Eureka Group Holdings Limited
Annual Report 2018

Plain-text annual report

ANNUAL REPORT 2017-2018 Delivering affordable, caring and inclusive communities For personal use only2017-2018 ANNUAL REPORTFor personal use onlyContents FY2018 Highlights Executive Chairman’s Report FY2018 Acquisitions Directors’ Report Consolidated Statement of Profit or Loss and Other Comprehensive Income 02 04 10 16 30 Consolidated Statement of Financial Position 31 Consolidated Statement of Cash Flows 32 Consolidated Statement of Changes in Equity 33 Notes to the Financial Statements Directors’ Declaration Independent Auditor’s Report Auditor’s Independence Declaration Corporate Governance Statement Corporate Directory Security Holder Information 34 75 76 81 82 83 84 All images within this Annual Report show residents at Eureka villages. 01 01 EUREKA GROUP HOLDINGSFor personal use onlyFY2018 Highlights 92.9% FY18 Occupancy up 3.3% on FY17 at 89.6% Supported Residential Facilities (SRFs) Underperforming SRF, Amber Lodge in Adelaide sold in March 2018 with the sale of a second SRF facility, Lambert Village in Mount Gambier sold subsequent to year end. A third SRF in Adelaide has received accreditation under the National Disability Insurance Scheme (NDIS) and is operating profitably. Eureka expects further profit gains in the coming year. Corporate Governance Eureka has strengthened its corporate governance procedures that are underpinned by the appointments of new independent Chair, Murray Boyte and Director, Sue Renkin who also assumed the role of independent Chair of the Audit and Risk Committee. Eureka also appointed Laura Fanning, an experienced corporate governance professional, as Company Secretary. Finance Facility Eureka has re-negotiated its banking arrangements, consolidating debt into one facility maturing in 3.5 years on 31 December 2021. This represents a two-year extension to the $20million component of the facility demonstrating Eureka’s excellent relationship with its bankers. 02 17% increase on FY17 EBITDA from group’s core operations FY18 $6,942,000 FY17 $5,931,000 12.8% Growth in unit assets 1,934 2,182 UNITS FY17 UNITS FY18 Eureka brand expands into Tasmania Now Operating in Australian States5 2017-2018 ANNUAL REPORTFor personal use onlyEureka has a strong platform to expand its business base through acquisitions and infill developments including at some existing Eureka villages. An excellent opportunity exists for Eureka to scale its platform of providing secure, safe and friendly residential accommodation in the social infrastructure segment of retirement living. 41 20 6 2 5 8 Couran Cove Eureka has reached a pragmatic resolution by disposing of its property assets at Couran Cove subsequent to year end and retaining the right to recover value from the equitable land interest. This transaction will return $3.60 million cash scheduled for 6 September 2018 and will free up capital to redeploy to Eureka’s core business activities. 32 Owned 9 under management 03 EUREKA GROUP HOLDINGSFor personal use onlyExecutive Chairman’s Report Financial Review While Eureka Group Holdings Limited (Eureka) has experienced a difficult year as reflected in the results set out within, the core operating business providing affordable senior rental accommodation and other services has performed strongly with an improved EBITDA. Excellent occupancy levels have been achieved across the portfolio. Eureka has acquired 8 new villages including 5 villages in conjunction with a joint venture partner and has secured a long term management contract with the joint venture. The redeploying of capital into the core business can contribute to a substantial improvement in profitability off the existing capital base. For the year ended 30 June 2018 Eureka Group Holdings Limited (Eureka) has reported a net loss before (and after) tax of $0.28 million, compared with a 2017 profit before (and after) tax of $6.54 million. These results were arrived at after property adjustments as follows: Gain on revaluation of investment properties Write downs on Supported Residential Facilities Inventory write down on Couran Cove Eco units and transaction costs Write down for Couran Cove residual assets FY18 $’000 FY17 $’000 1,233 3,701 (2,672) (2,655) (1,124) (1,763) - - (4,326) 1,046 The year under review has been a disappointing one for shareholders: » Asset write downs and realised losses on property sales adversely impacting the results. » Core operating cash flow reduced as a result of expenditure at Couran Cove and Terranora. » Non-core assets including Terranora and Couran Cove, which during the period were recorded in the financial statements at $20.00 million - $24.00 million, have had a material detrimental effect on earnings and cash flow. The Group’s EBITDA¹ prior to property adjustments was $7.05 million. This compares to the FY17 EBITDA¹ of $8.37 million. These EBITDA¹ results include a number of items, which if adjusted for, demonstrate the strength in the Group’s core business operations. 04 2017-2018 ANNUAL REPORTFor personal use onlyEBITDA¹ prior to gains and losses on revaluations and write-offs FY18 $’000 FY17 $’000 7,054 8,369 Net operating cash flow at $2.94 million was 27.8% below FY17. Interest paid at $2.78 million increased by 22% over FY17 with development costs at Terranora and Couran Cove negatively affecting operating cashflow of $1.67 million (FY17 a $1.30 million). Bartercard write-down/(gain) 253 (1,320) Couran Cove consulting fees Insurance gain Director termination payments CEO retirement payment - - - 136 Profit on sale of Victoria St, Mackay (501) (1,000) (638) 520 - - EBITDA¹ from core operations 6,942 5,931 Adjusted for the above items, EBITDA1 from the Group’s core operations increased by 17% over FY17. This was achieved as a result of a higher occupancy rate of 92.9% (FY17 89.6%), the acquisition of 3 villages, acquisition of 50% interest in the Tasmanian Joint Venture (2.5 months contribution only) and control of expenditure levels. Bank debt increased by 9.5% to $55.34 million (FY17 $50.56 million). During the period Eureka complied with all bank covenants. In April 2018 the bank covenant for loan to value ratio was increased from 55% to 57.5% until September 30, 2018 to fund Eureka’s $4.50 million commitment to the joint venture established to acquire the Tasmanian villages. The improving cash flow and asset sales has meant Eureka has not exceeded the 55% limit. The realisation of proceeds from the settlement of Couran Cove transactions, Terranora land and unit sales and remaining Supported Residential Facility (SRF) assets will generate in excess of $20.00 million that can be utilised for debt reduction and acquisitions. 1 EBITDA (Earnings before interest, tax, depreciation and amortisation) is a non- IFRS measure, however the directors believe that it is a readily calculated measure that has broad acceptance and is used by regular users of published financial statements as proxy for overall operating performance. EBITDA presented has been calculated from amounts disclosed in the financial statements. Top left: Residents at Eureka Launceston Gardens Top right: Residents at Eureka Glenorchy Gardens Bottom right: Eureka Devonport Gardens manager, Donna Mackrell Opposite page: Dining at Eureka Claremont Gardens 05 EUREKA GROUP HOLDINGSFor personal use onlySubsequent to year-end, Eureka has re-negotiated its banking arrangements, consolidating the debt into one facility maturing in 3.5 years on 31 December 2021. This reflects a 2 year extension to the $20.00 million component of the facility and demonstrates Eureka’s excellent relationship with its bankers. During the period, asset sales totalled $3.90 million from the sale of the Mackay property, Amber Lodge Supported Residential Facility and ancillary assets. Portfolio Occupancy The occupancy performance for the 100% owned villages increased from 89.6% in FY17 to 92.9% in FY18. This is an excellent result achieved through a focused local market strategy including open days, close liaison with institutional and health care agencies and media sales programs. Eureka expects further occupancy improvement in FY19. Acquisitions During the period Eureka acquired 3 new villages for $6.26 million, including acquisition costs: July 2017 Gympie 42 units August 2017 Townsville 12 units August 2017 Ayr 18 units 72 units $’000 4,282 880 1,095 6,257 Eureka also entered into a joint venture with a group of unrelated private investors to acquire five senior rental villages in Tasmania comprising 254 units. The 50% investment totalled $4.50 million. Eureka entered into a 10 year management agreement with the joint venture. At year end Eureka’s portfolio comprised 32 owned villages (including owned through joint venture) and 9 villages under management representing 2,182 units, a 12.8% increase on FY17’s 1,934 units. Supported Residential Facilities (SRF) During FY16 and FY17 Eureka acquired 3 SRFs in South Australia at a cost of $11.76 million. The SRFs have not performed as expected, resulting in write downs of $5.33 million over the last two years. As the SRFs do not fit with Eureka’s core senior rental village business, Amber Lodge in Adelaide was sold in March 2018 for written down book value of $2.20 million and subsequent to year end, a contract has been entered into for the sale of the Lambert facility at Mount Gambier for $1.10 million, in line with written down book value. The sale is conditional on a consent for the transfer of the SRF licence. Two properties owned adjacent to the facility have been put to market and will be sold separately with expected proceeds of $0.70 million. The third SRF in Adelaide has a book value of $3.60 million. This facility has accreditation under the National Disability Insurance Scheme (NDIS). This facility is operating profitably, and we expect further improvement in the coming year. Blue Care Alliance In June 2016 Eureka and Uniting Church Queensland (Blue Care) entered into a strategic partnership that provided Eureka residents with a range of home services, offering preferred care and support programs enabled through government funding programs. These programs enhance the living environment provided through the Eureka senior rental accommodation model. 06 2017-2018 ANNUAL REPORTFor personal use onlyThe partnership is consistent with Eureka’s philosophy of delivering quality independent living communities that are safe, secure and well managed. It is also consistent with a growing national health trend enabling senior residents to participate in self-management of health under professional guidance. During FY18 the number of visits, hours and services delivered by Blue Care liaison officers increased significantly over FY17. While off a low base, the improved service delivery rates demonstrates the partnership is beneficial for the Eureka business model. Jointly Blue Care and Eureka management are committed to proactively expanding the partnership, including the acceleration of referrals to the Eureka villages. Bartercard Eureka has in recent years used Bartercard as a medium of exchange for business transactions including contracting to receive Bartercard dollars for a portion of sales at Terranora and the Couran Cove loan repayment. At balance date Eureka has T$2.10 million Bartercard dollars, a portion of which is held as deposits for future receipt of goods. Eureka will no longer receive Bartercard dollars except for committed transactions under Terranora sales. The use of Bartercard dollars for the purchase of goods and services will be actively managed to reduce this exposure. Bottom left: Resident at Eureka Cascade Gardens, Mackay, Qld Bottom right: Eureka Murray River Gardens Mildura village manager, Collette Hazeldene helping a resident to master the internet Above: Terranora Village Terranora Terranora Village and associated property was acquired in December 2015 for $7.00 million. Originally built as the Royal Terranora Resort to service an 18-hole golf course and associated licensed premises, the apartments were generally larger than typical Eureka units being up to 100 square metres internally. With the larger apartments, excess land and strength in the Gold Coast property market, it was determined to strata title existing apartments and sell them on a retail basis. Town planners were engaged and a subdivision plan, comprising the existing apartments plus surplus development land lots were designed, and an application was lodged with the Tweed Shire Council. The property is now designed as a two lot subdivision in accordance with the final development approval. The previously identified third lot is now required to be transferred to the Body Corporate as common property. All conditions have been complied with to achieve titling of the two lot subdivision creating a separate title for the 4.8ha of vacant land. We expect to receive Tweed Shire Council confirmation for the subdivision in September enabling this component to proceed to titling. Significant progress has been made in finalising certificates of compliance and meeting development approval conditions for the 61 strata title units situated on a separate title on completion of the two lot subdivision. Despite the delay of the titling process, 12 conditional sales contracts (subject to titling) and 12 Expressions of Interest (EOIs) have been received. As soon as titling is achieved, the sales program will be accelerated. These contracts and EOIs approximate to $6.98 million sale value. 07 EUREKA GROUP HOLDINGSFor personal use onlyCouran Cove Directors and staff On 30 August 2018, Eureka released to the ASX an announcement on a settlement which Eureka has reached with Onterran Limited, Couran Cove entities and other parties pertaining to outstanding loans and property transactions. The financial impact of the transactions on asset values and transactions costs is included in the financial statements. The details of these transactions are specifically set out in the financial statements note 34. The settlement of the Couran Cove issues is a pragmatic resolution given the financial challenges that are being faced by Onterran Limited. While it is not entirely satisfactory due to the asset write downs and losses incurred on this investment, the independent directors are of the view this settlement is in the long term interests of Eureka and is the best outcome in the circumstances. Outlook The completion of the Couran Cove transaction and expected finalisation of titling for the 61 apartments at Terranora in the next few months has, and will continue to free up capital to redeploy in the core business and as a consequence contribute to improved returns on the existing capital base. The Eureka senior rental accommodation business is capable of generating satisfactory returns on capital employed. Management focus will be on improving operations at the village level, streamlining support services, cost reductions, evaluating and implementing upgraded financial and operating systems to exploit operating efficiencies and improved reporting. The Board is mindful that debt levels are at the high end of the range considered acceptable. The Group’s business model, however, which is based on building a steady, sustainable cashflow from a profitable asset base, can support a level of debt to fund the acquisition and expansion program. Eureka has a strong platform to expand its business base through acquisitions and infill developments including at some existing Eureka villages. An excellent opportunity exists for Eureka to scale its platform of providing secure, safe and friendly residential accommodation in the social infrastructure segment of retirement living. The accommodation and other services needs of Australia’s ageing population continues to grow. Eureka’s affordable senior rental living model is well placed to capitalise on supplying services to the growing number of Australians reaching retirement with few or no assets, together with the baby boomer segment moving into retirement in significant numbers. 08 The Company is implementing improvements in its corporate governance practices and will continuously undertake to ensure best practice is achieved. I was appointed Chairman of Eureka in November 2017. Mr Robin Levison stepped down as Chairman and remained on the Board until his retirement on 29 March 2018. Sue Renkin was appointed a Director in November 2017 and immediately assumed Chair of the Audit and Risk Committee. I thank all Directors for their contribution and effort during the year under review. Laura Fanning was appointed Company Secretary on June 28, 2018. Ms Fanning has broad listed company finance and secretarial experience including in risk management and corporate governance. We have a short-list of excellent candidates for the position of Chief Executive Officer and expect to announce an appointment in September 2018. This appointment will provide leadership to our management team and enhance the focus on the FY19 business plan to achieve improved financial returns for shareholders. The Chief Executive Officer Mr Jeff Weigh retired on May 31, 2018 for personal reasons. I then assumed the role of Executive Chairman and will remain in that position until a new Chief Executive Officer is appointed. An extensive search has been conducted through an independent search consultant. I thank all staff for their contribution and effort during a difficult period. It is very much appreciated. To our shareholders, your Board and management are committed to expediently finalising the asset restructuring program. Eureka is well placed for the profitable expansion of its operating platform that will underpin increased shareholder value on a sustainable basis in the future. Murray Boyte Executive Chairman 31 August 2018 Pictured right: Eureka Devonport Gardens, Tasmania 2017-2018 ANNUAL REPORTFor personal use only09 EUREKA GROUP HOLDINGSFor personal use onlyFY2018 Acquisitions Eureka Group Holdings continued its strategy of investing in core property assets to build on its business model and deliver financial returns to investors. During FY17-18, EGH added a further eight seniors’ rental villages to its portfolio, numbering an additional 326 units and associated onsite facilities. This also included the company expanding its operations into Tasmania through a 50% joint venture with a group of private investors in which EGH has existing business relationships. The Tasmanian joint venture was settled in April 2018 and comprises the purchase of five new villages in Devonport, Launceston and Hobart with EGH also providing management services at each village. Freshwater Villas Gympie, Queensland Eureka Freshwater Villas contains 42 units within short driving distance to retail, entertainment and medical facilities. The village has additional land that can accommodate further residential units. Units: 42 (plus vacant land) Facilities: Communal dining, kitchen, community room and reception/ manager’s office Koinonia Village Ayr, North Queensland Eureka purchased the 18-unit Koinonia Village in Ayr from Blue Care in August 2017. Eureka Koinonia Village is conveniently located close to Ayr’s town centre with hospital, retail and recreational facilities within a short driving distance from the village. Units: 18 Galilee Lodge Townsville, North Queensland Located in the suburb of South Townsville, Eureka Galilee Court is a small independent seniors’ village comprised of 12 self-contained one-bedroom units. The village was purchased from Blue Care in August 2017 and has vacant land to develop further units. Units: 12 (plus vacant land) Facilities: Community room * Eureka holds 50% ownership in five Tasmanian seniors’ village assets through a joint venture that includes the provision of management services at each property. 10 2017-2018 ANNUAL REPORTFor personal use onlyDevonport Gardens Devonport, Tasmania * Featuring 51 self-contained units, Eureka Devonport Gardens is centrally located close to the Devonport CBD with medical, retail and service facilities nearby. Units: 51 Facilities: Communal dining, kitchen, community room and reception/manager’s office Launceston Gardens Launceston, Tasmania * Eureka Launceston Gardens comprises 55 self-contained units affording residents easy access to public transport, medical, retail and service facilities. Units: 55 Facilities: Communal dining, kitchen, community room and reception/manager’s office Elphinwood Gardens Launceston, Tasmania * Eureka Elphinwood Gardens is located within short travelling distance to Launceston’s CBD and features 55 one-bedroom units. Units: 55 Facilities: Communal dining, kitchen, community room and reception/manager’s office Claremont Gardens Hobart, Tasmania * Eureka Claremont Gardens is a secure gated seniors’ community containing 51 units located close to the Derwent River and parklands and is within easy access to retail, medical and service facilities. Units: 51 Facilities: Communal dining, kitchen, community room and reception/manager’s office Glenorchy Gardens Hobart, Tasmania * Eureka Glenorchy Gardens is located within Hobart’s northern suburbs. The 42-unit village has panoramic views to Mount Wellington and offers residents access to a range of health and retail facilities nearby. Units: 42 Facilities: Communal dining, kitchen, community room and reception/manager’s office 11 EUREKA GROUP HOLDINGSFor personal use only“Julie and Rob did their utmost to make mum’s transition to her new unit as seamless as possible … Mum is settling in well and has enjoyed meeting new people and has loved being part of the social club. From a family point of view, it is nice to be able to have lunch with mum in the community room … I feel that this has been a positive move for mum.” Donna Greenhouse, daughter of a resident living at Eureka Elphinwood Gardens, Launceston 12 “We’ve got a really good village here where residents can choose to be as social or as private as they wish…independent living is the key here but it’s good to know there are neighbours who’ve grown to become great friends who keep an eye out for each other.” Dot Jensen, resident at Eureka Care Communities, Rockhampton 2017-2018 ANNUAL REPORTFor personal use only“I believe that Eureka Myall Place ticks all the boxes in delivering a caring and safe living environment where residents can choose to be as social as they want, while also respecting the privacy of others. Another really important reason for me choosing to live here is my dear little 8-year-old spaniel dog, EJ. Eureka is pet friendly and I know how special pets are to their elderly owners.” Cecelia (Bubs) Hancock, resident at Eureka Myall Place, Whyalla 13 “My mother has found a home here. We are thankful that we know she has people who look out for her, (and) found friends she enjoys life with. My mum likes quality when it comes to meals and the staff bend over backwards to cater to her food restrictions. So happy knowing that the transition from our family home to Eureka was a great move.” Diane Clark, daughter of a resident at Eureka Cascade Gardens, Mackay EUREKA GROUP HOLDINGSFor personal use onlyClockwise from top left: Resident from Eureka Devonport Gardens; Eureka Care Communities Wulguru; Eureka Claremont Gardens; Resident and pooch from Eureka Glenorchy Gardens; Eureka Care Communities Condon; Patsy and Puss from Eureka Mount Gambier Retirement Village; Sun-filled sitting room at Eureka Launceston Gardens. 14 2017-2018 ANNUAL REPORTFor personal use only15 EUREKA GROUP HOLDINGSFor personal use onlyEureka Group Holdings Limited and controlled entities Directors’ Report The Directors present their report on Eureka Group Holdings Limited (the “Company”, “EGH” or “Eureka”) and its controlled entities (the “Group”, or the “Consolidated Entity”) for the year ended 30 June 2018. DIRECTORS The following persons were directors of the Company during the whole of the financial year and up to the date of this report, unless otherwise stated: Murray Boyte Sue Renkin Nirmal Hansra Lachlan McIntosh Robin Levison Appointed 24 November 2017 Appointed 24 November 2017 Resigned 29 March 2018 PRINCIPAL ACTIVITIES The principal activities of EGH include: • • Providing specialist property asset management through property ownership and caretaking and infrastructure management; and Providing accommodation and tailored services to a broad market of aged residents with discretionary and non- discretionary spend characteristics. REVIEW OF OPERATIONS AND RESULTS The Group has reported a loss for the year of $0.28 million (2017: profit of $6.54 million). The Group’s core assets have performed strongly and achieved an overall increase in occupancy, revenue growth from existing and acquired villages and cost reductions. However, asset revaluations, write-downs and realised losses on non-core property assets totalling $4.33 million (2017: gain of $1.05 million) have adversely impacted the results. A summary of the Group’s performance is shown in Table 1. Table 1: Performance Summary Revenue - rental - catering and service fees - other Other income including share of joint venture profit Total Revenue and other income (excluding revaluation gains) Expenses from operations EBITDA1 prior to asset revaluations and write-offs Net gain/(loss) on revaluation of investment property Loss on revaluation of assets associated with Couran Cove investment 2 Couran Cove inventory write down and transaction costs 2 EBITDA1 Finance costs Depreciation and amortisation Profit/(loss) before tax Consolidated 30 June 2018 $’000 30 June 2017 $’000 15,674 6,036 864 810 23,384 (16,330) 7,054 (1,439) (1,763) (1,124) 2,728 (2,753) (251) (276) 14,826 5,980 3,247 1,374 25,427 (17,058) 8,369 1,046 - - 9,415 (2,606) (271) 6,538 1 EBITDA (Earnings before interest, tax, depreciation and amortisation) is a non-IFRS measure however, the directors believe that it is a readily calculated measure that has broad acceptance and is used by regular users of published financial statements as proxy for overall operating performance. EBITDA presented has been calculated from amounts disclosed in the financial statements. 2 Further details about the Couran Cove investment are provided in Note 9. As shown in Table 1, the Group’s EBITDA prior to asset revaluations and write-offs, was $7.05 million (2017: $8.37 million). 16 EGH ANNUAL REPORT 2018 16 Directors’ Report2017-2018 ANNUAL REPORTFor personal use only The following persons were directors of the Company during the whole of the financial year and up to the date of this report, Eureka Group Holdings Limited and controlled entities Directors’ Report DIRECTORS unless otherwise stated: Murray Boyte Sue Renkin Nirmal Hansra Lachlan McIntosh Robin Levison PRINCIPAL ACTIVITIES The principal activities of EGH include: • • management; and discretionary spend characteristics. REVIEW OF OPERATIONS AND RESULTS Appointed 24 November 2017 Appointed 24 November 2017 Resigned 29 March 2018 Providing specialist property asset management through property ownership and caretaking and infrastructure Providing accommodation and tailored services to a broad market of aged residents with discretionary and non- The Group has reported a loss for the year of $0.28 million (2017: profit of $6.54 million). The Group’s core assets have performed strongly and achieved an overall increase in occupancy, revenue growth from existing and acquired villages and cost reductions. However, asset revaluations, write-downs and realised losses on non-core property assets totalling $4.33 million (2017: gain of $1.05 million) have adversely impacted the results. Table 1: Performance Summary Revenue - rental - other - catering and service fees Other income including share of joint venture profit Total Revenue and other income (excluding revaluation gains) Expenses from operations EBITDA1 prior to asset revaluations and write-offs Net gain/(loss) on revaluation of investment property Loss on revaluation of assets associated with Couran Cove investment 2 Couran Cove inventory write down and transaction costs 2 EBITDA1 Finance costs Depreciation and amortisation Profit/(loss) before tax Consolidated 30 June 2018 30 June 2017 $’000 15,674 6,036 864 810 23,384 (16,330) 7,054 (1,439) (1,763) (1,124) 2,728 (2,753) (251) (276) $’000 14,826 5,980 3,247 1,374 25,427 (17,058) 8,369 1,046 - - 9,415 (2,606) (271) 6,538 1 EBITDA (Earnings before interest, tax, depreciation and amortisation) is a non-IFRS measure however, the directors believe that it is a readily calculated measure that has broad acceptance and is used by regular users of published financial statements as proxy for overall operating performance. EBITDA presented has been calculated from amounts disclosed in the financial statements. 2 Further details about the Couran Cove investment are provided in Note 9. As shown in Table 1, the Group’s EBITDA prior to asset revaluations and write-offs, was $7.05 million (2017: $8.37 million). The Directors present their report on Eureka Group Holdings Limited (the “Company”, “EGH” or “Eureka”) and its controlled Eureka now owns 32 villages and has 9 villages under management, representing 2,182 units (2017: 1,934 units). entities (the “Group”, or the “Consolidated Entity”) for the year ended 30 June 2018. Eureka Group Holdings Limited and controlled entities Directors’ Report Financial Position Key financial information in relation to the Group’s financial position at year end is shown below: $’000 Total Assets $’000 Net assets Working capital (current assets less current liabilities) $’000 $’000 Cash and cash equivalents $’000 Debt ‘000 Shares on issue cents Earnings per share (basic and diluted) cents Net tangible assets per share Consolidated 30 June 2018 30 June 2017 133,300 74,700 16,327 1,986 55,337 230,038 (0.12) 29.8 128,534 74,867 11,872 4,395 50,556 229,672 2.84 29.8 Significant balance sheet movements during the financial year were as follows: • • Total assets increased by $4.77 million, primarily due to the acquisition of 3 villages and Eureka’s 50% investment in a joint venture for another 5 villages. Total liabilities increased by $4.93 million due to a net increase in borrowings ($4.78 million) which partly funded the above acquisitions. • Working capital increased by $4.46 million, due the reclassification of properties from Investment Property to Inventory (Terranora and Couran Cove) and Assets held for sale (Lambert Village). • Cash reduced by $2.41 million, primarily as a result of the acquisitions during the year. However, cash flow from operations was negatively impacted by non-core and underperforming assets including Terranora and Couran Cove. Further details on changes in the Group’s financial position are provided below. A summary of the Group’s performance is shown in Table 1. Acquisitions The following villages were acquired during the year for $6.26 million (including transaction costs) and meet the Group’s target performance hurdle rates for village and associated management rights performance: • Freshwater Villas in Gympie - July 2017 • Galilee Lodge in Townsville - August 2017 • Koinonia Village in Ayr - August 2017 Eureka invested $4.50 million to acquire a 50% interest in a joint venture that acquired 5 villages in Tasmania for a total purchase price of $18.00 million. The acquisition of the villages was funded by a $9.90 million bank loan in the joint venture and cash contributed by the joint venture partners. EGH also issued $100,000 of EGH shares to its joint venture partner to secure the management rights of the 5 Tasmanian villages. In addition, the Group spent $3.10 million on enhancing existing properties through capital additions. Disposals During the 30 June 2018 financial year, the Group divested its Victoria St, Mackay property and Amber Lodge, one of the Group’s supported residential facilities in Adelaide, for combined sales proceeds of $3.40 million. The Group received $0.31 million in sale proceeds from the disposal of a number of gaming licenses during the year. Couran Cove Subsequent to year end, Eureka reached agreement with Onterran Ltd, Couran Cove entities and other parties pertaining to outstanding loans and property transactions. The financial impact of the transaction on asset values and transaction costs is included in the financial statements with details outlined in Note 34, Subsequent Events. EGH ANNUAL REPORT 2018 16 EGH ANNUAL REPORT 2018 17 17 Directors’ ReportEUREKA GROUP HOLDINGSFor personal use only Eureka Group Holdings Limited and controlled entities Directors’ Report Terranora Eureka continues to work through the extensive list of Council conditions for the Development Approval for the subdivision and strata titling of the Terranora project. Completion of the two lot subdivision in accordance with the final development approval is nearing completion. The previously identified third lot is now required to be transferred to the body corporate as common property. All conditions have been complied with to achieve titling of the two lot subdivision creating a separate title for the 4.8ha of vacant land. We expect to receive Tweed Shire Council confirmation for the subdivision in September enabling this component to proceed to titling. Significant progress has been made in finalising certificates of compliance and meeting development approval conditions for the 61 strata title units which will be situated on a separate title on completion of the two lot subdivision. Despite the delay of the titling process, 12 conditional sales contracts (subject to titling) and 12 Expression of Interests have been achieved. As soon as titling is received, the sales program will be accelerated. Capital management – debt & equity Debt Bank debt increased from $50.56 million to $55.30 million to fund the above village acquisitions. The Group was in compliance with all banking covenants during the year. Subsequent to year end, the Group consolidated its NAB debt into one facility, which matures on 31 December 2021. This represents a two year extension for $20.00 million of the facility. Equity The following changes in equity occurred during the year: • • • The Company issued 365,715 ordinary shares in consideration for securing the management rights associated with the Tasmanian villages, as noted above. In 2017, 5.263 million shares were issued as part of a capital raising. The on-market share buy-back was extended until 16 March 2019 but no shares were bought back and cancelled during the year (2017: 1,375,950 shares). 