Eagers Automotive Limited
Annual Report 2016

Plain-text annual report

2 0 1 6 A N N U A L R E P O R T 2 0 1 6 A N N U A L R E P O R T 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 (1) 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) -% 2016 $’000 2015 $’000 2014 $’000 2013 $’000 2012 $’000 3,833,222 179,776 (13,993) - 165,783 (24,378) 141,405 (35,879) (1,542) 103,984 3,246,376 163,077 (13,216) (7,610) 142,251 (21,293) 120,958 (33,943) (798) 86,217 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 55.4 35.0 100 2016 $’000 364,449 55,398 335,779 8,166 763,792 319,846 670,796 990,642 47.6 32.0 100 2015 $’000 296,060 105,375 293,435 8,139 703,009 228,479 557,922 786,401 43.0 27.0 100 2014 $’000 242,070 99,020 242,480 7,486 591,056 241,875 525,067 766,942 36.4 23.0 100 2013 $’000 231,205 108,612 198,369 939 539,125 246,082 431,658 677,740 34.0 20.0 100 2012 $’000 206,277 90,636 171,113 510 468,536 238,192 471,350 709,542 1,754,434 1,489,410 1,357,998 1,216,865 1,178,078 354,710 298,908 264,817 22,505 - 813,494 1,754,434 2.44 190,493 5,206 769,525 291,298 160,762 281,817 35,440 - 720,093 292,485 165,733 234,391 30,233 27,781 607,375 344,956 125,259 195,195 5,764 21,612 524,079 350,862 117,521 162,590 3,926 23,963 519,216 1,489,410 1,357,998 1,216,865 1,178,078 2.95 184,074 5,062 614,280 2.38 178,519 4,517 579,799 2.34 176,548 4,636 514,889 2.06 170,687 4,300 513,332 266,035 172,611 198,467 199,001 200,674 50.2 25.8 46.6 19.7 49.5 25.1 48.8 27.0 52.3 30.0 1 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 AP Eagers Foundation Company Profile Board of Directors Executive Management Directors’ Report Auditor’s Declaration of Independence Financial Statements Notes to the Financial Statements Directors’ Declaration Independent Auditor’s Report Shareholder Information Corporate Directory 2 4 5 5 6 20 21 27 85 86 91 93 ANNUAL GENERAL MEETING Our Annual General Meeting will be held at our registered office, 5 Edmund Street, Newstead, Queensland, on Wednesday 24 May 2017 at 9.00 am. FINANCIAL CALENDAR 2016 financial year end 31 December 2016 Full year results announcement 22 February 2017 Final dividend announcement 22 February 2017 Final dividend record date 30 March 2017 Final dividend payment date Annual General Meeting Half year end 18 April 2017 24 May 2017 30 June 2017 Half year results announcement * 23 August 2017 Interim dividend announcement * 23 August 2017 Interim dividend record date * Mid-September 2017 Interim dividend payment date * Early October 2017 2017 financial year end 31 December 2017 * estimate only, subject to changes notified to the ASX. 1 ANNUAL REPORT 2016COMMUNITY DRIVEN In 2016 we continued our long history of supporting local communities, charities and philanthropic organisations through various fundraising activities including the Adtrans Annual Golf Day, Newcastle’s Mates in Action Program, employee giving and corporate donations. These activities raised in excess of $700,000 throughout the year. 2 Numerous charities and worthwhile causes benefitted from our fund-raising initiatives during 2016, including Variety – the Children’s Charity, Mates in Action, Endeavour Foundation, Cambodia Challenge, Camp Quality, Mater Miracles, Heart Foundation, Whip Around for Rio, Dynami Australia, Biggest Morning Tea, Guide Dogs SA/NT, World’s Greatest Shave, Leukaemia Foundation plus many more. Our commitment to community support for over 100 years led to the establishment of the A.P. Eagers Foundation in 2013. By utilising the growing scale of our dealership network, the Foundation enhances our ability to support the communities in which we operate. Images (clockwise from top left): 4. Anthony Carter Memorial Scholarship (Klosters) 1. Mates in Action & Rescue Helicopter Service 5. Adtrans Charity Golf Day (Adtrans Cars) (Highway Ford & Hyundai) 6. Meals on Wheels (Klosters) 2. Variety – The Children’s Charity (Stillwell Trucks) 7. Variety Bash Kermit Car (Adtrans Trucks) 3. The Great Endeavour Rally (Brisbane Motor Auctions) 8. National Tree Day (Torque Toyota) VISION To actively contribute in meaningful and sustainable ways to communities, families in need and other worthy causes. MISSION To provide support and assistance to these community-focussed initiatives, by engaging the collaboration of A.P. Eagers and its automotive industry network, employees and other stakeholders. OBJECTIVES > To encourage and support engagement by A.P. Eagers and its stakeholders in these initiatives. > > > To secure voluntary assistance through financial support, sponsorship, skills transfer and in-kind donations to worthy and well-run organisations and other causes. To deliver 100 cents of every dollar donated to the intended recipients. To operate with the highest standards of integrity. ANNUAL REPORT 2016 3 COMPANY PROFILE ABOUT US A.P. Eagers Limited is a pure automotive retail group with our main operations in Queensland, Adelaide, Darwin, Melbourne, Sydney, the Newcastle/Hunter Valley region of New South Wales and Tasmania. We represent a diversified portfolio of automotive brands, including all 20 of the top 20 selling car brands in Australia and 10 of the top 11 selling luxury car brands. In total, we represent 33 car brands and 14 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, many of which are situated on properties owned by us, with the balance leased. We own $299 million of prime real estate positioned in high profile, main road locations in Brisbane, Sydney, Melbourne, Adelaide and Newcastle. DIVIDENDS AND EPS GROWTH We have paid a dividend to shareholders every year since listing in 1957, and a record dividend in 15 of the past 16 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. ORIGINS 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 more than $3.8 billion, profit after tax has increased from $4.3 million to $105.5 million in 2016 and the number of employees has increased from 600 to 4,500. We 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. 4 In 2010, we acquired the publicly listed Adtrans Group Limited, being South Australia’s premier car retailer and the operator of truck and bus dealerships in New South Wales, Victoria and South Australia. This represented our direct entry into the South Australian, Victorian and truck markets. We also acquired Caloundra City Autos Group in Queensland’s growing Sunshine Coast region in 2010. 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. 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 (AHG) was acquired in 2012, providing us with exposure to the West Australian market. This investment represented 19.99% of AHG, valued at $262 million, at the end of 2016. 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 under the brand names, Perfexion and 365+. In 2014, our Queensland operations expanded through the acquisition 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. 2016 saw further growth with the acquisition of Motors Group Tasmania, including state-wide representation for Holden, HSV, Hyundai, Citroen, Isuzu Trucks, Volvo Trucks, Mack Trucks and UD Trucks, together with the Victorian businesses Silver Star Motors (Mercedes-Benz) in Doncaster and Burwood, Mercedes–Benz Ringwood and Waverley Toyota in Glen Waverley. These businesses represent 12 car and truck brands. Our representation in regional Queensland also saw substantial growth in 2016 with the acquisition of the Crampton Automotive and Tony Ireland Groups, representing Holden, Hyundai, Mercedes- Benz, Citroen, Peugeot, Jaguar, Land Rover, Subaru, Chrysler Jeep Dodge and Isuzu Trucks, and taking us into new geographic territories including Toowoomba, Townsville and Hervey Bay. In late 2016 we launched our first Carzoos retail stores at Westfield Garden City and North Lakes, in Brisbane, introducing an entirely new way for customers to buy and sell used cars. Carzoos is supported by our new finance initiative, Simplr. Further Carzoos stores are scheduled to launch in 2017. FURTHER INFORMATION Please visit www.apeagers.com.au for further information about A.P. Eagers Limited. BOARD OF DIRECTORS Timothy Boyd Crommelin BCom, FSIA, FSLE Chairman of Board, Member of Audit, Risk & Remuneration Committee David Arthur Cowper BCom, FCA Director, Chairman 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. Member of the University of Queensland Senate. 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). Former 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. Vast automotive retail industry experience and Director of a substantial number of proprietary limited companies. 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. Director of a substantial number of proprietary limited companies. Significant management experience in automotive, transport, manufacturing and retail industries. 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. 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. Marcus John Birrell Director, Member of Audit, Risk & Remuneration Committee from 29 March 2017 Non-executive Director since July 2016. Director of Australian Automotive Dealer Association Limited (appointed January 2014). A distinguished career in the automotive industry, including 38 years at manufacturer, financier and retail level and 21 years as Executive Chairman of Birrell Motors Group. Sophie Alexandra Moore BBus, CA, FFin Director & Chief Financial Officer Director since 29 March 2017. Commenced with the Company as Chief Financial Officer in August 2015. In her executive capacity, Sophie is responsible for the group’s accounting, taxation, internal audit and treasury functions. Admitted as a chartered accountant in 1997. Previous senior finance roles with PricewaterhouseCoopers and Flight Centre Travel Group Limited. Peter William Henley FAIM, MAICD Director, Member of Audit, Risk & Remuneration Committee, Retired 22 February 2017 Independent, non–executive Director from December 2006 until retirement on 22 February 2017. Director of Thorn Group Ltd (appointed May 2007, retired August 2016). Former Deputy Chairman of MTQ Insurance Services Ltd. Former Chairman and Chief Executive Officer of GE Money Motor Solutions. Over 30 years’ local and international experience in the financial services industry. EXECUTIVE MANAGEMENT Keith Thomas Thornton BEc General Manager Queensland & Northern Territory Denis Gerard Stark LLB, BEc General Counsel & Company Secretary Commenced in July 2002. Licensed motor dealer. Responsible for all operational issues in Queensland and Northern Territory from June 2007 to 31 December 2016. In January 2017, appointed Chief Operating Officer – Cars, with national responsibility for the group’s car operations. Significant retail and wholesale experience in volume, niche and prestige industry sectors. Prior industry experience with various manufacturers. Director of Australian Automotive Dealer Association Limited (appointed September 2014). Commenced in January 2008. Responsible for overseeing the company secretarial, legal, work health & safety, insurance and investor relations functions and property portfolio. Previous company secretarial and senior executive experience with public companies. Admitted as a solicitor in Queensland in 1994 and Victoria in 1997. 5 ANNUAL REPORT 2016DIRECTORS’ REPORT The Directors of A.P. Eagers Limited ABN 87 009 680 013 (the Company) present their report together with the consolidated financial report of the Company and its controlled entities (the Group), for the year ended 31 December 2016 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 5. COMPANY SECRETARY The Company Secretary and his qualifications and experience are detailed on page 5. 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 8 8 8 8 8 8 4 8 8 8 8 8 8 4 4 - - 4 - 4 - 3 - - 3 - 4 - T B Crommelin(1) N G Politis M A Ward P W Henley(1) D T Ryan D A Cowper(1) M J Birrell(2) (1) Audit, Risk & Remuneration Committee members. (2) Mr Birrell was appointed as a Director on 27 July 2016. 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, accessories and car care products, repair and servicing of vehicles, provision of extended warranties, facilitation of finance and leasing in respect of motor vehicles, and the 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. 6 FINANCIAL & OPERATIONAL REVIEW The Directors are pleased to report a record 2016 statutory Net Profit Before Tax (NPBT) of $141.4 million. This compares to a Net Profit Before Tax of $121.0 million in 2015, an increase of 16.9% on the previous corresponding period (pcp). Net Profit After Tax was $105.5 million in 2016 compared to $87.0 million in 2015, an increase of 21.3% on the pcp. Earnings per share (basic) for 2016 were 55.4 cents compared to 47.6 cents on the pcp, an increase of 16.2%. 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) GST refunds (3) Underlying profit before tax Underlying profit after tax (4) Underlying EPS (basic) cents Notes Full Year to December 2016 $Million Full Year to December 2015 $ Million 55.4 105.5 141.4 (1.2) - 1.8 (4.5) 137.5 100.2 53.3 47.6 87.0 121.0 2.1 5.5 0.2 (2.4) 126.4 91.7 50.7 % Change 16.2% 21.3% 16.9% 8.8% 9.3% 5.2% (1) Represents the aggregate value of freehold property fair value adjustments (positive and negative) to the Statement of Profit and Loss and non-cash impairment of the goodwill associated with the National Truck Division. (2) Business acquisition costs include taxes, legal and other costs associated with business acquisitions. (3) Benefit from tax refunds associated with previous years’ GST payments (4) Underlying profit after tax includes the adjustments per Note (1) above, and the related tax impact at 30% equating to $1.1 million charge in 2016 (2015: $1.6 million benefit). Record trading performances in South Australia and New South Wales’ Hunter Region, significant improvement in National Truck operations and solid contributions from businesses acquired during the year helped offset the decline in Queensland. Although the Queensland and Northern Territory division continued to perform at historically strong levels, its year-on-year performance was down which was reflective of the exceptional hail driven market dynamics in 2015. Increased dividend income from our strategic investment in Automotive Holdings Group Ltd (AHG) and gains on sale of investments and property also contributed to the Group’s record result in 2016. 7 ANNUAL REPORT 2016Dividends Due to strong operational cash flow and increased earnings per share (EPS), a fully franked final dividend of 22.0 cents per share (2015: 20.0 cents) has been approved for payment on 18 April 2017 to shareholders who are registered on 30 March 2017 (Record Date). When combined with the interim dividend of 13.0 cents paid in October 2016, the total dividend based on 2016 earnings is 35.0 cents per share (2015: 32.0 cents) fully franked, an increase of 9% on 2015. The Company’s dividend reinvestment plan (DRP) will not operate in relation to the final dividend. Dividends paid to members during the year under review were as follows: Year ended 31 December Final ordinary dividend for the year ended 31 December 2015 of 20.0 cents (2014: 18.0 cents) per share paid on 15 April 2016 Interim ordinary dividend of 13.0 cents (2015: 12.0 cents) per share paid on 7 October 2016 2016 $’000 2015 $’000 37,015 32,239 24,625 61,640 22,089 54,328 External Environment According to Federal Chamber of Automotive Industry statistics, Australia’s new motor vehicle sales increased by 2.0% in 2016 to 1,178,133 units compared to a 3.8% increase in 2015. Whilst growth reduced in 2016 this represents a record year of sales exceeding the previous set in 2015. New vehicle sales in Western Australia and Queensland decreased on the pcp by -5.6% and -1.1%, respectively. Strong growth was experienced in New South Wales (4.4%), ACT (4.3%), South Australia (3.9%) and Victoria (3.4%). Private sales decreased by -5.8% but this was more than offset by a 13.0% increase in business sales. Luxury brands such as Audi, BMW, Mercedes-Benz, Land Rover, Volvo, Jaguar, Mini, Lexus, Porsche and Infiniti all recorded record sales as their respective lower-priced product offerings captured market share, with entry to new model segments key to a large part of this growth. This segment grew from 10.4% to 11.4% of total market share. Traditional fuel vehicles made up 99% of all new vehicle sales with the sale of electric vehicles reducing 80% to 219 units in 2016. Australian manufactured vehicles represented only 7.4% (2015: 8.4%) of new cars sold in the national market in 2016. Business Initiatives During 2016 our car retailing acquisitions expanded into new geographic territories, including Melbourne, Tasmania, Toowoomba, Hervey Bay and Townsville. Many existing brands represented by A.P. Eagers were included in this geographical expansion along with a new franchise relationship with Mercedes-Benz passenger cars at Doncaster and Ringwood in Victoria and at Toowoomba in Queensland. The disciplined integration of these acquisitions has created EPS growth during 2016, and most importantly has laid the foundation for further EPS growth from these business units during 2017 as the full operational benefits are extracted from these acquisitions. Our all-new Carzoos retail store aimed at delivering a completely new way for customers to buy and sell used cars was launched in September 2016 at Westfield Garden City shopping centre in southern Brisbane. A second store opened in North Lakes in northern Brisbane in November. Carzoos is supported by the Company’s new finance initiative, Simplr, aimed at providing a completely new and entirely consumer-centric finance option that leverages the Group’s extensive portfolio of partner finance providers. Redevelopment of the Group’s Newstead dealership properties continues with the opening of the new Volkswagen dealership in April 2016. The redevelopment of Land Rover and Jaguar dealerships commenced in June and is expected to be completed in April 2017 when the Company exits two thirds of the Fortitude Valley site. The strategic 19.99% shareholding in AHG as at 31 December was valued at $262.0 million based on their closing share price of $3.95 per share (2015: $4.52). Whilst not included in the Company’s Statutory Profit after Tax, a before tax unrealised loss of $37.8 million resulting from the reduction in AHG’s end of year share price, has been recognised in the Statement of Comprehensive Income for the 2016 year. Financial Performance Total revenue increased by 18.1% to $3.8 billion in 2016 (2015: $3.2 billion), with all business units reflecting increases in vehicle sales. The additional contribution from new business acquisitions and strong trading in the NSW car division also combined to boost total revenue. On a like-for-like basis, revenue increased by 5.3% compared to the pcp. EBITDA increased by 10.2% to $179.8 million (2015: $163.1 million). EBITDA/Revenue of 4.7% (2015: 5.0%) was down as compared to pcp while the NPBT/Sales ratio remained consistent at 3.7% (2015: 3.7%). On an underlying basis NPBT/ Sales for 2016 was 3.6%, down from 3.9% in 2015. 