Eureka Group Holdings Limited
Annual Report 2013

Plain-text annual report

Annual Report 2013 30 June 2013 ABN: 15 097 241 159 EGH ANNUAL REPORT 2013 1 CONTENTS Chairman’s Review Directors’ Report Security Holder Information Corporate Governance Auditor’s Independence Declaration Consolidated Statement of Profit or Loss and Other 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 4 12 13 16 17 18 19 20 21 50 51 53 EGH ANNUAL REPORT 2013 2 Eureka Group Holdings Limited and controlled entities Chairman’s Review Chairman’s Review On behalf of Directors, I present the Annual Report of Eureka Group Holdings Limited (the “Group”, “Company”, or “EGH”) for the year ended 30 June 2013. The Group reported EBITDA for FY 2013 of $865,296 (FY 2012: $1,632,463) and net profit after tax of $74,932 (FY 2012: $686,488). This reduction is specifically due to one-off costs associated with applying to become an aged care provider, the impact of termination of a management contract noted below and the delay in settlement of property sale affecting commission income. Key Business Drivers With the business model now simplified, earnings growth and value of management rights for the existing portfolio is driven by unit occupancy, services uptake and length of management rights contract. During the year, overall occupancy increased from 81% to 89%, which is a pleasing result. We believe that with limited rental accommodation available for seniors in Australia, occupancy should continue to increase in our villages. Services income including catering fees also increased by 51% during the year in villages we continue to manage. Continuing this trend of increased occupancy and services uptake is vital to profit growth in 2014. The Group manages 29 Seniors Rental Villages with a total number of 1,763 units. The weighted average term of these management agreements is 9.5 years. We strive each year to maintain or increase this average, so as to maintain or increase the value of Management Rights. Notable Events FY 2013 was a period of stability from a management perspective for the Group. For the large part, management were able to focus on the long term management contracts in place. In September 2012, a large management contract called Young Village Estates was terminated. As previously announced, this contract provided over 50% of FY 2012 revenue, but relatively modest EBITDA. Termination of this contract has led to lower revenue in FY 2013 and costs relating to termination lowered group EBITDA. In respect of the longer term growth of the business during 2013, the Group has two major projects: one which is on hold and the other which is proceeding well for the long term benefit of the Company. The project on hold is the application made by the Company to become an approved service provider under the Aged Care Act. The Company has expensed $374,804 during the year on this project. The money spent has significantly tightened the Company’s policies and procedures and assisted with the other major project; however, at this time, the Company is not an approved service provider and is unlikely to be one in the short term. As a Board, we decided that until we can grow the company further, we are unable to justify the ongoing cost of this project. The other major project is in relation to becoming accredited to provide Level 3 Supported Living Services under the Residential Services Accreditation Act. This project is virtually complete and whilst we await confirmation from the Queensland Government, from 1 July 2013, we are providing Level 3 Services to village residents. Providing such services will give the Group certain cost exemptions which will improve profitability of individual villages and provide some further revenue streams. As the project completes for each village, there is an immediate profit increase due to government subsidies for Level 3 accredited providers. During the year, the Group continued to improve its balance sheet. Bank debt decreased from $3,599,000 to $3,309,000 and there was a significant reduction of overall liabilities. To further improve the balance sheet, the Company has determined that it will sell three small management rights, where the company owns the managers unit on site. These villages, whilst profitable do not cover the cost of capital for the Company. Sale of these rights is expected to generate cash over $1,700,000 and significantly lower bank debt without lowering net profit after tax. One of these three rights is under a conditional contract for $515,000. If this contract goes unconditional, it will settle in October 2013. The others are currently on the market, with sales expected in early 2014. Value of Management Rights The Board continues to engage leading management rights agent Resort Brokers Pty. Ltd. to review the valuation methodology of the carrying values of the various management rights owned by the Group. The review undertaken by Resort Brokers indicates that on an overall basis the management rights owned by the Group are valued at significantly higher than they are recorded in the Consolidated Statement of Financial Position. Under AASB 138 the group is unable to revalue these rights. Outlook With continuing stable management and provision of Level 3 Supported Living Services, the Company expects profit improvement in the business in 2014. As part of its growth strategy, the Company is currently undertaking Due Diligence on the Epic Group of Companies and it will announce the results of this exercise in due course. Lachlan McIntosh Chairman EGH ANNUAL REPORT 2013 3 Eureka Group Holdings Limited and controlled entities Directors’ Report The Directors present their report on Eureka Group Holdings Ltd and controlled entities (“EGH”, the “Group”, the “Company” or the “Consolidated Entity”) for the year ended 30 June 2013. 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 and consulting. 2. REVIEW OF OPERATIONS AND RESULTS The performance of the Group as represented by the results of operations for the year, were as follows: Performance Measure Net profit Add back: Interest Tax Depreciation Amortisation Earnings before interest, tax, depreciation and amortisation (EBITDA) The reduction in EBITDA of $767,167 was represented by: Consolidated 30 June 2013 30 June 2012 74,932 490,683 - 88,693 210,988 865,296 686,488 668,369 - 99,627 177,979 1,632,463 - - - one-off costs ($374,804) associated with being an aged care service provider; the termination of the Young Village Estates management contract resulting in a decrease in revenue of $4,210,637 and a corresponding drop in expenses of $3,983,380 compared to FY2012. Management fee revenue charged for the management of the Young Village Estates also decreased by $264,048; the delay of a property sale affecting commission income; Financing costs reduced during the 30 June 2013 year as a result of several official cash rate reductions flowing through to debt facility rates and repayments being applied to debt reduction. The Group continues to improve its financial position. Bank debt decreased from $3,599,000 to $3,309,000. Also included in current liabilities are amounts owing to shareholders amounting to $1,036,643. The Group continues to retain the support of shareholder loan providers to the extent that the group will work within its cash flow capabilities for repayment of its outstanding debts. To further improve the balance sheet, the Group has determined that it will sell three small management rights, where the group owns the managers unit on site. These villages, whilst profitable do not cover the cost of capital for the Company. Sale of these rights is expected to generate cash of over $1,700,000 and significantly lower bank debt without lowering net profit after tax. One of these three rights is under a conditional contract for $515,000. If this contract goes unconditional, it will settle in October 2013. The others are currently on the market, with sales expected in early 2014. The Group operates in a steady industry providing essential services to Australia’s senior population. During the period overall occupancy levels across the villages increased as well as services income at villages that the group continues to manage. Given current and forecast demographic dynamics, the Company considers its service to remain in demand over a long period of time. Overall, the board feels that continued focus will lead to a successful 2014 financial year. 3. SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS There were no significant changes to the operations of the Group in 2013 apart from the termination of the Young Village Estate portfolio. 4. DIVIDENDS No dividends have been paid during the year (2012: $Nil). No dividends for FY 2013 have been recommended at the date of this report. 5. CAPITAL STRUCTURE The number of ordinary shares on issue at 30 June 2013 was 75,632,932 (2012: 73,092,932). EGH ANNUAL REPORT 2013 4 Eureka Group Holdings Limited and controlled entities Directors’ Report 6. SHARE CAPITAL, REDEEMABLE CONVERTIBLE NOTES AND SHARE OPTIONS On 30 November 2011 (at the Annual General Meeting) shareholders approved the issue of 530,000 secured and 773,000 unsecured redeemable convertibles notes of $1.00 each (Notes) with 6 2/3 attaching Options (Options) for each note – or a total of 8,691,010 options. The Notes are convertible into shares at the lower of $0.08 or 90% of the VWAP during the last 5 business days on which trading in share on the ASX occurred prior to but not including the date of issue of the conversion notice. The Notes attract an interest rate of 12.5% per annum and mature at the second anniversary of issue. The Options are exercisable at $0.15 and expire at the second anniversary of issue. As at 30 June 2012, the Group had 20,000 secured notes and 120,000 unsecured notes and all of the issued options outstanding. On 1 August 2012 EGH issued 225,000 unsecured convertible notes of $1.00 each. The Notes are convertible into shares at $0.10. The Notes attract an interest rate of 12.50% per annum and mature on 1 February 2014. As at 30 June 2013 the Group had 225,000 unsecured notes outstanding. 7. LIKELY DEVELOPMENTS AND EXPECTED RESULTS In 2014, the Group must grow. Whilst it has a stable base, and earnings for 2014 look like improving materially from 2013, the Group is at a point where it must grow. The Group is looking at a number of opportunities, including the Epic Group, which has been announced to the market previously. The Group is also exploring the possibility of acquiring a number of rental villages. It is in preliminary negotiations on 3 villages with the aim of significantly growing its tenanted income base during the year. The application of Level 3 supported living services is also expected to increase occupancy and lower GST and Land Tax in the upcoming period. The Group will continue to seek to improve our balance sheet through consistent earnings and continue to seek to improve our key drivers of occupancy, services take up, and contract length. With a stable management team focused on a clear plan to increase occupancy and service uptake we feel we can grow the earnings of the Group substantially in 2014. 8. SUBSEQUENT EVENTS The Company has executed a contract for sale of its manager’s unit and rights at Stafford for $515,000. This contract is expected to settle in October 2013. Other than the above mentioned items, there are no further material subsequent events. 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 INSURANCE OF OFFICERS OR AUDITORS 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 a premium of $19,019 for Directors’ and Officers’ liability for current and former Directors and Officers. 11. NON-AUDIT SERVICES Details of the amounts paid or payable to the auditor for non-audit services provided during the financial year by the auditor are outlined in note 25 to the financial statements. The directors are satisfied that the provision of non-audit services during the financial year, by the auditor (or by another person or firm on the auditor's behalf), is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The directors are of the opinion that the services as disclosed in note 25 to the financial statements do not compromise the external auditor’s independence requirements of the Corporations Act 2001 for the following reasons: • • all non-audit services have been reviewed and approved to ensure that they do not impact the integrity and objectivity of the auditor, and none of the services undermine the general principles relating to auditor independence as set out in APES 110 Code of Ethics for Professional Accountants issued by the Accounting Professional and Ethical Standards Board, EGH ANNUAL REPORT 2013 5 Eureka Group Holdings Limited and controlled entities Directors’ Report including reviewing or auditing the auditor’s own work, acting in a management or decision-making capacity for the company, acting as advocate for the company or jointly sharing economic risks and rewards. 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 taking responsibility on behalf of the Company for all or any part of those proceedings. The Company was not a party to any such proceedings during the year. 