1,500,000 options (2017: nil) and 878,465 performance rights (2017: nil) were issued as detailed in the Remuneration Report. 500,000 options and 319,375 performance rights remain outstanding at 30 June 2018 after the others lapsed during the year. SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS There were no significant changes in the state of affairs of the Group, other than those addressed in the Directors’ Report and in Note 34 Subsequent Events. DIVIDENDS No dividends have been paid during the year (2017: $nil). No dividends are recommended for the financial year ended 30 June 2018. LIKELY DEVELOPMENTS AND EXPECTED RESULTS In the 2019 financial year, the Board will remain committed to disposing of the Group’s non-core and underperforming assets. The sale of the Lambert facility and the partial realisation of the Couran Cove investment will free up capital to redeploy in the core business. Achieving the approvals necessary for the issuing of titles at Terranora, and subsequent unit sales, is a major focus for the Group. Eureka will continue to pursue growth of its seniors’ rental accommodation platform through village acquisition, infill developments and the active management of its existing portfolio. Management focus will be on improving operations and profitability at the village level, streamlining support services, cost reductions, evaluating and implementing upgraded financial and operating systems to gain operating efficiencies and improved reporting. The Company regularly reviews its management rights portfolio and will seek to extend its management rights contracts where possible. Eureka is in the final selection stages for a new Chief Executive Officer to replace recently retired Jeff Weigh, and expects to announce the appointment of a new Chief Executive Officer in September 2018. 18 EGH ANNUAL REPORT 2018 18 Directors’ Report2017-2018 ANNUAL REPORTFor personal use only Eureka Group Holdings Limited and controlled entities Directors’ Report Terranora Eureka Group Holdings Limited and controlled entities Directors’ Report MATERIAL BUSINESS RISKS Eureka continues to work through the extensive list of Council conditions for the Development Approval for the subdivision and strata titling of the Terranora project. The Board is committed to monitoring and mitigating business risks faced by the Group, including the following key risks that have the potential to materially impact its financial prospects: Completion of the two lot subdivision in accordance with the final development approval is nearing completion. The previously identified third lot is now required to be transferred to the body corporate as common property. All conditions have been complied with to achieve titling of the two lot subdivision creating a separate title for the 4.8ha of vacant land. We expect to receive Tweed Shire Council confirmation for the subdivision in September enabling this component to proceed to titling. • Acquisition risk – acquiring villages has and will continue to be a source of growth for the Group. Identifying properties that meet the Group’s target performance hurdle rate, and sit within the risk appetite set by the Board, is critical to the Group’s performance. The Group’s Board and management is experienced in acquiring properties and will conduct comprehensive analysis and due diligence as part of its acquisition process. Significant progress has been made in finalising certificates of compliance and meeting development approval conditions for the 61 strata title units which will be situated on a separate title on completion of the two lot subdivision. Despite the delay of the titling process, 12 conditional sales contracts (subject to titling) and 12 Expression of Interests have been achieved. As soon as titling is received, the sales program will be accelerated. • Changes in Government funding (pension and rent assistance) – the Group provides affordable rental accommodation to seniors and many of the villages’ residents are reliant on government funding in the form of pensions or rent assistance. An adverse change in government funding, may have a direct impact on village occupancy, profitability and asset values. The Group manages its village and support office costs having regard to occupancy levels. Capital management – debt & equity • Demand for non-core products – the Group has exposure to non-core properties at Terranora and Couran Cove. The Group’s successful exit from these properties is dependent on achievement of approvals and/or unit sales occurring at forecast values within an acceptable timeframe. Bank debt increased from $50.56 million to $55.30 million to fund the above village acquisitions. The Group was in compliance with all banking covenants during the year. Subsequent to year end, the Group consolidated its NAB debt into one facility, which matures on 31 December 2021. This represents a two year extension for $20.00 million of the facility. SUBSEQUENT EVENTS Details of events that occurred after the end of the financial year are contained in Note 34. These transactions include a material restructure of the Couran Cove investment, the sale of the Lambert village and an extension of the NAB debt facility. No other matter or circumstance has arisen since 30 June 2018 that has significantly affected, or may significantly affect, the operations of the Group, the results of those operations or the state of affairs of the Group in subsequent financial years. ENVIRONMENTAL REGULATION The Group’s operations are not subject to any particular or significant environmental regulation under a law of the Commonwealth or of a State or Territory. INFORMATION ON DIRECTORS The details of each Director’s qualifications, experience and special responsibilities for those in office during the year are: Name: Title: Qualifications: Experience & expertise: Other listed company directorships: Former directorships (last 3 years) Special responsibilities: Interests in shares: Interests in options: Murray Boyte Independent non-executive Chairman - 24 November 2017 to 29 April 2018 Executive Chairman - 30 April 2018 (ongoing) Murray holds a Bachelor of Commerce and Administration from the Victoria University in Wellington and is a member of the Australian Institute of Company Directors, the Institute of Directors of New Zealand and Chartered Accountants Australia & New Zealand. Murray has over 35 years’ experience in merchant banking and finance, undertaking company reconstructions, mergers and acquisitions in Australia, New Zealand, North America and Hong Kong. In addition, Murray has held executive positions and Directorships in the transport, horticulture, financial services, investment, health services and property industries. He was the Chief Executive Officer of ASX listed Ariadne Australia Limited from 2002 to 2015. Abano Healthcare Group Limited (NZX) and National Tyre & Wheel Limited (ASX: NTD). Unity Pacific Group (ASX: UPG) Chair of the Board from 24 November 2017, Member of Audit & Risk Committee from 28 June 2018, Member of Nomination & Remuneration Committee from 28 June 2018 Nil Nil EGH ANNUAL REPORT 2018 18 EGH ANNUAL REPORT 2018 19 19 Debt Equity • • • DIVIDENDS June 2018. The following changes in equity occurred during the year: The Company issued 365,715 ordinary shares in consideration for securing the management rights associated with the Tasmanian villages, as noted above. In 2017, 5.263 million shares were issued as part of a capital raising. The on-market share buy-back was extended until 16 March 2019 but no shares were bought back and cancelled during the year (2017: 1,375,950 shares). 1,500,000 options (2017: nil) and 878,465 performance rights (2017: nil) were issued as detailed in the Remuneration Report. 500,000 options and 319,375 performance rights remain outstanding at 30 June 2018 after the others lapsed during the year. SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS There were no significant changes in the state of affairs of the Group, other than those addressed in the Directors’ Report and in Note 34 Subsequent Events. No dividends have been paid during the year (2017: $nil). No dividends are recommended for the financial year ended 30 LIKELY DEVELOPMENTS AND EXPECTED RESULTS In the 2019 financial year, the Board will remain committed to disposing of the Group’s non-core and underperforming assets. The sale of the Lambert facility and the partial realisation of the Couran Cove investment will free up capital to redeploy in the core business. Achieving the approvals necessary for the issuing of titles at Terranora, and subsequent unit sales, is a major focus for the Group. Eureka will continue to pursue growth of its seniors’ rental accommodation platform through village acquisition, infill developments and the active management of its existing portfolio. Management focus will be on improving operations and profitability at the village level, streamlining support services, cost reductions, evaluating and implementing upgraded financial and operating systems to gain operating efficiencies and improved reporting. The Company regularly reviews its management rights portfolio and will seek to extend its management rights contracts where possible. Eureka is in the final selection stages for a new Chief Executive Officer to replace recently retired Jeff Weigh, and expects to announce the appointment of a new Chief Executive Officer in September 2018. Directors’ ReportEUREKA GROUP HOLDINGSFor personal use only Eureka Group Holdings Limited and controlled entities Directors’ Report Name: Title: Qualifications: Experience & expertise: Robin Levison Non-Executive Chairman - 1 July 2017 to 23 November 2017 Non-Executive Director 24 November 2017 to 29 March 2018 Robin holds a Masters of Business Administration from the University of Queensland and is a Member of Chartered Accountants Australia and New Zealand. Robin has 15 years of Public Company Management experience. During this time he served as Managing Director at Industrea Limited and Spectrum Resources and has held senior roles at KPMG, Barclays Bank and Merrill Lynch. Robin is also a Deputy Chair of the University of Queensland Business, Economics and Law Alumni Ambassador Council, and is a Graduate and Fellow of Australian Institute of Company Directors. Other listed company directorships: PPK Group Limited Former directorships (last 3 years) Special responsibilities: Interests in shares: Interests in options: Nil Chair of the Board to 23 November 2017 As per Remuneration Report for the period Robin was a director. Nil Name: Title: Qualifications: Experience & expertise: Lachlan McIntosh Non-Executive Director Lachlan has a Bachelor of Commerce degree and is a Member of Chartered Accountants Australia and New Zealand. 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: Onterran Limited. Former directorships (last 3 years) Special responsibilities: Interests in shares: Interests in options: Name: Title: Qualifications: Experience & expertise: Nil Member of Audit & Risk Committee, Member of Nomination & Remuneration Committee. 11,916,166 Nil Nirmal Hansra Non-Executive Director Nirmal holds a Master of Commerce (Business Management) degree from University of NSW and is a Fellow of the Australian Institute of Company Directors, Fellow of the Governance Institute of Australia, Fellow of Chartered Accountants Australia and New Zealand and Fellow of Australian Society of Certified Practicing Accountants. He has over 35 years of senior executive management experience and 12 years of board and corporate advisory experience. During this time Nirmal had roles as Chief Financial Officer/Finance Director of listed companies such as Industrea Limited, ISoft Group Limited, Australian Pharmaceutical Industries Limited and Ruralco Holdings Limited. Nirmal is Chair of Campbell Page Limited and non-executive director of Kuringai Financial Services Limited, Link Housing Limited, Council of the Ageing (COTA) in New South Wales, Children’s Tumour Foundation of Australia Limited and Have A Voice Pty Limited. Recently he has been appointed Independent Member of the Audit & Risk Committee for the Department of Finance, Services and Innovation and the Property & Advisory Group of the NSW Government. Other listed company directorships: Nil Nil Former directorships (last 3 years) Chair of Nomination & Remuneration Committee, Member of Audit & Risk Committee Special responsibilities: 839,834 shares Interests in shares: Nil Interests in options: 20 EGH ANNUAL REPORT 2018 20 Directors’ Report2017-2018 ANNUAL REPORTFor personal use only Eureka Group Holdings Limited and controlled entities Directors’ Report Eureka Group Holdings Limited and controlled entities Directors’ Report Name: Title: Robin Levison Non-Executive Chairman - 1 July 2017 to 23 November 2017 Non-Executive Director 24 November 2017 to 29 March 2018 Qualifications: Robin holds a Masters of Business Administration from the University of Queensland Experience & expertise: and is a Member of Chartered Accountants Australia and New Zealand. Robin has 15 years of Public Company Management experience. During this time he served as Managing Director at Industrea Limited and Spectrum Resources and has held senior roles at KPMG, Barclays Bank and Merrill Lynch. Robin is also a Deputy Chair of the University of Queensland Business, Economics and Law Alumni Ambassador Council, and is a Graduate and Fellow of Australian Institute of Company Other listed company directorships: PPK Group Limited Former directorships (last 3 years) Nil Directors. Special responsibilities: Chair of the Board to 23 November 2017 Interests in shares: Interests in options: Nil As per Remuneration Report for the period Robin was a director. Name: Title: Qualifications: Experience & expertise: Lachlan McIntosh Non-Executive Director Lachlan has a Bachelor of Commerce degree and is a Member of Chartered Accountants Australia and New Zealand. 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: Onterran Limited. Former directorships (last 3 years) Nil Special responsibilities: Member of Audit & Risk Committee, Member of Nomination & Remuneration Committee. 11,916,166 Nil Nirmal Hansra Non-Executive Director Interests in shares: Interests in options: Name: Title: Qualifications: Experience & expertise: Nirmal holds a Master of Commerce (Business Management) degree from University of NSW and is a Fellow of the Australian Institute of Company Directors, Fellow of the Governance Institute of Australia, Fellow of Chartered Accountants Australia and New Zealand and Fellow of Australian Society of Certified Practicing Accountants. He has over 35 years of senior executive management experience and 12 years of board and corporate advisory experience. During this time Nirmal had roles as Chief Financial Officer/Finance Director of listed companies such as Industrea Limited, ISoft Group Limited, Australian Pharmaceutical Industries Limited and Ruralco Holdings Limited. Nirmal is Chair of Campbell Page Limited and non-executive director of Kuringai Financial Services Limited, Link Housing Limited, Council of the Ageing (COTA) in New South Wales, Children’s Tumour Foundation of Australia Limited and Have A Voice Pty Limited. Recently he has been appointed Independent Member of the Audit & Risk Committee for the Department of Finance, Services and Innovation and the Property & Advisory Group of the NSW Government. Other listed company directorships: Nil Former directorships (last 3 years) Nil Interests in shares: Interests in options: 839,834 shares Nil Special responsibilities: Chair of Nomination & Remuneration Committee, Member of Audit & Risk Committee Name: Title: Qualifications: Experience & expertise: Sue Renkin Non-Executive Director (appointed 24 November 2017) Sue Renkin holds a Master of Business Administration from Monash University, a Graduate Diploma in Corporate Governance from UNE and attended Harvard Business School for a course on Competition and Strategy. Sue enjoyed almost thirty years as CEO for private hospitals, emergency services and not for profit entities. She now operates a portfolio career as a non-executive director and executive coach and mentor. Sue is a past National Telstra Business Woman of the year. She is the current Chairman of Southern Metropolitan Cemeteries Trust, a Director of GMHBA Limited, member of the Global Leadership Board International Women’s Forum, Chairman of Monash Bio Medical Research Institute and a member of the GJK Facility Services Advisory Board. Other listed company directorships: Nil Nil Former directorships (last 3 years) Chair of Audit & Risk Committee Special responsibilities: Nil Interests in shares: Nil Interests in options: COMPANY SECRETARIES Paul Cochrane – Chief Financial Officer and Company Secretary Paul Cochrane holds a Bachelor of Commerce from University of Queensland, is a Member of The Chartered Accountants Australia and New Zealand and holds an REIQ Real Estate License. He spent three years as Chief Financial Officer and Company Secretary at Ariadne Australia Ltd, followed by 7 years in a variety of senior roles at Lend Lease Ltd, including 3 years as Project Director of Springfield Lakes. Paul was also General Manager – Finance at Aveo Ltd, a full service property group with a principal focus on retirement living. He was also Chief Financial Officer for Devine Ltd for 5 years, ultimately assuming the role of Company Secretary as well. He began his career with Price Waterhouse serving in the audit Division in Brisbane, followed by tenure in Hong Kong and London. Laura Fanning – Company Secretary (appointed 28 June 2018) Laura is a Chartered Secretary and Chartered Accountant with more than 20 years’ financial, governance and commercial experience. Laura is currently the Company Secretary at National Tyre & Wheel Limited and has previously held Chief Financial Officer and Company Secretary roles at National Veterinary Care Limited and Unity Pacific Group Limited, as well as senior management positions in other listed and unlisted companies. She has gained broad financial and secretarial experience across several industries including funds management, property, veterinary services, wholesale distribution and franchising. DIRECTORS AND MEETINGS ATTENDED The number of meetings of the Company’s Board of Directors (‘the Board’) and of each Board Committee held during the year, and the number of meetings attended by each Director were: Name Murray Boyte Robin Levison Lachlan McIntosh Nirmal Hansra Sue Renkin Directors’ Meetings Audit & Risk Committee Meetings Held1 8 6 10 10 8 Attended 8 6 9 9 8 Held1 2* 1* 3 3 2 Attended 2* 1* 3 2 2 Nomination & Remuneration Committee Meetings Held1 Attended - - 3* 3* 4 4 4 4 1* 1* *Attended by invitation 1 Number of meetings held while a director during the financial year EGH ANNUAL REPORT 2018 20 EGH ANNUAL REPORT 2018 21 21 Directors’ ReportEUREKA GROUP HOLDINGSFor personal use only Eureka Group Holdings Limited and controlled entities Directors’ Report REMUNERATION REPORT (AUDITED) This report outlines the remuneration arrangements in place for Eureka Group Holdings Limited’s non-executive directors’, executive directors and other key management personnel (“KMP”) of Eureka Group Holdings Limited for the year ended 30 June 2018. The information provided in this remuneration report has been audited as required by Section 308(3C) of the Corporations Act 2001. This remuneration report has been set out under the following headings: a) Principles of compensation of key management personnel b) Details of remuneration c) Non-executive director remuneration policy d) Service agreements e) Relationship between remuneration and Company performance f) Remuneration consultants g) Equity Instruments held by Key Management Personnel h) Loans to/from Key Management Personnel i) Other transactions with Key Management Personnel (a) PRINCIPLES OF COMPENSATION OF KEY MANAGEMENT PERSONNEL Compensation of key management personnel comprise remuneration 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 Nomination & 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. Remuneration comprises the following: • • • base pay (salaries/fees) and benefits, including superannuation; short-term incentives (bonuses); and long-term incentives such as options or rights or shares. The performance of the Group 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 agreements and the Company’s performance in the 2018 financial year. Remuneration details for certain individuals are described at (d). Short term incentives (STIs) Bonus payments are payable to management based on achievement of agreed performance hurdle (threshold) criteria including: • Profitability; • Occupancy targets; • Successful outcomes on Couran Cove and Terranora transactions; and • Business growth. 22 EGH ANNUAL REPORT 2018 22 Directors’ Report2017-2018 ANNUAL REPORTFor personal use only This report outlines the remuneration arrangements in place for Eureka Group Holdings Limited’s non-executive directors’, executive directors and other key management personnel (“KMP”) of Eureka Group Holdings Limited for the year ended 30 June 2018. The information provided in this remuneration report has been audited as required by Section 308(3C) of the Corporations Act 2001. Eureka Group Holdings Limited and controlled entities Directors’ Report REMUNERATION REPORT (AUDITED) This remuneration report has been set out under the following headings: a) Principles of compensation of key management personnel b) Details of remuneration c) Non-executive director remuneration policy d) Service agreements e) Relationship between remuneration and Company performance f) Remuneration consultants g) Equity Instruments held by Key Management Personnel h) Loans to/from Key Management Personnel i) Other transactions with Key Management Personnel competitiveness and reasonableness; acceptability to shareholders; performance linkage/alignment of executive compensation, and transparency. and the Company’s financial performance. Remuneration comprises the following: base pay (salaries/fees) and benefits, including superannuation; short-term incentives (bonuses); and long-term incentives such as options or rights or shares. • • • • • • • (a) PRINCIPLES OF COMPENSATION OF KEY MANAGEMENT PERSONNEL Compensation of key management personnel comprise remuneration 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: The performance of the Group 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 agreements and the Company’s performance in Remuneration details for certain individuals are described at (d). Bonus payments are payable to management based on achievement of agreed performance hurdle (threshold) criteria the 2018 financial year. Short term incentives (STIs) including: • Profitability; • Occupancy targets; • Business growth. • Successful outcomes on Couran Cove and Terranora transactions; and Eureka Group Holdings Limited and controlled entities Directors’ Report The performance conditions described above were chosen because they were considered appropriate for senior management given the operations. They are measured by comparing what has been achieved against set budgets/targets. Long term incentives (LTIs) The Company introduced a new Long Term Incentive (LTI) (Omnibus Equity Plan) plan granting share rights and options to the Chief Executive Officer and Chief Financial Officer, which commenced from 23 November 2017. Share rights Rights were issued at face value having regard to the volume weighted average share price of shares over the 30 trading days following the announcement of the company’s 2017 results. A total of 878,465 share rights were issued during this period representing 45% of total fixed remuneration for the Chief Executive Officer and 35% of total fixed remuneration for the Chief Executive Officer. 559,090 share rights lapsed upon the retirement of the Chief Executive Officer. The 319,375 remaining share rights are divisible into two traches of equal value, both tranches being subject to the company’s shares achieving a total shareholder return compared to the constituents of All Ordinaries Small Cap index excluding companies in the materials, industrials, energy and utilities sectors. Tranche 1 and Tranche 2 will be tested following the announcement of the company’s result for the year ending 30 June 2020 and 2021 respectively using a 10 day VWAP. The share rights progressively vest over 3 and 4 years. Options A total of 1,500,000 share options were granted during the period to the Chief Executive Officer and Chief Financial Officer. 1,000,000 options lapsed upon the retirement of the Chief Executive Officer. The options were granted for a 4.5 year period and are exercisable from 23 November 2021. The exercise price is $0.33 representing the volume weighted average share price of shares over the 30 trading days following the announcement of the company’s 2017 results. These options will be capable of vesting 3 years from the grant date subject to the share price being at 75c or greater on 10 trading days in any 20 sequential trading days following the grant date. While the share price hurdle may be met, these options can only be exercised upon completion of 4 year employment service. If an executive resigns or is terminated, any LTI awards (whether or not those awards have vested) are forfeited. The Nomination & 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 (b) DETAILS OF REMUNERATION 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. At the date of this report and during the year, the key management personnel of the Group are: Name Role Period in role/s Murray Boyte Non-Executive Chair/Executive Chair 24/11/2017 – ongoing Nirmal Hansra Non-Executive Director 24/04/2012 – ongoing Robin Levison Chair/Non-Executive Director 24/12/2013 – 29/03/2018 Lachlan McIntosh Non-Executive Director Sue Renkin Non-Executive Director Paul Cochrane Chief Financial Officer 20/07/2009 – ongoing 24/11/2017 – ongoing 28/06/2017 – ongoing Jeff Weigh Chief Executive Officer 07/02/2017 – 31/05/2018 EGH ANNUAL REPORT 2018 22 EGH ANNUAL REPORT 2018 23 23 Directors’ ReportEUREKA GROUP HOLDINGSFor personal use only Eureka Group Holdings Limited and controlled entities Directors’ Report Key management personnel remuneration for the year ended 30 June 2018 and 30 June 2017: Short term Salary/ fees $ Bonus $ Post employment Super- annuation $ Share based payments $ Termin- ation benefits $ Performance related % % of bonus that was achieved Total $ 30 June 2018 Directors Murray Boyte 1 Nirmal Hansra Robin Levison2 Lachlan McIntosh Sue Renkin 3 86,407 60,000 70,000 60,000 31,823 Directors Total 308,230 Executives - - - - - - Paul Cochrane 278,779 77,568 Jeff Weigh4 342,744 215,880 Executives Total 621,523 293,448 Total 929,753 293,448 30 June 2017 Directors Robin Levison 120,000 - - - Lachlan McIntosh Nirmal Hansra Greg Rekers 5 Kerry Potter 5 50,000 50,000 159,389 65,000 159,389 65,000 Directors Total 538,778 130,000 Executives Jeff Weigh 4 Ryan Maddock 6 Paul Cochrane 7 134,097 - 193,151 17,908 - - Executives Total 327,248 17,908 Total 866,026 147,908 8,209 - - - 3,023 11,232 25,924 35,886 61,810 73,042 - - - - - - 9,335 19,053 - 28,388 28,388 - - - - - - 11,997 - - - - - - - - 136,667 94,616 60,000 70,000 60,000 34,846 319,462 394,268 731,177 11,997 136,667 1,125,445 11,997 136,667 1,444,907 - - - - - - - - - - - - - - - - - - - - - - 120,000 50,000 50,000 224,389 224,389 668,778 143,432 230,112 - 373,544 1,042,322 - - - - - - - - - - 20% 30% 74% 74%8 - - - 29% 29% - 8% - - - - 100% 100% - 100% - 1 Murray Boyte commenced as key management personnel on 24 November 2017; Executive Chair from 29 April 2018. 2 Robin Levison ceased as key management personnel on 29 March 2018. 3 Sue Renkin commenced as key management personnel on 24 November 2017. 4 Jeff Weigh commenced as key management personnel on 7 February 2017, retired on 31 May 2018. 5 Greg Rekers and Kerry Potter ceased as key management personnel on 8 February 2017. 6 Ryan Maddock ceased as key management personnel on 30 June 2017. 7 Paul Cochrane commenced as key management personnel on 28 June 2017. 8 During the period Jeff Weigh was paid a discretionary bonus of $65,000. The nature of this bonus being discretionary has no total potential amount to be achieved and therefore is not included in the average presented above. 24 EGH ANNUAL REPORT 2018 24 Directors’ Report2017-2018 ANNUAL REPORTFor personal use only Short term employment Post Super- Share based Termin- ation Bonus annuation payments benefits $ $ $ $ Total $ Performance related % % of bonus that was achieved Eureka Group Holdings Limited and controlled entities Directors’ Report Salary/ fees $ 86,407 60,000 70,000 60,000 31,823 30 June 2018 Directors Murray Boyte 1 Nirmal Hansra Robin Levison2 Lachlan McIntosh Sue Renkin 3 Directors Total 308,230 Executives Robin Levison 120,000 30 June 2017 Directors Lachlan McIntosh Nirmal Hansra Greg Rekers 5 Kerry Potter 5 Executives Jeff Weigh 4 Ryan Maddock 6 Paul Cochrane 7 50,000 50,000 159,389 65,000 159,389 65,000 134,097 193,151 17,908 - Directors Total 538,778 130,000 Executives Total 327,248 17,908 Total 866,026 147,908 Paul Cochrane 278,779 77,568 11,997 Jeff Weigh4 342,744 215,880 - 136,667 20% 30% 74% 74%8 Executives Total 621,523 293,448 11,997 136,667 1,125,445 Total 929,753 293,448 11,997 136,667 1,444,907 - - - - - - - - - - - 8,209 - - - 3,023 11,232 25,924 35,886 61,810 73,042 - - - - - - - 9,335 19,053 28,388 28,388 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 94,616 60,000 70,000 60,000 34,846 319,462 394,268 731,177 120,000 50,000 50,000 224,389 224,389 668,778 143,432 230,112 - 373,544 1,042,322 - - - - - - - - 29% 29% 8% - - - - - - - - - - - - 100% 100% 100% 1 Murray Boyte commenced as key management personnel on 24 November 2017; Executive Chair from 29 April 2018. 2 Robin Levison ceased as key management personnel on 29 March 2018. 3 Sue Renkin commenced as key management personnel on 24 November 2017. 4 Jeff Weigh commenced as key management personnel on 7 February 2017, retired on 31 May 2018. 5 Greg Rekers and Kerry Potter ceased as key management personnel on 8 February 2017. 6 Ryan Maddock ceased as key management personnel on 30 June 2017. 