Eureka Group Holdings Limited
Annual Report 2011

Plain-text annual report

Annual Report 2011 30 June 2011 For personal use only EGH LIMITED and controlled entities Table of Contents CONTENTS Chairman’s Review Directors’ Report Auditors’ Independence Declaration Consolidated Statement of Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Cash Flows Consolidated Statement of Changes in Equity Notes to the Financial Statements Directors’ Declaration Independent Auditor’s Report Corporate Directory PAGE 3 5 16 17 18 19 20 21 44 45 47 EGH ANNUAL REPORT 2011 2 For personal use only EGH LIMITED and controlled entities Chairman’s Review On behalf of Directors, I present the Annual Report of Eureka Group Holdings Limited (the Group or Company) for the year ended 30 June 2011. - The Group reported EBITDA for FY 2011 of negative $48k (FY 2010: negative $510k) and a net loss after tax for FY 2011 of $1,051k (FY 2010: $1,061k). This is a disappointing result after entering the year on a positive note with the acquisition of Eureka Care Communities Pty Ltd and its management team. the disappointing Despite in restructuring terms has achieved significant milestones, particularly in the first quarter of FY 2012. Details of these milestones, which are expected to have a positive impact during FY 2012 are as follows: the Group, result, - For July and August 2011, the Group has positive EBITDA despite incurring restructuring costs. As at the end of September 2011, the majority of restructuring costs have been absorbed by the business. The Group is now virtually in its merged form and is in a management and operational sense performing on a substantially improved basis. - Various operating divisions of the Group have historically been operated as stand alone businesses. Each had its own accounting system and team. The various systems were not compatible, leading to administrative inefficiency. The trading entities, with the exception of Village Care Pty Ltd have now been merged and have one system and team. Through these changes, the Group is able to apportion more resources towards village manager support and significantly less on administrative management duplications. The transition has been a complex and time of redundancies and contract break costs, significant improvements in operating performance are being seen post July 1 and expected throughout FY 2012. consuming, excluding staffing costs and but - The Board engaged leading management rights agent Resort Brokers Pty Ltd to review the valuation methodology of the carrying values of various management rights held by the Group. This has provided the Group with a framework to value the management rights it holds. As a result, the Group took a provision for impairment of some of the rights through the profit and loss. The review undertaken by Resort Brokers indicates that on an overall basis the management rights owned by the Group are valued at around $1.7m higher than they are recorded in the consolidated balance sheet. Under AASB 138, the Group is unable to revalue these rights. Accordingly, in our annual report and in the future, we will be providing a note to the accounts setting out our belief of the management valuation methodology was also used, albeit on a very conservative basis, to determine the identifiable intangible assets (management rights contracts) from the acquisition of Eureka Care Communities Pty Ltd. The valuation methodology is predicated primarily upon the profitability and remaining term of each contract. the value of rights held. The In the latter part of FY 2011, the Group undertook a review of all management contracts, service contracts, leases and general expenses. The Group also completed (with the exception of one major client) the changeover to villages being managed on an independent contractor basis. It should be noted that occupancy in villages managed on an independent contractor basis currently average approximately 92%, while villages managed on an employees basis currently average approximately 78%. The Group’s is approximately 86%. occupancy overall Furthermore, a number of service contracts have been terminated and a number of leases terminated / renegotiated where they were unprofitable for the Group. A review of charges to all tenants has been undertaken to ensure no over / under charging. The merger of the divisions into one office has also led to isolation of any extraneous costs that whilst minor individually can in aggregate sum to a material amount throughout the course of a financial year. Directors consider the Group to now be very lean, but with more focus on village manager support and significantly less corporate overhead. We feel these changes give the Group the opportunity to return to profitability after a number of false dawns. - At the upcoming Annual General Meeting, resolutions will be put to shareholders to approve the secured and unsecured certain convertible note issue previously advised to the market. The Group awaits final subscription monies to complete this transaction. receipt of terms of Other Notable Events The three month restructure mentioned above has been led by Greg Rekers, Kerry Potter and Sharon Alderwick. The attention to detail, determination and effort put in by the team has enabled the various difficult processes being undertaken in a period of significant change. The efforts of this team to date have been exceptional. To this end, Mr Rekers and Mr Potter, who have been consulting to the Group, have been appointed Executive Director and Director of Operations respectively. Sharon Alderwick has been appointed General Manager. These appointments are effective 1 September 2011 and relate to SCV Manager Pty Ltd – the main operating entity of the Group. On 10 August 2010, the Company held a general meeting to vote the following: - - - - to change the name of the Company in September 2010 to Eureka Group Holdings Limited and the Company’s ASX code to EGH. to refresh the Company’s new share issuance cap (per listing rule 7.1). to make share-based payments to Andrew Kemp and Pamela Pointon. to raise capital in the form of ordinary shares in the Company and convertible notes from sophisticated EGH ANNUAL REPORT 2010 3 For personal use only EGH LIMITED and controlled entities Chairman’s Review shareholders subordinated loans; and for working capital and to repay - to consolidate the ordinary shares of the Company on the basis that each 10 ordinary shares be consolidated into one ordinary share. Early in the FY 2011, EGH acquired Eureka Care Communities Pty Ltd. This provided a number of quality management contracts to the Group. These contracts remain an the business despite management change and divisional mergers. The contracts have performed in accordance with expectations. important part of The Group entered into a memorandum of understanding with Bloomer Constructions Qld Pty Ltd (BCQ). This transaction remains on foot with the Group and BCQ awaiting tax advice from third parties in respect of the merger. National Australia Bank extended the Group’s banking facilities to 31 March 2012. During FY 2011, the Group reduced bank debt to $3,999k from $4,429k. Further reductions to this debt are being undertaken through sale of assets held for sale. Outlook The board and management believe that the internal merger of the individual divisions will have a significant positive effect on the business on a going forward basis. With new management in place, the Group has received its first three applications for appointment as franchisee / sub licensee. The first of these is working through a 90 day trial period to settle the terms of the individual licenses. Further, of the villages held for sale, one is under contract, and we have received offers for two others on terms acceptable to the board. These asset sales will, along with improved trading, significantly improve the overall position of the company. The strengthening of the village manager network in the Group, along with the significant lowering of corporate overhead is expected to result in successful FY 2012. Lachlan McIntosh Chairman EGH ANNUAL REPORT 2011 4 For personal use only EGH LIMITED and controlled entities Directors’ Report Directors present their report on Eureka Group Holdings and controlled entities (EGH or the Consolidated Entity) for the year ended 30 June 2011. 1. PRINCIPAL ACTIVITIES The principal activities of the Consolidated Entity during the year were: • Provision of specialist property asset management services targeting the management of all asset classes of retirement accommodation; • Providing accommodation and tailored services to a broad market of retiree residents with discretionary and non-discretionary spend characteristics; and • Project Management 2. REVIEW OF OPERATIONS AND RESULTS The year ended 30 June 2011 was a difficult and frustrating one. There were a number of board and management changes during the year, which are reflected in an overall result EBITDA loss of $48k, and net loss after tax of $1,051k. The Board has now settled on what it believes is the long term management team for the group and feels that the frustration of continuing restructure will now come to an end on successful terms after a number of false starts. As discussed in the chairman’s report, virtually the whole company is now operating from one platform with more focus on the village manager and less on head office costs. As also discussed, the company has (apart from one major client) completed the move to independent contractors from employees managing the village. This change has made the administration of the Group much simpler and provides a more predictable revenue stream than when employees are engaged. The group is now progressing franchising, with 3 potential franchisees doing 90 day trials pre contract, and asset sales are progressing to lower debt. Overall, the board feels that the changes made will lead to a successful 2012 financial year. 3. SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS In the final months of 2011 and the opening months of 2012, the group merged all of its operations, barring Village Care into the one trading entity. It is expected Village care will be merged by the end of October 2011. As discussed in the Chairman’s report, this merger has cut out significant head office cost and eliminated duplications caused by having similar operating entities trading separately. For financial year 2012, this will lead to the company only having one business segment. This has been an important step in the restructuring process of the Group 4. DIVIDENDS No dividends have been paid during the year (2010: $nil). No dividends for FY 2011 have been recommended at the date of this report. 5. CAPITAL STRUCTURE The number of ordinary shares on issue at 30 June 2011 was 37,857,460. 6. SHARE OPTIONS During the year there were 1,190,000 options registered to Mike Bosel (875,000), Loretta Byers (65,000) and Mike Hayes (250,000). Of these options 875,000 were cancelled on 16 May 2011. The 65,000 options allocated to Loretta Byers had a strike price on a post-consolidated basis of between $1.15 and $1.30 and expired on 14 July 2011. No further options were issued during this period. 7. LIKELY DEVELOPMENTS AND EXPECTED RESULTS As outlined above, the Company continued a restructure in order to turnaround the business. The restructure has first expected; been significantly more difficult however, the that restructure will ultimately be successful. the company remains confident that 8. SUBSEQUENT EVENTS • The Company has raised $210k through a convertible note issuance since 30 June 2011. • The Company has one asset held for sale under contract and offers for two more. • Other than as disclosed in this report no other matter or circumstance has arisen since the end of the financial year that has significantly affected, or may significantly entity’s the operations, the results of those operations or the consolidated entity’s state of affairs, in subsequent financial years. consolidated affect, 9. ENVIRONMENTAL REGULATION The consolidated entity’s operations are not subject to any particular or significant environmental regulation under a law of the Commonwealth or of a State or Territory. 10. INDEMNIFICATION AND OFFICERS OR AUDITORS INSURANCE OF During or since the end of the financial year the consolidated entity has not given any indemnity or entered into any agreement to indemnify any person who is or has been an officer or an auditor of the Company. During the financial year the consolidated entity has paid insurance premiums in respect of Directors’ and officers’ liability for current and former Directors and officers. EGH ANNUAL REPORT 2011 5 For personal use only EGH LIMITED and controlled entities Directors’ Report 11. NON-AUDIT SERVICES PAUL FULLOON – NON EXECUTIVE DIRECTOR During the year, the Company’s auditor, PKF Chartered Accountants, did not perform any non-audit services. 12. PROCEEDINGS ON BEHALF OF THE COMPANY No person has applied for leave of Court to bring proceedings on behalf of the Company or intervene in any proceedings to which the Company is a party for the purposes of the Company for all or any part of those proceedings. The Company was not a party to any such proceedings during the year. taking responsibility on behalf if 13. DIRECTORS AND MEETINGS ATTENDED The names of all Directors who held office since the beginning of the year together with the numbers of meetings the Company’s Directors held during the year, and the numbers of meetings attended by each Director are: Paul Fulloon is an Executive Director of Albion Business Centre Pty Ltd a Brisbane based consultancy specializing in the restructuring of small businesses. He holds an Advanced Diploma of Business (Accounting) from Victoria University of Technology. He has been the Accountant/Company Secretary and Director a number of public corporations and has been a member of statutory committees. DAVID ROSENBLUM – NON EXECUTIVE DIRECTOR David has had over 20 years of corporate advisory experience specialising in corporate development and corporate turnaround. He works in a very hands-on manner with key people in client businesses. He holds a Bachelor of Commerce degree from the University of Queensland. He has enjoyed substantial retail, experience across most service new technology and franchising. including industries, marine, manufacturing, industries Director's Meetings Audit Committee Meetings RETIRED DIRECTORS JURY WOWK – FORMER NON EXECUTIVE CHAIRMAN Name Held Attend Held Attend Paul Fulloon 12 12 Andrew Kemp Lachlan McIntosh Jury Wowk* David Rosenblum* 12 12 12 12 8 12 4 1 1 1 1 1 1 1 1 1 0 0 *Both Jury Wowk and David Rosenblum attended all meetings that they were able to attend as directors. 