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: Director's Meetings Audit Committee Meetings Remuneration Committee Meetings Name Held Attended Held Attended Held Attended Lachlan McIntosh Paul Fulloon Greg Rekers Kerry Potter Nirmal Hansra 7 7 7 7 7 7 7 7 7 7 3 3 - - 3 3 3 - - 3 1 1 - - 1 1 1 - - 1 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 Lachlan McIntosh has a Bachelor of Commerce degree and is a Member of the Institute of Chartered Accountants in Australia. He specialises in corporate finance and mergers and acquisitions. He has had substantial experience in the real estate and retirement accommodation industry along with significant experience in the franchising industries and mining services industries. Other listed company directorships in the last 3 years: Industrea Ltd (from May 2004 to December 2012), New Guinea Gold Corporation (since April 2013), Allied Consolidated Ltd (from July 2006 to July 2012) GREG REKERS – EXECUTIVE DIRECTOR AND HEAD OF REAL ESTATE Greg leads the company’s real estate activities. Greg is also a director of Navigator Property Group (NPG), a consultancy specialising in the areas of property 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. Other listed company directorships in the last 3 years: nil KERRY POTTER – EXECUTIVE DIRECTOR AND CHIEF OPERATING OFFICER Kerry is the company’s Chief Operating Officer. Kerry is also a director of Navigator Property Group, a consultancy specialising in the areas of property development and project marketing. Kerry holds a Bachelor of Commerce degree and worked with the Commonwealth public service until 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. Other listed company directorships in the last 3 years: nil NIRMAL HANSRA – NON EXECUTIVE DIRECTOR Nirmal holds a Master of Commerce degree from University of NSW and is a Fellow of the Australian Institute of Company Directors, Institute of Chartered Accountants in Australia and Australian Society of Certified Practicing Accountants. He has over 40 years of business management and corporate advisory experience. During this time Nirmal had roles as CFO / Finance Director of companies such as Industrea Limited, ISoft Group Limited, Australian Pharmaceutical Industries Limited and Ruralco Holdings Limited. EGH ANNUAL REPORT 2013 6 Eureka Group Holdings Limited and controlled entities Directors’ Report Nirmal is a non-executive director and chairman of the finance, audit and risk committee of Campbell Page Ltd, Council of the Ageing (COTA) in New South Wales and NF Australia Limited. He is also Chairman of Sejester Limited, non-executive director of Kuringai Financial Services Limited and advisory board member of BTO Group Limited. Other listed company directorships in the last 3 years: nil PAUL FULLOON – NON EXECUTIVE DIRECTOR Paul Fulloon is an Executive Director of Flex Accounting Pty Ltd a Brisbane based consultancy specialising 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. Other listed company directorships in the last 3 years: nil 15. COMPANY SECRETARY JAMES FAY - COMPANY SECRETARY (resigned 24 April 2013) James was appointed as Company Secretary in July 2009. James has a Bachelor of Financial Administration degree and is a member of CPA Australia. James has over 25 year experience in public practice and commercial accounting roles. James is also Managing Director of Fay & Redman Pty Ltd Certified Practising Accountants. TROY NUNAN - COMPANY SECRETARY Troy was appointed as Company Secretary in April 2013. Troy has a Bachelor of Business degree and is a member of CPA Australia. Troy has over 15 years’ experience in commercial accounting roles. Troy is also the company’s Chief Financial Officer. 16. KEY MANAGEMENT PERSONNEL The details of each key management personnel’s qualifications, experience and special responsibilities for those in office during the year (excluding Head of Real Estate and Chief Operating Officer noted above) are: SHARON ALDERWICK – GENERAL MANAGER Sharon Alderwick has been involved with Residential Property Management and working with large rent rolls for the past 15 years. For eight of those years she had held positions in Business Development and Management, overseeing staff and running of the rent roll. Her prior experience is in accountancy. Sharon brings to the Company a vast knowledge of Property Management and along with her attention to detail is a valuable asset. TROY NUNAN – CHIEF FINANCIAL OFFICER Troy Nunan has a Bachelor of Business degree and is a member of CPA Australia. He has experience in a range of industries including banking and finance, manufacturing, construction and professional services. Troy has worked for listed, unlisted and private companies for over 15 years. Troy brings to our company substantial experience in process improvement and implementing organisational change. 17. INTEREST IN SHARES AND OPTIONS Ordinary Shares Options over ordinary shares Lachlan McIntosh Paul Fulloon Nirmal Hansra Greg Rekers* Kerry Potter* Total Directors Greg Rekers* Kerry Potter* Sharon Alderwick Troy Nunan Total Executives *these are the same holdings 10,308,336 - 400,000 2,653,940 2,649,774 16,012,050 2,653,940 2,649,774 347,657 - 5,651,371 1,000,500 - 133,400 800,400 800,400 2,734,700 800,400 800,400 - - 1,600,800 EGH ANNUAL REPORT 2013 7 Eureka Group Holdings Limited and controlled entities Directors’ Report 18. REMUNERATION REPORT (AUDITED) (a) KEY MANAGEMENT PERSONNEL The names of persons who were key management personnel of Eureka Group Holdings 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 Role Period in role Lachlan McIntosh Non-Executive Director Paul Fulloon Nirmal Hansra Greg Rekers Kerry Potter Executives Greg Rekers Kerry Potter Non-Executive Director Non-Executive Director Executive Director Executive Director Head of Real Estate Chief Operating Officer Sharon Alderwick General Manager 20/07/09 – ongoing 05/12/08 – ongoing 24/04/2012 – ongoing 24/04/2012 – ongoing 24/04/2012 – ongoing 17/05/11 – ongoing 17/05/11 – ongoing 17/05/11 – ongoing Troy Nunan Chief Financial Officer 02/04/2012 – 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 aligns executive reward with the achievement of strategic objectives and the creation of value for shareholders, and conforms to the market best practice for delivery of reward. The Board of Directors (‘the Board’) ensures that executive reward satisfies the following key criteria for good reward governance practices: • • • • competitiveness and reasonableness; acceptability to shareholders; performance linkage / alignment of executive compensation, and transparency. The Remuneration Committee is responsible for determining and reviewing remuneration arrangements for its directors and executives. Consideration is given to normal commercial rates of remuneration for similar levels of responsibility and the Company’s financial performance. Emoluments comprise salaries, bonuses, and contributions to superannuation funds, options and shares. The performance of the consolidated entity depends on the quality of its directors and executives. The remuneration philosophy is to attract, motivate and retain high performance and high quality personnel. All executives have detailed job descriptions with identified key performance indicators against which annual reviews are compared in relationship between the benefits contained in the employment contracts and the Company’s performance in the 2013 financial year. Remuneration for certain individuals is directly linked to performance of the Group. Bonus payments are dependent on key criteria, being EBITDA and moving the Group loss making position to a profit position. During the 2012 financial year this was achieved. The Remuneration Committee is of the opinion that continued improved results can be achieved in part by the adoption of performance based compensation and is satisfied that this improvement will continue to increase shareholder wealth if maintained over the coming years. (c) REMUNERATION CONSULTANTS The Group did not engage any remuneration consultants during the 2013 financial year. EGH ANNUAL REPORT 2013 8 Eureka Group Holdings Limited and controlled entities Directors’ Report (d) REMUNERATION FOR THE YEAR Remuneration provided to Directors and executives during the financial year is shown in the following table: Short Term Year ending 30 June 2013 Post Employment Share Based Salary & fees (Fixed) $ Bonus $ Super- annuation $ Shares $ Other Long Term $ Total $ % of Bonus that was paid % of Bonus or grant that was forfeited Performance related % Directors Lachlan McIntosh Paul Fulloon Nirmal Hansra Greg Rekers Kerry Potter Total Greg Rekers Kerry Potter Sharon Alderwick Troy Nunan Total 55,000 18,334 30,000 - - 103,334 - - - - - - 289,035 30,000 226,198 30,000 116,923 30,000 110,000 - 742,156 90,000 - - - - - - - - 13,223 9,900 23,123 Short Term Year ending 30 June 2012 Post Employment Share Based Salary & fees (Fixed) $ Bonus $ Super- annuation $ Shares $ Directors Lachlan McIntosh Paul Fulloon David Rosenblum* Nirmal Hansra** Greg Rekers Kerry Potter Total Executives Greg Rekers Kerry Potter 60,000 19,867 13,323 5,750 - - 98,940 206,932 206,932 - - - - - - - - - - - - - - - - - - Sharon Alderwick Troy Nunan*** Total 103,845 10,000 27,500 - 545,209 10,000 10,246 2,475 12,721 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 55,000 18,334 30,000 - - 103,334 - - - - - - 319,035 256,198 33% 33% 160,146 100% 119,900 855,279 - - - - - - - - 67% 67% - - - - - - - - - 37% 22% 18% - - Total $ % of Bonus that was paid % of Bonus or grant that was forfeited Performance related % 60,000 19,867 13,323 5,750 - - 98,940 206,932 206,932 124,091 29,975 567,930 - - - - - - - - - 50% - - - - - - - - - 100% 100% 50% 100% - - - - - - - 13% 13% 3% - Other Long Term $ * The following people ceased to be key management personnel during the year. ** Nirmal Hansra appointed director on 24th April 2012. *** Troy Nunan commenced employment on 2nd April 2012. EGH ANNUAL REPORT 2013 9 Eureka Group Holdings Limited and controlled entities Directors’ Report (e) SERVICE AGREEMENTS On appointment to the board, all non-executive directors enter into a service agreement with the Company in the form of a letter of appointment. The letter summarises the board policies and terms, including remuneration, relevant to the office of director. Remuneration and other terms of employment for the chief executive officer, chief financial officer and the other key management personnel are also formalised in service agreements. The details of these agreements for executive key management personnel are as follows: Greg Rekers (Executive Director & Head of Real Estate) Agreement Commenced 24 April 2012 Term of the Agreement: The Agreement may be terminated by the Company after the first anniversary of the contract provided that the Company pays Mr Rekers a lump sum equal to the value of the salary package for one year. The agreement may also be terminated by the Company in the event of grave misconduct. Details: Mr Rekers remuneration comprises a consulting fee of $200,000 plus 40% of all sales commissions (consulting fee is half of the total payment to Navigator Property Group) and a travel allowance of $24,000. Mr Rekers’ remuneration also comprises additional incentives equal to 50% of his base fee, for reaching agreed upon budgets, adhering to all relevant legislative requirements and reporting financials in a timely manner. Mr Rekers is responsible for the departments of real estate, property development and project marketing for the Company. The directors believe that the remuneration is appropriate for the duties allocated to Mr Rekers. Upon termination subject to adherence of contractual clauses, Mr Rekers is entitled to a lump sum equal to the value of the salary package for 1 year. Mr Rekers will receive no entitlements if terminated for grave misconduct. Kerry Potter (Executive Director & Chief Operations Officer) Agreement Commenced 24 April 2012 Term of the Agreement: The Agreement may be terminated by the Company after the first anniversary of the contract provided that the Company pays Mr Potter a lump sum equal to the value of the salary package for one year. The agreement may also be terminated by the Company in the event of grave misconduct. Details: Mr Potters’ remuneration comprises a consulting fee of $200,000 plus 40% of all sales commissions (consulting fee is half of the total payment to Navigator Property Group) and a travel allowance of $24,000. Mr Potters’ Remuneration also comprises additional incentives equal to 50% of his base fee, for reaching agreed upon budgets, adhering to all relevant legislative requirements and reporting financials in a timely manner. Mr Potter is responsible for the day to day management and operations of the company. The directors believe that the remuneration is appropriate for the duties allocated to Mr Potter. Upon termination subject to adherence of contractual clauses, Mr Potter is entitled to a lump sum equal to the value of the salary package for 1 year. Mr Potter will receive no entitlements if terminated for grave misconduct. Troy Nunan (Chief Financial Officer) Agreement Commenced 9 March 2012 Term of the agreement: The agreement may be terminated by either the Company or Mr Nunan with one month’s notice or by the Company in the event of a material breach of misconduct by Mr Nunan. Details: Mr Nunan’s remuneration comprises a salary of $110,000 plus superannuation contributions. Mr Nunan’s remuneration also contains additional incentives for lowering the costs of operating the business. This incentive will be paid if cost reduction targets are met to a maximum of $30,000. Mr Nunan is responsible for the finance division and the accounting and finance functions of the Company and its associated companies as well as act as Company Secretary. The directors believe that the remuneration is appropriate for the duties allocated Mr Nunan. There are no pay-outs upon resignation or termination, outside of industrial regulations. Sharon Alderwick (General Manager) Agreement Commenced 1September 2011 Term of the Agreement: The agreement may be terminated by either the Company or Mrs Alderwick with one months’ notice or by the Company in the event of a material breach of misconduct by Mrs Alderwick. Details: Mrs Alderwick’s remuneration comprises a salary of $120,000 plus superannuation contributions and performance incentive payment of up to $30,000. Mrs Alderwick is responsible for the day to day operations of the Company and its associated companies. The directors believe that the remuneration is appropriate for the duties allocated Mrs Alderwick, There are no pay-outs upon resignation or termination, outside of industrial regulations. EGH ANNUAL REPORT 2013 10 Eureka Group Holdings Limited and controlled entities Directors’ Report (f) RELATIONSHIP BETWEEN REMUNERATION AND COMPANY PERFORMANCE The following table shows the revenue, net profit before tax, earnings per share, share price and dividend per share for the past 5 years of the Company. The factors that are considered to affect remuneration are summarised below: 2013 ($) 2012 ($) 2011 ($) 2010 ($) 2009 ($) Revenue NPBT EPS Share price at year end DPS 10,873,669 15,593,470 74,932 0.10 0.065 0.00 686,488 1.37 0.10 0.00 14,099,699 (1,242,627) 11,247,998 (1,061,846) 18,702,665 (7,023,941) (3.51) 0.09 0.00 (0.56) 0.13 0.00 (5.53) 0.12 0.00 (g) NON-EXECUTIVE DIRECTOR REMUNERATION POLICY Fees and payments to non-executive directors reflect the demands which are made on, and the responsibilities of, the directors. Non-executive directors’ fees and payments are reviewed annually by the Remuneration Committee. Non- executive directors do not receive share options or other incentives. Non-executive directors’ fees are determined within an aggregate directors’ fee pool limit, which is periodically recommended for approval by shareholders. The maximum currently stands at $250,000 in aggregate plus statutory superannuation. The following fees have applied: Base fees -Chair -Other non-executive directors This concludes the remuneration report, which has been audited. $ 55,000 38,334 19. AUDITOR’S INDEPENDENCE DECLARATION The auditor’s independence declaration under Section 307C is included in this report on page 16. 