - - - - - 2,135 - 9,788 - (75) (42,470) (75) (42,470) 6,929 (842) 6,854 (43,312) Balance 31 December 2014 242,070 61,668 (786) 5,941 32,197 242,480 583,570 7,486 591,056 2013 Balance at 1 January 2013 206,277 71,053 (1,542) 5,791 15,334 171,113 468,026 510 468,536 Profit for the year Other comprehensive income/(loss) Total comprehensive income for the year - - - - 2,242 - 703 - - - 15,956 63,609 - 63,609 18,901 353 - 63,962 18,901 2,242 703 - 15,956 63,609 82,510 353 82,863 Share based payments Transfer to retained earnings Issue of shares under DRP Issue of shares – others Issue of shares to staff Issue of shares to non- controlling entity Payment of dividend - - 22,161 231 2,536 - - - (17) - - - - - - - - - - - - 1,453 - - - (2,361) - - - - - - - - - - 17 - - - 1,453 - 22,161 231 175 - - - - 1,453 - 22,161 231 175 - (36,370) - (36,370) 272 (196) 272 (36,566) Balance 31 December 2013 231,205 73,278 (839) 4,883 31,290 198,369 538,186 939 539,125 The above Statement of Changes in Equity is to be read in conjunction with the accompanying notes. 27 A.P. Eagers ANNUAL REPORT 2014 STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2014 Cash flows from operating activities Receipts from customers (inclusive of GST) Payments to suppliers and employees (inclusive of GST) Receipt from insurance claims Dividends received Interest received Interest and other costs of finance paid Income taxes paid Note CONSOLIDATED 2014 $’000 2013 $’000 3,089,003 2,919,290 (2,980,908) (2,808,229) 19,689 19,733 866 (21,829) (28,409) 162 11,064 1,220 (22,943) (24,597) Net cash provided by operating activities 38 98,145 75,967 Cash flows from investing activities Payments for shares in other corporations Payment for acquisition of businesses Payment for acquisition of brand name Payments for property, plant and equipment Proceeds from sale of property, plant and equipment Proceeds from sale of businesses Net cash used in investing activities Cash flows from financing activities Receipt from issue of shares Proceeds from borrowings Repayment of borrowings Dividends paid to minority shareholders of a subsidiary Dividends paid to members of A.P. Eagers Limited Net cash used in financing activities 29(a) (37,901) (36,818) - (8,731) 37,538 900 (56,777) (7,137) (207) (14,529) 15,411 900 (45,012) (62,339) 1,077 58,000 2,684 32,078 (57,584) (30,873) (485) - (42,470) (14,127) (41,462) (10,238) Net increase in cash and cash equivalents 11,671 3,390 Cash and cash equivalents at the beginning of the financial year 12,106 8,716 Cash and cash equivalents at the end of the financial year 8 23,777 12,106 The above Statement of Cash Flows is to be read in conjunction with the accompanying notes. 28 A.P. Eagers ANNUAL REPORT 2014 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS 31 DECEMBER 2014 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) General information and basis of preparation The financial report covers the Group (consolidated entity) of A.P. Eagers Limited and its subsidiaries (consolidated financial statements). A.P. Eagers Limited is a publicly listed company incorporated and domiciled in Australia. This general purpose financial report has been prepared in accordance with Australian equivalents to International Financial Reporting Standards (AIFRS), other authoritative pronouncements of the Australian Accounting Standards Board, Australian Accounting Interpretations and the Corporations Act 2001. For the purpose of preparing the financial statements, the company is a for profit entity. Compliance with IFRS The financial report complies with Australian Accounting Standards, which include AIFRS. Compliance with AIFRS ensures that the financial report, comprising the financial statements and notes thereto, complies with International Financial Reporting Standards (IFRS). Historical cost convention These financial statements have been prepared under the historical cost convention, as modified by the revaluation of financial assets, derivatives and certain classes of property, plant and equipment to fair value. Fair Value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, regardless of whether that price is directly observable or estimated using another valuation technique. In estimating the Fair value of an asset or a liability, the Group takes into account the characteristics of the asset or liability if market participants would take those characteristics into account when pricing the asset or liability at the measurement date. Fair value for measurement and/or disclosure purposes in these consolidated financial statements is determined on such a basis, except for share- based payment transactions that are within the scope of IFRS 2, leasing transactions that are within the scope of IAS 17, and measurements that have some similarities to fair value but are not fair value, such as net realisable value in IAS 2 or value in use in IAS 36. In addition, for financial reporting purposes, fair value measurements are categorised into Level 1, 2 or 3 based on the degree to which the inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurements in its entirety, which are described as follows: • Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date; • Level 2 inputs are inputs, other than quoted prices included within Level 1, that are observable for the asset or liability, either directly or indirectly; and • Level 3 inputs are unobservable inputs for the asset or liability. Functional and presentation currency The functional and presentation currency of the Group is the Australian Dollar. The financial statements were authorised for issue by the directors on the 25th March 2015. Accounting Policies The following is a summary of the material accounting policies adopted in the preparation of the financial report. The accounting policies have been consistently applied, unless otherwise stated. (b) Basis of consolidation The consolidated financial statements incorporate the financial statements of A.P. Eagers Limited (The Company) and entities (including structured entities) controlled by the Company and its subsidiaries. Control is achieved when the Company: • has power over the investee; • is exposed, or has rights, to variable returns from its involvement with the investee; and • has the ability to use its power to affect its returns. The Company reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control listed above. When the company has less than a majority of the voting rights of an investee, it has power over the investee when the voting rights are sufficient to give it the practical ability to direct the revelant activities of the investee unilaterally. 29 A.P. Eagers ANNUAL REPORT 2014 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) The Company considers all revelant facts and circumstances in assessing whether or not the Company’s voting rights in an investee are sufficient to give it power, including: • the size of the Company’s holding of voting rights relative to the size and dispersion of holdings of the other vote holders; • potential voting rights held by the Company, other vote holders or other parties; • rights arising from other contractual arrangements; and • any additional facts and circumstances that indicate that the Company has, or does not have, the current ability to direct the revelant activities at the time that decisions need to be made, including voting patterns at previous shareholders’ meetings. Consolidation of a subsidiary begins when the Company obtains control over the subsidiary and ceases when the Company loses control of the subsidiary. Specifically, income and expenses of a subsidiary acquired or disposed of during the year are included in the consolidated statement of profit or loss and other comprehensive income from the date the company gains control until the date when the Company ceases to control the subsidiary. Profit or loss and each component of other comprehensive income are attributed to the owners of the Company and to the non-controlling interests. Total comprehensive income of subsidiaries is attributed to the owners of the Company and to the non- controlling interests even if this results in the non-controlling interests having a deficit balance. When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with the Group’s accounting policies. All intragroup assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation. (i) Changes in the Groups ownership interests in existing subsidiaries. Changes in the Group’s ownership interests in subsidiaries that do not result in the Group losing control over the subsidiaries are accounted for as equity transactions. The carrying amounts of the Group’s interests and the non-controlling interests are adjusted to reflect the changes in their relative interests in the subsidiaries. Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received is recognised directly in equity and attributed to owners of the Company. When the Group loses control of a subsidiary, a gain or loss is recognised in profit or loss and is calculated as the difference between (i) the aggregate of the fair value of the consideration received and the fair value of any retained interest and (ii) the previous carrying amount of the assets (including goodwill), and liabilities of the subsidiary and any non-controlling interests. All amounts previously recognised in other comprehensive income in relation to that subsidiary are accounted for as if the Group had directly disposed of the related assets or liabilities of the subsidiary (i.e. reclassified to profit or loss or transferred to another category of equity as specified/ permitted by applicable AASBs). The fair value of any investment retained in the former subsidiary at the date when control is lost is regarded as the fair value on initial recognition for subsequent accounting under AASB 139, when applicable, the cost on initial recognition of an investment in an associate or a joint venture. (ii) Investments in associates An associate is an entity over which the Group has significant influence. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control over those policies. The results and assets and liabilities of associates are incorporated in these consolidated financial statements using the equity method of accounting, except when the investment, or a portion thereof, is classified as held for sale, in which case it is accounted for in accordance with AASB 5. Under the equity method, an investment in an associate is initially recognised in the consolidated statement of financial position at cost and adjusted thereafter to recognise the Group’s share of the profit or loss and other comprehensive income of the associate. When the Group’s share of losses of an associate exceeds the Group’s interest in that associate (which includes any long-term interests that, in substance, form part of the Group’s net investment in the associate), the Group discontinues recognising its share of further losses. Additional losses are recognised only to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the associate. An investment in an associate is accounted for using the equity method from the date on which the investee becomes an associate. On acquisition of the investment in an associate, any excess of the cost of the investment over the Group’s share of the net fair value of the identifiable assets and liabilities of the investee is recognised as goodwill, which is included within the carrying amount of the investment. Any excess of the Group’s share of the net fair value of the identifiable assets and liabilities over the cost of the investment, after reassessment, is recognised immediately in profit or loss in the period in which the investment is acquired. 30 A.P. Eagers ANNUAL REPORT 2014NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS 31 DECEMBER 2014 (continued) The Group continues to use the equity method when an investment in an associate becomes an investment in a joint venture or an investment in a joint venture becomes an investment in an associate. There is no remeasurement to fair value upon such changes in ownership interests. When the Group reduces its ownership interest in an associate but the Group continues to use the equity method, the Group reclassifies to profit or loss the proportion of the gain or loss that had previously been recognised in other comprehensive income relating to that reduction in ownership interest if that gain or loss would be classified to profit or loss on the disposal of the related assets or liabilities. When a Group entity transacts with an associate of the Group, profits and losses resulting from the transactions with the associate are recognised in the Group’s consolidated financial statements only to the extent of interests in the associate that are not related to the Group. (c) Operating segments Operating segments are identified based on internal reports that are regularly reviewed by the entity’s chief operating decision maker in order to allocate resources to the segment and assess its performance. The Group has four operating segments being (i) Car Retail (ii) Truck Retail (iii) Property (iv) Investments. Currently the segment of “Other” is not required. (d) Revenue (i) Sales revenue Revenue from the sales of motor vehicles and parts is recognised when the buyer has accepted the risks and rewards of ownership, generally by taking delivery of the goods. 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) The requirements of AASB 139 are applied to determine whether it is necessary to recognise any impairment loss with respect to the Group’s investment in an associate. When necessary, the entire carrying amount of the investment (including goodwill) is tested for impairment of assets as a single asset by comparing its recoverable amount (higher of value in use and fair value less costs to sell) with its carrying amount. Any impairment loss recognised forms part of the carrying amount of the investment. Any reversal of that impairment loss is recognised in accordance with AASB 136 to the extent that the recoverable amount of the investment subsequently increases. The Group discontinues the use of the equity method from the date when the investment ceases to be an associate, or when the investment is classified as held for sale. When the Group retains an interest in the former associate and the retained interest is a financial asset, the Group measures the retained interest at fair value at that date and the fair value is regarded as its fair value on initial recognition in accordance with AASB 139. The difference between the carrying amount of the associate at the date the equity method was discontinued, and the fair value of any retained interest and any proceeds from disposing of a part interest in the associate is included in the determination of the gain or loss on disposal of the associate. In addition, the Group accounts for all amounts previously recognised in other comprehensive income in relation to that associate on the same basis as would be required if that associate had directly disposed of the related assets or liabilities. Therefore, if a gain or loss previously recognised in other comprehensive income by that associate would be reclassified to profit or loss on the disposal of the related assets or liabilities, the Group reclassifies the gain or loss from equity to profit or loss (as a reclassification adjustment) when the equity method is discontinued. (ii) Service revenue Service work on customers’ motor vehicles is carried out under instructions from the customer. Service revenue is recognised based upon the percentage completion of the work requested. The percentage completion is measured by reference to labour hours incurred to date as a percentage of estimated total labour hours for the service to be performed. Revenue arising from the sale of parts fitted to customers’ vehicles during service is recognised upon delivery of the fitted parts to the customer upon completion of the service. (iii) Rental income Rental income from operating leases is recognised in income on a straight- line basis over the lease term. (iv) Interest revenue Interest revenue is recognised on a time proportional basis, taking into account the effective interest rates applicable to the financial assets. (v) Dividend revenue Dividend revenue is recognised when the right to receive a dividend has been established. Dividends received from associates are accounted for in accordance with the equity method of accounting in the consolidated financial statements. (vi) Goods and Services Tax (GST) All revenue is stated net of the amount of Goods and Services Tax (GST). (e) Finance costs Borrowing costs are recognised as expenses in the period in which they are incurred. Borrowing costs include: • • interest on bank overdrafts, short and long-term borrowings interest on vehicle bailment arrangements • interest on finance lease liabilities • amortisation of ancillary costs incurred in connection with the arrangement of borrowings 31 A.P. Eagers ANNUAL REPORT 2014NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS 31 DECEMBER 2014 (continued) 1. SUMMARY OF SIGNIFICANT (ii) Goods and services tax (“GST”) (h) Business combinations Revenues, expenses and assets are recognised net of the amount of GST except: • where the GST incurred on a purchase of goods and services is not recoverable from the taxation authority, in which case the GST is recognised as part of the cost of acquisition of the asset or as part of the expense item as applicable; and • receivables and payables are stated with the amount of GST included. The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the statement of financial position. Cash flows are included in the Statement of Cash Flows on a gross basis and the GST component of cash flows arising from investing and financing activities, which is recoverable from or payable to the taxation authority, are classified as operating cash flows. Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the taxation authority. (g) Leases 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 profit or loss on a straight- line basis over the period of the lease. ACCOUNTING POLICIES (continued) (f) Taxes (i) Income tax The income tax expense or revenue for the period is the tax payable on the current period’s taxable income based on the notional income tax rate for each jurisdiction, 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 recovered or liabilities are settled, based on those tax rates which are enacted or substantively enacted for each jurisdiction. 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 transaction 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. Current and deferred tax balances attributable to amounts recognised directly in equity are also recognised directly in equity. The purchase method of accounting is used 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. Acquisition related costs are recognised in profit or loss as incurred. 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 non-controlling 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 (refer to Note 1(s)). If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognised directly in profit or loss but only after are assessment 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 values as at the date of acquisition. The discount rate used is the incremental borrowing rate, being the rate at which a similar borrowing could be obtained from an independent financier under comparable terms and conditions. If the initial accounting for a business acquisition is incomplete by the end of the reporting period in which the combination occurs, the consolidated entity reports provisional amounts for the items for which accounting is incomplete. The provisional amounts are adjusted during the measurement period (no longer than 12 months from the initial acquisition) on a retrospective basis by restating the comparative information presented in the financial statements. 