14. INFORMATION ON DIRECTORS The details of each Director’s qualifications, experience and special responsibilities for those in office during the year are: LACHLAN MCINTOSH – NON EXECUTIVE CHAIRMAN is a Member of Lachlan McIntosh has a Bachelor of Commerce degree and Institute of Chartered the Accountants in Australia. He specialises in corporate finance and mergers and acquisitions. He has had substantial experience in the real estate and retirement significant accommodation experience in the franchising industries and mining services industries. along with industry Lachlan is also the Managing Director of 22 Capital Pty. Ltd. and Director of ASX listed Industrea Limited (since April 2004). Jury Wowk was appointed Chairman of the board in November 2010 and completed his appointment on 17 May 2011. Jury was a Partner of and is currently a consultant to HWL Ebsworth Lawyers. From 1987 to 1989, Jury performed the role of Operations Manager at Plaspak Pty Ltd gaining valuable hands on practical experience in the management of the company’s operations. Jury has a Bachelor of Arts Degree and a Bachelor of Laws Degree from the University of Sydney. He is also a Law Society of New South Wales Accredited Specialist in the Business Law and an Associate Member of Australian Institute of Company Directors. Jury has also held the position of Non-Executive Director at HomeLeisure Ltd. Jury resigned from EGH on 17 May 2011. ANDREW KEMP – FORMER NON EXECUTIVE DIRECTOR Andrew was appointed to the role of Non Executive Director in March 2004. Andrew is an Executive Director of Huntington Group Pty Ltd, a Brisbane based corporate advisory firm. He holds a Bachelor of Commerce degree from the University of Melbourne and is a Chartered Accountant. After working for KPMG and Littlewoods Chartered Accountants in Melbourne and Sydney, Andrew joined AIFC, the then merchant banking affiliate of the ANZ Banking Group in Sydney in 1978. From 1979 until 1985, Andrew was Queensland Manager of AIFC. He then joined North Queensland based Coutts Group as General Manager early in 1985 and continued with this group until January 1987 when he formed Huntington Group. EGH ANNUAL REPORT 2011 6 For personal use only EGH LIMITED and controlled entities Directors’ Report Since 1980, Andrew has structured and implemented the ASX listing of 11 companies in addition to other corporate advisory. He joined the board of SCV Group on March 2004. He has held Directorships of the following listed entities during the last three years: PTB Group Limited since December 2004; Silver Chef Limited since April 2005; Trojan Equity Limited (Chairman) since May 2005; and S8 Limited from February 2004 to January 2007. Andrew resigned from EGH on 11 February 2011. 15. EXECUTIVE MANAGEMENT The details of each executive management personnel’s qualifications, experience and special responsibilities for those in office during the year are: MIKE BOSEL – CHIEF EXECUTIVE OFFICER Mike was appointed CEO in July 2010 and completed his appointment on 16 May 2011. MIKE HAYES – NATIONAL OPERATIONS MANAGER Mike was appointed National Operations Manager in July 2010 and completed his appointment on 14 June 2011. GREG REKERS – EXECUTIVE DIRECTOR (PROPERTY) Greg leads the company’s real estate activities. Greg is also a director of Navigator Property Group (NPG), a consultancy specialising the areas of property in development and project marketing. Greg worked for PRD Gold Coast, a national and international property marketing company where he was a leading project salesman. Upon departing PRD, Greg continued to be highly successful in providing project marketing services to numerous property developers, which then led to the creation of NPG. KERRY POTTER – DIRECTOR OF OPERATIONS Kerry is the company’s Chief Operating Officer. Kerry is also a director of Navigator Property Group, a consultancy specialising the areas of property in development and project marketing. Kerry worked with the Commonwealth public service in 1987 where he had been a director of the Government’s real estate arm. Kerry then became the Director of Project Marketing for PRD Gold Coast, a successful national and international organisation. After leaving PRD, Kerry became CEO of Raine and Horne Queensland and Chesterton International. Kerry then became the principal and hands-on director of numerous development residential and commercial projects for various consortia in the period 2000 to 2007. SHARON ALDERWICK – GENERAL MANAGER Sharon Alderwick has been involved with Residential Property Management and working with large rent rolls positions in Business Development for the past 15 years. For eight of those years she had held and Management, overseeing staff and running of the rent roll. Her prior experience is in accountancy. Sharon brings to our Company a vast knowledge of Property Management and along with her attention to detail is a valuable asset. LORETTA BYERS – CEO VILLAGE CARE Loretta was appointed to the role of CEO of Village Care in February 2000. Loretta has over 30 years’ experience in the aged care and retirement sectors. Her previous roles have included Director of Nursing, nursing home proprietor and Managing Director of 50 villages with 6,000 residents. Loretta joined the Company as part of the Company’s acquisition of Village Care. Loretta retired 11 December 2010. EGH ANNUAL REPORT 2011 7 For personal use only EGH LIMITED and controlled entities Directors’ Report 16. REMUNERATION REPORT (a) KEY MANAGEMENT PERSONNEL The names of persons who were key management personnel of EGH Limited at any time during the financial year are shown in the following table. Key management personnel are defined as those who have a direct impact on the strategic direction of the Company. Name Directors Paul Fulloon Andrew Kemp Executives Mike Bosel Mike Hayes Loretta Byers Greg Rekers Kerry Potter Role Period in role Non-Executive Director Non-Executive Director Lachlan McIntosh Non-Executive Director Jury Wowk Non-Executive Chairman David Rosenblum Non-Executive Director 05/12/08 – ongoing 15/03/04 – 11/02/11 20/07/09 – ongoing 30/11/10 – 17/05/11 17/05/11 – ongoing Chief Executive Officer 05/07/10 – 16/05/11 National Operations Manager 05/07/10 – 14/06/11 CEO of Village Care 01/02/00 – 11/12/10 Executive Director – Property 17/05/11 – ongoing Sharon Alderwick General Manager Director of Operations 17/05/11 – ongoing 17/05/11 – ongoing (b) PRINCIPLES OF COMPENSATION OF KEY MANAGEMENT PERSONNEL Compensation of key management personnel comprise fees determined having regard to industry practice and the need to obtain appropriately qualified independent persons. Compensation of key management personnel is determined by the Board. Consideration is given to normal commercial rates of remuneration for similar levels of responsibility and to the Company’s financial performance. Emoluments comprise salaries, bonuses, and contributions to superannuation funds, options and shares. While all executives have detailed job descriptions with identified key performance indicators against which annual reviews are compared, there is no direct relationship between the benefits contained in the employment contracts and the Company’s performance in the year under review or the 2011 financial year. The Board continually reviews management’s performance and its own performance having regard to company performance and shareholder wealth. EGH ANNUAL REPORT 2011 8 For personal use only EGH LIMITED and controlled entities Directors’ Report (c) REMUNERATION FOR THE YEAR Remuneration provided by the Company to Directors and executives during the financial year is shown in the following table: Year ending 30 June 2011 Short Term Salary & Fees $ Bonus $ Post Employment Superannuation $ Share Based* Total Shares $ $ Directors Paul Fulloon Andrew Kemp Lachlan McIntosh David Rosenblum Jury Wowk Total Executives Mike Bosel Loretta Byers Pamela Pointon Paul Dolan Mike Hayes Greg Rekers Kerry Potter Sharon Alderwick Total 23,534 11,200 37,255 5,600 25,105 102,694 304,890 238,477* - 29,718 180,498 92,015 92,015 66,346 1,003,959 - - - - - - - - - - - - - - - - - - - - - - 10,000 - - - 10,000 - 21,463 - 2,675 16,245 - - 5,971 46,354 23,534 11,200 37,255 5,600 25,105 102,694 304,890 259,940 - 32,393 206,743 92,015 92,015 72,317 - - - - - - - - - 1,060,313 The shares issued in the period were ordinary shares in the Company. *This figure includes payments for annual and long service leave pursuant to the executives retirement on 11 December 2010 Year ending 30 June 2010 Short Term Salary & Fees $ Bonus $ Post Employment Superannuation $ Share Based Total Options $ $ Directors Paul Fulloon Andrew Kemp Lachlan McIntosh Andrea Slingsby Total Executives Loretta Byers Pamela Pointon Paul Dolan Cate Please Garry Myrtle Total 78,000 - - 27,759 105,759 204,595 129,000 96,537 35,773 15,678 481,583 - - - - - - - - - - - - - - 5,360 5,360 72,913 15,000 8,688 3,894 1,661 102,156 - 26,400 60,000 - 86,400 - 50,000 - - - 50,000 78,000 26,400 60,000 33,119 197,519 277,508 194,000 105,225 39,667 17,339 633,739 EGH ANNUAL REPORT 2011 9 For personal use only EGH LIMITED and controlled entities Directors’ Report (d) NUMBER OF SHARES HELD: DIRECTORS AND EXECUTIVES Balance 1 July 2010 * Received as Remuner- ation * Shares Acquired * Options Exercised* Net Change Other * Balance 30 June 2011* Held in Escrow 61,334 - 30,000 - - Directors: Andrew Kemp Paul Fulloon 221,347 246,401 - - Lachlan McIntosh 3,404,167 2,447,607 Jury Wowk David Rosenblum Total Executives: Mike Bosel Mike Hayes Loretta Byers Greg Rekers Kerry Potter Sharon Alderwick Total 375,572 210,253 - - 4,001,086 2,694,008 91,334 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 307,735 529,082 - - 2,477,607 5,881,774 - - 375,572 - 2,785,342 6,786,428 - - - - - - - - - - - - - - * Figures for FY2011 are adjusted for the 1:10 share consolidation (e) NUMBER OF OPTIONS HELD: DIRECTORS AND EXECUTIVES Balance 1 July 2010 Received as Remuner- ation Options Exercised (1) Net Change Other Balance 30 June 2011 Total vested as at 30 June 2011 Held in Escrow Directors: Andrew Kemp Paul Fulloon Lachlan McIntosh Jury Wowk David Rosenblum Total Executives: Loretta Byers Mike Bosel Mike Hayes Total - - - - - - - - - - - - 65,000* - - 65,000 - 875,000** 250,000 1,125,000 *these options expired on 14 July 2011 **these options were cancelled on 16 May 2011. 17. AUDITORS INDEPENDENCE DECLARATION - - - - - - - - - - - - - - - - - - - - - - - - - - - - - (875,000) - (875,000) 65,000 - 250,000 315,000 65,000 - 250,000 315,000 The auditor’s independence declaration under Section 307C is included in this report on page 16. 18. DECLARATION This report is made in accordance with a resolution of the Directors. Lachlan McIntosh Chairman Dated this 30th day of September, 2011 EGH ANNUAL REPORT 2011 10 - - - - - - - - - - - - - - - - - - - - - - - For personal use only EGH LIMITED and controlled entities Security Holder Information Distribution of Securities as at 28 September 2011 Number of Securities 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 and over Total Security Holders No of Shareholders Marketable Shares There were 381 holders of less than a marketable parcel of 6,330 shares holding a total of 445,627 shares. Voting Rights Ordinary Shares carry voting rights of one vote per share. Options carry no voting rights. 