20. DECLARATION This report is made in accordance with a resolution of the Directors. Lachlan McIntosh Chairman Dated in Brisbane this 30th day of September, 2013 EGH ANNUAL REPORT 2013 11 Eureka Group Holdings Limited and controlled entities Security Holder Information Distribution of Securities as at 6 September 2013 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 226 99 21 78 77 501 Marketable Shares There were 350 holders of less than a marketable parcel of 5,000 shares holding a total of 538,787 shares. Voting Rights Ordinary Shares carry voting rights of one vote per share. Options carry no voting rights. Twenty Largest Ordinary Shareholders as at 6 September 2013 No of Ordinary Shares Held % of Issued Share Capital CO-INVESTOR CAPITAL PARTNERS PTY LTD WAVET FUND NO 2 PTY LTD KATHLAC PTY LIMITED BYDAND CAPITAL PTY LTD NAVIGATOR PROPERTY GROUP P/L 22 CAPITAL PTY LTD M R & S J GORDON PTY LTD QFM NOMINEES PTY LTD JELLYFISH GLOBAL INVESTMENTS DEALCITY PTY LIMITED ALISTER WRIGHT WAYNE BLOOMER DSCC HOLDINGS PTY LTD MARBLE TOWERS PTY LTD ESCOR INVESTMENTS PTY LTD VBS INVESTMENTS PTY LTD MR ROBERT JAMES HALLINAN & MRS FAYE ELIZABETH HALLINAN MR WILLIAM HENRY SUMMERS & MRS DIANORA SUMMERS BRAMARJOD SUPTER PTY LTD CONTEMPLATOR PTY LTD Total 6,986,471 6,263,567 5,724,169 5,159,767 4,635,428 4,425,000 3,342,378 2,808,024 2,500,000 2,290,995 1,984,309 1,494,314 1,243,442 1,190,584 1,120,160 1,107,945 1,012,154 1,000,000 1,000,000 800,000 56,088,707 9.24 8.28 7.57 6.82 6.13 5.85 4.42 3.71 3.31 3.03 2.62 1.98 1.64 1.57 1.48 1.46 1.34 1.32 1.32 1.06 74.15 Largest Option Holders at 6 September 2013 No of Options Held % of Issued Options NAVIGATOR PROPERTY GROUP P/L Total 1,600,800 1,600,800 18.42% 18.42% Securities in which Directors have a Relevant Interest at 6 September 2013 Ordinary Shares Lachlan McIntosh Paul Fulloon Nirmal Hansra Greg Rekers Kerry Potter Total 10,308,336 - 400,000 2,653,940 2,649,774 16,012,050 Options 1,000,500 - 133,400 800,400 800,400 2,734,700 EGH ANNUAL REPORT 2013 12 Eureka Group Holdings 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 The Board will at all times fulfill 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 financial and other reporting; 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. PRINCIPLE 2 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); There must be at least four Directors and this may be increased where the Board considers that additional expertise is required in specific areas or when an outstanding candidate is identified; The Chairman must be a non-executive Director who is also Independent; At least half of the Board must be non-executive Directors and at least two of whom must also be Independent; The composition of the current board is slightly different to the above principles and is expected to remain so during its consolidation period. 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 turnarounds and restructurings and mergers and acquisitions; and The Group has two Independent Directors in Paul Fulloon and Nirmal Hansra and three non-executive Directors out of a total of five. 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 performance, and will adopt a charter for each 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, Remuneration and Nomination Committees; the responsibilities normally delegated to the Remuneration and Nomination committees are included in the charter of the Board. EGH ANNUAL REPORT 2013 13 Eureka Group Holdings Limited and controlled entities Corporate Governance PRINCIPLE 3 PROMOTE ETHICAL AND RESPONSIBLE DECISION MAKING Ethical Standards and Values 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. The Board has adopted a Diversity Policy that outlines the objectives in relation to gender, age, cultural background and ethnicity. The policy considers the benefits of diversity, ways to promote a culture of diversity, factors to be taken into account in the selection process of candidates for Board and senior management positions in the company, education programs to develop skills and experience in preparation for Board and senior management positions and processes to include review and appointment of directors. EGH promotes an inclusive workplace where employee differences in areas like gender, age, culture, disability and lifestyle choice are valued. The unique skills, perspectives and experience that the Group’s employees bring to the table encourage creativity and innovation in thought that better represents the Group’s diverse customer base, ultimately driving improved business performance. The policy does not include measureable objectives for achieving gender diversity as the Group has always had a policy of actively encouraging gender diversity at all levels in the organisation and a culture that supports workplace diversity. This is evidenced by the proportion of women employees in the consolidated entity as at 30 June 2013: Women on the board 0% Women in senior executive positions Women in the organisation 25% 53% Responsibility for diversity has been included in the Board Charter and the Remuneration Charter. Dealings in Securities The Constitution permits Directors to acquire Securities in the Company. Company policy prohibits any dealing in, or procuring the dealing in Securities except in accordance with the Code of Conduct for Transactions in Securities. PRINCIPLE 4 SAFEGUARD INTEGRITY IN FINANCIAL REPORTING 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, Nirmal Hansra (Chairman), Lachlan McIntosh 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 Executive Directors and Chief Financial Officer 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 the Audit Committee which include most significantly: • • • 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 for independence and probity and professional standing within the business community; and 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. EGH ANNUAL REPORT 2013 14 Eureka Group Holdings Limited and controlled entities Corporate Governance The Board approves an annual budget prepared by Management and reviewed and commented on by the Audit and Risk Committee. Actual results, including profit and loss statement, balance sheet and cash flow statement, are 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, is 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. Quality and Integrity of Personnel The Company’s policies are detailed in the Group Operating Policies and Procedures Manuals. Written confirmation of compliance with policies is obtained from all staff members. Formal appraisals are conducted at least annually for all employees. 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 The Board aims to ensure that Shareholders are informed of all major developments affecting the Group’s state of affairs. Information is communicated to Shareholders through the distribution of financial reports, announcements through the ASX, 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. 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. The Executive Directors and Chief Financial Officer must each provide a statement to the Board 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. Remuneration of Directors and Executives is fully disclosed in the annual report. The Board has established a Nomination and Remuneration Committee and has adopted a Nomination and Remuneration Committee Charter. The Nomination and Remuneration Committee: (cid:1) is chaired by Nirmal Hansra who is an independent director; and (cid:1) consists of all non-executive board members. EGH ANNUAL REPORT 2013 15 Eureka Group Holdings Limited and controlled entities Auditor’s Independence Declaration Tel: +61 7 3237 5999 Fax: +61 2 3221 9227 www.bdo.com.au Level 10, 12 Creek St Brisbane Qld 4000 GPO Box 457 Brisbane QLD 4001 Australia DECLARATION OF INDEPENDENCE BY K L COLYER TO THE DIRECTORS OF EUREKA GROUP HOLDINGS LIMITED As lead auditor of Eureka Group Holdings Limited for the year ended 30 June 2013, I declare that, to the best of my knowledge and belief, there have been: 1. No contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and 2. No contraventions of any applicable code of professional conduct in relation to the audit. This declaration is in respect Eureka Group Holdings Limited and the entities it controlled during the period. K L Colyer Director BDO Audit Pty Ltd Brisbane, 30 September 2013 . BDO Audit Pty Ltd ABN 33 134 022 870 is a member of a national association of independent entities which are all members of BDO Australia Ltd ABN 77 050 110 275, an Australian company limited by guarantee. BDO Audit Pty Ltd and BDO Australia Ltd are members of BDO International Ltd, a UK company limited by guarantee, and form part of the international BDO network of independent member firms. EGH ANNUAL REPORT 2013 16 Eureka Group Holdings Limited and controlled entities Consolidated Statement of Profit or Loss and Other Comprehensive Income FOR THE YEAR ENDED 30 JUNE 2013 Note 3 3 4 4 5 Revenue Other Income Expenses Food, beverage and consumables Impairment - management rights Impairment- assets held for sale Employee benefits expenses Finance costs Community operating expenses Marketing expenses Consultancy expenses Depreciation & amortisation expenses Lease expenses Other expenses Total Expenses Profit before income tax expense from continuing operations Income tax expense / (benefit) Profit from continuing operations Profit for the period Other comprehensive income Items that may be reclassified to profit or loss Items that will not be reclassified to profit or loss Other comprehensive income for the period, net of tax Consolidated 30 June 2013 $ 10,873,669 30 June 2012 $ 15,539,834 4,771 53,636 7,359,976 8,322,954 34,266 37,080 954,659 490,683 20,904 4,154 468,018 299,681 626,902 507,185 - - 1,032,886 668,369 328,789 27,906 627,021 277,606 713,214 2,908,237 10,803,508 14,906,982 74,932 - 74,932 74,932 - - - 686,488 - 686,488 686,488 - - - Total Comprehensive Income for the period 74,932 686,488 Basic earnings per share (cents per share) Diluted earnings per share (cents per share) 21 21 0.10 0.09 1.37 1.35 The consolidated statement of profit or loss and other comprehensive income is to be read in conjunction with the accompanying notes. EGH ANNUAL REPORT 2013 17 Eureka Group Holdings Limited and controlled entities Consolidated Statement of Financial Position AS AT 30 JUNE 2013 Consolidated Note 30 June 2013 $ 30 June 2012 $ Current Assets Cash and cash equivalents Trade and other receivables Inventories Assets classified as held for sale Other current assets 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 Other financial liabilities Total Non-Current Liabilities Total Liabilities Net Assets Equity Share capital Accumulated losses Total Equity 6 7 8 9 11 12 13 16 14 16 465,676 530,587 41,543 1,492,725 92,100 2,622,631 1,290,686 5,467,707 6,758,393 9,381,024 610,420 1,761,643 42,444 2,414,507 2,949,000 2,949,000 5,363,507 4,017,517 895,059 738,233 61,098 2,003,631 209,453 3,907,474 1,050,485 5,475,710 6,526,195 10,433,669 1,937,135 1,427,047 73,459 3,437,641 3,299,000 3,299,000 6,736,641 3,697,028 17 44,176,337 43,930,780 (40,158,820) (40,233,752) 4,017,517 3,697,028 The consolidated statement of financial position is to be read in conjunction with the accompanying notes EGH ANNUAL REPORT 2013 18 Eureka Group Holdings Limited and controlled entities Consolidated Statement of Cash Flows FOR THE YEAR ENDED 30 JUNE 2013 Cash flows from operating activities Receipts from customers Payments to suppliers & employees Interest received Finance costs Net cash provided (used) in operating activities 18(b) Cash flows from investing activities Payments for property, plant and equipment Proceeds from sale of management rights and managers unit Payments for intangible assets Net cash provided (used) in investing activities Cash flows from financing activities Proceeds from other financial liabilities Repayments of other financial liabilities Proceeds from share issues Payments for share issue costs Net cash provided (used) in financing activities Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of financial year Cash and cash equivalents at end of financial year 18(a) Consolidated Note 30 June 2013 $ 30 June 2012 $ 12,139,007 15,873,487 (12,100,344) (15,285,814) 4,771 (490,683) (447,249) (75,384) - (72,298) (147,682) 274,596 (290,000) 189,395 (8,443) 165,548 (429,383) 895,059 465,676 37,318 (522,925) 102,066 (77,231) 543,670 (240,909) 225,530 366,096 (400,000) 350,000 (117,380) 198,716 526,312 368,747 895,059 The consolidated statement of cash flows is to be read in conjunction with the accompanying notes. EGH ANNUAL REPORT 2013 19 Eureka Group Holdings Limited and controlled entities Consolidated Statement of Changes in Equity FOR THE YEAR ENDED 30 JUNE 2013 2013 Balance at 1 July 2012 Profit / (Loss) for the year Other comprehensive income Total comprehensive income for the year Transactions with owners in their capacity as owners: Debt converted into equity Shares issued during the year Capital raising cost Consolidated Share Capital $ Accumulated Losses $ Total $ 43,930,780 (40,233,752) 3,697,028 - - - 64,605 189,395 (8,443) 245,557 74,932 - 74,932 - - - - 74,932 - 74,932 64,605 189,395 (8,443) 245,557 Balance at 30 June 2013 44,176,337 (40,158,820) 4,017,517 2012 Balance at 1 July 2011 42,300,014 (40,920,240 ) 1,379,774 Profit / (Loss) for the year Other comprehensive income Total comprehensive income for the year Transactions with owners in their capacity as owners: Debt converted into equity Shares issued during the year Capital raising cost - - - 1,398,146 350,000 (117,380) 1,630,766 686,488 - 686,488 - 686,488 686,488 - - - - 1,398,146 350,000 (117,380) 1,630,766 Balance at 30 June 2012 43,930,780 (40,233,752) 3,697,028 The consolidated statement of changes in equity is to be read in conjunction with the accompanying notes. EGH ANNUAL REPORT 2013 20 Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2013 1. INTRODUCTION Eureka Group Holdings Limited (covering the financial statements of Eureka Group Holdings Limited and all of its subsidiaries) (“EGH” or the “Group” or the “Consolidated Entity”) for the year ended 30 June 2013 is a company incorporated and domiciled in Australia. EGH is a for-profit entity for the purposes of preparing the financial statements. 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 Unit 7, 486 Scottsdale Drive, Varsity Lakes, QLD 4227. Authorisation of financial report The financial report was authorised for issue on 30 September 2013 by the Directors. 