8 DIRECTORS’ REPORT CONTINUEDA before tax profit of $1.1 million (net) was realised on the early settlement of the property in Woolloongabba in 2016, as compared to a $3.0 million gain on sale of properties in 2015. Furthermore, a profit before tax of $1.2 million was realised on the revaluation of a property at Brookvale, offsetting a revaluation decrement recorded against the same property in 2010. This $1.2 million positive compared to a $2.1 million loss before tax realised on the revaluation of a property in 2015. Borrowing costs increased by 14.5% to $24.4 million (2015: $21.3 million), reflecting higher average debt (including additional bailment finance for the businesses acquired in 2016) being partially offset by lower margins and interest rates. The increase in depreciation and amortisation costs by 5.9% to $14.0 million (2015: $13.2 million) reflects the additional depreciation on businesses and associated property acquired in 2016 and higher development and refurbishment capital expenditure in 2016 which increased to $19.3 million from $18.9 million in 2015. Business acquisition costs of $1.8 million were expensed in the financial year relating to the Birrell, Crampton Automotive and Tony Ireland Group acquisitions, compared to $0.2 million in 2015. The Company’s net cash provided by operating activities was $110.7 million in 2016 (2015: $84.6 million). This increase was due to contributions from acquisitions made in 2016, improved profitability together with lower tax payments compared to 2015 which included capital gains tax paid on the properties sold in 2014. 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 Earnings per share - basic This report is based on accounts which have been audited. 2016 $’000 2015 $’000 Increase/ (Decrease) 3,779,738 3,201,755 53,484 44,621 3,833,222 3,246,376 179,776 (13,993) 163,077 (13,216) 18.1% 19.9% 18.1% 10.2% 5.9% - (7,610) (100.0%) 165,783 (24,378) 141,405 (35,879) 105,526 (1,542) 103,984 142,251 (21,293) 120,958 (33,943) 87,015 (798) 86,217 55.4 cents 47.6 cents 16.5% 14.5% 16.9% 5.7% 21.3% - 20.6% 16.4% 9 ANNUAL REPORT 2016Segments (1) The Profit contribution from the Company’s Car Retail segment was 6.8% higher at $104.6 million compared to $98.0 million in 2015. Revenue increased by 19.5%, with the increase primarily attributable to the strong trading in NSW and contribution from the acquired Birrell, Crampton Automotive and Tony Ireland groups. The strong trading was also reflected in the service departments with the focus on service retention, transactional margins and workshop efficiency all driving a record service result. The National Truck Division (Truck Retail segment) delivered a significantly improved profit performance of $6.3 million compared to a $3.2 million loss in 2015 which included the goodwill impairment write down of $5.5 million. Revenue increased by 5.4% reflecting strong performance in all departments including significantly improved profits from the used truck and service divisions. The value of the property portfolio increased to $299 million as at 31 December 2016 compared to $249 million as at 31 December 2015 due primarily to the acquisition of five properties during the year including three dealership sites for the Mercedes-Benz business in Victoria and favourable adjustments to property fair values. The Property segment profit contribution of $28.2 million was higher than the previous year of $16.3 million, due to the $1.1 million gain realised on settlement of a Woolloongabba property together with property valuation increases of $12.1 million primarily in the Queensland portfolio, of which $1.2 million was recognised as profit before tax. The Investment segment registered a pre-tax loss of $24.0 million for 2016 as compared to a gain of $61.1 million for the pcp, due primarily to an unrealised revaluation loss on the AHG investment of $37.8 million. This reflected a 31 December 2016 AHG closing share price of $3.95 per share compared to $4.52 as at 31 December 2015. (1) Note: changes in fair value of property and investments are recognised as profit and loss adjustments for segment reporting purposes but are not recorded in the Group’s Statutory Net Profit After Tax Financial Position Our financial position and interest coverage remained strong, although total debt and gearing ratios increased during 2016 as a result of additional debt to fund the acquisition of new businesses, property and AHG shares. $50 million in cash received from property sales during the year was also used to fund these acquisitions. EBITDA Interest Cover (EBITDA/Borrowing costs) was 7.4 times as at 31 December 2016 compared to 7.0 times as at June 2016 and 7.6 times as at 31 December 2015. Corporate debt (Term and Capital Loan Facility) net of cash on hand as at 31 December 2016 was higher at $266.0 million (2015: $171.5 million) and total debt including vehicle bailment net of cash on hand was higher at $751.9 million as compared to $576.7 million at 31 December 2015. The increase was primarily due to additional debt drawn down to fund the Birrell and Crampton Automotive Group acquisitions and additional bailment finance consistent with seasonal inventory movements and related to businesses acquired during the year. Total gearing (Debt /Debt + Equity), including bailment inventory financing and finance leases, was 50.2% as at 31 December 2016, as compared to 46.6% as at 31 December 2015. Bailment finance is cost effective short-term finance secured against vehicle inventory on a vehicle by vehicle basis. Gearing excluding bailment and finance leases and including cash on hand, was 25.8% as at 31 December 2016 compared to 19.6% at the end of 2015. During the year, additional debt of $73.4 million was drawn down to fund the business and property acquisitions and additional shares acquired in AHG. Total inventory levels increased to $625.0 million at 31 December 2016 from $530.2 million at 31 December 2015 primarily due to additional new and used car/truck inventory from the Birrell, Crampton Automotive and Tony Ireland Group acquisitions. Net tangible assets reduced to $2.44 per share as at 31 December 2016, compared to $2.95 per share as at 31 December 2015, due to increased intangibles acquired as part of Birrell, Crampton Automotive and Tony Ireland Group acquisitions and lower value of AHG investment. Outlook and Strategy Update The national new vehicle market continues to grow with low interest rates supporting customer affordability and exceptional product offerings driving customer demand. Strategically, the Company remains focussed on automotive retail and a two-pronged approach of driving value from existing business through process improvement, operating synergies, portfolio management and organic growth, whilst taking advantage of value adding acquisition opportunities as they present themselves. Key focus areas for 2017 are: > Delivering further EPS growth from the Birrell Group, Crampton Automotive Group and Tony Ireland Group acquisitions; > > > Implementing appropriate operational changes in response to any announcement by ASIC regarding regulatory rule changes for Finance & Insurance (18 month lead time expected); The ongoing development and optimisation of our existing used car business model now re-launched and branded Zooper; The further expansion of the all-new Carzoos and Simplr business model following the opening of two shopping centre stores in 2016; > Continued redevelopment and reorganisation of inner city Brisbane facilities (Newstead, Woolloongabba and Windsor) to provide improved long-term solutions for all stakeholders; > Further rationalisation of our Parts business to reduce the cost base, improve efficiency and eliminate sub-economic business trading terms; > A renewed focus on all business processes to deliver the optimal operating cost; and > Earnings accretive dealership and ancillary market acquisitions. 10 DIRECTORS’ REPORT CONTINUEDSIGNIFICANT CHANGES IN THE STATE OF AFFAIRS REMUNERATION REPORT 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. 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: Statutory NPAT ($ million) Statutory Earnings per share - basic (c) Dividend per share (c) Share Price at year end ($) 2016 105.5 55.4 35 9.22 2015 87.0 47.6 32 12.70 2014 76.7 43.0 27 5.98 2013 64.0 36.4 23 4.96 2012 55.6 34.0 20 4.38 11 ANNUAL REPORT 2016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 for that purpose by shareholders in general meeting, currently $750,000 per annum, which was fixed at the annual general meeting in 2015. For the year under review, non-executive Director fees were $85,000 per annum plus superannuation, and the Chairman’s fee was $100,000 per annum plus superannuation. The board, with the assistance of the Audit, Risk & Remuneration Committee, annually 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. (c) Short-term Performance Incentives (i) Incentive / Bonus Non-commission based key management personnel are eligible to receive short-term incentive payments of up to 30% of their base salary in accordance with contractual arrangements. This is not available to commission based key management personnel, the Chief Executive Officer or non-executive Directors. The allocations are determined on a discretionary basis during annual review by the Chief Executive Officer in consultation with the Chairman after considering individual and Company achievements and performances. (ii) Commission Structure A commission structure is included in the remuneration for the General Manager Queensland and Northern Territory. The commission is set at a percentage of net profit before tax of relevant business units and is therefore based on measurable business performance and designed to improve shareholder value. (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 for key management personnel, focussing on corporate performance and the creation of shareholder value over multi-year periods. The EIP is not available to non- executive Directors. 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. The performance hurdles are explained in further detail below. 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 upon payment of an exercise price and achievement of performance hurdles. The exercise price is the market share price on or about the grant date or when the executive agreed in principle to participate in the plan. 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 to vest. Performance hurdles include: > > > the Company must meet the applicable EPS hurdle (as described below). the Company must meet any prescribed interest cover ratio, being at least 2.5 times. the executive must remain permanently employed by the Group. 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. (ii) EPS Hurdles A separate EPS performance hurdle applies for each tranche or sub-tranche of performance rights and options. These EPS hurdles are pre-determined using a base-line EPS when the participant agreed to join the plan. 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. 12 DIRECTORS’ REPORT CONTINUED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. In these circumstances, 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. However, 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 At the Company’s annual general meeting in 2014, shareholders approved the Chief Executive Officer, Mr Ward, participating in the EIP for the five years from 2015 to 2019. With 96.6% 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 2015 to 2019. > 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 at the diluted EPS for 2013. This base-line was used in order to give shareholders visibility of the base-line before they approved Mr Ward’s rights and options at the annual general meeting in 2014. > 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 cost to the Company of Mr Ward’s participation in the EIP is determined as follows: > > There has been no increase to the average annual cost to the Company of Mr Ward’s participation in the EIP since 2010. If 100% of the performance rights and options are to vest over the five year period 2015 to 2019 (requiring at least 10% annual compound growth in diluted EPS for five years), the recognised cost of the plan will average $850,000 per annum being the fair value at grant date. However, accounting standards require that the cost be recognised based on the progressive recognition of each share option grant over its expected vesting period, as shown in the remuneration table on page 16, 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 will be achieved over the five year period, the total cost recognised in each year will be as 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 7% annual compound growth in diluted EPS for five years), the cost of the plan would be on average $425,000 per annum for 5 years. Accounting accrual 6 3 2 2 2 1 , 1 8 4 9 4 0 9 4 8 8 5 5 1 s ’ 0 0 0 $ 1500 1200 900 600 300 0 Average annual cost 0 5 8 0 5 8 0 5 8 0 5 8 0 5 8 1500 1200 s ’ 0 0 0 $ 900 600 300 0 0 2014 2015 2016 2017 2018 2019 2014 2015 2016 2017 2018 2019 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. 13 ANNUAL REPORT 2016(iv) Grants to Key Management Personnel The following tables show details of current grants of performance rights and options over unissued ordinary shares, which were granted to key management personnel in or before the year under review. No rights or options were granted to, lapsed or were exercised by, key management personnel during or after the year under review, except as shown in these tables. Chief Executive Officer Tranche No. Grant Date No. granted No. lapsed No. exercised (1) Fair value No. granted No. lapsed No. exercised (1) Fair value End of 1st performance period Performance Rights Options 1 2 3 4 5 4 Jul 2014 83,661 4 Jul 2014 87,268 4 Jul 2014 4 Jul 2014 4 Jul 2014 91,006 94,866 99,067 - - - - - 83,661 $5.08 467,032 - - - - $4.87 452,127 $4.67 447,368 $4.48 420,792 $4.29 416,666 - - - - - 50,000 $0.91 31 Dec 2015 $0.94 31 Dec 2016 Status Vested without re-testing Vested without re-testing $0.95 31 Dec 2017 Unvested $1.01 31 Dec 2018 Unvested $1.02 31 Dec 2019 Unvested - - - - (1) Performance rights are automatically exercised upon vesting. 50,000 options that vested for 2015 were exercised during the year under review. Options and rights that were exercised during the year under review were valued at $1,275,714 on the day of exercise. General Manager Queensland and Northern Territory Performance Rights Options No. granted No. lapsed No. exercised (1) Fair value Tranche No. 1 2 3 4 5 6 7 8 9 Grant Date 29 Oct 2009 29 Oct 2009 29 Oct 2009 29 Oct 2009 29 Oct 2009 - - - - - 4 Jul 2014 19,685 4 Jul 2014 20,533 4 Jul 2014 4 Jul 2014 21,413 22,321 23,310 10 4 Jul 2014 No. granted 104,165 203,805 202,705 203,805 199,470 - - - - - - - - - - 19,685 $5.08 109,890 - - - - $4.87 106,382 $4.67 105,263 $4.48 $4.29 99,009 98,039 - - - - - - - - - - No. lapsed No. exercised (1) Fair value End of 1st performance period - - - - - - - - - - 104,165 $0.36 31-Dec-10 203,805 $0.37 31-Dec-11 202,705 $0.37 31-Dec-12 203,805 $0.37 31-Dec-13 199,470 $0.38 31-Dec-14 - - - - - $0.91 31-Dec-15 $0.94 31-Dec-16 $0.95 31-Dec-17 $1.01 31-Dec-18 $1.02 31-Dec-19 Status Vested without re-testing Vested without re-testing Vested without re-testing Vested without re-testing Vested without re-testing Vested without re-testing Vested without re-testing Unvested Unvested Unvested (1) Performance rights are automatically exercised upon vesting. 913,950 options that had vested for the years 2010 to 2014 were exercised during the year under review. Options and rights that were exercised during the year were valued at $9,391,103 on the day of exercise. 14 DIRECTORS’ REPORT CONTINUED General Counsel & Company Secretary Performance Rights Options No. granted No. lapsed No. exercised (1) Fair value - - - - - - - Grant Date 1 Jun 2010 1 Jun 2010 27 Mar 2013 27 Mar 2013 27 Mar 2013 27 Mar 2013 27 Mar 2013 Tranche No. 1 2 3 4 5 6 7 8 9 10 11 12 4 July 2014 2,460 4 Jul 2014 2,566 4 Jul 2014 4 Jul 2014 4 Jul 2014 2,676 2,790 2,913 - - - - - - - - - - - - - - 2,460 $5.08 No. granted 52,640 60,850 26,880 26,880 26,040 25,510 25,250 13,736 - - - - $4.87 13,297 $4.67 $4.48 $4.29 13,157 12,376 12,254 No. lapsed No. exercised (1) Fair value End of 1st performance period - - - - - - - - - - - - 52,640 $0.52 31-Dec-11 60,850 $0.53 31-Dec-12 - - - - - - - - - - $0.93 31-Dec-13 $0.93 31-Dec-14 $0.96 31-Dec-15 $0.98 31-Dec-16 $0.99 $0.91 31-Dec-17 31-Dec-15 $0.94 31-Dec-16 $0.95 $1.01 $1.02 31-Dec-17 31-Dec-18 31-Dec-19 Status Vested without re-testing Vested without re-testing Vested without re-testing Vested without re-testing Vested without re-testing Vested without re-testing Unvested Vested without re-testing Vested without re-testing Unvested Unvested Unvested - - - - - - - - - - - - (1) Performance rights are automatically exercised upon vesting. 113,490 options that had vested for the years 2011 and 2012 were exercised during the year under review. Options and rights that were exercised during the year were valued at $917,092 on the day of exercise. Chief Financial Officer Tranche No. Grant Date No. granted No. lapsed No. exercised (1) Fair value No. granted No. lapsed No. exercised (1) Fair value End of 1st performance period Performance Rights Options 1 2 3 4 5 12 Jun 2015 2,227 12 Jun 2015 4,624 12 Jun 2015 12 Jun 2015 12 Jun 2015 4,796 4,975 5,167 - - - - - 2,227 $8.98 14,084 - - - - $8.65 27,027 $8.34 $8.04 $7.74 26,143 25,316 25,000 - - - - - - - - - - $1.42 31 Dec 2015 $1.48 31 Dec 2016 Status Vested without re-testing Vested without re-testing $1.53 31 Dec 2017 $1.58 31 Dec 2018 $1.60 31 Dec 2019 Unvested Unvested Unvested (1) Performance rights are automatically exercised upon vesting. No options were exercised during the year under review. Rights that were exercised during the year were valued at $24,742 on the day of exercise. Further details of the performance rights and options granted under the EIP are specified in notes 36 and 37 to the consolidated financial report. 4. Hedging 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. 5. Executive Employment Agreements 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 three months’ notice 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. 15 ANNUAL REPORT 2016 The Chief Executive Officer’s employment agreement differs from that of other executives as follows: (a) 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. 