7 Paul Cochrane commenced as key management personnel on 28 June 2017. 8 During the period Jeff Weigh was paid a discretionary bonus of $65,000. The nature of this bonus being discretionary has no total potential amount to be achieved and therefore is not included in the average presented above. Key management personnel remuneration for the year ended 30 June 2018 and 30 June 2017: (c) NON-EXECUTIVE DIRECTOR REMUNERATION POLICY Eureka Group Holdings Limited and controlled entities Directors’ Report Fees and payments to non-executive directors reflect the demands that are made on, and the responsibilities of, the directors. The Nomination & Remuneration Committee reviews non-executive directors’ fees and payments annually. 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. An increase to the total non-executive directors’ fee pool limit was approved at the November 2017 Annual General Meeting. The maximum currently stands at $450,000 in aggregate which provides the Board with flexibility to appoint additional directors to broaden the skill base of the Board collectively. The following fees have applied during the year: Base fees Murray Boyte – Non-Executive Chair 1 Robin Levison – Non-Executive Chair Robin Levison – Non-Executive Director Nirmal Hansra – Non-Executive Director Lachlan McIntosh – Non-Executive Director Sue Renkin – Non-Executive Director Annual fee $ 120,000 120,000 60,000 60,000 60,000 60,000 1 In addition to non-executive director fees, $18,000 per month will be paid for the period he is an Executive Chair effective 30 April 2018. (d) 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: Jeff Weigh (Chief Executive Officer) Agreement Commenced 7 February 2017 (retired on 31 May 2018) Term of the Agreement: The agreement may be terminated by either the Company or Mr Weigh with 6 months’ notice or by the Company in the event of a material breach or misconduct by Mr Weigh. Details: Mr Weigh’s remuneration comprised a base salary of $374,430 plus 9.5% superannuation and certain benefits such as car parking, mobile phone expenses and use of laptop. His remuneration also comprises additional short-term incentives equal to 50% of his base salary and a long-term incentive. In addition, as agreed with the Board, Mr Weigh would be paid 4 months of fixed remuneration following his retirement. $136,667 including 9.5% superannuation has been included in Employee Benefits expense in relation to this payment. Mr Weigh was responsible for the overall management of the Group and reported to the Chair of the Board. Paul Cochrane (Chief Financial Officer) Agreement Commenced 28 June 2017 Term of the Agreement: The agreement may be terminated by either the Company or Mr Cochrane with 3 months’ notice or by the Company in the event of a material breach or misconduct by Mr Cochrane. Details: Mr Cochrane’s remuneration comprises a base salary of $275,000 plus 9.5% superannuation and certain benefits such as car parking, mobile phone expenses and use of laptop. His remuneration also comprises additional short-term incentives equal to 35% of his base salary and long-term incentive equal to 35% of his base salary. In addition, the Board have approved that in the event of termination of employment arising from the change of control during the 3 years from the date of employment, the Company will pay 6 months of fixed remuneration. Mr Cochrane is responsible for the finance division and the accounting and finance functions of the Company and its associated companies. EGH ANNUAL REPORT 2018 24 EGH ANNUAL REPORT 2018 25 25 Directors’ ReportEUREKA GROUP HOLDINGSFor personal use only Eureka Group Holdings Limited and controlled entities Directors’ Report Directors’ Report (e) 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. Total Revenue and Income $’000 Net Profit/(loss) before tax $’000 EBITDA $’000 Earnings per share (cents per share) Share price at year end Dividend per share (f) REMUNERATION CONSULTANTS 2018 23,384 (276) 2,728 (0.12) 0.28 0.00 2017 26,473 6,538 9,415 2.84 0.37 0.00 2016 24,155 10,467 12,468 5.19 0.79 0.00 2015 12,213 3,105 4,129 2.24 0.51 0.00 2014 10,662 661 1,512 0.80 0.12 0.00 The Group utilised the services of remuneration consultants (Egan Associates Pty Ltd) during the 2018 financial year, at a total cost of $38,115. The services were in relation to advice and recommendation on the establishment of the Eureka Omnibus Equity Plan and reviewing the Executive Chair’s remuneration. (g) EQUITY INSTRUMENTS HELD BY KEY MANAGEMENT PERSONNEL Shares held The numbers of securities held during the financial year by each director 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 2017 Shares acquired Ceased employment Balance 30 June 2018 Directors Robin Levison 1 12,905,000 25,000 (12,930,000) - Lachlan McIntosh 11,916,166 Nirmal Hansra Murray Boyte Sue Renkin Executives Jeff Weigh 2 Paul Cochrane 839,834 - - 400,000 - - - - - - - - - - - (400,000) - 11,916,166 839,834 - - - - Total 26,061,000 25,000 (13,330,000) 12,756,000 1 Ceased to be key management personnel on 29 March 2018 2 Retired on 31 May 2018 Options held Details of options over ordinary shares in the Company that were granted as compensation to each key management personnel during the reporting period, are set out below. The vesting conditions are set out in Note 26. No options vested during the financial year. Number of options granted during 2018 Grant date FV at grant date per option Exercise price per option Expiry date % forfeite d in the year Financial year in which option vests Financial years in which option exercisable KMP Jeff Weigh 1 1,000,000 23-Nov-17 $0.0144 $0.33 23-May-22 Paul Cochrane 500,000 23-Nov-17 $0.0144 $0.33 23-May-22 Total 1 Retired on 31 May 2018 and as a result the options lapsed. 1,500,000 100% - - - 2022 2021-2022 26 EGH ANNUAL REPORT 2018 26 2017-2018 ANNUAL REPORTFor personal use only Eureka Group Holdings Limited and controlled entities Directors’ Report Eureka Group Holdings Limited and controlled entities Directors’ Report Directors’ Report (e) 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. Total Revenue and Income $’000 Net Profit/(loss) before tax $’000 EBITDA $’000 Earnings per share (cents per share) Share price at year end Dividend per share (f) REMUNERATION CONSULTANTS 2018 23,384 (276) 2,728 (0.12) 0.28 0.00 2017 26,473 6,538 9,415 2.84 0.37 0.00 2016 24,155 10,467 12,468 5.19 0.79 0.00 2015 12,213 3,105 4,129 2.24 0.51 0.00 2014 10,662 661 1,512 0.80 0.12 0.00 The Group utilised the services of remuneration consultants (Egan Associates Pty Ltd) during the 2018 financial year, at a total cost of $38,115. The services were in relation to advice and recommendation on the establishment of the Eureka Omnibus Equity Plan and reviewing the Executive Chair’s remuneration. (g) EQUITY INSTRUMENTS HELD BY KEY MANAGEMENT PERSONNEL The numbers of securities held during the financial year by each director 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 Shares held compensation. Directors Robin Levison 1 Nirmal Hansra Murray Boyte Sue Renkin Executives Jeff Weigh 2 Paul Cochrane Balance 1 July 2017 Shares acquired Ceased Balance employment 30 June 2018 12,905,000 25,000 (12,930,000) Lachlan McIntosh 11,916,166 839,834 11,916,166 839,834 - - - - - - - - - - - - - - 400,000 (400,000) - - - - - Total 26,061,000 25,000 (13,330,000) 12,756,000 1 Ceased to be key management personnel on 29 March 2018 2 Retired on 31 May 2018 Details of options over ordinary shares in the Company that were granted as compensation to each key management personnel during the reporting period, are set out below. The vesting conditions are set out in Note 26. No options vested Options held during the financial year. Number of Grant date options granted during 2018 FV at grant date per option Exercise price per option Expiry date % Financial forfeite d in the year year in which option vests Financial years in which option exercisable KMP Jeff Weigh 1 1,000,000 23-Nov-17 $0.0144 $0.33 23-May-22 100% - - Paul Cochrane 500,000 23-Nov-17 $0.0144 $0.33 23-May-22 - 2022 2021-2022 Total 1,500,000 1 Retired on 31 May 2018 and as a result the options lapsed. Share rights held Details of share rights over ordinary shares in the Company that were granted as compensation to each key management personnel during the reporting period, are set out below. Grant date Number of share rights granted during 2018 FV at grant date per share right (Tranche 1) FV at grant date per share right (Tranche 2) Exercise price per share right Expiry date Number of share rights vested during 2018 KMP Jeff Weigh 1 559,090 23-Nov-17 Paul Cochrane 319,375 23-Nov-17 Total 878,465 $0.207 $0.207 $0.138 $0.138 - - 31-Dec-23 31-Dec-23 - - - 1 Retired on 31 May 2018 and as a result the share rights lapsed. Value of options The movement during the reporting period, by value, of options over ordinary shares in the Company held by each key management personnel is detailed below. Options granted KMP Jeff Weigh 1 Paul Cochrane 1 Retired on 31 May 2018 Value of share rights Value of options granted in the year Value of options exercised in year Value of options lapsed in the year $14,419 $7,210 $21,629 - - - ($14,419) - ($14,419) The movement during the reporting period, by value, of share rights in the Company held by each key management personnel is detailed below. Share rights granted KMP Jeff Weigh 1 Paul Cochrane 1 Retired on 31 May 2018 Share rights Value of share rights granted in the year Value of share rights exercised in year Value of share rights lapsed in the year $96,523 $55,138 $151,661 - - - ($96,523) - ($96,523) The number of share rights granted to key management personnel during the financial year was 878,465 share rights. KMP Jeff Weigh Paul Cochrane Number of share rights granted 559,090 319,375 878,465 EGH ANNUAL REPORT 2018 26 EGH ANNUAL REPORT 2018 27 27 EUREKA GROUP HOLDINGSFor personal use only Eureka Group Holdings Limited and controlled entities Directors’ Report Directors’ Report Reconciliation of options and share rights held by key management personnel The table below shows a reconciliation of options held by each KMP during the financial year. Balance at start of year Balance at end of year Vested Unvested Granted as compensation Vested Exercised Forfeited Vested and exercisable Unvested KMP Jeff Weigh 1 Paul Cochrane Total 1 Retired on 31 May 2018 - - - - - - 1,000,000 500,000 1,500,000 - - - - - - (1,000,000) - (1,000,000) - - - - 500,000 500,000 The table below shows how many share rights were granted, vested and forfeited during the year. Balance at start of year Granted during year Vested Forfeited Balance at end of year (unvested) - - - 559,090 319,375 878,465 - - - (559,090) - (559,090) - 319,375 319,375 KMP Jeff Weigh 1 Paul Cochrane Total 1 Retired on 31 May 2018 (h) LOANS TO/FROM KEY MANAGEMENT PERSONNEL There were no loans to any director or key management personnel at any time during the year and prior year. (i) OTHER TRANSACTIONS WITH KEY MANAGEMENT PERSONNEL Griffith Scenic Village Pty Ltd Griffith Scenic Village Pty Ltd, an entity associated with Lachlan McIntosh, paid the Group management fees of $6,263 on commercial terms (2017: $8,203). As at 30 June 2018 the amount outstanding from Griffith Scenic Village Pty Ltd was $nil (2017: $nil). Griffith Scenic Village Pty Ltd, an entity associated with Lachlan McIntosh, was paid $22,178 for Manager’s unit rental fees on commercial terms (2017: $22,178). As at 30 June 2018 the amount outstanding to Griffith Scenic Village Pty Ltd was $nil (2017: $nil). Leisure Living Gladstone Pty Ltd Leisure Living Gladstone Pty Ltd, an entity associated with Lachlan McIntosh, paid the Group management fees of $14,846 on commercial terms (2017: $10,320). As at 30 June 2018 the amount outstanding from Leisure Living Gladstone Pty Ltd was $nil (2017: $nil). Leisure Living Gladstone Pty Ltd, an entity associated with Lachlan McIntosh, was paid $29,229 for Manager’s unit rental fees on commercial terms (2017: $29,229). As at 30 June 2018 the amount outstanding to Leisure Living Gladstone Pty Ltd was $nil (2017: $nil). 22 Resolution Pty Ltd During the year, 22 Resolution Pty Ltd, an entity associated with Lachlan McIntosh, was paid $nil in consulting fees (2017: $206,250). At 30 June 2018, the amount outstanding to 22 Resolution Pty Ltd was $nil (2017: $nil). This concludes the remuneration report, which has been audited. 28 EGH ANNUAL REPORT 2018 28 2017-2018 ANNUAL REPORTFor personal use only Eureka Group Holdings Limited and controlled entities Directors’ Report Eureka Group Holdings Limited and controlled entities Directors’ Report Directors’ Report Reconciliation of options and share rights held by key management personnel SHARES UNDER OPTION & PERFORMANCE RIGHTS The table below shows a reconciliation of options held by each KMP during the financial year. Balance at start of year Vested Unvested compensation Vested Exercised Forfeited Granted as Balance at end of year Vested and exercisable Unvested - - - - - - 1,000,000 500,000 1,500,000 - - - - - - (1,000,000) - (1,000,000) - - - - 500,000 500,000 The table below shows how many share rights were granted, vested and forfeited during the year. Balance at start of year Granted during year Vested Forfeited Balance at end of year (unvested) - - - 559,090 319,375 878,465 - - - (559,090) - (559,090) - 319,375 319,375 (h) LOANS TO/FROM KEY MANAGEMENT PERSONNEL (i) OTHER TRANSACTIONS WITH KEY MANAGEMENT PERSONNEL Griffith Scenic Village Pty Ltd Griffith Scenic Village Pty Ltd, an entity associated with Lachlan McIntosh, paid the Group management fees of $6,263 on commercial terms (2017: $8,203). As at 30 June 2018 the amount outstanding from Griffith Scenic Village Pty Ltd was $nil Griffith Scenic Village Pty Ltd, an entity associated with Lachlan McIntosh, was paid $22,178 for Manager’s unit rental fees on commercial terms (2017: $22,178). As at 30 June 2018 the amount outstanding to Griffith Scenic Village Pty Ltd was $nil KMP Jeff Weigh 1 Paul Cochrane Total 1 Retired on 31 May 2018 KMP Jeff Weigh 1 Paul Cochrane Total 1 Retired on 31 May 2018 (2017: $nil). (2017: $nil). $nil (2017: $nil). $nil (2017: $nil). 22 Resolution Pty Ltd During the year, 22 Resolution Pty Ltd, an entity associated with Lachlan McIntosh, was paid $nil in consulting fees (2017: $206,250). At 30 June 2018, the amount outstanding to 22 Resolution Pty Ltd was $nil (2017: $nil). This concludes the remuneration report, which has been audited. There were 500,000 unissued ordinary shares of Eureka Group Holdings Limited under option and 319,375 performance rights on issue as at the date of this report. INDEMNIFICATION AND INSURANCE OF OFFICERS During or since the end of the financial year, the Company has indemnified the directors and executives of the Company for costs incurred, in their capacity as a director or executive, for which they may be held personally liable, except where there is a lack of good faith. During the financial year the Group paid a premium in respect of a contract to insure the directors and executives of the Company against a liability to the extent permitted by the Corporations Act 2001. The contract of insurance prohibits disclosure of the nature of the liability and the amount of the premium. INDEMNIFICATION AND INSURANCE OF AUDITORS To the extent permitted by law, the Company has agreed to indemnify its auditors, Ernst & Young Australia, as part of the terms of its audit engagement agreement against claims by third parties arising from the audit (for an unspecified amount). No payment has been made to indemnify Ernst & Young during or since the financial year. PROCEEDINGS ON BEHALF OF THE COMPANY No person has applied to the Court under section 237 of the Corporations Act 2001 for leave 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. NON-AUDIT SERVICES There were no non-audit services provided by the auditors in the current or prior period. OFFICERS OF THE COMPANY WHO ARE FORMER PARTNERS OF ERNST & YOUNG There are no officers of the Company who are former partners of Ernst & Young. There were no loans to any director or key management personnel at any time during the year and prior year. ROUNDING OF AMOUNTS Leisure Living Gladstone Pty Ltd Leisure Living Gladstone Pty Ltd, an entity associated with Lachlan McIntosh, paid the Group management fees of $14,846 on commercial terms (2017: $10,320). As at 30 June 2018 the amount outstanding from Leisure Living Gladstone Pty Ltd was Leisure Living Gladstone Pty Ltd, an entity associated with Lachlan McIntosh, was paid $29,229 for Manager’s unit rental fees on commercial terms (2017: $29,229). As at 30 June 2018 the amount outstanding to Leisure Living Gladstone Pty Ltd was Ernst & Young continues in office in accordance with section 327 of the Corporations Act 2001. This report is made in accordance with a resolution of the Directors, pursuant to section 298(2)(a) of the Corporations Act 2001. On behalf of the directors The amounts contained in the financial report have been rounded to the nearest $1,000 (where rounding is applicable) where noted ($’000) under the option available to the Company under ASIC Corporations (Rounding in Financial/Directors’ Reports) Instrument 2016/191. The Company is an entity to which this legislative instrument applies. AUDITOR’S INDEPENDENCE DECLARATION A copy of the auditors’ independence declaration as required under section 307C of the Corporations Act 2001 is set out on page 81. AUDITOR Murray Boyte Executive Chair Dated in Brisbane this 31st day of August 2018. EGH ANNUAL REPORT 2018 28 EGH ANNUAL REPORT 2018 29 29 EUREKA GROUP HOLDINGSFor personal use only Eureka Group Holdings Limited and controlled entities Consolidated Statement of Profit or Loss and Other Consolidated Statement of Profit or Comprehensive Income Loss and Other Comprehensive Income FOR THE YEAR ENDED 30 JUNE 2018 FOR THE YEAR ENDED 30 JUNE 2018 Note 3 13 3 7 9 4 4 4 5 Revenue Share of profit of a joint venture Other income Expenses Village operating costs Impairment – trade receivables Loss on revaluation of investment property and other assets Couran Cove inventory write down and transaction costs Write down of other assets associated with Couran Cove Employee benefits expenses Finance expense Marketing expenses Consultancy expenses Depreciation & amortisation expenses Lease expenses Other expenses Profit/(loss) before income tax expense Income tax expense Profit/(loss) after income tax expense Other comprehensive income/(loss) Items that may be reclassified to profit or loss Items that will not be reclassified to profit or loss Other comprehensive income/(loss) for the year, net of tax Total comprehensive income/(loss) for the year Basic and diluted earnings per share (cents per share) 25 Consolidated 30 June 2018 $’000 30 June 2017 $’000 22,574 172 638 (11,910) - (1,692) (1,124) (1,763) (1,884) (2,753) (136) - (251) (280) (1,867) (276) - (276) - - - (276) (0.12) 24,053 - 2,420 (12,796) (126) - - - (1,339) (2,606) (205) (653) (271) (201) (1,738) 6,538 - 6,538 - - - 6,538 2.84 The consolidated statement of profit or loss and other comprehensive income is to be read in conjunction with the accompanying notes. 30 EGH ANNUAL REPORT 2018 30 2017-2018 ANNUAL REPORTFor personal use only Eureka Group Holdings Limited and controlled entities Consolidated Statement of Financial Position Consolidated Statement of Financial Position Consolidated Statement of Financial Position AS AT 30 JUNE 2018 AS AT 30 JUNE 2018 Consolidated AS AT 30 JUNE 2018 Eureka Group Holdings Limited and controlled entities Eureka Group Holdings Limited and controlled entities Consolidated Statement of Profit or Loss and Other Comprehensive Income FOR THE YEAR ENDED 30 JUNE 2018 Consolidated 30 June 2018 30 June 2017 Note $’000 $’000 Revenue Other income Share of profit of a joint venture Expenses Village operating costs Impairment – trade receivables Loss on revaluation of investment property and other assets Couran Cove inventory write down and transaction costs Write down of other assets associated with Couran Cove Employee benefits expenses Finance expense Marketing expenses Consultancy expenses Depreciation & amortisation expenses Lease expenses Other expenses Profit/(loss) before income tax expense Income tax expense Profit/(loss) after income tax expense 3 13 3 7 9 4 4 4 5 Other comprehensive income/(loss) Items that may be reclassified to profit or loss Items that will not be reclassified to profit or loss Other comprehensive income/(loss) for the year, net of tax Total comprehensive income/(loss) for the year Basic and diluted earnings per share (cents per share) 25 22,574 172 638 (11,910) - (1,692) (1,124) (1,763) (1,884) (2,753) (136) - (251) (280) (1,867) (276) (276) - - - - (276) (0.12) 24,053 - 2,420 (12,796) (126) (1,339) (2,606) (205) (653) (271) (201) (1,738) 6,538 6,538 - - - - - - - 6,538 2.84 Current Assets Cash and cash equivalents Current Assets Trade and other receivables Cash and cash equivalents Inventories Trade and other receivables Other assets Inventories Loans receivable Other assets Loans receivable Assets held for sale Total current assets Assets held for sale Total current assets Non-Current Assets Loans receivable Non-Current Assets Joint Venture Investment Loans receivable Other assets Joint Venture Investment Investment property Other assets Property, plant and equipment Investment property Intangible assets Property, plant and equipment Total non-current assets Intangible assets Total non-current assets Total Assets Total Assets Current Liabilities Trade and other payables Current Liabilities Other financial liabilities Trade and other payables Provisions Other financial liabilities Total current liabilities Provisions Total current liabilities Non-current liabilities Other financial liabilities Non-current liabilities Provisions Other financial liabilities Total non-current liabilities Provisions Total non-current liabilities Total Liabilities Total Liabilities Net Assets Net Assets Equity Share capital Equity Equity reserve Share capital Accumulated losses Equity reserve Total Equity Accumulated losses Total Equity Note Note 21 6 21 7 6 9 7 11 9 11 8 8 11 13 11 9 13 14 9 15 14 16 15 16 17 19 17 18 19 18 19 18 19 18 20 20 20 20 The consolidated statement of profit or loss and other comprehensive income is to be read in conjunction with the accompanying notes. The consolidated statement of financial position is to be read in conjunction with the accompanying notes EGH ANNUAL REPORT 2018 30 The consolidated statement of financial position is to be read in conjunction with the accompanying notes Consolidated 30 June 2018 $’000 30 June 2018 $’000 30 June 2017 $’000 30 June 2017 $’000 1,986 2,402 1,986 11,783 2,402 1,469 11,783 72 1,469 17,712 72 1,750 17,712 19,462 1,750 19,462 456 4,672 456 1,237 4,672 100,756 1,237 682 100,756 6,035 682 113,838 6,035 113,838 133,300 4,395 2,632 4,395 7,649 2,632 1,623 7,649 76 1,623 16,375 76 - 16,375 16,375 - 16,375 501 - 501 3,000 - 100,666 3,000 1,665 100,666 6,327 1,665 112,159 6,327 112,159 128,534 133,300 128,534 2,709 163 2,709 263 163 3,135 263 3,135 55,320 145 55,320 55,465 145 55,465 58,600 58,600 74,700 74,700 94,352 12 94,352 (19,664) 12 74,700 (19,664) 74,700 2,660 1,554 2,660 289 1,554 4,503 289 4,503 49,019 145 49,019 49,164 145 49,164 53,667 53,667 74,867 74,867 94,255 - 94,255 (19,388) - 74,867 (19,388) 74,867 EGH ANNUAL REPORT 2018 EGH ANNUAL REPORT 2018 31 31 31 EUREKA GROUP HOLDINGSFor personal use only Eureka Group Holdings Limited and controlled entities Consolidated Statement of Cash Flows Consolidated Statement of Cash Flows AS AT 30 JUNE 2018 AS AT 30 JUNE 2018 Consolidated Note 30 June 2018 $’000 30 June 2017 $’000 Cash Flows from Operating Activities Receipts from customers Payments to suppliers & employees (1) Interest received Interest paid Net Cash provided by/(used) in Operating Activities 21(b) Cash Flows from Investing Activities Payments for additions to investment properties Payments for property, plant & equipment Payments for Joint Venture investment Proceeds from sale of assets held for sale Proceeds from sale of investment property Proceeds from the sale of intangible assets Payments made to sell intangible assets Payments for loans provided Repayments of loans provided Payment of residential obligation loans Payments for intangible assets Net Cash provided by/(used) in Investing Activities Cash Flows from Financing Activities Proceeds from borrowings Repayment of borrowings Payments of transaction costs related to borrowings Proceeds from share issues Payments for share buy back Payments for share issue and buy back transaction costs Net Cash provided by/(used in) Financing Activities 20 20 24,849 (19,144) 8 (2,777) 2,936 (8,704) (30) (4,500) 2,200 1,335 312 - - 85 (832) - (10,134) 9,425 (4,559) (75) - - (2) 4,789 24,277 (17,987) 49 (2,266) 4,073 (15,719) (302) - - - 171 (10) (561) 67 (246) (849) (17,449) 9,848 (1,667) (440) 3,948 (523) (236) 10,930 Net increase/(decrease) in cash and cash equivalents (2,409) (2,446) Cash and cash equivalents at the beginning of the financial year Cash and cash equivalents at the end of the financial year 21(a) 4,395 1,986 6,841 4,395 (1) Included in cash payments during the year ended 30 June 2018 was an amount of $1.67 million for capitalised development costs on inventory held at Terranora and Couran Cove to prepare the inventory for sale. The consolidated statement of cash flows is to be read in conjunction with the accompanying notes. 32 EGH ANNUAL REPORT 2018 32 2017-2018 ANNUAL REPORTFor personal use only Eureka Group Holdings Limited and controlled entities FOR THE YEAR ENDED 30 JUNE 2018 FOR THE YEAR ENDED 30 JUNE 2018 Eureka Group Holdings Limited and controlled entities Consolidated Statement of Changes in Equity Consolidated Statement of Changes in Equity Consolidated Statement of Changes in Equity Eureka Group Holdings Limited and controlled entities Consolidated Statement of Cash Flows AS AT 30 JUNE 2018 Consolidated 30 June 2018 30 June 2017 Note $’000 $’000 Net Cash provided by/(used) in Operating Activities 21(b) Cash Flows from Operating Activities Receipts from customers Payments to suppliers & employees (1) Interest received Interest paid Cash Flows from Investing Activities Payments for additions to investment properties Payments for property, plant & equipment Payments for Joint Venture investment Proceeds from sale of assets held for sale Proceeds from sale of investment property Proceeds from the sale of intangible assets Payments made to sell intangible assets Payments for loans provided Repayments of loans provided Payment of residential obligation loans Payments for intangible assets Cash Flows from Financing Activities Proceeds from borrowings Repayment of borrowings Payments of transaction costs related to borrowings Proceeds from share issues Payments for share buy back Payments for share issue and buy back transaction costs Net Cash provided by/(used in) Financing Activities 20 20 24,849 (19,144) 8 (2,777) 2,936 (8,704) (30) (4,500) 2,200 1,335 312 85 (832) - - - - - 9,425 (4,559) (75) (2) 4,789 24,277 (17,987) 49 (2,266) 4,073 (15,719) (302) - - - 171 (10) (561) 67 (246) (849) 9,848 (1,667) (440) 3,948 (523) (236) 10,930 Net Cash provided by/(used) in Investing Activities (10,134) (17,449) Net increase/(decrease) in cash and cash equivalents (2,409) (2,446) Cash and cash equivalents at the beginning of the financial year Cash and cash equivalents at the end of the financial year 21(a) 4,395 1,986 6,841 4,395 (1) Included in cash payments during the year ended 30 June 2018 was an amount of $1.67 million for capitalised development costs on inventory held at Terranora and Couran Cove to prepare the inventory for sale. FOR THE YEAR ENDED 30 JUNE 2018 For the year ended 30 June 2018 Share Capital $’000 Share Capital $’000 Consolidated Accumulated Losses Consolidated $’000 Accumulated Losses $’000 Equity Reserves $’000 Equity Reserves $’000 Total $’000 Total $’000 For the year ended 30 June 2018 Balance at 1 July 2017 94,255 (19,388) Balance at 1 July 2017 Profit/(loss) for the year Other comprehensive income/(loss) Profit/(loss) for the year Total comprehensive income/(loss) for the year Other comprehensive income/(loss) Total comprehensive income/(loss) for the year Transactions with owners in their capacity as owners: Shares issued during the year Transactions with owners in their capacity as owners: Share based payments Shares issued during the year Capital raising costs Share based payments Balance at 30 June 2018 Capital raising costs Balance at 30 June 2018 For the year ended 30 June 2017 For the year ended 30 June 2017 Balance at 1 July 2016 Balance at 1 July 2016 Profit for the year Other comprehensive income Profit for the year Total comprehensive income for the year Other comprehensive income Total comprehensive income for the year Transactions with owners in their capacity as owners: Shares issued during the year Transactions with owners in their capacity as owners: Share buy back Shares issued during the year Capital raising costs Share buy back Balance at 30 June 2017 Capital raising costs Balance at 30 June 2017 94,255 - - - - - - 100 - 100 (3) - 94,352 (3) 94,352 (19,388) (276) - (276) (276) - (276) - - - - - (19,664) - (19,664) 90,860 (25,926) 90,860 - - - - - - 3,948 (523) 3,948 (30) (523) 94,255 (30) 94,255 (25,926) 6,538 - 6,538 6,538 - 6,538 - - - - - (19,388) - (19,388) - - - - - - - - - 12 - - 12 12 - 12 - - - - - - - - - - - - - - - - 74,867 74,867 (276) - (276) (276) - (276) 100 12 100 (3) 12 74,700 (3) 74,700 64,934 64,934 6,538 - 6,538 6,538 - 6,538 3,948 (523) 3,948 (30) (523) 74,867 (30) 74,867 The consolidated statement of cash flows is to be read in conjunction with the accompanying notes. The consolidated statement of changes in equity is to be read in conjunction with the accompanying notes. The consolidated statement of changes in equity is to be read in conjunction with the accompanying notes. EGH ANNUAL REPORT 2018 32 EGH ANNUAL REPORT 2018 EGH ANNUAL REPORT 2018 33 33 33 EUREKA GROUP HOLDINGSFor personal use only Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2018 FOR THE YEAR ENDED 30 JUNE 2018 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 2018 is a company incorporated and domiciled in Australia. EGH is a for-profit entity for the purposes of preparing the financial statements. The Group’s operations and principal activities comprise ownership and property management of Independent Living Communities. The financial report is presented in Australian dollars. The company is of a kind referred to in ASIC Corporations (Rounding in Financial/Directors’ Reports) Instrument 2016/191’, issued by the Australian Securities and Investments Commission, relating to 'rounding-off'. Amounts in this report have been rounded off in accordance with that legislation to the nearest thousand dollars, or in certain cases, the nearest dollar. The registered office of the company is Suite 2D 7 Short St, Southport QLD 4215 The financial report was authorised for issue on 31 August 2018 by the Directors. 2. SUMMARY OF ACCOUNTING POLICIES BASIS OF PREPARATION The principal accounting policies adopted by the Group, 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. These policies have been consistently applied to all the years presented, unless otherwise stated. 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, revised and amended Accounting 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. 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 2017. Historical cost convention The financial statements have been prepared under the historical cost convention, except for, where applicable, the revaluation of available-for-sale financial assets, financial assets and liabilities at fair value through profit or loss, investment properties and derivative financial instruments. 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 2018 and the results of all controlled entities for the year then ended. The effects of all transactions between entities in the Group are eliminated in full. Subsidiaries are entities controlled by the Company. Control exists when the Company is exposed to, or has rights to variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct the activities of the entity. 