32 A.P. Eagers ANNUAL REPORT 2014NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS 31 DECEMBER 2014 (continued) 1. SUMMARY OF SIGNIFICANT (j) Cash and cash equivalents (l) Inventories New motor vehicles are stated at the lower of cost and net realisable value. Demonstrator vehicles are stated at the lower of cost and net realisable value. Costs are assigned on the basis of specific identification. Used motor vehicles are stated at the lower of cost and net realisable value on a unit by unit basis. Net realisable value has been determined by reference to the likely net realisable value given the age of the vehicles at year end. Costs are assigned on the basis of specific identification. Spare parts and accessories are stated at the lower of cost and net realisable value. Costs are assigned to individual items on the basis of weighted average cost. Work in progress is stated at cost. Cost includes labour incurred to date and consumables utilised during the service. Costs are assigned to individual customers on the basis of specific identification. ACCOUNTING POLICIES (continued) (i) Impairment of long lived assets (excluding goodwill) Assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment. Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and its value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units “CGU”) and these cash flows are discounted using the estimated weighted average cost of capital of the asset/CGU. An impairment loss is recognised in profit or loss immediately, unless the relevant asset is carried at fair value, in which case the impairment loss is treated as a revaluation decrease (refer Note 1(p)). Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased to the revised estimate of its recoverable amount, but only to the extent that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment losses been recognised for the asset (cash-generating unit) in prior years. A reversal of an impairment loss is recognised in profit or loss immediately, unless the relevant asset is carried at fair value,in which case, the reversal of the impairment loss is treated as a revaluation increase (refer Note1(p)). Cash and cash equivalents include cash on hand, deposits held at call with financial institutions, other short- term, highly liquid investments 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, and bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities on the statement of financial position. (k) Receivables Leasebook receivables A receivable is recognised for this class of debtor when the loan documentation is signed. The carrying amount of the debt is net of unearned income. Income from lease and mortgage loan contracts is brought to account in accordance with a method that ensures that income earned over the term of the contract bears a constant relationship to the funds employed. Trade receivables Trade receivables are recognised initially at fair value and subsequently measured at amortised cost, less provision for doubtful debts. Trade receivables are due for settlement no more than 60 days from the date of recognition. In respect of trade and lease book receivables, collectability is reviewed on an ongoing basis. Debts which are known to be uncollectible are written off. A provision for doubtful debts is raised where some doubt as to collectability exists. The amount of the provision is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the effective interest rate. The amount of the provision is recognised in profit or loss. 33 A.P. Eagers ANNUAL REPORT 2014NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS 31 DECEMBER 2014 (continued) 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 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 or loss - is removed from equity and recognised in profit or loss. (ii) Loans and receivables Loans and receivables are non derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise when the Group provides money, goods or services directly to a debtor with no intention of selling the receivable. They are included in current assets, except for those with maturities greater than 12 months after the balance date which are classified as non-current assets. Loans and receivables are included in receivables in the statement of financial position (Notes 9 and 12). Loans and receivables are measured at amortised cost using the effective interest method less impairment. Interest is recognised by applying the effective interest rate classification of its investments at initial recognition and re-evaluates this designation at each reporting date. (n) 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 available-for-sale securities) is based on quoted market prices at the balance date. The quoted market price used for financial assets held by the Group is the current bid price. The fair value of financial instruments that are not traded in an active market 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 fair value of interest rate swaps is determined based on market expectations of future interest rates. The nominal value less estimated credit adjustments of trade receivables and payables are assumed to approximate their fair values. 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. (o) Derivatives Derivatives are recognised at their fair value at each reporting date. The method of recognising the resulting gain or loss depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged. The Group designates certain derivatives as hedges of exposure to variability in cash flows, which includes hedges for highly probable forecast transactions (cash flow hedges). The Group documents at the inception of the transaction the relationship between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking various hedge transactions. The Group also documents its assessments, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions have been and will continue to be highly effective in offsetting changes in fair values or cash flows of hedged items. Refer further details in Note 18. 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) (m) Investments and other financial assets Investments are recognised and derecognised on settlement date where the purchase or sale of an investment is under a contract whose terms require delivery of the investment within the timeframe established by the market concerned, and are initially measured at fair value, net of transaction costs except for those financial assets classified as at fair value through profit or loss which are initially measured at fair value. Subsequent to initial recognition, investments in associates are accounted for under the equity method in the consolidated financial statements. The group classifies its other financial assets in the following categories: (i) available-for-sale financial assets and (ii) loans and receivables. The classification depends on the purpose for which the financial assets were acquired. Management determines the classification of its investments at initial recognition and re-evaluates this designation at each reporting date. (i) Available-for-sale financial assets Available-for-sale financial assets are initially measured at cost at date of acquisition, which include transaction costs, and subsequent to initial recognition, they are carried at fair value. Unrealised gains and losses arising from changes in the fair value of non-monetary securities classified as available- for-sale are recognised in equity in the available-for-sale investments revaluation reserve. When securities classified as available-for-sale are sold or impaired, the accumulated fair value adjustments are included in profit or loss as gains and losses from the sale or impairment of investment securities. The fair values of quoted investments are based on current bid prices. If the market for a financial asset is not active (and for unlisted securities), the Group establishes fair value by using valuation techniques. These include reference to the fair values of recent arm’s length transactions, involving the same instruments or other instruments that are substantially the same, discounted cash flow analysis, and pricing models to reflect the issuer’s specific circumstances. 34 A.P. Eagers ANNUAL REPORT 2014NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS 31 DECEMBER 2014 (continued) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) (i) Cash flow hedges The change in the fair value from remeasuring derivatives that are designated and qualify as cash flow hedges is deferred in equity as a hedging reserve, to the extent that the hedge is effective. The ineffective portion is recognised in profit or loss immediately. Amounts deferred in the hedging reserve are recycled in profit or loss in the periods when the hedged item is recognised in profit or loss. However, when the forecast transaction that is hedged results in the recognition of a non-financial asset or non-financial liability, the gains or losses previously deferred in the hedging reserve are transferred from equity and included in the initial cost and measurement of the cost of the asset or liability. Hedge accounting is discontinued when the Group revokes the hedging relationship, the hedging instrument expires or is sold, terminated or exercised, or no longer qualifies for hedge accounting. Any cumulative gain or loss deferred in the hedging reserve at that time remains in equity and is recognised when the forecast transaction is ultimately recognised in profit or loss. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was deferred in equity is recognised immediately in profit or loss. (p) Property, plant and equipment Land and buildings are shown at fair value, based on annual assessment by the directors supported by periodic valuations by external independent valuers, less subsequent depreciation for buildings. Any accumulated depreciation at the date of revaluation is eliminated against the gross carrying amount of the asset and the net amount is restated to the revalued amount of the asset. All other property, plant and equipment are stated at historical cost less accumulated depreciation and impairment losses. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance are charged to profit or loss during the financial period in which they are incurred. Increases in the carrying amounts arising on revaluation of land and buildings are credited to property, plant and equipment revaluation reserve in shareholders’ equity. To the extent that the increase reverses a decrease previously recognised in profit or loss, the increase is first recognised in profit or loss. Decreases that reverse previous increases of the same asset are first charged against revaluation reserves directly in equity to the extent of the remaining reserve attributable to the asset, all other decreases are charged to profit or loss. Land is not depreciated. Depreciation on other assets is calculated using the straight line method to allocate their cost or revalued amounts,net of their residual values, over their estimated useful lives, as follows: Buildings 40 years 3 - 10 years Plant & equipment Leasehold improvements 5 - 30 years The asset’s residual values and useful lives are reviewed, and adjusted if appropriate, at each balance 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(i)). Gains and losses on disposals are determined by comparing proceeds with carrying amounts. These are included in profit or loss. When revalued assets are sold, it is Group policy to transfer the amounts included in the asset revaluation reserve in respect of those assets to retained earnings. 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, whichever is the shorter. The make good provision is capitalised as leasehold improvements and amortised over the term of the lease. (q) Trademarks / brand names Trademarks / brand names are valued on acquisition where management believe there is evidence of any of the following factors; an established brand name with longevity, a reputation that may positively influence a consumers decision to purchase or service a vehicle, and strong customer awareness within a particular geographic location. Trademarks are valued using a discounted cash flow methodology. Trademarks are considered to have an indefinite life as the Group expects to hold and support such trademarks through marketing and promotional support for an indefinite period. They are recorded at cost less any impairment. (r) Goodwill Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the net identifiable assets of the acquired subsidiary, associate or business at the date of acquisition. Goodwill on acquisition of subsidiaries and businesses is included in intangible assets. Goodwill on acquisition of associates is included in investment in associates. Goodwill acquired in business combinations is not amortised. Instead, goodwill is tested for impairment annually, or more frequently if events or changes in circumstances indicate that it might be impaired, and is carried at cost less accumulated impairment losses. An impairment loss for goodwill is recognised immediately in profit or loss and is not reversed in a subsequent period. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold. Goodwill is allocated to cash- generating units for the purpose of impairment testing (refer Note 16(b)). 35 A.P. Eagers ANNUAL REPORT 2014NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS 31 DECEMBER 2014 (continued) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) (s) Reclassification of intangible assets As a result of the recent acquisitions, management have re-assessed the nature of identifiable intangible assets and consider the below a more appropriate classification, as shown in the table. Goodwill Franchise Rights Trade marks/brand names 2013 As originally stated $’000 2013 Restatement $’000 2013 Restated $’000 62,580 56,962 5,717 125,259 56,962 (56,962) - - 119,542 - 5,717 125,259 Beyond that of which is displayed above, the reclassification has had no other impact on the financial statements. 2013 As originally stated $’000 2013 Restatement $’000 2013 Restated $’000 125,259 671,174 - - 125,259 671,174 1,216,865 - 1,216,865 539,125 - 539,125 63,962 - 63,962 Cents Cents Cents 36.4 35.3 - - 36.4 35.3 Statement of Financial Position: Non-current Intangible Assets Total Non-Current Assets Total Assets Net Assets Statement of Profit or Loss: Profit for the Year Earnings per share: - Basic earnings per share - Diluted earnings per share 36 A.P. Eagers ANNUAL REPORT 2014NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS 31 DECEMBER 2014 (continued) 1. SUMMARY OF SIGNIFICANT Provision for Warranties (ii) Diluted earnings per share ACCOUNTING POLICIES (continued) (t) Trade and other payables These amounts represent liabilities for goods and services provided to the Group prior to the end of the financial year which are unpaid. The amounts are unsecured and are usually paid within 30 days of recognition. They are recognised initially at the fair value of what is expected to be paid, and subsequently at amortised cost, using the effective interest rate method. (u) Borrowings Borrowings are initially recognised at fair value net of transaction costs incurred. Borrowings are subsequently measured at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption amount is recognised in profit or loss over the period of the borrowings using the effective interest rate method. 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 date. (v) New motor vehicle stock and related bailment Motor vehicles secured under bailment plans are provided to the Group under bailment agreements between the floor plan loan providers and entities within the Group. The Group obtains title to the vehicles immediately prior to sale. Motor vehicles financed under bailment plans held by the Group are recognised as trading stock with the corresponding liability shown as owing to the finance provider. (w) Provisions Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that the Group will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. The amount recognised as a provision is the best estimate taking into account the risks and uncertainties surrounding the obligation. Provision is made for the estimated claims in respect of extended warranties provided on the majority of the Group’s retail new and used vehicle sales. These claims are generally expected to settle in the next financial year but some may be extended into the following year if claims are made late in the warranty period. (x) Employee benefits A liability is recognised for benefits accruing to employees in respect of wages and salaries, annual leave and long service leave, when it is probable that setttlement will be required and they are capable of being measured reliably. Liabilities recognised in respect of short-term employee benefits, are measured at their nominal values using the remuneration rate expected to apply at the time of settlement. Liabilities recognised in respect of long-term employee benefits are measured as the present value of the estimated future cash outflows to be made by the Group in respect of services provided by employees up to reporting date. The Group recognises a liability and an expense for long-term incentive plans for selected exceutives based on targets set for diluted earning per growth. Contributions are made by the Group to defined contribution employee superannuation funds and are charged as expenses when incurred. (y) Dividends Provision is made for the amount of any dividend declared on or before the end of the year but not distributed at balance date. (z) Earnings per share (i) Basic earnings per share Basic earnings per share is calculated as net profit attributable to members of the parent, adjusted to exclude any costs of servicing equity (other than dividends), divided by the weighted average number of ordinary shares, adjusted for any bonus element. Diluted earnings per share is calculated as net profit attributable to members of the parent, adjusted for: • Costs of servicing equity (other than dividends) • The after tax effect of dividends and interest associated with dilutive potential ordinary shares that have been recognised as expenses • Other non-discretionary changes in revenues or expenses during the period that would result from the dilution of potential ordinary shares, divided by the weighted average number of ordinary shares and dilutive potential ordinary shares, adjusted for any bonus element. (aa) Non-Current assets held for sale Non-current assets and disposal groups are classified as held for sale if their carrying amount will be recovered principally through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the asset (or disposal group) is available for immediate sale in its present condition. Management must be committed to the sale, which should be expected to qualify for recognition as a completed sale within one year from the date of classification. Non-current assets (and disposal groups) classified as held for sale are measured at the lower of their previous carrying amount and fair value less costs to sell. (ab) Rounding of amounts The company is of a kind referred to in Class Order 98/100, 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. 