249 125 31 71 59 535 Twenty Largest Ordinary Shareholders at 28 September 2011 No of Ordinary Shares Held % of Issued Share Capital 22 CAPITAL PTY LTD M R & S J GORDON PTY LTD CO-INVESTOR CAPITAL PARTNERS PTY LTD* BYDAND CAPITAL PTY LIMITED* CO-INVESTOR CAPITAL PARTNERS PTY LIMITED* WAVET FUND NO 2 PTY LTD* KATHLAC PTY LIMITED WAVET FUND NO 2 PTY LTD* ESCOR INVESTMENTS PTY LTD VBS INVESTMENTS PTY LTD CO-INVESTOR CAPITAL PARTNERS (NZ LIMITED) CONTEMPLATOR PTY LTD ACN 002 938 614 LIMITED PAMELA ANN POINTON PPK INVESTMENT HOLDINGS PTY DSCC HOLDINGS PTY LTD BYDAND CAPITAL PTY LIMITED* QFM NOMINEES PTY LTD MR STEVE WALKER + MRS SUZAN SARAH WALKER DEAL CITY PTY LIMITED Total * Separate Holdings 4,275,000 3,342,378 2,452,760 2,113,020 1,972,850 1,840,234 1,447,607 1,145,834 1,120,160 1,107,945 1,032,912 800,000 750,000 708,334 700,000 618,442 546,053 500,000 376,000 375,572 11.29% 8.83% 6.48% 5.58% 5.21% 4.86% 3.82% 3.03% 2.96% 2.93% 2.73% 2.11% 1.98% 1.87% 1.85% 1.63% 1.44% 1.32% 0.99% 0.99% 27,225,101 71.90% EGH ANNUAL REPORT 2011 11 For personal use only EGH LIMITED and controlled entities Security Holder Information Largest Option Holders at 28 September 2011 No of Options Held Mike Hayes Total 250,000 250,000 % of Issued Options 100% 100% Securities September 2011 in which Directors have a Relevant Interest at 28 Ordinary Shares Options Lachlan McIntosh Paul Fulloon David Rosenblum Total 5,851,744 - - 5,851,744 - - - - EGH ANNUAL REPORT 2011 12 For personal use only EGH LIMITED and controlled entities Corporate Governance INTRODUCTION This statement outlines the key corporate governance practices that are in place for the Group and to which both the Board collectively and the Directors individually are committed. In formulating and adopting its corporate governance principles, the Directors have adopted and complied with ASX Corporate Governance Principles and Recommendations, 2nd edition. PRINCIPLE 1 LAY SOLID FOUNDATIONS FOR MANAGEMENT AND OVERSIGHT Functions and Responsibilities of the Board fulfill times The Board will at all its overriding responsibility to act honestly, conscientiously and fairly, in accordance with the law, and in the interests of Shareholders, its employees and those with whom it deals. The Board of Directors is responsible for the review and approval of the strategic direction of EGH and for the oversight and monitoring of its business and affairs. In addition, it is responsible for those matters reserved to it by law and reserves to itself the following matters and all power and authority in relation to those matters: • Oversight of the Group including its control and accountability systems; • Reviewing and overseeing the operation of systems of risk management and internal compliance and control, codes of ethics and conduct, and legal and regulatory compliance; • Monitoring Senior Management’s performance and implementation of strategy, and ensuring appropriate resources are available; • • • • • Approving and monitoring the progress of major capital expenditure, capital management, and acquisitions and divestments; Approving and monitoring reporting; financial and other Performance of investment and treasury functions; The overall corporate governance of the Group including the strategic direction, establishing goals for management and monitoring the achievement of these goals; and To assist in the execution of its responsibilities, the Board has the authority to establish Committees (and delegate powers accordingly) to consider such matters as it may consider appropriate. • • • • increased where the Board considers There must be at least four Directors and this may be that additional expertise is required in specific areas or when an outstanding candidate is identified. As at the date of this report the Company has only three Directors and is in the process of filling the fourth position with an appropriate candidate; The Chairman must be a non-executive Director who is also Independent; At least half of the Board must be non-executive Directors at least two of whom must also be Independent; The composition of the current board is temporarily different to the above principles and is expected to remain so during its restructuring. The board has appointed Lachlan McIntosh as Non-executive Chairman. Lachlan is a non-executive Director but is not independent. The Board has taken into account the fact Lachlan specialises in corporate finance, corporate restructurings and turnarounds and mergers and acquisitions; and The Company has a majority of independent Directors, with both David Rosenblum and Paul Fulloon being independent Directors. The blend of experience and skills assembled on the Company’s board is considered appropriate for a company of EGH’s size and business structure, particularly at this stage of its commercial development. The Board will continue to monitor the independence of Directors as the activities of the Company progress. Each Director has the right to seek independent legal or other professional advice at the Company’s expense. Prior approval from the Chairman is required but may not be unreasonably withheld or delayed. Committees The Board may establish Committees to assist it in carrying out its function and for its effective and efficient for each performance, and will adopt a charter Committee established dealing with the scope of its responsibility and relevant administrative and procedural arrangements. Best practice recommendations by the ASX recommend the establishment of formal Audit, the Remuneration and Nomination Committees; responsibilities normally delegated to the Remuneration and Nomination committees are included in the charter of the Board. PRINCIPLE 3 PROMOTE ETHICAL AND RESPONSIBLE DECISION MAKING PRINCIPLE 2 Ethical Standards and Values STRUCTURE THE BOARD TO ADD VALUE The composition of the Board is determined according to the following principles: • The Board must comprise members with a broad range of experience, expertise, skills and contacts relevant to the Group and its business (See Director Profiles); All Directors and Officers of EGH must act with the utmost integrity and objectivity, striving at all times to enhance the reputation and performance of the Company and, where possible, act in accordance with the interests of Shareholders, staff, clients and all other stakeholders of EGH. The Directors must comply with the Code of Ethics in the exercise of their duties. EGH ANNUAL REPORT 2011 13 For personal use only EGH LIMITED and controlled entities Corporate Governance Dealings in Securities The Constitution permits Directors to acquire Securities in the Company. Company policy prohibits any dealing in, in or procuring accordance with the Code of Conduct for Transactions in Securities. in Securities except the dealing PRINCIPLE 4 reported on a monthly basis against budget, and revised forecasts for the year are prepared regularly. Price Sensitive Information, and generally all information reasonably required by an investor to make an informed assessment of the Group’s activities and results, are reported to the ASX in accordance with continuous disclosure requirements, which are considered as a standing agenda item at each regular meeting of the Audit Committee as well as of the Board. SAFEGUARD INTEGRITY IN FINANCIAL REPORTING Quality and integrity of personnel The Audit Committee is established by the Board to assist it and report to it in relation to the matters with which it is charged with responsibility. The role of the Audit Committee is to advise on the establishment and maintenance of a framework of internal controls and appropriate ethical standards for the management of the Group. It also gives the Board additional assurance regarding the quality and reliability of financial information prepared for use by the Board in determining policies or for inclusion in the financial report. The Audit Committee has responsibility for reviewing the risk management framework and policies within the Group and monitoring their implementation. Details of meetings and members are provided in the annual report. The Audit Committee currently has three members, Lachlan McIntosh (Chairman), David Rosenblum and Paul Fulloon. The blend of experience and skills assembled on the Committee is considered appropriate for EGH at this stage of its development. The CEO and CFO must each provide a statement to the Board with any financial report to the effect that the Company’s risk management and internal compliance and control system is operating efficiently and effectively in all material respects. Financial Reporting The external auditors are selected according to criteria set by include most significantly: the Audit Committee which • • • The lack of any current or past connection or association with the Group or with any member of Senior Management that could in any way impair, or be seen to carry with it any risk of impairing, the independent external view they are required to take in relation to the Group; Their general reputation independence and probity and professional standing within the business community; and for Their knowledge of the industry within which the Group operates. Audit staff employed by the external audit partner, including the partner or other principal with overall responsibility for the engagement, are required to be rotated periodically, and in any event at intervals not exceeding five years, so as to avoid any risk of impairing the independent external view that the external auditors are required to take in relation to the Group. The Board approves an annual budget prepared by Management and reviewed and commented on by the Audit Committee. Actual results, including profit and loss statement, balance sheet and cashflow statement, are The Company’s policies are detailed in the Operating Policies and Procedures. Written confirmation of compliance with policies from all staff members. Formal appraisals are conducted at least annually for all employees. is obtained Investment appraisal EGH has clearly defined guidelines for capital expenditure. These include annual budgets, detailed appraisal, and review procedures, levels of authority and due diligence requirements where businesses are being acquired or divested. Operating unit controls Financial controls and procedures, including information systems controls are detailed in the Group Operating Policies and Procedures Manuals. PRINCIPLE 5 MAKE TIMELY AND BALANCED DISCLOSURE The Board understands and respects that prompt disclosure of price sensitive information is integral to the efficient operation of the ASX’s securities market and complies with guideline of continuous and ongoing disclosure. PRINCIPLE 6 RESPECT THE RIGHTS OF SHAREHOLDERS to ensure Information is communicated The Board aims that Shareholders are informed of all major developments affecting the Group’s to state of affairs. Shareholders through the distribution of financial reports, announcements shareholder newsletters and a comprehensive website. Shareholders are encouraged to attend the Annual General Meeting at which the Company’s auditors are also present to answer shareholders questions. The Company complies with the Guidelines for this principle. the ASX, through PRINCIPLE 7 RECOGNISE AND MANAGE RISK The Board and Management are responsible for the identification of significant business risks and review of the major risks affecting each business segment and development of strategies to mitigate these risks. Major business risks arise from such matters as actions by competitors, changes in government policy and use of information systems. EGH ANNUAL REPORT 2011 14 For personal use only EGH LIMITED and controlled entities Corporate Governance The CEO and CFO must each provide a statement to the Board with any financial report to the effect that the Company’s risk management and internal compliance and control system is operating efficiently and effectively in all material respects. PRINCIPLE 8 REMUNERATE FAIRLY AND RESPONSIBLY EGH’s current practices in this area will be regularly reviewed to ensure compliance with the Guidelines. fully Remuneration of Directors and Executives disclosed in the annual report. is EGH ANNUAL REPORT 2011 15 For personal use only EGH LIMITED and controlled entities Auditors Independence Declaration Lead auditor’s independence declaration under Section 307C of the Corporations Act 2001 To: The Directors of Eureka Group Holdings Limited I declare to the best of my knowledge and belief, in relation to the audit for the financial year ended 30 June 2011 there have been: • • no contraventions of the auditor independence requirements as set out in the Corporations Act 2001 in relation to the audit, and no contraventions of any applicable code of professional conduct in relation to the audit. Albert Loots Partner PKF Chartered Accountants Dated this 30th day of September, 2011 Tel: 61 7 3226 3555 | Fax: 61 7 3226 3500 | www.pkf.com.au PKF | ABN 83 236 985 726 Level 6, 10 Eagle Street | Brisbane | Queensland 4000 | Australia GPO Box 1078 | Brisbane | Queensland 4001 PKF East Coast Practice is a member of PKF Australia Limited a national association of independent chartered accounting and consulting firms each trading as PKF. The East Coast Practice has offices in NSW, Victoria and Brisbane. PKF Australia Limited is a member of PKF International, an association of legally independent chartered accounting and consulting firms. Liability limited by a scheme approved under Professional Standards Legislation EGH ANNUAL REPORT 2010 16 For personal use only EGH LIMITED and controlled entities Consolidated Statement of Comprehensive Income FOR THE YEAR ENDED 30 JUNE 2011 Note 30 June 2011 $ 30 June 2010 $ Total Revenue 3 14,099,699 11,247,998 Consolidated Expenses Cost of goods sold Impairment - Management rights Impairment - Trade receivables Employee expenses Finance costs Community operating expenses Marketing expenses Consultancy expenses 7,739,587 1,715,959 264,406 - - 59,799 2,238,410 1,726,930 759,102 678,037 356,144 4,912,142 29,074 187,111 277,160 790,947 Depreciation & amortisation expenses 4 243,908 113,028 Lease expenses Amortisation of borrowing costs Other expenses Total Expenses 330,000 592,005 667 (239,568) 2,912,632 1,258,339 15,151,090 11,794,729 Loss before income tax expense (1,051,391) (546,731) Income tax expense 5 - - Loss from continuing operations (1,051,391) (546,731) Loss from discontinued operations after income tax 31 - (515,115) Loss for the period (1,051,391) (1,061,846) Other comprehensive income - - Total Comprehensive Income for the period (1,051,391) (1,061,846) Basic earnings per share (dollars per share) Diluted earnings per share (dollars per share) 22 22 (0.0297) (0.0297) (0.0556) (0.0556) The consolidated statement of comprehensive income is to be read in conjunction with the accompanying notes. EGH ANNUAL REPORT 2010 17 For personal use only EGH LIMITED and controlled entities Consolidated Statement of Financial Position AS AT 30 JUNE 2011 Current Assets Cash and cash equivalents Trade and other receivables Inventories Non-current assets held for sale Financial asset Other Total Current Assets Non Current Assets Property, plant and equipment Intangible assets Total Non Current Assets Total Assets Current Liabilities Trade and other payables Other financial liabilities Provisions Total Current Liabilities Non Current Liabilities Provisions Total Non Current Liabilities Total Liabilities Net Assets Equity Share capital Accumulated losses Total Equity Consolidated Note 30 June 2011 $ 30 June 2010 $ 6 7 8 9 10 12 13 14 17 15 15 368,747 579,334 38,371 342,694 414,089 55,415 2,530,983 2,935,787 - 62,601 14,198 106,378 3,580,036 3,868,561 1,158,423 424,867 5,412,780 5,586,279 6,571,203 6,011,146 10,151,239 