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. Short-term benefits Post- employment benefits Bonus & commission (4) $ Non-monetary & other benefits (1) $ Super- annuation benefits $ Salary & fees $ Share-based payments Performance Rights & Options (2) (3) $ Performance -related percentage % Total $ 100,000 1,200,000 85,000 85,000 85,000 85,000 42,500 1,682,500 - - - - - - - - 635 9,500 - 110,135 136,556 35,000 948,336 2,319,892 635 635 635 635 275 140,006 8,075 8,075 8,075 8,075 4,038 80,838 - - - - - 93,710 93,710 93,710 93,710 46,813 948,336 2,851,680 200,004 819,230 62,663 19,616 223,138 1,324,651 286,677 73,000 46,554 27,234 55,218 488,683 306,006 62,400 30,116 22,253 101,330 522,105 792,687 954,630 139,333 69,103 379,686 2,335,439 - 41 - - - - - 79 26 31 2016 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 M J Birrell Non-executive Director (5) Executives K T Thornton General Manager Qld & NT D G Stark General Counsel & Company Secretary S A Moore Chief Financial Officer (1) Includes benefits such as the provision of motor vehicles, insurance policy costs and the movement in the provision for the individual’s employee entitlements. (2) 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. (3) 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 13 under the heading “CEO’s Participation in EIP” of which the treatment of share plan expense is applicable to all key management personnel. (4) For Mr Thornton, this is a commission representing a percentage of net profit before tax of relevant business units and is therefore based on measurable business performance and designed to improve shareholder value. No commission is included for any other key management personnel. (5) Mr Birrell was appointed as a Director on 27 July 2016. 16 DIRECTORS’ REPORT CONTINUEDShort-term benefits Post- employment benefits Bonus & commission (5) $ Non-monetary & other benefits (1) $ Super- annuation benefits $ Salary & fees $ Share-based payments Performance Rights & Options (2) (3) $ Performance -related percentage % Total $ 100,000 1,200,000 85,000 85,000 85,000 85,000 1,640,000 - - - - - - - 742 9,500 - 110,242 177,416 35,000 1,122,362 2,534,778 742 742 742 742 8,075 8,075 8,075 8,075 - - - - 93,817 93,817 93,817 93,817 181,128 76,800 1,122,362 3,020,290 200,000 931,645 131,025 19,307 264,085 1,546,062 192,500 52,500 68,794 18,288 105,790 437,872 265,000 97,000 73,386 25,175 75,438 535,999 125,000 25,000 782,500 1,106,145 16,858 290,063 6,923 69,693 66,664 240,445 511,977 2,760,378 - 44 - - - - 77 36 32 38 2015 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 (4) D G Stark General Counsel & Company Secretary S A Moore Chief Financial Officer (4) (1) Includes benefits such as the provision of motor vehicles, insurance policy costs and the movement in the provision for the individual’s employee entitlements. This includes $67,300 as a provision for long service leave for Mr Ward, $81,019 for Mr Thornton, $37,731 for Mr Best and $46,213 for Mr Stark. (2) 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. (3) 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 13 under the heading “CEO’s Participation in EIP” of which the treatment of share plan expense is applicable to all key management personnel. (4) With the appointment of Ms Moore as Chief Financial Officer on 3 August 2015, Mr Best ceased in his capacity as Chief Financial Officer and a member of key management personnel. This table therefore includes Mr Best’s remuneration for the period ending 3 August 2015. (5) For Mr Thornton, this includes a commission of $846,645, which is set at a percentage of net profit before tax of relevant business units and is therefore based on measurable business performance and designed to improve shareholder value. No commission is included for any other key management personnel. 17 ANNUAL REPORT 20167. Relevant Interest in the Company’s Shares Held by Key Management Personnel At 01-Jan-16 $ Dividend Reinvestment Plan $ Executive Incentive Plan $ Purchases $ Sales $ At 31-Dec-16 $ 4,115,085 68,079,091 111,825 0 357,229 8,248 0 448,135 145,624 0 0 0 0 0 0 0 0 0 0 0 133,661 0 0 0 0 0 0 12,641 340,048 4,000 0 21,057 3,805 2,000,000 50,000 4,211,387 0 68,419,139 2,733 113,092 0 0 0 0 0 378,286 12,053 2,000,000 933,635 115,950 2,227 0 0 0 953,185 121,000 0 428,585 140,574 2,227 73,265,237 - 1,185,473 2,381,551 1,126,918 75,705,343 At 01-Jan-15 $ Dividend Reinvestment Plan $ Executive Incentive Plan $ Purchases $ Sales $ At 31-Dec-15 $ 2,854,170 66,085,596 107,215 0 339,229 8,248 390,620 174,785 71,244 0 0 0 0 0 0 0 0 0 0 0 3,760,915 0 2,500,000 4,115,085 0 0 0 0 0 57,515 258,345 74,380 0 1,993,495 4,610 0 18,000 0 0 0 0 0 0 0 0 0 0 0 0 0 0 68,079,091 111,825 0 357,229 8,248 448,135 433,130 145,624 0 70,031,107 - 4,151,155 2,016,105 2,500,000 73,698,367 2016 Directors M A Ward N G Politis P W Henley D T Ryan T B Crommelin D A Cowper M J Birrell Executives K T Thornton D G Stark S A Moore 2015 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 S A Moore 18 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: Ordinary Shares (fully paid) Share Options Performance Rights T B Crommelin N G Politis M A Ward P W Henley D T Ryan D A Cowper M J Birrell 383,286 68,521,091 4,211,387 113,092 - 15,053 2,000,000 - - - - 2,153,985 (1) 372,207 (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. SHARES UNDER OPTION NON-AUDIT SERVICES 182,857 options and 33,863 performance rights were granted by the Company over unissued fully paid ordinary shares during the year under review. No options or performance rights have been granted since the end of the year. 3,167,690 shares were issued as a result of the exercise of options and 164,031 shares were issued on the vesting of performance rights during or since the year under review. At the date of this report, there are 8,505,216 unissued shares under option and 752,108 unvested performance rights. INDEMNIFICATION AND INSURANCE 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. 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. 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 34 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. 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. AUDITOR Deloitte Touche Tohmatsu continues in office as auditor of the Group in accordance with section 327 of the Corporations Act 2001. Martin Ward Director Brisbane, 22 February 2017 19 ANNUAL REPORT 2016AUDITOR’S DECLARATION OF INDEPENDENCE Deloitte Touche Tohmatsu ABN 74 490 121 060 Level 25 and 26, Riverside Centre 123 Eagle Street Brisbane, QLD, 4000 Australia Phone: +61 7 3308 7000 www.deloitte.com.au The Board of Directors A.P. Eagers Limited 5 Edmund Street Newstead, QLD 4006 22 February 2017 Dear Board Members A.P. Eagers Limited In accordance with section 307C of the Corporations Act 2001, I am pleased to provide the following declaration of independence to the directors of A.P. Eagers Limited. As lead audit partner for the audit of the financial statements of A.P. Eagers Limited for the financial year ended 31 December 2016, I declare that to the best of my knowledge and belief, there have been no contraventions of: (i) the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and (ii) any applicable code of professional conduct in relation to the audit. Yours sincerely, DELOITTE TOUCHE TOHMATSU Stephen Tarling Partner Chartered Accountants Liability limited by a scheme approved under Professional Standards Legislation. Member of Deloitte Touche Tohmatsu Limited 20  FINANCIAL STATEMENTS 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 Shareholder Information Corporate Directory 22 23 24 25 26 27 85 86 91 93 21 ANNUAL REPORT 2016STATEMENT OF PROFIT OR LOSS FOR THE YEAR ENDED 31 DECEMBER 2016 Revenue Other gains and losses excluding impairment Share of net profits of associate Changes in inventories of finished goods and work in progress Raw materials and consumables purchased Employee benefits expense Finance costs - net 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 A.P. Eagers Limited Non-controlling interests Earnings per share: Basic earnings per share Diluted earnings per share The above Statement of Profit or Loss should be read in conjunction with the accompanying notes. Notes 3 4 42(d) 5(a) 5(a) 5(b) 6 29(b) 31(c) CONSOLIDATED 2016 $’000 2015 $’000 3,833,222 3,246,376 4,326 191 94,844 6,426 164 60,957 (3,230,501) (2,700,387) (311,423) (278,922) (24,378) (13,993) - (21,293) (13,216) (7,610) (210,883) (171,537) 141,405 120,958 (35,879) 105,526 (33,943) 87,015 103,984 1,542 105,526 86,217 798 87,015 Cents Cents 39(a) 39(b) 55.4 54.0 47.6 46.1 22 STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2016 Profit for the year 105,526 87,015 CONSOLIDATED 2016 $’000 2015 $’000 Notes Other comprehensive income Items that will not be reclassified subsequently to profit or loss Gain/(loss) on revaluation of property Income tax (expense)/benefit relating to items that will not be reclassified subsequently Items that may be reclassified subsequently to profit or loss Gain/(loss) on revaluation of available for sale investment Income tax (expense)/benefit Reclassification adjustments relating to available-for-sale financial assets disposed of in the year Fair value gain arising from cash flow hedges during the year Income tax (expense)/benefit Total other comprehensive income/(loss) for the year Total comprehensive income for the year Total comprehensive income attributable to: Owners of the parent Non-controlling interests 29(a) 29(a) 29(a) 29(a) 29(a) 29(a) 29(a) 10,842 (3,253) 7,589 (36,819) 11,046 (1,369) (27,142) 405 (121) 284 2,187 (656) 1,531 49,689 (14,907) (2,443) 32,339 300 (89) 211 (19,269) 34,081 86,257 121,096 84,715 1,542 86,257 120,298 798 121,096 The above Statement of Profit or Loss and Other Comprehensive Income should be read in conjunction with the accompanying notes. 23 ANNUAL REPORT 2016STATEMENT OF FINANCIAL POSITION FOR THE YEAR ENDED 31 DECEMBER 2016 Current assets Cash and cash equivalents Trade and other receivables Inventories Current tax receivables Prepayments and deposits Assets classified as held for sale Property sale receivable Total current assets Non-current assets Property sale receivable Other loans receivable Available-for-sale financial assets Investments in associates 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 Derivative financial instruments Deferred tax liabilities Provisions Other Total non-current liabilities Total liabilities Net assets Equity Contributed equity Reserves Retained earnings Non-controlling interests Total equity The above Statement of Financial Position should be read in conjunction with the accompanying notes. 24 Notes 8 9 10 11 12(a) 12(b) 12(c) 13(a) 13(b) 14 15 16 17 18 19 20(a) 21 22 23(a) 19 24 25 26 28 29(a) 29(b) CONSOLIDATED 2016 $’000 2015 $’000 17,615 148,746 625,007 3,817 8,843 - 9,466 813,494 - 10,612 264,817 11,893 354,710 298,908 940,940 37,535 109,116 530,163 - 8,256 3,010 32,013 720,093 23,503 10,317 281,817 1,620 291,298 160,762 769,317 1,754,434 1,489,410 158,305 210 485,875 - 26,406 670,796 283,650 206 7,447 9,226 19,317 319,846 133,563 227 404,488 124 19,520 557,922 209,792 595 7,718 10,374 - 228,479 990,642 786,401 763,792 703,009 364,449 55,398 335,779 755,626 296,060 105,375 293,435 694,870 31(c) 8,166 8,139 763,792 703,009 STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2016 Consolidated entity 2016 Balance at 1 January 2016 Profit for the year Other comprehensive income Total comprehensive income for the year Transactions with owners in their capacity as owners: Shares issued as consideration for business acquisitions NCI arising on business acquisition Share based payment expense Dividends provided for or paid Shares issued pursuant to Staff share plan Payments received from employees for exercised shares Current tax on share plan Income tax on items taken to or transferred directly from equity Asset revaluation reserve $’000 Issued capital $’000 Hedging reserve $’000 Share- based payments reserve $’000 Investment revaluation reserve $’000 Attributable to owners of the parent $’000 Retained earnings $’000 296,060 45,192 (575) (3,778) 64,536 293,435 694,870 Non- controlling interests $’000 8,139 1,542 Total $’000 703,009 105,526 - - - - 7,589 7,589 - 284 284 32,450 - - - 35,939 - - - 68,389 - - - - - - - - - - - - - - - - - - - - - - - 2,966 - (35,939) 6,948 (28) (4,655) (30,708) - 103,984 103,984 (27,142) - (19,269) - (19,269) (27,142) 103,984 84,715 1,542 86,257 - - - - - - - - - - - - 32,450 - 32,450 - (368) (368) 2,966 - 2,966 (61,640) (61,640) (1,147) (62,787) - - - - - 6,948 (28) (4,655) - - - - - 6,948 (28) (4,655) (61,640) (23,959) (1,515) (25,474) Balance at 31 December 2016 364,449 52,781 (291) (34,486) 37,394 335,779 755,626 8,166 763,792 Consolidated entity 2015 Balance at 1 January 2015 Profit for the year Other comprehensive income Total comprehensive income for the year Transactions with owners in their capacity as owners: Transfer to retained earnings Share based payments Payment of dividend Shares issued pursuant to Staff share plan Payments received from employees for exercised shares Current tax on share plan Income tax on items taken to or transferred directly from equity 242,070 61,668 - 1,531 (786) - 211 1,531 211 - - - - - - 53,990 - - - (18,007) - - - - - - 53,990 (18,007) 5,941 32,197 242,480 583,570 7,486 591,056 - - - - 3,019 - (53,990) 10,740 12,352 18,160 (9,719) - 86,217 32,339 - 86,217 34,081 798 - 87,015 34,081 32,339 86,217 120,298 798 121,096 - - - - - - - - 18,007 - - 3,019 - - - 3,019 (54,328) (54,328) (145) (54,473) - - - - 10,740 12,352 1,059 (35,262) 19,219 (8,998) - - - - (145) - 10,740 12,352 19,219 (9,143) - - - - - - - - Balance at 31 December 2015 296,060 45,192 (575) (3,778) 64,536 293,435 694,870 8,139 703,009 The above Statement of Changes in Equity should be read in conjunction with the accompanying notes. 25 ANNUAL REPORT 2016STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2016 Cash flows from operating activities Receipts from customers (inclusive of GST) Payments to suppliers and employees (inclusive of GST) Receipts from insurance claims Interest and other costs of finance paid Income taxes paid Dividends received Interest received Net cash provided by operating activities Cash flows from investing activities Payment for acquisition of businesses - net of cash acquired Payments for property, plant and equipment Payments for intangible assets Proceeds from sale of businesses Proceeds from sale of property, plant and equipment Proceeds from sale of available-for-sale financial assets Payments for shares in other corporations Net cash used in investing activities Cash flows from financing activities Proceeds from issues of shares and other equity securities Proceeds from borrowings Repayment of borrowings Dividends paid to members of A.P. Eagers Limited Dividends paid to minority shareholders of a subsidiary Net cash provided by/(used in) financing activities Net (decrease)/increase in cash and cash equivalents Cash and cash equivalents at the beginning of the financial year Cash and cash equivalents at the end of the financial year The above Statement of Cash Flows should be read in conjunction with the accompanying notes. CONSOLIDATED 2016 $’000 2015 $’000 Notes 4,155,091 3,516,726 (4,012,246) (3,393,453) 8,737 (24,151) (34,028) 14,633 2,678 110,714 (118,333) (52,707) (500) - 50,077 2,633 (29,469) (148,299) 6,948 114,650 (41,146) (61,640) (1,147) 17,665 (19,920) 37,535 17,615 7,003 (21,365) (39,870) 13,916 1,596 84,553 (669) (18,854) (2,510) 441 4,255 9,636 (7,345) (15,046) 10,740 45,000 (57,098) (54,328) (63) (55,749) 13,758 23,777 37,535 40 31(a) 16 29 7 8 26 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS 31 DECEMBER 2016 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. Compliance with IFRS These financial statements are general purpose financial statements which have been prepared in accordance with the Corporations Act 2001, Accounting Standards and Interpretations, and comply with other requirements of the law. The financial statements comprise the consolidated financial statements of the Group. For the purposes of preparing the consolidated financial statements, the Company is a for-profit entity. Accounting Standards include Australian Accounting Standards. Compliance with Australian Accounting Standards ensures that the financial statements and notes of the company and the Group comply 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 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 22nd of February 2017. 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 or Group) 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 relevant activities of the investee unilaterally. The Company considers all relevant 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 relevant activities at the time that decisions need to be made, including voting patterns at previous shareholders’ meetings. 27 ANNUAL REPORT 20161 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED 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 Group’s 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 9, 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. If the Group holds, directly or indirectly, 20% or more of the voting power of the investee, it is presumed the Group has significant influence, unless it can be clearly demonstrated that this is not the case. 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. 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 of disposal) 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. 28 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS CONTINUED31 DECEMBER 2016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. 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. (ii) Service revenue Service work on customers’ vehicles is carried out under instruction from the customer. Service revenue is recognised based upon when services are rendered. 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 straightline 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 (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. 29 ANNUAL REPORT 20161 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED 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. (ii) Goods and services tax (“GST”) Revenues, expenses, assets and liabilities 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 is 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 straightline basis over the period of the lease. (h) Business combinations 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(r)). 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 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 Australian government bond rate that matches the future maturity period. 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. (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 of disposal 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 (CGU) 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 (CGU) 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)). (j) Cash and cash equivalents 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. 30 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS CONTINUED31 DECEMBER 2016(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. 