2. SUMMARY OF ACCOUNTING POLICIES BASIS OF PREPARATION The principal accounting policies adopted by EGH comprising the parent entity Eureka Group Holdings 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 The consolidated financial report of EGH complies with International Financial Reporting Standards (IFRSs) and interpretations adopted by the International Accounting Standards Board (IASB). New and amended standards adopted by the Group The Group has adopted all of the new, revised or amending Accounting Standards and Interpretations issued by the Australian Accounting Standards Board that are mandatory for the current period. The adoption of these Accounting Standards and Interpretations did not have any significant impact on the financial performance or position of the Group. The following Accounting Standards and Interpretations are most relevant to the Group: AASB 2011-9 Amendments to Australian Accounting Standards – Presentation of Items of Other Comprehensive Income The amendments require grouping together of items within Other Comprehensive Income on the basis of whether they will eventually be ‘recycled’ to profit or loss (reclassification adjustments). The change provides clarity about the nature of items presented as Other Comprehensive Income and the related tax presentation. Changes to presentation – classification of expenses Eureka Group Holdings Limited has decided in the current financial year to change the classification of its expenses in the income statement with regards to the “Food, beverage and consumable” category, and the “Lease expenses” category. We believe that this will provide more relevant information to our stakeholders as these expenses are better reflected based on this classification. The comparative information has been reclassified accordingly. Early adoption of standards The Group has not elected to apply any pronouncements before their operative date in the annual reporting period beginning 1 July 2012. Historical cost convention These financials statements have been prepared under the historical cost convention, as modified by the revaluation of available-for-sale financial assets, financial assets and liabilities (including derivative instruments) at fair value through profit or loss. EGH ANNUAL REPORT 2013 21 Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2013 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 going concern assumption is based on the following steps taken by the Group: • The Group expects to realise its remaining assets held for sale of $1,492,725 prior to end of June 2014. Subsequent to year end, the Group entered into a conditional contract to sell one of these assets for $515,000 and if the contract goes unconditional, it will settle in October 2013. The remaining assets held for sale are currently on the market. The Group has engaged Resort Brokers to market these assets and discussions are being held with prospective buyers; Included in current liabilities are amounts owing to shareholders amounting to $1,036,643. The Group continues to retain the support of shareholder loan providers to the extent that the group will work within its cash flow capabilities for repayment of its outstanding debts; • • The Directors believe the Group continues to have the support of NAB and has a number of strategies to maintain compliance with the facility covenants; and • The Group’s 12 month cash flow forecast shows positive operating cash flows. The Directors are confident of ongoing support from the existing shareholders, shareholder loan providers and the NAB and as such believe the Group will be able to generate sufficient cash flows from operating activities to fund ongoing working capital needs for at least a period of twelve months from the date of the Directors’ declaration. 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. CONSOLIDATION This financial report covers the consolidated entity consisting of Eureka Group Holdings Limited and its controlled entities. Eureka Group Holdings Limited is the ultimate parent entity. The consolidated financial statements incorporate the assets and liabilities of all entities controlled by Eureka Group Holdings Limited as at 30 June 2013 and the results of all controlled entities for the year then ended. The effects of all transactions between entities in the consolidated entity are eliminated in full. Subsidiaries are entities controlled by the Company. Control exists when the Company has the power, directly or indirectly, to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights that presently are exercisable or convertible are taken into account. The financial statements of subsidiaries are included in the financial report from the date that control commences until the date that control ceases. The acquisition of subsidiaries is accounted for using the acquisition method of accounting. Refer to the 'business combinations' accounting policy for further details. A change in ownership interest, without the loss of control, is accounted for as an equity transaction, where the difference between the consideration transferred and the book value of the share of the non-controlling interest acquired is recognised directly in equity attributable to the parent. Where the consolidated entity loses control over a subsidiary, it derecognises the assets including goodwill, liabilities and non-controlling interest in the subsidiary together with any cumulative translation differences recognised in equity. The consolidated entity recognises the fair value of the consideration received and the fair value of any investment retained together with any gain or loss in profit or loss. REVENUE RECOGNITION Management, Catering and Service Fees 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 and other services. Revenue is recognised when the services are provided. Interest Revenue Interest revenue is recognised on a proportional basis taking into account the interest rates applicable to the financial assets. EGH ANNUAL REPORT 2013 22 Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2013 INCOME TAX Income tax expense comprises current and deferred tax. Income tax expense is recognised in profit and loss except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity. Deferred tax is recognised using the balance sheet method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognised for the differences relating to investments in subsidiaries to the extent that it is probable that it will not reverse in the foreseeable future. Deferred tax is measured at the tax rates that are expected to be applied to the temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date. Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets and liabilities and when the deferred tax balances relate to the same taxation authority. A deferred tax asset is recognised to the extent that it is probable that future taxable profits will be available against which the temporary difference can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised. OPERATING SEGMENTS Operating segments are presented using the 'management approach', where the information presented is on the same basis as the internal reports provided to the Chief Operating Decision Makers ('CODM') - being the Board of Directors. The CODM is responsible for the allocation of resources to operating segments and assessing their performance. 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 are readily convertible to cash on hand and are subject to an insignificant risk of changes in value, net of outstanding bank overdrafts. TRADE AND OTHER RECEIVABLES Trade receivables are initially recognised at fair value and subsequently measured at amortised cost using the effective interest method, less any provision for impairment. Trade receivables are generally due for settlement within 30 days. Collectability of trade receivables is reviewed on an ongoing basis. Debts which are known to be uncollectable are written off by reducing the carrying amount directly. A provision for impairment of trade receivables is raised when there is objective evidence that the consolidated entity will not be able to collect all amounts due according to the original terms of the receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation and default or delinquency in payments (more than 90 days overdue) are considered indicators that the trade receivable may be impaired. The amount of the impairment allowance is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. Cash flows relating to short-term receivables are not discounted if the effect of discounting is immaterial. Other receivables are recognised at amortised cost, less any provision for impairment. PROPERTY PLANT & EQUIPMENT Property plant and equipment is 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 2.5% SL IMPAIRMENT OF ASSETS Financial Assets A financial asset is assessed at each reporting date to determine whether there is any objective evidence that it is impaired. A financial asset is considered to be impaired if objective evidence indicates that one or more events have had a negative effect on the estimated future cash flows of that asset. An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between its carrying amount, and the present value of the estimated future cash flows discounted at the original effective interest rate. An impairment loss in respect of an available-for-sale financial asset is calculated by reference to its fair value. Individually significant financial assets are tested for impairment on an individual basis. The remaining financial assets are assessed collectively in groups that share similar credit risk characteristics. All impairment losses are recognised in profit or loss. Any cumulative loss in respect of an available-for-sale financial asset previously recognised in equity is reclassified to profit or loss. Any impairment loss is reversed if the reversal can be related objectively to an event occurring after the impairment loss was recognised. For financial assets measured at amortised cost, the reversal is recognised in profit or loss. For available-for-sale financial assets that are equity securities, the reversal is recognised directly in equity. EGH ANNUAL REPORT 2013 23 Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2013 Non-Financial Assets The carrying amounts of the Group’s non-financial assets are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists then the asset’s recoverable amount is estimated. For goodwill and intangible assets that have indefinite lives, recoverable amount is estimated at each reporting date. The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For the purpose of impairment testing, assets are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets (the “cash-generating unit”). The goodwill acquired in a business combination, for the purpose of impairment testing, is allocated to cash-generating units that are expected to benefit from the synergies of the combination. An impairment loss is recognised if the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. Impairment losses are recognised in profit or loss. Impairment losses recognised in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to the units and then to reduce the carrying amount of the other assets in the unit (group of units) on a pro rata basis. Impairment losses recognised in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. Except for goodwill, an impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised. PROVISIONS Provisions are recognised when the consolidated entity has a present obligation, the future sacrifice of economic benefits is probable, and the amount of the provision can be measured reliably. 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 DIVIDENDS Provision is made for the amount of any dividend declared, being appropriately authorised and no longer at the discretion of the entity, on or before the end of the reporting period but not distributed at the end of the reporting period. INVENTORIES Inventories comprise catering stock only. Catering stock is valued at the lower of cost and net realisable value. 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 rights on Communities that the consolidated entity has constructed are not recognised in the accounts. Plans and trademarks have a finite life and are recognised at cost and subsequently amortised using the straight-line method over 5 years being the estimated useful life. Management rights and letting rights have a finite life and 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. Sales rolls have a finite life and are carried at the lower of cost or recoverable amount. Sales rolls are amortised using the straight line method over 15 years being the estimated useful life Goodwill 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. 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. Impairment losses for goodwill are not subsequently reversed. 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. EGH ANNUAL REPORT 2013 24 Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2013 FINANCIAL ASSETS AND LIABILITIES 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 Consolidated Entity’s contractual rights to the cash flows from the financial asset expire or if 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 FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS An instrument is classified as at fair value through profit and loss if it is held for trading or is designated as such upon initial recognition. Financial instruments are designated at fair value through profit or loss if the group manages such investments and makes purchase and sale decisions based on their fair value in accordance with the Group’s documented risk management or investment strategy. Upon initial recognition, attributable transaction costs 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 ASSETS CLASSIFIED AS HELD FOR SALE Non-current assets and assets of disposal groups are classified as held for sale if their carrying amount will be recovered principally through a sale transaction rather than through continuing use. They are measured at the lower of their carrying amount and fair value less costs to sell. For non-current assets or assets of disposal groups to be classified as held for sale, they must be available for immediate sale in their present condition and their sale must be highly probable. OTHER NON-DERIVATIVE FINANCIAL INSTRUMENTS Other non-derivative financial instruments are measured after initial recognition at amortised cost using the effective interest method less any impairment losses. EMPLOYEE BENEFITS Salaries, Wages and Annual Leave 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. Long Service Leave 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 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. 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-term and long-term borrowings, amortisation of discounts or premiums relating to borrowings, amortisation of ancillary costs in connection with the arrangement of borrowings and finance lease charges. SHARE BASED PAYMENTS 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 to the instruments and the counterparties as well as management’s assumptions about probabilities of payments and compliance with and attainment of the set out terms and conditions. 