9,879,707 2,609,641 2,759,995 5,815,872 6,045,922 138,228 229,683 8,563,741 9,035,600 16,488 16,488 27,156 27,156 8,580,229 9,062,756 1,571,010 816,951 18 42,300,014 40,494,564 (40,729,004) (39,677,613) 1,571,010 816,951 The consolidated statement of financial position is to be read in conjunction with the accompanying notes. EGH ANNUAL REPORT 2010 18 For personal use only EGH LIMITED and controlled entities Consolidated Statement of Cash Flows FOR THE YEAR ENDED 30 JUNE 2011 Cash Flows from Operating Activities Receipts from customers Payments to suppliers & employees Interest received Finance costs Consolidated 30 June 2011 30 June 2010 Note $ $ 14,796,904 13,578,823 (15,560,779) (13,432,489) 1,661 (535,576) 5,126 (532,119) Net Cash flow used in operating activities 19(b) (1,297,790) (380,659) Cash Flows from Investing Activities Payments for property, plant and equipment Refund from acquisition of Griffith Financial Investment Proceeds from sale of management rights and managers unit Payment for subsidiary, net of cash acquired Payments for intangible assets (117,355) 14,198 380,000 (75,395) (14,198) 428,989 (201,000) - - (435,716) Net cash flow used in investing activities 75,843 (96,320) Cash Flows from Financing Activities Proceeds/(repayments) from borrowings Proceeds from share issues Payments for share issue costs Net cash flow from financing activities Net increase/ (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of financial year 433,000 830,000 (15,000) 1,248,000 26,053 342,694 Cash and cash equivalents at end of financial year 19(a) 368,747 (384,000) 815,000 (39,767) 391,233 (85,746) 428,440 342,694 The consolidated statement of cash flows is to be read in conjunction with the accompanying notes. EGH ANNUAL REPORT 2010 19 For personal use only EGH LIMITED and controlled entities Consolidated Statement of Changes in Equity FOR THE YEAR ENDED 30 JUNE 2011 2011 Balance at 1 July 2010 Total comprehensive loss for the year Debt converted into equity Shares issued during the period Capital raising cost Balance at 30 June 2011 2010 Balance at 1 July 2009 Total comprehensive loss for the year Debt converted into equity Shares issued during the period Share option reserve Capital raising cost Balance at 30 June 2010 Consolidated Share Capital $ Accumulated Losses $ Total $ 40,494,564 - 1,025,047 795,000 (14,597) 42,300,014 39,701,432 - 20,000 1,163,200 (320,301) (69,767) 40,494,564 (39,677,613) 816,951 (1,051,391) (1,051,391) - 1,025,047 - - 795,000 (14,597) (40,729,004) 1,571,010 (38,615,767) 1,085,665 (1,061,846) (1,061,846) - 20,000 - 1,163,200 - (320,301) - (69,767) (39,677,613) 816,951 The above consolidated statement of changes in equity is to be read in conjunction with the attached notes. EGH ANNUAL REPORT 2010 20 For personal use only EGH LIMITED and controlled entities Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2011 1. INTRODUCTION EGH Limited (covering the financial statements of EGH Limited and all of its subsidiaries) (EGH or the Group or the Consolidated Entity) for the year ended 30th June 2011 is a company incorporated in Australia. Operations and principal activities Operations comprise property management of Senior Independent Living Communities. Currency The financial report is presented in Australian dollars and rounded to the nearest dollar. Registered office ‘River Tower’, Level 1, 20, Pidgeon Close, West End, Queensland, Australia, 4001. Authorisation of financial report The financial report was authorised for issue on 30 September 2011 by the Directors. The Directors have the power to amend the financial report after issue. 2. SUMMARY OF ACCOUNTING POLICIES a) OVERALL POLICY The principal accounting policies adopted by EGH Limited comprising the parent entity EGH Limited and its subsidiaries are stated in order to assist in the general understanding of the financial report. The consolidated financial report is a general purpose financial report which has been prepared in accordance with Australian Accounting Standards and the Corporations Act 2001. Compliance with IFRS ensures the financial report, comprising the financial statements and notes thereto, complies with International Financial Reporting Standards (IFRS). b) CONSOLIDATION POLICY This financial report covers both EGH Limited as an individual entity (Company) and the consolidated entity consisting of EGH Limited and its controlled entities. EGH Limited is the ultimate parent entity. The consolidated financial statements incorporate the assets and liabilities of all entities controlled by EGH Limited as at 30 June 2011 and the results of all controlled entities for the year then ended wherein the effects of all transactions between entities in the consolidated entity are eliminated in full. EGH Limited and its controlled entities together are referred to in this financial report as the consolidated entity. indirectly, Subsidiaries are entities controlled by the Company. Control exists when the Company has the power, directly or financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights that presently are exercisable or convertible are taken into account. The financial statements of to govern the subsidiaries are included in the financial report from the date that control commences until the date that control ceases. c) REVENUE RECOGNITION MANAGEMENT FEES AND CATERING REVENUE The consolidated entity is entitled to receive a fee from unit owners for managing the units under management services agreements. The consolidated entity also receives a fee from the tenants of the units for the provision of catering services. Revenue is recognised when the services are provided. SALE OF GOODS Revenue from the sale of land and other units that have been acquired is recognised when the relevant contract of sale becomes unconditional. Revenue from the licensing of intellectual property is recognised when the licensing agreement becomes unconditional. RENTAL INCOME Rental income is brought to account on a straight line basis in accordance with the terms of the underlying agreement. d) REVENUE RECOGNITION INTEREST REVENUE Interest revenue is recognised on a proportional basis taking into account the interest rates applicable to the financial assets. e) INCOME TAX Income tax in the statement of comprehensive income for the periods presented comprises current and deferred tax. Income tax is recognised in the statement of comprehensive income except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantially enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years. Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the balance sheet date. f) CASH AND CASH EQUIVALENTS For the purpose of the statement of cash flows, cash includes cash at bank and on hand as well as highly liquid investments with short periods to maturity which EGH ANNUAL REPORT 2010 21 For personal use only EGH LIMITED and controlled entities Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2011 are readily convertible to cash on hand and are subject to an insignificant risk of changes in value, net of outstanding bank overdrafts. g) TRADE AND OTHER RECEIVABLES Trade debtors are recognised at the amounts due and collectable in the time frame set out in the sales contract. Other receivables are recognised at the amount due and are also generally due within 30 days. Recoverability is reviewed on an ongoing basis. Debts that are known to be uncollectible are written off. A provision for doubtful debts is raised when significant doubt as to collection exists. h) PROPERTY PLANT & EQUIPMENT Fixed Assets are recognised at cost. Depreciation and amortisation is calculated on the straight line (SL) or diminishing value (DV) basis so as to write off the net cost of each item of property, plant and equipment over its expected useful life to the consolidated entity. Rates used for each class of asset are: Class Rate Method Plant and equipment 25-50% SL/DV Manager units Leasehold improvements Plans, patent and trademarks 2.5% 20% 20% SL SL SL i) IMPAIRMENT OF ASSETS At each reporting period the consolidated entity reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the impairment loss (if any). Where the asset does not generate cash flows that are independent from other assets, the consolidated entity estimates the recoverable amount of the cash-generating unit to which the asset belongs. A cash-generating unit will be the smallest identifiable group of assets that generate cash flows largely independent of the cash inflows of other assets or group of assets. An impairment loss will be recognised whenever the carrying amount of an asset, or its cash-generating unit, exceeds its recoverable amount. Impairment losses will be recognised in the statement of comprehensive income unless they relate to a revalued asset, where the impairment loss will be treated in the same way as a revaluation decrease to the extent of revaluation increment exists. j) PROVISIONS Provisions are recognised when the consolidated entity has a present obligation, future sacrifice of economic benefits is probable, and the amount of the provision can be measured reliably. the The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at reporting date, taking into account the risks and uncertainties surrounding the obligation. k) INVENTORIES Inventories comprise catering stock only. Catering stock is valued at the lower of cost and net realisable value. l) INTANGIBLES Only intangibles that have been purchased or paid for by the consolidated entity are recognised in the accounts. Internally generated intangibles such as management the consolidated entity has constructed are not recognised in the accounts. rights on Communities that Plans and trademarks are amortised using the straight- line method over 5 years being the estimated useful life. Management rights and letting rights are carried at the lower of cost or recoverable amount. The management rights and letting rights are amortised using the straight line method over 40 years being the estimated useful life. the cost of the excess of initial recognition, goodwill Goodwill on acquisition is initially measured at cost the business being combination over the acquirer’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities. Following is measured at cost less any accumulated impairment losses. Goodwill is reviewed for impairment, annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired. As at the acquisition date, any goodwill acquired is allocated to each of the cash-generating units expected to benefit from the combination’s synergies. Impairment is determined by assessing the recoverable amount of the cash-generating unit to which the goodwill relates. Where the recoverable amount of the cash-generating unit is less than the carrying amount, an impairment loss is recognised. m) TRADE AND OTHER PAYABLES These amounts represent liabilities for goods and services provided to the consolidated entity prior to the end of the financial year and which are unpaid at that date. The amounts are unsecured and are generally settled within 30-60 days. n) FINANCIAL ASSETS AND LIABILITIES financial Non-derivative comprise investments in equity and debt securities, trade and other receivables, cash and cash equivalents, loans and borrowings, and trade and other payables. instruments Non-derivative financial instruments are recognised initially at fair value plus, for instruments not at fair value through profit or loss, any direct attributable transaction costs. Subsequent to initial recognition non- derivative instruments are measured as described below. financial A financial instrument is recognised if the Consolidated Entity becomes a party to the contractual provisions of the instrument. Financial assets are derecognised if the EGH ANNUAL REPORT 2010 22 For personal use only EGH LIMITED and controlled entities Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2011 if the from financial asset expire or Consolidated Entity’s contractual rights to the cash flows the Consolidated Entity transfers the financial asset to another party without retaining control or substantially all risks and rewards of the asset. Regular purchases and sales of financial assets are accounted for at trade date i.e. the date that the Consolidated Entity commits itself to purchase or sell the asset. Financial liabilities are derecognised if the Consolidated Entity’s obligation specified in the contract expire or are discharged or cancelled. o) FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS initial recognition. Financial An instrument is classified as at fair value through profit and loss if it is held for trading or is designated as such instruments are upon designated at fair value through profit or loss if the group manages such investments and makes purchase in and sale decisions based on risk accordance with initial management or recognition, are recognised in profit or loss when incurred. Financial instruments at fair value through profit or loss are measured at fair value, and changes are recognised in profit or loss. the Group’s documented investment strategy. Upon costs transaction attributable fair value their p) AVAILABLE FOR SALE ASSETS Available-for-sale assets are non derivative financial assets that are either not suitable to be classified into other categories of financial assets due to there nature, or they are designated as such by management. The comprise investments in the equity of other entities where there is neither a fixed maturity nor fixed or determinable payments. payments to be made in respect of services provided by employees up to the reporting date. Consideration is given for expected future wage and salary levels, experience of employee departures and periods of service. Expected future payments are discounted using market yields as at the reporting date on national government bonds with the terms to maturity that match, as closely as possible, the estimated future cash outflows. t) FINANCE COSTS