37 A.P. Eagers ANNUAL REPORT 2014NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS 31 DECEMBER 2014 (continued) Consequential amendments have been made to AASB 12 and AASB 127 to introduce new disclosure requirements for investment entities. As the Company is not an investment entity (assessed based on the criteria set out in AASB 10 as at 1 January 2014), the application of the amendments has had no impact on the disclosures or the amounts recognised in the Group’s consolidated financial statements. Amendments to AASB 132 offsetting Financial Assets and Financial Liabilities The Group has applied the amendments to AASB 132 Offsetting Financial Assets and Financial Liabilities for the first time in the current year. The amendments to AASB 132A clarify the requirements relating to the offset of financial assets and financial liabilities. Specifically, the amendments clarify the meaning of ‘currently has a legal enforceable right of set-off’ and ‘simultaneous realisation and settlement’. The amendments have been applied retrospectively. As the Group does not have any financial assets and financial liabilities that qualify for offset, the application of the amendments has had no impact on the disclosures or on the amounts recognised in the Group’s consolidated financial statements. The Group has assessed whether certain of its financial assets and financial liablities qualify for offset based on the criteria set out in the amendments and concluded that the application of the amendments has had no impact on the amounts recognised in the Group’s consolidated financial statements. Amendments to AASB 136 Recoverable Amount Disclosures for Non-Financial Assets The Group has applied the amendments to AASB 136 Recoverable Amount Disclosures for Non-Financial Assets for the first time in the current year. The amendments to AASB 136 remove the requirement to disclose the recoverable amount of a cash-generating unit (CGU) to which goodwill or other intangible assets with indefinite useful lives had been allocated when there has been no impairment or reversal of impairment of the related CGU. Furthermore, the amendments introduce additional disclosure requirements applicable to when the recoverable amount of an asset or a CGU is measured at fair value less costs of disposal. These new disclosures include the fair value hierarchy, key assumptions and valuation techniques used which are in line with the disclosure required by AASB 13 Fair Value Measurements. The application of these amendments has had no material impact on the disclosures in the Group’s consolidated financial statements. Amendments to AASB 139 Novation of Derivatives and Continuation of Hedge Accounting The Group has applied the amendments to AASB 139 Novation of Derivatives and Continuation of Hedge Accounting for the first time in the current year. The amendments to AASB 139 provide relief from the requirements to discontinue hedge accounting when a derivative designated as a hedging instrument is novated under certain circumstances. The amendments also clarify that any change to the fair value of the derivative designated as a hedging instrument arising from the novation should be included in the assessment and measurement of hedge effectiveness. The amendments have been applied retrospectively. As the Group does not have derivatives that are subject to novation, the application of these amendments has had no impact on the disclosures or on the amounts recognised in the Group’s consolidated financial statements. 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) (ac) New or revised standards and interpretations that are first effective in the current reporting period The group has adopted all of the new and revised Standards and Interpretations issued by the Australian Accounting Standards Board (the AASB) that are relevant to their operations and effective for the current reporting period. The adoption of all the new and revised Standards and Interpretations has resulted in changes to the Group’s accounting policies and has effect on the amounts reported for the current and prior periods. The new and revised Standards and Interpretations has not had a material impact on profit or loss and other comprehensive income but has resulted in changes to the Group’s presentation of, or disclosure in its financial statements. Amendments to AASB 10, AASB 12 and AASB 127 Investment Entities The Group has applied the amendments to AASB 10, AASB 12 and AASB 127 Investment Entities for the first time in the current year. The amendments to AASB 10 define an investment entity and require a reporting entity that meets the definition of an investment entity not to consolidate its subsidiaries but instead to measure its subsidiaries at fair value through profit or loss in its consolidated and separate financial statements. To qualify as an investment entity, a reporting entity is required to: • obtain funds from one or more investors for the purpose of providing them with investment management services, • commit to its investors that its business purpose is to invest funds solely for returns from capital appreciation, investment income or both, and • measure and evaluate performance of substantially all of its investments on a fair value basis. 38 A.P. Eagers ANNUAL REPORT 2014NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS 31 DECEMBER 2014 (continued) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) (ad) Standards and Interpretations in issue not yet adopted At the date of authorisation of the financial statements, the following Standards and Interpretations revelant to the Group were in issue but not yet effective. The potential impact of the new or revised Standards and Interpretations has not yet been determined. Standard/Interpretation Effective for annual reporting periods beginning on or after Expected to be initially applied in the financial year ending AASB 9 ‘Financial Instruments’, and the relevant amending standards 1-Jan-18 31-Dec-18 AASB 2014-1 ‘Amendments to Australian Accounting Standards’ 1-Jul-14 31-Dec-15 - Part A: ‘Annual Improvements 2010–2012 and 2011–2013 Cycles’ - Part B: ‘Defined Benefit Plans: Employee Contributions (Amendments to AASB 119)’ - Part C: ‘Materiality’ AASB 2014-4 ‘Amendments to Australian Accounting Standards’ ‘Clarification of Acceptable Methods of Depreciation and Amortisation’ 1-Jan-16 31-Dec-16 AASB 15 ‘Revenue from Contracts with Customers and AASB 2014-5’ ‘Amendments to Australian Accounting Standards arising from AASB 15’ 1-Jan-17 31-Dec-17 AASB 2014-10 ‘Amendments to Australian Accounting Standards’ ‘Sale or Contribution of Assets between an Investor and its Associate or Joint Venture’ 1-Jan-16 31-Dec-16 AASB 2015-1 ‘Amendments to Australian Accounting Standards’ ‘Annual Improvements to Australian Accounting Standards 2012-2014 Cycle’ 1-Jan-16 31-Dec-16 AASB 2015-2 ‘Amendments to Australian Accounting Standards’ ‘Disclosure Initiative: Amendments to AASB 101’ AASB 2015-3 ‘Amendments to Australian Accounting Standards’ ‘Arising from the Withdrawal of AASB 1031 Materiality’ 1-Jan-16 31-Dec-16 1-Jul-15 31-Dec-16 At the date of authorisation of the financial statements, there were no IASB Standards or IFRIC Interpretations on issue but not yet effective, although Australian equivalent Standards and Interpretations have not yet been issued. 39 A.P. Eagers ANNUAL REPORT 2014NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS 31 DECEMBER 2014 (continued) 2. CRITICAL ACCOUNTING ESTIMATES (ii) Fair value estimation of land AND JUDGEMENTS and buildings (a) Critical accounting estimates, assumptions and judgements Estimates, assumptions and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that may have a financial impact on the Group and that are believed to be reasonable under the circumstances. The Group makes estimates, assumptions and judgements concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates, assumptions and judgements that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities are discussed below: (i) Estimated impairment of goodwill and other intangibles with indefinite useful lives Goodwill and other intangibles with indefinite useful lives with a carrying value of $165,733,000 (2013: $125,259,000) are tested annually for impairment, based on estimates made by directors. The recoverable amount of the intangibles is based on the greater of ‘Value in use’ or ‘Fair value less costs to dispose’. Value in use is assessed by the directors through a discounted cash flow analysis which includes significant estimates and assumptions related to growth rates, margins, working capital requirements and cost of capital. Fair value less costs to dispose is assessed by the directors based on their knowledge of the industry and recent market transactions. Further information on the intangibles impairment test can be found in Note 16(b). Land and buildings with a carrying value of $250,317,000 (2013: $312,660,000) are carried at fair value. This fair value is determined by the directors and is supported by formal independent valuations conducted periodically but at least every three years. Further information on the fair value estimation of land and buildings can be found in Note 15. (iii) Provisions for warranties A provision for warranties of $3,863,000 (2013: $3,350,000) has been recognised for extended warranties provided for the Group’s retail new and used vehicle sales. This provision has been estimated based on past experience and confirmation of future costs by the administrators of the warranty programmes. Further information on the provision for warranties can be found in Note 21. (iv) Estimation of make good provisions An amount of $1,787,000 (2013: $1,767,000) has been estimated in respect of a leased property for any expenditure required to be incurred to restore the property back to its original state. The lease has approximately 14 years to run at balance date, with a bank guarantee being given for the $1,767,000 recognised. In terms of the lease, this amount will be indexed and will increase in the future, therefore it is the maximum estimate of what would be payable today. An additional $20,000 has been estimated for an additional leased property to restore the property back to its original state. Further information on the estimate of make good provisions can be found in Note 24. 40 A.P. Eagers ANNUAL REPORT 2014NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS 31 DECEMBER 2014 (continued) 3. REVENUE Sales revenue New vehicles Used vehicles Parts Service Other Other revenue Dividend received Rents Interest Proceeds of insurance claims Commissions Other Total revenue 4. OTHER GAINS CONSOLIDATED 2014 $'000 2013 $'000 1,737,717 1,624,187 557,331 342,109 170,273 1,177 531,505 335,713 160,660 68 2,808,607 2,652,133 12,087 54 1,670 19,587 11,151 4,957 9,970 107 1,214 162 7,140 2,087 49,506 20,680 2,858,113 2,672,813 Gains on disposal of other assets 3,892 2,000 41 A.P. Eagers ANNUAL REPORT 2014NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS 31 DECEMBER 2014 (continued) 5. EXPENSES (a) Profit before income tax includes the following specific expenses: Depreciation Buildings Plant and equipment Leased motor vehicles Total depreciation Amortisation Leasehold improvements Brand names Total depreciation and amortisation (Notes 15 & 16) Finance costs Vehicle bailment & related hedge Other Total finance expense Rental expense relating to operating leases Minimum lease payments CONSOLIDATED 2014 $'000 2013 $'000 3,540 5,960 744 3,915 6,285 - 10,244 10,200 2,201 138 2,049 105 12,583 12,354 10,691 11,389 11,597 11,591 22,080 23,188 21,310 17,587 Contributions to superannuation funds 21,362 18,865 7,977 6,167 459 14,603 (314) 5,421 439 5,546 2,135 1,453 2,761 594 578 - Provision expenses Inventory Warranties Bad debts Share-based payments Business acquisition costs (b) Impairment of non-current assets Revaluation loss of land & buildings (Note 15) 42 A.P. Eagers ANNUAL REPORT 2014NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS 31 DECEMBER 2014 (continued) 6. INCOME TAX (a) Income tax expense (benefit) Current income tax expense Deferred income tax benefit (Note 23) Deferred income tax expense/(benefit) included in income tax expense comprises: Decrease in deferred tax liabilities (b) Numerical reconciliation of income tax expense to prima facie tax payable Profit before income tax expense Income tax calculated at 30% (2013 - 30%) Tax effect of amounts which are not deductible (taxable) in calculating taxable income: Depreciation and amortisation Non-taxable dividends Non allowable expenses Sundry items Income tax expense CONSOLIDATED 2014 $'000 2013 $'000 28,243 (2,093) 23,667 (919) 26,150 22,748 (2,093) (919) 102,840 86,710 30,852 26,013 212 (5,827) 1,692 (779) 364 (3,319) 953 (1,263) 26,150 22,748 (c) Amounts recognised directly in equity Aggregate deferred tax arising in the reporting period and not recognised in net profit or loss but directly credited (debited) to equity (Note 23) (95) 8,100 The tax rate used in the above reconciliations is the corporate tax rate of 30% payable by Australian corporate entities on taxable profits under Australian tax law. There has been no change in the corporate tax rate when compared with the previous reporting period. 43 A.P. Eagers ANNUAL REPORT 2014NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS 31 DECEMBER 2014 (continued) 7. DIVIDENDS CONSOLIDATED 2014 $'000 2013 $'000 Ordinary dividends fully franked based on tax paid @ 30% Final dividend for the year ended 31 December 2013 of 15.0 cents per share (2012 - 13.0 cents) paid on 16 April 2014 Interim dividend of 9.0 cents (2013 - 8.0 cents) per share paid on 3 October 2014 Total dividends paid 26,516 15,954 42,470 22,246 14,124 36,370 Dividends paid in cash or satisfied by the issue of shares under the dividend reinvestment plan during the years ended 31 December 2014 and 31 December 2013 were as follows: Paid in cash Satisfied by issue of shares under Dividend Reinvestment Plan Dividends not recognised at year end In addition to the above dividends, since year end the directors have recommended the payment of a final dividend of 18 cents per share, fully franked based on tax paid at 30%. The aggregate amount of the proposed dividend expected to be paid on 17 April 2015 out of the retained profits at 31 December 2014, but not recognised as a liability at year end, is: 42,470 - 42,470 14,127 22,243 36,370 32,176 26,515 Franked dividends The final dividend recommended after 31 December 2014 will be franked out of existing franking credits or out of franking credits arising from the payment of income tax in the year ending 31 December 2015. Franking credits available for subsequent financial years based on a tax rate of 30% (2013 - 30%) 148,995 120,300 The above amounts represent the balances of the franking account as at the end of the financial year, adjusted for: (a) franking credits that will arise from the payment of the current tax liability (b) franking debits that will arise from the payment of the dividends recognised as a liability at the reporting date; and (c) franking credits that will arise from the receipt of dividends recognised as receivables at the reporting date. Impact on franking credits of dividends not recognised (13,790) (11,364) 8. CURRENT ASSETS – Cash and cash equivalents Cash at bank and on hand Short Term Deposits The above figures are reconciled to cash at the end of the financial year as shown in the statement of cash flows as follows: Balances as above Less: Bank overdrafts Balance per statement of cash flows 10,777 13,000 3,106 9,000 23,777 12,106 23,777 - 12,106 - 23,777 12,106 44 A.P. Eagers ANNUAL REPORT 2014NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS 31 DECEMBER 2014 (continued) 9. CURRENT ASSETS – Receivables (a) Trade and other receivables (i) Less: Provision for doubtful receivables (ii) (b) Leasebook receivables Less: Provision for doubtful receivables (ii) CONSOLIDATED 2014 $'000 2013 $'000 108,414 2,622 97,313 2,394 105,792 94,919 - - - 27 16 11 (i) The ageing of lease, property and trade receivables at 31 December 2014 is detailed below: Not past due Past due 0 -30 days Past due 31 plus days Total CONSOLIDATED 2014 2013 Gross $000 100,857 4,339 3,218 108,414 Provision $000 1,778 102 742 2,622 Gross $000 89,950 3,603 3,787 97,340 Provision $000 1,552 77 781 2,410 The maximum credit period on trade sales is 60 days. No interest is charged on the trade receivables from the date of invoice or when past due. The Group has provided fully for all receivables identified by management as being specifically doubtful, and in addition has provided 10% for all receivables over 90 days and 2.5% of total trade receivables excluding motor vehicle debtors. The Group’s provision policy is based on an assessment of changes in credit quality and historical experience. Included in the Group’s trade receivables balance are debtors with a carrying amount of $6,713,000 (2013: $6,532,000) which are past due at the reporting date. The Group have not provided for these balances as there has not been any specifically identified factors that would indicate a deterioration of credit quality. The Group therefore still considers the amounts recoverable. The Group does not hold any collateral over these balances. The average age of these receivables is 62 days (2013: 62 days). (ii) Movement in provision for doubtful receivables Opening Balance Additional provisions Addition due to acquisitions Amounts written off during the year Closing Balance CONSOLIDATED 2014 $'000 2,410 459 29 (276) 2,622 2013 $'000 2,504 439 - (533) 2,410 In determining the recoverability of a trade receivable the Group considers any deterioration in the credit quality of the trade receivable from the date credit was initially granted up to the reporting date. The concentration of credit risk is limited due to the customer base being large, diverse and unrelated. Accordingly, the directors believe that there is no further provision required in excess of the provision for doubtful debts. 45 A.P. Eagers ANNUAL REPORT 2014NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS 31 DECEMBER 2014 (continued) 10. CURRENT ASSETS – Inventories New motor vehicles & trucks – bailment stock – at cost Less: Write-down to net realisable value Used vehicles & trucks – at cost Less: Write-down to net realisable value Parts and other consumables – at cost Less: Write-down to net realisable value Total Inventories 11. CURRENT ASSETS – Other current assets Prepayments and deposits (a) Property assets held for sale Land & buildings held for sale This asset relates to properties surplus to the ongoing business requirements of the Group and are expected to be sold within 12 months of balance date. (b) Property sale receivable Property sale receivable Sale of property where proceeds are expected to be received within 12 months of balance date. 12. NON-CURRENT ASSETS – Receivables (a) Property sale receivables (b) Loans receivables CONSOLIDATED 2014 $'000 2013 $'000 343,812 7,835 335,977 290,343 4,152 286,191 89,446 7,855 81,591 53,618 1,981 51,637 77,915 3,783 74,132 51,178 1,759 49,419 469,205 409,742 1,884 7,301 27,781 21,612 6,717 - 18,826 - 9,787 1,437 46 A.P. Eagers ANNUAL REPORT 2014NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS 31 DECEMBER 2014 (continued) 13. NON-CURRENT ASSETS – Available-for-sale investments carried at fair value Shares in an unlisted company – One Way Traffic Pty Ltd (Carsguide) 1 Shares in a listed company – Automotive Holdings Group Limited 2 CONSOLIDATED 2014 $'000 2013 $'000 2,345 232,046 2,345 192,850 234,391 195,195 (1) The Directors have assessed the fair value of the investment as at 31 December 2014 is materially consistent with its cost of acquisition. This is a level 3 fair value measurement asset being derived from inputs other than quoted prices that are unobservable from the asset either directly or indirectly. (2) The Directors have assessed the fair value of the investment as at 31 December 2014 based on the market price of the shares on the last trading day of the reporting period. This is a level 1 fair value measurement asset being derived from inputs based on quoted prices that are observable. Valuation of Available for sale investments Details of the Group’s available for sale investments and information about the fair value hierarchy as at 31 December 2014 are as follows: Class of Financial Assets and Liabilities Level 1 Available for sale investments – listed entities Level 3 Available for sale investments – unlisted entities Unobservable inputs used in determination of fair values Carrying Amount 31/12/14 $000’s Carrying Amount 31/12/13 $000’s 232,046 192,850 Valuation Technique Key Input Quoted bid prices in an active market. Quoted bid prices in an active market. 