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. Receivables and payables are recognised inclusive of GST. The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables. EGH ANNUAL REPORT 2013 25 Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2013 LEASES Operating lease payments are recognised as an expense on a straight line basis over the lease term. BORROWINGS Borrowings are initially recognised at fair value, net of transaction costs incurred. Borrowings are subsequently measured at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption amount is recognised in profit or loss over the period of the borrowings using the effective interest method. Fees paid on the establishment of loan facilities are recognised as transaction costs of the loan to the extent that it is probable that some or all of the facility will be drawn down. In this case, the fee is deferred until the draw down occurs. To the extent there is no evidence that it is probable that some or all of the facility will be drawn down, the fee is capitalised as a prepayment for liquidity services and amortised over the period of the facility to which is relates. The fair value of the liability portion of a convertible bond is determined using a market interest rate for an equivalent non-convertible bond. This amount is recorded as a liability on an amortised cost basis until extinguished on conversion or maturity of the bonds. The remainder of the proceeds is allocated to the conversion option. This is recognised and included in shareholders’ equity, net of income tax effects. Borrowings are removed from the balance sheet when the obligation specified in the contract is discharged, cancelled or expired. The difference between the carrying amount of a financial liability that has been extinguished or transferred to another party and the consideration paid, including any non-cash assets transferred or liabilities assumed, is recognised in profit or loss as other income or finance costs. Where the terms of a financial liability are renegotiated and the entity issues equity instruments to a creditor to extinguish all or part of the liability (debt for equity swap), a gain or loss is recognised in profit or loss, which is measured as the difference between the carrying amount of the financial liability and the fair value of the equity instruments issued. Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the reporting period. 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 Eureka Group Holdings Limited. Current tax expense/income, deferred tax liabilities and deferred assets arising from temporary differences of the members of the 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. Any current tax liabilities (assets) and deferred tax assets arising from unused tax losses of the subsidiaries is assumed by the head entity in the tax-consolidation group and are recognised by the Company as amounts payable (receivable) to /(from) other entities in the tax-consolidation group 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. The Company recognises 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 head entity in conjunction with other members of the tax-consolidation group has entered into a tax funding arrangement which sets out the funding obligations of members of the tax-consolidation group in respect of tax amounts. The tax funding arrangements require payments to/ from the head entity to the current tax liability/ (asset) assumed to be the head entity and any tax-loss deferred tax asset assumed by the head entity, resulting in the head entity recognising an inter-entity receivable / (payable) equal in amount to the tax liability/ (asset) assumed. The inter-entity receivables/ (payables) are at call. Contributions to fund the current tax liabilities are payable as per the tax funding arrangement and reflect the timing of the head entity’s obligation to make payments for tax liabilities to the relevant authorities. The head entity, in conjunction with other members of the tax-consolidated group, has also entered into a tax sharing agreement. The tax sharing agreement provides for the determination of the allocation of income tax liabilities between the entities should the head entity default on its tax payment obligations. CAPITAL MANAGEMENT The Consolidated Entity considers its share capital and retained earnings as capital. EGH ANNUAL REPORT 2013 26 Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2013 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 cash flow forecasts having regard to planned expansions and takes the necessary action to ensure sufficient funds are available. BUSINESS COMBINATIONS The acquisition method of accounting is used to account for business combinations regardless of whether equity instruments or other assets are acquired. The consideration transferred is the sum of the acquisition-date fair values of the assets transferred, equity instruments issued or liabilities incurred by the acquirer to former owners of the acquiree and the amount of any non-controlling interest in the acquiree. For each business combination, the non-controlling interest in the acquiree is measured at either fair value or at the proportionate share of the acquiree's identifiable net assets. All acquisition costs are expensed as incurred to profit or loss. On the acquisition of a business, the consolidated entity assesses the financial assets acquired and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic conditions, the consolidated entity's operating or accounting policies and other pertinent conditions in existence at the acquisition-date. Where the business combination is achieved in stages, the consolidated entity remeasures its previously held equity interest in the acquiree at the acquisition-date fair value and the difference between the fair value and the previous carrying amount is recognised in profit or loss. Contingent consideration to be transferred by the acquirer is recognised at the acquisition-date fair value. Subsequent changes in the fair value of contingent consideration classified as an asset or liability is recognised in profit or loss. Contingent consideration classified as equity is not remeasured and its subsequent settlement is accounted for within equity. The difference between the acquisition-date fair value of assets acquired, liabilities assumed and any non-controlling interest in the acquiree and the fair value of the consideration transferred and the fair value of any pre-existing investment in the acquiree is recognised as goodwill. If the consideration transferred and the pre-existing fair value is less than the fair value of the identifiable net assets acquired, being a bargain purchase to the acquirer, the difference is recognised as a gain directly in profit or loss by the acquirer on the acquisition-date, but only after a reassessment of the identification and measurement of the net assets acquired, the non-controlling interest in the acquiree, if any, the consideration transferred and the acquirer's previously held equity interest in the acquirer. Business combinations are initially accounted for on a provisional basis. The acquirer retrospectively adjusts the provisional amounts recognised and also recognises additional assets or liabilities during the measurement period, based on new information obtained about the facts and circumstances that existed at the acquisition-date. The measurement period ends on either the earlier of (i) 12 months from the date of the acquisition or (ii) when the acquirer receives all the information possible to determine fair value. CONTRIBUTED EQUITY Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. EARNINGS PER SHARE Basic Earnings Per Share Basic earnings per share is calculated by dividing the profit attributable to the owners of the Company, excluding any costs of servicing equity other than ordinary shares, by the weighted average number of ordinary shares outstanding during the financial year, adjusted for bonus elements in ordinary shares issued during the financial year. Diluted Earnings Per Share Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account the after income tax effect of interest and other financing costs associated with dilutive potential ordinary shares and the weighted average number of shares assumed to have been issued for no consideration in relation to dilutive potential ordinary shares USE OF JUDGEMENTS AND ESTIMATES The preparation of financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual EGH ANNUAL REPORT 2013 27 Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2013 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 judgements in applying accounting policies that have most significant effect on the amount recognised in the financial statements are described as follows: Goodwill The consolidated entity tests annually, or more frequently, if events or changes in circumstances indicate impairment on whether goodwill has suffered any impairment. The recoverable amounts of cash-generating units have been determined based on value-in-use calculations. These calculations require the use of assumptions, including estimated discount rates based on the current cost of capital and growth rates of the estimated future cash flows. Refer note 12 for further information. Impairment of Non-financial Assets other than Goodwill and other indefinite life Intangible Assets The consolidated entity assesses impairment of non-financial assets other than goodwill and other indefinite life intangible assets at each reporting date by evaluating conditions specific to the consolidated entity and to the particular asset that may lead to impairment. If an impairment trigger exists, the recoverable amount of the asset is determined. This involves calculating the fair value less cost to less using assumptions of multipliers, cash flow and profit. Refer to note 12 for key assumptions used by management. Amortisation of Management Rights The consolidated entity amortises its management rights over a period of 40 years. The amortisation period used reflects the pattern in which the asset’s future economic benefits are expected to be consumed by the consolidated entity. In determining the useful life, the consolidated entity considered the expected usage of the assets, the legal rights over the asset and the renewal period of the management right agreements. The management rights are attached to each individual village’s property and include options or the ability to renew the contract. Taking these points into consideration, the Directors believe the amortisation period should be similar to the life of the property rather than agreement period. PARENT ENTITY In accordance with the Corporations Act 2001, these financial statements present the results of the consolidated entity only. The accounting policies of the parent entity are consistent with those of the consolidated entity, as disclosed above, except for the following: • • Investments in subsidiaries are accounted for at cost, less any impairment, in the parent entity. Investments in associates are accounted for at cost, less any impairment, in the parent entity. Financial Guarantees Where the parent entity has provided financial guarantees in relation to loans and payables of subsidiaries for no compensation, the fair values of these guarantees are accounted for as contributions and recognised as part of the cost of the investment. COMPARATIVES Where necessary, comparative information has been reclassified to achieve consistency in disclosure with current financial year amounts and other disclosures. NEW ACCOUNTING STANDARDS AND INTERPRETATIONS NOT YET ADOPTED Certain new accounting standards and interpretations have been published that are not mandatory for 30 June 2013 reporting periods. Eureka Group Holdings Limited assessment of the impact of these new standards and interpretations is set out below. AASB 9: Financial Instruments, 2009-11 Amendments to Australian Accounting Standards arising from AASB 9 and 2010-7 Amendments to Australian Accounting Standards arising from AASB 9 This standard and its consequential amendments are applicable to annual reporting periods beginning on or after 1 January 2015 and completes phase I of the IASB’s project to replace IAS 39 (being the international equivalent to AASB 139 ‘Financial Instruments: Recognition and Measurement’). This standard introduces new classification and measurement models for financial assets, using a single approach to determine whether a financial asset is measured at amortised cost or fair value. To be classified and measured at amortised cost, assets must satisfy the business model test for managing the financial assets and have certain contractual cash flow characteristics. All other financial instrument assets are to be classified and measured at fair value. This standard allows an irrevocable election on initial recognition to present gains and losses on equity instruments (that are not held-for-trading) in other comprehensive income, with dividends as a return on these investments being recognised in profit or loss. In addition, those equity instruments measured at fair value through other comprehensive income would no longer have to apply any impairment EGH ANNUAL REPORT 2013 28 Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2013 requirements nor would there be any ‘recycling’ of gains or losses through profit or loss on disposal. The accounting for financial liabilities continues to be classified and measured in accordance with AASB 139, with one exception, being that the portion of a change of fair value relating to the entity’s own credit risk is to be presented in other comprehensive income unless it would create an accounting mismatch. Eureka Group Holdings Limited will adopt this standard from 1 July 2015 but the impact of its adoption is yet to be assessed. AASB 10: Consolidated Financial Statements This standard replaces part of IAS 27: 'Consolidated and Separated Financial Statements' and is applicable for annual reporting periods beginning on or after 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 Eureka Group Holdings Limited resulting in more assets and liabilities on the books. Based on Eureka Group Holdings Limited current structure the adoption of this revised standard from 1 July 2013 will have no impact on Eureka Group Holdings Limited. AASB 12: Disclosure of interest in other Entities This standard is applicable for annual reporting periods beginning on or after 1 January 2013. This standard clarifies the disclosure requirements for all forms of interests in other entities including joint arrangements, associates, special purpose vehicles and other off balance sheet vehicles. Eureka Group Holdings Limited is assessing the impact of this standard. AASB 13: Fair Value Measurement This standard is applicable for annual reporting period beginning on or after 1 January 2013 and establishes a