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, 12 and 13). 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. (k) Receivables 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. (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. This is effected through the application of a specific provision percentage against cost of vehicles based on age. 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. (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 time-frame established by the market concerned. They 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. 31 ANNUAL REPORT 20161 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED (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 19. (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 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. 32 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS CONTINUED31 DECEMBER 2016(s) 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. (t) 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. (u) 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. (v) 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 for Warranties 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. 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 > Plant & equipment > Leasehold improvements 40 years 3 - 10 years 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 17). 33 ANNUAL REPORT 20161 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED (w) 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 settlement 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 fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the Group’s estimate of equity instruments that will eventually vest, with a corresponding increase in equity. At the end of each reporting period, the Group revises its estimate of the number of equity instruments expected to vest. The impact of the revision of the original estimates, if any, is recognised in profit or loss such that the cumulative expense reflects the revised estimate, with a corresponding adjustment to the share-based payments reserve. Contributions are made by the Group to defined contribution employee superannuation funds and are charged as expenses when incurred. (x) 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. (y) 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. (ii) Diluted earnings per share 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. (z) 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. (aa) 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. (ab) New or revised standards and interpretations that are first effective in the current reporting period The group has applied the following standards and amendments for the first time for their annual reporting period commencing 1 January 2016: > AASB 2014-4 Amendments to Australian Accounting Standards - Clarification of Acceptable Methods of Depreciation and Amortisation > AASB 2015-1 Amendments to Australian Accounting Standards - Annual improvements to Australian Accounting Standards 2012 - 2014 cycle, and > AASB 2015-2 Amendments to Australian Accounting Standards - Disclosure initiative: Amendments to AASB 101. The application of these amendments has not had any material impact on the disclosures or the amounts recognised in the Group’s consolidated financial statements. Certain new accounting standards and interpretations have been published that are not mandatory for 31 December 2016 reporting periods and have not been early adopted by the Group. The potential impact of the new or revised Standards and Interpretations has not yet been determined. List of Standards and Interpretations in issue not yet effective At the date of authorisation of the financial statements, the Standards and Interpretations listed below were in issue but not yet effective. 34 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS CONTINUED31 DECEMBER 2016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 January 2018 31 December 2018 AASB 15 ‘Revenue from Contracts with Customers’, AASB 2014-5 ‘Amendments to Australian Accounting Standards arising from AASB 15’, AASB 2015-8 ‘Amendments to Australian Accounting Standards – Effective date of AASB 15’ AASB 16 ‘Leases’ AASB 2016-1 ‘Amendments to Australian Accounting Standards – Recognition of Deferred Tax Assets for Unrealised Losses AASB 2016-2 ‘Amendments to Australian Accounting Standards – Disclosure Initiative: Amendments to AASB 107’ AASB 2016-5 Amendments to Australian Accounting Standards – Classification and Measurement of Share-based Payment Transactions AASB 2016-6 Amendments to Australian Accounting Standards – Applying AASB 9 Financial Instruments with AASB 4 Insurance Contracts 1 January 2018 31 December 2018 1 January 2019 31 December 2019 1 January 2017 31 December 2017 1 January 2017 31 December 2017 1 January 2018 31 December 2018 1 January 2018 31 December 2018 At the date of authorisation of the financial statements, the following IASB Standards and IFRIC interpretations (for which Australian equivalent Standards and Interpretations have not yet been issued) were in issue but not yet effective: Standard/Interpretation Effective for annual reporting periods beginning on or after Expected to be initially applied in the financial year ending Annual Improvements to IFRS Standards 2014–2016 Cycle: IFRS 12 Disclosure of Interests in Other Entities Annual Improvements to IFRS Standards 2014–2016 Cycle: IFRS 1 First-time Adoption of International Financial Reporting Standards, and IAS 28 Investments in Associates and Joint Ventures 1 January 2017 31 December 2017 1 January 2018 31 December 2018 Transfers of Investment Property (Amendments to IAS 40) 1 January 2018 31 December 2018 35 ANNUAL REPORT 20162 CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS (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) Recoverability of goodwill and other intangibles with indefinite useful lives Goodwill and other intangibles with indefinite useful lives with a carrying value of $298,908,000 (2015: $160,762,000) 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 17. (iv) Estimation of make good provisions An amount of $1,970,000 (2015: $2,122,000) has been estimated in respect of anticipated costs of future restoration of leased properties. A bank guarantee has been given for the entire balance, which has approximately 13 years to run at balance date. 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. Further information on the estimate of make good provisions can be found in Note 25. (v) Demonstrator vehicle write down to net realisable value In determining the amount of write-downs for demonstrator vehicle inventory, management has made judgements based on the expected net realisable value of inventory. Historic experience and current knowledge of the products has been used in determining any write-downs to net realisable value. Refer to Note 10. (vi) Used vehicle write down to net realisable value In determining the amount of write-downs required for used vehicle inventory, management has, in consultation with published used vehicle valuations, made judgements based on the expected net realisable value of that inventory. Historic experience, current knowledge of the products and the valuations from an independent used car publication has been used in determining any write-downs to net realisable value. Refer to Note 10. (ii) Fair value estimation of land and buildings (vii) Fair value of assets and liabilities acquired in a Land and buildings with a carrying value of $298,507,000 (2015: $249,246,000) 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 16. (iii) Provisions for warranties A provision for warranties of $4,870,000 (2015: $4,183,000) 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 22. business combination The acquisitions made by the Group have required a number of judgements and estimates to be made. The directors have judged that no significant intangible assets have been acquired in the business combinations other than Goodwill (see also (i) above). Additionally as part of the acquisition and negotiation process, judgements have been made as to the fair value of vehicle and parts inventory, warranties and other assets and liabilities acquired. Further judgements and estimates have been made in relation to the probability of achieving future milestones of certain acquired businesses as disclosed in Note 31(a). 36 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS CONTINUED31 DECEMBER 2016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 Gains on disposal of other assets Fair value gains/(losses) on financial assets at fair value through profit or loss Net gain/(loss) on sale of available-for-sale financial assets CONSOLIDATED 2016 $’000 2015 $’000 2,393,429 1,976,916 728,236 433,475 224,360 238 652,080 384,789 186,047 1,923 3,779,738 3,201,755 14,442 13,752 440 6,103 6,104 16,961 9,434 53,484 96 3,182 7,003 14,833 5,755 44,621 3,833,222 3,246,376 1,136 1,235 1,955 4,326 2,936 - 3,490 6,426 37 ANNUAL REPORT 20165 EXPENSES (a) Profit before income tax includes the following specific expenses: CONSOLIDATED 2016 $’000 2015 $’000 Notes Depreciation Buildings Plant and equipment Leased motor vehicles Total depreciation Amortisation Leasehold improvements Brand names Total amortisation Total Depreciation and Amortisation Finance costs Vehicle bailment & related hedge Other Total finance expense Rental expense relating to operating leases Minimum lease payments Superannuation Provision expenses Inventory Warranties Bad debts Share-based payments Business acquisition costs (b) Impairment of non-current assets Revaluation loss of land and buildings Impairment of intangibles 38 16 16 3,637 8,399 - 3,195 6,854 1,149 12,036 11,198 1,863 94 1,957 1,891 127 2,018 13,993 13,216 12,537 11,841 24,378 10,493 10,800 21,293 37,221 27,414 27,942 24,119 6,275 6,879 580 13,734 3,174 5,390 307 8,871 2,966 3,019 1,758 201 - - - 2,083 5,527 7,610 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS CONTINUED31 DECEMBER 2016 6 INCOME TAX (a) Income tax expense Current income tax expense Deferred income tax expense/(benefit) Deferred income tax expense/(benefit) included in income tax expense comprises: In respect of the current year Deferred tax reclassified from equity to profit or loss Closing balance (b) Numerical reconciliation of income tax expense to prima facie tax payable Profit before income tax expense Tax at the Australian tax rate of 30.0% (2015 - 30.0%) Tax effect of amounts which are not deductible (taxable) in calculating taxable income: Goodwill impairment Non deductible capital expenditure Non-taxable dividends Non allowable expenses Property (revaluation) / impairment Tax offsets Sundry items Income tax expense (c) Tax expense (income) relating to items of other comprehensive income Aggregate deferred tax arising in the reporting period and directly debited to other comprehensive income CONSOLIDATED 2016 $’000 26,885 8,994 35,879 8,407 587 8,994 2015 $’000 38,972 (5,029) 33,943 (6,076) 1,047 (5,029) 141,405 120,958 42,422 36,287 - 304 (4,390) 355 (371) (306) (2,135) 35,879 1,658 220 (4,175) 377 625 - (1,049) 33,943 7,671 (15,652) 39 ANNUAL REPORT 2016 7 DIVIDENDS (a) Ordinary dividends fully franked based on tax paid @ 30% Final dividend for the year ended 31 December 2015 of 20.0 cents per share (2014 - 18.0 cents) paid on 15 April 2016 Interim dividend of 13.0 cents (2015 - 12.0 cents) per share paid on 7 October 2016 Total dividends paid CONSOLIDATED 2016 $’000 2015 $’000 37,015 24,625 61,640 32,239 22,089 54,328 Dividends paid in cash or satisfied by the issue of shares under the dividend reinvestment plan during the years ended 31 December 2016 and 2015 were as follows: Paid in cash 61,640 54,328 (b) 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 22 cents per share, fully franked based on tax paid at 30%. The aggregate amount of the proposed dividend expected to be paid on 18 April 2017 out of the retained profits at 31 December 2016, but not recognised as a liability at year-end is: 41,923 36,940 (c) Franked dividends The final dividend recommended after 31 December 2016 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 2016. Franking credits available for subsequent reporting periods based on a tax rate of 30.0% (2015 - 30.0%) 169,770 159,089 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 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 (17,967) (15,831) 8 CURRENT ASSETS – CASH AND CASH EQUIVALENTS Current assets Cash at bank and on hand Short term deposits 12,615 5,000 17,615 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 Balances per Statement of Cash Flows 17,615 - 17,615 3,535 34,000 37,535 37,535 - 37,535 40 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS CONTINUED31 DECEMBER 20169 CURRENT ASSETS – TRADE AND OTHER RECEIVABLES Trade and other receivables Provision for doubtful receivables CONSOLIDATED 2016 $’000 2015 $’000 151,933 111,887 (3,187) (2,771) 148,746 109,116 (i) The ageing of lease, property and trade receivables at 31 December 2016 is detailed below: CONSOLIDATED 2016 2015 Not past due Past due 0-30 days Past due 31 days plus Total Gross $’000 142,265 5,325 4,343 Provision $’000 Gross $’000 Provision $’000 2,504 106,082 108 575 3,511 2,294 2,006 80 685 2,771 151,933 3,187 111,887 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 net carrying amount of $8,985,000 (2015: $5,039,000) which are past due at the reporting date. The Group has not provided for these balances as there have 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 (2015: 61 days). (ii) Movement in provision for doubtful receivables Opening balance Additional provisions Amounts written off during the year Closing balance CONSOLIDATED 2016 $’000 2,771 580 (164) 3,187 2015 $’000 2,622 307 (158) 2,771 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. 41 ANNUAL REPORT 201610 CURRENT ASSETS – INVENTORIES New and demonstrator 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 CONSOLIDATED 2016 $’000 2015 $’000 473,127 400,900 (8,900) (6,258) 464,227 394,642 103,594 (5,664) 97,930 64,678 (1,828) 62,850 87,369 (5,358) 82,011 55,344 (1,834) 53,510 Total inventories 625,007 530,163 11 CURRENT ASSETS - CURRENT TAX RECEIVABLES Current tax receivables 3,817 - 12 CURRENT ASSETS – OTHER CURRENT ASSETS (a) Prepayments and deposits Prepayments and deposits (b) Assets classified as held for sale Intangible asset held for sale 8,843 8,256 - 3,010 In 2016, AP Eagers transferred its shares in Auto Trader Australia Pty Ltd (Auto Trader) to DealerMotive under a scheme of arrangement, in return for an equal dollar value of shares in DealerMotive. The investment in DealerMotive is equity accounted. Refer to Note 42(a). (c) Property sale receivables Property sale receivables 9,466 32,013 Sale of property where proceeds are expected to be received within 12 months of balance date. 42 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS CONTINUED31 DECEMBER 2016 13 NON-CURRENT ASSETS – RECEIVABLES (a) Property sale receivable Property sale receivable (b) Other loans receivable Other loans receivable 14 NON-CURRENT ASSETS – AVAILABLE-FOR-SALE INVESTMENTS CARRIED AT FAIR VALUE Shares in a listed company - Automotive Holdings Group Limited (1) Shares in a listed company - Smartgroup Corporation Ltd (1) Shares in an unlisted company - One Way Traffic Pty Ltd (Carsguide) (2) CONSOLIDATED 2016 $’000 2015 $’000 - 23,503 10,612 10,317 261,989 2,828 - 275,288 4,184 2,345 264,817 281,817 (1) The Directors have assessed the fair value of the investment as at 31 December 2016 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. (2) In 2016, AP Eagers transferred its shares in One Way Traffic Pty Ltd (Carsguide) to DealerMotive under a scheme of arrangement, in return for an equal dollar value of shares in DealerMotive. The investment in DealerMotive is equity accounted. Refer to Note 42(a). 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 2016 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 31/12/16 $’000 264,817 Carrying Amount 31/12/15 $’000 279,472 Valuation Technique Key Input Quoted bid prices in an active market. Quoted bid prices in an active market. - 2,345 Net asset assessment and available bid prices from equity participants. Pre tax operating margin taking into account managements’ experience and knowledge of market conditions and financial position. Market information based on available bid prices. There were no transfers between levels in the year. 43 ANNUAL REPORT 2016 15 NON-CURRENT ASSETS – INVESTMENTS IN ASSOCIATES Shares in associate - Norna Limited Shares in associate - DealerMotive Ltd Shares in associate - Carzapp Pty Ltd CONSOLIDATED 2016 $’000 1,620 9,973 300 2015 $’000 1,620 - - 11,893 1,620 Investment in associates is accounted for in the consolidated financial statements using the equity method of accounting (refer Note 42). Reconciliation of the carrying amount of investment in associate is set out in Note 42(b). 16 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 Accumulated depreciation Total leasehold improvements Plant and equipment At cost Accumulated depreciation Total plant and equipment Motor vehicles under lease At cost Accumulated depreciation Total motor vehicles under lease 188,108 106,693 3,706 298,507 32,469 (14,328) 18,141 78,032 (39,970) 38,062 - - - 149,592 99,377 277 249,246 27,098 (12,589) 14,509 60,025 (33,622) 26,403 1,733 (593) 1,140 Total property, plant and equipment 354,710 291,298 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 2016 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. 