Finance costs incurred whilst seniors’ Communities are under construction are capitalised in the period in which they are incurred. Once each project is completed and ready for sale, subsequent finance costs are expensed when incurred. All other finance costs are expensed when incurred. Finance costs include interest on short- long-term borrowings, amortisation of term and discounts or premiums to borrowings, amortisation of ancillary costs in connection with the arrangement of borrowings and finance lease charges. relating u) GOODS AND SERVICES TAX Revenues, expenses and assets are recognised net of the amount of goods and services tax (GST), except: • where the amount of GST incurred is not recoverable from the taxation authority, it is recognised as part of the cost of acquisition of an asset or as part of an item of expense; or • for payables which are recognised inclusive of GST. The net amount of GST recoverable from, or payable to, included as part of receivables or payables. taxation authority the is v) COMPARATIVES Where necessary, comparative figures have been adjusted to conform with changes in presentation in the current year. q) OTHER NON-DERIVATIVE FINANCIAL INSTRUMENTS w) SHARE BASED PAYMENTS financial non-derivative Other are measured at amortised cost using the effective interest method less any impairment losses. These comprise all trade payables. instruments r) EMPLOYEE BENEFITS WAGES AND SALARIES AND ANNUAL LEAVE – SHORT TERM Liabilities for wages and salaries and annual leave are recognised, and are measured as the amounts expected to be paid when the liabilities are settled inclusive of on-costs. Sick leave is non-vesting and is expensed as paid. s) LONG SERVICE LEAVE – LONG TERM A liability for long service leave expected to be settled within 12 months of the reporting date is recognised and is measured as the amounts expected to be paid when the liabilities are settled. The liability for long service leave expected to be settled more than 12 months from the reporting date is recognised and measured as the present value of expected future The entity has allocated to its employees and Directors, shares and share options as part of their remuneration packages. AASB 2 “Share Based Payments” require that these payments and also payments made to other counterparties in return for goods and services be measured at the more readily determinable fair value of the good/service or the fair values of the equity instrument. This amount is expensed in the statement of comprehensive income. Where the grant date and the vesting date are different the total expenditure calculated is allocated between the two dates taking into account the terms and conditions attached the the counterparties as well as management’s assumptions about probabilities of payments and compliance with and attainment of the set out terms and conditions. instruments and to x) LEASES Operating expense on a straight line basis over the lease term. lease payments are recognised as an EGH ANNUAL REPORT 2010 23 For personal use only EGH LIMITED and controlled entities Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2011 y) NEW ACCOUNTING STANDARDS AND INTERPRETATIONS NOT YET ADOPTED The following Australian Accounting Standards have been issued or amended and are applicable to the parent and consolidated entity but are not yet effective. They have not been adopted in the preparation of the financial statements at the reporting date. A discussion of those requirements and their impact on the Group follows: Revised AASB 9: 'Financial Instruments' – revised and consequential amendments to other accounting standards resulting from its issue. AASB 9 – This revised standard provides guidance on the classification and measurement of financial assets, which is the first phase of a multi-phase project to replace AASB 139 Financial Instruments: Recognition and Measurement. Changes in the fair value of investments in equity securities that are not part of a trading activity may be reported directly in equity, but upon realisation those accumulated changes in value are not recycled to the statement of comprehensive income. Changes in the fair value of all other financial assets carried at fair value are reported in the statement of comprehensive income. AASB13: 'Fair Value Measurement'. This standard establishes a single course of guidance for determining the fair value of assets and liabilities. The consolidated entity has yet to determine to potential effect of this standard. AASB 10: 'Consolidated Financial Statements'. This standard replaces the part of AASB 27: 'Consolidated and Separated Financial Statements' and is applicable for the annual period beginning 1 January 2013. This new standard introduces a new definition of control that determines which entities are consolidated. This new definition of control may potentially lead to the consolidation of entities that were not previously included in the Consolidated Group resulting in more assets and liabilities on the books. AASB 2010-5 Further Amendments to Australian Accounting Standards arising from the Annual Improvements Project. AASB 2010-5 – These amendments affect various AASBs resulting in minor changes for presentation, disclosure, recognition and measurement purposes. The Group does not anticipate early adoption of any of the above reporting requirements and does not expect these requirements to have any material effect of the Group's financial statements. z) ACCOUNTING STANDARDS ADOPTED DURING THE YEAR The Consolidated Entity adopted the following new Accounting Standard and Interpretations during the period: to Australian AASB 2009-5 Accounting Standards arising the Annual Improvements Project. Amendments are made to AASB 5, 8, 101, 107, 117, 118, 136 & 139.’ ‘Further Amendments from AASB 2009-8 ‘Amendments to Australian Accounting Standards – Company Cash-settled Share-based Payment Transactions’. AASB 2009-10 ‘Amendments to Australian Accounting Standards – Classification of Rights Issues’. Interpretation 19 Extinguishing Financial Liabilities with Equity Instruments. There were no material impacts on the financial statements or performance of the Consolidated Entity. aa) TAX CONSOLIDATION The Company and its wholly-owned Australian resident entities have formed a tax-consolidation group with effect from 1 July 2003 and are therefore taxed as a single entity from that date. The head entity within the tax-consolidation group is EGH Limited. the Current tax expense/income, deferred tax liabilities and deferred assets arising from temporary differences of the members of tax-consolidation group are recognised in the separate financial statements of the members of the tax-consolidation group using the ‘separate taxpayer within group’ approach by reference to the carrying amounts of assets and liabilities in the separate financial statements of each entity and the tax values applying under tax consolidation. tax losses of from unused Any current tax liabilities (assets) and deferred tax the assets arising subsidiaries is assumed by the head entity in the tax- consolidation group and are the Company as amounts payable (receivable) to /(from) other entities in conjunction with any tax funding arrangement amounts (refer below). Any difference between these amounts is recognised by the Company as an equity contribution or distribution. tax-consolidation group recognised by the in The Company recognised deferred tax assets arising from unused tax losses of the tax-consolidation group to the extent that it is probable that future taxable profits of the tax-consolidation group will be available against which the asset can be utilised. Any subsequent period adjustments to deferred tax assets arising from unused tax losses as a result of revised assessments of the probability of recoverability is recognised by the head entity only. Nature of tax funding arrangements and tax sharing arrangements the respect of tax amounts. The head entity in conjunction with other members of the tax-consolidation group has entered into a tax funding funding arrangement which sets out obligations of members of the tax-consolidation group in funding arrangements require payments to/ from the head entity to the current tax liability/ (asset) assumed to be the tax asset head entity and any assumed by the head entity, resulting in the head entity recognising an inter-entity receivable / (payable) equal in amount to the tax liability/ (asset) assumed. The inter-entity receivables/ (payables) are at call. tax-loss deferred The tax EGH ANNUAL REPORT 2010 24 For personal use only EGH LIMITED and controlled entities Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2011 Contributions to fund the current tax liabilities are payable as per the tax funding arrangement and reflect the timing of the head entity’s obligation to make payments for tax liabilities to the relevant authorities. The head entity, in conjunction with other members of the tax-consolidated group, has also entered into a tax sharing agreement. tax sharing agreement provides for the determination of the allocation of income tax liabilities between the entities should the head entity default on its tax payment obligations. The ab) USE OF JUDGEMENTS AND ESTIMATES to make financial statements requires The preparation of management judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised and in any future periods affected. In particular, information about significant areas of estimation uncertainty and critical in applying accounting policies that have most significant effect on the amount recognised in the financial statements are described in the following notes: judgements • Note 6 - Trade and other receivables • Note 7 - Inventories • Note 8 – Non-current assets held for sale • Note 13 – Intangible assets • Note 15 - Provisions The carrying amount of these items is disclosed in the abovementioned notes. ac) CAPITAL MANAGEMENT The Consolidated Entity considers its share capital and retained earnings as capital. When managing capital, the objective is to ensure the Consolidated Entity continues as a going concern, as well as to maintain optimum returns to shareholders and benefits for other stakeholders. The Consolidated Entity also aims to maintain a capital structure that ensures the lowest cost of capital available to the entity. The Consolidated Entity does not have any specific capital targets and nor is it subject to any external capital restrictions. The board and senior management meet monthly and review in detail the current cash position and cashflow to planned expansions and takes the necessary action to ensure sufficient funds are available. forecasts having regard ad) GOING CONCERN The financial report has been prepared on a going concern basis. This basis presumes that funds will be available to finance future operations and that the realisation of assets and liabilities will occur in the normal course of business. The Company incurred a net loss of $1,051k for the year ended 30 June 2011. In addition: • • • its liabilities exceeded the Company’s current current assets by $4,984k. the Company is forecasting an operational cash flow surplus of $257k for the 12 months (September 2011 to August 2012) excluding realisation of assets held for sale. the Company, based on the above, appears to have a working capital deficiency of $4,727k for the next twelve months. These conditions give rise to a material uncertainty that may cast significant doubt as to whether the Company can continue as a going concern. The following steps have been taken to address the going concern uncertainty: • • • • the Company believes it retains the support of the NAB and is confident that its facilities will be extended to 31 December 2012, thereby reducing the working capital deficiency by $3,999k. the Company believes it retains the support of the major shareholder loan providers and is confident that facilities will be extended as required thereby reducing the working capital deficiency by up to $1,816k. transferring the Company approximately $750k in short-term loans into non- current convertible notes. the Company expects to realise its remaining assets held for sale prior to end of June 2012. As noted earlier in the report, one village is under contract for $480k and offers totaling $750k have been received for two other villages. Each of these offers is in line or above book value. final stages of is The Directors are confident of ongoing support from the existing shareholders, shareholder loan providers and the NAB. The above actions would change the $4,727k working capital deficiency into a positive working capital position. As a result the Directors believe that the going concern basis of preparation is appropriate, and accordingly have prepared the financial report on this basis. The going concern basis presumes that funds will be available to finance future operations and that the realisation of assets and liabilities will occur in the normal course of business. Should the consolidated entity be unable to continue as a going concern, it may be required to realise its assets and extinguish its liabilities other than in the ordinary course of business, and at amounts that differ from those stated in the financial statements. to This financial report does not include any adjustments the recoverability and classification of relating recorded asset amounts or the amounts or classification of liabilities and appropriate disclosures that may be necessary should the consolidated entity be unable to continue as a going concern. EGH ANNUAL REPORT 2010 25 For personal use only EGH LIMITED and controlled entities Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2011 Note 3: Revenue Sale of goods (units in Seniors communities) Catering Gain on sale of managers units Other operating revenue Total Operating Revenue Rendering Services Rent Management Total Service Revenue Non Operating revenue Interest Revenue Reversal