single course of guidance for determining the fair value of assets and liabilities. As the standard does not introduce any new requirements for the use of fair value, its impact on adoption from 1 July 2013 should be minimal, although there will be increased disclosure requirements. AASB 2011-4 Amendments to Australian Accounting Standards to Remove Individual Key Management Personnel Disclosure Requirement These amendments are applicable to annual reporting periods beginning on or after 1 July 2013, with early adoption not permitted. They amend AASB 124 ‘Related Party Disclosures’ by removing the disclosure requirements for individual key management personnel (‘KMP’). The adoption of these amendments from 1 July 2013 will remove the duplication of information relating to individual KMP in the notes to the financial statements and the directors report. As the aggregate disclosures are still required by AASB 124 and during the transitional period the requirements may be included in the Corporations Act or other legislation, it is expected that the amendments will not have a material impact on Eureka Group Holdings Limited. AASB 2011-7 Amendments to Australian Accounting Standards arising from the Consolidation and Joint Arrangements Standards The amendments are applicable to annual reporting periods beginning on or after 1 January 2013. The amendments make numerous consequential changes to a range of Australian Accounting Standards and Interpretations, following the issuance of AASB 10, AASB 11, AASB 12 and revised AASB 127 and AASB 128. Eureka Group Holdings Limited has yet to determine to potential effect of this standard. AASB 11: Joint Arrangements This standard replaces IAS 31: 'Interest in Joint Ventures' and is applicable for annual periods beginning on or after 1 January 2013. This new standard introduces new rules which classify joint arrangements as either a joint operation or joint venture. Under the new standard, proportionate consolidation is not allowed and all joint ventures must be equity accounted. All joint arrangements held by Eureka Group Holdings Limited will need to be reassessed to determine whether the joint operation or joint venture classification is appropriate, and therefore the potential impacts of a change on the presentation of the Financial Statements. The adoption of this standard from 1 July 2013 will not have a material impact on Eureka Group Holdings Limited. AASB 128: Investments in Associates and Joint Ventures (reissued) This standard is applicable to annual reporting periods beginning on or after 1 January 2013. The standard has been modified to remove specific guidance that is now contained in AASB 10, AASB 11 and AASB 12. The adoption of this revised standard from 1 July 2013 will not have a material impact on Eureka Group Holdings Limited. AASB 119: Employee Benefits (September 2011) and AASB 2011-10 Amendments to Australian Accounting Standards arising from AASB 119 (September 2011) EGH ANNUAL REPORT 2013 29 Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2013 This revised standard and its consequential amendments are applicable to annual reporting periods beginning on or after 1 January 2013. The amendments change the definition of short term employee benefits, from ‘due to’ to ‘expected to’ be settled within 12 months. This will require annual leave that is not expected to be wholly settled within 12 months to be discounted allowing for expected salary levels in the future period when the leave is expected to be taken. The adoption of this revised standard from 1 July 2013 will not have a material impact on Eureka Group Holdings Limited. AASB 2012-10 Amendments to Australian Accounting Standards – Transition Guidance and Other Amendments These amendments are applicable to annual reporting periods beginning on or after 1 January 2013. They amend AASB 10 and related standards for the transition guidance relevant to the initial application of those standards. The amendments clarify the circumstances in which adjustments to an entity’s previous accounting for its involvement with other entities are required and the timing of such adjustments. The adoption of these amendments will not have a material impact on Eureka Group Holdings Limited. AASB 2012-5 Amendments to Australian Accounting Standards arising from Annual Improvements 2009-2011 Cycle The amendments are applicable to annual reporting periods beginning on or after 1 January 2013. The amendments affect 5 Australian Accounting Standards as follows: confirmation that repeat application of AASB 1 ‘First Time Adoption of Australian Accounting Standards’ is permitted; clarification of borrowing cost exemption in AASB 1; clarification of the comparative information requirements when an entity provides an optional third column or is required to present a third statement of financial position in accordance with AASB 101 ‘Presentation of Financial Statements’; clarification that servicing of equipment covered by AASB 116 ‘Property, Plant and Equipment’, if such equipment is used for more than one period; clarification that the tax effect of distributions to holders of equity instruments and equity transaction costs in AASB 132 ‘Financial Instruments: Presentation’ should be accounted for in accordance with AASB 112 ‘Income Taxes’; and clarification of the financial reporting requirements in AASB 134’Interim Financial Reporting’ and the disclosure requirements of segment assets and liabilities. The adoption of these amendments from 1 July 2013 will not have a material impact on Eureka Group Holdings Limited. EGH ANNUAL REPORT 2013 30 Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2013 Note 3: Revenue Catering Service fees Management Property maintenance Other revenue Total revenue Other income Interest revenue Gain on sale of assets held for sale Other income Note 4: Items included in profit/(loss) Profit/(loss) before income tax expense includes the following specific items: Rental expense relating to operating leases Consolidated 30 June 2013 $ 30 June 2012 $ 4,616,285 2,874,231 748,980 1,551,901 1,082,272 10,873,669 4,430,038 5,070,427 3,224,661 1,296,320 1,518,388 15,539,834 4,771 - 4,771 37,318 16,318 53,636 Consolidated 30 June 2013 $ 30 June 2012 $ Payments under operating leases 626,902 713,214 Finance cost -Interest and finance charges paid/payable for financial liabilities not at fair value through profit or loss Total finance cost Amortisation -Management rights -Other intangibles Total amortisation Depreciation -Plant & equipment -Manager units Total depreciation 490,683 490,683 668,369 668,369 201,639 9,349 210,988 48,513 40,180 88,693 168,637 9,342 177,979 75,484 24,143 99,627 Defined contribution superannuation expense 66,807 66,782 EGH ANNUAL REPORT 2013 31 Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2013 Note 5: Income tax The components of tax expense comprise: Current tax Deferred tax expense on temporary differences current year Deferred tax asset not recognised on current year loss Profit before income tax expense Income tax calculated at 30% (2012: 30%) Tax effect on permanent differences - Entertainment - Fines/Penalties - Capital profits - Amortisation of intangibles Deferred tax asset not recognised on current year loss Income tax expense Consolidated 30 June 2013 $ 30 June 2012 $ 22,480 160 53,897 196,812 (22,640) (250,709) - 74,932 22,480 130 30 - - - 686,488 205,946 531 - (9,162) 53,394 (22,640) (250,709) - - Tax losses Unused tax losses for which no deferred tax asset has been recognised Potential tax benefit at 30% 35,256,163 34,780,364 10,576,849 10,434,109 Unrecognised deferred tax assets Temporary differences which have not been recognised: Employee benefits Assessable temporary differences Potential tax benefit at 30% Unrecognised deferred tax liabilities Temporary differences which have not been recognised: Assessable temporary differences Unrecognised deferred tax liabilities relating to the above temporary differences at 30% (2012: 30%) 61,031 849,558 273,176 118,084 306,450 127,360 10,400 3,120 - - The deductible temporary differences and tax losses do not expire under current tax legislation. Deferred tax assets have not been recognised in respect of these items until it is probable that future taxable profits will be available against which the Consolidated Entity can utilise these benefits. EGH ANNUAL REPORT 2013 32 Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2013 Note 6: Trade and other receivables Trade & other debtors Provision for doubtful debts Total trade and other receivables Note 7: Inventories Catering inventory – at cost Total inventories Note 8: Assets classified as held for sale Managers units Management rights Property, plant & equipment Total assets classified as held for sale Assets held for resale consist of: Consolidated 30 June 2013 $ 30 June 2012 $ 534,336 (3,749) 530,587 788,233 (50,000) 738,233 Consolidated 30 June 2013 $ 30 June 2012 $ 41,543 41,543 61,098 61,098 Consolidated 30 June 2013 $ 30 June 2012 $ 939,965 552,760 - 1,492,725 1,251,219 728,157 24,255 2,003,631 1. One managers unit at Chermside and the management rights 2. One managers unit at Stafford and the management rights 3. One managers unit at Cleveland and the management rights; and 4. The management rights at Albury and Wodonga. Subsequent to year end, the Group entered into a conditional contract to sell one of these assets for $515,000 and if the contract goes unconditional, it will settle in October 2013. The Group has engaged Resort Brokers to market the remaining assets and expects to sell these assets in the second half of the 2014 financial year. 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. Note 9: Other current assets Prepayments Total other current assets Consolidated 30 June 2013 $ 30 June 2012 $ 92,100 92,100 209,453 209,453 EGH ANNUAL REPORT 2013 33 Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2013 Name of Entity Note 10: Investment in subsidiaries SCV No. 1 Pty Ltd SCV No. 2 Pty Ltd Country of Formation or Incorporation Equity Holding 30-Jun-13 30-Jun-12 % % Australia 100% 100% Australia 100% 100% SCV Leasing Pty Ltd (formerly SCV No. 3 Pty Ltd) Australia 100% 100% Eureka Property Pty Ltd (formerly SCV Services Pty Ltd) Australia 100% 100% SCV Manager Pty Ltd Australia 100% 100% Compton's Villages Australia Unit Trust Australia 100% 100% Compton's Caboolture Pty Ltd Australia 100% 100% Eureka Care Communities Pty Ltd Australia 100% 100% EGH ANNUAL REPORT 2013 34 Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2013 Note 11: Property, plant & equipment 30 Jun 2013 30 Jun 2012 Consolidated Managers units at cost Accumulated depreciation Plant & equipment at cost Accumulated depreciation Total property, plant & equipment $ 1,237,693 (132,588) 1,105,105 848,380 (662,799) 185,581 1,290,686 $ 859,535 (127,647) 731,888 1,070,486 (751,889) 318,597 1,050,485 Movements during the year ending 30 June 2013 Manager's Units $ Plant & Equipment $ Total $ Consolidated Opening written down value 731,888 318,597 1,050,485 Additions at cost Disposals 63,776 11,608 75,384 - (130,866) (130,866) Transfer to/from Assets Held for Sale 349,621 34,755 Depreciation expense (40,180) (48,513) 384,376 (88,693) Closing written down value 1,105,105 185,581 1,290,686 Movements during the year ending 30 June 2012 Manager's Units Consolidated Opening written down value Additions at cost Disposals Depreciation expense Closing written down value $ 737,076 18,955 - (24,143) 731,888 Plant & Equipment $ 421,347 58,276 (85,542) (75,484) 318,597 Total $ 1,158,423 77,231 (85,542) (99,627) 1,050,485 EGH ANNUAL REPORT 2013 35 Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2013 Note 12: Intangible assets Intellectual property - at cost Management rights - at cost Impairment of management rights Accumulated amortisation Carrying amount of management rights Plans & trademarks - at cost Less accumulated amortisation Carrying amount of plans & trademarks Sale rolls Less accumulated amortisation Carrying amount of sale rolls Goodwill Total intangible assets Consolidated 30 June 2013 $ 1 4,098,488 (34,266) (673,249) 3,390,973 27,749 (26,623) 1,126 138,571 (18,479) 120,092 1,955,515 5,467,707 30 June 2012 $ 1 3,861,237 - (471,610) 3,389,627 27,749 (26,517) 1,232 138,571 (9,236) 129,335 1,955,515 5,475,710 The Group’s primary business activity is the management (through management rights agreements) of senior’s accommodation throughout Australia. The Group’s primary intangible assets are management rights and goodwill. These intangible assets, although separately classified per accounting standard requirements, all relate to the management of senior’s accommodation. Their separate categorisation has arisen from acquisitions. Although the Group now predominantly has a singular business activity and segment, the management rights intangible assets are amortised over 40 years, reflecting the pattern in which the asset’s future economic benefits are expected to be consumed by the Group, while the goodwill is tested periodically for impairment. The recoverable amount of the Group’s goodwill has been determined by a value-in-use calculation using a discounted cash flow model, based on a 2 year projection period approved by management and extrapolated for a further 3 years using a steady rate, together with a terminal value. Key assumptions are those to which the recoverable amount of an asset or cash-generating units is most sensitive. The following key assumptions were used in the discounted cash flow model: 1. cash flows were projected over a five year period by applying a 2% growth rate (2012: 2%) to the most recent years’ cash flows; 2. the terminal value was calculated using a growth rate of 2% (2012: 2%); 3. cash flows have been discounted using a pre-tax discount rate of 25% (2012: 25%); 4. cash flows do not take into account the management of any new villages; and 5. cash flows are based on historical results. The 2% growth rate for the projected cash flow is considered conservative when compared with the business activities over the previous 12 months. The Group expects a steady growth in revenue under the new management team and business structure. The calculations at balance date indicate no impairment of the goodwill CGU. If the pre-tax discount rate applied to the cash projections of the goodwill CGU was increased by 500 basis points, the recoverable amount of the CGU is still greater than the carrying amount. EGH ANNUAL REPORT 2013 36 Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2013 Movements during the year ending 30 June 2013 Consolidated Opening written down value Additions at cost Impairment of management rights Transfer from assets held for sale Amortisation expense Closing written down value Intellectual Property $ 1 Management Rights $ 3,389,627 Plans & Trademarks $ Sale Rolls $ 1,232 129,335 Goodwill $ Total $ 1,955,515 