44 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS CONTINUED31 DECEMBER 2016Details of the Group’s freehold land and buildings and information about the fair value hierarchy as at 31 December 2016 are as follows: Carrying Amount 31/12/16 $’000 Carrying Amount 31/12/15 $’000 49,747 42,911 Class of Financial Assets & Liabilities Level 3 Car – HBU Alternate Use Level 3 Car Dealership 205,157 170,294 Unobservable inputs used in determination of fair values Valuation Technique Key Input Input Average / Range 2016 Average / Range 2015 Direct comparison External valuations Price /sqm land Average $1,563/sqm Average $1,440/sqm Other Key Information Land size Range $1,262 - $3,584/sqm Range $1,278 - $2,622/sqm Range (weighted average) 2016 Range (weighted average) 2015 Average 7,952 sqm Average 7,199 sqm Range 779 - 24,160 sqm Range 779 - 24,160 sqm External valuations industry benchmarks Summation method, income capitalisa- tion and direct comparison Capitalisa- tion rate Average 7.3% Average 8.0% Net rent / sqm land Average $102/sqm Average $94/sqm Range 3.1% - 9.9% Range 2.5% - 9.7% Range $25 - $297/sqm Range $14 - $297/sqm Net rent / sqm GBA Average $212/sqm Average $194/sqm Range $73 - $806/sqm Range $62 - $747/sqm Level 3 Development - Car Dealership Level 3 Truck Dealership 9,328 9,350 Direct comparison External valuations Price /sqm land Average $458/sqm 18,319 18,436 Direct comparison External valuations Range $330 - $817/sqm Average $328/sqm Range $203 - $434/sqm Price /sqm land Price/ sqm GBA Average $459/sqm Range $330 - $821/sqm Average $330/sqm Range $206 - $440 /sqm Land size Average 18,641 sqm Average 18,641 sqm Range 7,218 - 25,700 sqm Range 7,218 to 25,700 sqm Net rent/ sqm land Average $30/sqm Range $17 - $43/sqm Capitalisa- tion rate Average 9.2% Average $30/sqm Range $17 to $43/sqm Average 9.2% Range 7.9% - 9.8% Range 8.2% to 9.7% Level 3 Other Logisitics 12,250 7,978 Income capitalisa- tion method supported by market comparison Sub Total 294,801 248,969 Construction in Progress 3,706 277 Total 298,507 249,246 External valuations Capitalisa- tion Rate Average 7.8% Average 8.2% Net rent / sqm GBA Average $109/sqm Average $90/sqm Range 6.9% - 8.4% Range 8.1% to 8.3% Range $79 - $179/sqm Range $79 - $143/sqm 45 ANNUAL REPORT 201616 NON-CURRENTS ASSETS - PROPERTY, PLANT & EQUIPMENT CONTINUED There were no transfers between levels in the year. Explanation of asset classes: Car - Higher and Best Use (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 refers 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 refers 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 $130,861,000 (2015: $98,791,000). If freehold buildings (including construction in progress) were carried at historical cost, its current carrying value (after depreciation) would be $106,693,000 (2015: $99,654,000). Non-current assets pledged as security Refer to Note 23 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 improve- ments $’000 Motor vehicles under lease $’000 Plant and equipment $’000 149,592 26,461 (22) 10,842 1,235 99,377 10,999 (46) - - - (3,637) 277 3,429 - - - - 14,509 5,121 374 - - (1,863) 188,108 106,693 3,706 18,141 152,879 - (3,391) 2,187 (2,083) 97,251 5,208 113 - - - (3,195) 187 237 (147) - - - 14,446 1,954 - - - 1,140 - (1,140) 26,403 22,583 (2,525) Total $’000 291,298 68,593 (3,359) 10,842 1,235 - - (8,399) (13,899) 38,062 354,710 21,802 11,455 - - - 292,485 18,854 (7,056) 2,187 (2,083) - - - - 5,920 - (3,631) - - 149,592 99,377 277 14,509 1,140 26,403 291,298 (1,891) (1,149) (6,854) (13,089) Consolidated 2016 Carrying amount at the start of the year Additions Disposals/transfers Revaluation gain credited to asset revaluation reserve Revaluation charged to profit and loss Depreciation/ amortisation expense Carrying amount at end of year Consolidated 2015 Carrying amount at the start of the year Additions Disposals/transfers Revaluation gain credited to asset revaluation reserve Revaluation charged to profit and loss Depreciation/ amortisation expense Carrying amount at end of year 46 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS CONTINUED31 DECEMBER 201617 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 31(a)) Less: Impairment during the year Less: Disposal of businesses Balance at the end of the financial year Movement - Trade marks/brand names Balance at the beginning of the financial year Less: Amortisation of brand names Balance at the end of the financial year CONSOLIDATED 2016 $’000 292,233 6,675 298,908 2015 $’000 153,993 6,769 160,762 153,993 158,837 138,240 - - 1,033 (5,527) (350) 292,233 153,993 6,769 (94) 6,675 6,896 (127) 6,769 (a) Impairment tests for goodwill For the purpose of impairment testing, goodwill is allocated to each of the consolidated entity’s cash generating units (CGU), or groups of CGUs, that are expected to benefit from the synergies of the combinations. Each unit or groups of units to which goodwill is allocated represents the lowest level at which assets are monitored for internal management purposes. Previously, the Group had determined that each dealership network represented a CGU for the purposes of testing assets for impairment. As a result of changes in the business operating model and realignment of internal reporting, the Group has reassessed the number of CGUs to five, with four CGUs in the Car Automotive segment grouped by state(s) (QLD & NT, NSW, VIC & TAS, SA) and one national CGU for the Truck segment. A segment-level summary of the goodwill allocation is presented as follows: Automotive dealership operations: Goodwill Trade marks/brand names Truck dealership operations: Goodwill Trade marks/brand names CONSOLIDATED 2016 $’000 2015 $’000 284,283 5,625 289,908 7,950 1,050 9,000 146,043 5,719 151,762 7,950 1,050 9,000 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 of disposal. 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 of disposal 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. 47 ANNUAL REPORT 201617 NON-CURRENT ASSETS – INTANGIBLES CONTINUED The DCF model adopted by Directors was based on the 2017 financial budgets approved by the Board, a 3% (2015: 3%) perpetual growth rate and a pre-tax discount rate of 11% (2015: 11%). This growth rate does not exceed the long term average growth rate for the industry. For the automotive dealership operations, the Directors believe that any reasonable change in the key assumptions on which the recoverable amount is based is not expected to cause the carrying amount to exceed the recoverable amount of the CGUs, however see Note 31(a) for considerations surrounding contingent consideration. For the truck dealership operations, the Directors believe that any reasonable change in the key assumptions on which the recoverable amount is based is not expected to cause the carrying amount to exceed the recoverable amount of the CGUs. (b) Impairment charge The Directors’ assessment in 2016 determined that goodwill and other intangible assets with indefinite useful lives were not impaired in 2016 (2015: $5,527,000 impairment recorded). In 2015 the impairment related to the Truck Dealership Division and was the result of challenging new and used heavy truck trading conditions consistent with a weak market environment. 18 CURRENT LIABILITIES – TRADE AND OTHER PAYABLES Trade and other payables Trade payables (1) Other payables Annual Leave (1) 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. 19 CURRENT LIABILITIES - DERIVATIVE FINANCIAL INSTRUMENTS Current liabilities Interest rate swap contracts - cash flow hedges Total current derivative financial instrument liabilities Non-current liabilities Interest rate swap contracts - cash flow hedges Total non-current derivative financial instrument liabilities CONSOLIDATED 2016 $’000 2015 $’000 81,924 51,676 24,705 68,249 45,475 19,839 158,305 133,563 210 210 206 206 227 227 595 595 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 30). Bailment finance of the Group currently bears an average variable interest rate at 31 December 2016 of 4.12% (2015: 4.25%). As per Group policy, bailment finance is not hedged. 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 34% (2015: 67%) 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 gain from remeasuring the hedging instruments at fair value of $416,000 (2015: $822,000) has been recognised in equity in the hedging reserve (Note 29(a)). No portion was ineffective. 48 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS CONTINUED31 DECEMBER 2016 Valuation of Derivative financial instruments Details of the Group’s derivative financial instruments and information about the fair value hierarchy as at 31 December 2016 are as follows: Class of Financial Assets and Liabilities Level 2 Cash flow hedges – Interest rate swaps Unobservable inputs used in determination of fair values Carrying Amount 31/12/16 $’000 Carrying Amount 31/12/15 $’000 Valuation Technique Key Input 416 822 Discounted cash flow 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. There were no transfers between levels in the year. 20 CURRENT LIABILITIES - BORROWINGS - BAILMENT AND FINANCE LEASE PAYABLE (a) Bailment and finance lease payable Bailment finance Finance lease payable (i) Bailment finance CONSOLIDATED 2016 $’000 2015 $’000 485,875 404,134 - 354 485,875 404,488 Bailment finance is provided on a vehicle by vehicle basis by various finance providers at an average interest rate of 4.12% p.a. applicable at 31 December 2016 (2015: 4.25%). Bailment finance is repayable within a short period after the vehicle is sold to a third party, generally within 48 hours. (ii) Interest rate risk exposures Details of the Group’s exposure to interest rate changes on interest bearing liabilities is set out in Note 30. (iii) Fair value disclosures Details of the Group’s fair value of interest bearing liabilities is set out in Note 30. (iv) Security Details of the security relating to each of the secured liabilities and further information on bank loans is set out in Note 23. 21 CURRENT LIABILITIES – CURRENT TAX LIABILITIES Income tax - 124 22 CURRENT LIABILITIES – PROVISIONS Employee benefits Warranties 21,536 4,870 26,406 15,337 4,183 19,520 49 ANNUAL REPORT 2016 22 CURRENT LIABILITIES – PROVISIONS CONTINUED (a) Movements in provisions Movements in each class of provision during the financial year, other than employee benefits, are set out below: CONSOLIDATED 2016 $’000 2015 $’000 Warranties Carrying amount at the start of the year Additional provisions recognised Payments charged against provisions Acquired through business combination 4,183 6,879 (6,789) 597 4,870 3,863 5,390 (5,070) - 4,183 (b) Warranty Provision 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. 23 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) Finance lease payable (iii) Bailment finance (iv) 204,500 79,150 - 154,000 55,000 792 283,650 209,792 204,500 79,150 - 485,875 769,525 154,000 55,000 1,146 404,134 614,280 (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. This excludes 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 to Note 10. 50 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS CONTINUED31 DECEMBER 2016 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 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) (ii) Capital loan (iii) Bailment finance (iv) Bank guarantees Finance lease payables (v) Used at balance date Term facility Capital loan Bailment finance Bank guarantees Finance lease payables Unused at balance date Term facility Working capital facility (includes bank overdraft) Bailment finance Bank guarantees Finance lease payables CONSOLIDATED 2016 $’000 2015 $’000 297,083 651,999 247,791 520,070 485,875 177,304 404,134 207,023 1,612,261 1,379,018 260,000 260,000 25,000 79,150 671,534 22,000 - 25,000 55,000 567,734 22,000 3,000 1,057,684 932,734 204,500 79,150 485,875 19,879 - 154,000 55,000 404,134 17,010 1,146 789,404 631,290 55,500 25,000 185,659 2,121 - 106,000 25,000 163,600 4,990 1,854 268,280 301,444 (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) 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. (iii) Capital loan facility at balance date was provided on a non-amortisable (interest only) basis for a fixed term. (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 rental vehicles. 51 ANNUAL REPORT 201624 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 Inventory valuation Prepayments Provisions Doubtful debts Employee benefits Warranties Property receivable Sundry items CONSOLIDATED 2016 $’000 7,447 2015 $’000 7,718 (1,488) 4,225 661 (956) (13,310) (5,339) (66) (937) 1,900 1,731 942 (831) (12,262) (1,157) (2,091) (259) Total amounts recognised in profit or loss (17,210) (12,027) Amounts recognised directly in equity Revaluation of available-for-sale investment Revaluation of property, plant and equipment Hedge liability Share options trust Total amounts recognised directly in equity Net deferred tax liabilities 15,964 16,094 (125) (7,276) 24,657 27,659 11,551 (246) (19,219) 19,745 7,447 7,718 52 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS CONTINUED31 DECEMBER 2016Notes 6(a) 29(a) 29(a) 29(a) 29(a) 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 2016 Deferred tax assets relating to business combinations Deferred tax expense/(benefit) Current year adjustments related to prior year deferred tax Deferred tax recognised directly in equity Revaluation of available-for-sale investment Revaluation of property plant and equipment Movement in fair value of cash flow hedge Share options trust Arising on income and expenses reclassified from equity to profit & loss - relating to available-for-sale financial assets Closing balance at 31 December 2016 25 NON-CURRENT LIABILITIES - PROVISIONS Employee benefits - long service leave Make good provision (a) CONSOLIDATED 2016 $’000 2015 $’000 7,718 (2,343) 8,994 (3,318) 17,350 (22) (5,029) 32 (11,046) 14,907 3,253 121 4,655 (587) 7,447 7,256 1,970 9,226 656 90 (19,219) (1,047) 7,718 8,252 2,122 10,374 (a) A provision for make good of leasehold improvements on a long term leased property has been recognised in the financial statements for the expected cost of restoring the premises to its original condition at the end of the lease. The lessor of the property has been provided with a bank guarantee of $1,970,000 in respect of the estimated make good cost and rental costs. (b) Movement in the make good provision: Balance at start of year Recognition of additional provision during the year Payments against provision Carrying amount at end of year 26 NON-CURRENT LIABILITIES - OTHER Other (contingent consideration) 2,122 - (152) 1,970 1,787 353 (18) 2,122 19,317 - Other liabilities represent the estimated fair value of the contingent consideration relating to the acquisitions of Birrell Motors Group and Tony Ireland Group (see Note 31(a)). There has been no change in the fair value of the contingent consideration since the acquisition date except for unwinding of the discounting. 53 ANNUAL REPORT 2016(e) Other 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. 27 SEGMENT INFORMATION 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 (a) Car Retailing (b) Truck Retailing (c) Property and (d) 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. (a) 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 brokerage, 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. (b) Truck Retailing 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. (c) 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. (d) Investments This segment includes the investments in DealerMotive Ltd, Automotive Holdings Group Limited, and Smartgroup Corporation Limited. 54 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS CONTINUED31 DECEMBER 2016(f) Segment results Segment reporting 2016 Car Retailing $’000 Truck Retailing $’000 Sales to external customers 3,449,738 363,802 Inter-segment sales Total sales revenue TOTAL REVENUE - 3,449,738 3,449,738 - 363,802 363,802 Property $’000 Investments $’000 Eliminations $’000 Consolidated $’000 5,240 25,071 30,311 30,311 14,442 - 3,833,222 - (25,071) - 14,442 14,442 (25,071) 3,833,222 (25,071) 3,833,222 SEGMENT RESULT Operating profit before interest External interest expense allocation OPERATING CONTRIBUTION Share of net profit of equity accounted investments Business acquisition costs GST refunds Investment revaluation Property revaluation Profit on sale of property/businesses 114,777 (13,005) 101,772 191 (1,758) 4,418 - - - SEGMENT PROFIT 104,623 6,264 Unallocated corporate expenses PROFIT BEFORE TAX Income tax expense NET PROFIT 8,090 (1,826) 6,264 23,013 (7,994) 15,019 14,392 (1,553) 12,839 - - - - - - 160,272 (24,378) 135,894 191 (1,758) 4,418 - 1,235 3,091 - - - - - - - - - - - - - 12,077 1,136 28,232 (38,774) - 1,955 38,774 (10,842) - (23,980) 27,932 143,071 Depreciation and amortisation (9,192) (980) (3,821) Non cash expenses (reversal of expenses) other than depreciation and amortisation Impairment of trade receivables Write down (back) of inventories to net realisable value (3,293) (448) (1,676) 358 44 194 152 - - - - - - ASSETS Segment assets LIABILITIES Segment liabilities NET ASSETS 1,067,473 91,488 320,813 274,660 661,164 406,309 69,100 22,388 197,173 123,640 63,205 211,455 Acquisitions of non-current assets 155,135 104 52,852 35,039 (1,666) 141,405 (35,879) 105,526 (13,993) (2,783) (404) (1,482) 1,754,434 990,642 763,792 243,130 - - - - - - - - 55 ANNUAL REPORT 201627 SEGMENT INFORMATION CONTINUED Segment reporting 2015 Car Retailing $’000 Truck Retailing $’000 Property $’000 Investments $’000 Eliminations $’000 Consolidated $’000 Sales to external customers 2,884,657 345,075 Inter-segment sales Total sales revenue TOTAL REVENUE - 2,884,657 2,884,657 - 345,075 345,075 SEGMENT RESULT Operating profit before interest External interest expense allocation OPERATING CONTRIBUTION Share of net profit of equity accounted investments Business acquisition costs GST refunds Investment revaluation Property revaluation Profit on sale of property/businesses Goodwill impairment 106,040 (10,373) 95,667 164 (201) 2,326 - - - - 4,638 (2,367) 2,271 - - - - - - (5,527) 2,892 25,013 27,905 27,905 19,503 (6,283) 13,220 - - - - 104 3,010 - 13,752 - 3,246,376 - (25,013) - 13,752 13,752 (25,013) 3,246,376 (25,013) 3,246,376 13,666 (2,270) 11,396 - - - 46,199 - 3,490 - - - - - - - (46,199) (2,187) - - 143,847 (21,293) 122,554 164 (201) 2,326 - (2,083) 6,500 (5,527) SEGMENT PROFIT 97,956 (3,256) 16,334 61,085 (48,386) 123,733 Unallocated corporate expenses PROFIT BEFORE TAX Income tax expense NET PROFIT Depreciation and amortisation 8,226 1,186 3,804 Non cash expenses (reversal of expenses) other than depreciation and amortisation Impairment of trade receivables Write down (back) of inventories to net realisable value 2,826 40 47 110 (2,006) (1,664) 335 - - - - - - ASSETS Segment assets LIABILITIES Segment liabilities NET ASSETS 732,798 128,132 343,653 284,827 476,023 256,775 99,578 28,554 154,819 188,834 55,981 228,846 Acquisitions of non-current assets 13,974 468 5,445 10,355 (2,775) 120,958 (33,943) 87,015 13,216 3,208 150 (3,670) 1,489,410 786,401 703,009 30,242 - - - - - - - - 56 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS CONTINUED31 DECEMBER 201628 CONTRIBUTED EQUITY (a) Paid up capital Ordinary shares - fully paid CONSOLIDATED 2016 $’000 2015 $’000 364,449 296,060 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 2016 Opening balance 09 Feb 2016 Issue of options to staff under share incentive schemes 29 Feb 2016 Issue of options to staff under share incentive schemes 17 Mar 2016 Issue of options to staff under share incentive schemes 31 Mar 2016 Issue of shares as partial consideration for acquisition of Birrell Motors Group 01 Jul 2016 Issue of shares for Crampton acquisition 19 Jul 2016 Issue of options to staff under share incentive schemes 17 Aug 2016 Issue of options to staff under share incentive schemes 05 Oct 2016 Issue of options to staff under share incentive schemes 07 Nov 2016 Issue of options to staff under share incentive schemes 31 Dec 2016 Closing balance 01 Jan 2015 Opening balance 01 Apr 2015 Issue of options to staff under share incentive schemes 30 Jun 2015 Issue of options to