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. Where the Group 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 Group 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. EGH ANNUAL REPORT 2018 34 34 2017-2018 ANNUAL REPORTFor personal use only Eureka Group Holdings Limited and controlled entities Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2018 Notes to the Financial Statements Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2018 FOR THE YEAR ENDED 30 JUNE 2018 1. INTRODUCTION BUSINESS COMBINATIONS 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 2018 is a company incorporated and domiciled in Australia. EGH is a for-profit entity for the purposes of preparing the financial statements. The Group’s operations and principal activities comprise ownership and property management of Independent Living Communities. The financial report is presented in Australian dollars. The company is of a kind referred to in ASIC Corporations (Rounding in Financial/Directors’ Reports) Instrument 2016/191’, issued by the Australian Securities and Investments Commission, relating to 'rounding-off'. Amounts in this report have been rounded off in accordance with that legislation to the nearest thousand dollars, or in certain cases, the nearest dollar. The registered office of the company is Suite 2D 7 Short St, Southport QLD 4215 The financial report was authorised for issue on 31 August 2018 by the Directors. 2. SUMMARY OF ACCOUNTING POLICIES BASIS OF PREPARATION The principal accounting policies adopted by the Group, 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. These policies have been consistently applied to all the years presented, unless otherwise stated. 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, revised and amended Accounting 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 Group has not elected to apply any pronouncements before their operative date in the annual reporting period beginning The financial statements have been prepared under the historical cost convention, except for, where applicable, the revaluation of available-for-sale financial assets, financial assets and liabilities at fair value through profit or loss, investment properties Early adoption of standards 1 July 2017. Historical cost convention and derivative financial instruments. 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 2018 and the results of all controlled entities for the year then ended. The effects of all transactions between entities in the Group are eliminated in full. Subsidiaries are entities controlled by the Company. Control exists when the Company is exposed to, or has rights to variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct the activities of the entity. 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. Where the Group 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 Group 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. EGH ANNUAL REPORT 2018 34 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 Group assesses the financial assets acquired and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic conditions, the Group's operating or accounting policies and other pertinent conditions in existence at the acquisition-date. Where the business combination is achieved in stages, the Group 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 acquiree. 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. REVENUE RECOGNITION Rent Revenue Rent revenue from investment properties is recognised on a straight-line basis over the lease term. Rent not received at balance date is reflected in the balance sheet as a receivable, or if paid in advance, as deferred revenue. Lease incentives granted are recognised over the lease term, on a straight-line basis, as a reduction of rent. Rental subsidy receipts from government bodies are recorded on an accruals basis as an entitlement to this income accrues on the provision of accommodation. Management, Property Maintenance, Catering and Service Fees The Group is entitled to receive a fee from unit owners for managing the units under management services agreements. The Group also receives a fee from the tenants of the units for the provision of property maintenance, catering and other services. The Group also provides property consulting services to third parties for agreed fees. 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. Other revenue Other revenue is recognised when it is received or when the right to receive payment is established. Certain transactions undertaken involve the exchange of assets. Where an exchange of assets is undertaken which has commercial substance and appropriate measurement can be made, acquired assets are measured at fair value and assets exchanged are derecognised at their carrying value. Any differences are recorded in the profit and loss. EGH ANNUAL REPORT 2018 35 35 EUREKA GROUP HOLDINGSFor personal use only Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2018 FOR THE YEAR ENDED 30 JUNE 2018 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. 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 by the head entity and any tax-loss deferred tax asset assumed by the head entity, resulting in the head entity recognising an inter-entity receivable/ (payable) equal in amount to the tax liability/ (asset) assumed. The inter-entity 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. 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 Group 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 36 EGH ANNUAL REPORT 2018 36 2017-2018 ANNUAL REPORTFor personal use only Eureka Group Holdings Limited and controlled entities Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2018 FOR THE YEAR ENDED 30 JUNE 2018 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. INVESTMENT PROPERTY Land and buildings have the function of investment and are regarded as composite assets. In accordance with applicable accounting standards, the buildings, including plant and equipment, are not depreciated. Transfers from investment property to inventory are determined by a change of use as evidenced by a start of development with a view to subsequent sale. The fair value of the investment property at the date of transfer becomes the deemed cost of inventory. Investment property is initially measured at cost, including transaction costs. Subsequent to initial recognition, investment properties are stated at fair value, which reflects market conditions at the reporting date. Gains or losses arising from changes in the fair values of investment properties are recognised in profit or loss in the period in which they arise. Transfers to and from investment properties to property, plant and equipment are determined by a change in use of owner- occupation. The fair value on the date of change of use from investment properties to property, plant and equipment are used as deemed cost for the subsequent accounting. The existing carrying amount of property, plant and equipment is used for the subsequent accounting cost of investment properties on date of change of use. Fair value is determined from market based evidence, by an appraisal undertaken by a professionally qualified valuer with experience in the location, category of the investment property, reputation, independence and whether professional standards are maintained. It is the Group’s policy to have all investment properties externally valued at intervals of not less than three years or a third of the properties each year. Internal valuations are undertaken with reference to current market conditions and available information for those investment properties not externally valued at each reporting date. It is the policy of the Group to review the fair value of each investment property at each reporting date and to cause investment properties to be revalued to fair values. Any gain or loss on disposal of investment property (calculated as the difference between the net proceeds from disposal and the carrying amount of the item) is recognised in profit or loss. 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. INVESTMENT IN JOINT VENTURE A joint venture is a type of joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the joint venture. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control. The considerations made in determining joint control are similar to those necessary to determine control over subsidiaries. The Group’s investments in its joint venture are accounted for using the equity method. Under the equity method, the investment in a joint venture is initially recognised at cost. The carrying amount of the investment is adjusted to recognise changes in the Group’s share of net assets of the joint venture since the acquisition date. Goodwill relating to the joint venture is included in the carrying amount of the investment and is not tested for impairment separately. The statement of profit or loss reflects the Group’s share of the results of operations of the joint venture. Any change in other comprehensive income (OCI) of those investees is presented as part of the Group’s OCI. In addition, when there has been a change recognised directly in the equity of the joint venture, the Group recognises its share of any changes, when applicable, in the statement of changes in equity. Unrealised gains and losses resulting from transactions between the Group and the joint venture are eliminated to the extent of the interest in the joint venture. The aggregate of the Group’s share of profit or loss of a joint venture is shown on the face of the statement of profit or loss outside operating profit and represents profit or loss after tax and non-controlling interests in the subsidiaries of the joint venture. The financial statements of the associate or joint venture are prepared for the same reporting period as the Group. When necessary, adjustments are made to bring the accounting policies in line with those of the Group. After application of the equity method, the Group determines whether it is necessary to recognise an impairment loss on its investment in its joint venture. At each reporting date, the Group determines whether there is objective evidence that the investment in the joint venture is impaired. If there is such evidence, the Group calculates the amount of impairment as the difference between the recoverable amount of the joint venture and its carrying value, and then recognises the loss as ‘Share of profit of a joint venture’ in the statement of profit or loss. EGH ANNUAL REPORT 2018 37 37 Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2018 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. TAX CONSOLIDATION Group Holdings Limited. 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 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. 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 by the head entity and any tax-loss deferred tax asset assumed by the head entity, resulting in the head entity recognising an inter-entity receivable/ (payable) equal in amount to the tax liability/ (asset) assumed. The inter-entity 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. 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 CASH AND CASH EQUIVALENTS 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 Group 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 EGH ANNUAL REPORT 2018 36 EUREKA GROUP HOLDINGSFor personal use only Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2018 FOR THE YEAR ENDED 30 JUNE 2018 Upon loss of significant influence over the joint control over the joint venture, the Group measures and recognises any retained investment at its fair value. Any difference between the carrying amount of the joint venture upon loss of joint control and the fair value of the retained investment and proceeds from disposal is recognised in profit or loss. 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 Group. Rates used for each class of asset are: Class Rate Method Plant and equipment 6-33% SL/DV Buildings 2.5% SL INTANGIBLE ASSETS Only intangible assets that have been purchased or paid for by the Group are recognised in the accounts. Internally generated intangibles such as management rights on Communities that the Group has constructed are not recognised in the accounts. 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 (for strata-titled villages), or over the period of the management right contract (for single-owner villages). Rent rolls have a finite life and are carried at the lower of cost or recoverable amount. Rent rolls are amortised using the straight line method over 15 years being the estimated useful life. Other intangible assets relate to sundry operational licences. These assets have an indefinite life as their renewal and maintenance is routine Intangible assets with indefinite useful lives are not amortised, but tested for impairment annually, either individually or at the cash-generating unit level. The assessment of indefinite life is reviewed annually to determine whether the indefinite life continues to be supportable. Goodwill is measured at cost less any accumulated impairment losses. Goodwill is not amortised, instead 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. 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 other comprehensive income. 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. 38 EGH ANNUAL REPORT 2018 38 2017-2018 ANNUAL REPORTFor personal use only Eureka Group Holdings Limited and controlled entities Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2018 Notes to the Financial Statements Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2018 FOR THE YEAR ENDED 30 JUNE 2018 Upon loss of significant influence over the joint control over the joint venture, the Group measures and recognises any retained investment at its fair value. Any difference between the carrying amount of the joint venture upon loss of joint control and the fair value of the retained investment and proceeds from disposal is recognised in profit or loss. 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 Group. Rates used for each class of asset are: Class Rate Method Plant and equipment 6-33% SL/DV Buildings 2.5% SL INTANGIBLE ASSETS Only intangible assets that have been purchased or paid for by the Group are recognised in the accounts. Internally generated intangibles such as management rights on Communities that the Group has constructed are not recognised in the accounts. 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 (for strata-titled villages), or over the period of the management right contract (for single-owner villages). Rent rolls have a finite life and are carried at the lower of cost or recoverable amount. Rent rolls are amortised using the straight line method over 15 years being the estimated useful life. Other intangible assets relate to sundry operational licences. These assets have an indefinite life as their renewal and maintenance is routine continues to be supportable. Intangible assets with indefinite useful lives are not amortised, but tested for impairment annually, either individually or at the cash-generating unit level. The assessment of indefinite life is reviewed annually to determine whether the indefinite life Goodwill is measured at cost less any accumulated impairment losses. Goodwill is not amortised, instead 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. 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 other comprehensive income. 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. FAIR VALUE MEASUREMENT When an asset or liability, financial or non-financial, is measured at fair value for recognition or disclosure purposes, the fair value is based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date; and assumes that the transaction will take place either: in the principal market; or in the absence of a principal market, in the most advantageous market. Fair value is measured using the assumptions that market participants would use when pricing the asset or liability, assuming they act in their economic best interests. For non-financial assets including investment properties, the fair value measurement is based on its highest and best use. Valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, are used, maximising the use of relevant observable inputs and minimising the use of unobservable inputs. Assets and liabilities measured at fair value are classified, into three levels, using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. Classifications are reviewed at each reporting date and transfers between levels are determined based on a reassessment of the lowest level of input that is significant to the fair value measurement. For recurring and non-recurring fair value measurements, external valuers may be used when internal expertise is either not available or when the valuation is deemed to be significant. External valuers are selected based on market knowledge and reputation. Where there is a significant change in fair value of an asset or liability from one period to another, an analysis is undertaken, which includes a verification of the major inputs applied in the latest valuation and a comparison, where applicable, with external sources of data. FINANCIAL ASSETS AND LIABILITIES A financial instrument is recognised if the Group becomes a party to the contractual provisions of the instrument. Financial assets are derecognised if the Group’s contractual rights to the cash flows from the financial asset expire or if the Group 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 Group commits itself to purchase or sell the asset. Financial liabilities are derecognised if the Group’s obligation specified in the contract expire or are discharged or cancelled. 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. Investments are designated as available-for-sale financial assets if they do not have fixed maturities and fixed or determinable payments, and management intends to hold them for the medium to long-term. Financial assets that are not classified into any of the other categories (at fair value through profit or loss, loans and receivables or held-to-maturity investments) are also included in the available-for-sale category. EGH ANNUAL REPORT 2018 38 EGH ANNUAL REPORT 2018 39 39 EUREKA GROUP HOLDINGSFor personal use only Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2018 FOR THE YEAR ENDED 30 JUNE 2018 NON-CURRENT ASSETS (OR DISPOSAL GROUPS) 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. An impairment loss is recognised for any initial or subsequent write-down of the asset (or disposal group) to fair value less costs to sell. A gain is recognised for any subsequent increases in fair value less costs to sell of an asset (or disposal group), but not in excess of any cumulative impairment loss previously recognised. A gain or loss not previously recognised by the date of the sale of the non-current asset (or disposal group) is recognised at the date of derecognition. Non-current assets (including those that are part of the disposal group) are not depreciated or amortised while they are classified as held for sale. Non-current assets classified as held for sale and the assets of a disposal group classified as held for sale are presented separately from the other assets in the statement of financial position. The liabilities of a disposal group classified as held for sale are presented separately from other liabilities in the statement of financial position. TRADE AND OTHER PAYABLES These amounts represent liabilities for goods and services provided to the Group 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. 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. EMPLOYEE BENEFITS Short-term Employee Benefits Liabilities for wages and salaries, annual leave and long service leave expected to be settled within 12 months of the reporting date are recognised in current liabilities, 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-term Employee Benefits The liabilities for annual leave and long service leave expected to not be settled within 12 months of the reporting date are recognised in non-current liabilities, provided there is an unconditional right to defer settlement of the liability. The liability is 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 corporate bond rates with the terms to maturity that match, as closely as possible, the estimated future cash outflows. Share based payments Employees of the Group receive remuneration in the form of share-based payments, whereby employees render services as consideration for equity instruments (equity-settled transactions). 40 EGH ANNUAL REPORT 2018 40 2017-2018 ANNUAL REPORTFor personal use only Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2018 NON-CURRENT ASSETS (OR DISPOSAL GROUPS) 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. An impairment loss is recognised for any initial or subsequent write-down of the asset (or disposal group) to fair value less costs to sell. A gain is recognised for any subsequent increases in fair value less costs to sell of an asset (or disposal group), but not in excess of any cumulative impairment loss previously recognised. A gain or loss not previously recognised by the date of the sale of the non-current asset (or disposal group) is recognised at the date of derecognition. Non-current assets (including those that are part of the disposal group) are not depreciated or amortised while they are classified as held for sale. Non-current assets classified as held for sale and the assets of a disposal group classified as held for sale are presented separately from the other assets in the statement of financial position. The liabilities of a disposal group classified as held for sale are presented separately from other liabilities in the statement of financial position. TRADE AND OTHER PAYABLES These amounts represent liabilities for goods and services provided to the Group 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. 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. EMPLOYEE BENEFITS Short-term Employee Benefits Long-term Employee Benefits The liabilities for annual leave and long service leave expected to not be settled within 12 months of the reporting date are recognised in non-current liabilities, provided there is an unconditional right to defer settlement of the liability. The liability is 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 corporate bond rates with the terms to maturity that match, as closely as possible, the estimated future cash outflows. Share based payments Employees of the Group receive remuneration in the form of share-based payments, whereby employees render services as consideration for equity instruments (equity-settled transactions). EGH ANNUAL REPORT 2018 40 Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2018 FOR THE YEAR ENDED 30 JUNE 2018 The cost of equity-settled transactions is determined by the fair value at the date when the grant is made using an appropriate valuation model. That cost is recognised in employee benefits expense, together with a corresponding increase in equity (other capital reserves), over the period in which the service and, where applicable, the performance conditions are fulfilled (the vesting period). The cumulative expense recognised for equity-settled transactions at each reporting date until the vesting date reflects the extent to which the vesting period has expired and the Group’s best estimate of the number of equity instruments that will ultimately vest. The expense or credit in the statement of profit or loss for a period represents the movement in cumulative expense recognised as at the beginning and end of that period. Service and non-market performance conditions are not taken into account when determining the grant date fair value of awards, but the likelihood of the conditions being met is assessed as part of the Group’s best estimate of the number of equity instruments that will ultimately vest. Market performance conditions are reflected within the grant date fair value. Any other conditions attached to an award, but without an associated service requirement, are considered to be non-vesting conditions. Non-vesting conditions are reflected in the fair value of an award and lead to an immediate expensing of an award unless there are also service and/or performance conditions. No expense is recognised for awards that do not ultimately vest because non-market performance and/or service conditions have not been met. Where awards include a market or non-vesting condition, the transactions are treated as vested irrespective of whether the market or non-vesting condition is satisfied, provided that all other performance and/or service conditions are satisfied. BORROWINGS PROVISIONS Provisions are recognised when the Group 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. RETIREMENT VILLAGE RESIDENT LOANS These loans, which are repayable on the departure of the resident, are classified as financial liabilities at fair value through profit and loss with resulting fair value adjustments recognised in the income statement. The fair value of the obligation is measured as the ingoing contribution plus the resident’s share of capital appreciation to reporting date. Although the expected average residency term is between one to ten years, these obligations are classified as current liabilities, as required by Accounting Standards, because the Group does not have an unconditional right to defer settlement to more than twelve months after reporting date. This liability is stated net of accrued deferred management fees at reporting date, because the Group’s contracts with residents require net settlement of those obligations. FINANCE COSTS 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. Finance costs incurred whilst qualifying assets 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. GOODS AND SERVICES TAX Liabilities for wages and salaries, annual leave and long service leave expected to be settled within 12 months of the reporting date are recognised in current liabilities, 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. 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 2018 41 41 EUREKA GROUP HOLDINGSFor personal use only Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2018 FOR THE YEAR ENDED 30 JUNE 2018 LEASES Leases of property, plant and equipment where the group, as lessee, has substantially all the risks and rewards of ownership are classified as finance leases. Finance leases are capitalised at the lease’s inception at the fair value of the leased property or, if lower the present value of the minimum lease payments. The corresponding rental obligations, net of finance charges, are included in financial liabilities. Each lease payment is allocated between the liability and finance cost. The finance cost is charged to the profit and loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The property, plant and equipment acquired under finance leases is depreciated over the asset’s useful life or over the shorter of the asset’s useful life and the lease term if there is no reasonable certainty that the group will obtain ownership at the end of the lease term. Leases in which a significant portion of the risks and rewards of ownership are not transferred to the group as lessee are classified as operating leases. Operating lease payments are recognised as an expense on a straight line basis over the lease term. 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. CAPITAL MANAGEMENT The Group considers its share capital and accumulated losses as capital. When managing capital, the objective is to ensure the Group continues as a going concern, as well as to maintain optimum returns to shareholders and benefits for other stakeholders. The Group also aims to maintain a capital structure that ensures the lowest cost of capital available to the entity. The Group does not have any specific capital targets and nor is it subject to any external capital restrictions. The Board and Senior Management meet regularly and review in detail the current cash position and cash flow forecasts having regard to planned expansions and take the necessary action to ensure sufficient funds are available. CONTRIBUTED EQUITY Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. When share capital recognised as equity is repurchased, the amount of the consideration paid, including directly attributable costs is recognised as a deduction from equity. 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, ESTIMATES AND ASSUMPTIONS 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 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: 42 EGH ANNUAL REPORT 2018 42 2017-2018 ANNUAL REPORTFor personal use only Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2018 LEASES Leases of property, plant and equipment where the group, as lessee, has substantially all the risks and rewards of ownership are classified as finance leases. Finance leases are capitalised at the lease’s inception at the fair value of the leased property or, if lower the present value of the minimum lease payments. The corresponding rental obligations, net of finance charges, are included in financial liabilities. Each lease payment is allocated between the liability and finance cost. The finance cost is charged to the profit and loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The property, plant and equipment acquired under finance leases is depreciated over the asset’s useful life or over the shorter of the asset’s useful life and the lease term if there is no reasonable certainty that the group will obtain ownership at the end of the lease term. Leases in which a significant portion of the risks and rewards of ownership are not transferred to the group as lessee are classified as operating leases. Operating lease payments are recognised as an expense on a straight line basis over the lease term. DIVIDENDS CAPITAL MANAGEMENT CONTRIBUTED EQUITY EARNINGS PER SHARE Basic Earnings Per Share 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. The Group considers its share capital and accumulated losses as capital. When managing capital, the objective is to ensure the Group continues as a going concern, as well as to maintain optimum returns to shareholders and benefits for other stakeholders. The Group also aims to maintain a capital structure that ensures the lowest cost of capital available to the entity. The Group does not have any specific capital targets and nor is it subject to any external capital restrictions. The Board and Senior Management meet regularly and review in detail the current cash position and cash flow forecasts having regard to planned expansions and take the necessary action to ensure sufficient funds are available. Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. When share capital recognised as equity is repurchased, the amount of the consideration paid, including directly attributable costs is recognised as a deduction from equity. 