2,345 2,345 Net asset assessment and available bid prices from equity participants There were no transfers between levels in the year. 14. NON-CURRENT ASSETS – Investment in associate Pre tax operating margin taking into account managements experience and knowledge of market conditions and financial position Market information based on available bid prices CONSOLIDATED 2014 $'000 2013 $'000 Shares in an associate – Norna Limited (formerly M T Q Insurance Services Limited) 1,620 4,327 Investment in associates is accounted for in the consolidated financial statements using the equity method of accounting (refer Note 40). Reconciliation of the carrying amount of investment in associate is set out in Note 40(b). 47 A.P. Eagers ANNUAL REPORT 2014NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS 31 DECEMBER 2014 (continued) 15. NON-CURRENT ASSETS – Property, plant and equipment Freehold land and buildings – at fair value Directors’ valuation Land Buildings Construction in progress Total land and buildings Leasehold improvements At cost Less: Accumulated amortisation Total leasehold improvements Plant and equipment At cost Less: Accumulated depreciation Total plant and equipment Motor vehicles under lease At cost Less: Accumulated depreciation Total motor vehicles under lease CONSOLIDATED 2014 $'000 2013 $'000 152,879 97,251 187 250,317 193,500 112,357 6,803 312,660 27,625 13,179 14,446 55,644 33,842 21,802 8,901 2,981 5,920 26,405 11,872 14,533 50,106 32,343 17,763 - - - Total property, plant and equipment 292,485 344,956 Valuation of land and buildings The basis of the directors’ valuation of land and buildings is the assessed fair value, being the amounts for which the assets could be exchanged between willing parties in an arm’s length transaction at balance date, based on current prices in an active market for similar properties in the same location and condition. The assessed fair value is supported by periodic, but at least triennial valuations, by external third party valuers. The 2014 valuations were made by the directors based on their assessment of prevailing market conditions and supported by fair value information received from independent expert property valuers on certain properties and the Group’s own market activities and market knowledge. 48 A.P. Eagers ANNUAL REPORT 2014NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS 31 DECEMBER 2014 (continued) 15. NON-CURRENT ASSETS – Property, plant and equipment (continued) Details of the Group’s freehold land and buildings and information about the fair value hierarchy as at 31 December 2014 are as follows: Class of Financial Assets & Liabilities Level 3 Car – HBU Alternate Use Level 3 Car Dealership Unobservable inputs used in determination of fair values Carrying Amount 31/12/14 $000’s Carrying Amount 31/12/13 $000’s Valuation Technique Key Input Input Average/ Range 2014 Average/ Range 2013 Other key Information Range (weighted avg) 2014 Range (weighted avg) 2013 44,601 80,962 Direct comparison 167,389 184,719 Summation method, income capitali- sation and direct comparison External valuations Specific incomplete transactions External valuations Industry bench- marks Price /sqm Land Average $1,875/sqm Average $1,924/sqm Land size Average 7,173 sqm Average 5,981 sqm Range $1,623-$2,688 /sqm Range $821-$5,036 /sqm Range 779 - 18,160 sqm Range 779 - 18,160 sqm Average 9.6% Average 9.6% Net Rent /sqm Land Average $96 sqm Average $90 sqm Range 3.4% - 15.9% Range 3.0% - 19.2% Range $25 to $297 sqm Range $22 to $297 sqm Net Rent/ Gross Income 8% - 12% (Non- luxury) 10% - 14% (Luxury) Capitalisa- tion Rate Average 8.2% Average 8.0% Net Rent /sqm GBA Average $197 sqm Average $192 sqm Level 3 Development – Car Dealership Level 3 Truck Dealership 9,350 11,075 Direct comparison External valuations Price /sqm Land Range $100 to $750 sqm Range $100 to $584 sqm Range 6.7% - 9.8% Range 5.2% - 10.7% Average $459/sqm Range $330 - $821 /sqm Average $375/sqm Range $212 - $531 /sqm 20,734 20,968 Direct comparison External valuations Price / sqm Land Price /sqm GBA Average $371/sqm Average $375/sqm Land Size Average 18,641 sqm Average 18,641 sqm Range $209-$526 /sqm Range $212-$531 /sqm Range 7,218 - 25,700 sqm Range 7,218 - 25,700 sqm Net Rent /Land sqm Average $30 sqm Average $30 sqm Range $17 to $43 sqm Range $17 to $43 sqm Capitalisa- tion Rate Average 8.2% Average 8.1% Range 8.1% to 8.4% Range 8.0% to 8.2% Level 3 Other Logistics 8,056 8,133 Income capitalisa- tion method supported by market comparison Sub Total 250,130 305,857 Construction in Progress 187 6,803 Total 250,317 312,660 External valuations Capitalisa- tion Rate Average 8.1% Average 7.4% Net Rent /sqm GBA Average $90 sqm Average $83 sqm Range 8.0% to 8.2% Range 6.8% to 8.2% Range $79-$143 sqm Range $63-$153 sqm There were no transfers between levels in the year. 49 A.P. Eagers ANNUAL REPORT 2014NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS 31 DECEMBER 2014 (continued) 15. NON-CURRENT ASSETS – Property, plant and equipment (continued) Explanation of asset classes; Car - HBU Alternate Use refers to properties currently operated as car dealerships which have a higher and best use (HBU) greater than that of a car dealership; Car Dealership refer to properties operating as car dealership with a consistent HBU; Development Car Dealership refers to properties which are in progress of, or being held for future development as a car dealership; Truck Dealership referes to properties being operated as a truck dealership with a HBU consistent with that use; Other Logistics are industrial properties used for parts warehousing and vehicle logistics. Carrying amounts that would have been recognised if land and buildings were stated at cost If freehold land was carried at historical cost, its current carrying value would be $98,129,000 (2013: $115,560,000). If freehold buildings (including construction in progress) were carried at historical cost, its current carrying value (after depreciation) would be $97,438,000 (2013: $119,160,000). Non-current assets pledged as security Refer to Note 22 for information on non-current assets pledged as security by the Group. Reconciliations Reconciliation of the carrying amounts of each class of property, plant and equipment at the beginning and end of the year is set out below: Freehold land $’000 Freehold buildings $’000 Construction in progress $’000 Leasehold improvements $’000 Motor vehicles under lease $’000 Plant and equipment $’000 Total $’000 Consolidated 2014 Carrying amount at start of year Additions Disposals/transfers Revaluation loss debited to asset revaluation reserve Revaluation loss charged to profit and loss Depreciation/ amortisation expense (Note 5) Transfer to property assets held for sale Carrying amount at end of year Consolidated 2013 Carrying amount at start of year Additions Disposals/transfers Revaluation gain credited to asset revaluation reserve Depreciation/ amortisation expense (Note 5) Transfer (to)/from property assets held for sale Carrying amount at end of year 50 193,500 - (23,666) 112,357 6,549 (14,223) 6,803 187 (6,803) 14,533 2,114 - - 6,664 - 17,763 9,999 - 344,956 25,513 (44,692) (1,692) (578) - - - (3,540) (14,685) (3,892) - - - - - - - - - - (1,692) (578) (2,201) (744) (5,960) (12,445) - - - (18,577) 152,879 97,251 187 14,446 5,920 21,802 292,485 198,515 - (3,414) 118,320 2,525 (4,632) 406 6,459 (62) 3,203 - - (3,915) (4,804) 59 - - - 14,587 1,995 - - (2,049) - 193,500 112,357 6,803 14,533 - - - - - - - 19,034 5,014 - 350,862 15,993 (8,108) - 3,203 (6,285) (12,249) - (4,745) 17,763 344,956 A.P. Eagers ANNUAL REPORT 2014NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS 31 DECEMBER 2014 (continued) 16. NON-CURRENT ASSETS – Intangibles Goodwill Trade marks/brand names Movement – Goodwill Balance at the beginning of the financial year Additional amounts recognised: – from business combinations during the year (Note 29(a)) Less: Reclassification Balance at the end of the financial year Movement – Trade marks/brand names Balance at the beginning of the financial year Purchase of brand name during the year Less: Amortisation of Brand names Balance at the end of the financial year (a) Reclassification of intangible assets Refer to Note 1(s). CONSOLIDATED 2014 2013 Restated (a) $’000 $'000 158,837 6,896 119,542 5,717 165,733 125,259 119,542 111,787 39,295 - 158,837 8,462 (707) 119,542 5,717 1,317 (138) 6,896 5,734 88 (105) 5,717 (b) Impairment tests for goodwill and trade marks/brand names For the purpose of impairment testing, goodwill and other intangible assets with indefinite useful lives (being trade marks/ brand names) are allocated to each of the consolidated entity’s cash generating units (CGU), or groups of CGU’s, that are expected to benefit from the synergies of the combinations. Each unit or groups of units to which goodwill and other indefinite life intangible assets is allocated represents the lowest level at which assets are monitored for internal management purposes and is not larger than an identified operating segment. The CGU or groups of CGU’s to which goodwill and other indefinite life intangible assets is allocated are as follows; Automotive dealership operations: Goodwill Trade marks/brand names Truck dealership operations: Goodwill Trade marks/brand names $'000 145,360 5,846 151,206 13,477 1,050 14,527 CONSOLIDATED 2014 2013 Restated (a) $’000 106,065 4,667 110,732 13,477 1,050 14,527 51 A.P. Eagers ANNUAL REPORT 2014NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS 31 DECEMBER 2014 (continued) 16. NON-CURRENT ASSETS – Intangibles (continued) The recoverable amount of a CGU or group of CGU’s to which goodwill and other indefinite life intangible assets is allocated is determined based on the greater of its value in use and its fair value less costs to sell. Fair value is determined as being the amount obtainable from the sale of a CGU in an arms length transaction between knowledgeable and willing parties at balance date. This fair value assessment less costs to sell is conducted by the directors based on their extensive knowledge of the automotive and truck retailing industry including the current market conditions prevailing in the industry. The value in use assessment is conducted using a discounted cash flow (DCF) methodology requiring the directors to estimate the future cash flows expected to arise from the cash generating units and then applying a discount rate to calculate the present value. The DCF model adopted by directors was based on the 2015 financial budgets approved by the Board, a 3% (2014: 3%) perpetual growth rate and a pre-tax discount rate of 11% (2014: 11%). This growth rate does not exceed the long term average growth rate for the industry. The directors believe that any reasonable possible change in the key assumptions on which recoverable amount is based is not expected to cause that aggregate of the carrying amounts to exceed the aggregated amounts of the CGUs. (c) Impairment charge The Directors’ assessment in 2014 determined that goodwill and other intangible assets with indefinite useful lives was not impaired in both 2014 and 2013. 17. CURRENT LIABILITIES – Payables Trade and other payables Trade payables (i) Other payables (i) The average credit period on purchases of goods is 30 days. No interest is charged on trade payables from the date of invoice. The Group has financial risk management policies in place to ensure that all payables are paid within the credit timeframe. 18. DERIVATIVE FINANCIAL INSTRUMENTS Interest rate swap contracts – cash flow hedges Classified as: Current liabilities Non-current liabilities CONSOLIDATED 2014 $'000 2013 $'000 73,005 55,033 65,320 38,270 128,038 103,590 188 934 1,122 665 534 1,199 The Group is party to derivative financial instruments in the normal course of business in order to hedge exposure to fluctuations in interest rates in accordance with the Group’s financial risk management policies (refer to Note 28). Bailment finance of the Group currently bears an average variable interest rate of 4.78% (2013: 4.67%). The policy to protect part of this finance exposure against increasing interest rates was amended in 2013, such that in future this exposure will not be hedged. As at the end of the year there were no bailment interest swap contracts in place. The interest rate swaps currently in place are providing a fixed rate of interest on the variable cash advances drawn down under the term facility. The swap contracts in place cover approximately 55% (2013: 52%) of the term facility outstanding at the year end. The contracts require settlement of net interest receivable or payable each 30 days. The gain or loss from remeasuring the hedging instruments at fair value is deferred in equity in the hedging reserve to the extent that the hedge is effective and re-classified into profit or loss when the hedged interest expense is recognised. The ineffective portion is recognised in profit or loss immediately. At balance date, a loss from remeasuring the hedging instruments at fair value of $1,122,000 (2013: $1,199,000) has been recognised in equity in the hedging reserve (Note 27(a)). No portion was ineffective. 52 A.P. Eagers ANNUAL REPORT 2014NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS 31 DECEMBER 2014 (continued) 18. DERIVATIVE FINANCIAL INSTRUMENTS (continued) Valuation of Derivative financial instruments Details of the Group’s derivative financial instruments and information about the fair value hierarchy as at 31 December 2014 are as follows: Unobservable inputs used in determination of fair values Carrying Amount 31/12/14 $000’s Carrying Amount 31/12/13 $000’s Valuation Technique Key Input 1,122 1,199 Discounted cash flow. Class of Financial Assets and Liabilities Level 2 Cash flow hedges – Interest rate swaps Future cash flows are estimated based on forward interest rates (from observable yield curves at the end of the reporting period) and contract interest rates, discounted at a rate that reflects the credit risk of various counterparties. CONSOLIDATED 2014 $'000 2013 $'000 357,555 5,598 363,153 303,782 29 303,811 There were no transfers between levels in the year. 19. CURRENT LIABILITIES – Borrowings (secured) (a) Bailment and finance lease payable Bailment finance Finance lease payable (i) Bailment finance Bailment finance is provided on a vehicle by vehicle basis by various finance providers at an average interest rate of 4.78% p.a. applicable at 31 December 2014 (2013: 4.67%). Bailment finance is repayable within a short period after the vehicle is sold to a third party, generally within 48 hours. (ii) Finance Lease The finance lease liability is secured against associated leased assets and is provided by various finance providers at an average interest rate of 6.03% p.a. applicable at 31 December 2014 (2013: 7.6%). (iii) Interest rate risk exposures Details of the Group’s exposure to interest rate changes on interest bearing liabilities is set out in Note 28. (iv) Fair value disclosures Details of the Group’s fair value of interest bearing liabilities is set out in Note 28. (v) Security Details of the security relating to each of the secured liabilities and further information on bank loans is set out in Note 22. 20. CURRENT LIABILITIES – Current tax liabilities Income tax 21. CURRENT LIABILITIES – Provisions Employee benefits Warranties 12,979 6,203 16,846 3,863 20,709 14,039 3,350 17,389 53 A.P. Eagers ANNUAL REPORT 2014NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS 31 DECEMBER 2014 (continued) 21. CURRENT LIABILITIES – Provisions (continued) Movement in provisions Movements in each class of provisions during the financial year, other than employee benefits, are set out below: Consolidated – 2014 Carrying amount at start of year Provisions acquired Additional provisions recognised Payments charged against provisions Carrying amount at end of year Warranty Provision Warranties $’000 3,350 115 6,167 (5,769) 3,863 An estimate is made based on past experience, and confirmation of future costs by the administrator of the warranty program, of the expected expenditure on new and used motor vehicles in terms of warranties on these vehicles. 22. NON-CURRENT LIABILITIES – Borrowings (secured) (a) Borrowings – others Term facility Capital loan Finance lease payables SECURED LIABILITIES Total secured liabilities (current and non-current) are: Term facility (i) Capital loan (ii) Working capital facility (includes bank overdraft) Finance lease payables (iii) Bailment finance (iv) Total secured liabilities CONSOLIDATED 2014 $'000 2013 $'000 144,000 70,000 2,646 139,000 72,078 - 216,646 211,078 144,000 70,000 - 8,244 357,555 139,000 72,078 - 29 303,782 579,799 514,889 (i) The term facility is secured by a general security agreement which includes registered first mortgages held by a security trustee over specific freehold land and buildings and a general charge over assets excluding new and used inventory and related receivables, letter of set off given by and on account of the parent entity and its subsidiaries, and a Corporate Guarantee and Indemnity unlimited as to amount given by the parent entity and its subsidiaries. (ii) The capital loan is secured by registered first mortgages given by subsidiaries over specific freehold land and buildings, letter of set off given by and on account of the parent entity and its subsidiaries, and a Corporate Guarantee and Indemnity unlimited as to amount given by the parent entity and its subsidiaries. (iii) The finance lease liability is secured against associated leased assets. (iv) Vehicle bailment finance reflects a liability payable to the consolidated entity’s bailment financiers. This liability is represented by and secured over debtors included in current assets receivables in respect of recent vehicle deliveries to customers, and by new vehicles,demonstrator vehicles and some used vehicles all included in inventories (bailment stock). Refer Note 10. 54 A.P. Eagers ANNUAL REPORT 2014NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS 31 DECEMBER 2014 (continued) 22. NON-CURRENT LIABILITIES – Borrowings (continued) ASSETS PLEDGED AS SECURITY The carrying amounts of assets pledged as security are: Non-current assets pledged as security – Freehold land and buildings – first mortgage Other non-current assets Current assets pledged as security – Property assets held for sale Inventories Other current assets Total assets pledged as security FINANCING ARRANGEMENTS The consolidated entity has access to the following lines of credit at balance date: Total facilities Term facility (i) Working capital facility (includes bank overdraft) (iii) Capital loan (ii) Bailment finance (iv) Bank guarantees Finance lease payables (v) Used at balance date Term facility Working Capital facility (includes bank overdraft) Capital loan Bailment finance Bank guarantees Finance lease payables Unused at balance date Term facility Working capital facility (includes bank overdraft) Capital loan Bailment finance Bank guarantees Finance lease payables CONSOLIDATED 2014 $'000 2013 $'000 248,833 472,525 311,485 358,514 27,781 357,555 143,968 1,250,662 21,612 303,782 127,211 1,122,604 199,000 25,000 70,000 485,315 17,089 19,500 815,904 144,000 - 70,000 357,555 16,298 8,244 596,097 55,000 25,000 - 127,760 791 11,256 219,807 179,000 25,000 72,078 428,065 13,089 29 717,261 139,000 - 72,078 303,782 12,858 29 527,747 40,000 25,000 - 124,283 231 - 189,514 (i) Term facility at balance date was provided on a non-amortisable (interest only) basis subject to compliance with specific covenants for a fixed term. (ii) Capital loan facility at balance date was provided on a non-amortisable (interest only) basis for a fixed term. (iii) Working capital facility at balance date was provided on a non-amortisable (interest only) basis subject to compliance with specific covenants and an annual review. (iv) Bailment facilities are used to finance the acquisition of new vehicle and some used vehicle trading stock. These facilities include a combination of fixed term and open ended arrangements and are subject to review periods ranging from quarterly to annual. These facilities generally include short term termination notice periods and are disclosed as current liabilities in the statement of financial position. (v) The finance lease liability provides direct and specific funding to a portfolio of finance leases associated with the Black Group acquisition. 