staff under share incentive schemes 06 Jul 2015 Issue of options to staff under share incentive schemes 31 Jul 2015 Issue of options to staff under share incentive schemes 21 Aug 2015 Issue of options to staff under share incentive schemes 01 Sep 2015 Issue of options to staff under share incentive schemes 31 Dec 2015 Closing balance Number of shares 184,073,803 220,430 164,031 615,175 2,200,000 937,742 1,164,695 50,000 1,008,375 58,555 190,492,806 178,519,473 586,825 272,650 268,555 3,330,775 334,305 761,220 184,073,803 Issue price $11.30 $10.90 $10.48 $9.75 $11.73 $11.80 $12.25 $10.20 $9.87 $7.46 $9.38 $9.55 $10.06 $10.36 $9.89 $’000 296,060 2,491 1,788 6,447 21,450 11,000 13,742 612 10,281 578 364,449 242,070 4,376 2,557 2,564 33,502 3,462 7,529 296,060 57 ANNUAL REPORT 201629 RESERVES AND RETAINED EARNINGS (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/(deficit) during the year - gross Transfer to retained earnings relating to properties sold Deferred tax Balance at the end of the financial year Hedging reserve - cash flow hedge: Balance at beginning of the financial year Movement during the year Deferred tax Balance at the end of the financial year Share-based payments reserve: Balance at beginning of the financial year Deferred tax Payments received from employees for exercised options Employee share schemes - value of employee services Transfer to share capital (shares issued) Current tax on share plans Balance at the end of the financial year Investment revaluation reserve: Balance at beginning of the financial year Gain/(loss) on revaluation of available-for-sale investment Deferred tax Cumulative gain reclassed to profit or loss on disposal of available for sale financial assets Balance at the end of the financial year CONSOLIDATED 2016 $’000 2015 $’000 Note 52,781 (291) (34,486) 37,394 55,398 45,192 10,842 - (3,253) 52,781 (575) 405 (121) (291) (3,778) (4,655) 6,948 2,966 (35,939) (28) (34,486) 64,536 (36,819) 11,046 (1,369) 37,394 45,192 (575) (3,778) 64,536 105,375 61,668 2,187 (18,007) (656) 45,192 (786) 300 (89) (575) 5,941 18,160 10,740 3,019 (53,990) 12,352 (3,778) 32,197 49,689 (14,907) (2,443) 64,536 16 29(b) 24 24 24 24 58 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS CONTINUED31 DECEMBER 2016(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 Transfer from share based payment reserve Dividends provided for or paid Retained profits at the end of the financial year (c) Nature and purpose of other reserves (i) Property, plant and equipment revaluation reserve Note 7 CONSOLIDATED 2016 $’000 2015 $’000 293,435 103,984 - - (61,640) 335,779 242,480 86,217 18,007 1,059 (54,328) 293,435 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). (ii) Hedging reserve The hedging reserve contains the effective portion of interest rate hedge arrangements incurred as at the reporting date. (iii) 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 36 and 37. (iv) Investment revaluation reserve The investments revaluation reserve represents the cumulative 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. 59 ANNUAL REPORT 2016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. 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 23. 30 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 Directors have overall responsibility for the establishment and oversight of the consolidated entity’s risk management framework. The Directors have 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. 60 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS CONTINUED31 DECEMBER 2016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. (i) Interest rate risk The Group is exposed to interest rate risk as a consequence of its financing facilities as set out in Notes 20 & 23. 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 0% and 50% of its borrowings at fixed rates of interest. As at 31 December 2016, approximately 42% (2015: 62%) of the Group’s borrowings were at a fixed rate of interest. The Group hedges part of the interest rate risk (see Note 19) by swapping floating for fixed interest rates. The consolidated entity classifies interest rate swaps as cash flow hedges. The net fair value of the swaps at 31 December 2016 was $416,000 liability (2015: $822,000 liability), with the movement being recognised in equity for the consolidated entity. (ii) Interest rate sensitivity 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 $3,699,214 (2015: $1,593,000) per annum. This is mainly due to the Group’s exposures to interest rates on its variable rate borrowings. (iii) 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. 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 Between 3 - 4 years Average contracted fixed interest rate Notional principal amount Fair value 2016 % 2.59% 2.34% 2.38% - 2.44% 2015 % 3.31% 2.72% 2.26% 2.38% 2.67% 2016 $’000 46,200 8,000 15,000 - 2015 $’000 33,500 46,200 8,000 15,000 69,200 102,700 2016 $’000 2015 $’000 (210) (54) (152) - (416) (227) (458) (36) (101) (822) 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. 61 ANNUAL REPORT 201630 FINANCIAL INSTRUMENTS CONTINUED 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 (i) Exposure to Credit Risk The carrying amount of financial assets (as per Notes 9, 12 and 13) represents the maximum credit exposure. The maximum exposure to credit risk at the reporting date was: Trade and other receivables Less: Provision for doubtful receivables (ii) Impairment Losses The aging of trade receivables at reporting date is detailed in Note 9. (iii) Fair values & Exposures to Credit & Liquidity Risk CONSOLIDATED 2016 $’000 - 2015 $’000 - 172,011 177,720 (3,187) (2,771) 168,824 174,949 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. 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 Finance lease payables Trade and other payables Derivative financial instruments 168,824 17,615 186,439 204,500 79,150 485,875 - 158,305 416 174,949 37,535 212,484 154,000 55,000 404,134 1,146 133,563 822 928,246 748,665 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. > > 62 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS CONTINUED31 DECEMBER 2016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. Contractual maturities of financial liabilities 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 At 31 December 2016 INTEREST BEARING Floating rate Financial assets Cash and cash equivalents 17,615 Average interest rate 2.39% Financial liabilities Vehicle bailment (current) 506,322 - - - Fully drawn advances Fully drawn advances (1) Capital loan (Non-current) 8,596 1,145 1,036 112,197 52,145 1,036 517,099 165,378 - - - 3,677 181 1,036 4,894 - - - 3,677 - 1,036 4,713 - - - - - - 3,677 99,951 - 1,036 4,713 - 41,138 17,615 506,322 231,775 53,471 46,318 141,089 837,886 Average interest rate 4.10% 3.35% 3.79% 3.51% 3.51% 3.51% Fixed rate Financial liabilities Capital loan (Non-current) 2,669 51,305 Average interest rate 5.20% 5.20% NON INTEREST BEARING Financial assets Property sale receivables Trade debtors 9,466 159,358 168,824 - - - Financial liabilities Trade and other payables 158,305 19,317 - - - - - - - - - - - - - - - - - - - - - - - - 53,974 9,466 159,358 168,824 177,622 (1) The amount included in fully drawn advances relate to variable rates that are hedged with interest rate swaps to fixed rates. 63 ANNUAL REPORT 201630 FINANCIAL INSTRUMENTS 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 At 31 December 2015 INTEREST BEARING Floating rate Financial assets Cash and cash equivalents 37,535 Average interest rate 2.43% Financial liabilities Vehicle bailment (current) Fully drawn advances Fully drawn advances (1) Capital loan (Non-current) 404,134 3,197 36,701 208 444,240 - - - - - - 3,197 47,697 208 51,102 45,058 - 208 45,266 - - - 1,442 - 208 1,650 - - - 33,082 - 208 33,290 - - - - - 5,225 5,225 Average interest rate 4.39% 4.50% 4.16% 4.16% 4.16% 4.16% Fixed rate Financial liabilities Capital loan (Non-current) Finance lease payables 2,600 417 3,017 2,600 807 3,407 51,300 - 51,300 Average interest rate 5.18% 5.20% 5.20% - - - - NON INTEREST BEARING Financial assets Property sale receivables Trade debtors Financial liabilities 32,013 109,116 141,129 16,707 - 16,707 6,884 - 6,884 6,884 - 6,884 Trade and other payables 133,563 - - - - - - - - - - - - - - - - - - - 37,535 404,134 85,976 84,398 6,265 580,773 56,500 1,224 57,724 62,488 109,116 171,604 133,563 (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. 64 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS CONTINUED31 DECEMBER 201631 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 AP Townsville 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 Auto Ad Pty Ltd Motors TAS Pty Ltd WS Motors Pty Ltd MB VIC Pty Ltd Carzoos Pty Ltd Crampton Automotive Pty Ltd Motors Group (Glen Waverley) Pty Ltd Port City Autos Pty Ltd Adverpro Pty Ltd AP Queensland (No. 1) Pty Ltd EQUITY HOLDING 2016 % 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 80 100 100 100 100 100 100 100 100 80 100 100 100 * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * 2015 % 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 80 100 100 100 100 100 100 100 - - - - - 65 ANNUAL REPORT 201631 INVESTMENTS IN SUBSIDIARIES CONTINUED 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. Information relating to A.P. Eagers Limited (‘the parent entity’) Financial position Assets Current assets Non-current assets Liabilities Current liabilities Non-current 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 2016 $’000 2015 $’000 - 510,553 510,553 5,836 16,005 21,841 364,449 115,459 1,683 37,394 (30,274) 488,711 60,221 38,774 13,120 488,298 501,418 - 28,380 28,380 296,060 113,631 1,683 64,536 (2,872) 473,038 61,490 46,199 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 2016. 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 2016 and their aggregate net profit after tax for the year ended 31 December 2016 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 32(a) and 32(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 business during the 2016 year as detailed below: Year 2016 2016 2016 2016 Name of business Birrell Motors Group Jeep/Kia Ipswich Crampton Automotive Group Tony Ireland Motors Date of acquisition Principal activity 1-Apr-16 15-Apr-16 1-July-16 1-Oct-16 Motor Dealership Motor Dealership Motor Dealership Motor Dealership Proportion acquired 100% (1) 100% 100% 100% (1) As part of the Birrell Motors Group acquisition 80% shares of Motors Group (Glen Waverley) Pty Ltd were acquired. The remaining 20% interest is accounted for as a non controlling interest. During 2016 the acquired businesses contributed revenue of $418,718,346 and profit before tax of $10,054,210 to the consolidated result. If the acquisition had occurred on 1 January 2016, the consolidated revenue and the consolidated profit before tax of the Group would have been $4,069 million and $146 million respectively. 66 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS CONTINUED31 DECEMBER 2016 Allocation of purchase consideration The purchase price of the businesses acquired has been allocated as follows: Cash consideration Issue of ordinary shares Contingent consideration (i) Crampton Automotive Group $’000 Tony Ireland Group $’000 24,896 11,000 - 9,603 - 500 Jeep/Kia Ipswich $’000 1,222 - - Birrell Motors Group $’000 85,976 21,450 18,590 2016 Total Consolidated $’000 121,697 32,450 19,090 Total purchase consideration 35,896 10,103 1,222 126,016 173,237 Consolidated fair value at acquisition date Net assets acquired Cash Receivables, prepayments Other investments Inventory Property, plant and equipment Deferred tax assets Creditors, borrowings and provisions Deferred tax liabilities Net assets acquired Acquisition cost Non-Controlling Interest Goodwill on acquisition (ii) 2016 $’000 3,364 6,276 250 62,547 12,550 2,375 (52,700) (32) 34,630 173,237 (367) 138,240 (i) The purchase consideration for the acquisition of Birrell Motors Group includes a contingent consideration amount payable up to a maximum value of $19,800,000 (discounted value of $18,590,000 at date of acquisition), contingent on Birrell Motors Group achieving future earnings performance targets for 2018 and 2019. The directors have judged that the full contingent consideration will be payable in 2019 based on the track record of the acquired businesses, upside in the business and outlook for luxury vehicles in particular. This necessarily requires an element of estimation. Should the businesses not achieve the expected future milestones, the associated goodwill balance will be reviewed for impairment within the VIC & TAS CGU. The purchase consideration for the acquisition of the Tony Ireland Group includes an earn out payable up to a maximum value of $500,000. The earn out is contingent on the Tony Ireland Group achieving future earnings performance targets. (ii) 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 these financial statements. Therefore, the amount allocated to goodwill on acquisition has been provisionally determined at the end of the reporting period. 67 ANNUAL REPORT 2016 31 INVESTMENTS IN SUBSIDIARIES CONTINUED Cash consideration on acquisition Cash acquired on acquisition Net cash flow on acquisition of business 2016 $’000 121,697 (3,364) 118,333 The Group acquired the following business during the 2015 year as detailed below: Year 2015 Name of business Auto Advantage Date of acquisition Principal activity Proportion acquired 01-Aug-15 Motor Vehicle Broker 100% During 2015 the acquired business contributed revenues of $1,225,000 and profit before tax of $36,000. If the acquisition had occurred on 1 January 2015, the consolidated revenue and the consolidated profit before tax would have been $2,938,000 and $86,000 respectively. Allocation of purchase consideration The purchase price of business acquired has been allocated as follows: Cash consideration Contingent consideration (i) Total purchase consideration Fair value of net identifiable assets Goodwill Consolidated fair value at acquisition date Net assets acquired Receivables, prepayments Property, plant and equipment Deferred tax assets Creditors, borrowings and provisions Net assets acquired Acquisition cost Goodwill on acquisition (ii) 2015 Auto Advantage $’000 669 326 995 (40) 1,033 993 2015 $’000 5 8 22 (75) (40) 993 1,033 (i) Under the initial contingent consideration arrangement an additional $326,400 was required to be paid if Auto Advantage’s volume exceeded 765 units and 1530 units ending 365 and 730 days respectively. At the end of 365 days the volume exceeded 765 units and the first payment of $163,200 was made. Management consider that it is probable that the second payment of $163,200 will be required. (ii) 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. In the prior year, the amount allocated to goodwill on acquisition was provisionally determined, and no changes made in the current period. Cash consideration on acquisition 669 68 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS CONTINUED31 DECEMBER 2016(b) Disposal of businesses There were no businesses sold by the Group during 2016. The Group sold the following business during the 2015 year as detailed below: Year 2015 Name of business Western Equipment Rentals Date of sale 30-Nov-15 Principal activity Retail Franchise Proportion disposed 100% Net assets disposed of Property, plant and equipment Creditors, borrowings and provisions Intangible assets Net assets disposed Total consideration received (100% Cash) Gain on sale CONSOLIDATED 2015 $’000 45 (4) 350 391 441 50 (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 Accumulated non-controlling interests 2016 $’000 2015 $’000 2016 $’000 2015 $’000 Individually immaterial subsidiaries with non-controlling interest 1,542 798 8,166 8,139 Movement - Non Controlling Interest Balance at the beginning of the financial year Profit for the year Payment of shares Payment of dividend Balance as at the end of the financial year CONSOLIDATED 2016 $’000 8,139 1,542 (368) (1,147) 8,166 2015 $’000 7,486 798 - (145) 8,139 32 CONTINGENT LIABILITIES (a) Parent entity 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 2016 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 2016. 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 $968,800,000 (2015: $776,992,000). (c) Buy back agreements As at 31 December 2016, entities within the Group had entered into sale and buy back agreements for new vehicles. The financial exposure to the Group is immaterial. 69 ANNUAL REPORT 201633 COMMITMENTS FOR EXPENDITURE (a) Capital Commitments Capital expenditure for land, buildings, plant and equipment contracted for at the end of the reporting period but not recognised as liabilities is as follows: Within one year (b) Finance Lease Liabilities Commitments for minimum lease payments in relation to finance lease liabilities are payable as follows: Within one year Later than 1 year but not later than 5 years Less future finance charges Present value of minimum lease payments CONSOLIDATED 2016 $’000 2015 $’000 2,949 23,292 - - - - - 417 806 1,223 (78) 1,145 (c) Operating Lease Commitments Commitments for minimum lease payments in relation to non-cancellable operating leases for premises are payable as follows: Within one year Later than 1 year but not later than 5 years Later than 5 years 38,758 103,067 83,450 225,275 25,118 66,442 41,990 133,550 The consolidated entity leases property under non-cancellable operating leases with expiry dates between 31 January 2017 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. 34 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 762 438 1,200 600 250 850 35 SUBSEQUENT EVENTS Commencing 4 January 2017, the Group acquired a further 9.3 million shares in Automotive Holdings Group Limited (‘AHG’) at a total cost of $36.4 million through a series of on-market share purchases. As a result, the Group’s shareholding in AHG increased from 19.99% as at 31 December 2016 to 22.82%. 