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, ESTIMATES AND ASSUMPTIONS 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 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: Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2018 FOR THE YEAR ENDED 30 JUNE 2018 Goodwill The Group 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 to Note 16 for further information. Amortisation of Management Rights Management rights are amortised over either 40 years (for strata-titled villages) or the period of the management right contract (for single-owner villages). For strata-titled villages where management rights are attached, the Group amortises its management rights over a period of 40 years (being the estimated useful life). The amortisation period used reflects the pattern in which the asset’s future economic benefits are expected to be consumed by the Group. In determining the useful life, the Group 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. For Single-owner villages where management rights are attached, its management rights are amortised over the life of the contract. This is because Eureka has materially less control over future contract renewals than it does with the strata-titled villages. Eureka considers that it has materially less control over future contract renewals in single-owner villages primarily because: (a) it does not own or have any sort of tenure in respect of the managers unit; and (b) a single vote of the owner can elect to not renew Eureka’s management rights contract. Investment Property – Classification The Group classifies property as investment property when it meets the following key criteria: • • The property is held by the Group to generate long term investment growth and ongoing rental returns; and Ancillary services are insignificant to the arrangement as a whole. Associated with these properties are insignificant ancillary services – principally the provision of food services to residents. Judgement is required as to whether the ancillary services are significant. Management has determined that the ancillary services are not significant by comparing the fair value of the ancillary services to the total income generated from the property. In addition, qualitative factors have been considered as part of the assessment of ancillary services including both operational and legislative considerations. An assessment of the qualitative and economic factors associated with these services has been made and the ancillary services have been concluded not to be significant and hence property has been recorded as investment property. Properties that do not meet this criteria are classified as property, plant and equipment. Investment Property – Measurement The Group carries its investment property at fair value, with changes in fair value being recognised in profit or loss. The best evidence of fair value is current prices in an active market for similar investment properties. Where such information is not available, the Group determines a property’s value within a range of reasonable fair value estimates. In making its judgment, the Group considers information from a variety of sources including: a) Acquisition price paid for the property; b) Recent prices of similar properties with adjustments to reflect any changes in economic conditions since the date of the transactions that occurred at those prices; and c) Capitalised income projections based upon a property’s estimated net market income, which is assumed to be a level annuity in perpetuity and capitalisation rate derived from analysis of market evidence. Fair value measurement hierarchy The consolidated entity is required to classify all assets and liabilities, measured at fair value, using a three level hierarchy, based on the lowest level of input that is significant to the entire fair value measurement, being: Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date; Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly; and Level 3: Unobservable inputs for the asset or liability. Considerable judgement is required to determine what is significant to fair value and therefore which category the asset or liability is placed in can be subjective. EGH ANNUAL REPORT 2018 42 EGH ANNUAL REPORT 2018 43 43 EUREKA GROUP HOLDINGSFor personal use only Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2018 FOR THE YEAR ENDED 30 JUNE 2018 The fair value of assets and liabilities classified as level 3 is determined by the use of valuation models. These include discounted cash flow analysis or the use of observable inputs that require significant adjustments based on unobservable inputs. Option over property Options over property are initially measured at cost. Subsequent to acquisition options continue to be recorded at cost, however are tested for impairment on an annual basis. Impairment is tested by reference to the assessed value of the underlying property assets or final cash settlement alternatives. Impairment losses are recorded as incurred. Refer to Note 9 for significant assumptions made in the assessment of impairment for these assets. 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 fair value less costs of disposal or value-in-use calculations, which incorporate a number of key estimates and assumptions. Recovery of Deferred Tax Assets Deferred tax assets are recognised for deductible temporary differences only if the Group considers it is probable that future taxable amounts will be available to utilise those temporary difference and tax losses. Recovery of Other Receivables At each reporting date the Group assesses the recoverability of other receivables and loans by reference to the expected future cash flows and credit worthiness of the borrower. Security provided is also considered. PARENT ENTITY In accordance with the Corporations Act 2001, these financial statements present the results of the Group only. Supplementary information about the parent entity is disclosed in Note 33. The accounting policies of the parent entity are consistent with those of the Group, as disclosed above, except for the following: • • Investments in subsidiaries are accounted for at cost, less any impairment, in the parent entity. Investments in joint ventures 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 2018 reporting periods. Eureka Group Holdings Limited assessment of the impact of these new standards and interpretations is set out below. AASB 9 Financial Instruments AASB 9 Financial Instruments includes requirements for the classification, measurement and de-recognition of financial assets. These requirements improve and simplify the approach for classification and measurement of financial assets compared with the requirements of AASB 139. The standard is applicable to the Group from 1 July 2018. The new requirements are not expected to impact the classification and measurement of the Group’s existing financial assets. However, the impact of the application of the standard is continuously being monitored by the Group, and the Group expects to conclude on the impact in due course. 44 EGH ANNUAL REPORT 2018 44 2017-2018 ANNUAL REPORTFor personal use only Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2018 The fair value of assets and liabilities classified as level 3 is determined by the use of valuation models. These include discounted cash flow analysis or the use of observable inputs that require significant adjustments based on unobservable inputs. Option over property Options over property are initially measured at cost. Subsequent to acquisition options continue to be recorded at cost, however are tested for impairment on an annual basis. Impairment is tested by reference to the assessed value of the underlying property assets or final cash settlement alternatives. Impairment losses are recorded as incurred. Refer to Note 9 for significant assumptions made in the assessment of impairment for these assets. 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 fair value less costs of disposal or value-in-use calculations, which incorporate a number of key estimates and assumptions. Recovery of Deferred Tax Assets Deferred tax assets are recognised for deductible temporary differences only if the Group considers it is probable that future taxable amounts will be available to utilise those temporary difference and tax losses. Recovery of Other Receivables At each reporting date the Group assesses the recoverability of other receivables and loans by reference to the expected future cash flows and credit worthiness of the borrower. Security provided is also considered. In accordance with the Corporations Act 2001, these financial statements present the results of the Group only. Supplementary information about the parent entity is disclosed in Note 33. The accounting policies of the parent entity are consistent with those of the Group, as disclosed above, except for the following: • • Investments in subsidiaries are accounted for at cost, less any impairment, in the parent entity. Investments in joint ventures are accounted for at cost, less any impairment, in the parent entity. 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 PARENT ENTITY Financial Guarantees 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 AASB 9 Financial Instruments AASB 9 Financial Instruments includes requirements for the classification, measurement and de-recognition of financial assets. These requirements improve and simplify the approach for classification and measurement of financial assets compared with the requirements of AASB 139. The standard is applicable to the Group from 1 July 2018. The new requirements are not expected to impact the classification and measurement of the Group’s existing financial assets. However, the impact of the application of the standard is continuously being monitored by the Group, and the Group expects to conclude on the impact in due course. Eureka Group Holdings Limited and controlled entities Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2018 FOR THE YEAR ENDED 30 JUNE 2018 AASB 15 Revenue from Contracts with Customers This standard is applicable to annual reporting periods beginning on or after 1 January 2018. The standard replaces all existing revenue recognition accounting standards and interpretations. The standard introduces five step model and provides a single standard for revenue recognition. The core principle of the standard is that an entity will recognise revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. For goods, the performance obligation would be satisfied when the customer obtains control of the goods. For services, the performance obligation is satisfied when the service has been provided, typically for promises to transfer services to customers. For performance obligations satisfied over time, an entity would select an appropriate measure of progress to determine how much revenue should be recognised as the performance obligation is satisfied. Sufficient quantitative and qualitative disclosure is required to enable users to understand the contracts with customers; the significant judgments made in applying the guidance to those contracts; and any assets recognised from the costs to obtain or fulfil a contract with a customer. The Group has undertaken an analysis of how AASB 15 should be implemented. This analysis has been performed in respect of revenue from the following major business activities being: a) Provision of accommodation and food services; b) Property maintenance and consulting services, and c) Care services. In respect to revenue from contracts with residents for the provision of accommodation and food, revenue will continue to be recognised as and when accommodation and food is provided, as this is when the Group transfers control of this service (satisfies its performance obligation). In respect to revenue from management and caretaking services, revenue will continue to be recognised as and when the Group performs the agreed services, as this is when the Group transfers control of this service (satisfies its performance obligation). When AASB 15 is adopted in the year ended 30 June 2019, entities are required to select either the modified retrospective approach (comparatives are not restated) approach or the full retrospective (comparatives are restated) approach. Given there is no change to the measurement and recognition criteria, there is no difference between the two approaches for the Group. In respect to revenue from the provision of care services, revenue will continue to be recognised as and when the Group provides the accommodation and care services in accordance with the care plan, as this is when the Group transfers control of this service (satisfies its performance obligation). The Group’s existing disclosure meets the requirements under AASB 15 in respect of the disaggregation of revenue into categories that depict how the nature, amount, timing and uncertainty of revenue and cashflows are effected by the economic factors. Any new agreements for the provision of goods and services will be assessed as they arise throughout the year ended 30 June 2019 and beyond. AASB 16 Leases The new standard will be effective for annual periods beginning on or after 1 January 2019. The key features of AASB 16 are as follows: Certain new accounting standards and interpretations have been published that are not mandatory for 30 June 2018 reporting periods. Eureka Group Holdings Limited assessment of the impact of these new standards and interpretations is set out below. Lessee accounting • Lessees are required to recognise assets and liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value. • A lessee measures right-of-use assets similarly to other non-financial assets and lease liabilities similarly to other financial liabilities. • Assets and liabilities arising from a lease are initially measured on a present value basis. The measurement includes non-cancellable lease payments (including inflation-linked payments), and also includes payments to be made in optional periods if the lessee is reasonably certain to exercise an option to extend the lease, or not to exercise an option to terminate the lease. • AASB 16 contains disclosure requirements for lessees. The consolidated entity will adopt this standard from 1 July 2019. Existing operating leases and any entered into during the year ending 30 June 2019 will be brought onto the balance sheet. Final impact is yet to be determined. EGH ANNUAL REPORT 2018 44 EGH ANNUAL REPORT 2018 45 45 EUREKA GROUP HOLDINGSFor personal use only Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2018 FOR THE YEAR ENDED 30 JUNE 2018 3. REVENUE Revenue Catering – managed properties Catering – owned properties Service fees Property maintenance and consulting services Rental income Other revenue Other Income Interest revenue Net gain on revaluation of investment property and other assets to fair value Gain on sale of investment property Gain on sale of intangibles Insurance claim revenue Other income 4. ITEMS INCLUDED IN PROFIT/(LOSS) Profit/(loss) before income tax expense includes the following specific items: Consolidated 30 June 2018 $’000 30 June 2017 $’000 2,193 2,081 1,762 864 15,674 - 22,574 41 - 501 60 - 36 638 1,992 2,146 1,842 1,833 14,826 1,414 24,053 172 1,046 (10) - 1,007 205 2,420 Flood damage expense - 519 Rental expense relating to operating leases - Minimum lease payments 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 - Rent rolls - Website Total amortisation Depreciation - Plant & equipment - Buildings - Motor vehicles Total depreciation Defined contribution superannuation expense 280 201 2,753 2,753 2,606 2,606 134 4 2 140 81 16 14 111 431 137 3 2 142 101 17 11 129 421 46 EGH ANNUAL REPORT 2018 46 2017-2018 ANNUAL REPORTFor personal use only Eureka Group Holdings Limited and controlled entities Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2018 Notes to the Financial Statements Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2018 FOR THE YEAR ENDED 30 JUNE 2018 3. REVENUE 5. INCOME TAX Revenue Catering – managed properties Catering – owned properties Property maintenance and consulting services Service fees Rental income Other revenue Other Income Interest revenue Gain on sale of investment property Gain on sale of intangibles Insurance claim revenue Other income Net gain on revaluation of investment property and other assets to fair value 4. ITEMS INCLUDED IN PROFIT/(LOSS) Profit/(loss) before income tax expense includes the following specific items: Flood damage expense - 519 The major components of income tax expense for the years ended 30 June 2018 and 2017 are: Consolidated Statement of Profit or Loss Current income tax Deferred income tax Income tax expense reported in the Statement of Profit or Loss A reconciliation of tax expense and the accounting profit/(loss) multiplied by the applicable tax rate of 30% presents as follows: Accounting profit/(loss) before tax Income tax calculated at 30% Tax effect of permanent differences – non deductible land option amounts Recognition of deferred tax assets not previously recognised Income tax expense reported in the Statement of Profit or Loss 6. TRADE AND OTHER RECEIVABLES Rental expense relating to operating leases - Minimum lease payments - Interest and finance charges paid/payable for financial liabilities not at fair value Trade debtors (i) Other debtors Couran Cove receivable (i) Provision for doubtful debts Consolidated 30 June 2018 $’000 30 June 2017 $’000 - - - - - - (276) 6,538 (83) 1,961 533 (450) - 1 (1,962) - Consolidated 30 June 2018 $’000 30 June 2017 $’000 132 186 2,260 (176) 2,402 382 400 1,939 (89) 2,632 (i) Refer to Note 9 – amounts relating to Couran Cove previously classified as trade debtors and financing extended were transferred to other non-current assets upon execution of the agreement between the Group and the parties to these amounts. The amount transferred was $3.00 million during year ended 30 June 2017. This reduced the amount receivable by $3.00 million. Trade receivables are non-interest bearing unless otherwise stated and are generally on 30 day terms. The amounts advanced in relation to the Couran Cove receivable are secured over assets of the third party. Subsequent to 30 June 2018 the nature of these receivables changed as disclosed in Note 34. There are no provisions recorded against these amounts receivable for the reasons disclosed in Note 34. Other Couran Cove assets are described in Notes 7 and 9. 7. INVENTORIES Catering inventory – at cost Terranora units Couran Cove units 12 9,771 2,000 11,783 7 7,642 - 7,649 EGH ANNUAL REPORT 2018 47 47 Consolidated 30 June 2018 30 June 2017 $’000 $’000 2,193 2,081 1,762 864 15,674 - 22,574 41 - 501 60 - 36 638 1,992 2,146 1,842 1,833 14,826 1,414 24,053 172 1,046 (10) - 1,007 205 2,420 280 201 2,753 2,753 2,606 2,606 134 4 2 140 81 16 14 111 431 137 3 2 142 101 17 11 129 421 EGH ANNUAL REPORT 2018 46 Finance cost through profit or loss Total finance cost Amortisation - Management rights - Rent rolls - Website Total amortisation Depreciation - Plant & equipment - Buildings - Motor vehicles Total depreciation Defined contribution superannuation expense EUREKA GROUP HOLDINGSFor personal use only Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2018 FOR THE YEAR ENDED 30 JUNE 2018 The Terranora units were transferred from investment property in 2016 and were recognised at the date of transfer at fair value which, as inventory, is considered deemed cost. During 2018, intention to sell the manager’s residence was formed. Therefore, the residence was transferred from investment property during the year at fair value ($400,000). The costs of additional development are capitalised to the inventory as incurred. The Couran Cove units transferred from investment property during the year were recognised at the date of transfer at fair value. The units were written down by $0.83 million during the year to a net realisable value of $2.00 million as a result of the post balance date transaction described in Note 34. Associated with the Couran Cove transaction the Group also incurred legal and other costs of $0.29 million. These costs combined with the unit write down resulted in a total expense of $1.12 million. Inventory is recorded at the lower of cost and net realisable value. The inventory is expected to be realised within 12 months via sales to third parties. 8. ASSETS HELD FOR SALE Current Assets held for sale Consolidated 30 June 2018 $’000 30 June 2017 $’000 1,750 1,750 - - This asset comprises the Lambert Village and two residential houses in Mt Gambier. A contract for the sale of Lambert Village in Mt Gambier was executed on 20 August 2018 for $1.10 million. In accordance with the terms of the contract, settlement is due on 30 November 2018. The two residential houses are expected to be realised within 12 months. 9. OTHER ASSETS Current Property Deposits Prepayments and other assets (ii) Bartercard (iii) Non-current Other (i) (i) Couran Cove Land Option Position at 30 June 2018 Consolidated 30 June 2018 $’000 30 June 2017 $’000 - 842 627 204 781 638 1,469 1,623 1,237 1,237 3,000 3,000 The Group had acquired by way of a call option an equitable interest in land at Couran Cove. The option had a 3 year life. The option was secured by registered mortgage over land assets at Couran Cove subject to the option and additional land assets. The land which was the subject of the option has a development approval for 60 lots. The land is adjacent to the cabins already owned by the Group at Couran Cove. The option was exercisable individually for up to 60 lots during the option period. At the conclusion of the three year term, for any lots for which an option had not been exercised, the Group was to receive a settlement in cash. Settlement was to be based on the number of unexercised lots as a % of the 60 lots, applied to a $3.00 million value. The option was acquired with effect from 31 December 2016 for $3.00 million and the nature of the asset at 30 June 2018 is an Other non-current asset which is measured at cost and tested for impairment. The acquisition of the option described above for $3.00 million was in lieu of the receipt of cash for the settlement of consultancy fees, trade and other loan amounts as disclosed in Note 6. 48 EGH ANNUAL REPORT 2018 48 2017-2018 ANNUAL REPORTFor personal use only Eureka Group Holdings Limited and controlled entities Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2018 Notes to the Financial Statements Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2018 FOR THE YEAR ENDED 30 JUNE 2018 The Terranora units were transferred from investment property in 2016 and were recognised at the date of transfer at fair value which, as inventory, is considered deemed cost. During 2018, intention to sell the manager’s residence was formed. Therefore, the residence was transferred from investment property during the year at fair value ($400,000). The costs of additional development are capitalised to the inventory as incurred. The Couran Cove units transferred from investment property during the year were recognised at the date of transfer at fair value. The units were written down by $0.83 million during the year to a net realisable value of $2.00 million as a result of the post balance date transaction described in Note 34. Associated with the Couran Cove transaction the Group also incurred legal and other costs of $0.29 million. These costs combined with the unit write down resulted in a total expense of $1.12 Inventory is recorded at the lower of cost and net realisable value. The inventory is expected to be realised within 12 months This asset comprises the Lambert Village and two residential houses in Mt Gambier. A contract for the sale of Lambert Village in Mt Gambier was executed on 20 August 2018 for $1.10 million. In accordance with the terms of the contract, settlement is due on 30 November 2018. The two residential houses are expected to be realised within 12 months. Consolidated 30 June 2018 30 June 2017 $’000 $’000 1,750 1,750 - - Consolidated 30 June 2018 30 June 2017 $’000 $’000 - 842 627 204 781 638 1,469 1,623 1,237 1,237 3,000 3,000 million. via sales to third parties. 8. ASSETS HELD FOR SALE Current Assets held for sale 9. OTHER ASSETS Current Property Deposits Prepayments and other assets (ii) Bartercard (iii) Non-current Other (i) (i) Couran Cove Land Option Position at 30 June 2018 The Group had acquired by way of a call option an equitable interest in land at Couran Cove. The option had a 3 year life. The option was secured by registered mortgage over land assets at Couran Cove subject to the option and additional land assets. The land which was the subject of the option has a development approval for 60 lots. The land is adjacent to the cabins already owned by the Group at Couran Cove. The option was exercisable individually for up to 60 lots during the option period. At the conclusion of the three year term, for any lots for which an option had not been exercised, the Group was to receive a settlement in cash. Settlement was to be based on the number of unexercised lots as a % of the 60 lots, applied to a $3.00 million value. The option was acquired with effect from 31 December 2016 for $3.00 million and the nature of the asset at 30 June 2018 is an Other non-current asset which is measured at cost and tested for impairment. The acquisition of the option described above for $3.00 million was in lieu of the receipt of cash for the settlement of consultancy fees, trade and other loan amounts as disclosed in Note 6. As part of this transaction, the Group had also retained the upside potential of this asset by having been granted an entitlement right to 30% of the proceeds of the sale of certain Couran Cove management and infrastructure rights in 3 years by the current owner. Valuation at 30 June 2018 The asset has been assessed for impairment at 30 June 2018, having regard to the post balance date transaction described in Note 34. The Group has considered the expected cash flows to be received from the asset and discounted these to their present value to determine the recoverable value of the asset. This has resulted in the value of the asset being written down to $1.24 million at 30 June 2018. This is an impairment charge of $1.76 million which has been recorded in the profit and loss at 30 June 2018. The significant assumptions made in the calculation of this amount are as follows. Any changes in these assumptions which are detrimental to the cash flow would cause further impairment. Input Sales price per lot Discount rate pre tax Expected time frame of realisation Position post 30 June 2018 Assumption Selling price of between $50,000 and $45,000 less legal and other costs of realisation. 35% Progressive settlements through to late 2022. Post 30 June 2018 the Group entered into amended agreements with respect to this asset. These details are disclosed in Note 34 to the financial statements. Under the terms of these amended agreements the Group has concluded the recorded value at 30 June 2018 of $1.24 million reflects the assets recoverable value. (ii) Amounts included relate to prepaid expenses, deposits for assets and other operational assets used in ordinary business activities. (iii) Bartercard is an alternative currency and operates as a trade exchange. Bartercard is a subsidiary of ASX listed IncentiaPay Ltd. EGH has utilised Bartercard over recent years. At 30 June 2018, the Bartercard balance is $0.63 million, which is recorded at cost. In addition, amounts of Bartercard have been advanced to suppliers in exchange for future supply of goods. These are recorded at the fair value of goods to be received and are disclosed in other assets $0.47 million and Investment Properties $0.75 million. EGH intends to utilise Barter in ongoing expenditure and receive part proceeds from sales of Terranora units already contracted. 10. DEFERRED TAX ASSETS AND LIABILITIES Recognised in the Statement of Financial Position Deferred tax assets Tax losses Deferred tax liabilities Intangible assets Investment properties, property, plant and equipment Net (assessable) and deductible differences on sundry items Net deferred tax assets/liability opening balance adjustment Consolidated 30 June 2018 $’000 30 June 2017 $’000 4,330 4,741 - (5,049) 719 - - (4,528) (213) - EGH ANNUAL REPORT 2018 48 EGH ANNUAL REPORT 2018 49 49 EUREKA GROUP HOLDINGSFor personal use only Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2018 FOR THE YEAR ENDED 30 JUNE 2018 Not recognised in the Statement of Financial Position Unrecognised deferred tax assets Tax losses Net (assessable) and deductible differences on sundry items Net unrecognised deferred tax assets Reconciliation of Unrecognised tax balances Opening unrecognised amounts Recognition of temporary differences Recognition and use of tax losses Adjustment to prior period balances Total movement Closing balance Consolidated 30 June 2018 $’000 - 4,205 30 June 2017 $’000 - 3,968 3,968 - (181) 418 237 4,205 6,589 - (2,621) - (2,621) 3,968 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 Group can utilise these benefits. The benefits of the Group’s recognised and unrecognised tax losses will only be realised if (a) The Group continues to meet the requirements of applicable tax laws to allow the losses to be carried forward and utilised; (b) the Group earns taxable income in future periods; and (c) Applicable tax laws are not changed, causing the losses to be unavailable. 11. LOANS RECEIVABLE Loans – vendor finance Current Non-current Consolidated 30 June 2018 $’000 30 June 2017 $’000 528 528 72 456 528 577 577 76 501 577 The Group acquired a loan book as part of the purchase of Elizabeth Vale Scenic Village Pty Ltd. Security for the loan consists of a first ranking mortgage over the property to which the loan pertains. Vendor finance loans have maturity dates of between 5 and 8.1 years and interest is payable on these loans at a rate of between 5.50%-6.25%. 50 EGH ANNUAL REPORT 2018 50 2017-2018 ANNUAL REPORTFor personal use only Not recognised in the Statement of Financial Position Unrecognised deferred tax assets Tax losses Net (assessable) and deductible differences on sundry items Net unrecognised deferred tax assets Reconciliation of Unrecognised tax balances Opening unrecognised amounts Recognition of temporary differences Recognition and use of tax losses Adjustment to prior period balances Total movement Closing balance unavailable. 11. LOANS RECEIVABLE Loans – vendor finance Current Non-current $’000 - 4,205 3,968 - (181) 418 237 4,205 528 528 72 456 528 $’000 - 3,968 6,589 - - (2,621) (2,621) 3,968 577 577 76 501 577 Consolidated 30 June 2018 30 June 2017 $’000 $’000 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 Group can utilise these benefits. The benefits of the Group’s recognised and unrecognised tax losses will only be realised if (a) The Group continues to meet the requirements of applicable tax laws to allow the losses to be carried forward and utilised; (b) the Group earns taxable income in future periods; and (c) Applicable tax laws are not changed, causing the losses to be The Group acquired a loan book as part of the purchase of Elizabeth Vale Scenic Village Pty Ltd. Security for the loan consists of a first ranking mortgage over the property to which the loan pertains. Vendor finance loans have maturity dates of between 5 and 8.1 years and interest is payable on these loans at a rate of between 5.50%-6.25%. Eureka Group Holdings Limited and controlled entities Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2018 Notes to the Financial Statements Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2018 FOR THE YEAR ENDED 30 JUNE 2018 12. INVESTMENT IN SUBSIDIARIES Consolidated 30 June 2018 30 June 2017 Equity Holding Country of Incorporation 30 June 2018 % 30 June 2017 % Compton's Caboolture Pty Ltd Compton's Villages Australia Unit Trust Easy Living (Bundaberg) Unit Trust Easy Living Unit Trust ECG No. 1 Pty Ltd EGL Finance Pty Ltd Elizabeth Vale Scenic Village Pty Ltd Eureka Care Communities Pty Ltd Eureka Care Communities (Morphetville) Pty Ltd Eureka Care Communities (Mount Gambier) Pty Ltd Eureka Care Communities (Mount Gambier 2) Pty Ltd Eureka Care Communities (Mount Gambier 3) Pty Ltd Eureka Care Communities (Salisbury) Pty Ltd Eureka Care Communities (Wynnum) Pty Ltd Eureka Care Communities Unit Trust Eureka Cascade Gardens Pty Ltd Eureka Cascade Gardens (Albert Gardens) Pty Ltd Eureka Cascade Gardens (Ayr) Pty Ltd Eureka Cascade Gardens (Belgian Gardens) Pty Ltd Eureka Cascade Gardens (Bowen) Pty Ltd Eureka Cascade Gardens (Broken Hill) Pty Ltd Eureka Cascade Gardens (Cairns) Pty Ltd Eureka Cascade Gardens (Couran Cove) Pty Ltd Eureka Cascade Gardens (Gladstone) Pty Ltd Eureka Cascade Gardens (Lismore) Pty Ltd Eureka Cascade Gardens (Margate) Pty Ltd Eureka Cascade Gardens (Orange) Pty Ltd Eureka Cascade Gardens (Southport) Pty Ltd Eureka Cascade Gardens (Terranora) Pty Ltd Eureka Cascade Gardens (Tivoli) Pty Ltd Eureka Cascade Gardens (Townsville) Pty Ltd Eureka Group Care Pty Ltd Eureka Property Pty Ltd Eureka Whitsunday Pty Ltd Fig Investments Pty Ltd Eureka Living Pty Ltd Rockham Two Pty Ltd Rockham Unit Trust SCV Leasing Pty Ltd SCV Manager Pty Ltd SCV No. 1 Pty Ltd Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% EGH ANNUAL REPORT 2018 50 EGH ANNUAL REPORT 2018 51 51 EUREKA GROUP HOLDINGSFor personal use only Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2018 FOR THE YEAR ENDED 30 JUNE 2018 There are no significant restrictions on the Company’s ability to access or use the assets and settle the liabilities of the Group. 