5,475,710 - - - - 1 71,297 (34,266)* 165,954 (201,639) 3,390,973 - - - - - - - - - 71,297 (34,266) 165,954 (106) (9,243) - (210,988) 1,126 120,092 1,955,515 5,467,707 *Based on the impairment review performed at 30 June 2013, the management rights of Maryborough was impaired. The impairment was due to the Group decision to cancel the management rights contract. Movements during the year ending 30 June 2012 Consolidated Opening written down value Additions at cost Amortisation expense Closing written down value Intellectual Property $ 1 Management Rights $ 3,317,355 Plans & Trademarks $ Sale Rolls $ 1,338 138,571 Goodwill $ Total $ 1,955,515 5,412,780 - 240,909 - - - 1 (168,637) 3,389,627 (106) (9,236) 1,232 129,335 1,955,515 5,475,710 - - 240,909 (177,979) The remaining amortisation period on a weighted average basis of the management rights are 32 years (2012: 33 years). Note 13: Trade & other payables Trade creditors and accruals Total trade & other payables Note 14: Provisions Current Annual leave entitlements Non-Current Long service leave entitlements Total Provisions Consolidated 30 June 2013 $ 610,420 610,420 30 June 2012 $ 1,937,135 1,937,135 Consolidated 30 June 2013 30 June 2012 $ 42,444 - 42,444 - $ 73,459 - 73,459 Note 15: Dividends No dividends were paid or proposed during financial year 2013 (2012 - $nil). The balance of the franking account at 30 June 2013 was $nil (2012 - $nil). EGH ANNUAL REPORT 2013 37 Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2013 Note 16: Other Financial Liabilities Current Liabilities Shareholder loans Convertible notes Commercial bills – secured Total Current Commercial bills - secured Total Non-Current Total Other Financial Liabilities (a) NAB Facility – Commercial bills and advances TERMS AND CONDITIONS – 30 JUNE 2013 Consolidated 30 June 2013 $ 30 June 2012 $ 1,036,643 365,000 360,000 1,761,643 2,949,000 2,949,000 4,710,643 987,047 140,000 300,000 1,427,047 3,299,000 3,299,000 4,726,047 As at 30 June 2013, the Group has access to a facility with the National Australia Bank (“NAB”), with a fully drawn limit of $3,309,000 (2012: $3,599,000). The facility expires on 31 July 2014 and is secured by: • Registered mortgages over managers’ units and other real estate at its Communities ($2,230,651). • Deed of charge over the related management rights ($3,943,733) • Guarantee and indemnity given by EGH and its controlled entities. • Fixed and floating charges over the assets of EGH and its controlled entities ($9,381,024). National Australia Bank Ltd hold registered first mortgages over all real estate assets of the Group. It also holds a registered mortgage debenture over all assets and undertakings of all Group assets with the exception of management rights owned by Eureka Care Communities Pty Ltd. The Eureka Care Communities Pty Ltd management rights make up an immaterial portion of the Group’s assets. Repayment terms: $30,000 per month. During the year and as at 30 June 2013, the Group had the following banking covenants: Interest Coverage Ratio of 2.0 times to be maintained at all times. • • Maximum Operating Leverage Ratio of 2.5 times to be maintained at all times. The Group has complied with its covenants through 30 June 2013. TERMS AND CONDITIONS – 30 JUNE 2012 As at 30 June 2012, the Group had access to a facility with the National Australia Bank (“NAB”), with a fully drawn limit of $3,599,000 (2011: $3,999,000) secured by: • Registered mortgages over managers’ units and other real estate at its Communities ($2,325,959) • Deed of charge over the related management rights ($4,117,784). • Guarantee and indemnity given the EGH and its controlled entities. • Fixed and floating charges over the assets of EGH and its controlled entities ($10,433,669) National Australia Bank Ltd hold registered first mortgages over all real estate assets of the Group. It also holds a registered mortgage debenture over all assets and undertakings of all Group assets with the exception of management rights owned by Eureka Care Communities Pty Ltd. The Eureka Care Communities Pty Ltd management rights make up an immaterial portion of the Group’s assets. Repayment terms: $20,000 per month (from 1 July 2012 to 31 December 2012); $30,000 per month (1 January 2013 to 31 July 2013). During the year and as at 30 June 2012, the Group had the following banking covenants: Interest Coverage Ratio of 2.0 times to be maintained at all times. • • Maximum Operating Leverage Ratio of 2.5 times to be maintained at all times. The group complied with its covenants through to 30 June 2012. This facility expired on 31 March 2012 and was extended to 31 July 2013. EGH ANNUAL REPORT 2013 38 Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2013 Commercial bills – secured Total NAB facilities 30 June 2013 30 June 2012 Used $ 3,309,000 3,309,000 Unused $ Used $ 3,599,000 3,599,000 - - Unused $ - - (b) Shareholder loans Shareholder loans are outstanding to Co-Investor Capital Partners Pty Ltd, Bydand Investments Pty Ltd and Kathlac Pty Ltd (an entity associated with Lachlan McIntosh, Chairman of EGH). Refer to Note 22 for details. These loans are on an at call basis, are unsecured and attract an interest rate of 12% (2012: 12%) per annum. Each of the shareholders has confirmed in writing their support to the Group. (c) Convertible notes On 30 November 2011 (at the Annual General Meeting) shareholders approved the issuance of 530,000 secured and 773,000 unsecured redeemable convertibles notes of $1.00 each (Notes) with 6 2/3 attaching Options (Options) for each note – or a total of 8,691,010 options. The Notes are convertible into shares at the lower of $0.08 or 90% of the VWAP during the last 5 business days on which trading in share on the ASX occurred prior to but not including the date of issue of the conversion notice. The Notes attract an interest rate of 12.5% per annum and mature at the second anniversary of issuance. The Options are exercisable at $0.15 and expire at the second anniversary of issuance. As at 30 June 2012, the Group had 20,000 secured notes and 120,000 unsecured notes and all of the issued options outstanding. On 1 August 2012 EGH issued 225,000 unsecured convertible notes of $1.00 each. The Notes are convertible into shares at $0.10. The Notes attract an interest rate of 12.50% per annum and mature on 1 February 2014. As at 30 June 2013 the Group had 225,000 unsecured notes outstanding. EGH ANNUAL REPORT 2013 39 Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2013 Note 17: Share capital 30 June 2013 Number 30 June 2012 Number 30 June 2013 $ 30 June 2012 $ Fully paid ordinary shares (number of shares) 75,632,932 73,092,932 44,176,337 43,930,780 73,092,932 37,857,460 43,930,780 42,300,014 Opening balance Shares issued during the year: Shares issued at $0.0363 (Note conversion) Shares issued at $0.0400 (Note conversion) Shares issued at $0.0431 (Note conversion) Shares issued at $0.0495 (Note conversion) Shares issued at $0.0502 (Note conversion) Shares issued at $0.0504 (Note conversion) Shares issued at $0.0505 (Note conversion) Shares issued at $0.0530 (Note conversion) Shares issued at $0.0800 (Note conversion) - - - - - - - - - 8,473,207 5,878,643 6,530,742 403,883 2,490,520 6,117,225 494,733 471,519 875,000 - - - - - - - - - - 64,605 189,395 (8,443) 308,000 235,146 281,720 20,000 125,000 308,280 25,000 25,000 70,000 - 350,000 (117,380) Shares issued at $0.1000 (Debt conversion) 646,050 Shares issued at $0.1000 Less: share issue costs 1,893,950 3,500,000 - - Shares on issue at end of year 75,632,932 73,092,932 44,176,337 43,930,780 Options on issue at beginning of year Options expired Options issued as part of convertible note issuance (noted 16 (c)) Total options on issue Ordinary shares 30 June 2013 30 June 2012 Number of Options 8,941,010 - - 8,941,010 315,000 (65,000) 8,691,010 8,941,010 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. Ordinary shares have no par value and the company does not have a limited amount of authorised capital. Options In August 2010, the Company issued 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) to Michael Hayes. These options were cancelled during FY 2012 upon the resignation of Michael Hayes. On 30 November 2011 (at the Annual General Meeting) shareholders approved the issuance of 530,000 secured and 773,000 unsecured redeemable convertibles notes of $1.00 each (Notes) with 6 2/3 attaching Options (Options) for each note – or a total of 8,691,010 options. The 8,691,010 options expiring on 6 December 2013, are exercisable into ordinary shares in the Company at 15 cents. EGH ANNUAL REPORT 2013 40 Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2013 Note 18: Cash Flow Information (a) Reconciliation of cash Cash at bank and on hand (b) Reconciliation of profit/(loss) for the year to net cash flow from operating activities Profit/(loss) for the year Depreciation and amortisation Impairment - management rights Impairment – assets held for sale Other (Gain)/Loss on sale of fixed assets (Gain)/Loss on sale of assets held for sale (Increase)/decrease in: - trade and other receivables - inventories - other current assets Increase/(decrease) in: - payables - provision for employee benefits Net cash flow from/(used in) operating activities (c) Non cash investing and financing activities Consolidated 30 June 2013 30 June 2012 $ $ 465,676 895,059 74,932 299,681 35,266 37,080 (76,503) 130,866 686,488 277,606 - - - 85,542 - (16,318) 221,641 19,555 117,353 (158,899) (22,727) (146,852) (1,276,105) (521,517) (31,015) (447,249) (81,257) 102,066 During the current financial year, the Group entered into the following non-cash investing and financing activities which are not reflected in the consolidated statement of cash flows: • The group converted $64,605 of shareholders loan to shares In the prior financial year, the Group entered into the following non-cash investing and financing activities which are not reflected in the consolidated statement of cash flows: • • The group converted $235,145 of shareholders loan to convertible notes. The convertible notes amounting to $1,398,145 from the conversion of shareholder loans were subsequently converted to shares amounting to $1,398,145. EGH ANNUAL REPORT 2013 41 Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2013 Note 19: Financial instruments Overall policy 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 Group’s activities. The Group aims to develop a disciplined and constructive control environment in which all employees understand their roles and obligations. a) Credit risk Credit risk is the risk of financial loss to the Consolidated Entity if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Group’s receivables from customers and amounts due from the senior independent living communities in accordance with management agreements in place. 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 2013 $ 30 June 2012 $ 465,676 530,587 996,263 895,059 738,233 1,633,292 Trade and accounts receivables The Group’s exposure to credit risk is influenced mainly by the individual characteristic of each customer or resident. The Group has a diverse range of customers and residents and therefore there is no significant concentration of credit risk with any single counterparty or group of counterparties. The Directors have established a credit policy under which each new customer is analysed individually for creditworthiness before the Group does business with them. 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. Cash and cash equivalents Deposits of cash are only held with approved banks and financial institutions. 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 Consolidated 30 June 2013 Gross $ 88,339 45,070 10,629 390,298 534,336 Allowance $ - - - (3,749) (3,749) 30 June 2012 Gross $ 254,359 20,168 13,448 500,258 788,233 Allowance $ - - - (50,000) (50,000) EGH ANNUAL REPORT 2013 42 Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2013 Movement in provision for doubtful debts Opening doubtful debts provision Bad debts written off Increase to doubtful debts provision Closing doubtful debts provision b) Liquidity risk Consolidated 30 June 2012 $ 30 June 2012 $ 50,000 (46,251) - 3,749 61,993 (20,694) 8,701 50,000 Liquidity risk is the risk that the Consolidated Entity will not be able to meet its financial obligations as they fall due. The Consolidated Entity’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due. 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: 2013 Consolidated Trade payables Contractual Repayment Amount $ 449,993 6 or less Months $ 449,993 6 - 12 Months $ 1 – 2 years $ More than 2 years $ - - - Sundry creditors & accruals 160,427 160,427 - - - Commercial bills Other financial liabilities Total 2012 Trade payables Sundry creditors & accruals Commercial bills Other financial liabilities Total 3,309,000 180,000 180,000 2,949,000 - 1,401,643 5,321,063 1,401,643 - - - 2,192,063 180,000 2,949,000 - Contractual Repayment Amount $ 1,214,541 722,594 3,599,000 Consolidated 6 or less Months $ 1,214,541 722,594 120,000 6 - 12 Months $ - - 1 – 2 years $ - - 180,000 3,299,000 1,127,047 1,127,047 - - 6,663,182 3,184,182 180,000 3,299,000 More than 2 years $ - - - - - EGH ANNUAL REPORT 2013 43 Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2013 c) Market risk Market risk is the risk that changes in market prices such as interest rates will affect the Consolidated Entity’s income or the value of its holdings of financial instruments. The objective of market risk management is to manage and 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 and cash at bank. 