55 A.P. Eagers ANNUAL REPORT 2014NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS 31 DECEMBER 2014 (continued) 23. NON-CURRENT LIABILITIES – Deferred tax liabilities Deferred tax liabilities The balance comprises temporary differences attributable to: Amounts recognised in profit or loss Book versus tax carrying value of plant and equipment Finance lease book Inventory valuation Prepayments Provisions - Doubtful debts - Employee benefits - Warranties - Inventory write downs Investment in associate Property receivable Sundry items Amounts recognised directly in equity Revaluation of available-for-sale investment Revaluation of property, plant and equipment Hedge liability Net deferred tax liabilities The deferred tax expense included in income tax expense in respect of the above temporary differences resulted from the following movements : Opening balance at 1 January Deferred tax assets relating to business combinations Property receivable Charged/(credited) to profit and loss (Note 6) Deferred tax recognised directly in equity - Revaluation of available-for-sale investment (Note 27(a)) - Revaluation of property plant and equipment (Note 27(a)) - Movement in fair value of cash flow hedge (Note 27(a)) CONSOLIDATED 2014 $'000 2013 $'000 17,350 27,483 1,668 - 1,059 330 (787) (12,388) (1,170) (595) - (6,999) (35) 1,912 5 1,713 308 (969) (10,375) (1,009) (587) 808 - (904) (18,917) (9,098) 13,799 22,805 (337) 13,410 23,531 (360) 36,267 36,581 17,350 27,483 27,483 (945) (6,999) (2,093) 389 (508) 24 20,599 (297) - (919) 6,839 961 300 Closing balance at 31 December 17,350 27,483 56 A.P. Eagers ANNUAL REPORT 2014NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS 31 DECEMBER 2014 (continued) 24. NON-CURRENT LIABILITIES – Provisions Employee benefits Make good provision on leasehold premises – refer (a) and (b) below (a) A make good clause under a long term property lease has been recognised in the financial statements. The lessor of the property has been provided with a bank guarantee of $1,900,000 in respect of the estimated make good cost and rental costs. (b) Movement in the provision: Balance at start of year Recognition of additional provision during the year Carrying amount at end of year Make good provision on leasehold improvements CONSOLIDATED 2014 $'000 5,158 1,787 2013 $'000 5,220 1,767 6,945 6,987 1,767 20 1,767 - 1,787 1,767 A provision has been made for the expected cost of restoring the premises to its original condition at the end of the lease. 57 A.P. Eagers ANNUAL REPORT 2014NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS 31 DECEMBER 2014 (continued) 25. SEGMENT INFORMATION (ii) Truck Retailing (v) Other Segments are identified on the basis of internal reports about components of the consolidated entity that are regularly reviewed by the chief operating decision maker, being the board of directors, in order to allocate resources to the segment and to assess its performance. The consolidated entity operates in four operating and reporting segments being (i) Car Retailing (ii) Truck Retailing (iii) Property and (iv) Investments, these being identified on the basis of being the components of the consolidated entity that are regularly reviewed by the chief decision maker for the purpose of resource allocation and assessment of segment performance. Information regarding the consolidated entity’s reporting segments is presented below. (i) Car Retailing Within the Car Retail segment, the consolidated entity offers a diversified range of automotive products and services, including new vehicles, used vehicles, vehicle maintenance and repair services, vehicle parts, extended service contracts, vehicle protection products and other aftermarket products. They also facilitate financing for vehicle purchases through third-party sources. New vehicles, vehicle parts, and maintenance services are predominantly supplied in accordance with franchise agreements with manufacturers. This segment also includes a motor auction and car rental business Within the Truck Retail segment, the consolidated entity offers a diversified range of products and services, including new trucks, used trucks, truck maintenance and repair services, truck parts, extended service contracts, truck protection products and other aftermarket products. They also facilitate financing for truck purchases through third-party sources. New trucks, truck parts, and maintenance services are predominantly supplied in accordance with franchise agreements with manufacturers. (iii) Property Within the Property segment, the consolidated entity acquires commercial properties principally for use as facility premises for its motor dealership operations. The Property segment charges the Car Retailing segment commercial rentals for owned properties occupied by that segment. The Property segment reports property assets at fair value, based on annual assessments by the directors supported by periodic, but at least triennial valuations by external independent valuers. Revaluation increments arising from fair value adjustments are reported internally and assessed by the chief operating decision maker as profit adjustments in assessing the overall returns generated by this segment to the consolidated entity. (iv) Investments This segment includes the investment in One Way Traffic Pty Ltd, trading as Carsguide, and the investment in Automotive Holdings Group Limited. Currently the segment “Other” is not required. The accounting policies of the reportable segments are the same as the Group’s accounting policies as described in Note 1 with the exception of all changes in fair value of property and investments being recognised as profit or loss adjustments for segment reporting purposes. This compares to the Group policy of crediting increments to a property plant and equipment and investment reserve in equity (refer Note 1(p)). Segment profit represents the profit earned by each segment without allocation of unrecouped corporate / head office costs and income tax. External bailment is allocated to the Car Retailing and Truck Retailing segments. Bills payable funding costs are allocated to the Car Retailing, Truck Retailing, Property and Investment segments based on notional market based covenant levels. This is the measure reported to the chief operating decision maker for the purposes of resource allocation and assessment of segment performance. For the purpose of monitoring segment performance and allocating resources between segments, the chief operating decision maker monitors the tangible, intangible, and financial assets attributable to each segment. All assets are allocated to reportable segments. Geographic Information The Group operates in one principal geographic location, being Australia. 58 A.P. Eagers ANNUAL REPORT 2014NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS 31 DECEMBER 2014 (continued) 25. SEGMENT INFORMATION (continued) Segment reporting 2014 Sales to external customers Inter-segment sales Total sales revenue Other revenue TOTAL REVENUE SEGMENT RESULT Operating profit before interest External interest expense allocation OPERATING CONTRIBUTION Share of net profit of equity accounted investments Business acquisition costs Investment revaluation Property revaluation Profit on sale of property/businesses SEGMENT PROFIT Unallocated corporate expenses PROFIT BEFORE TAX Income tax expense NET PROFIT Property $’000 Investments $’000 Eliminations $’000 Consolidated $’000 Car Retailing $’000 Truck Retailing $’000 2,435,176 - 2,435,176 35,232 2,470,408 373,431 - 373,431 754 374,185 76,007 (10,282) 65,725 4,939 (2,761) - - 900 5,825 (2,315) 3,510 - - - - - 54 28,515 28,569 1,379 29,948 20,889 (6,832) 14,057 - - - (2,270) 2,992 - - - 12,087 12,087 11,990 (2,651) 9,339 - - 1,295 - - 68,803 3,510 14,779 10,634 397 - (28,515) (28,515) - (28,515) 2,808,661 - 2,808,661 49,452 2,858,113 - - - - - (1,295) 1,692 - 114,711 (22,080) 92,631 4,939 (2,761) - (578) 3,892 98,123 4,717 102,840 (26,150) 76,690 Depreciation and amortisation 7,453 1,082 4,048 - - 12,583 Non cash expenses (reversal of expenses) other than depreciation and amortisation 3,620 (217) Impairment of trade receivables 277 (94) Write down (back) of inventories to net realisable value 5,387 2,084 - - - - - 3,403 - - 183 - - 7,471 ASSETS Segment assets LIABILITIES Segment liabilities 657,062 146,085 320,460 234,391 - 1,357,998 438,010 106,285 162,345 60,302 - 766,942 NET ASSETS 219,052 39,800 158,115 174,089 - 591,056 Acquisitions of non-current assets, including assets of businesses acquired 58,593 776 6,757 37,901 - 104,027 59 A.P. Eagers ANNUAL REPORT 2014NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS 31 DECEMBER 2014 (continued) 25. SEGMENT INFORMATION (continued) Segment reporting 2013 Sales to external customers Inter-segment sales Total sales revenue Other revenue TOTAL REVENUE SEGMENT RESULT Operating profit before interest External interest expense allocation OPERATING CONTRIBUTION Share of net profit of equity accounted investments Business acquisition costs Investment revaluation Property revaluation Profit on sale of property/businesses SEGMENT PROFIT Unallocated corporate expenses PROFIT BEFORE TAX Income tax expense NET PROFIT Car Retailing $’000 Truck Retailing $’000 Property $’000 Investments $’000 Eliminations $’000 Consolidated $’000 2,242,152 - 2,242,152 9,029 2,251,181 65,854 (11,502) 54,352 1,959 (594) - - 1,793 409,981 - 409,981 779 410,760 10,359 (1,941) 8,418 - - - - - 107 28,035 28,142 795 28,937 19,401 (7,293) 12,108 - - - 3,203 207 - - - 9,970 9,970 9,843 (2,452) 7,391 - - 22,795 - - - (28,035) (28,035) - (28,035) - - - - - (22,795) (3,203) - 57,510 8,418 15,518 30,186 (25,998) 2,652,240 - 2,652,240 20,573 2,672,813 105,457 (23,188) 82,269 1,959 (594) - - 2,000 85,634 1,076 86,710 (22,748) 63,962 Depreciation and amortisation 6,437 1,462 4,455 - - 12,354 Non cash expenses (reversal of expenses) other than depreciation and amortisation 1,827 508 - - - 2,335 Impairment of trade receivables (216) 123 - - - (93) Write down (back) of inventories to net realisable value (292) (89) - - - (381) ASSETS Segment assets LIABILITIES Segment liabilities 542,018 138,229 341,422 195,195 - 1,216,864 349,794 95,114 166,558 66,274 - 677,740 NET ASSETS 192,224 43,115 174,864 128,921 - 539,124 Acquisitions of non-current assets, including assets of businesses acquired 14,742 798 9,003 9,810 - 34,353 The 2013 Comparative information has been restated following the reallocation of non-franchised dealerships operating solely in the used car market from ‘Other’ to ‘Car Retailing”. 60 A.P. Eagers ANNUAL REPORT 2014NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS 31 DECEMBER 2014 (continued) 26. CONTRIBUTED EQUITY (a) Paid up capital Ordinary shares fully paid CONSOLIDATED 2014 $'000 2013 $'000 242,070 231,205 Ordinary shares confer on their holders the right to participate in dividends declared by the Board and to vote at general meetings of the company. (b) Movements in ordinary share capital: Date Details 01-Jan-13 Balance Number of shares Issue price 170,686,558 $’000 206,277 18-Mar-13 Issue of shares to staff under share incentive schemes. 439,268 $5.38 2,362 16-Apr-13 Issue of shares under Dividend Reinvestment Plan. Dividend reinvestment Plan shortfall underwritten by broker. Underwriting commission paid to broker. New Shares issued. 3,754,815 1,540,676 $4.20 $4.20 55,000 $4.20 15,771 6,472 (82) 231 18-Jul 13 to 22-Jul-13 Issue of shares to staff under share incentive schemes. 72,001 $2.42 174 01-Jan-14 Balance 176,548,318 231,205 10-Mar-14 Issue of shares to staff under share incentive schemes. 221,155 $4.87 1,077 01-Jul-14 Issue of shares as partial consideration for acquisition of Ian Boettcher Motors. 500,000 $5.70 2,850 01-Oct-14 Issue of shares as partial consideration for acquisition of Craig Black Group. 1,250,000 $5.55 6,938 31-Dec-14 Balance 178,519,473 242,070 (c) The company has a dividend reinvestment plan under which holders of ordinary shares may elect to have all or part of their dividend entitlements satisfied by the issue of new ordinary shares rather than being paid in cash. In 2013 the shares were issued at a special 10% discount in recognition of the company’s 100 year anniversary. The plan was fully underwritten by the broker, RBS Morgan. 61 A.P. Eagers ANNUAL REPORT 2014NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS 31 DECEMBER 2014 (continued) 27. RESERVES AND RETAINED PROFITS (a) Reserves: Property, plant and equipment revaluation reserve Hedging reserve - cash flow hedge Share-based payments reserve Investment revaluation reserve Movements: Property, plant and equipment revaluation reserve : Balance at beginning of the financial year Revaluation surplus during the year - gross (Note 15) Transfer to retained earnings relating to properties sold Deferred tax (Note 23) Balance at the end of the financial year Hedging reserve – cash flow hedge: Balance at beginning of the financial year Transfer to profit or loss Transfer to derivative financial instruments (gross) Deferred tax (Note 23) Balance at the end of the financial year Share-based payments reserve: Balance at beginning of the financial year Share based payments Transfer to share capital (shares issued) Balance at the end of the financial year Investment revaluation reserve: Balance at beginning of the financial year Gain on revaluation of available-for-sale investment Deferred tax (Note 23) Balance at the end of the financial year (b) Retained earnings Retained profits at the beginning of the financial year Net profit for the year Transfer from asset revaluation reserve re properties sold Loss on Sale of Non Controlling Interest Dividends provided for or paid (Note 7) Retained profits at the end of the financial year 62 CONSOLIDATED 2014 $'000 2013 $'000 61,668 (786) 5,941 32,197 99,020 73,278 (839) 4,883 31,290 108,612 73,278 (1,692) (10,426) 508 61,668 (839) 1,199 (1,122) (24) (786) 4,883 2,135 (1,077) 5,941 71,053 3,203 (17) (961) 73,278 (1,542) 2,202 (1,199) (300) (839) 5,791 1,453 (2,361) 4,883 31,290 1,296 (389) 32,197 15,334 22,795 (6,839) 31,290 198,369 76,230 10,426 (75) (42,470) 242,480 171,113 63,609 17 - (36,370) 198,369 A.P. Eagers ANNUAL REPORT 2014NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS 31 DECEMBER 2014 (continued) 27. RESERVES AND RETAINED PROFITS (continued) (c) Nature and purpose of reserves (1) Property, plant and equipment revaluation reserve The property, plant and equipment revaluation reserve is used to record increments and decrements on the revaluation of non-current assets as described in Note 1(p). (2) Hedging reserve The hedging reserve contains the effective portion of interest rate hedge arrangements incurred as at the reporting date. (3) Share-based payments reserve The share-based payment reserve is used to recognise the fair value of performance rights expected to vest and the fair value of equity expected to be issued under various share incentive schemes referred to in Notes 34 and 35. (4) Investment revaluation reserve The investments revaluation reserve represents the cumulatve gains and losses arising on the revaluation of available-for-sale financial assets that have been recognised in other comprehensive income, net of amounts reclassified to profit or loss when those assets have been disposed of or are determined to be impaired. 28. FINANCIAL INSTRUMENTS Overview The consolidated entity has exposure to the following key risks from its use of financial instruments: Credit risk Liquidity risk Market risk (interest rate risk) This note presents information about the consolidated entity’s exposure to each of the above risks, the consolidated entity’s objectives, policies and processes for measuring and managing risk, and the consolidated entity’s management of capital. Further quantitative disclosures are included throughout these consolidated financial statements. The Board of Directors has overall responsibility for the establishment and oversight of the consolidated entity’s risk management framework. The Board has established an Audit, Risk and Remuneration Committee which is responsible for monitoring, assessing and reporting on the consolidated entity’s risk management system. The committee will provide regular reports to the Board of Directors on its activities. The consolidated entity’s risk management policies are established to identify and analyse the risks faced by the consolidated entity, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the consolidated entity’s activities. The Audit, Risk and Remuneration Committee oversees how management monitors compliance with the risk management policies and procedures and reviews the adequacy of the risk management framework in relation to the risks. The Committee is assisted in its oversight by Internal Audit. Internal Audit undertakes both regular and ad hoc reviews of risk management controls and procedures, the results of which are reported to the Committee. The Group’s principal financial instruments comprise bank loans, bailment finance, cash, short-term deposits and interest rate swap contracts. The main purpose of these financial instruments is to raise finance for and fund the Group’s operations and to hedge the Group’s exposures to interest rate volatility. The Group has various other financial instruments such as trade debtors and trade creditors which arise directly from its operations. It is, and has been throughout the period under review, the Group’s policy that no speculative trading in financial instruments shall be undertaken. The main risk arising from the Group’s financial instruments are interest rate risk, credit risk and liquidity risk. The Board reviews and agrees policies for managing each of these risks and they are summarised below. CREDIT RISK Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in a financial loss to the Group. The Group has adopted a policy of only dealing with creditworthy counterparties and obtaining sufficient collateral where appropriate, as a means of mitigating the risk of financial loss from defaults. Further, it is the Group’s policy that all customers who wish to trade on credit terms are subject to credit verification procedures. Trade receivables consist of a large number of customers, spread across geographical areas. Ongoing credit evaluation is performed on the financial condition of debtors and other receivable balances are monitored on an ongoing basis, with the result that the Group’s exposure to bad debts is not significant. The consolidated entity establishes an allowance for doubtful debts that represents its estimate of incurred losses in respect of trade and other receivables and investments. With respect to credit risk arising from financial assets of the Group comprised of cash, cash equivalents and receivables, the Group’s maximum exposure to credit risk, excluding the value of any collateral or other security, at balance date is in the carrying amount as disclosed in the statement of financial position and notes to the financial statements. The Group’s credit risk on liquid funds is limited as the counter parties are major Australian banks with favourable credit ratings assigned by international credit rating agencies. 