13. JOINT VENTURE INVESTMENT On 9 April 2018, the Group entered into a Joint Venture (JV) for a 50% interest in both Affordable Living Services Unit Trust and Affordable Living Unit Trust. The JV owns 5 retirement villages in Tasmania. The Group’s interest in the JV is accounted for using the equity method in the consolidated financial statements. The accounting policies adopted by the JV are consistent with the Group’s accounting policies. Summarised financial information of the JV, based on management accounts, and a reconciliation with the carrying amount of the investment in the consolidated financial statements are set out below: Summarised statement of financial position of Affordable Living Services Unit Trust: Current assets, including cash and cash equivalents Non-current assets, including investment properties of $18.77 million Current liabilities, including long term borrowings of $0.30 million Non-current liabilities, including long term borrowings of $9.55 million Equity Group’s share in equity – 50% Group’s carrying amount of the investment 30 June 2018 $’000 30 June 2017 $’000 497 18,776 (381) (9,550) 9,342 4,671 4,671 - - - - - - - Summarised statement of profit or loss of Affordable Living Services Unit Trust: Revenue Cost of Sales Finance costs Profit before tax Income tax expense Profit for the year Total comprehensive income for the year Group’s share of profit for the year 30 June 2018 30 June 2017 $’000 $’000 807 (358) (107) 342 - - - - - - 342 342 171 - - - 52 EGH ANNUAL REPORT 2018 52 2017-2018 ANNUAL REPORTFor personal use only Eureka Group Holdings Limited and controlled entities Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2018 Notes to the Financial Statements Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2018 FOR THE YEAR ENDED 30 JUNE 2018 There are no significant restrictions on the Company’s ability to access or use the assets and settle the liabilities of the Group. Summarised statement of financial position of Affordable Living Unit Trust: 13. JOINT VENTURE INVESTMENT On 9 April 2018, the Group entered into a Joint Venture (JV) for a 50% interest in both Affordable Living Services Unit Trust and Affordable Living Unit Trust. The JV owns 5 retirement villages in Tasmania. The Group’s interest in the JV is accounted for using the equity method in the consolidated financial statements. The accounting policies adopted by the JV are consistent with the Group’s accounting policies. Summarised financial information of the JV, based on management accounts, and a reconciliation with the carrying amount of the investment in the consolidated financial statements are set out below: Summarised statement of financial position of Affordable Living Services Unit Trust: Current assets, including cash and cash equivalents Non-current assets, including investment properties of $18.77 million Current liabilities, including long term borrowings of $0.30 million Non-current liabilities, including long term borrowings of $9.55 million Equity Group’s share in equity – 50% Group’s carrying amount of the investment Summarised statement of profit or loss of Affordable Living Services Unit Trust: Revenue Cost of Sales Finance costs Profit before tax Income tax expense Profit for the year Total comprehensive income for the year Group’s share of profit for the year 30 June 2018 30 June 2017 $’000 $’000 497 18,776 (381) (9,550) 9,342 4,671 4,671 807 (358) (107) 342 342 342 171 - - - - - - - - - - - - - - Current assets, including cash and cash equivalents Non-current assets, including investment properties Current liabilities Non-current liabilities Equity Group’s share in equity – 50% Group’s carrying amount of the investment Summarised statement of profit or loss of Affordable Living Unit Trust: Revenue Cost of Sales Finance costs Profit before tax Income tax expense Profit for the year Total comprehensive income for the year Group’s share of profit for the year 30 June 2018 30 June 2017 $’000 $’000 14. INVESTMENT PROPERTY 30 June 2018 $’000 30 June 2017 $’000 210 - - - (208) - - - 2 - 1 1 - - 30 June 2018 $’000 30 June 2017 $’000 102 (100) - 2 - - - - - - 2 2 1 - - - Consolidated 30 June 2018 $’000 30 June 2017 $’000 - - Investment properties at fair value 100,756 100,666 Movements in investment properties: Balance at beginning of reporting period Acquisitions Disposals Subsequent expenditure Transfer to inventory – Couran Cove cabins Transfer to inventory – Terranora Manager’s residence Transfer to assets held for sale Net increment/(decrement) due to fair value adjustment Balance at end of reporting period 100,666 6,257 (791) 3,104 (2,747) (400) (3,894) (1,439) 100,756 86,472 9,029 (171) 4,290 - - - 1,046 100,666 EGH ANNUAL REPORT 2018 52 EGH ANNUAL REPORT 2018 53 53 EUREKA GROUP HOLDINGSFor personal use only Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2018 FOR THE YEAR ENDED 30 JUNE 2018 The Group’s investment properties are shown individually in the table below. The investments consist of twenty six retirement village assets along with associated manager’s units and other rental units. The Group considers their investments reside in one class of asset – Seniors Rental Villages. Independent valuations have been received during the current period for 36% of the portfolio. At 30 June 2018, the Group undertook a review of the fair value of all investment properties held and as shown in the table above, recorded a decrement due to fair value adjustment. This adjustment related to all assets in the asset class and was based on inputs and assumptions disclosed in Note 23. The net change in fair value is recognised in profit or loss as net gain/(loss) on change in fair value of investment properties. Fair value hierarchy disclosures for investment properties have been provided in Note 23. Amounts recognised in profit or loss for investment properties: Rental income Direct operating expenses generating rental income Net gain/(loss) revaluation of investment property to fair value Consolidated 30 June 2018 $’000 30 June 2017 $’000 15,674 (9,596) (1,439) 14,826 (10,630) 1,046 The Group has no restrictions on the realisability of its investment properties and no contractual obligations to either purchase, construct or develop investment properties or for repairs, maintenance and enhancements. Certain assets are however pledged as security for borrowings – Refer to Note 19(a). Details of investment properties are as follows: Property Location Acquisition date Carrying amount Carrying amount 30 Jun 18 30 Jun 17 $’000 $’000 Koinonia Village Ayr QLD Aug-17 1,245 92 Primrose Street Belgian Gardens Belgian Gardens QLD Jun-16 1,364 61 Marana Street Bilambil Heights Bilambil Heights NSW Dec-15 2,300 Bowen Village Broken Hill Village Avenell Village on Vasey Bundaberg Lot 21 134-136 King Street Caboolture Bowen QLD Dec-15 1,523 Broken Hill NSW Dec-16 1,979 Bundaberg QLD Caboolture QLD Oct-14 5,250 Sep-12 - Lot 43 134-136 King Street Caboolture (manager’s unit) Caboolture QLD May-14 268 53 & 54 134 King Street Caboolture (manager’s unit) Caboolture QLD Jan-15 - 80 134-136 King Street Caboolture (manager’s unit) Caboolture QLD Jan-15 265 Cascade Gardens Cairns Cairns QLD Jul-14 4,610 Lot 51 Christie Downs Community Centre (manager’s unit) Christie Downs SA Dec-14 299 Elizabeth Vale Scenic Village 1 Elizabeth Vale Scenic Village 2 Rockhampton Village 1 Rockhampton Village 2 15/8 Wicks Street, New Auckland Freshwater villas Lot 49 Hackham Community Centre (manager’s unit) Hackham SA Lot 97 144 Main South Road Hackham 33 Mardross Court Lavington Hackham SA Lavington NSW 54 Elizabeth Vale SA Oct-14 5,237 Elizabeth Vale SA Apr-15 4,350 Frenchville QLD Frenchville QLD Gladstone QLD Gympie QLD Oct-15 3,054 Dec-15 5,485 Sept-16 50 Jul-17 4,367 Oct-14 266 May-15 285 Jun-15 4,034 3,457 EGH ANNUAL REPORT 2018 54 - 1,000 2,700 1,434 1,990 4,988 70 268 140 265 4,952 260 4,693 3,900 3,201 5,674 50 - 294 294 2017-2018 ANNUAL REPORTFor personal use only Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2018 FOR THE YEAR ENDED 30 JUNE 2018 Property Lismore Village Cascade Gardens Mackay 176 Victoria Street Mackay 43 Macdonnell Court Margate 344 San Mateo Avenue Mildura Lambert Village 10 Wyatt Street Mt Gambier 2 Retirement Village Amber Lodge Location Lismore NSW Mackay QLD Mackay QLD Margate QLD Mildura VIC Mt Gambier SA Mt Gambier SA Mt Gambier SA Carrying amount Carrying amount 30 Jun 18 30 Jun 17 $’000 $’000 Acquisition date May-15 5,000 Apr-14 8,493 Mar-17 - Jun-16 4,187 Jun-15 4,052 Sept-15 - Aug-16 - Dec-15 3,830 4,751 7,897 547 3,900 3,352 2,408 350 3,862 2,593 5,599 4,527 3,868 Albert Street Gardens Village Orange NSW Sept-16 5,318 Alexam Place Salisbury East SA Feb-16 3,656 60 Poplar Avenue Shepparton Shepparton VIC Jun-15 4,138 Morphettville SA Jun-16 - 7 Meron Street Southport Couran Cove Southport QLD South Stradbroke Island QLD Jun-16 4,219 4,190 Jun-16 - 2,747 Lot 6,8,9,20,21&22 56A Moores Pocket Road Tivoli Tivoli QLD Mar-15 535 Galilee Lodge Myall Place Retirement Village 40 Federation Street Wynnum Investment Property Enhancements Townsville QLD Aug-17 917 Whyalla SA Wynnum QLD In Progress Jan-15 4,340 Oct-15 5,090 June-17 750 535 - 4,013 5,147 750 100,756 100,666 15. PROPERTY, PLANT & EQUIPMENT Buildings at cost Accumulated depreciation Plant & equipment at cost Accumulated depreciation Motor Vehicles at cost Accumulated depreciation Total property, plant & equipment Consolidated 30 June 2018 $’000 30 June 2017 $’000 625 (191) 434 345 (134) 211 54 (17) 37 682 625 (174) 451 1,973 (827) 1,146 88 (20) 68 1,665 EGH ANNUAL REPORT 2018 55 55 EUREKA GROUP HOLDINGSFor personal use only Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2018 FOR THE YEAR ENDED 30 JUNE 2018 Reconciliation of movements in property, plant & equipment: Opening balance at 1 July 2016 Additions at cost Depreciation expense Closing balance at 30 June 2017 Opening balance at 1 July 2017 Additions at cost Disposals Depreciation expense Closing balance at 30 June 2018 16. INTANGIBLE ASSETS Management rights – at cost Accumulated amortisation Carrying amount of management rights Rent rolls – at cost Accumulated amortisation Carrying amount of rent rolls Other intangibles – at cost Accumulated amortisation Carrying amount of other intangibles Goodwill Total intangible assets Buildings $’000 Plant & Equipment $’000 Motor Vehicle $’000 Total $’000 466 2 (17) 451 451 - - (17) 434 687 560 (101) 1,146 1,146 35 (890) (80) 211 79 - (11) 68 68 - (17) (14) 37 1,232 562 (129) 1,665 1,665 35 (907) (111) 682 Consolidated 30 June 2018 $’000 30 June 2017 $’000 4,695 (1,258) 3,437 4,682 (1,211) 3,471 140 (42) 98 577 (32) 545 140 (38) 102 830 (31) 799 1,955 1,955 6,035 6,327 The Group’s primary business activity is the management (through management rights agreements) of senior’s rental 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. During the prior period, the Group also acquired certain trading and operating licences with investment property. These are included in other intangibles. These assets are not amortised as their term is not limited and there is no expectation the licences will be cancelled. 56 EGH ANNUAL REPORT 2018 56 2017-2018 ANNUAL REPORTFor personal use only Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2018 Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2018 FOR THE YEAR ENDED 30 JUNE 2018 Reconciliation of movements in property, plant & equipment: Impairment tests for Goodwill Opening balance at 1 July 2016 Additions at cost Depreciation expense Closing balance at 30 June 2017 Opening balance at 1 July 2017 Additions at cost Disposals Depreciation expense Closing balance at 30 June 2018 16. INTANGIBLE ASSETS Management rights – at cost Accumulated amortisation Carrying amount of management rights Rent rolls – at cost Accumulated amortisation Carrying amount of rent rolls Other intangibles – at cost Accumulated amortisation Carrying amount of other intangibles Goodwill Total intangible assets Buildings $’000 Plant & Equipment $’000 Motor Vehicle $’000 Total $’000 466 2 (17) 451 451 - - (17) 434 687 560 (101) 1,146 1,146 35 (890) (80) 211 79 - (11) 68 68 - (17) (14) 37 1,232 562 (129) 1,665 1,665 35 (907) (111) 682 Consolidated 30 June 2018 30 June 2017 $’000 $’000 4,695 (1,258) 3,437 4,682 (1,211) 3,471 140 (42) 98 577 (32) 545 140 (38) 102 830 (31) 799 1,955 1,955 6,035 6,327 Goodwill is monitored by the Board of Directors (who are identified as the chief operating decision makers) based on the share of results of the owner operators’ net profit of the villages that EGH manages, less any overhead costs attributable to the management of these villages. Goodwill has been allocated to the property management cash generating unit. The Group tests whether goodwill has suffered any impairment on an annual basis. The recoverable amount of a cash generating unit (CGU) is determined based on value-in-use calculations which require the use of assumptions. The calculations use cash flow projections based on financial budgets covering a five-year period. Cash flows beyond the five- year period are extrapolated using an estimated long term growth rate. 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: • • • • • cash flows were projected over a five year period by applying a 2% growth rate (2017: 2%) to the most recent years’ cash flows; the terminal value was calculated using a growth rate of 2% (2017: 2%); cash flows have been discounted using a pre-tax discount rate of 15% (2017: 15%); cash flows do not take into account the management of any new villages; and 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. Reconciliation of movements in intangible assets: Management Rights $’000 Rent Rolls $’000 Goodwill $’000 Other intangibles $’000 Total $’000 Opening balance at 1 July 2016 3,548 105 1,955 Additions at cost Transfer to/from assets held for sale Amortisation expense Closing balance at 30 June 2017 60 - (137) 3,471 - - (3) 102 - - - 1,955 Opening balance at 1 July 2017 3,471 102 1,955 Additions at cost Disposals Amortisation expense Closing balance at 30 June 2018 100 - (134) 3,437 - - (4) 98 - - - 1,955 12 789 - (2) 799 799 - (252) (2) 545 5,620 849 - (142) 6,327 6,327 100 (252) (140) 6,035 The remaining amortisation period on a weighted average basis of the management rights are 21 years (2017: 22 years). The Group’s primary business activity is the management (through management rights agreements) of senior’s rental 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. During the prior period, the Group also acquired certain trading and operating licences with investment property. These are included in other intangibles. These assets are not amortised as their term is not limited and there is no expectation the licences will be cancelled. 17. TRADE & OTHER PAYABLES Trade creditors and accruals Retirement Village Resident Loans1 Acquisition related accruals Consolidated 30 June 2018 $’000 30 June 2017 $’000 2,255 96 358 2,709 1,625 928 107 2,660 EGH ANNUAL REPORT 2018 56 The carrying amounts of trade and other payables are considered to be the same as their fair value, due to their short term nature. EGH ANNUAL REPORT 2018 57 57 1 Movements from 30 June 2017 represents payments made to residents. EUREKA GROUP HOLDINGSFor personal use only Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2018 FOR THE YEAR ENDED 30 JUNE 2018 18. PROVISIONS Current Employee benefits Non-current Employee benefits 19. OTHER FINANCIAL LIABILITIES Current Commercial bills – secured Insurance funding Finance lease Motor vehicle loan Non-current Commercial bills – secured Finance lease Consolidated 30 June 2018 $’000 30 June 2017 $’000 263 263 145 145 289 289 145 145 Consolidated 30 June 2018 $’000 30 June 2017 $’000 (a) (a) 17 144 1 1 163 55,320 - 55,320 1,538 - 8 8 1,554 49,018 1 49,019 (a) Commercial bills and advances Terms and conditions – 30 June 2018 As at 30 June 2018, the Group has access to the following facilities: National Australia Bank (“NAB”): During the period, NAB borrowings were consolidated and at year end comprises of two facilities: • • Facility 1 – maximum limit of $24,500,000. At 30 June 2018, $19,074,000 had been drawn on the facility. The facility limit to 29 September 2018 is $24,500,000 and $20,000,000 to 31 December 2019. The reduction of the facility limit does not require the repayment of any drawn debt within 12 months of 30 June 2018. Interest is payable at a variable rate on this facility (currently 4.31%). Facility 2 – maximum limit of $35,000,000. Expires on 31 December 2021. Monthly interest only repayment. Interest on this facility has been fixed until 31 December 2021. Interest is payable at the rate of 4.97%. At 30 June 2018, total drawings on the facility were $54,074,000. Westpac Banking Corporation (“Westpac”): • Commercial bill – secured fully drawn limit of $1,762,500. Expires on 29 November 2019. Interest is payable at a variable rate on this facility (currently 5.44%). The NAB facilities and the Westpac commercial bill liabilities are secured against a certain amount of the Group’s investment property asset. The total amount of security provided at 30 June 2018 was $100,756,000. This value represents the fair value of assets pledged based on the carrying values recorded by the Group at 30 June 2018. Commercial bill facilities are subject to covenants which are commensurate with normal secured lending terms. 58 EGH ANNUAL REPORT 2018 58 2017-2018 ANNUAL REPORTFor personal use only Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2018 18. PROVISIONS Current Employee benefits Non-current Employee benefits 19. OTHER FINANCIAL LIABILITIES Current Commercial bills – secured Insurance funding Finance lease Motor vehicle loan Non-current Commercial bills – secured Finance lease Consolidated 30 June 2018 30 June 2017 $’000 $’000 263 263 145 145 289 289 145 145 Consolidated 30 June 2018 30 June 2017 $’000 $’000 (a) (a) 17 144 1 1 163 55,320 - 55,320 1,538 - 8 8 1,554 49,018 1 49,019 (a) Commercial bills and advances Terms and conditions – 30 June 2018 As at 30 June 2018, the Group has access to the following facilities: National Australia Bank (“NAB”): During the period, NAB borrowings were consolidated and at year end comprises of two facilities: Facility 1 – maximum limit of $24,500,000. At 30 June 2018, $19,074,000 had been drawn on the facility. The facility limit to 29 September 2018 is $24,500,000 and $20,000,000 to 31 December 2019. The reduction of the facility limit does not require the repayment of any drawn debt within 12 months of 30 June 2018. Interest is payable at a variable rate on this facility (currently 4.31%). • • At 30 June 2018, total drawings on the facility were $54,074,000. Westpac Banking Corporation (“Westpac”): • Commercial bill – secured fully drawn limit of $1,762,500. Expires on 29 November 2019. Interest is payable at a variable rate on this facility (currently 5.44%). The NAB facilities and the Westpac commercial bill liabilities are secured against a certain amount of the Group’s investment property asset. The total amount of security provided at 30 June 2018 was $100,756,000. This value represents the fair value of assets pledged based on the carrying values recorded by the Group at 30 June 2018. Commercial bill facilities are subject to covenants which are commensurate with normal secured lending terms. EGH ANNUAL REPORT 2018 58 Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2018 FOR THE YEAR ENDED 30 JUNE 2018 As at 30 June 2018, the Group had the following banking covenants with NAB: • • • • The Debt Service Cover Ratio for the Group must not be less than or equal to 2.5:1. The Gearing Ratio for the Group must be less than 50%. The LVR must not exceed 55% up to and including 31 March 2018, 57.5% from 1 April 2018 to 29 September 2018 and 55% from 30 September 2018 onwards. The Dividend Payout Amount for the financial year must not exceed 100% of the Net Profit After Tax for the Group for that Financial Year. The Group complied with its covenants through 30 June 2018. Terms and conditions – 30 June 2017 As at 30 June 2017, the Group has access to the following commercial bill facilities: National Australia Bank (“NAB”): During the period, NAB borrowings were consolidated and now comprises of two facilities: • • Facility 1 – maximum limit of $20,000,000. Interest rates vary for each loan component within the facility limit. Facility 2 – maximum limit of $35,000,000. Interest rates vary for each loan component within the facility limit. Applicable interest rates on the drawn facilities are provided below: • Commercial bill – secured fully drawn limit $16,700,000. Expires on 31 December 2019. Monthly interest only repayment. Interest on this facility has been fixed until 31 December 2019. Interest is payable at the rate of 4.99%. • Commercial bill – secured fully drawn limit of $2,525,000. Expires on 31 December 2021. Monthly interest only repayment. Interest is payable at a variable rate on this facility (currently 4.05%). • Commercial bill – secured fully drawn limit of $3,700,000. Expires on 31 August 2020. Monthly interest only repayment. Interest is payable at a fixed rate of 4.85%. • Commercial bill – secured fully drawn limit of $3,000,000. Expires on 31 August 2020. Monthly interest only repayment. Interest is payable at a fixed rate of 4.95% on $2,500,000 and variable rate of $4.47% on $500,000. • Commercial bill – secured fully drawn limit of $6,500,000. Expires on 31 August 2020. Monthly interest only repayment. Interest is payable at a fixed rate on this facility of 4.97%. • Commercial bill – secured fully drawn limit of $2,800,000. Expires on 31 December 2018. Monthly interest only repayment. Interest is payable at a variable rate on this facility (currently 4.07%). • Commercial bill – secured fully drawn limit of $2,461,250. Expires on 31 December 2018. Monthly interest only repayment. Interest is payable at a variable rate on this facility (currently 4.05%). • Commercial bill – secured fully drawn limit of $6,550,000. Expires on 31 December 2018. Monthly interest only repayment. Interest is payable at a variable rate on this facility (currently 4.01%). • Commercial bill – secured fully drawn limit of $3,050,000. Expires on 31 December 2021. Monthly interest only repayment. Interest is payable at a variable rate on this facility (currently 4.05%). • Commercial bill – secured fully drawn limit of $2,169,000. Expires on 31 December 2018. Monthly interest only repayment. Interest is payable at a variable rate on this facility (currently 4.05%). Facility 2 – maximum limit of $35,000,000. Expires on 31 December 2021. Monthly interest only repayment. Interest on this facility has been fixed until 31 December 2021. Interest is payable at the rate of 4.97%. Westpac Banking Corporation (“Westpac”): At 30 June 2017, total drawings on the facility were $49,455,250. • Commercial bill – secured fully drawn limit of $1,500,000. Expires on 31 December 2017. Monthly repayment of $100,000 per month. Interest is payable at a variable rate on this facility (currently 5.1%). The commercial bill liabilities are secured against a certain amount of the Group’s investment property assets. The total amount of security provided at 30 June 2017 was $100,666,155. This value represents the fair value of assets pledged based on the carrying values recorded by the Group at 30 June 2017. Commercial bill facilities are subject to covenants which are commensurate with normal secured lending terms. EGH ANNUAL REPORT 2018 59 59 EUREKA GROUP HOLDINGSFor personal use only Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2018 FOR THE YEAR ENDED 30 JUNE 2018 As at 30 June 2017, the Group had the following banking covenants with NAB: • • • • The Debt Service Cover Ratio for the Group must not be less than or equal to 2.5:1. The Gearing Ratio for the Group must be less than 50%. The LVR must not exceed 57% upto and including 30 March 2017 or 55% 31 March 2017 onwards. The Dividend Payout Amount for the financial year must not exceed 100% of the Net Profit After Tax for the Group for that Financial Year. The Group complied with its covenants through 30 June 2017. 20. SHARE CAPITAL Ordinary shares 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. Balance at start of year Shares issued at $0.273 for acquisition of management rights Shares issued at $0.75 for cash Shares bought back during the period Capital raising costs On issue at end of the year Consolidated 30 June 2018 Number 30 June 2018 $’000 30 June 2017 Number 30 June 2017 $’000 229,671,923 94,255 225,784,473 90,860 365,715 - - - 100 - - (3) - 5,263,400 (1,375,950) - - 3,948 (523) (30) 230,037,638 94,352 229,671,923 94,255 Share Buy Back The Company extended the share buy back period for a further 1 year from 16 March 2018. No ordinary shares had been cancelled during the financial year (from share buy back 2017: 1,375,950). Equity Reserves Share based payments The share-based payment reserve is used to recognise the value of equity-settled share-based payments provided to employees, including key management personnel, as part of their remuneration. Refer to Note 26 for further details of these plans. As at 1 July 2016 Share-based payments expense during the year At 30 June 2017 Share-based payments expense during the year At 30 June 2018 Share based payments $000 - - - 12 12 60 EGH ANNUAL REPORT 2018 60 2017-2018 ANNUAL REPORTFor personal use only Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2018 • • • • The Debt Service Cover Ratio for the Group must not be less than or equal to 2.5:1. The Gearing Ratio for the Group must be less than 50%. The LVR must not exceed 57% upto and including 30 March 2017 or 55% 31 March 2017 onwards. The Dividend Payout Amount for the financial year must not exceed 100% of the Net Profit After Tax for the Group for that Financial Year. The Group complied with its covenants through 30 June 2017. 20. SHARE CAPITAL Ordinary shares 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. Balance at start of year 229,671,923 94,255 225,784,473 90,860 Shares issued at $0.273 for acquisition of management 30 June 2018 30 June 2018 30 June 2017 30 June 2017 Number $’000 Number $’000 Consolidated 365,715 - - - 100 - - (3) 5,263,400 (1,375,950) - - - 3,948 (523) (30) 230,037,638 94,352 229,671,923 94,255 The Company extended the share buy back period for a further 1 year from 16 March 2018. No ordinary shares had been cancelled during the financial year (from share buy back 2017: 1,375,950). rights Shares issued at $0.75 for cash Shares bought back during the period Capital raising costs On issue at end of the year Share Buy Back Equity Reserves Share based payments plans. The share-based payment reserve is used to recognise the value of equity-settled share-based payments provided to employees, including key management personnel, as part of their remuneration. Refer to Note 26 for further details of these Share-based payments expense during the year Share-based payments expense during the year As at 1 July 2016 At 30 June 2017 At 30 June 2018 As at 30 June 2017, the Group had the following banking covenants with NAB: 21. CASH FLOW INFORMATION Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2018 FOR THE YEAR ENDED 30 JUNE 2018 (a) Reconciliation of cash Cash at bank and on hand Consolidated 30 June 2018 $’000 30 June 2017 $’000 1,986 4,395 (b) Reconciliation of profit/(loss) for the year to net cash flow from operating activities Profit/(loss) for the year Depreciation and amortisation Couran Cove inventory write down and transaction costs Couran Cove land option write down (Gain)/Loss on revaluation – investment properties and other assets Share of profit of joint venture (Gain)/loss on sale of investment property (Gain)/loss on sale of management rights and managers units (Gain)/loss on sale of gaming licenses Non-cash cost of sale purchases (Increase)/decrease in: - Trade and other receivables - Inventories - Other current assets - Other capital reserves Increase/(decrease) in: - Trade and other payables - Provisions - Other financial liabilities Consolidated 30 June 2018 30 June 2017 $’000 $’000 (276) 251 1,124 1,763 1,692 (172) (501) 17 (60) 4 648 (1,634) (81) (12) 55 (26) 144 6,538 271 - - (1,046) - - 10 - - 36 (1,372) (725) - 112 249 - Share based payments $000 - - - 12 12 EGH ANNUAL REPORT 2018 60 Net cash flow from/(used in) operating activities 2,936 4,073 (c) Non-cash investing and financing activities During the year, the Group acquired goods and services of $63,694 with Bartercard dollars. In the prior financial year, the Group exchanged Bartercard dollars for $1.19 million of property, plant and equipment and investment property improvements. Refer to Note 9 for details. 22. 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. EGH ANNUAL REPORT 2018 61 61 EUREKA GROUP HOLDINGSFor personal use only Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2018 FOR THE YEAR ENDED 30 JUNE 2018 a) Credit risk Credit risk is the risk of financial loss to the Group 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 Group’s cash and cash equivalents, receivables and other loans. Maximum exposure to credit risk Cash and cash equivalents Trade and other receivables Loans receivable Consolidated 30 June 2018 $’000 30 June 2017 $’000 1,986 2,402 528 4,916 4,395 2,632 577 7,604 Cash and cash equivalents Deposits of cash are only held with approved banks and financial institutions. The Group predominantly banks with National Australia Bank. Trade and other 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 1 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 Group 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 Group has no concentrations of credit risk that have not been provided for. A significant component of trade debtors that are past due and greater than 90 days ageing are either on a payment plan or considered recoverable. The Group has not provided for the remaining amounts past due as management believes these amounts will be received. The ageing of trade receivables and other receivables at the reporting date was: Due 0-30 days Past due 30-60 days Past due 60-90 days Past due 90 + days Consolidated 30 June 2018 30 June 2017 Gross amount receivable $’000 Provision for Impairment $’000 Gross amount receivable $’000 Provision for Impairment $’000 2,393 - 1 8 2,402 (176) - - - (176) 2,455 11 7 248 2,721 - - - (89) (89) 1 Refer Note 6 and 34 for a discussion on Couran Cove receivable. 62 EGH ANNUAL REPORT 2018 62 2017-2018 ANNUAL REPORTFor personal use only Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2018 a) Credit risk Credit risk is the risk of financial loss to the Group 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 Group’s cash and cash equivalents, receivables and other loans. Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2018 FOR THE YEAR ENDED 30 JUNE 2018 Loans receivable The Group’s exposure to credit risk is limited to the vendor finance book balance which was part of the acquisition of Elizabeth Vale Scenic Village Pty Ltd during the prior year. The loan book consists of 10 individual loan contracts. The Group manages the units which are being held as security for the loans. Repayments are received monthly in accordance with the individual contracts or alternative agreed arrangements in place. Where applicable, an allowance for impairment has been made, that represents the estimate of impairment losses in respect to the loans receivable. The Group has no concentrations of credit risk that have not been provided for. Consolidated 30 June 2018 30 June 2017 $’000 $’000 1,986 2,402 528 4,916 4,395 2,632 577 7,604 Loans receivable Current Non-current Consolidated 30 June 2018 Gross amount receivable $’000 Provision for Impairment $’000 72 456 528 - - - Refer to Notes 6, 9 and 34 with respect to loans and options related to Couran Cove. b) Liquidity risk Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group’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. There were unused borrowing facilities of $5,426,000 at the reporting date. The tables below shows the Group’s financial liabilities classified into relevant maturity groupings based on their contractual maturities. 