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 1% increase in interest rates – effect on profit after tax & equity Consolidated 30 June 2013 $ (28,433) 30 June 2012 $ (27,039) 1% decrease in interest rates – effect on profit after tax & equity 28,433 27,039 Note 20: Commitments for expenditure a) Operating leases: group as lessee Non‑cancellable operating leases The group leases various managers’ units under non-cancellable operating leases expiring within two to twenty five years. The leases have varying terms, escalation clauses and renewal rights. On renewal, the terms of the leases are renegotiated. Within 1 year Greater than 1 year but not longer than 5 years Greater than 5 years Total Consolidated 30 June 2013 $ 487,136 30 June 2012 $ 487,136 1,145,667 2,465,074 1,422,331 2,682,312 4,097,877 4,591,779 The amount disclosed for the lease of office space does not include any adjustments for CPI or market rental reviews. b) Capital expenditure The Group has no capital expenditure contracted for at the reporting date (2012: $Nil). EGH ANNUAL REPORT 2013 44 Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2013 Note 21: Earnings per share Net profit/(loss) used in calculating basic and diluted earnings per share Weighted average number of ordinary shares used in calculating basic earnings per share (adjusted for consolidation) Adjustments made to ordinary shares & potential ordinary shares as a result of convertible notes Weighted average number of ordinary shares & potential ordinary shares used in calculating diluted earnings per share Basic earnings per share Diluted earnings per share Consolidated 30 June 2013 $ 30 June 2012 $ 74,932 686,488 75,521,590 49,967,419 4,827,586 1,013,661 80,349,176 50,981,080 0.10 Cents 1.37 Cents 0.09 Cents 1.35 Cents Note 22: Related party transactions (a) Key management personnel compensation Short term employee benefits Post-employment benefits Termination benefits Share-based payments Total 2013 $ 935,490 23,123 - - 2012 $ 654,149 12,721 - - 958,613 666,870 Detailed disclosures relating to key management personnel are set out in the remuneration report within the Directors' Report. EGH ANNUAL REPORT 2013 45 Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2013 (b) Number of shares held: Directors and other key management personnel The numbers of securities held during the financial year by each director of and other key management personnel of the group, including their personally related parties, are set out below. There were no shares granted during the reporting period as compensation. Balance 1 July 2012* Received as Remuneration * Shares Acquired Options Exercised* Net Change Other * Balance 30 June 2013 Directors: Lachlan McIntosh 10,008,336 Paul Fulloon Nirmal Hansra Greg Rekers Kerry Potter Total Executives: - 250,000 2,578,940 2,574,773 15,412,049 Sharon Alderwick 347,657 Troy Nunan Total - 347,657 - - - - - - - - - 300,000 - 150,000 75,000 75,001 600,001 Balance 1 July 2011 Received as Remuneration Shares Acquired Directors: Lachlan McIntosh 5,881,774 Paul Fulloon Nirmal Hansra Greg Rekers Kerry Potter David Rosenblum Total Executives: Sharon Alderwick Troy Nunan Total - - - - - 5,881,774 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 10,308,336 - 400,000 2,653,940 2,649,774 16,012,050 347,657 - 347,657 Net Change Other * Balance 30 June 2012 4,126,562* 10,008,336 - 250,000* 2,578,940 2,574,773 - - 250,000 2,578,940 2,574,773 - 9,530,275 15,412,049 347,657 347,657 - - 347,657 347,657 Options Exercised - - - - - - - - - - - - - * Note that these shares were issued as part of the issue of convertible notes issue approved at the 2011 AGM. EGH ANNUAL REPORT 2013 46 Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2013 (c) Number of options held: Directors and other key management personnel The numbers of options over ordinary securities held during the financial year by each director of the Group and other key management personnel of the Group, including their personally related parties, are set out below: Balance 1 July 2012 Received as Remuneration Options Exercised Net Change Other Balance 30 June 2013 Directors: Lachlan McIntosh 1,000,500 Paul Fulloon Nirmal Hansra Greg Rekers* Kerry Potter* Total Executives: - 133,400 800,400 800,400 2,734,700 Sharon Alderwick 100,500 Troy Nunan Total - 100,500 - - - - - - - - - - - - - - - - - - - - - - - - 100,500** - 100,500 1,000,500 - 133,400 800,400 800,400 2,734,700 - - - * Note that options relating to Greg Rekers and Kerry Potter are the same options held by Navigator PL. All options are unlisted and were issued as part of the issue of convertible notes issue approved at the 2011 AGM. ** Options have expired during the year. Balance 1 July 2011 Received as Remuneration Options Exercised Net Change Other** Balance 30 June 2012 Directors: Lachlan McIntosh Paul Fulloon Nirmal Hansra Greg Rekers* Kerry Potter* Total Executives: Sharon Alderwick Troy Nunan Total - - - - - - - - - - - - - - - - - - - - - - - - - - - 1,000,500 1,000,500 - 133,400 800,400 800,400 - 133,400 800,400 800,400 2,734,700 2,734,700 100,500 100,500 - - 100,500 100,500 * Note that options relating to Greg Rekers and Kerry Potter are the same options held by Navigator PL. All options are unlisted and were issued as part of the issue of convertible notes issue approved at the 2011 AGM. ** Options issued are attached to the Convertible Notes issued during the year EGH ANNUAL REPORT 2013 47 Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2013 (d) Other transactions with key management personnel Kathlac Pty Ltd As at 30 June 2013, total loans outstanding to Eureka Group Holdings Limited from Kathlac Pty Ltd, an entity associated with Lachlan McIntosh, amounted to $18,616 (2012: $79,300) consisting of $16,223 principal and $2,393 in capitalised interest. Balance at beginning of year Increase in loan amount Loan repayment made Interest charged Converted to convertible notes/shares Balance at end of year 2013 $ 2012 $ 79,300 - (48,077) 2,393 (15,000) 18,616 208,105 45,003 (50,000) 26,192 (150,000) 79,300 22 Capital Pty Ltd 22 Capital Pty Ltd, an entity associated with Lachlan McIntosh, did not invoice for consulting services during the financial year (2012: $288,887). At 30 June 2013 amount outstanding to 22 Capital Pty Ltd was $88,718 (2012: $148,718). Dotted Line Pty Ltd The Company trades from a premise owned by Dotted Line Pty Ltd, a company associated with Greg Rekers. The premises is rented on commercial terms. During the year rent amount to $39,600 was paid (2012: $39,600). As at 30 June 2013 amount outstanding to Dotted Line Pty Ltd was $Nil (2012: $Nil) Sothertons Chartered Accountants During the year, Sothertons Chartered Accountants, (of which Lachlan McIntosh is a shareholder) received tax advice related fees of $29,693 on commercial terms (2012: $119,163). At 30 June 2013 amount outstanding to Sothertons was $28,263 (2012: $3,307). Griffith Scenic Village Pty Ltd Griffith Scenic Village Pty Ltd, an entity associated with Lachlan McIntosh, paid the Group caretaking and management fees of $48,462 on commercial terms. As at 30 June 2013 amount outstanding to Griffith Scenic Village Pty Ltd was $Nil (2012: $Nil) Gladstone Scenic Village Pty Ltd Gladstone Scenic Village Pty Ltd, an entity associated with Lachlan McIntosh, paid the Group management fees of $20,513 on commercial terms. As at 30 June 2013 amount outstanding to Gladstone Scenic Village Pty Ltd was $Nil (2012: $Nil) Elizabeth Vale Scenic Village Pty Ltd Elizabeth Vale Scenic Village Pty Ltd, an entity associated with Lachlan McIntosh, paid the Group management fees of $45,259 on commercial terms. As at 30 June 2013 amount outstanding to Elizabeth Vale Scenic Village Pty Ltd was $Nil (2012: $Nil) Note 23: Ultimate parent entity The parent entity within the group is Eureka Group Holdings Limited, which is the ultimate parent entity within Australia. Note 24: Contingent liability There are no contingent liabilities or contingent assets at 30 June 2013 that require disclosure in the financial report. Note 25: Operating segments Identification of reportable operating segments The company operates in one segment, being the management of senior independent living communities. All of the Company’s areas of operations are currently located within Australia. Operating segments have been determined on the basis of reports reviewed by the Board of Directors (who are identified as the chief operating decision makers). The financial results from this reportable segment are equivalent to the financial statements of the consolidated entity as a whole. The chief operating decision makers review the results of the consolidated entity on the above basis. EGH ANNUAL REPORT 2013 48 Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2013 Note 26: Remuneration of auditors During the financial year the following fees were paid or payable for services provided by the auditor of the company and its related practices: Audit and other assurance services – BDO Audit Pty Ltd (i) Consolidated 30 June 2013 $ 30 June 2012 $ Audit and review of financial statements 81,000 - (ii) Audit and other assurance services – BDO East Coast Partnership Audit and review of financial statements (iii) Other Services – BDO (QLD) Pty Ltd Aged Care Approvals Round (ACAR) application Total - 71,000 7,500 88,500 - 71,000 Note 27: Subsequent events EGH has executed a contract for sale of its manager’s unit and rights at Stafford for $515,000. This contract is expected to settle in October 2013. Other than the above mentioned item, there are no further material subsequent events. Note 28: Parent entity disclosures Information relating to Eureka Group Holdings Limited (parent entity): Results of the parent entity Profit/(loss) for the period Other comprehensive income Total comprehensive income for the period Financial position of parent entity at year end Current assets Total assets Current liabilities Total liabilities Total equity of parent entity comprising of: Share capital Retained earnings Total equity Guarantees Consolidated 30 June 2013 30 June 2012 $ $ (720,215) (442,794) - - (720,215) (442,794) 678,535 7,168,718 1,978,864 4,927,864 1,833,476 5,633,680 782,774 5,399,447 44,176,337 (41,935,483) 43,930,780 (43,696,547) 2,240,854 234,233 The parent entity had no guarantees in place as at 30 June 2013 and 30 June 2012. Contingent liabilities The parent entity had no contingent liabilities as at 30 June 2013 and 30 June 2012. Capital commitments The parent entity had no capital commitments for property, plant and equipment as at 30 June 2013 and 30 June 2012. EGH ANNUAL REPORT 2013 49 Eureka Group Holdings Limited and controlled entities Directors’ Declaration FOR THE YEAR ENDED 30 JUNE 2013 DECLARATION OF BY DIRECTORS The directors of the company declare that: 1. The financial statements, comprising the consolidated statement of profit or loss and other comprehensive income, consolidated statement of financial position, consolidated statement of cash flows, consolidated statement of changes in equity, accompanying notes, are in accordance with the Corporations Act 2001 and: a. comply with Accounting Standards and the Corporations Regulations 2001; and b. give a true and fair view of the consolidated entity’s financial position as at 30 June 2013 and of its performance for the year ended on that date. 2. The company has included in the notes to the financial statements an explicit and unreserved statement of compliance with International Financial Reporting Standards. 3. In the directors’ opinion, there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable. 4. The remuneration disclosures included in paragraph 18 of the directors’ report (as part of audited Remuneration Report), for the year ended 30 June 2013, comply with section 300A of the Corporations Act 2001. 5. The directors have been given the declarations by the chief executive officer and chief financial officer required by section 295A. This declaration is made in accordance with a resolution of the Board of Directors and is signed for and on behalf of the directors by: Lachlan McIntosh Director Dated in Brisbane this 30th day of September, 2013 EGH ANNUAL REPORT 2013 50 Eureka Group Holdings Limited and controlled entities Independent Auditor's Report FOR THE YEAR ENDED 30 JUNE 2013 Tel: +61 7 3237 5999 Fax: +61 7 3221 9227 www.bdo.com.au Level 10, 12 Creek St Brisbane Qld 4000GPO Box 457 Brisbane QLD 4001 Australia INDEPENDENT AUDITOR’S REPORT To the members of Eureka Group Holdings Limited Report on the Financial Report We have audited the accompanying financial report of Eureka Group Holdings Limited, which comprises the consolidated statement of financial position as at 30 June 2013, the consolidated statement of profit or loss and other comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, notes comprising a summary of significant accounting policies and other explanatory information, and the directors’ declaration of the consolidated entity comprising the company and the entities it controlled at the year’s end or from time to time during the financial year. 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 gives a true and fair view and 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 company’s preparation of the financial report that gives a true and fair view 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 company’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. BDO Audit Pty Ltd ABN 33 134 022 870 is a member of a national association of independent entities which are all members of BDO Australia Ltd ABN 77 050 110 275, an Australian company limited by guarantee. BDO Audit Pty Ltd and BDO Australia Ltd are members of BDO International Ltd, a UK company limited by guarantee, and form part of the international BDO network of independent member firms. EGH ANNUAL REPORT 2013 51 Eureka Group Holdings Limited and controlled entities Independent Auditor's Report FOR THE YEAR ENDED 30 JUNE 2013 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 Eureka Group Holdings Limited, would be in the same terms if given to the directors as at the time of this auditor’s report. Opinion In our opinion: (a) the financial report of Eureka Group Holdings Limited is in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the consolidated entity’s financial position as at 30 June 2013 and of its performance for the year ended on that date; and (ii) complying with Australian Accounting Standards and the Corporations Regulations 2001; and (b) the financial report also complies with International Financial Reporting Standards as disclosed in Note 2. Report on the Remuneration Report We have audited the Remuneration Report included in paragraph 18 of the directors’ report for the year ended 30 June 2013. 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 Eureka Group Holdings Limited for the year ended 30 June 2013, complies with section 300A of the Corporations Act 2001. BDO Audit Pty Ltd K L Colyer Director Brisbane, 30 September 2013 BDO Audit Pty Ltd ABN 33 134 022 870 is a member of a national association of independent entities which are all members of BDO Australia Ltd ABN 77 050 110 275, an Australian company limited by guarantee. BDO Audit Pty Ltd and BDO Australia Ltd are members of BDO International Ltd, a UK company limited by guarantee, and form part of the international BDO network of independent member firms. EGH ANNUAL REPORT 2013 52 Eureka Group Holdings Limited and controlled entities Corporate Directory FOR THE YEAR ENDED 30 JUNE 2013 Postal Address Unit 7, 486 Scottsdale Drive, Varsity Lakes, QLD 4227 Board of Directors Lachlan McIntosh (Non - Executive Chairman) Paul Fulloon Nirmal Hansra Greg Rekers Kerry Potter Company Secretary Troy Nunan Solicitors HWL Ebsworth Level 2 Brisbane 500 Queen St, Brisbane Qld 4000 Tel: Fax: 07 3002-6790 1300 368 717 Auditors BDO Audit Pty Ltd Level 10, 12 Creek Street Brisbane Qld 4000 Tel: Fax: 07 3237-5999 07 3221-9227 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 Australian Business Number 15 097 241 159 EGH ANNUAL REPORT 2013 53 

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