63 A.P. Eagers ANNUAL REPORT 2014NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS 31 DECEMBER 2014 (continued) 28. FINANCIAL INSTRUMENTS Interest rate risk Interest rate sensitivity (continued) LIQUIDITY RISK Liquidity risk is the risk that the consolidated entity will not be able to meet its financial obligations as they fall due. The consolidated entity’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions. The Group’s overall objective is to maintain a balance between continuity of funding and flexibility through the use of bank overdrafts and bank loans. The Group also manages liquidity risk by maintaining adequate reserves, banking facilities and reserve borrowing facilities by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities. Information on available facilities can be found in Note 22. MARKET RISK Market risk is the risk that changes in market prices, such as interest rates, will affect the consolidated entity’s income or the value of its holdings of financial instruments. The objective of market risk management is to manage and monitor market risk exposures within acceptable parameters, whilst optimising the return on risk. The Group is exposed to interest rate risk as a consequence of its financing facilities as set out in Notes 19 & 22. Funds are borrowed by the Group at both fixed and floating interest rates. The Group’s policy is to manage its interest cost using a mix of fixed and variable rate debt. The Group’s policy is to keep between 50% and 80% of its borrowings at fixed rates of interest. As at 31 December 2014, approximately 65% (2013: 67%) of the Group’s borrowings were at a fixed rate of interest. The Group hedges part of the interest rate risk (see Note 18) by swapping floating for fixed interest rates. In 2013 the Group amended its policy such that exposure to the changes in interest rates on its variable rate borrowings relating to inventories are unhedged. Existing hedges will not be replaced once they expire. There were no interest rate swaps in place for bailment as at 31 December 2014. The consolidated entity classifies interest rate swaps as cash flow hedges. The net fair value of the swaps at 31 December 2014 was $1,122,000 liability (2013: $1,199,000 liability) and has been recognised in equity for the consolidated entity. The sensitivity analyses below have been determined based on the exposure to interest rates for both derivative and non-derivative instruments at reporting date and the stipulated change taking place at the beginning of the financial year and held constant throughout the reporting period. A 50 basis point increase or decrease is used when reporting interest rate risk internally to key management and represents management’s assessment of the possible change in interest rates. At reporting date, if interest rates had been 50 basis points higher or lower and all other variable were held constant, the Group’s net profit after tax would increase/decrease by $1,425,000 (2013: $968,000) per annum. This is mainly due to the Group’s exposures to interest rates on its variable rate borrowings. Interest rate swap contracts Under interest rate swap contracts, the Group agrees to exchange the difference between fixed and floating rate interest amounts calculated on agreed notional principal amounts. Such contracts enable the Group to mitigate the cash flow exposures on the issued variable rate debt held. The fair value of interest rate swaps at the reporting date is determined by discounting future cash flows using the curves at reporting date and the credit risk inherent in the contract, and are disclosed below. The average interest rate is based on the outstanding balances at the start of the financial period. 64 A.P. Eagers ANNUAL REPORT 2014NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS 31 DECEMBER 2014 (continued) 28. FINANCIAL INSTRUMENTS (continued) The following tables detail the notional principal amounts and remaining terms of interest rate swap contracts outstanding as at reporting date: Outstanding floating for fixed contracts Less than 1 year Between 1 - 2 years Between 2 - 3 years Average contracted fixed interest rate Notional principal amount Fair value 2014 % 2013 % 2014 $’000 2013 $’000 2014 $’000 2013 $’000 3.49% 3.31% 3.22% 3.33% 3.74% 3.49% 3.46% 3.66% 22,500 33,500 23,700 79,700 103,700 22,500 25,500 151,700 (188) (472) (462) (1,122) (666) (280) (253) (1,199) The interest rate swaps settle on a monthly basis. The floating rate on the interest rate swaps is the Australian BBSW. The Group will settle the difference between the fixed and floating interest rate on a net basis. All interest rate swap contracts exchanging floating rate interest amounts for fixed rate interest amounts are designated as cash flow hedges in order to reduce the Group’s cash flow exposure resulting from variable interest rates on borrowings. The interest rate swaps and the interest payments on the loan occur simultaneously and the amount deferred in equity is recognised in profit or loss over the loan period. CAPITAL MANAGEMENT The Board’s policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business. The Board seeks to maintain a balance between the higher returns that might be possible with higher levels of borrowings and the advantages and security afforded by a sound capital position. There were no changes in the consolidated entity’s approach to capital management during the period. CREDIT RISK Exposure to Credit Risk The carrying amount of financial assets (as per Note 9) represents the maximum credit exposure. The maximum exposure to credit risk as the reporting date was: Trade and other receivables Less: Provision for doubtful receivable Impairment Losses The aging of trade receivables at reporting date is detailed in Note 9. CONSOLIDATED 2014 $'000 2013 $'000 143,744 2,622 98,777 2,410 141,122 96,367 65 A.P. Eagers ANNUAL REPORT 2014NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS 31 DECEMBER 2014 (continued) 28. FINANCIAL INSTRUMENTS (continued) Fair values & Exposures to Credit & Liquidity Risk Detailed in the following table, the directors consider that the carrying amounts of financial assets and financial liabilities recorded in the financial statements approximate their fair value (2013: fair value). Financial assets Trade and other receivables net of doubtful debts Cash and cash equivalents Financial liabilities Bills payable and fully drawn advances Capital loan Vehicle bailment Bank overdraft Finance lease payables Trade and other payables Derivative financial instrument CONSOLIDATED 2014 $'000 2013 $'000 141,122 23,777 96,366 12,106 164,899 108,472 144,000 70,000 357,555 - 8,244 128,036 1,122 708,957 139,000 72,078 303,782 - 29 103,590 1,199 619,678 The fair value of financial assets and financial liabilities are determined as follows: • The fair value of financial assets and financial liabilities with standard terms and conditions and traded on active liquid markets are determined with reference to quoted market prices (includes listed redeemable notes, bills of exchange, debentures and perpetual notes). • The fair values of derivative instruments are calculated using quoted prices. Where such prices are not available, discounted cash flow analysis is performed using the applicable yield curve for the duration of the instruments for non-optional derivatives and option pricing models for optional derivatives. Interest rate swaps are measured at the present value of future cash flows estimated and discounted based on the applicable yield curves derived from quoted interest rates. 66 A.P. Eagers ANNUAL REPORT 2014NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS 31 DECEMBER 2014 (continued) 28. FINANCIAL INSTRUMENTS (continued) Maturity profile The below table provides a maturity profile for the Group’s financial instruments that are exposed to interest rate risk at balance date. The amounts disclosed in the table are gross contractual undiscounted cash flows (principal and interest) required to settle the respective liabilities. The interest rate is based on the rate applicable as at the end of the financial period. At 31 December 2014 Less than 1 year $’000 1 - 2 years $’000 2 - 3 years $’000 3 - 4 years $’000 4 - 5 years $’000 5+ years $’000 Total $’000 INTEREST BEARING Floating rate Financial assets Cash and cash equivalents Loan receivable 23,777 566 24,343 566 566 - 566 - 566 - 566 - 10,353 23,777 13,183 566 566 566 10,353 36,960 Average interest rate 3.48% 5.78% 5.78% 5.78% 5.78% 5.78% - Financial liabilities Vehicle bailment (current) Fully drawn advances Fully drawn advances (1) Capital loan (Non-current) 361,831 2,393 26,143 - 55,997 35,440 - - 24,026 - - - - - - - - - 361,831 58,390 85,609 938 938 938 938 938 21,960 26,650 391,305 92,375 24,964 938 938 21,960 532,480 Average interest rate 4.76% 4.62% 4.70% 4.69% 4.69% 4.69% - Fixed rate Financial liabilities Bills payable Capital loan (Non-current) Finance lease payables 473 9,737 - - 2,600 6,018 2,600 1,920 2,600 837 51,300 - 9,091 14,257 3,437 51,300 Average interest rate 5.32% 5.12% 5.18% 5.20% - - - - - NON INTEREST BEARING Financial assets Property sale receivables Trade debtors Financial liabilities Trade and other payables 6,717 105,792 112,509 6,717 - 6,717 6,884 - 6,884 6,884 - 6,884 6,884 - 6,884 - - - - - - - - 10,210 59,100 8,775 78,085 - 34,086 105,792 139,878 128,036 - - - - - 128,036 (1) The amount included in fully drawn advances relate to variable rates that are hedged with interest rate swaps to fixed rates. 67 A.P. Eagers ANNUAL REPORT 2014NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS 31 DECEMBER 2014 (continued) Less than 1 year $’000 1 - 2 years $’000 2 - 3 years $’000 3 - 4 years $’000 4 - 5 years $’000 5+ years $’000 Total $’000 28. FINANCIAL INSTRUMENTS (continued) At 31 December 2013 INTEREST BEARING Floating rate Financial assets Cash and cash equivalents Loan receivable Leasebook receivables 12,106 81 27 12,214 - 1,518 - 1,518 - - - - - Average interest rate 3.17% 5.63% Financial liabilities Vehicle bailment (current) Fully drawn advances Fully drawn advances (1) Capital loan (Non-current) 307,321 2,264 26,561 904 337,050 - 43,607 33,938 904 78,449 - 7,675 15,398 904 23,977 - - - - - - - - - - - - - - - - - - - - - - - - 12,106 1,599 27 13,732 - 307,321 53,546 75,897 904 904 904 904 22,793 22,793 27,313 464,077 Average interest rate 4.74% 4.86% 4.82% 4.52% 4.52% 4.52% - Fixed rate Financial liabilities Bills payable Capital loan (Non-current) Finance lease payables 8,726 546 10,773 - - 4,678 30 13,434 2,600 - 3,146 2,600 - 13,373 2,600 - 2,600 51,300 - 51,300 Average interest rate 5.01% 5.03% 5.20% 5.20% 5.20% - - - - - 20,045 63,778 30 83,853 - NON INTEREST BEARING Financial assets Trade debtors Financial liabilities Trade and other payables 94,902 103,590 - - - - - - - - - 94,902 - 103,590 (1) The amount included in fully drawn advances relate to variable rates that are hedged with interest rate swaps to fixed rates. Estimation of Fair Value The following summarises the major methods and assumptions used in estimating the fair value of financial instruments: Loans and Borrowings Fair value is calculated based on discounted expected future principal and interest cash flows. Trade and Other Receivables/Payables For receivables/payables with a remaining life of less than one year, the notional amount is deemed to reflect the fair value. All other receivables/payables are discounted to determine the fair value. Interest Rate Swaps The fair value of interest rate swaps is calculated based on the present value of the estimated future cash flows of these instruments. 68 A.P. Eagers ANNUAL REPORT 2014NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS 31 DECEMBER 2014 (continued) 29. INVESTMENTS IN SUBSIDIARIES NAME OF ENTITY Eagers Retail Pty Ltd Eagers MD Pty Ltd Eagers Finance Pty Ltd Nundah Motors Pty Ltd Eagers Nominees Pty Ltd Austral Pty Ltd E G Eager & Son Pty Ltd A.P. Group Ltd A.P. Ford Pty Ltd A.P. Motors Pty Ltd A.P. Motors (No.1) Pty Ltd A.P. Motors (No.2) Pty Ltd A.P. Motors (No.3) Pty Ltd Associated Finance Pty Limited Leaseline & General Finance Pty Ltd City Automotive Group Pty Ltd PPT Investments Pty Ltd PPT Holdings No 1 Pty Ltd PPT Holdings No 2 Pty Ltd PPT Holdings No 3 Pty Ltd Bill Buckle Holdings Pty Ltd Bill Buckle Autos Pty Ltd Bill Buckle Leasing Pty Ltd Adtrans Group Limited Adtrans Corporate Pty Ltd Adtrans Automotive Group Pty Ltd Stillwell Trucks Pty Ltd Adtrans Trucks Pty Ltd Graham Cornes Motors Pty Ltd Whitehorse Trucks Pty Ltd Adtrans Used Pty Ltd Adtrans Hino Pty Ltd Adtrans Australia Pty Ltd Melbourne Truck and Bus Centre Pty Ltd Adtrans Truck Centre Pty Ltd Adtrans Trucks Adelaide Pty Ltd Precision Automotive Technology Pty Ltd IB Motors Pty Ltd IB MD Pty Ltd Black Auto South West Pty Ltd South West Queensland Motors Pty Ltd BASW Pty Ltd Western Equipment Rentals Pty Ltd Boonarga Welding Pty Ltd Black Auto CQ Pty Ltd CH Auto Pty Ltd EQUITY HOLDING 2014 % 2013 % 100 80 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 90 100 100 100 100 100 100 100 100 100 80 100 80 80 80 80 100 100 100 80 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 90 100 100 100 100 100 100 100 100 - - - - - - - - - * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * All subsidiaries are either directly controlled by A.P. Eagers Limited, or are wholly owned within the group, have ordinary class of shares and are incorporated in Australia. 69 A.P. Eagers ANNUAL REPORT 2014NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS 31 DECEMBER 2014 (continued) 29. INVESTMENTS IN SUBSIDIARIES (continued) Information relating to A.P. Eagers Limited (‘the parent entity’) Financial position Assets Current assets Non-current assets Total assets Liabilities Current liabilities Non-current liabilities Total liabilities Equity Issued capital Retained earnings Reserves - Asset revaluation reserve - Investment revaluation reserve - Share based payments reserve Financial performance Profit for the year Other comprehensive income 2014 $’000 2013 $’000 - 425,612 425,612 21,168 14,520 35,688 242,070 108,033 1,684 32,196 5,941 389,924 27,641 352,968 380,609 6,056 13,261 19,317 231,205 92,229 1,684 31,290 4,884 361,292 58,159 1,021 50,219 15,956 All subsidiaries were parties to a deed of cross guarantee with A.P. Eagers Limited pursuant to ASIC Class Order 98/1418 which has been lodged with and approved by Australian Securities and Investments Commission as at 31 December 2014. Under the deed of cross guarantee each of these companies guarantee the debts of the other named companies. The aggregate assets and liabilities of these companies at 31 December 2014 and their aggregate net profit after tax for the year ended 31 December 2014 match the reported balances within the Statement of Financial Position and the Statement of Profit or Loss respectively. As a party to the deed of cross guarantee, each of the wholly-owned subsidiaries (marked *) is relieved from the requirement to prepare and lodge an audited financial report. Also refer Notes 30(a) and 30(b) in respect of guarantees entered into by the parent entity in relation to debts of its subsidiaries. (a) Acquisition of businesses The Group acquired the following businesses during the 2014 year as detailed below: Year Name of business Date of acquisition Principal activity Proportion acquired 2014 2014 2014 Ian Boettcher Group Volvo Franchise from Currimundi Motors Pty Ltd Black Group 01-Jul-14 25-Jul-14 01-Oct-14 Motor Dealership Volvo Franchise Motor Dealership 100% 100% 100% During 2014 the acquired businesses contributed revenues of $110,711,000 and profit before tax of $698,000. If the acquisition had occurred on 1 January 2014, the consolidated revenue and the consolidated profit before tax would have been $3,069 million and $108.0 million respectively. 70 A.P. Eagers ANNUAL REPORT 2014NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS 31 DECEMBER 2014 (continued) 29. INVESTMENTS IN SUBSIDIARIES (continued) Allocation of purchase consideration The purchase price of business acquired has been allocated as follows: Volvo Franchise Sunshine Coast $’000 Ian Boettcher Group $’000 Black Group $’000 2014 Total Consolidated $’000 Cash consideration Issue of ordinary shares 100 - 11,257 2,850 26,510 6,938 37,867 9,788 Total purchase consideration 100 14,107 33,448 47,655 - 100 1,063 13,044 7,297 26,151 8,360 39,295 100 14,107 33,448 47,655 Consolidated fair value at acquisition date Fair value of net identifiable assets Goodwill Net assets acquired Cash Receivables, prepayments Inventory Property, plant and equipment Deferred tax assets Creditors, borrowings and provisions Identifiable intangible assets Net assets acquired Acquisition cost Goodwill on acquisition (i) (i) Goodwill arose in the business combinations because as at the date of acquisition the consideration paid for the combination included amounts in relation to the benefit of expected synergies and future revenue and profit growth from the businesses acquired. These benefits were not recognised separately from goodwill as the future economic benefits arising from them could not be reliably measured in time for inclusion in this financial statements. Therefore, the amount allocated to goodwill on acquisition has been provisionally determined at the end of the reporting period. Cash consideration on acquistion Cash acquired on acquisition Net cash flow on acquistion of business 2014 $’000 1,049 5,577 10,979 16,008 945 (27,515) 1,317 8,360 47,655 39,295 37,867 (1,049) 36,818 71 A.P. Eagers ANNUAL REPORT 2014NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS 31 DECEMBER 2014 (continued) 29. INVESTMENTS IN SUBSIDIARIES (continued) The Group acquired the following business during the 2013 year as detailed below: Year Name of business Date of acquisition Principal activity Proportion acquired 2013 Main North Nissan & Unley Nissan 02-Sep-13 Motor Dealership 100% During 2013 the acquired businesses contributed revenues of $29,712,000 and profit before tax of $532,000. If the acquisition had occurred on 1 January 2013, the consolidated revenue and the consolidated profit before tax would have been $2,737 million and $87.8 million respectively. Allocation of purchase consideration The purchase price of business acquired has been allocated as follows: Cash consideration Total purchase consideration Fair value of net identifiable assets Goodwill Net assets acquired Inventory Property, plant and equipment Deferred tax assets Creditors, borrowings and provisions Net assets acquired Acquisition cost Goodwill on acquisition (i) Total consolidated Consolidated fair value at acquisition date 2013 $’000 7,137 7,137 (1,206) 8,343 7,137 2013 $’000 58 782 385 (2,431) (1,206) 7,137 8,343 (i) Goodwill arose in the business combination because as at the date of acquisition the consideration paid for the combination included amounts in relation to the benefit of expected synergies and future revenue and profit growth from the businesses acquired. In the previous year, the amount allocated to goodwill was provisionally determined. 72 A.P. Eagers ANNUAL REPORT 2014NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS 31 DECEMBER 2014 (continued) 29. INVESTMENTS IN SUBSIDIARIES (continued) (b) Disposal of businesses The Group sold the following business during the 2014 year as detailed below: Year Name of business Date of sale Principal activity Proportion disposed 2014 Eagers Mitsubishi 31-Oct-14 Motor Dealership 100% Net assets disposed of Property, plant and equipment Creditors, borrowings and provisions Net assets disposed Total consideration received( 100% Cash) Gain on sale 2014 Consolidated $’000 48 (214) (166) 734 900 The Group sold the following business during the 2013 year as detailed below: Year Name of business Date of sale Principal activity Proportion disposed 2013 Hidden Valley Ford 21-Jun-13 Motor Dealership 100% Net assets disposed of Inventory Property, plant and equipment Deferred tax assets Creditors, borrowings and provisions Net assets disposed Total consideration received (100% Cash) Gain on sale 2013 Consolidated $’000 4,707 294 88 (4,559) 530 1,430 900 73 A.P. Eagers ANNUAL REPORT 2014NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS 31 DECEMBER 2014 (continued) 29. INVESTMENTS IN SUBSIDIARIES (continued) (c) Details of non-wholly owned subsidiaries The table below shows details of non-wholly owned subsidiaries of the Group. The Group have reviewed its subsidiaries that have non-controlling interests and note that they are not material to the reporting entity. Profit allocated to non-controlling interests 2013 $’000 2014 $’000 Accumulated non-controlling interests 2013 $’000 2014 $’000 Individually immaterial subsidiaries with non-controlling interest 460 353 7,486 939 Movement – Non Controlling Interest Balance at the beginning of the financial year Profit for the Year Other comprehensive income Issue of shares Payment of dividend Balance as at the end of the financial year 30. CONTINGENT LIABILITIES (a) Parent entity 939 460 - 6,929 (842) 7,486 510 353 - 272 (196) 939 Unsecured guarantees, indemnities and undertakings have been given by the parent entity in the normal course of business in respect of financial and trade arrangements entered into by its subsidiaries. It is not anticipated that the parent entity will become liable for any amount in respect thereof. At 31 December 2014 no subsidiary was in default in respect of any arrangement guaranteed by the parent entity and all amounts owed have been brought to account as liabilities in the financial statements. (b) Deed of cross guarantee A.P. Eagers Limited and all of its subsidiaries were parties to a deed of cross guarantee lodged with the Australian Securities and Investments Commission as at 31 December 2014. Under the deed of cross guarantee each company within the closed Group guarantees the debts of the other companies. The maximum exposure of the parent entity in relation to the cross guarantees is $731,254,000 (2013: $658,939,000). (c) Buy back agreements As at 31 December 2014, entities within the Group had entered into sale and buy back agreements for new vehicles. The financial exposure to the Group is immaterial. 