Impairment of Management Rights Sale of management rights and managers unit Gain on bargain purchase through business combination Total Non Operating Revenue Total Revenue Note 4: Items included in profit/(loss) Profit from ordinary activities before income tax expense includes the following specific items: Consolidated 30 June 2011 $ 30 June 2010 $ - 1,443,640 - 3,151,950 4,595,590 57,944 2,043,216 12,513 318,441 2,432,114 4,537,126 4,558,982 9,096,108 4,268,343 4,246,668 8,515,011 1,661 5,126 - 215,430 80,317 - 300,873 109,924 296,416 408,001 14,099,699 11,247,998 Consolidated 30 June 2011 $ 30 June 2010 $ Payments under operating leases 330,000 522,240 Interest Expense - Director related entities - Other Total Interest Expense Amortisation - Management rights Total Amortisation Depreciation - Plant & equipment - Manager units Total Depreciation Gain on sale of managers units Gain on disposal of equipment 9,523 462,964 472,487 97,251 97,251 91,719 54,938 146,657 109,924 (7,678) 12,751 408,891 421,642 42,570 42,570 55,458 15,000 70,458 12,513 (26,475) EGH ANNUAL REPORT 2011 26 For personal use only EGH LIMITED and controlled entities Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2011 Note 5: Income Tax The components of tax expense comprise: Current Tax Deferred tax expense not previously brought to account Deferred tax expense on temporary differences current year De-recognition of deferred tax balances Under/(over) provision for tax Loss from ordinary Activities before income tax expense Income Tax calculated at 30% Tax effect on permanent differences - Entertainment - Options Expense - Amortisation of intangibles -Gain on re-measurement of equity investment due to business combination Under provision for income tax in prior year Deferred tax asset not previously brought to account Tax losses not recognised De-recognition of deferred tax balances Income Tax Expense Consolidated 30 June 2011 $ 30 June 2010 $ - - - - - - (1,051,391) (315,417) - - - - - - (546,731) (164,019) 74 - 108,497 - - 12,771 (88,925) - - - - - 295,771 151,248 - - - - Tax Losses Unused tax losses for which no deferred tax asset has been recognised Potential tax benefit at 30% 34,960,020 10,488,006 33,845,444 10,153,633 EGH ANNUAL REPORT 2011 27 For personal use only EGH LIMITED and controlled entities Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2011 Note 6: Receivables Trade & other debtors Provision for doubtful debts Total Receivables *The provision in allowance for doubtful debt is presented in Note 20a. Note 7: Inventories Catering inventory Total Inventory Note 8: Non-current Assets Held for Sale Managers units Management rights Property, plant & equipment Total Non-current Assets Held for Sale Consolidated 30 June 2011 $ 30 June 2010 $ 641,327 (61,993) 579,334 920,870 (506,781) 414,089 Consolidated 30 June 2011 $ 30 June 2010 $ 38,371 38,371 55,415 55,415 Consolidated 30 June 2011 $ 30 June 2010 $ 1,453,723 1,041,451 35,809 2,530,983 2,414,149 460,846 60,792 2,935,787 The Directors have considered the capital adequacy requirements of EGH, including cash flows pertaining to operations and capital transactions. The Directors will continue in an orderly manner to divest the non-core assets which includes real estate and low contribution management rights. This is anticipated to reduce existing debt levels over the next 6 - 12 months. EGH is the entity owner of the managers units and the property plant & equipment. The management rights are split between various entities within the Group. Non-current Assets held for sale will be disposed of through traditional real estate markets. The above assets relate to the strata segment of the business Note 9: Financial Asset Griffith Village short term loan Griffith Village Investment Total Financial Asset Note 10: Other Current Assets Prepayments Total Other Current Assets Consolidated 30 June 2011 $ 30 June 2010 $ - - - 4,198 10,000 14,198 Consolidated 30 June 2011 $ 30 June 2010 $ 62,601 62,601 106,378 106,378 EGH ANNUAL REPORT 2011 28 For personal use only EGH LIMITED and controlled entities Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2011 Note 11: Investment in Subsidiaries Name of Entity Country of Formation or Incorporation Equity Holding 30 June 2011 % 30 June 2010 % Cost of Parent Entity’s Investment 30 June 2011 $ 30 June 2010 $ SunnyCove Forest Lake Pty Limited SCV Group Limited ATF SunnyCove Cairns Unit Trust (acquired 18 December 2003) SCV Group Limited ATF SunnyCove Townsville Unit Trust (acquired 21 April 2004) SCV Group Limited ATF SunnyCove Mackay Unit Trust (acquired 23 August 2004) Australia 100% 100% Australia 100% 100% Australia 100% 100% - 10 10 - 10 10 Australia 100% 100% 100 100 SCV No. 1 Pty Ltd SCV No. 2 Pty Ltd SCV No. 3 Pty Ltd Australia 100% 100% Australia 100% 100% Australia 100% 100% SCV Services Pty Ltd Australia 100% 100% Australia 100% 100% 1 1 1 1 1 1 1 1 - - SCV Manager Pty Ltd SCV Group Limited ATF SunnyCove Kelvin Grove Unit Trust (acquired 22 November 2004) Compton's Villages Australia Unit Trust (acquired 16 February 2006) Compton's Caboolture Pty Ltd (acquired 16 February 2006) Village Care Pty Ltd (acquired 30 June 2008) Village Life Management Limited (acquired 24th October 2008)* Eureka Care Communities Pty Ltd ATF Eureka Care Communities Unit Trust (acquired 1 July 2010) Australia 100% 100% Australia 100% 100% 100 1 100 1 Australia 100% 100% 3,122,643 3,122,643 Australia 100% 100% Australia - 100% 1 - 1 106,387 Australia 100% - 313,206 - 3,436,076 3,229,255 *Village Life Management Limited was deregistered on 15 June 2011. Note 12: Property Plant & Equipment Managers Units at Cost Accumulated Depreciation Plant & Equipment at Cost Accumulated Depreciation Total Property, Plant & Equipment Consolidated 30 June 2011 $ 840,580 (103,504) 737,076 1,097,752 (676,405) 421,347 1,158,423 30 June 2010 $ - - - 533,886 (109,019) 424,867 424,867 EGH ANNUAL REPORT 2011 29 For personal use only EGH LIMITED and controlled entities Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2011 Movements during the year ending 30 June 2011 Manager's Units Plant & Equipment Leasehold Improvements Total Consolidated Opening Written Down Value Additions at cost Additions through business acquisition Disposals Transfer from Non-current Assets Held for Sale Depreciation/Amortisation Expense Closing Written Down Value - - - - 792,014 (54,938) 737,076 424,867 82,675 13,346 (15,827) 8,005 (91,719) 421,347 - - - - - - - 424,867 82,675 13,346 (15,827) 800,019 (146,657) 1,158,423 Movements during the year ending 30 June 2010 Manager's Units Plant & Equipment Leasehold Improvements Total Consolidated Opening Written Down Value Additions at cost Disposals Transfer (to)/from Non-current Assets Held for Sale Depreciation/Amortisation Expense Closing Written Down Value 549,534 - - (534,534) (15,000) - 357,521 75,395 (28,795) 76,204 (55,458) 424,867 - - - - - - 907,055 75,395 (28,795) (458,330) (70,458) 424,867 Note 13: Intangible Assets Intellectual property - at cost Management rights - at cost Impairment of Management Rights* Adjustment for impairment of management rights held for sale Less accumulated amortisation Plans & trademarks - at cost Less Accumulated amortisation Sale Rolls Franchise Costs Goodwill Total Intangible Assets Consolidated 30 June 2011 $ 30 June 2010 $ 1 3,019,134 (264,406) 84,624 (123,192) 2,716,161 27,749 (26,411) 1,338 138,572 601,194 1,955,515 5,412,780 1 3,823,600 - (194,281) 3,629,320 27,827 (26,383) 1,444 - - 1,955,515 5,586,279 Goodwill relates to the Company’s acquisition of Village Care. Pursuant to AASB 136, the Company tested the carrying value of goodwill through a value-in-use calculation. The key assumptions in the value-in-use calculation are: (1) cash flows for Village Care were forecast for a 5-year period based on FY 2011 cash flows and grown at 3% per year; (2) a continuation value was estimated based on forecast year 5 cash flow, a 3% continuation growth rate and a 25% discount rate; and (3) each of the cash flows were discounted to their present value by a 25% discount rate and the mid-year discounting convention. EGH ANNUAL REPORT 2011 30 For personal use only EGH LIMITED and controlled entities Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2011 Consolidated Opening Written Down Value Reclassification of Franchise Costs Additions/(Sales) at cost Additions via business combination Impairment of management rights Transfer to Non-current Assets Held for Sale Depreciation/ Amortisation Expense Closing Written Down Value Consolidated Opening Written Down Value Additions/Sales at cost Franchise Asset Reverse Impairment of Management Rights Transfer from Non- current Assets Held for Sale Depreciation/ Amortisation Expense Closing Written Down Value Movements during the year ending 30 June 2011 Intellectual Property $ Management Rights $ Plans & Trademarks $ Sale Rolls $ Franchise Costs $ Goodwill $ Total $ 3,629,319 1,444 - - 1,955,515 5,586,279 1 - - - - - - (561,194) (102,960) 692,613 (179,782) (678,518) (83,318) (106) - 138,572 561,194 40,000 - - - - - - - - - - - - - - - - 75,612 692,613 (179,782) - (678,518) - (83,424) 1 2,716,160 1,338 138,572 601,194 1,955,515 5,412,780 Movements during the year ending 30 June 2010 Intellectual Property $ Management Rights $ Plans & Trademarks $ Sale Rolls $ Franchise Costs $ Goodwill $ Total $ 1 - - - - - 1 1,790,025 (93,859) 644,558 215,430 1,115,562 (42,397) 3,629,319 1,617 - - - - (173) 1,444 - - - - - - - - - - - - - - 1,955,515 3,747,158 (93,859) 644,558 - - - 215,430 - 1,115,562 - (42,570) 1,955,515 5,586,279 *As mentioned in the Chairman’s Review, pursuant to AASB 138, the Group is unable to revalue its management rights to their fair value; however, based on the valuation methodology used by Resort Brokers, which takes into consideration the profitability and time remaining on each management rights contract, the fair value of the Group’s management rights is approximately $5.7m which is approximately $1.7m greater than the carrying value of the Group’s management right (as partly recorded in non-current assets held for sale – note 8 and partly in this note 13). The Company has also applied this valuation methodology to determine the quantum of provisions for impairment of management rights across each cash generating unit. Note 14: Trade & Other Payables Trade creditors and accruals Total Trade & Other Payables Included in the above are aggregate amounts payable to Director related entities. Note 15: Provisions Current Annual Leave Entitlements Non-Current Long Service Leave Entitlements Total Provisions Consolidated 30 June 2011 $ 30 June 2010 $ 2,609,641 2,609,641 2,759,995 2,759,995 131,761 164,400 Consolidated 30 June 2011 $ 30 June 2010 $ 138,228 229,683 16,488 154,716 27,156 256,839 EGH ANNUAL REPORT 2011 31 For personal use only EGH LIMITED and controlled entities Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2011 Note 16: Dividends No dividends were paid or proposed during FY 2011 (FY 2010 - nil). The balance of the franking account at 30 June 2011 was $nil (FY 2010 - $nil). Note 17: Financial Liabilities Current Liabilities Commercial bills - secured Shareholder Loans Total Current Financial Liabilities Total Financial Liabilities Consolidated 30 June 2011 $ 30 June 2010 $ 3,999,000 1,816,872 5,815,872 5,815,872 4,429,000 1,616,922 6,045,922 6,045,922 NAB FACILITY – COMMERCIAL BILLS AND ADVANCES TERMS AND CONDITIONS As at 30 June 2011, The Company had drawn commercial advances and commercial bill facilities ($3.999 million limit) from the National Australia Bank (“NAB”) secured by: • Registered mortgages over managers’ units and other real estate at its Communities • Deed of charge over the related management rights. • Guarantee and indemnity given the EGH and its entities including (SCV Manager Pty Ltd, SCV No. 2 Pty Ltd, • SCV No. 3 Pty Ltd, SCV No. 4 Pty Ltd, Village Care Pty Ltd and Compton’s Caboolture Pty Ltd) Fixed and floating charges over the assets of Comptons Caboolture Pty Ltd, EGH Limited, SCV Manager Pty Ltd, SCV No. 2, SCV No. 3, Village Care Pty Ltd and SCV Services Pty Ltd. As at 30 June 2011, the Company had the following banking covenants: Interest Coverage Ratio of 3.0 times after 1 July 2011. 1. 