30 June 2018 Trade and other payables Commercial bills 1 Other financial liabilities Total 30 June 2017 Trade and other payables Commercial bills 1 Other financial liabilities Total Contractual cash flows $’000 Less than 6 months $’000 Consolidated 6 - 12 months $’000 1 – 2 years $’000 More than 2 years $’000 2,255 63,310 2 65,567 2,255 1,345 2 3,602 - - - 1,329 23,027 37,609 - - - 1,329 23,027 37,609 Contractual cash flows $’000 Less than 6 months $’000 Consolidated 6 - 12 months $’000 2,660 57,256 18 59,934 2,660 2,937 11 5,608 - 1,136 6 1,142 1 – 2 years $’000 More than 2 years $’000 - - 13,801 39,382 1 - 13,802 39,382 1 This amount includes estimated interest during the contractual period. c) Market risk Market risk is the risk that changes in market prices such as interest rates will affect the Group’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. EGH ANNUAL REPORT 2018 62 EGH ANNUAL REPORT 2018 63 63 Maximum exposure to credit risk Cash and cash equivalents Trade and other receivables Loans receivable Cash and cash equivalents Australia Bank. Trade and other receivables Deposits of cash are only held with approved banks and financial institutions. The Group predominantly banks with National 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 1 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 Group 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 Group has no concentrations of credit risk that have not been provided for. A significant component of trade debtors that are past due and greater than 90 days ageing are either on a payment plan or considered recoverable. The Group has not provided for the remaining amounts past due as management believes these amounts will be received. The ageing of trade receivables and other receivables at the reporting date was: Consolidated 30 June 2018 30 June 2017 Gross amount Provision for Gross amount Provision for receivable Impairment receivable Impairment $’000 $’000 $’000 $’000 2,393 (176) - 1 8 - - - 2,402 (176) 2,455 11 7 248 2,721 - - - (89) (89) Due 0-30 days Past due 30-60 days Past due 60-90 days Past due 90 + days 1 Refer Note 6 and 34 for a discussion on Couran Cove receivable. EUREKA GROUP HOLDINGSFor personal use only Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2018 FOR THE YEAR ENDED 30 JUNE 2018 d) Interest rate risk The Group’s exposure to market interest rates arises from long term borrowings in the form of Commercial Bills. Borrowings issued at variable rates expose the Group to interest rate risk. $20,836,500 of the commercial bills are at variable rates while $35,000,000 is fixed (refer to Note 19). The variable portion of the debt does not expose the Group to any material interest rate risk. The Group 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. 23. FAIR VALUE MEASUREMENTS Fair value hierarchy Investment properties and retirement village resident loans are measured at fair value, using a three level hierarchy, based on the lowest level of input that is significant to the entire fair value measurement, being: • • • Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly Level 3: Unobservable inputs for the asset or liability There were no transfers between levels during the financial year. The Group’s policy is to recognise transfers into and transfers out of fair value hierarchy levels as at the end of the reporting period. The carrying amounts of trade and other receivables and trade and other payables are assumed to approximate their fair values due to their short-term nature. Fair value of financial instruments (unrecognised) The Group has a number of financial assets and financial liabilities (loans receivable and commercial bills) which are not measured at fair value in the statement of financial position. The fair values are not materially different to their carrying amounts, since the interest receivable/payable is either close to current market rates or the instruments are short-term in nature, and therefore have not been disclosed. Refer to Note 9 for details regarding the fair value and impairment assessment of amounts related to Couran Cove Land Options. These are not shown in the table below. Level 1 $'000 Level 2 $'000 Level 3 $'000 Total $'000 Consolidated – 2018 Assets Investment properties Total assets Liabilities Retirement Village Resident Loans Total liabilities Consolidated – 2017 Assets Investment properties Total assets Liabilities Retirement Village Resident Loans Total liabilities - - - - - - - - - - - - - - - - 100,756 100,756 100,756 100,756 96 96 96 96 100,666 100,666 100,666 100,666 928 928 928 928 Valuation techniques for fair value measurements categorised within level 2 and level 3 At the end of each reporting period, the directors update their assessment of the fair value of each property, taking into account the most recent independent valuations. The directors determine a property’s value within a range of reasonable fair value estimates. 64 EGH ANNUAL REPORT 2018 64 2017-2018 ANNUAL REPORTFor personal use only Eureka Group Holdings Limited and controlled entities Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2018 Notes to the Financial Statements Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2018 FOR THE YEAR ENDED 30 JUNE 2018 d) Interest rate risk rate risk. The Group’s exposure to market interest rates arises from long term borrowings in the form of Commercial Bills. Borrowings issued at variable rates expose the Group to interest rate risk. $20,836,500 of the commercial bills are at variable rates while $35,000,000 is fixed (refer to Note 19). The variable portion of the debt does not expose the Group to any material interest The Group 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. 23. FAIR VALUE MEASUREMENTS Fair value hierarchy Investment properties and retirement village resident loans are measured at fair value, using a three level hierarchy, based on the lowest level of input that is significant to the entire fair value measurement, being: Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either • • • the measurement date directly or indirectly Level 3: Unobservable inputs for the asset or liability There were no transfers between levels during the financial year. The Group’s policy is to recognise transfers into and transfers out of fair value hierarchy levels as at the end of the reporting period. The carrying amounts of trade and other receivables and trade and other payables are assumed to approximate their fair values due to their short-term nature. Fair value of financial instruments (unrecognised) The Group has a number of financial assets and financial liabilities (loans receivable and commercial bills) which are not measured at fair value in the statement of financial position. The fair values are not materially different to their carrying amounts, since the interest receivable/payable is either close to current market rates or the instruments are short-term in nature, and therefore have not been disclosed. Refer to Note 9 for details regarding the fair value and impairment assessment of amounts related to Couran Cove Land Options. These are not shown in the table below. Level 1 $'000 Level 2 $'000 Level 3 $'000 Total $'000 Consolidated – 2018 Assets Investment properties Total assets Retirement Village Resident Loans Liabilities Total liabilities Consolidated – 2017 Assets Investment properties Total assets Retirement Village Resident Loans Liabilities Total liabilities - - - - - - - - - - - - - - - - 100,756 100,756 100,756 100,756 96 96 96 96 100,666 100,666 100,666 100,666 928 928 928 928 Valuation techniques for fair value measurements categorised within level 2 and level 3 At the end of each reporting period, the directors update their assessment of the fair value of each property, taking into account the most recent independent valuations. The directors determine a property’s value within a range of reasonable fair value estimates. Investment properties have been valued using 2 methods, the capitalisation method and direct comparison approach. Under the capitalisation method, fair value is estimated using assumptions regarding the expectation of future benefits. The capitalisation method involves estimating the expected income projections of the property into perpetuity and applying a capitalisation rate. The capitalisation rate is based on current market evidence. Future income projections take into account occupancy, rental income and operating expenses. Under the direct comparison approach, key inputs are the recent sales of comparable units in comparable villages. All resulting fair value estimates for properties are included in level 3. Retirement village resident loans are measured as the ingoing contribution less deductions over time for the period of resident stay as a % of the length of expected residence term. Although the expected average residency term is between one to ten years, these obligations are classified as current liabilities, as required by the Accounting Standards, because the Group does not have an unconditional right to defer settlement to more than twelve months after reporting date. The liability stated is stated net of accrued deferred management fees at reporting date, because the Group’s contract with residents require net settlement of those obligations. These are included in trade creditors. The level 3 assets significant unobservable inputs and sensitivity are as follows: Description Valuation technique Significant unobservable inputs Range (weighted average) 2018 2017 Capitalisation method 1 – Capitalisation rate 8.25%-12.00% (10.31%) 2 9.75%-12.50% (11.04%) Investment properties Retirement Villages Stabilised occupancy 86%-100% (94%) 81%-100% (91%) Investment properties Individual Village Units – Direct comparison approach Comparable sales evidence N/A N/A Retirement village resident loans Ingoing contribution less deductions for length of stay Estimated length of stay of residents 1 – 10 years 1 – 10 years Relationship of unobservable input to fair value Capitalisation has an inverse relationship to valuation. Occupancy has a direct correlation to valuation (i.e. the higher the occupancy, the greater the value). Comparable sales evidence has a direct relationship to valuation. The longer the length of stay, the lower the value of resident loans. (1) Significant increases (decreases) in any of the significant unobservable valuation inputs under the capitalisation method would (2) result in a significantly higher(lower) fair value measurement. Included in the investment properties are three assets which are residential complexes. These have a capitalisation rate range of 6% to 6.5%. These are not included in the weighted average calculation above. Fair value measurements using significant unobservable inputs (level 3) Movements in level 3 asset items during the current and previous financial year are set out in Note 14. Valuation processes Independent valuations have been obtained for a number of Senior’s Rental Villages during the year ended 30 June 2018 and were used as the basis for determining their fair values. Selection criteria include market knowledge, experience and qualifications, reputation, independence and whether professional standards are maintained. Where an independent valuation has not been performed on an investment property as at 30 June 2018, management has estimated the fair values by performing internal valuations based on valuations performed by an independent valuer commissioned by the Group when acquiring the properties. EGH ANNUAL REPORT 2018 64 EGH ANNUAL REPORT 2018 65 65 EUREKA GROUP HOLDINGSFor personal use only Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2018 FOR THE YEAR ENDED 30 JUNE 2018 24. COMMITMENTS 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 Consolidated 30 June 2018 $’000 30 June 2017 $’000 270 617 729 1,616 234 692 840 1,766 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 had no capital commitments as at 30 June 2018. 25. 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 Weighted average number of ordinary shares & potential ordinary shares used in calculating diluted earnings per share Basic earnings per share Diluted earnings per share 30 June 2018 $’000 30 June 2017 $’000 (276) 6,538 Thousands Thousands 230,686 230,603 230,686 230,603 (0.12 cents) 2.84 cents (0.12 cents) 2.84 cents For the year ended 30 June 2018, there were no dilutive transactions to be included in the diluted earnings per share calculation. 26. SHARE BASED PAYMENTS During the period ended 30 June 2018 the following equity instruments were issued: Share rights The Company introduced a new long term incentive plan granting share rights to eligible participants, which commenced from 23 November 2017. Rights were issued at face value having regard to the volume weighted average share price of shares over the 30 trading days following the announcement of the company’s 2017 results. The share rights do not have any voting rights, rights to dividends, rights to capital and have no entitlement to participate in new issues offered to ordinary shareholders of the company. 66 EGH ANNUAL REPORT 2018 66 2017-2018 ANNUAL REPORTFor personal use only Eureka Group Holdings Limited and controlled entities Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2018 Notes to the Financial Statements Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2018 FOR THE YEAR ENDED 30 JUNE 2018 24. COMMITMENTS 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. The amount disclosed for the lease of office space does not include any adjustments for CPI or market rental reviews. Greater than 1 year but not longer than 5 years Within 1 year Greater than 5 years b) Capital expenditure The Group had no capital commitments as at 30 June 2018. 25. 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 Weighted average number of ordinary shares & potential ordinary shares used in calculating diluted earnings per share Consolidated 30 June 2018 30 June 2017 $’000 $’000 270 617 729 1,616 234 692 840 1,766 30 June 2018 30 June 2017 $’000 $’000 (276) 6,538 Thousands Thousands 230,686 230,603 230,686 230,603 (0.12 cents) 2.84 cents (0.12 cents) 2.84 cents Basic earnings per share Diluted earnings per share calculation. 26. SHARE BASED PAYMENTS Share rights 23 November 2017. For the year ended 30 June 2018, there were no dilutive transactions to be included in the diluted earnings per share During the period ended 30 June 2018 the following equity instruments were issued: The Company introduced a new long term incentive plan granting share rights to eligible participants, which commenced from Rights were issued at face value having regard to the volume weighted average share price of shares over the 30 trading days following the announcement of the company’s 2017 results. The share rights do not have any voting rights, rights to dividends, rights to capital and have no entitlement to participate in new issues offered to ordinary shareholders of the company. EGH ANNUAL REPORT 2018 66 A total of 878,465 share rights were issued during this period but 559,090 lapsed upon the retirement of the Chief Executive Officer. The 319,375 remaining share rights are divisible into two traches of equal value, both tranches being subject to the company’s shares achieving a total shareholder return compared to the constituents of All Ordinaries Small Cap index excluding companies in the materials, industrials, energy and utilities sectors. Tranche 1 and Tranche 2 will be tested following the announcement of the company’s result for the year ending 30 June 2020 and 2021 respectively using a 10 day VWAP. The share rights progressively vest over 3 and 4 years. The fair value of the share rights is estimated at the grant date using the Monte Carlo pricing model, taking into account the terms and conditions on which the share rights were granted. There are no cash settlement alternatives. The Group accounts for the share rights as an equity settled plan. Options A total of 1,500,000 share options were granted during the period but 1,000,000 lapsed upon the retirement of the Chief Executive Officer leaving 500,000 outstanding at 30 June 2018. The options were granted for a 4.5 year period and are exercisable from 23 November 2021. The exercise price is $0.33 representing the volume weighted average share price of shares over the 30 trading days following the announcement of the company’s 2017 results. These options will be capable of vesting 3 years from the grant date subject to the share price being at 75c or greater on 10 trading days in any 20 sequential trading days following the grant date. While the share price hurdle may be met, these options can only be exercised upon completion of 4 year employment service. The fair value of the share options is estimated at the grant date using the Monte Carlo pricing model, taking into account the terms and conditions on which the share options were granted. There are no cash settlement alternatives. The Group accounts for the share options as an equity settled plan. The expense recognised during the year is shown in the following table: Expense arriving from equity-settled share based payment transactions Total expense arising from share-based payment transactions 30 June 2018 $’000 30 June 2017 $’000 12 12 - - There were no cancellations or modifications to the awards in 2018 or 2017, other than the lapsing of the share rights and options noted above. Movements during the year The following table illustrates the number and weighted average exercise prices (WAEP) of, and movements in, share rights during the year: Outstanding at 1 July Granted during the year Forfeited during the year Outstanding at 30 June Exercisable at 30 June 2018 Number 2018 WEAP 2017 Number 2017 WAEP - 878,465 (559,090) 319,375 - - - - - - - - - - - - - - - - The following table illustrates the number and weighted average exercise prices (WAEP) of, and movements in, share options during the year: Outstanding at 1 July Granted during the year Forfeited during the year Outstanding at 30 June Exercisable at 30 June 2018 Number 2018 WEAP 2017 Number 2017 WAEP - 1,500,000 (1,000,000) 500,000 - - $0.33 - $0.33 - - - - - - - - - - - EGH ANNUAL REPORT 2018 67 67 EUREKA GROUP HOLDINGSFor personal use only Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2018 FOR THE YEAR ENDED 30 JUNE 2018 The following table list the inputs to the models used for the two plans for the year ended 30 June 2018. Weighted average of fair values at the measurement date ($) Dividend yield (%) Expected volatility (%) Risk-free interest rate (%) Expected life of share options/rights (years) Weighted average of share price ($) 2018 Options 2018 Share rights Tranche 1 Tranche 2 0.014 - 38.797 2.13 4.50 0.335 0.207 - 38.797 1.97 6.11 0.335 0.138 - 38.797 1.97 6.11 0.335 Model used Monte Carlo Monte Carlo Monte Carlo No options or share rights were issued or outstanding at 30 June 2017. The expected volatility reflects the assumption that the historical volatility over the last 5 years will be an indication of the expected future volatility of the company’s share price, which may not necessarily be the actual outcome. 27. RELATED PARTY TRANSACTIONS (a) Key management personnel compensation Short term employee benefits Post-employment benefits Other employee benefits Total Consolidated 30 June 2018 30 June 2017 $’000 $’000 1,223 73 149 1,445 1,014 28 - 1,042 Detailed disclosures relating to key management personnel are set out in the remuneration report within the Directors' Report. (b) Other transactions with key management personnel (i) Purchases from entities controlled by key management personnel: The Group acquired the following goods and services from entities that are controlled by members of the Group’s key management personnel: Consulting fees Rent Consolidated 30 June 2018 30 June 2017 $’000 $’000 - 51 206 86 Amounts outstanding at the end of the reporting period in relation to these transactions (included in Trade and other payables) - - 68 EGH ANNUAL REPORT 2018 68 2017-2018 ANNUAL REPORTFor personal use only Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2018 Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2018 FOR THE YEAR ENDED 30 JUNE 2018 The following table list the inputs to the models used for the two plans for the year ended 30 June 2018. (ii) Fees received from entities controlled by key management personnel: Weighted average of fair values at the measurement date ($) Dividend yield (%) Expected volatility (%) Risk-free interest rate (%) Expected life of share options/rights (years) Weighted average of share price ($) 2018 Options 2018 Share rights Tranche 1 Tranche 2 0.014 - 38.797 2.13 4.50 0.335 0.207 - 38.797 1.97 6.11 0.335 0.138 - 38.797 1.97 6.11 0.335 Model used Monte Carlo Monte Carlo Monte Carlo No options or share rights were issued or outstanding at 30 June 2017. The Group received fees for the following services from entities that are controlled by members of the Group’s key management personnel: Caretaking and management fees Amounts outstanding at the end of the reporting period in relation to these transactions (included in Trade and other receivables) (iii) Terms and conditions Consolidated 30 June 2018 30 June 2017 $’000 $’000 21 - 19 - The expected volatility reflects the assumption that the historical volatility over the last 5 years will be an indication of the expected future volatility of the company’s share price, which may not necessarily be the actual outcome. All transactions were made on commercial terms and conditions and at market rates. Outstanding balances are unsecured and are repayable in cash. Further details are contained in the remuneration report. 28. OTHER MATERIAL TRANSACTIONS WITH DIRECTOR RELATED ENTITIES Couran Cove Couran Cove is a resort on South Stradbroke Island. Ownership of Couran Cove consists of a group of companies that is 100% owned by Onterran Ltd (ASX:OTR). The Executive Chairman of Onterran Ltd is Mr. Lachlan McIntosh. Mr. McIntosh does not have control over Onterran or other entities associated with Couran Cove which Eureka trades with. Mr. McIntosh is also a director of EGH. EGH has had transactions with Couran Cove over recent years and has a number of balance sheet items at 30 June 2018. After entering into renegotiated agreements subsequent to year end, the following balances existed – Refer to Note 34: • • • Loan receivable of $2.26 million (interest bearing) owing from Couran Cove entities. Inventory of $2.00 million comprising ownership of 28 cabins located at Couran Cove. $3.00 million loan offset in exchange for right of first refusal on proposed dwelling sites recorded at fair value of $1.24 million. The Group acquired the following goods and services from entities that are controlled by members of the Group’s key management personnel: 29. ULTIMATE PARENT ENTITY The parent entity within the group is Eureka Group Holdings Limited, which is the ultimate parent entity within Australia. 30. CONTINGENCIES There are no contingent liabilities or contingent assets at 30 June 2018 that require disclosure in the financial report. 31. OPERATING SEGMENTS Identification of reportable operating segments and principal services For the period ended 30 June 2018, the Group is organised into two operating segments, all located in Australia: • Rental Villages – Ownership of senior’s rental villages; and • Property Management - Management of seniors independent living communities. EGH ANNUAL REPORT 2018 69 69 27. RELATED PARTY TRANSACTIONS (a) Key management personnel compensation Short term employee benefits Post-employment benefits Other employee benefits Total Consulting fees Rent Detailed disclosures relating to key management personnel are set out in the remuneration report within the Directors' Report. (b) Other transactions with key management personnel (i) Purchases from entities controlled by key management personnel: Consolidated 30 June 2018 30 June 2017 $’000 $’000 1,223 73 149 1,445 1,014 28 - 1,042 Consolidated 30 June 2018 30 June 2017 $’000 $’000 - 51 206 86 EGH ANNUAL REPORT 2018 68 Amounts outstanding at the end of the reporting period in relation to these transactions (included in Trade and other payables) - - EUREKA GROUP HOLDINGSFor personal use only Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2018 FOR THE YEAR ENDED 30 JUNE 2018 The results not included in the two operating segments identified are treated as: • Unallocated – Represents the consulting fees charged, corporate services functions costs, inventory, cash balances and capital replacement funds. The operating segments have been identified based on reports reviewed by the Board of Directors (who are identified as the chief operating decision makers) who are responsible for assessing performance and determining the allocation of resources. There is no aggregation of operating segments and the Board of Directors views each segments performance based on profit after tax. The accounting policies adopted for internal reporting to the chief operating decision makers are consistent with those adopted in the financial statements. Segment information is prepared in conformity with the accounting policies of the Group as discussed in note 2 and Accounting Standard AASB 8. No reporting or reviews are made of cash flows and as such this is not measured or reported by segment. Consolidated - 30 June 2018 Revenue Interest revenue Other revenue Total Revenue Expenses Interest expense Total expenses Profit/(loss) before income tax expense Income tax expense Profit/(loss) after income tax expense Segment Assets Segment Liabilities Rental Villages $’000 Property Management $’000 18,665 3,909 - 198 - - 18,863 3,909 11,035 2,745 13,780 5,083 - 5,083 108,240 57,833 Non-cash and other significant items included in profit above: Loss on revaluation of investment property Depreciation & amortisation Gain on disposal of Victoria St, Mackay Segment acquisitions: Acquisition of property, plant and equipment Acquisition and subsequent expenditure of investment property Acquisition of Joint Venture investment Acquisition of intangibles Acquisition of inventory (1,439) (111) - 9,361 4,500 - - Unallocated $’000 Total $’000 - 41 571 612 7,0661 8 7,074 (6,462) - (6,462) 18,922 2 702 3 - - 501 35 - - - 4,134 22,574 41 769 23,384 20,907 2,753 23,660 (276) - (276) 133,300 58,600 (1,439) (251) 501 35 9,361 4,500 100 4,134 2,806 - 2,806 1,103 - 1,103 6,138 65 - (140) - - - 100 - 1 Included within unallocated expenses is write down of Couran Cove inventory of $1.12 million, write off of Couran Cove Land Option $1.76 million, employee benefits expense of $2.16 million, office expenses of $0.45 million and other administrative expenses of $1.57 million. 2 Included within unallocated assets is inventory of $11.78 million, Couran Cove land option of $1.24 million, trade and other receivables of $2.26 million, cash balances of $1.98 million, and other assets of $1.67 million. 3 Included within segment liabilities is provisions of $0.12 million and Superannuation and PAYG withholding payable $0.10 million, accrued expenses $0.48 million. 70 EGH ANNUAL REPORT 2018 70 2017-2018 ANNUAL REPORTFor personal use only Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2018 The results not included in the two operating segments identified are treated as: • Unallocated – Represents the consulting fees charged, corporate services functions costs, inventory, cash balances and capital replacement funds. The operating segments have been identified based on reports reviewed by the Board of Directors (who are identified as the chief operating decision makers) who are responsible for assessing performance and determining the allocation of resources. There is no aggregation of operating segments and the Board of Directors views each segments performance based on profit after tax. The accounting policies adopted for internal reporting to the chief operating decision makers are consistent with those adopted in the financial statements. Segment information is prepared in conformity with the accounting policies of the Group as discussed in note 2 and Accounting Standard AASB 8. No reporting or reviews are made of cash flows and as such this is not measured or reported by segment. Consolidated - 30 June 2018 Rental Villages $’000 Property Management Unallocated $’000 $’000 Total $’000 18,665 3,909 Revenue Interest revenue Other revenue Total Revenue Expenses Interest expense Total expenses Income tax expense Segment Assets Segment Liabilities 18,863 3,909 - - - - 2,806 2,806 - 198 11,035 2,745 13,780 5,083 - 5,083 108,240 57,833 Profit/(loss) before income tax expense 1,103 (6,462) Profit/(loss) after income tax expense 1,103 (6,462) 6,138 65 18,922 2 702 3 133,300 58,600 Non-cash and other significant items included in profit above: Loss on revaluation of investment property Depreciation & amortisation Gain on disposal of Victoria St, Mackay (1,439) (111) - (140) Segment acquisitions: Acquisition of property, plant and equipment Acquisition and subsequent expenditure of investment property Acquisition of Joint Venture investment Acquisition of intangibles Acquisition of inventory 9,361 4,500 - - - - - - - 100 1 Included within unallocated expenses is write down of Couran Cove inventory of $1.12 million, write off of Couran Cove Land Option $1.76 million, employee benefits expense of $2.16 million, office expenses of $0.45 million and other administrative expenses of $1.57 million. 2 Included within unallocated assets is inventory of $11.78 million, Couran Cove land option of $1.24 million, trade and other receivables of $2.26 million, cash balances of $1.98 million, and other assets of $1.67 million. 3 Included within segment liabilities is provisions of $0.12 million and Superannuation and PAYG withholding payable $0.10 million, accrued expenses $0.48 million. - 41 571 612 7,0661 8 7,074 - - - 501 35 - - - 4,134 22,574 41 769 23,384 20,907 2,753 23,660 (276) - (276) (1,439) (251) 501 35 9,361 4,500 100 4,134 EGH ANNUAL REPORT 2018 70 Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2018 FOR THE YEAR ENDED 30 JUNE 2018 Consolidated - 30 June 2017 Revenue Interest revenue Other revenue Total Revenue Expenses Interest expense Total expenses Profit before income tax expense Income tax expense Profit after income tax expense Segment Assets Segment Liabilities Rental Villages $’000 Property Management $’000 Unallocated $’000 Total $’000 17,213 - 2,244 19,457 10,629 2,454 13,083 6,374 - 6,374 103,252 53,117 5,426 - - 5,426 2,751 - 2,751 2,675 - 2,675 6,203 93 - 172 1,418 1,590 3,9381 153 4,091 (2,501) - (2,501) 19,0792 5063 22,639 172 3,662 26,473 17,318 2,607 19,925 6,548 - 6,548 128,534 53,716 1 Included within unallocated expenses is employee benefits expense of $2.57 million and other administrative expenses of $1.37 million. 2 Included within unallocated assets is inventory of $7.64 million, Couran Cove land option of $3.00 million, trade and other receivables of $1.94 million, cash balances of $4.39 million, property, plant and equipment of $0.99 million and other assets of $1.12 million. 3 Included within segment liabilities is provisions of $0.19 million and Superannuation and PAYG withholding payable $0.10 million. Non-cash and other significant items included in profit above: Gain on revaluation of investment property 1,046 - Depreciation & amortisation (129) (142) Segment acquisitions: Acquisition of property, plant and equipment Acquisition of investment property Acquisition of intangibles Acquisition of inventory - 13,148 789 - 2 - 60 - - - 558 - - 1,349 1,046 (271) 560 13,148 849 1,349 32. 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: (i) Audit and other assurance services – Ernst and Young Audit and review of financial statements Consolidated 30 June 2018 30 June 2017 $ $ 152,150 123,000 152,150 123,000 EGH ANNUAL REPORT 2018 71 71 EUREKA GROUP HOLDINGSFor personal use only Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2018 FOR THE YEAR ENDED 30 JUNE 2018 33. 