74 A.P. Eagers ANNUAL REPORT 2014NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS 31 DECEMBER 2014 (continued) 31. COMMITMENTS FOR EXPENDITURE Capital Commitments Commitments for the construction of buildings and acquisition of plant and equipment contracted for at the reporting date but not recognised as liabilities, payable: Within one year Finance Lease Liabilities Commitments for minimum lease payments in relation to finance lease liabilities are payable as follows: Within 1 year Later than 1 year but not later than 5 years Later than 5 years Less future finance charges Present value of minimum lease payments Operating Lease Commitments Commitments for minimum lease payments in relation to non-cancellable operating leases for premises are payable as follows: Within 1 year Later than 1 year but not later than 5 years Later than 5 years The consolidated entity leases property under non-cancellable operating leases with expiry dates between 31 January 2015 and 1 July 2035. Leases generally provide for a right of renewal at which time the lease is renegotiated. Lease rental payments comprise a base amount plus an incremental contingent rental based on movements in the consumer price index or a fixed percentage increase. 32. REMUNERATION OF AUDITOR Amounts received or due and receivable by Deloitte Touche Tomatsu (“Deloitte”) for: – audit or review of the financial report of the parent entity and any other entity in the consolidated entity Amounts received or due and receivable by related entities of Deloitte for: – other services in relation to the parent entity and any other entity in the consolidated entity CONSOLIDATED 2014 $'000 2013 $'000 74 4,413 6,026 1,914 835 8,775 (531) 8,244 30 - - 30 (1) 29 25,633 68,754 47,612 16,588 38,869 13,866 141,999 69,323 525,500 504,875 62,882 64,474 588,382 569,349 75 A.P. Eagers ANNUAL REPORT 2014NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS 31 DECEMBER 2014 (continued) 33. SUBSEQUENT EVENTS Nil. 34. KEY MANAGEMENT PERSONNEL The remuneration report included in the Directors’ Report sets out the remuneration policies of the consolidated entity and the relationship between these policies and the consolidated entity’s performance. The following have been identified as key management personnel with authority and responsibility for planning, directing and controlling the activities of the group, directly or indirectly during the financial year: (a) Details of key management personnel (i) Directors (ii) Executives T B Crommelin M A Ward P W Henley N G Politis D T Ryan D A Cowper S G Best K T Thornton D G Stark Chairman (non-executive) Managing Director and Chief Executive Officer Director (non-executive) Director (non-executive) Director (non-executive) Director (non-executive) Chief Financial Officer General Manager – Queensland and Northern Territory General Counsel & Company Secretary (b) Compensation of key management personnel The aggregate compensation made to key management personnel of the Company and the Group is set out below. CONSOLIDATED 2014 $'000 2013 $'000 3,305,611 136,006 597,699 4,039,316 3,185,135 128,397 552,438 3,865,970 Short term Post employment Share based payment (c) Option holdings of key management personnel Details of options held by key management personnel can be found in Note 34 (f). (d) Loans to key management personnel There are no loans to key management personnel. (e) Other transactions with key management personnel Other transactions with key management personnel are detailed in Note 36: Related parties. (f) Share Based Payments Plan A: EPS Performance Rights and Options – Key Executives The Group commenced a new Earnings Per Share (EPS) based performance rights and option compensation scheme for specific executive officers in 2009. The fair value of these performance rights and options is calculated on grant date and recognised over the period to vesting. The vesting of the performance rights and options granted is based on the achievement of specified earnings per share growth targets and interest cover thresholds. The fair value has been calculated using a binomial option pricing model based on numerous variables including the following: 76 A.P. Eagers ANNUAL REPORT 2014NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS 31 DECEMBER 2014 (continued) 34. KEY MANAGEMENT PERSONNEL (continued) Performance Rights Award date 28 August 2009 Vesting date Expiry date Share price at grant date Expected life Volatility Risk free interest rate Dividend yield Performance Options Award date 28 August 2009 Vesting date Expiry date Share price at grant date Exercise price Expected life Volatility Risk free interest rate Dividend yield 27-Mar-11 28-Aug-16 $ 1.82 1.6 years 30% 4.37% 6.0% 27-Mar-11 28-Aug-16 $ 1.82 $ 1.82 4.3 years 30% 5.29% 6.0% 27-Mar-12 28-Aug-16 $ 1.82 2.6 years 30% 4.89% 6.0% 27-Mar-12 28-Aug-16 $ 1.82 $ 1.82 4.8 years 30% 5.32% 6.0% 27-Mar-13 28-Aug-16 $ 1.82 3.6 years 30% 5.18% 6.0% 27-Mar-13 28-Aug-16 $ 1.82 $ 1.82 5.3 years 30% 5.33% 6.0% 27-Mar-14 28-Aug-16 $ 1.82 4.6 years 30% 5.31% 6.0% 27-Mar-14 28-Aug-16 $ 1.82 $ 1.82 5.8 years 30% 5.33% 6.0% 27-Mar-15 27-Sep-17 $ 1.82 5.6 years 30% 5.33% 6.0% 27-Mar-15 27-Sep-17 $ 1.82 $ 1.82 6.8 years 30% 5.33% 6.0% The General Manager, Queensland and Northern Territory, General Manager Kloster Motor Group and Chief Financial Officer have been granted rights and options under the EPS share incentive plan (Plan A). The modified grant date method (AASB 2) is applied to this incentive plan whereby the cost of the plan is determined by the value of the rights and options at grant date and the probability of the EPS and interest cover targets being achieved and vesting occurring. The number of performance rights and options granted under the plan is as follows: Performance Rights Number 82,830 112,035 118,880 126,265 134,205 Performance Options Number 381,945 475,545 472,975 475,545 465,430 Grant Date 28-Aug-09 28-Aug-09 28-Aug-09 28-Aug-09 28-Aug-09 Grant Date 28-Aug-09 28-Aug-09 28-Aug-09 28-Aug-09 28-Aug-09 End Performance Period 31-Dec-10 31-Dec-11 31-Dec-12 31-Dec-13 31-Dec-14 End Performance Period 31-Dec-10 31-Dec-11 31-Dec-12 31-Dec-13 31-Dec-14 Expiry Date 28-Aug-16 28-Aug-16 28-Aug-16 28-Aug-16 28-Sep-17 Expiry Date 28-Aug-16 28-Aug-16 28-Aug-16 28-Aug-16 27-Sep-17 Fair Value at Grant Date $ 1.66 $ 1.56 $ 1.47 $ 1.39 $ 1.30 Fair Value at Grant Date $ 0.36 $ 0.36 $ 0.37 $ 0.37 $ 0.38 No rights or options were forfeited or expired during the year. As a result of the EPS and interest cover targets being achieved the Performance Rights and Performance Options relating to the 31 December 2014 Performance Period as set out above have vested since balance date. The fair value of the performance rights and options was estimated as $1,675,000 (2013: $1,675,000) in total, with a cumulative expense being recognised at 31 December 2014 of $1,675,000 (2013: $1,609,375). 77 A.P. Eagers ANNUAL REPORT 2014NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS 31 DECEMBER 2014 (continued) 34. KEY MANAGEMENT PERSONNEL (continued) Plan B: EPS Performance Rights and Options – Managing Director The Group commenced a new Earnings Per Share (EPS) based performance rights and option compensation scheme for the Managing Director in 2010. The fair value of these performance rights and options is calculated on grant date and recognised over the period to vesting. The vesting of the performance rights and options granted is based on the achievement of specified earnings per share growth targets and interest cover thresholds. The fair value has been calculated using a binomial option pricing model based on numerous variables including the following: Performance Rights Award date 28 May 2010 Vesting date Expiry date Share price at grant date Expected life Volatility Risk free interest rate Dividend yield Performance Options Award date 28 May 2010 Vesting date Expiry date Share price at grant date Exercise price Expected life Volatility Risk free interest rate Dividend yield 27-Mar-11 28-Aug-16 $ 2.50 0.8 years 30% 4.87% 4.90% 27-Mar-11 28-Aug-16 $ 2.50 $ 1.82 3.5 years 30% 4.87% 4.90% 27-Mar-12 28-Aug-16 $ 2.50 1.8 years 30% 4.97% 4.90% 27-Mar-12 28-Aug-16 $ 2.50 $ 1.82 4.0 years 30% 4.97% 4.90% 27-Mar-13 28-Aug-16 $ 2.50 2.8 years 30% 5.02% 4.90% 27-Mar-13 28-Aug-16 $ 2.50 $ 1.82 4.5 years 30% 5.02% 4.90% 27-Mar-14 28-Aug-16 $ 2.50 3.8 years 30% 5.08% 4.90% 27-Mar-14 28-Aug-16 $ 2.50 $ 1.82 5.0 years 30% 5.08% 4.90% 27-Mar-15 27-Sep-17 $ 2.50 4.8 years 30% 5.19% 4.90% 27-Mar-15 27-Sep-17 $ 2.50 $ 1.82 6.1 years 30% 5.19% 4.90% The Managing Director has been granted rights and options under the EPS share incentive plan (Plan B). The modified grant date method (AASB 2) is applied to this incentive plan whereby the cost of the plan is determined by the value of the rights and options at grant date and the probability of the EPS and interest cover targets being achieved and vesting occurring. The number of performance rights and options granted under the plan is as follows: Performance Rights Number 36,890 82,440 89,000 94,890 105,140 Performance Options Number 416,665 815,215 810,810 815,215 797,870 Grant Date 28-May-10 28-May-10 28-May-10 28-May-10 28-May-10 Grant Date 28-May-10 28-May-10 28-May-10 28-May-10 28-May-10 End Performance Period 31-Dec-10 31-Dec-11 31-Dec-12 31-Dec-13 31-Dec-14 End Performance Period 31-Dec-10 31-Dec-11 31-Dec-12 31-Dec-13 31-Dec-14 Expiry Date 28-Aug-16 28-Aug-16 28-Aug-16 28-Aug-16 28-Sep-17 Expiry Date 28-Aug-16 28-Aug-16 28-Aug-16 28-Aug-16 27-Sep-17 Fair Value at Grant Date $ 2.40 $ 2.29 $ 2.18 $ 2.07 $ 1.97 Fair Value at Grant Date $ 0.81 $ 0.81 $ 0.81 $ 0.80 $ 0.81 No rights or options were forfeited or expired during the year. As a result of the EPS and interest cover targets being achieved the Performance Rights and Performance Options relating to the 31 December 2014 Performance Period as set out above have vested since balance date. The fair value of the performance rights and options was estimated as $3,826,828 (2013: $3,826,828) in total, with a cumulative expense being recognised at 31 December 2014 of $3,826,828 (2013: $3,641,322). 78 A.P. Eagers ANNUAL REPORT 2014NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS 31 DECEMBER 2014 (continued) 34. KEY MANAGEMENT PERSONNEL (continued) Plan C: EPS Performance Rights and Options – Key Executives 2014 The Group commenced a new Earnings Per Share (EPS) based performance rights and option compensation scheme for specific executive officers in 2014. The fair value of these performance rights and options is calculated on grant date and recognised over the period to vesting. The vesting of the performance rights and options granted is based on the achievement of specified earnings per share growth targets and interest cover thresholds. The fair value has been calculated using a binomial option pricing model based on numerous variables including the following: Performance Rights Award date 4 July 2014 Vesting date Expiry date Share price at grant date Expected life Volatility Risk free interest rate Dividend yield Performance Options Award date 4 July 2014 Vesting date Expiry date Share price at grant date Exercise price Expected life Volatility Risk free interest rate Dividend yield 31-Mar-16 04-Jul-21 $ 5.47 1.7 years 25% 2.51% 4.2% 31-Mar-16 04-Jul-21 $ 5.47 $ 5.47 4.4 years 25% 2.90% 4.2% 31-Mar-17 04-Jul-21 $ 5.47 2.7 years 25% 2.63% 4.2% 31-Mar-17 04-Jul-21 $ 5.47 $ 5.47 4.9 years 25% 2.98% 4.2% 31-Mar-18 04-Jul-21 $ 5.47 3.7 years 25% 2.79% 4.2% 31-Mar-18 04-Jul-21 $ 5.47 $ 5.47 5.4 years 25% 3.06% 4.2% 31-Mar-19 30-Sep-22 $ 5.47 4.7 years 25% 2.96% 4.2% 31-Mar-19 30-Sep-22 $ 5.47 $ 5.47 6.5 years 25% 3.24% 4.2% 31-Mar-20 30-Sep-22 $ 5.47 5.7 years 25% 3.13% 4.2% 31-Mar-20 30-Sep-22 $ 5.47 $ 5.47 7.0 years 25% 3.31% 4.2% The Managing Director, General Manager Queensland and Northern Territory, Chief Financial Officer, General Counsel and Company Secretary and four other senior executives have been granted rights and options under the EPS share incentive plan (Plan C). The modified grant date method (AASB 2) is applied to this incentive plan whereby the cost of the plan is determined by the value of the rights and options at grant date and the probability of the EPS and interest cover targets being achieved and vesting occurring. The number of performance rights and options granted under the plan is as follows: Performance Rights Number 137,791 143,731 149,888 156,248 163,166 Performance Options Number 769,228 744,675 736,837 693,066 686,269 Grant Date 04-Jul-14 04-Jul-14 04-Jul-14 04-Jul-14 04-Jul-14 Grant Date 04-Jul-14 04-Jul-14 04-Jul-14 04-Jul-14 04-Jul-14 End Performance Period 31-Dec-15 31-Dec-16 31-Dec-17 31-Dec-18 31-Dec-19 End Performance Period 31-Dec-15 31-Dec-16 31-Dec-17 31-Dec-18 31-Dec-19 Expiry Date 04-Jul-21 04-Jul-21 04-Jul-21 30-Sep-22 30-Sep-22 Expiry Date 04-Jul-21 04-Jul-21 04-Jul-21 30-Sep-22 30-Sep-22 Fair Value at Grant Date $ 5.08 $ 4.87 $ 4.67 $ 4.48 $ 4.29 Fair Value at Grant Date $ 0.91 $ 0.94 $ 0.95 $ 1.01 $ 1.02 No rights or options were forfeited or expired during the year. No rights or options vested during the year. The fair value of the performance rights and options was estimated as $1,166,667 (2013: Nil) in total, with a cumulative expense being recognised at 31 December 2014 of $388,889 (2013: Nil). 79 A.P. Eagers ANNUAL REPORT 2014NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS 31 DECEMBER 2014 (continued) 35. OTHER SHARE BASED PAYMENTS Recognised share-based payments expenses Refer Note 27 for movements on share based payments reserve. Plan D: EPS Performance Rights and Options – Senior Management (A) The Group commenced a new Earnings Per Share (EPS) based performance rights and option compensation scheme for nineteen specific management personnel in 2010. The fair value of these performance rights and options is calculated on grant date and recognised over the period to vesting. The vesting of the performance rights and options granted is based on the achievement of specified earnings per share growth targets and interest cover thresholds. The fair value has been calculated using a binomial option pricing model based on numerous variables including the following: Performance Rights Award date 27 January 2010 Vesting date Expiry date Share price at grant date Expected life Volatility Risk free interest rate Dividend yield Performance Options Award date 27 January 2010 Vesting date Expiry date Share price at grant date Exercise price Expected life Volatility Risk free interest rate Dividend yield 27-Mar-11 27-Jan-17 $ 2.42 1.2 years 30% 5.06% 5.10% 27-Mar-11 27-Jan-17 $ 2.42 $ 2.42 4.1 years 30% 5.06% 5.10% 27-Mar-12 27-Jan-17 $ 2.42 2.2 years 30% 5.11% 5.10% 27-Mar-12 27-Jan-17 $ 2.42 $ 2.42 4.6 years 30% 5.11% 5.10% 27-Mar-13 27-Jan-17 $ 2.42 3.2 years 30% 5.17% 5.10% 27-Mar-13 27-Jan-17 $ 2.42 $ 2.42 5.1 years 30% 5.17% 5.10% Specific executives have been granted rights and options under the EPS share incentive plan (Plan D). This includes the General Counsel & Company Secretary. The modified grant date method (AASB 2) is applied to this incentive plan whereby the cost of the plan is determined by the value of the rights and options at grant date and the probability of the EPS and interest cover targets being achieved and vesting occurring. The number of performance rights and options granted under the plan is as follows: Performance Rights Number 139,285 186,975 196,770 Performance Options Grant Date 27-Jan-10 27-Jan-10 27-Jan-10 End Performance Period 31-Dec-10 31-Dec-11 31-Dec-12 Expiry Date 27-Jan-17 27-Jan-17 27-Jan-17 Fair Value at Grant Date $ 2.28 $ 2.17 $ 2.06 Number 597,705 731,250 714,690 Grant Date 27-Jan-10 27-Jan-10 27-Jan-10 End Performance Period 31-Dec-10 31-Dec-11 31-Dec-12 Expiry Date 27-Jan-17 27-Jan-17 27-Jan-17 Fair Value at Grant Date $ 0.50 $ 0.52 $ 0.53 As a result of the EPS and interest cover targets being achieved the performance rights and options for each Performance Period have vested. The fair value of the performance rights and options for 2012 was $2,151,641, with a cumulative expense being recognised as 31 December 2012 of $2,151,641. 80 A.P. Eagers ANNUAL REPORT 2014NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS 31 DECEMBER 2014 (continued) 35. OTHER SHARE BASED PAYMENTS (continued) Plan E: EPS Performance Rights and Options – Senior Management (B) The Group commenced a new Earnings Per Share (EPS) based performance rights and option compensation scheme for three specific executive officers in 2010. The fair value of these performance rights and options is calculated on grant date and recognised over the period to vesting. The vesting of the performance rights and options granted is based on the achievement of specified earnings per share growth targets and interest cover thresholds. The fair value has been calculated using a binomial option pricing model based on numerous variables including the following: Performance Rights Award date 22 October 2010 Vesting date Expiry date Share price at grant date Expected life Volatility Risk free interest rate Dividend yield Performance Options Award date 22 October 2010 Vesting date Expiry date Share price at grant date Exercise price Expected life Volatility Risk free interest rate Dividend yield 27-Mar-11 27-Jan-17 $ 2.52 0.4 years 30% 4.91% 5.00% 27-Mar-11 27-Jan-17 $ 2.52 $ 2.52 3.3 years 30% 4.91% 5.00% 27-Mar-12 27-Jan-17 $ 2.52 1.4 years 30% 4.93% 5.00% 27-Mar-12 27-Jan-17 $ 2.52 $ 2.52 3.8 years 30% 4.93% 5.00% 27-Mar-13 27-Jan-17 $ 2.52 2.4 years 30% 4.95% 5.00% 27-Mar-13 27-Jan-17 $ 2.52 $ 2.52 4.3 years 30% 4.95% 5.00% Specific executives have been granted rights and options under the EPS share incentive plan (Plan E). The modified grant date method (AASB 2) is applied to this incentive plan whereby the cost of the plan is determined by the value of the rights and options at grant date and the probability of the EPS and interest cover targets being achieved and vesting occurring. The number of performance rights and options granted under the plan is as follows: Performance Rights Number 7,785 40,650 42,735 Grant Date 22-Oct-10 22-Oct-10 22-Oct-10 End Performance Period 31-Dec-10 31-Dec-11 31-Dec-12 Expiry Date 27-Jan-17 27-Jan-17 27-Jan-17 Fair Value at Grant Date $ 2.47 $ 2.35 $ 2.23 Performance Options Number 39,825 187,785 181,365 Grant Date 22-Oct-10 22-Oct-10 22-Oct-10 End Performance Period 31-Dec-10 31-Dec-11 31-Dec-12 Expiry Date 27-Jan-17 27-Jan-17 27-Jan-17 Fair Value at Grant Date $ 0.48 $ 0.51 $ 0.53 As a result of the EPS and interest cover targets being achieved the performance rights and options for each Performance Period have vested. The fair value of the performance rights and options for 2012 was $419,936, with a cumulative expense being recognised at 31 December 2012 of $419,936. 