2. Minimum Operating Leverage Ratio of 3.50 times at 30 June 2011, 3.50 times for quarter ending September 2010, and 3.0 times for quarter ending December 2011. Further, the Company had to meet the following milestones: 1. By 30 April 2011, reduce the balance of the bill facility by a minimum of $130,000 (achieved); 2. By 30 June 2011, reduce the balance of the bill facility by a minimum of $280,000 ($250k achieved); 3. By 31 August 2011, reduce the balance of the bill facility by a minimum of $500,000 (not yet achieved); 4. By 31 October 2011, reduce the balance of the bill facility by a minimum of $750,000; and 5. By 31 December 2011, reduce the balance of the bill facility by a minimum of $1,729,000. Based on contracts and offers on hand for the assets held for sale, the Company is confident of meeting the balance of the above milestones. This facility expires on 31 March 2012. It is the directors expectation that upon completion of the asset sale program currently being undertaken, a long term facility on commercial terms be entered into with the NAB. The above covenants were breached during the year however the company believes that it retains the support of the NAB. USED/UNUSED FACILITIES Commercial bills - secured Total NAB facilities 30 June 2011 Used 3,999,000 3,999,000 Unused - - 30 June 2010 Used 4,429,000 4,429,000 Unused - - EGH ANNUAL REPORT 2011 32 For personal use only EGH LIMITED and controlled entities Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2011 Note 18: Share Capital 30 June 2011 Number 30 June 2010 Number 30 June 2011 $ 30 June 2010 $ Fully paid Ordinary shares (number of shares) 37,857,460 239,611,742 42,300,014 40,494,564 Opening Balance Shares issued during the year: Share option reserve Shares issued at $0.012 Shares issued at $0.012 Shares issued at $0.012 Shares issued at $0.012 Shares issued at $0.012 239,611,742 141,011,744 40,494,564 39,701,432 - - - (320,301) - 37,083,332 - 445,000 - 6,250,000 - 75,000 - 29,016,666 - 348,200 - 6,250,000 - 75,000 - 20,000,000 - 240,000 Shares issued on 12/08/2010 123,514,793 - 1,645,222 - Consolidation Shares issued for conversion of redeemable convertible notes Shares issued at $0.080 Shares issued at $0.080 Shares issued at $0.080 Less: Share issue costs (326,813,748) - - - 732,173 - 109,825 - 312,500 - 25,000 - 250,000 - 20,000 - 250,000 - 20,000 - - - (14,597) (69,767) Shares on issue at end of year 37,857,460 239,611,742 42,300,014 40,494,564 Options on issue at beginning of year Options cancelled Options exercisable at $0.20 vesting after 36 months continuous employment and expiring three years from date of issue Options exercisable at $0.25 vesting after 36 months continuous employment and expiring three years from date of issue Options exercisable at $0.25 vesting after 36 months continuous employment and expiring three years from date of issue Options cancelled upon resignation; this relates to the $0.20 vesting after 36 months Options cancelled upon resignation; this relates to the $0.25 vesting after 36 months Options exercised Total options on issue * Figures for FY2011 are adjusted for the 1:10 share consolidation Ordinary shares 30 June 2011 30 June 2010 Number of Options 955,000* 9,550,000 (890,000) 250,000 650,000 250,000 (250,000) (650,000) - - - - - - - - 315,000 9,550,000 Ordinary shares entitle the holder to participate in dividends and proceeds on winding up of the Company in proportion to the number of and amounts paid on the shares held. On a show of hands every holder of ordinary shares present at a meeting in person or by proxy is entitled to one vote, and on a poll, each share is entitled to one vote. EGH ANNUAL REPORT 2011 33 For personal use only EGH LIMITED and controlled entities Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2011 Options In FY 2010, EGH Limited issued 955,000 (or 9,550,000 pre-consolidation) options for nil consideration to executives. Of these, 890,000 (or 8,900,000 pre-consolidation) were cancelled on 26 August 2010 due to the departure of the executives to whom the options were granted. The remaining 65,000 (or 650,000 pre-consolidation) expired on 14 July 2011. In August 2010, the Company issued options to two executives Michael Bosel and Michael Hayes. Michael Bosel was issued with 250,000 (or 2,500,000 pre-consolidation) options expiring on 2 July 2013, exercisable into ordinary shares in the Company at 20 cents (or 2.0 cents pre-consolidation) and 625,000 options expiring on 2 July 2013, exercisable into ordinary shares in the Company at 25 cents (or 2.5 cents pre-consolidation). These options were cancelled on 16 May 2011 upon the resignation of Mike Bosel. Michael Hayes was issued with 250,000 options expiring on 2 July 2013 and exercisable into ordinary shares in the Company at 25 cents (or 2.5 cents pre-consolidation). Below is a table showing the key terms of the options issued during FY 2011 Option Holder Mike Bosel Mike Bosel Mike Hayes # of Options (pre consol) # of Options (post consol) Issue Date Expiry Date Term Risk- free Rate Share Price on Issue Date Strike Price Volatility Price Per Option 2,500,000 250,000 2-Jul-10 2-Jul-13 3.0 4.46% 0.130 0.200 138.0% 0.00951 6,250,000 625,000 2-Jul-10 2-Jul-13 3.0 4.46% 0.130 0.250 138.0% 0.00914 2,500,000 250,000 2-Jul-10 2-Jul-13 3.0 4.46% 0.130 0.250 138.0% 0.00914 EGH ANNUAL REPORT 2011 34 For personal use only EGH LIMITED and controlled entities Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2011 Note 19: Cash Flow Information (a) Reconciliation of cash Cash at Bank and on hand (b) Reconciliation of profit/(loss) for the period to net cash flow from operating activities Loss for the period Depreciation and amortisation Impairment - Management rights Impairment - Goodwill Gain on bargain purchase Reversal Impairment Borrowing costs amortised Movement in provision in Doubtful Debts Interest accrual on Loans Loss on sale of plant and equipment Gain on sale of Managers unit Gain on sale of Management rights (Increase)/decrease in: - trade and other receivables - inventories - other current assets Increase/(decrease) in: - payables - provision for employee benefits Net cash flow from operating activities (c) Businesses Acquired Aggregate purchase consideration: Cash and cash equivalents Total Aggregate Purchase Consideration Aggregate fair value of assets and liabilities acquired: Cash Other Identifiable Assets Acquired Total Aggregate Fair Value of Assets and Liabilities Acquired Goodwill on acquisition Outflow of cash Note 20: Financial Instruments Overall Policy Consolidated 30 June 2011 $ 30 June 2010 $ 368,747 342,694 (1,051,391) 243,908 167,507 96,899 (296,416) - 667 (444,787) 472,487 - - (109,924) (165,245) 17,044 43,778 (170,193) (102,124) (1,297,790) (1,061,846) 113,028 - - - (215,430) (239,568) 90,690 145,918 26,475 (12,508) (80,317) (71,905) 20,968 (29,539) 941,565 (8,190) (380,659) 313,206 313,206 - - 111,919 497,703 609,622 296,416 201,287 - - - - - The Board of Directors have overall responsibility for the establishment and oversight of the risk management framework. The Board of Directors are responsible for developing and monitoring risk management policy. Risk management policy is to identify and analyse the risks faced by the entity, to set limits and controls, and to monitor risks and adherence to limits. Risk management policy and systems are reviewed regularly to reflect changes in market conditions and Company’s activities. The Company aims to develop a disciplined and constructive control environment in which all employees understand their roles and obligations. EGH ANNUAL REPORT 2011 35 For personal use only EGH LIMITED and controlled entities Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2011 a) Credit risk Credit risk arises principally from the Consolidated Entity’s receivables and cash and cash equivalents. Maximum exposure to credit risk Cash and cash equivalents Trade and other receivables Consolidated 30 June 2011 $ 30 June 2010 $ 368,747 579,334 948,081 342,694 414,089 756,783 The Consolidated Entity monitors and follows-up its accounts receivable to ensure collections are being made promptly in accordance with contractual terms and conditions and actively pursues amounts past due. Where applicable, an allowance for impairment has been made, that represents the estimate of impairment losses in respect to trade and other receivables. The Consolidated Entity has no concentrations of credit risk that have not been provided for. The Consolidated Entity has not provided for the remaining amounts past due as management believes these amounts will be recoverable. The ageing of trade receivables at the reporting date was: Due 0-30 Days Past Due 30-60 Days Past Due 60-90 Days Past due 90 + Days Total Movement in allowance for doubtful debts Opening allowance Impairment provision written off Increase to doubtful debts Closing allowance b) Liquidity Risk Consolidated 30 June 2011 30 June 2010 Gross Allowance Gross Allowance 135,821 19,443 16,537 469,526 641,327 - - - (61,993) (61,993) 201,082 17,296 31,006 671,486 920,870 - - - (506,781) (506,781) Consolidated 30 June 2011 $ 30 June 2010 $ 506,781 ( 482,231) 37,443 61,993 416,091 (59,799) 150,489 506,781 Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company’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. This process involves the review and updating of cash flow forecasts and, when necessary, the obtaining of credit standby arrangements and loan facilities. Contractual maturity analysis for financial instrument liabilities: 2011 CONSOLIDATED Trade payables Sundry creditors & accruals Commercial bills Shareholder Loans Total Contractual Repayment Amount 1,055,449 1,554,192 3,999,000 1,816,872 8,425,513 1 - 3 months 1,055,449 1,554,192 500,000 - 3,109,641 3 - 6 months - - 1,099,000 - 1,099,000 6 – 12+ months - - 2,400,000 1,816,872 4,216,872 EGH ANNUAL REPORT 2011 36 For personal use only EGH LIMITED and controlled entities Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2011 2010 CONSOLIDATED Trade payables Sundry creditors & accruals Commercial bills Shareholder Loans Total c) Market Risk Contractual Repayment Amount 1 - 3 months 3 - 6 months 6 – 12+ months 2,410,182 349,813 4,429,000 1,616,922 8,805,917 1,801,520 349,813 4,429,000 - 6,580,333 608,662 - - - 608,662 - - - 1,616,922 1,616,922 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 control market risk exposures within acceptable parameters, while optimising the return. d) Interest Rate Risk The Consolidated Entity’s exposure to market interest rates relates primarily to the Group’s current debt obligations. No interest rate swaps had been entered into during the term of the facility. The Consolidated Entity constantly analyses its interest rate exposure. Within this analysis consideration is given to potential renewals of existing positions, alternative financing, alternate hedging positions and the mix of fixed and variable interest rates. Sensitivity analysis for movement in interest rates: Variable rate instruments Consolidated 1% increase in interest rates – effect on profit after tax & equity* 1% decrease in interest rates – effect on profit after tax & equity* *Assuming a 30% tax rate e) Fair Value 30 June 2011 $ 30 June 2010 $ (36,303) (37,759) 36,303 37,759 The carrying amount of the Consolidated Entity’s financial assets and financial liabilities approximate their fair value. Note 21: Commitments for Expenditure a) Operating Leases Minimum lease payments under non-cancellable operating leases for the provision of office space, equipment, linen services and community leases are estimated to be: Within 1 year Greater than 1 year but not longer than 5 years Greater than 5 years Total Consolidated 30 June 2011 $ 327,074 1,308,294 2,634,488 4,269,856 30 June 2010 $ 386,549 1,315,175 2,961,561 4,663,285 The amount disclosed for the lease of office space does not include any adjustments for CPI or market rental reviews EGH ANNUAL REPORT 2011 37 For personal use only EGH LIMITED and controlled entities Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2011 Note 22: Earnings Per Share Net loss used in calculating basic earnings per share Net loss used in calculating diluted earnings per share Weighted average number of ordinary shares used in calculating basic earnings per share adjusted for consolidation Consolidated 30 June 2011 $ 30 June 2010 $ (1,051,391) (1,051,391) (1,061,848) (1,061,848) 35,396,851 19,085,941 Weighted average number of ordinary shares & potential ordinary shares used in calculating diluted earnings per share Basic earnings per share (dollars per share) Diluted earnings per share (dollars per share) 35,396,851 19,085,941 (0.0297) Cents (0.0297) Cents (0.0556) Cents (0.0556) Cents Note 23: Related Parties Number of Shares Held: Directors and Executives Balance 1 July 2010 * Received as Remuner- ation * Shares Acquired * Options Exercised* Net Change Other * Balance 30 June 2011* Held in Escrow 61,334 - 30,000 - - Specified Directors: Andrew Kemp 221,347 246,401 Paul Fulloon - - Lachlan McIntosh 3,404,167 2,447,607 Jury Wowk David Rosenblum Total Executives: Mike Bosel Mike Hayes Loretta Byers Greg Rekers Kerry Potter Sharon Alderwick Total 375,572 - - - 4,001,086 2,694,008 91,334 - - - - - - - - - - - - - - - - - - - - - * Figures for FY2011 are adjusted for the 1:10 share consolidation - - - - - - - - - - - - - 307,735 529,082 - - 2,477,607 5,881,774 - - 375,572 - 2,785,342 6,786,428 - - - - - - - - - - - - - - - - - - - - - - - - - - - EGH ANNUAL REPORT 2011 38 For personal use only EGH LIMITED and controlled entities Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2011 Number of Options Held: Directors and Executives Balance 1 July 2010 Received as Remuner- ation Options Exercised (1) Net Change Other Balance 30 June 2011 Total vested as at 30 June 2011 Held in Escrow Specified Directors: Andrew Kemp Paul Fulloon Lachlan McIntosh Jury Wowk David Rosenblum Total Executives: Loretta Byers Mike Bosel Mike Hayes Total - - - - - - - - - - - - 65,000* - - 65,000 - 875,000** 250,000 1,125,000 *these options expired on 14 July 2011 **these options were cancelled on 16 May 2011. For further detail of the options, please refer to note 18. Related Party Transactions - - - - - - - - - - - - - - - - - - - - - - - - - - - - - (875,000) - (875,000) 65,000 - 250,000 315,000 65,000 - 250,000 315,000 - - - - - - - - - - During the financial year Kathlac, an entity associated with Lachlan McIntosh, has loaned the company $208,105.74 on interest-free terms. During the financial year Sothertons, (of which Lachlan McIntosh is a shareholder) received tax advice related fees of $19,708.50 on commercial terms. Gladstone, Griffith and Elizabeth Vale, managed by Eureka on commercial terms are part-owned by Lachlan McIntosh. Former Chairman Jury Wowk made loans to the company totalling $65,000 as at 30 June 2011. Including interest, as at 30 June 2011, Mr. Wowk was owed $69,583.90 in respect of these loans. Note 24: Ultimate Parent Entity The parent entity within the group is EGH Limited, which is the ultimate parent entity within Australia. Note 25: Share Based Payments In August 2010 the Company paid the following Share based payments as voted on in the Company’s EGM on 10 August 2010: Recipient Amount of Payment Share Price ($) Share Price at Announcement ($) 22 Capital Pty Ltd 150,000 Pamela Pointon Andrew Kemp 50,000 36,960 0.15 0.15 0.15 0.13 0.13 0.13 Note 26: Contingent Liability The Directors are of the opinion that provisions are not required in respect of these matters, as it is not probable that a future sacrifice of economic benefits will be required or the amount is not capable of reliable measurement. A contingent