70 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS CONTINUED31 DECEMBER 201636 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 (KMP) with authority and responsibility for planning, directing and controlling the activities of the Group, directly or indirectly during the financial year. The specified Executives of A.P. Eagers Limited during the financial year were: (a) Details of key management personnel (i) Directors T B Crommelin Chairman (non-executive) M A Ward D A Cowper P W Henley N G Politis D T Ryan M J Birrell (ii) Executives S A Moore D G Stark K T Thornton Managing Director and Chief Executive Officer Director (non-executive) Director (non-executive) Director (non-executive) Director (non-executive) Director (non-executive), appointed 27 July 2016 Chief Financial Officer General Counsel & Company Secretary General Manager – Queensland and Northern Territory (b) Compensation of key management personnel The aggregate compensation made to key management personnel of the Company and the Group is set out below. Short term Post employment benefits Share based payments (c) Option holdings of key management personnel Details of options held by key management personnel can be found in Note 36(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 38. CONSOLIDATED 2016 $’000 2015 $’000 3,709,156 3,999,836 149,941 146,493 1,328,022 1,634,339 5,187,119 5,780,668 71 ANNUAL REPORT 201636 KEY MANAGEMENT PERSONNEL CONTINUED (f) Share Based Payments Plan A: EPS Performance Rights and Options - Key Executives The Group commenced an 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: Performance Rights Award date 29 October 2009 Vesting date Expiry date Share price at grant date Expected life Volatility Risk free interest rate Dividend yield Performance Options Award date 29 October 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-12 28-Aug-16 $ 1.82 2.6 years 30% 4.89% 6.0% 27-Mar-13 28-Aug-16 $ 1.82 3.6 years 30% 5.18% 6.0% 27-Mar-14 28-Aug-16 $ 1.82 4.6 years 30% 5.31% 6.0% 27-Mar-15 30-Sep-17 $ 1.82 5.6 years 30% 5.33% 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 $ 1.82 4.8 years 30% 5.32% 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 $ 1.82 5.8 years 30% 5.33% 6.0% 30-Mar-15 30-Sep-17 $ 1.82 $ 1.82 6.8 years 30% 5.33% 6.0% The General Manager, Queensland and Northern Territory, the previous General Manager of Kloster Motor Group and the previous 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 29-Oct-09 29-Oct-09 29-Oct-09 29-Oct-09 29-Oct-09 Grant Date 29-Oct-09 29-Oct-09 29-Oct-09 29-Oct-09 29-Oct-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 30-Sep-17 Expiry Date 28-Aug-16 28-Aug-16 28-Aug-16 28-Aug-16 30-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 during the year. All rights had been issued in prior periods and EPS and interest cover targets had been achieved in prior periods resulting in vesting occurring. 1,372,695 of the remaining options were exercised during the year. There are no rights or options remaining under this plan. No costs of the share plan were expensed during 2016 (2015: $nil). The share plan was fully expensed by the end of 2014. 72 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS CONTINUED31 DECEMBER 2016Plan C: EPS Performance Rights and Options – Key Executives 2014 The Group commenced an 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-17 04-Jul-21 $ 5.47 2.7 years 25% 2.63% 4.2% 31-Mar-18 04-Jul-21 $ 5.47 3.7 years 25% 2.79% 4.2% 31-Mar-19 30-Sep-22 $ 5.47 4.7 years 25% 2.96% 4.2% 31-Mar-20 30-Sep-22 $ 5.47 5.7 years 25% 3.13% 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 $ 5.47 4.9 years 25% 2.98% 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 $ 5.47 5.9 years 25% 3.24% 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, previous 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 137,791 137,571 143,464 149,551 156,173 Performance Options Number 769,228 712,760 705,258 663,363 656,857 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. As a result of the EPS target being achieved the performance rights and options relating to the 31 December 2016 performance period have vested. A total of 137,791 rights were issued and 50,000 options exercised during the year. As a result of the EPS and interest cover targets being achieved the performance rights and options for each performance period have vested. The value of the performance rights and options expensed during the year was $1,495,012, with a cumulative expense being recognised at 31 December 2016 of $3,696,614 (2015: $2,201,602). 73 ANNUAL REPORT 201637 OTHER SHARE BASED PAYMENTS Recognised share-based payments expenses Refer Note 29 for movements on share based payments reserve. Plan D: EPS Performance Rights and Options – Senior Management (A) The Group commenced an 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-12 27-Jan-17 $ 2.42 2.2 years 30% 5.11% 5.10% 27-Mar-13 27-Jan-17 $ 2.42 3.2 years 30% 5.17% 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 $ 2.42 4.6 years 30% 5.11% 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 162,310 219,265 230,750 Performance Options Number 547,705 731,250 714,690 Grant Date 27-Jan-10 27-Jan-10 27-Jan-10 Grant Date 27-Jan-10 27-Jan-10 27-Jan-10 End Performance Period 31-Dec-10 31-Dec-11 31-Dec-12 End Performance Period 31-Dec-10 31-Dec-11 31-Dec-12 Expiry Date 27-Jan-17 27-Jan-17 27-Jan-17 Expiry Date 27-Jan-17 27-Jan-17 27-Jan-17 Fair Value at Grant Date $ 2.28 $ 2.17 $ 2.06 Fair Value at Grant Date $ 0.50 $ 0.52 $ 0.53 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 options for each performance period have vested. A total of 1,536,710 options were exercised during the year. No costs of the share plan were expensed during 2016 (2015: $nil). The share plan was fully expensed by the end of 2012. 74 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS CONTINUED31 DECEMBER 2016Plan E: EPS Performance Rights and Options – Senior Management (B) The Group commenced an 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 18 November 2010 Vesting date Expiry date Share price at grant date Expected life Volatility Risk free interest rate Dividend yield Performance Options Award date 18 November 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-12 27-Jan-17 $ 2.52 1.4 years 30% 4.93% 5.00% 27-Mar-13 27-Jan-17 $ 2.52 2.4 years 30% 4.95% 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 $ 2.52 3.8 years 30% 4.93% 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 Performance Options Number 39,925 189,785 181,365 Grant Date 18-Nov-10 18-Nov-10 18-Nov-10 Grant Date 18-Nov-10 18-Nov-10 18-Nov-10 End Performance Period 31-Dec-10 31-Dec-11 31-Dec-12 End Performance Period 31-Dec-10 31-Dec-11 31-Dec-12 Expiry Date 27-Jan-17 27-Jan-17 27-Jan-17 Expiry Date 27-Jan-17 27-Jan-17 27-Jan-17 Fair Value at Grant Date $ 2.47 $ 2.35 $ 2.23 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. No options were forfeited during the year. A total of 136,325 options were exercised during the year. No costs of the share plan were expensed during 2016 (2015: $nil). The share plan was fully expensed by the end of 2012. 75 ANNUAL REPORT 201637 OTHER SHARE BASED PAYMENTS CONTINUED Plan F: EPS Performance Options – Senior Management 2013 The Group commenced an 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-16 31-Mar-17 31-Mar-18 31-Mar-19 31-Mar-20 31-Mar-20 31-Mar-20 31-Mar-20 31-Mar-20 $ 4.84 $ 5.04 $ 4.84 $ 5.04 $ 4.84 $ 5.04 $ 4.84 $ 5.04 $ 4.84 $ 5.04 4.5 years 4.5 years 5.0 years 5.5 years 6.0 years 30% 3.08% 4.20% 30% 3.08% 4.20% 30% 3.13% 4.20% 30% 3.17% 4.20% 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 951,950 951,950 911,510 892,840 883,750 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 30,720 options in 2016 were forfeited or expired during the year. A total of 21,500 options were exercised during the year. As a result of the EPS target being achieved the performance options relating to the 31 December 2016 performance period have vested. The value of the performance options expensed during the year was $786,979, with a cumulative expense being recognised at 31 December 2016 of $3,475,680 (2015: $2,705,492). 76 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS CONTINUED31 DECEMBER 2016Plan H: EPS Performance Rights and Options – Key Executives The Group commenced a new Earnings Per Share (EPS) based performance rights and option compensation scheme for two specific executive officers in 2015. 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: Performance Rights Award date 21 January 2015 Vesting date Expiry date Share price at grant date Expected life Volatility Risk free interest rate Dividend yield Performance Options Award date 21 January 2015 Vesting date Expiry date Share price at grant date Exercise Price Expected life Volatility Risk free interest rate Dividend yield 31-Mar-16 21-Jan-22 $ 5.85 1.2 years 22% 2.20% 4.4% 31-Mar-17 21-Jan-22 $ 5.85 2.2 years 22% 2.12% 4.4% 31-Mar-18 21-Jan-22 $ 5.85 3.2 years 22% 2.11% 4.4% 31-Mar-19 30-Sep-22 $ 5.85 4.2 years 22% 2.15% 4.4% 31-Mar-20 30-Sep-22 $ 5.85 5.2 years 22% 2.22% 4.4% 31-Mar-16 21-Jan-22 $ 5.85 $ 5.65 4.1 years 22% 2.15% 4.4% 31-Mar-17 21-Jan-22 $ 5.85 $ 5.65 4.6 years 22% 2.18% 4.4% 31-Mar-18 21-Jan-22 $ 5.85 $ 5.65 5.1 years 22% 2.21% 4.4% 31-Mar-19 30-Sep-22 $ 5.85 $ 5.65 5.9 years 22% 2.28% 4.4% 31-Mar-20 30-Sep-22 $ 5.85 $ 5.65 6.4 years 22% 2.33% 4.4% Two specific executives have been granted options under the EPS share incentive plan (Plan H). 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 Rights Number 14,412 15,065 15,746 16,459 17,202 Performance Options Number 95,235 93,020 93,020 91,953 93,020 Grant Date 21-Jan-15 21-Jan-15 21-Jan-15 21-Jan-15 21-Jan-15 Grant Date 21-Jan-15 21-Jan-15 21-Jan-15 21-Jan-15 21-Jan-15 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 21-Jan-22 12-Feb-22 12-Feb-22 12-Feb-22 30-Sep-22 Expiry Date 21-Jan-22 12-Feb-22 12-Feb-22 12-Feb-22 30-Sep-22 Fair Value at Grant Date $ 5.55 $ 5.31 $ 5.08 $ 4.86 $ 4.65 Fair Value at Grant Date $ 0.84 $ 0.86 $ 0.86 $ 0.87 $ 0.86 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 2016 performance period have vested. The value of the performance rights and options expensed during the year was $188,655, with a cumulative expense being recognised as at 31 December 2016 of $422,635 (2015: $233,980). 77 ANNUAL REPORT 201637 OTHER SHARE BASED PAYMENTS CONTINUED Plan I: EPS Performance Rights and Options – Key Executives The Group commenced in 2015 a new performance rights and option compensation scheme for a specific senior staff member, based on achieving certain defined operating targets for a specific 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: Performance Rights Award date 12 February 2015 Vesting date Expiry date Share price at grant date Expected life Volatility Risk free interest rate Dividend yield Performance Options Award date 12 February 2015 Vesting date Expiry date Share price at grant date Exercise price Expected life Volatility Risk free interest rate Dividend yield 31-Mar-16 31-Mar-17 31-Mar-18 31-Mar-19 31-Mar-20 12-Feb-22 12-Feb-22 12-Feb-22 30-Sep-22 30-Sep-22 $ 6.26 $ 6.26 $ 6.26 $ 6.26 $ 6.26 1.1 years 2.1 years 3.1 years 4.1 years 5.1 years 22% 1.91% 4.2% 22% 1.85% 4.2% 22% 1.87% 4.2% 22% 1.95% 4.2% 22% 2.05% 4.2% 31-Mar-16 31-Mar-17 31-Mar-18 31-Mar-19 31-Mar-20 12-Feb-22 12-Feb-22 12-Feb-22 30-Sep-22 30-Sep-22 $ 6.26 $ 6.26 $ 6.26 $ 6.26 $ 6.26 $ 6.26 $ 6.26 $ 6.26 $ 6.26 $ 6.26 4.1 years 4.6 years 5.1 years 5.9 years 6.4 years 22% 1.94% 4.2% 22% 1.99% 4.2% 22% 2.04% 4.2% 22% 2.14% 4.2% 22% 2.20% 4.2% A specific senior staff member has been granted performance rights and options under the Specific Target share plan (Plan I). 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 specific targets being achieved and vesting occurring. The number of options granted under the plan is as follows: Performance Rights Number 9,045 9,440 9,836 11,406 11,881 Performance Options Number 97,590 95,294 94,186 102,272 102,272 Grant Date 12-Feb-15 12-Feb-15 12-Feb-15 12-Feb-15 12-Feb-15 Grant Date 12-Feb-15 12-Feb-15 12-Feb-15 12-Feb-15 12-Feb-15 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 12-Feb-22 12-Feb-22 12-Feb-22 30-Sep-22 30-Sep-22 Expiry Date 12-Feb-22 12-Feb-22 12-Feb-22 30-Sep-22 30-Sep-22 Fair Value at Grant Date $ 5.97 $ 5.72 $ 5.49 $ 5.26 $ 5.05 Fair Value at Grant Date $ 0.83 $ 0.85 $ 0.86 $ 0.88 $ 0.88 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 2016 performance period have vested since balance date. The value of the performance rights and options expensed during the year was $170,998, with a cumulative expense being recognised as at 31 December 2016 of $350,995 (2015: $179,997). 78 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS CONTINUED31 DECEMBER 2016Plan J: EPS Performance Rights and Options – Key Executives The Group commenced a new Earnings Per Share (EPS) based performance rights and option compensation scheme for two specific executive officers in 2015. 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 12 June 2015 Vesting date Expiry date Share price at grant date Expected life Volatility Risk free interest rate Dividend yield Performance Options Award date 12 June 2015 Vesting date Expiry date Share price at grant date Exercise price Expected life Volatility Risk free interest rate Dividend yield 31-Mar-16 12-Jun-22 $ 9.25 0.8 years 24% 1.98% 3.7% 31-Mar-17 12-Jun-22 $ 9.25 1.8 years 24% 1.99% 3.7% 31-Mar-18 12-Jun-22 $ 9.25 2.8 years 24% 2.06% 3.7% 31-Mar-19 30-Sep-22 $ 9.25 3.8 years 24% 2.18% 3.7% 31-Mar-20 30-Sep-22 $ 9.25 4.8 years 24% 2.33% 3.7% 31-Mar-16 12-Jun-22 $ 9.25 $ 9.25 3.9 years 24% 2.19% 3.7% 31-Mar-17 12-Jun-22 $ 9.25 $ 9.25 4.4 years 24% 2.27% 3.7% 31-Mar-18 12-Jun-22 $ 9.25 $ 9.25 4.9 years 24% 2.35% 3.7% 31-Mar-19 30-Sep-22 $ 9.25 $ 9.25 5.5 years 24% 2.46% 3.7% 31-Mar-20 30-Sep-22 $ 9.25 $ 9.25 6.1 years 24% 2.54% 3.7% Two specific executives have been granted options under the EPS share incentive plan (Plan J). 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 Rights Number 2,783 5,780 5,995 6,218 6,458 Performance Options Number 17,605 33,783 32,678 31,645 31,250 Grant Date 12-Jun-15 12-Jun-15 12-Jun-15 12-Jun-15 12-Jun-15 Grant Date 12-Jun-15 12-Jun-15 12-Jun-15 12-Jun-15 12-Jun-15 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 12-Jun-22 12-Jun-22 12-Jun-22 30-Sep-22 30-Sep-22 Expiry Date 12-Jun-22 12-Jun-22 12-Jun-22 30-Sep-22 30-Sep-22 Fair Value at Grant Date $ 8.98 $ 8.65 $ 8.34 $ 8.04 $ 7.74 Fair Value at Grant Date $ 1.42 $ 1.48 $ 1.53 $ 1.58 $ 1.60 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 2016 performance period have vested. The value of the performance rights and options expensed during the year was $126,662, with a cumulative expense being recognised as at 31 December 2016 of $209,984 (2015: $83,322). 79 ANNUAL REPORT 201637 OTHER SHARE BASED PAYMENTS CONTINUED Plan K: EPS Performance Rights and Options – Key Executives The Group commenced a new Earnings Per Share (EPS) based performance rights and option compensation scheme for one specific executive officer in 2016. 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 31 March 2016 Vesting date Expiry date Share price at grant date Expected life Volatility Risk free interest rate Dividend yield Performance Options Award date 31 March 2016 Vesting date Expiry date Share price at grant date Exercise price Expected life Volatility Risk free interest rate Dividend yield 31-Mar-17 31-Mar-24 $ 9.75 1.0 year 27% 1.95% 3.8% 31-Mar-18 31-Mar-24 $ 9.75 2.0 years 27% 1.88% 3.8% 31-Mar-19 31-Mar-24 $ 9.75 3.0 years 27% 1.90% 3.8% 31-Mar-20 31-Mar-24 $ 9.75 4.0 years 27% 1.98% 3.8% 31-Mar-17 31-Mar-24 $ 9.75 $ 10.34 4.5 years 27% 2.03% 3.8% 31-Mar-18 31-Mar-24 $ 9.75 $ 10.34 5.0 years 27% 2.08% 3.8% 31-Mar-19 31-Mar-24 $ 9.75 $ 10.34 5.5 years 27% 2.13% 3.8% 31-Mar-20 31-Mar-24 $ 9.75 $ 10.34 6.0 years 27% 2.18% 3.8% One specific executive has been granted options under the EPS share incentive plan (Plan K). 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 Rights Number 7,987 8,296 8,620 8,960 Performance Options Number 48,076 46,012 44,910 43,859 Grant Date 31-Mar-16 31-Mar-16 31-Mar-16 31-Mar-16 Grant Date 31-Mar-16 31-Mar-16 31-Mar-16 31-Mar-16 End Performance Period 31-Dec-16 31-Dec-17 31-Dec-18 31-Dec-19 End Performance Period 31-Dec-16 31-Dec-17 31-Dec-18 31-Dec-19 Expiry Date 31-Mar-24 31-Mar-24 31-Mar-24 31-Mar-24 Expiry Date 31-Mar-24 31-Mar-24 31-Mar-24 31-Mar-24 Fair Value at Grant Date $ 9.39 $ 9.04 $ 8.70 $ 8.37 Fair Value at Grant Date $ 1.56 $ 1.63 $ 1.67 $ 1.71 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 2016 performance period have vested. The value of the performance rights and options expensed during the year was $214,448, with a cumulative expense being recognised as at 31 December 2016 of $214,448 (2015: $Nil). 80 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS CONTINUED31 DECEMBER 201638 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 $462,274 (2015: $466,281) and purchases of $520,476 (2015: $341,762) 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) Mr M Birrell is a director and owner of a number of properties leased by subsidaries of A. P. Eagers. The lease transactions of $1,956,301 during the last 6 months since his appointment to the board 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. Mr M Birrell also has a consultancy arrangement with AP Eagers whereby he is paid a consultancy fee in consideration for provision of professional services provided for AP Eagers’ Victorian and Tasmanian businesses. There were nil transactions during the last 6 months since his appointment to the board. Finally, Mr M Birrell was a party to the Birrell Motors Group business acquisition which is subject to a contingent consideration arrangement whereby an additional amount is payable at 31 December 2019 if a specified performance target is met. The contingent consideration has been recognised as a financial liability as at 31 December 2016, refer to Note 26. (iii) 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 31. 81 ANNUAL REPORT 2016 39 EARNINGS PER SHARE (a) Basic earnings per share CONSOLIDATED 2016 Cents 2015 Cents Earnings attributable to the ordinary equity holders of the Company 55.4 47.6 (b) Diluted earnings per share Earnings attributable to the ordinary equity holders of the Company 54.0 46.1 (c) Reconciliation of earnings used in calculating earnings per share Basic earnings per share Profit attributable to the ordinary equity holders of the Company used in calculating 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 CONSOLIDATED 2016 $’000 2015 $’000 105,526 (1,542) 103,984 87,015 (798) 86,217 Diluted 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 diluted earnings per share 103,984 103,984 86,217 86,217 Weighted average number of ordinary shares outstanding during the year Shares deemed to be issued for no consideration in respect of employee options (1) Weighted average number of ordinary shares outstanding during the year used in the calculation of diluted earnings per share 187,811,094 4,747,506 180,997,843 6,214,054 192,558,600 187,211,897 (1) 134,781 performance options representing potential ordinary shares are anti-dilutive and are therefore excluded from the weighted average number of ordinary shares for the purposes of diluted earnings per share. 