81 A.P. Eagers ANNUAL REPORT 2014NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS 31 DECEMBER 2014 (continued) 35. OTHER SHARE BASED PAYMENTS (continued) Plan F: EPS Performance Options – Senior Management 2013 The Group commenced a new Earnings Per Share (EPS) based share option compensation scheme for 57 specific senior staff, including the Company Secretary/General Counsel. The fair value of these performance options is calculated on grant date and recognised over the period to vesting. The vesting of the performance options granted is based on the achievement of specified earnings per share growth targets. The fair value has been calculated using a binomial option pricing model based on numerous variables including the following: Performance Options Award date 27 March 2013 Vesting date Expiry date Share price at grant date Exercise price Expected life Volatility Risk free interest rate Dividend yield 31-Mar-15 31-Mar-20 $ 4.84 $ 5.04 4.5 years 30% 3.08% 4.20% 31-Mar-16 31-Mar-20 $ 4.84 $ 5.04 4.5 years 30% 3.08% 4.20% 31-Mar-17 31-Mar-20 $ 4.84 $ 5.04 5.0 years 30% 3.13% 4.20% 31-Mar-18 31-Mar-20 $ 4.84 $ 5.04 5.5 years 30% 3.17% 4.20% 31-Mar-19 31-Mar-20 $ 4.84 $ 5.04 6.0 years 30% 3.22% 4.20% Specific executives have been granted options under the EPS share incentive plan (Plan F). The modified grant date method (AASB 2) is applied to this incentive plan whereby the cost of the plan is determined by the value of the options at grant date and the probability of the EPS targets being achieved and vesting occurring. The number of options granted under the plan is as follows: Performance Options Number 951,450 951,450 921,930 903,040 893,850 Grant Date 27-Mar-13 27-Mar-13 27-Mar-13 27-Mar-13 27-Mar-13 End Performance Period 31-Dec-14 31-Dec-15 31-Dec-16 31-Dec-17 31-Dec-18 Expiry Date 31-Mar-20 31-Mar-20 31-Mar-20 31-Mar-20 31-Mar-20 Fair Value at Grant Date $ 0.93 $ 0.93 $ 0.96 $ 0.98 $ 0.99 A total of 548,330 options were forfeited or expired during the year. As a result of the EPS target being achieved the performance options relating to the 31 December 2014 Performance Period have vested since balance date. The fair value of the performance rights and options for 2014 was $2,340,000 (2013: $885,000) with a cumulative expense being recognised at 31 December 2014 of $2,080,000 (2013: $885,000). Plan G: Specifc Target Performance Rights and Options The Group commenced a new performance rights and option compensation scheme for a specific senior staff member, based on achieving certain defined operating targets for a specifc business entity. The fair value of these performance rights and options is calculated on grant date and recognised over the period to vesting. The fair value has been calculated using a binomial option pricing model based on numerous variables including the following: 31-Mar-15 $ 4.84 2.0 years 30% 2.88% 4.20% 31-Mar-16 $ 4.84 2.0 years 30% 2.88% 4.20% 31-Mar-17 $ 4.84 3.0 years 30% 2.95% 4.20% 31-Mar-18 $ 4.84 4.0 years 30% 3.04% 4.20% 31-Mar-19 $ 4.84 5.0 years 30% 3.13% 4.20% Performance Rights Award date 27 March 2013 Vesting date Share price at grant date Expected life Volatility Risk free interest rate Dividend yield 82 A.P. Eagers ANNUAL REPORT 2014NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS 31 DECEMBER 2014 (continued) 35. OTHER SHARE BASED PAYMENTS (continued) Performance Options Award date 27 March 2013 Vesting date Expiry date Share price at grant date Expected life Volatility Risk free interest rate Dividend yield 31-Mar-15 31-Mar-20 $ 4.84 4.5 years 30% 3.08% 4.20% 31-Mar-16 31-Mar-20 $ 4.84 4.5 years 30% 3.08% 4.20% 31-Mar-17 31-Mar-20 $ 4.84 5.0 years 30% 3.13% 4.20% 31-Mar-18 31-Mar-20 $ 4.84 5.5 years 30% 3.17% 4.20% 31-Mar-19 31-Mar-20 $ 4.84 6.0 years 30% 3.22% 4.20% A specific executive have been granted performance rights and options under the Specific Target share plan (Plan G). The modified grant date method (AASB 2) is applied to this incentive plan whereby the cost of the plan is determined by the value of the rights and options at grant date and the probability of specifc targets being achieved and vesting occurring. The number of options granted under the plan is as follows: Performance Rights Number 11,240 11,240 11,740 12,220 12,760 Performance Options Number 107,530 107,530 104,170 102,040 101,010 Grant Date 27-Mar-13 27-Mar-13 27-Mar-13 27-Mar-13 27-Mar-13 Grant Date 27-Mar-13 27-Mar-13 27-Mar-13 27-Mar-13 27-Mar-13 End Performance Period 31-Dec-14 31-Dec-15 31-Dec-16 31-Dec-17 31-Dec-18 End Performance Period 31-Dec-14 31-Dec-15 31-Dec-16 31-Dec-17 31-Dec-18 Expiry Date 31-Mar-20 31-Mar-20 31-Mar-20 31-Mar-20 31-Mar-20 Fair Value at Grant Date $ 4.45 $ 4.45 $ 4.26 $ 4.09 $ 3.92 Expiry Date 31-Mar-20 31-Mar-20 31-Mar-20 31-Mar-20 31-Mar-20 Fair Value at Grant Date $ 0.93 $ 0.93 $ 0.96 $ 0.98 $ 0.99 No performance rights or options were forfeited or expired during the year. As a result of the specific targets being achieved the performance rights and options relating to the 31 December 2013 and 31 December 2014 Performance Period have vested since balance date. The fair value of the performance rights and options for 2014 was $300,000 (2013: nil), with a cumulative expense being recognised as at 31 December 2014 of $300,000 (2013: nil). 83 A.P. Eagers ANNUAL REPORT 2014NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS 31 DECEMBER 2014 (continued) 36. RELATED PARTIES Key management personnel Other information on key management personnel has been disclosed in the Directors’ Report. Remuneration and retirement benefits Information on the remuneration of key individual management personnel has been disclosed in the Remuneration Report included in the Directors’ Report. Other transactions of directors and director related entities The aggregate amount of “Other transactions” with key management personnel are as follows: (i) Mr N G Politis is a director and shareholder of a number of companies involved in the motor industry with whom the consolidated entity transacts business. These transactions, sales of $580,024 (2013: $593,886) and purchases of $354,239 (2013: $313,122) during the last 12 months, are primarily the sale and purchase of spare parts and accessories and are carried out under terms and conditions no more favourable than those which it is reasonable to expect would have applied if the transactions were at arm’s length. (ii) Controlled entities may, from time to time, sell motor vehicles, parts and servicing of motor vehicles for domestic use to directors of entities in the consolidated entity or their director-related entities within a normal employee relationship on terms and conditions no more favourable than those which it is reasonable to expect would have been adopted if dealing with the directors or their director-related entities at arm’s length in the same circumstances. Wholly-owned group The parent entity of the wholly-owned group is A.P. Eagers Limited. Information relating to the wholly-owned group is set out in Note 29. 37. EARNINGS PER SHARE (a) Basic earnings per share Earnings attributable to the ordinary equity holders of the company (b) Diluted earnings per share Earnings attributable to the ordinary equity holders of the company (c) Reconciliations of earnings used in calculating earnings per share Basic Earnings per Share Profit for the year Less: attributable to non-controlling interest Profit attributable to the ordinary equity holders of the company used in calculating basic earnings per share Diluted Earnings per Share Profit for the year CONSOLIDATED 2014 Cents 2013 Cents 43.0 36.4 41.6 35.3 CONSOLIDATED 2014 $’ 000 2013 $’ 000 76,690 (460) 63,962 (353) 76,230 63,609 76,690 63,962 Profit attributable to the ordinary equity holders of the company used in calculating diluted earnings per share 76,230 63,609 Weighted average number of ordinary shares outstanding during the year Adjustments for calculation of diluted earnings per share – performance rights and options 177,289,994 5,873,128 174,862,288 5,174,058 Weighted average number of ordinary shares outstanding during the year used in the calculation of diluted earnings per share 183,163,122 180,036,346 84 A.P. Eagers ANNUAL REPORT 2014NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS 31 DECEMBER 2014 (continued) NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS 38. RECONCILIATION OF NET PROFIT AFTER TAX TO THE NET CASH INFLOWS FROM OPERATIONS Net profit after tax Depreciation and amortisation Profit on sale of property, plant and equipment Share of profit of associate Dividends from investments Employee share scheme expense Employee share payment to trust Non cash impairment adjustments Non controlling interest adjustments Profit on sale of business Deposit on McLachlan & Gabba adjustment (Increase)/decrease in assets – Receivables Inventories Prepayments Increase/(decrease) in liabilities - Creditors (including bailment finance) Provisions Taxes payable CONSOLIDATED 2014 $’ 000 2013 $’ 000 76,690 63,962 12,583 (2,414) (4,939) 7,646 2,135 (1,077) - (1,850) (900) 22,553 (31,370) (49,336) 5,810 64,608 1,051 (3,045) 12,354 (207) (1,959) 1,094 1,455 (2,361) 708 (822) (900) - 2,470 125 (4,705) 6,836 456 (2,539) Net cash inflow from operating activities 98,145 75,967 39. NON-CASH TRANSACTIONS No component of dividends were settled by the issuance of ordinary shares under the Dividend Reinvestment Plan in 2014 (2013: $22,242,785 representing 5,295,491 ordinary shares). On 15 September 2014, the group announced that it had entered into unconditional contracts for the sale of 44 Ipswich Road, 33 Jurgens Street and 79 Logan Road in Woolloongabba, and as a result recognised a profit on sale of $2.211m included within the amount disclosed in Note 4. Consideration for the sale totalling $35.879m is to be realised in staged payments over the next 5 years. To balance date, the group has received $1.794m of the consideration, with the balance recognised on the statement of financial position under “Property sale receivable”. 85 A.P. Eagers ANNUAL REPORT 201431 DECEMBER 2014 (continued) 40. INVESTMENTS IN ASSOCIATE (a) Carrying amounts Investments in associate are accounted for in the consolidated financial statements using the equity method of accounting. Information relating to the associate is set out below: OWNERSHIP INTEREST CONSOLIDATED 2014 % 2013 % 2014 $’ 000 2013 $’ 000 Name of company Unlisted securities Norna Limited (formerly M T Q Insurance Services Limited) 20.65 20.65 1,620 4,327 During the year M T Q Insurance Services Limited changed its name to Norna Limited. On 29 August 2014 MTA Insurance Limited (a wholly owned subsidiary of Norna Limited) was sold to AAI Limited with settlement to take place in instalments, the final of which is expected to be realised in 2016. Once the sale is completed Norna Limited will be liquidated. AP Eagers Limited will remain a shareholder in Norna Limited with a 20.65% interest (PY: 20.65%) and will continue to equity account the investment in the associate which has been equity accounted from 1 January 2006 (refer Note 14), until the final distributions are received and Norna Limited is liquidated. Norna Limited is incorporated in Australia. Its principal activities for the period up to the sale remained the sale of consumer credit and insurance products, as well as undertaking investment activities. Since the sale, the entity will realise the transaction until liquidated. (b) Movement in the carrying amounts of investment in associate - Carrying amount at the beginning of the financial year Equity share of profit from ordinary activities after income tax Dividends received during current year Carrying amount at the end of the financial year (c) Summarised financial information of associate The aggregate profits, assets and liabilities of associate are: Revenue Profits from ordinary activities after income tax expense Assets Liabilities CONSOLIDATED 2014 $’ 000 2013 $’ 000 4,327 3,461 4,939 (7,646) 1,620 1,959 (1,094) 4,327 31,244 23,519 10,049 53 43,128 9,842 89,201 65,668 (d) Share of associate profit (Based on the last published results for the 12 months to 30 June 2014 plus unaudited results up to 31 December 2014) Profit from ordinary activities after income tax 4,939 1,959 (e) Share of associate expenditure commitments Lease commitments (f) Dividends received from associate (g) Reporting date of associate The associate reporting dates are 30 June annually. 86 - 151 7,646 1,094 A.P. Eagers ANNUAL REPORT 2014NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS 31 DECEMBER 2014 (continued) DIRECTORS’ DECLARATION The directors declare that : (a) (b) in the directors’ opinion, there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable; in the directors’ opinion, the attached financial statements and notes thereto are in accordance with the Corporations Act 2001, including compliance with accounting standards and giving a true and fair view of the financial position and performance of the consolidated entity; and (c) In the director’s opinion, the attached financial statements are in compliance with International Financial Reporting Standards as stated in Note 1(a) to the financial statements; and (d) the directors have been given the declarations required by s.295A of the Corporations Act 2001 At the date of this declaration, the company is within the class of companies affected by ASIC Class Order 98/1418. The nature of the deed of cross guarantee is such that each company which is party to the deed guarantees to each creditor payment in full of any debt in accordance with the deed of cross guarantee. In the directors’ opinion, there are reasonable grounds to believe that the company and the companies to which the ASIC Class Order applies, as detailed in Note 29 to the financial statements will, as a group, be able to meet any obligations or liabilities to which they are, or may become, subject by virtue of the deed of cross guarantee. Signed in accordance with a resolution of the directors made pursuant to s.295(5) of the Corporations Act 2001. On behalf of the Directors M A Ward Director 25 March 2015 87 A.P. Eagers ANNUAL REPORT 2014 INDEPENDENT AUDITOR’S REPORT 88 A.P. Eagers ANNUAL REPORT 2014INDEPENDENT AUDITOR’S REPORT (continued) 89 A.P. Eagers ANNUAL REPORT 2014 SHAREHOLDER INFORMATION AS AT 16 MARCH 2015 Equity Securities The company’s quoted securities consist of 178,519,473 ordinary fully paid shares (ASX: APE). Top 20 Holders of Ordinary Shares WFM Motors Pty Ltd Patterson Cheney Investments Pty Ltd Jove Pty Ltd Alan Piper Investments (No 1) Pty Ltd Milton Corporation Limited Argo Investments Limited Navigator Australia Ltd Martin Ward Berne No 132 Nominees Pty Ltd Citicorp Nominees Pty Ltd Diane Colman National Nominees Limited Hegford Pty Ltd ANZ Trustees Limited Peter Gary Robinson Trevor Reading Walmayne Pty Ltd AMP Life Limited RBC Investor Services Australia Nominees Pty Limited Bryce McKerrell No. of Shares % of Issued Shares 66,110,960 12,591,761 10,715,916 6,406,250 5,833,107 4,312,620 3,254,378 2,854,170 2,444,101 2,227,848 1,881,710 1,590,951 1,203,063 1,181,920 1,116,455 1,107,550 1,000,000 991,527 882,197 869,637 37.03 7.05 6.00 3.59 3.27 2.42 1.82 1.60 1.37 1.25 1.05 0.89 0.67 0.66 0.63 0.62 0.56 0.56 0.49 0.49 90 A.P. Eagers ANNUAL REPORT 2014 SHAREHOLDER INFORMATION AS AT 16 MARCH 2015 (continued) Distribution of Shareholders Substantial Shareholders WFM Motors Pty Ltd Patterson Cheney Investments Pty Ltd Jove Pty Ltd No. of Shares Held 62,817,353 11,977,755 10,193,381 Range No. of Shareholders 1 1,001 5,001 10,001 - - - - 1,000 5,000 10,000 100,000 100,001 and over 1,689 1,434 516 804 108 4,551 77 shareholders hold less than a marketable parcel. Performance Rights and Options 940,516 unvested performance rights, 9,026,947 unvested options, 239,345 vested performance rights and and 8,207,515 vested options are on issue to 60 holders pursuant to the Executive Incentive Plan. Vesting is subject to the achievement of pre-determined performance hurdles, as described in the Directors’ Report. The rights and options do not have any dividend or voting rights. On-market Buy-back The company does not have a current on-market share buy-back. Voting Rights The following voting rights attach to ordinary shares, subject to the company’s constitution: • A shareholder entitled to attend and vote at a meeting may do so in person or by proxy, attorney or corporate representative. • On a show of hands, each shareholder entitled to vote has one vote. • On a poll, each shareholder entitled to vote has one vote for each fully paid share and a fraction for each partly paid share. • If a share is held jointly with two or more holders in attendance, only the holder whose name appears first in the register may vote. 91 A.P. Eagers ANNUAL REPORT 2014 CORPORATE DIRECTORY A.P. Eagers Limited ABN 87 009 680 013 Incorporation Controlled Entities Adtrans Australia Pty Ltd ABN 47 008 278 171 Adtrans Automotive Group Pty Ltd ABN 83 007 866 917 Adtrans Corporate Pty Ltd ABN 85 056 340 928 Incorporated in Queensland on 17 April 1957 Adtrans Group Ltd ABN 28 008 129 477 Registered Office 80 McLachlan Street Fortitude Valley QLD 4006 Postal Address PO Box 199 Fortitude Valley QLD 4006 Telephone (07) 3608 7100 Facsimile (07) 3608 7111 Website www.apeagers.com.au Auditor Deloitte Touché Tohmatsu Grosvenor Place 225 George Street Sydney NSW 2000 Share Registry Computershare Investor Services Pty Ltd 117 Victoria Street West End QLD 4101 Enquiries within Australia: 1300 552 270 Enquiries outside Australia: +61 3 9415 4000 Board of Directors Tim Crommelin, Chairman Martin Ward, Managing Director & Chief Executive Officer Nick Politis, Non-executive Director Peter Henley, Non-executive Director Dan Ryan, Non-executive Director David Cowper, Non-executive Director Company Secretary Adtrans Hino Pty Ltd ABN 51 127 369 260 Adtrans Truck Centre Pty Ltd ABN 17 106 764 327 Adtrans Trucks Adelaide Pty Ltd ABN 45 151 699 651 Adtrans Trucks Pty Ltd ABN 71 008 264 935 Adtrans Used Pty Ltd ABN 11 074 561 514 A.P. Ford Pty Ltd ABN 43 010 602 383 A.P. Group Ltd ABN 53 010 030 994 A.P. Motors Pty Ltd ABN 76 010 579 996 A.P. Motors (No.1) Pty Ltd ABN 95 010 585 234 A.P. Motors (No.2) Pty Ltd ABN 97 010 585 243 A.P. Motors (No.3) Pty Ltd ABN 99 010 585 252 Associated Finance Pty Ltd ABN 76 009 677 678 Austral Pty Ltd ABN 89 009 662 202 BASW Pty Ltd ABN 63 601 452 199 Bill Buckle Autos Pty Ltd ABN 75 000 388 054 Bill Buckle Holdings Pty Ltd ABN 44 062 951 106 Bill Buckle Leasing Pty Ltd ABN 52 000 871 910 Black Auto CQ Pty Ltd ABN 50 135 015 191 Black Auto South West Pty Ltd ABN 12 600 279 927 Boonarga Welding Pty Ltd ABN 31 099 480 903 CH Auto Pty Ltd ABN 20 600 297 783 City Automotive Group Pty Ltd ABN 14 067 985 602 E.G. Eager & Son Pty Ltd ABN 20 009 658 306 Eagers Finance Pty Ltd ABN 65 009 721 288 Eagers MD Pty Ltd ABN 58 009 727 753 Eagers Nominees Pty Ltd ABN 98 009 723 488 Eagers Retail Pty Ltd ABN 91 009 662 211 Graham Cornes Motors Pty Ltd ABN 73 008 123 993 IB MD Pty Ltd ABN 50 169 210 173 IB Motors Pty Ltd ABN 90 169 209 607 Leaseline & General Finance Pty Ltd ABN 51 010 131 361 Melbourne Truck and Bus Centre Pty Ltd ABN 42 143 202 699 Nundah Motors Pty Ltd ABN 52 009 681 556 PPT Holdings No 1 Pty Ltd ABN 13 078 207 333 PPT Holdings No 2 Pty Ltd ABN 13 078 207 397 PPT Holdings No 3 Pty Ltd ABN 30 078 207 468 PPT Investments Pty Ltd ABN 80 000 868 860 Precision Automotive Technology Pty Ltd ABN 59 163 233 207 South West Queensland Motors Pty Ltd ABN 21 600 279 589 Stillwell Trucks Pty Ltd ABN 19 008 014 720 Denis Stark, General Counsel & Company Secretary Western Equipment Rentals Pty Ltd ABN 91 131 269 184 Whitehorse Trucks Pty Ltd ABN 13 116 437 702 92 A.P. Eagers ANNUAL REPORT 2014

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