liability of $40,000 exists due to current bank guarantee facilities in place secured by the Company. EGH ANNUAL REPORT 2011 39 For personal use only EGH LIMITED and controlled entities Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2011 Note 27: Auditors’ Remuneration Audit and review services Total Note 28: Subsequent Events Consolidated 30 June 2011 $ 30 June 2010 $ 56,500 56,500 53,205 53,205 The company has raised $210k through a convertible note issuance. The Company has one non-current asset held for sale under contract and offers for two more. Other than as disclosed in this report no other matter or circumstance has arisen since the end of the financial year that has significantly affected, or may significantly affect, the consolidated entity’s operations, the results of those operations or the consolidated entity’s state of affairs, in subsequent financial years. Note 29: Parent Entity Disclosures Information relating to EGH Limited (parent entity), Results of the parent entity Consolidated 30 June 2011 $ 30 June 2010 $ Loss for the period Other comprehensive income Total comprehensive income for the period (1,730,649) (2,049,714) - - (1,730,649) (2,049,714) Financial position of parent entity at year end Current assets Total assets Current liabilities Total liabilities Total equity of the parent entity comprising of: Share capital Revaluation reserve Retained earnings Total equity (1,503,083) 6,270,015 6,014,188 11,318,449 1,127,055 12,042,545 6,967,926 12,042,545 42,235,014 40,494,563 - - (43,188,753) (41,218,856) (953,739) (724,096) In the process of finalising the annual report it was discovered that the incorrect comparatives were used in the 4E lodged on 31 August 2011. The incorrect comparative figures were only reported at note 19 in Appendix 4E 2011. EGH ANNUAL REPORT 2011 40 For personal use only EGH LIMITED and controlled entities Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2011 Note 30: Segment Information The consolidated entity operates within three business segments all of which involve the management of Seniors’ Communities. The consolidated entity operates only in Australia and is divided into the portfolios of various types of management agreements which management regularly reviews, as follows: • Strata / Leasehold – individual investors where income is derived from letting fees, caretaking fees & catering services. • Retail / Wholesale – the wholesale segment derives management fees based on occupancy rates, whereas the retail segment operates under a managed investment scheme. Please note the Retail segment has now been re- classified as Discontinued Operations due to the breakdown of the Managed Investment Schemes. • Village Care Ltd – the Village care model works under the Deferred Management Fee (DMF) structure • Management Lease – typically lease type arrangements whereby EGH derives a management fee based on revenue / profitability of the portfolio. The agreements are typically with larger operators (YVE) and individual owners. Strata/Leasehold Retail/Wholesale 30-Jun-11 30-Jun-10 30-Jun-11 30-Jun-10 Management Lease 30-Jun-11 30-Jun-10 Village Care Discontinued Operations Total 30-Jun-11 30-Jun-10 30-Jun-11 30-Jun-10 30-Jun-11 30-Jun-10 Revenue External Total Unallocated revenue - Interest Total Revenue Segment Result Profit/(Loss) Unallocated corporate items - Interest expense Profit from ordinary activities before income tax Net Profit/(Loss) Assets Segment assets Unallocated corporate assets Total Assets Liabilities Segment Liabilities Unallocated corporate liabilities Total Liabilities Other information Depreciation Amortisation Impairment - Debtors Impairment - Inventories Impairment - Intangibles Fixed Assets Additions 5,398,937 5,398,937 3,241,123 3,241,123 1,840,777 1,840,777 726,297 726,297 5,420,713 5,420,713 5,510,941 5,510,941 1,331,271 1,331,271 1,384,667 1,384,667 26,317 (25,522) 28,146 (113,587) (287,079) (92,953) 263,191 (76,628) 6,723,990 4,095,779 256,505 117,278 233,319 639,009 - 309,096 - 220,534 - - 2,133,468 2,134,323 372,848 2,742,644 120,953 97,251 - - 264,406 96,020 - - (482,231) - - - - - - - - - - 6,523 - - - - - - - - - - - - - - 209,479 - 25,247 - - - - - - - - - - - - - - - - 2,727,167 2,727,167 (515,115) - - - - - - - - 13,991,698 13,991,698 106,340 1,661 14,099,699 13,590,195 13,590,195 379,843 5,126 13,975,164 30,575 (609,479) (472,487) (1,051,391) (823,805) 438,770 (678,035) (1,061,846) (1,051,391) (1,061,846) 9,347,282 803,957 10,151,239 6,347,380 3,532,327 9,879,707 1,541,487 7,038,742 8,580,229 2,742,644 6,320,112 9,062,756 146,200 97,251 - - 264,406 96,020 - 6,523 (482,231) - 209,479 - EGH ANNUAL REPORT 2011 41 For personal use only EGH LIMITED and controlled entities Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2011 Note 31: Discontinued Operations Results of discontinued operation Revenue Expenses Results from operating activities Income tax expense Results from operating activities, net of income tax Loss for the period Basic earnings (loss) per share (cents) Diluted earnings (loss) per share (cents) Cash flows from discontinued operation Net cash from operating activities Net cash from investing activities Net cash from financing activities Net cash from (used in) discontinued operation Consolidated 30 June 2011 $ 30 June 2010 $ - - - - - - - - - - - - 2,727,167 (3,242,282) (515,115) - (515,115) (515,115) (0.22) (0.22) (525,825) - - (525,825) EGH ANNUAL REPORT 2011 42 For personal use only EGH LIMITED and controlled entities Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2011 Note 32: Business Combination On 1 July 2011, the Company acquired 100% of the units of Eureka Care Communities Pty Ltd as trustee of the Eureka Care Communities Unit Trust (Eureka). Eureka holds the management rights for 11 profitable wholesale villages. The acquired business provided a number of quality management contracts to the Company. The acquired business has contributed the following the Company from 1 July 2010 to 30 June 2011: Revenue Profit Reserves $ 3,090,171 $ 169,883 $ nil Details of the net assets acquired and goodwill are as follows: Purchase consideration Fair value of new identifiable assets acquired (refer below) Gain on re-measurement of equity investment due to business combination $ 313,206 609,622 296,416 The Company was able to negotiate a favourable purchase price for Eureka. An independent valuation of the management rights held by the acquired entity was subsequently carried out. The valuation was found to be higher than the purchase consideration. The resulting gain has been recognised in the Statements of Comprehensive Income. The assets and liabilities arising from the acquisition are as follows: Cash Trade receivables Other assets Plant & equipment Management rights Trade payables Other liabilities Net liabilities acquired Acquiree's Carrying Amount $ 111,919 1,041 4,393 11,600 - (28,355) (183,586) (82,988) Fair Value $ 111,919 1,041 4,393 11,600 692,610* (28,355) (183,586) 609,622 *The quantum of identifiable intangible assets to bring to account, for the management rights acquired in ECC, was determined by estimating the fair value of the management rights under advice of Resort Brokers Australia Pty Ltd who assisted with the valuation of each management rights contract in accordance with generally used market metrics. The generally-used market metrics for valuation of management rights are: (1) determining the net operating cash flow of the management rights on an owner-operator basis; and (2) determining an appropriate discount rate to apply to the owner-operator cash flows. EGH ANNUAL REPORT 2011 43 For personal use only EGH LIMITED and controlled entities Directors’ Declaration FOR THE YEAR ENDED 30 JUNE 2011 In the directors' opinion: a) b) c) d) the attached financial statements and notes thereto comply with the Corporations Act 2001, the Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements; the attached financial statements and notes thereto comply with International Financial Reporting Standards as issued by the International Accounting Standards Board as described in note 1 to the financial statements; the attached financial statements and notes thereto give a true and fair view of the consolidated entity's financial position as at 30 June 2011 and of its performance for the financial year ended on that date; there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable; and The Directors have been given a declaration by the Managing Director and Financial Controller of the consolidated entity required by Section 295A of the Corporations Act 2001. Signed in accordance with a resolution of directors made pursuant to section 295(5) of the Corporations Act 2001. Lachlan McIntosh Director Dated this 30th day of September, 2011 EGH ANNUAL REPORT 2011 44 For personal use only EGH LIMITED and controlled entities Independent Auditor's Report FOR THE YEAR ENDED 30 JUNE 2011 INDEPENDENT AUDIT REPORT TO MEMBERS OF EUREKA GROUP HOLDINGS LIMITED To the members of Eureka Group Holdings Limited We have audited the accompanying financial report of Eureka Group Holdings Limited ("EGH Limited") which comprises the statement of financial position as at 30 June 2011, the statement of comprehensive income, the statement of changes in equity and the statement of cash flows for the year then ended, notes comprising a summary of significant accounting policies, other explanatory information, and the directors’ declaration of EGH Limited (the company) and the consolidated entity. The consolidated entity comprises the company and the entities it controlled at the year’s end or from time to time during the financial year. Directors’ Responsibility 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 is free from material misstatement, whether due to fraud or error. In Note 2, the directors also state, in accordance with Accounting Standard AASB 101 Presentation of Financial Statements, that the financial statements comply with International Financial Reporting Standards. Auditor’s Responsibility Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with Australian Auditing Standards. Those standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance about whether the financial report is free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial report in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Independence In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001. We confirm that the independence declaration required by the Corporations Act 2001, which has been given to the directors of EGH Limited, would be in the same terms if given to the directors as at the time of this auditor’s report. Tel: 61 7 3226 3555 | Fax: 61 7 3226 3500 | www.pkf.com.au PKF | ABN 83 236 985 726 Level 6, 10 Eagle Street | Brisbane | Queensland 4000 | Australia GPO Box 1078 | Brisbane | Queensland 4001 The PKF East Coast Practice is a member of the PKF International Limited network of legally independent member firms. The PKF East Coast Practice is also a member of the PKF Australia Limited national network of legally independent firms each trading as PKF. PKF East Coast Practice has offices in NSW, Victoria and Brisbane. PKF East Coast Practice does not accept responsibility or liability for the actions or inactions on the part of any other individual member firm or firms. Liability limited by a scheme approved under Professional Standards Legislation. EGH ANNUAL REPORT 2011 45 For personal use only EGH LIMITED and controlled entities Independent Auditor's Report FOR THE YEAR ENDED 30 JUNE 2011 Auditor’s Opinion In our opinion: (a) the financial report of EGH Limited and the consolidated entity is in accordance with the Corporations Act 2001, including: (i) (ii) giving a true and fair view of the Company’s and consolidated entity’s financial position as at 30 June 2011and of their performance for the year ended on that date; and complying with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Regulations 2001; and (b) the consolidated financial statements and notes also comply with International Financial Reporting Standards as disclosed in Note 2. Report on the Remuneration Report We have audited the Remuneration Report included in pages 8 to 10 of the directors’ report for the year ended 30 June 2011. 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. Opinion In our opinion, the Remuneration Report of EGH Limited for the year ended 30 June 2011, complies with section 300A of the Corporations Act 2001. Emphasis of Matter Without qualifying our opinion, we draw attention to Note 2 (ad) in the financial report which indicates that the consolidated entity incurred a net loss of $1,051,391 during the year ended 30 June 2011 and, as of that date, has a net current asset deficiency of $4,983,705 and was in breach of its banking covenants as disclosed in note 17. These conditions, along with other matters as set forth in Note 2 (ad), indicate the existence of a material uncertainty which may cast significant doubt about the consolidated entity's ability to continue as a going concern. PKF Chartered Accountants Albert Loots Partner Dated at Brisbane this 30th day of September 2011 EGH ANNUAL REPORT 2011 46 For personal use only EGH LIMITED and controlled entities Corporate Directory FOR THE YEAR ENDED 30 JUNE 2010 Postal Address PO BOX 5538, West End Qld 4104 Board of Directors Lachlan McIntosh (Non - Executive Chairman) David Rosenblum Paul Fulloon Company Secretary James Fay Solicitors HWL Ebsworth Level 2 Brisbane 500 Queen St, Brisbane Qld 4000 Tel: Fax: 07 3002-6790 1300 368 717 Auditors PKF Chartered Accountants Level 6, 10 Eagle Street Brisbane Qld 4000 Tel: Fax: 07 3226-3555 07 3226-3500 Share Registry Link Market Services – Brisbane Level 12, 300 Queen Street Brisbane Qld 4000 Call Centre Fax 02 8280-7454 07 3228-4999 Listing Details ASX Limited Brisbane Code: Shares - EGH EGH ANNUAL REPORT 2011 47 For personal use only 

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