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 year Financial position of parent entity at year-end Current assets Non-current assets Total assets Current liabilities Non-current liabilities Total liabilities Share capital Equity reserve Accumulated losses Total equity 30 June 2018 30 June 2017 $’000 $’000 (7,077) - (7,077) 90,099 7,162 97,261 711 53,702 54,413 94,353 12 (51,517) 42,848 (1,334) - (1,334) 81,633 12,477 94,110 479 43,816 44,295 94,253 - (44,438) 49,815 Guarantees entered into by the parent entity The parent entity has provided financial guarantees in respect of the commercial bills amounting to $6,486,250 and is secured by: • Registered mortgages over managers’ units and other real estate at its Senior’s Rental Villages; • Guarantee and indemnity given by EGH and its controlled entities; and • Fixed and floating charges over the assets of EGH and its subsidiaries. Contingent liabilities of the parent entity The parent entity did not have any contingent liabilities as at 30 June 2018. For information about guarantees given by the parent entity, please see above. Contractual commitments for capital items The parent entity had no capital commitments for property, plant and equipment as at 30 June 2018. 72 EGH ANNUAL REPORT 2018 72 2017-2018 ANNUAL REPORTFor personal use only Eureka Group Holdings Limited and controlled entities Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2018 33. 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 year Financial position of parent entity at year-end Current assets Non-current assets Total assets Current liabilities Non-current liabilities Total liabilities Share capital Equity reserve Accumulated losses Total equity 30 June 2018 30 June 2017 $’000 $’000 (7,077) - (7,077) 90,099 7,162 97,261 711 53,702 54,413 94,353 12 (51,517) 42,848 (1,334) - (1,334) 81,633 12,477 94,110 479 43,816 44,295 94,253 - (44,438) 49,815 Guarantees entered into by the parent entity The parent entity has provided financial guarantees in respect of the commercial bills amounting to $6,486,250 and is secured by: • Registered mortgages over managers’ units and other real estate at its Senior’s Rental Villages; • Guarantee and indemnity given by EGH and its controlled entities; and • Fixed and floating charges over the assets of EGH and its subsidiaries. The parent entity did not have any contingent liabilities as at 30 June 2018. For information about guarantees given by the Contingent liabilities of the parent entity parent entity, please see above. Contractual commitments for capital items The parent entity had no capital commitments for property, plant and equipment as at 30 June 2018. Notes to the Financial Statements Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2018 FOR THE YEAR ENDED 30 JUNE 2018 34. SUBSEQUENT EVENTS Couran Cove On 30 August 2018 a settlement and re-negotiated terms were announced with respect to amounts and assets associated with Couran Cove. These are currently recorded at 30 June 2018 in the financial statements as follows: Asset Amounts Receivable Land Option Property Assets Carrying Value 30 June 2018 $’000 2,260 1,237 2,000 The key elements of the agreement reached post period end are summarised below. Sale of Property Assets The remaining 28 cabins and apartments owned by Eureka are to be sold for $2.01m to a purchaser that is not a related party of the Onterran Group. Settlement is scheduled to occur on 6 September 2018. Repayment and refinance of the $2.26m Loan The $2.26m loan owed to Eureka by Couran Cove Holdings Pty Ltd is to be repaid and refinanced by the following: • a lump sum repayment of $1.59m scheduled on 6 September 2018; • Mr. Lachlan McIntosh in his personal capacity has assumed by way of a new loan $350,000 (the McIntosh Loan); and • a new secured loan to CCH Developments No 1 Pty Ltd in its personal capacity and as trustee of the CCH Developments No 1 Trust for $320,000 (the West Cabin Loan). a) McIntosh Loan The McIntosh Loan is due for repayment on 31 December 2019. An additional restructure fee may be payable by the borrower on the loan of up to $130,000. The loan is on substantially the same terms as the existing loan to Couran Cove Holdings Pty Ltd. Interest at the general interest charge set by the Australian Taxation Office from time to time, which for the period July 2018 to September 2018 is set at 8.96% per annum, accrues on the loan on exactly the same terms as under the existing loan to Couran Cove Holdings Pty Ltd. The Board considers this loan to be on arm’s length terms and expects that it will be repaid on the due date. The amount of the restructure fee is linked to the value of 1 million shares in Eureka which are held by 22 Resolution Pty Ltd. Mr. Lachlan McIntosh is the sole director of 22 Resolution Pty Ltd. Eureka may issue a notice requiring payment of the restructure fee on any day where Eureka’s shares have traded on the ASX at above 40 cents per share for a period of ten successive trading days. The restructure fee is payable within 30 days of that notice extended for trading window blackout periods, unless Eureka’s shares cease to trade at above 40 cents per share for a period of five successive trading days. The amount of the restructure fee is the lesser of $130,000 and, if 22 Resolution Pty Ltd sells 1 million shares in Eureka on arms’ length terms after the notice has been issued, the amount for which those shares were sold which is in excess of the McIntosh Loan at that time. No restructure fee is payable if Eureka’s shares do not trade on the ASX at above 40 cents per share before 31 December 2019. b) West Cabin Loan The West Cabin Loan is due for repayment no later than 28 February 2019. No interest accrues on this loan. The loan is guaranteed by Onterran and Mr. Lachlan McIntosh in his personal capacity and secured by a real property mortgage over two existing cabins owned by CCH Developments No 1 Pty Ltd. Recourse against CCH Developments No 1 Pty Ltd in respect of the loan is limited to the two existing cabins. EGH ANNUAL REPORT 2018 72 EGH ANNUAL REPORT 2018 73 73 EUREKA GROUP HOLDINGSFor personal use only Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2018 FOR THE YEAR ENDED 30 JUNE 2018 Restructure of the $3m land option The existing $3m amount owed to Eureka by Couran Cove Holdings Pty Ltd is to be refinanced under a new secured loan to CCH Developments No 1 Pty Ltd. No interest accrues on this loan. The loan is guaranteed by Onterran and secured by a real property mortgage over land owned by CCH Developments No 1 Pty Ltd relating to 60 proposed cabin sites. The proposed cabin sites correspond to the lots over which Eureka was to be granted an option. Eureka has a right of first refusal to purchase those proposed cabin sites for $50,000 per site. The purchase price would be paid by way of set off against the $3m loan on settlement. The right can be exercised until the repayment date for the loan. The loan is due for repayment on 31 August 2020. Eureka has the option to extend the repayment date, and the time in which it can exercise its right of first refusal, to 31 August 2023. In order for Eureka to realise value from this agreement, Eureka intends to reach arrangements for developers to construct dwellings on the proposed cabin sites and ultimately acquire the sites from Eureka. Eureka’s interests will be protected by its mortgage under any such arrangements with developers. Eureka is in discussions with a potential developer for some of these sites and has entered into a non-binding term sheet for 5 lots for $50,000 per lot. Conditions precedent The restructure of the $2.26m and $3m loans are subject to the conditions precedent, the most important of which are: • • completion occurring on the sale of the existing cabins and apartments owned by Eureka; and the lump sum repayment of $1.59m being received by Eureka. Releases On satisfaction of the conditions precedent, Eureka will release the parties from the existing loan agreements, the entitlement to 30% of the proceeds of the sale of certain management and infrastructure rights related to the Couran Cove Resort, and will release the security it holds, other than the real property mortgage referred to above. Summary of Transaction Outcomes At completion scheduled for 6 September 2018 the following is expected to occur: • The existing cabins and apartments owned by Eureka will be transferred, leaving Eureka with no existing cabins and apartments at the Couran Cove Resort. • Eureka will receive $3.60 million in cash from the sale of the cabin and apartments and partial repayment of the $2.26 million loan. • Loans of $0.35 million and $0.32 million, totalling $0.67 million, will become the responsibility of Mr. Lachlan McIntosh and CCH Development No1 Pty Ltd. • Eureka will retain rights in relation to 60 proposed cabin sites. Banking Facility On 28 August 2018 the NAB facility was amended such that the $20,000,000 Facility 1 previously expiring on 31 December 2019 is now expiring on 31 December 2021 consistent with the expiry date of the $35,000,000 Facility 2. Property Assets On 20 August 2018, a contract for the sale of Lambert Village in Mount Gambier was executed for $1.10 million. In accordance with the terms of the contract, settlement is due on 30 November 2018. Other Other than the above mentioned items, no other matter or circumstance has arisen since 30 June 2018 that has significantly affected, or may significantly affect, the operations of the Group, the results of those operations or the state of affairs of the Group in subsequent financial years. 74 EGH ANNUAL REPORT 2018 74 2017-2018 ANNUAL REPORTFor personal use only Eureka Group Holdings Limited and controlled entities Eureka Group Holdings Limited and controlled entities Eureka Group Holdings Limited and controlled entities FOR THE YEAR ENDED 30 JUNE 2018 FOR THE YEAR ENDED 30 JUNE 2018 FOR THE YEAR ENDED 30 JUNE 2018 Directors’ Declaration Directors’ Declaration Directors’ Declaration Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2018 The loan is guaranteed by Onterran and secured by a real property mortgage over land owned by CCH Developments No 1 Pty Ltd relating to 60 proposed cabin sites. The proposed cabin sites correspond to the lots over which Eureka was to be granted an option. Eureka has a right of first refusal to purchase those proposed cabin sites for $50,000 per site. The purchase price would be paid by way of set off against the $3m loan on settlement. The right can be exercised until the repayment date for the loan. The loan is due for repayment on 31 August 2020. Eureka has the option to extend the repayment date, and the time in which it can exercise its right of first refusal, to 31 August 2023. In order for Eureka to realise value from this agreement, Eureka intends to reach arrangements for developers to construct dwellings on the proposed cabin sites and ultimately acquire the sites from Eureka. Eureka’s interests will be protected by its mortgage under any such arrangements with developers. Eureka is in discussions with a potential developer for some of these sites and has entered into a non-binding term sheet for 5 lots for $50,000 per lot. Conditions precedent The restructure of the $2.26m and $3m loans are subject to the conditions precedent, the most important of which are: • • • • Releases On satisfaction of the conditions precedent, Eureka will release the parties from the existing loan agreements, the entitlement to 30% of the proceeds of the sale of certain management and infrastructure rights related to the Couran Cove Resort, and will release the security it holds, other than the real property mortgage referred to above. Summary of Transaction Outcomes At completion scheduled for 6 September 2018 the following is expected to occur: The existing cabins and apartments owned by Eureka will be transferred, leaving Eureka with no existing cabins and apartments at the Couran Cove Resort. • Eureka will receive $3.60 million in cash from the sale of the cabin and apartments and partial repayment of the $2.26 million loan. Loans of $0.35 million and $0.32 million, totalling $0.67 million, will become the responsibility of Mr. Lachlan McIntosh and CCH Development No1 Pty Ltd. • Eureka will retain rights in relation to 60 proposed cabin sites. On 28 August 2018 the NAB facility was amended such that the $20,000,000 Facility 1 previously expiring on 31 December 2019 is now expiring on 31 December 2021 consistent with the expiry date of the $35,000,000 Facility 2. On 20 August 2018, a contract for the sale of Lambert Village in Mount Gambier was executed for $1.10 million. In accordance with the terms of the contract, settlement is due on 30 November 2018. Other than the above mentioned items, no other matter or circumstance has arisen since 30 June 2018 that has significantly affected, or may significantly affect, the operations of the Group, the results of those operations or the state of affairs of the Group in subsequent financial years. Banking Facility Property Assets Other Restructure of the $3m land option The existing $3m amount owed to Eureka by Couran Cove Holdings Pty Ltd is to be refinanced under a new secured loan to CCH Developments No 1 Pty Ltd. No interest accrues on this loan. In accordance with a resolution of the directors of Eureka Group Holdings Limited, I state: In accordance with a resolution of the directors of Eureka Group Holdings Limited, I state: 1. 1. In the opinion of the Directors of Eureka Group Holdings Limited (the “company”): In the opinion of the Directors of Eureka Group Holdings Limited (the “company”): a. The accompanying financial statements and notes are in accordance with the Corporations Act 2001, a. The accompanying financial statements and notes are in accordance with the Corporations Act 2001, including: including: i. giving a true and fair view of the Group’s financial position as at 30 June 2018 and of its performance i. giving a true and fair view of the Group’s financial position as at 30 June 2018 and of its performance for the financial year ended on that date; and ii. complying with Australian Accounting Standards and the Corporations Regulations 2001; for the financial year ended on that date; and ii. complying with Australian Accounting Standards and the Corporations Regulations 2001; b. There are reasonable grounds to believe that the company will be able to pay its debts as and when they b. There are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable; and c. The financial statements and notes thereto are in accordance with International Financial Reporting become due and payable; and c. The financial statements and notes thereto are in accordance with International Financial Reporting Standards as disclosed in Note 2. 2. This declaration has been made after receiving the declarations required to be made to the directors in accordance Standards as disclosed in Note 2. 2. This declaration has been made after receiving the declarations required to be made to the directors in accordance with Section 295A of the Corporations Act 2001 for the financial year ended 30 June 2018. with Section 295A of the Corporations Act 2001 for the financial year ended 30 June 2018. completion occurring on the sale of the existing cabins and apartments owned by Eureka; and the lump sum repayment of $1.59m being received by Eureka. On behalf of the Board On behalf of the Board Murray Boyte Executive Chair Murray Boyte Executive Chair Dated in Brisbane this 31st day of August 2018. Dated in Brisbane this 31st day of August 2018. EGH ANNUAL REPORT 2018 74 EGH ANNUAL REPORT 2018 EGH ANNUAL REPORT 2018 75 75 75 EUREKA GROUP HOLDINGSFor personal use only Ernst & Young 111 Eagle Street Brisbane QLD 4000 Australia GPO Box 7878 Brisbane QLD 4001 Tel: +61 7 3011 3333 Fax: +61 7 3011 3100 ey.com/au Independent Auditor's Report to the Members of Eureka Group Holdings Limited Report on the Audit of the Financial Report Opinion We have audited the financial report of Eureka Group Holdings Limited (the Company) and its subsidiaries (collectively the Group), which comprises the consolidated statement of financial position as at 30 June 2017, the consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended, notes to the financial statements, including a summary of significant accounting policies, and the directors' declaration. In our opinion, the accompanying financial report of the Group is in accordance with the Corporations Act 2001, including: a) giving a true and fair view of the consolidated financial position of the Group as at 30 June 2017 and of its consolidated financial performance for the year ended on that date; and b) complying with Australian Accounting Standards and the Corporations Regulations 2001. Basis for Opinion We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report. We are independent of the Group in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key Audit Matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial report of the current year. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, but we do not provide a separate opinion on these matters. For each matter below, our description of how our audit addressed the matter is provided in that context. We have fulfilled the responsibilities described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report, including in relation to these matters. Accordingly, our audit included the performance of procedures designed to respond to our assessment of the risks of material misstatement of the financial report. The results of our audit procedures, including the procedures performed to address the matters below, provide the basis for our audit opinion on the accompanying financial report. A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation 76 2017-2018 ANNUAL REPORTFor personal use only Ernst & Young 111 Eagle Street Brisbane QLD 4000 Australia GPO Box 7878 Brisbane QLD 4001 Tel: +61 7 3011 3333 Fax: +61 7 3011 3100 ey.com/au Independent Auditor's Report to the Members of Eureka Group Holdings Limited Report on the Audit of the Financial Report Opinion We have audited the financial report of Eureka Group Holdings Limited (the Company) and its subsidiaries (collectively the Group), which comprises the consolidated statement of financial position as at 30 June 2017, the consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended, notes to the financial statements, including a summary of significant accounting policies, and the directors' declaration. In our opinion, the accompanying financial report of the Group is in accordance with the Corporations Act 2001, including: a) giving a true and fair view of the consolidated financial position of the Group as at 30 June 2017 and of its consolidated financial performance for the year ended on that date; and b) complying with Australian Accounting Standards and the Corporations Regulations 2001. Basis for Opinion We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report. We are independent of the Group in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key Audit Matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial report of the current year. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, but we do not provide a separate opinion on these matters. For each matter below, our description of how our audit addressed the matter is provided in that context. We have fulfilled the responsibilities described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report, including in relation to these matters. Accordingly, our audit included the performance of procedures designed to respond to our assessment of the risks of material misstatement of the financial report. The results of our audit procedures, including the procedures performed to address the matters below, provide the basis for our audit opinion on the accompanying financial report. A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation 77 EUREKA GROUP HOLDINGSFor personal use only Ernst & Young 111 Eagle Street Brisbane QLD 4000 Australia GPO Box 7878 Brisbane QLD 4001 Tel: +61 7 3011 3333 Fax: +61 7 3011 3100 ey.com/au Independent Auditor's Report to the Members of Eureka Group Holdings Limited Report on the Audit of the Financial Report Opinion We have audited the financial report of Eureka Group Holdings Limited (the Company) and its subsidiaries (collectively the Group), which comprises the consolidated statement of financial position as at 30 June 2017, the consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended, notes to the financial statements, including a summary of significant accounting policies, and the directors' declaration. In our opinion, the accompanying financial report of the Group is in accordance with the Corporations Act 2001, including: a) giving a true and fair view of the consolidated financial position of the Group as at 30 June 2017 and of its consolidated financial performance for the year ended on that date; and b) complying with Australian Accounting Standards and the Corporations Regulations 2001. Basis for Opinion We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report. We are independent of the Group in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key Audit Matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial report of the current year. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, but we do not provide a separate opinion on these matters. For each matter below, our description of how our audit addressed the matter is provided in that context. We have fulfilled the responsibilities described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report, including in relation to these matters. Accordingly, our audit included the performance of procedures designed to respond to our assessment of the risks of material misstatement of the financial report. The results of our audit procedures, including the procedures performed to address the matters below, provide the basis for our audit opinion on the accompanying financial report. A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation 78 2017-2018 ANNUAL REPORTFor personal use only Ernst & Young 111 Eagle Street Brisbane QLD 4000 Australia GPO Box 7878 Brisbane QLD 4001 Tel: +61 7 3011 3333 Fax: +61 7 3011 3100 ey.com/au Independent Auditor's Report to the Members of Eureka Group Holdings Limited Report on the Audit of the Financial Report Opinion We have audited the financial report of Eureka Group Holdings Limited (the Company) and its subsidiaries (collectively the Group), which comprises the consolidated statement of financial position as at 30 June 2017, the consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended, notes to the financial statements, including a summary of significant accounting policies, and the directors' declaration. In our opinion, the accompanying financial report of the Group is in accordance with the Corporations Act 2001, including: a) giving a true and fair view of the consolidated financial position of the Group as at 30 June 2017 and of its consolidated financial performance for the year ended on that date; and b) complying with Australian Accounting Standards and the Corporations Regulations 2001. Basis for Opinion We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report. We are independent of the Group in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key Audit Matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial report of the current year. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, but we do not provide a separate opinion on these matters. For each matter below, our description of how our audit addressed the matter is provided in that context. We have fulfilled the responsibilities described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report, including in relation to these matters. Accordingly, our audit included the performance of procedures designed to respond to our assessment of the risks of material misstatement of the financial report. The results of our audit procedures, including the procedures performed to address the matters below, provide the basis for our audit opinion on the accompanying financial report. A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation 79 EUREKA GROUP HOLDINGSFor personal use only Eureka Group Holdings Limited and controlled entities Ernst & Young 111 Eagle Street Brisbane QLD 4000 Australia GPO Box 7878 Brisbane QLD 4001 Tel: +61 7 3011 3333 Fax: +61 7 3011 3100 ey.com/au AUDIT REPORT TO BE SUPPLIED BY EY Independent Auditor's Report to the Members of Eureka Group Holdings Limited Report on the Audit of the Financial Report Opinion We have audited the financial report of Eureka Group Holdings Limited (the Company) and its subsidiaries (collectively the Group), which comprises the consolidated statement of financial position as at 30 June 2017, the consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended, notes to the financial statements, including a summary of significant accounting policies, and the directors' declaration. In our opinion, the accompanying financial report of the Group is in accordance with the Corporations Act 2001, including: a) giving a true and fair view of the consolidated financial position of the Group as at 30 June 2017 and of its consolidated financial performance for the year ended on that date; and b) complying with Australian Accounting Standards and the Corporations Regulations 2001. Basis for Opinion We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report. We are independent of the Group in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key Audit Matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial report of the current year. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, but we do not provide a separate opinion on these matters. For each matter below, our description of how our audit addressed the matter is provided in that context. We have fulfilled the responsibilities described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report, including in relation to these matters. Accordingly, our audit included the performance of procedures designed to respond to our assessment of the risks of material misstatement of the financial report. The results of our audit procedures, including the procedures performed to address the matters below, provide the basis for our audit opinion on the accompanying financial report. A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation 80 EGH ANNUAL REPORT 2017 74 2017-2018 ANNUAL REPORTFor personal use only Eureka Group Holdings Limited and controlled entities Eureka Group Holdings Limited and controlled entities Ernst & Young 111 Eagle Street Brisbane QLD 4000 Australia GPO Box 7878 Brisbane QLD 4001 Tel: +61 7 3011 3333 Fax: +61 7 3011 3100 ey.com/au AUDIT REPORT TO BE SUPPLIED BY EY AUDITOR INDEPENDENCE DECLARATION TO BE SUPPLIED BY EY Independent Auditor's Report to the Members of Eureka Group Holdings Limited Report on the Audit of the Financial Report Opinion We have audited the financial report of Eureka Group Holdings Limited (the Company) and its subsidiaries (collectively the Group), which comprises the consolidated statement of financial position as at 30 June 2017, the consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended, notes to the financial statements, including a summary of significant accounting policies, and the directors' declaration. In our opinion, the accompanying financial report of the Group is in accordance with the Corporations Act 2001, including: a) giving a true and fair view of the consolidated financial position of the Group as at 30 June 2017 and of its consolidated financial performance for the year ended on that date; and b) complying with Australian Accounting Standards and the Corporations Regulations 2001. Basis for Opinion We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report. We are independent of the Group in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key Audit Matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial report of the current year. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, but we do not provide a separate opinion on these matters. For each matter below, our description of how our audit addressed the matter is provided in that context. We have fulfilled the responsibilities described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report, including in relation to these matters. Accordingly, our audit included the performance of procedures designed to respond to our assessment of the risks of material misstatement of the financial report. The results of our audit procedures, including the procedures performed to address the matters below, provide the basis for our audit opinion on the accompanying financial report. EGH ANNUAL REPORT 2017 74 EGH ANNUAL REPORT 2017 75 81 A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation EUREKA GROUP HOLDINGSFor personal use only Corporate Governance Statement The Company’s directors and management are committed to achieving and demonstrating the highest standards of corporate governance. The Company has prepared a Corporate Governance Statement which sets out the corporate governance practices that were in operation during the financial year. The Board has adopted the ASX Corporate Governance Principles and Recommendations (3rd Edition) (‘Recommendations’) to the extent considered appropriate for the size and nature of the Group’s operations.  The Corporate Governance Statement identifies any Recommendations that have not been followed, and provides reasons for not following those Recommendations. The Company’s Corporate Governance Statement and key policies can be found on its website: http://www.eurekagroupholdings.com.au/governance/ 82 2017-2018 ANNUAL REPORTFor personal use onlyCorporate Directory Postal Address Auditors Ernst & Young 111 Eagle St Brisbane Qld 4000 Tel: 07 3011-3333 Fax: 07 3011-3344 Share Registry Link Market Services – Brisbane Level 21, 10 Eagle Street Brisbane Qld 4000 Call Centre: 02 8280-7454 Fax: 07 3228-4999 Listing Details ASX Limited Brisbane Code: Shares – EGH Australian Business Number 15 097 241 159 Suite 2D 7 Short St, Southport QLD 4215 Board of Directors Murray Boyte (Executive Chair) Lachlan McIntosh Nirmal Hansra Sue Renkin Chief Financial Officer Paul Cochrane Company Secretary Paul Cochrane and Laura Fanning Solicitors Jones Day Riverside Centre Level 31/123 Eagle Street Brisbane QLD 4000 Tel: 07 3085 7000 Fax: 07 3085 7099 Mills Oakley Level 14 145 Ann Street Brisbane QLD 4000 Tel: 07 3228 0400 Fax: 07 3012 8777 83 EUREKA GROUP HOLDINGSFor personal use onlyEureka Group Holdings Limited and controlled entities Security Holder Information Security Holder Information Distribution of Securities as at 20 August 2018 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 303 234 112 379 165 1,193 Marketable Shares There were 394 holders of less than a marketable parcel of 1,851 shares holding a total of 188,750 shares. Voting Rights Ordinary Shares carry voting rights of one vote per share. Options carry no voting rights. Substantial Holders as at 20 August 2018 Cooper Investors Pty Limited Tribeca Investment Partners Adam Smith Asset Management Ignition Capital Pty Ltd, Ignition Capital No 2 Pty Ltd, Mr Robin Levison 22 Resolution Pty Ltd & Kathlac Pty Ltd Total No of Ordinary Shares Held % of Issued Share Capital 35,378,273 21,428,952 14,015,681 12,930,000 11,916,166 15.38% 9.33% 6.10% 5.62% 5.16% 95,679,072 41.59% Twenty Largest Ordinary Shareholders as at 20 August 2018 No of Ordinary Shares Held National Nominees Limited J P Morgan Nominees Australia Limited HSBC Custody Nominees (Australia) Limited Ignition Capital Pty Ltd Wavet Fund No 2 Pty Ltd NGE Capital Limited Kathlac Pty Ltd 22 Resolution Pty Ltd One Managed Investment Funds Limited Folkestone Maxim A-Reit Securities Account Tolani Estate Pty Ltd Brazil Farming Pty Ltd Placement Pty Ltd Mr Alister Charles Wright H & G Limited Ignition Capital No 2 Pty Ltd Luton Pty Ltd Armada Trading Pty Ltd Mr Richard Mews and Mrs Wee Khoon Mews G & P Investments (NSW) Pty Limited Mr Brenden John Hall Total % of Issued Share Capital 17.72% 12.70% 8.96% 4.42% 4.01% 3.84% 2.91% 2.27% 2.08% 1.91% 1.82% 1.74% 1.63% 1.25% 1.12% 1.04% 1.01% 0.95% 0.77% 0.74% 40,758,160 29,219,151 20,609,545 10,175,000 9,228,000 8,840,949 6,700,138 5,216,028 4,788,499 4,400,000 4,179,681 4,000,000 3,741,000 2,883,148 2,580,000 2,400,000 2,318,937 2,188,607 1,770,000 1,701,091 167,697,934 72.90% 84 EGH ANNUAL REPORT 2018 80 2017-2018 ANNUAL REPORTFor personal use only This page has been left blank intentionally EUREKA GROUP HOLDINGSFor personal use onlyDelivering affordable, caring and inclusive communities Head Office ABN 15 097 241 159 Level 2, 7 Short Street, Southport Qld 4215 P: (07) 5568 0205 F: (07) 5302 6605 E: info@eurekagroupholdings.com.au For personal use only

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