82 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS CONTINUED31 DECEMBER 201640 RECONCILIATION OF NET PROFIT AFTER TAX TO THE NET CASH INFLOWS FROM OPERATIONS CONSOLIDATED Net profit after tax Depreciation and amortisation Impairment of goodwill Net (gain)/loss on sale of available-for-sale financial assets Share of profits of associate Dividends from investments Gain / (Loss) on sale of property,plant & equipment Employee share scheme expense Non controlling interest adjustments Profit on sale of business Property receivable and deposits (Gain) / Impairment to property revaluation (through P&L) (Increase)/decrease in assets - Receivables Inventories Prepayments Increase/(decrease) in liabilities - Creditors (including bailment finance) Provisions Taxes payable Notes 5 14 2016 $’000 105,526 13,993 - (1,955) (191) 191 (1,136) 2,966 (535) - 22,547 (1,235) (39,630) (94,844) (587) 104,079 5,738 (4,213) 2015 $’000 87,015 13,216 5,527 (3,490) (164) 164 (2,886) 3,018 (1,406) (50) 28,403 2,083 (30,412) (57,327) (5,883) 48,263 4,997 (6,515) Net cash inflow from operating activities 110,714 84,553 41 NON-CASH TRANSACTIONS In 2015, the Group entered into unconditional contracts for the sale of 80 McLachlan Street, Fortitude Valley and a parcel of land in Newstead. As a result a combined profit of $3.010 million was recognised in that year and was included within the amount disclosed in Note 4. Consideration for the sales totalling $32.013 million was realised in full in 2016. 42 INVESTMENTS IN ASSOCIATES (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: Name of company Unlisted securities Norna Limited (formerly MTQ Insurance Services Limited) DealerMotive Ltd Carzapp Pty Ltd OWNERSHIP INTEREST CONSOLIDATED 2016 % 20.65 25.76 10.00 56.41 2015 % 20.65 - - 2016 $’000 1,620 9,973 300 2015 $’000 1,620 - - 20.65 11,893 1,620 83 ANNUAL REPORT 201642 INVESTMENTS IN ASSOCIATES CONTINUED Norna Limited (formerly MTQ Insurance Servers Limited) In 2014 MTQ 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 2017. 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 (2015: 20.65%) and will continue to equity account the investment in the associate which has been equity accounted from 1 January 2006 (refer Note 15), 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 has ceased operations with the only transactions being related to holding costs and interest until the final terms of the sale agreement are met and the entity is liquidated. Dealermotive Limited In 2016, AP Eagers transferred its shares in One Way Traffic Pty Ltd (Carsguide) and Auto Trader Australia Pty Ltd (Auto Trader) to DealerMotive Limited (DealerMotive) under a scheme of arrangement, in return for an equal dollar value of shares in DealerMotive. AP Eagers also subscribed to shares in DealerMotive during the year as part of a capital raising. AP Eagers holds a 25.8% shareholding in DealerMotive as at 31 December 2016. DealerMotive Limited is incorporated in Australia. Its principal activities for the period is holding a 30% investment in Cox Automotive Australia, a subsidiary of Cox Automotive. Cox Automotive Australia controls and operates Manheim Australia, Dealer Solutions and One Way Traffic (Carsguide) businesses and owns the Auto Traders brand. (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 the year Equity accounted investments acquired Carrying amount at the end of the financial year (c) Summarised financial information of associates The aggregate profits, assets and liabilities of associate are: Revenue Profits from ordinary activities after income tax expense Assets Liabilities (d) Share of associate profit CONSOLIDATED 2016 $’000 1,620 191 (191) 10,273 11,893 112 925 50,537 57 2015 $’000 1,620 164 (164) - 1,620 188 712 8,107 128 Based on the last published results for the 12 months to 30 June 2016 plus unaudited results up to 31 December 2016. Profit from ordinary activities after income tax 191 164 (e) Dividends received from associates Dividends received from associates (f) Reporting date of associates The associates reporting dates are 30 June annually. 84 191 164 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS CONTINUED31 DECEMBER 2016DIRECTORS’ DECLARATION The Directors declare that : (a) 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; (b) 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 31 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 Brisbane, 22 February 2017 85 ANNUAL REPORT 2016INDEPENDENT AUDIT REPORT Deloitte Touche Tohmatsu ABN 74 490 121 060 Level 25 and 26, Riverside Centre 123 Eagle Street Brisbane, QLD, 4000 Australia Phone: +61 7 3308 7000 www.deloitte.com.au Independent Auditor’s Report to the Members of A.P. Eagers Limited Report on the Audit of the Financial Report Opinion We have audited the financial report of A.P. Eagers Limited (the Company) and its subsidiaries (the Group), which comprises the consolidated statement of financial position as at 31 December 2016, the consolidated statement of profit or loss and other comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies, and the directors’ declaration. In our opinion, the accompanying financial report of the Group is in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the Group’s financial position as at 31 December 2016 and of its financial performance for the year then ended; and (ii) complying with Australian Accounting Standards and the Corporations Regulations 2001. Basis for Opinion We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report. We are independent of the Group in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. We confirm that the independence declaration required by the Corporations Act 2001, which has been given to the directors of the Company, would be in the same terms if given to the directors as at the time of this auditor’s report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key Audit Matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report of the current period. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Liability limited by a scheme approved under Professional Standards Legislation. Member of Deloitte Touche Tohmatsu Limited 86 Key Audit Matter Business Acquisitions During the financial year ended 31 December 2016 the Group made a number of acquisitions as disclosed in note 31. The most significant acquisition during the period was the Birrell Motor Group. Accounting for acquisitions is complex and involves a number of significant judgements and estimates as disclosed in note 2a (vii). The key areas of significant judgement and estimation in relation to the Birrell transaction were the:   determination of the fair value of the contingent consideration, and accordingly the total consideration, for the transaction; and identification and measurement of the fair value of assets and liabilities acquired. Recoverability of goodwill As detailed in note 17, the Group has recognised goodwill of $292.2 million at 31 December 2016 as a result of historic acquisitions over a number of years. As set out in note 2a (i), the director’s assessment of the recoverability of goodwill requires the exercise of significant judgement, in particular in estimating future growth rates, discount rates and the expected cash flows of businesses (cash generating units (CGUs)) to which the goodwill has been allocated.  Estimating the cash flows requires the exercise of judgement as to the likely impact of: competitive pressures in specific markets; and potential changes resulting from the regulatory review of finance and insurance practices across the automotive industry.  We have focused on CGUs that are most sensitive to these factors relative to the carrying value of goodwill. How the scope of our audit responded to the Key Audit Matter Our procedures included, but were not limited to the following:  Reading the purchase and sale agreements to understand the terms and conditions of the acquisitions and evaluating management’s application of the relevant accounting standards;    Assessing the estimation of the contingent consideration by challenging the key assumptions including discount rate and probability of achievement of future profit targets. This included comparing the actual performance since acquisition against the forecast performance; Challenging the methodology and assumptions utilised to identify and determine the fair value of the assets and liabilities acquired; and Assessing the adequacy of the Group’s disclosures of the acquisitions. Our procedures, performed in conjunction with our valuation specialists included, but were not limited to the following:   Critically evaluating the Group’s categorisation of CGUs and the allocation of goodwill to the carrying value of CGUs based on our understanding of the Group’s business. This evaluation included performing an analysis of the Group’s internal reporting and consultation with our accounting technical specialists; Evaluating management’s ability to accurately forecast cash flows by assessing the precision of the prior year forecasts again actual outcomes;  With the assistance of Deloitte valuation specialists, challenging the following: o o o o Comparing the discount rate utilised by management to an independently calculated discount rate; Comparing growth rates with 3rd party data for the motor industry Comparing the Group’s forecast cash flows to the board approved budget; and Performing sensitivity analysis on the growth and discount rates.  Evaluating the adequacy of the related disclosures in the financial report. 87 ANNUAL REPORT 2016INDEPENDENT AUDIT REPORT CONTINUED Key Audit Matter Recoverable amount of used and demonstrator vehicles inventory As disclosed in note 10 the Group has recognised provisions against the cost of its new and used motor vehicle and truck inventory of $14.6 million. As disclosed in note 2a (v) and (vi) the estimation of net realisable value requires the Directors to make certain judgements and estimates based on the age, condition, brand of the vehicle and historic sales outcomes. How the scope of our audit responded to the Key Audit Matter Our procedures included, but were not limited to:     Developing an understanding of management’s processes and judgements applied in estimating the net realisable value of demonstrator and used vehicles and trucks; Validating the aging and cost, on a sample basis, of used, demonstrator vehicle and truck inventory at year-end as key inputs into management’s calculation of the write down provisions; Evaluating management’s judgements in estimating net realisable value by: comparing the carrying value of vehicles and trucks to post year-end sales; and/or comparing the carrying value of vehicle and truck inventory to external third party valuation data; and/or comparison to historical sales data. o o o Evaluating the adequacy of the related disclosures in the financial report. Other Information The Directors are responsible for the other information. The other information comprises the Directors’ Report which we obtained prior to the date of this auditor’s report, the other information also includes the following documents which will be included in the annual report (but does not include the financial report and our auditor’s report thereon) the company profile and A.P. Eagers foundation report, which is expected to be made available to us after that date. Our opinion on the financial report does not cover the other information and accordingly we do not and will not express any form of assurance conclusion thereon. In connection with our audit of the financial report, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed on the other information that we obtained prior to the date of this auditor’s report, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. When we read the company profile and A.P. Eagers foundation report if we conclude that there is a material misstatement therein, we are required to communicate the matter to the directors and use our professional judgement to determine the appropriate action. Directors’ Responsibilities for the Financial Report The directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. 88 In preparing the financial report, the directors are responsible for assessing the ability of the Group to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or has no realistic alternative but to do so. Auditor’s Responsibilities for the Audit of the Financial Report Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this financial report. As part of an audit in accordance with the Australian Auditing Standards, we exercise professional judgement and maintain professional scepticism throughout the audit. We also:       Identify and assess the risks of material misstatement of the financial report, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors. Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial report or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern. Evaluate the overall presentation, structure and content of the financial report, including the disclosures, and whether the financial report represents the underlying transactions and events in a manner that achieves fair presentation. Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the financial report. We are responsible for the direction, supervision and performance of the Group audit. We remain solely responsible for our audit opinion. We communicate with the directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide the directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with the directors, we determine those matters that were of most significance in the audit of the financial report of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or 89 ANNUAL REPORT 2016INDEPENDENT AUDIT REPORT CONTINUED when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. Report on the Remuneration Report Opinion on the Remuneration Report We have audited the Remuneration Report included in pages 11 to 18 of the directors’ report for the year ended 31 December 2016. In our opinion, the Remuneration Report of A.P. Eagers Limited, for the year ended 31 December 2016 complies with section 300A of the Corporations Act 2001. Responsibilities The directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. DELOITTE TOUCHE TOHMATSU Stephen Tarling Partner Chartered Accountants Brisbane 22 February 2017 90 SHAREHOLDER INFORMATION AS AT 15 MARCH 2017 EQUITY SECURITIES The company’s quoted securities consist of 190,719,109 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 HSBC Custody Nominees (Australia) Limited Milton Corporation Limited Argo Investments Limited Martin Andrew Ward Citicorp Nominees Pty Ltd Berne No 132 Nominees Pty Ltd <315738 A/C> Birrell Investments Pty Ltd RBC Investor Services Australia Nominees Pty Limited Diane Colman UBS Nominees Pty Ltd National Nominees Limited J P Morgan Nominees Australia Limited Hegford Pty Ltd ANZ Trustees Limited Peter Gary Robinson Trevor Reading No. of Shares % of Issued Shares 68,540,285 12,591,761 10,560,000 6,406,250 6,324,637 5,833,107 4,432,620 4,286,014 2,473,106 2,444,101 2,000,000 1,909,357 1,881,710 1,844,478 1,570,567 1,261,670 1,246,063 1,181,920 1,116,455 1,107,550 35.94 6.60 5.54 3.36 3.32 3.06 2.32 2.25 1.30 1.28 1.05 1.00 0.99 0.97 0.82 0.66 0.65 0.62 0.59 0.58 91 ANNUAL REPORT 2016SHAREHOLDER INFORMATION AS AT 15 MARCH 2017 CONTINUED Distribution of Shareholders Range 1 1,001 5,001 10,001 - - - - 1,000 5,000 10,000 100,000 100,001 and over No. of Shareholders 1,980 1,780 564 808 103 5,235 126 shareholders hold less than a marketable parcel of 55 shares at $9.21 per share. Substantial Shareholders* Notice Date No. of Shares WFM Motors Pty Ltd 17 October 2012 62,817,353 Patterson Cheney Investments Pty Ltd 2 May 2016 12,591,761 Jove Pty Ltd 11 July 2012 10,193,381 * As disclosed in substantial holding notices received by the company. Performance Rights and Options 576,265 unvested performance rights, 3,559,755 unvested options and 4,945,461 vested options are on issue to fifty-five 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. Corporate Governance Statement The company’s Corporate Governance Statement is located on the company’s website at http://www.apeagers.com.au/shareholders/corporate-governance/. 92 CORPORATE DIRECTORY A.P. EAGERS LIMITED ABN 87 009 680 013 INCORPORATION Incorporated in Queensland on 17 April 1957 REGISTERED OFFICE 5 Edmund Street Newstead 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 Limited 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, Non-executive Director Martin Ward, Managing Director & Chief Executive Officer Nick Politis, Non-executive Director Dan Ryan, Non-executive Director David Cowper, Non-executive Director Marcus Birrell, Non-executive Director Sophie Moore, Director & Chief Financial Officer COMPANY SECRETARY Denis Stark, General Counsel & Company Secretary CONTROLLED ENTITIES ABN 47 008 278 171 Adtrans Australia Pty Ltd ABN 83 007 866 917 Adtrans Automotive Group Pty Ltd ABN 85 056 340 928 Adtrans Corporate Pty Ltd ABN 28 008 129 477 Adtrans Group Ltd ABN 51 127 369 260 Adtrans Hino Pty Ltd ABN 17 106 764 327 Adtrans Truck Centre Pty Ltd ABN 45 151 699 651 Adtrans Trucks Adelaide Pty Ltd ABN 71 008 264 935 Adtrans Trucks Pty Ltd ABN 11 074 561 514 Adtrans Used Pty Ltd ABN 72 612 630 618 Adverpro Pty Ltd ACN 612 890 883 AP Eagers Foundation Ltd ABN 43 010 602 383 A.P. Ford Pty Ltd ABN 53 010 030 994 A.P. Group Ltd ABN 76 010 579 996 A.P. Motors Pty Ltd ABN 95 010 585 234 A.P. Motors (No.1) Pty Ltd ABN 97 010 585 243 A.P. Motors (No.2) Pty Ltd ABN 99 010 585 252 A.P. Motors (No.3) Pty Ltd ABN 30 616 472 729 AP Queensland (No.1) Pty Ltd ABN 12 600 279 927 AP Townsville Pty Ltd ABN 76 009 677 678 Associated Finance Pty Ltd ABN 89 009 662 202 Austral Pty Ltd ABN 23 605 815 021 Auto Ad Pty Ltd ABN 63 601 452 199 BASW Pty Ltd ABN 75 000 388 054 Bill Buckle Autos Pty Ltd ABN 44 062 951 106 Bill Buckle Holdings Pty Ltd ABN 52 000 871 910 Bill Buckle Leasing Pty Ltd ABN 50 135 015 191 Black Auto CQ Pty Ltd ABN 31 099 480 903 Boonarga Welding Pty Ltd ABN 35 608 791 911 Carzoos Pty Ltd ABN 20 600 297 783 CH Auto Pty Ltd ABN 14 067 985 602 City Automotive Group Pty Ltd ABN 64 057 283 253 Crampton Automotive Pty Ltd ABN 20 009 658 306 E.G. Eager & Son Pty Ltd ABN 65 009 721 288 Eagers Finance Pty Ltd ABN 58 009 727 753 Eagers MD Pty Ltd ABN 98 009 723 488 Eagers Nominees Pty Ltd ABN 91 009 662 211 Eagers Retail Pty Ltd ABN 73 008 123 993 Graham Cornes Motors Pty Ltd ABN 50 169 210 173 IB MD Pty Ltd ABN 90 169 209 607 IB Motors Pty Ltd ABN 51 010 131 361 Leaseline & General Finance Pty Ltd MB Vic Pty Ltd ABN 12 608 791 877 Melbourne Truck and Bus Centre Pty Ltd ABN 42 143 202 699 ABN 85 164 997 228 Motors Group (Glen Waverley) Pty Ltd ABN 69 608 791 680 Motors Tas Pty Ltd ABN 52 009 681 556 Nundah Motors Pty Ltd ABN 43 160 315 579 Port City Autos Pty Ltd ABN 13 078 207 333 PPT Holdings No 1 Pty Ltd ABN 13 078 207 397 PPT Holdings No 2 Pty Ltd ABN 30 078 207 468 PPT Holdings No 3 Pty Ltd PPT Investments Pty Ltd ABN 80 000 868 860 Precision Automotive Technology Pty Ltd ABN 59 163 233 207 ABN 21 600 279 589 South West Queensland Motors Pty Ltd ABN 19 008 014 720 Stillwell Trucks Pty Ltd ABN 91 131 269 184 Western Equipment Rentals Pty Ltd ABN 13 116 437 702 Whitehorse Trucks Pty Ltd ABN 99 608 791 804 WS Motors Pty Ltd 93 ANNUAL REPORT 20162 2 0 0 1 1 6 6 A A N N N N U U A A L L R R E E P P O O R R T T 

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