Eureka Group Holdings Limited Annual Report 2020

Plain-text annual report

20 20 Annual Report Contents Executive Chairman’s report FY2020 Highlights Directors’ report Financial statements Notes to the ﬁnancial statements Directors’ declaration Independent Auditor’s report Auditor’s independence declaration Corporate Governance Statement Security Holder information Corporate Directory iv viii 1 17 21 64 65 72 73 74 75 2 0 2 0 Annual Report i i i Executive Chairman’s Report Financial Review For the year ended 30 June 2020, Eureka Group Holdings Limited (Eureka) reported a net proﬁt after tax of $8.10 million. This compares to a net proﬁt before and after tax of $6.79 million in 2019. All key ﬁnancial metrics improved over the prior year: Portfolio Highlights • • • • • • Acquisition of Liberty Villas in February 2020, a 124-unit village in Bunderberg, Queensland. Disposal of 27 units at Terranora for total consideration of $6.39 million and a realised gain on sale of $1.03 million. Since balance date, a further 5 units have settled and 2 units have exchanged generating total proceeds of approximately $1.99 million (as at 30 September 2020). Achieved year-end occupancy of 95%. This compares to 91% in 2019. Solar(cid:1) energy(cid:1) enhancement(cid:1) completed(cid:1) in 13 villages. Subsequent to year end, the Board approved a 22- unit expansion of the Wynnum village in Brisbane, to be completed by 1 July 2021. • • • share at 3.52 Earnings per 19%. Earnings before interest, tax and depreciation (EBITDA) from core operations at $8.70 million, up 11%. Net Operating Cash Flow at $7.61 million, up 60%. This includes a one off prior year GST refund of $0.64 million. cents, up The result included a net gain on the revaluation of invest- ment properties and other assets of $2.42 million, including the Tasmanian village portfolio held in joint venture, and a gain on the sale of Terranora units of $1.03 million. Net debt increased by $5.85 million following the Liberty Villas acquisition during the year (see below) and the gearing ratio, calculated as net debt to net debt plus equity, increased marginally to 37.7% (2019: 36.2%). Operations Review In the latter part of the 2019 ﬁnancial year, the management team carried out a comprehensive review of operations and commenced a two year business plan to reset the operating platform based on ﬁve operating pillars (the Five Pillar Plan). The successful implementation of the ﬁrst year of the business plan has laid the foundation for the improved operating performance and a lift in the quality of earnings as evidenced by the net operating cash ﬂow. The focus on occupancy and revenue optimisation resulted in a positive revenue trend. The redeﬁning of support office functions and village manager roles created a higher level of engagement between the support office and the village network. This has led to increased accountability across the group and enabled village managers to elevate their interaction within the communities in which they are located. Net proﬁt after tax Income tax expense Depreciation, amortisation & ﬁnance costs EBITDA Net gain on revaluation of investment property and other assets Impairment of intangible and other assets Gain on sale of Terranora units Refund of prior period GST EBITDA from core options Net operating cashﬂow Earnings per share Dividends per share FY2020 $’000 8,095 980 3,099 12,174 (2,418) 619 (1,031) (644) 8,700 7,614 Cents 3.52 1.10 FY2019 $’000 6,794 -- 2,991 9,785 (1,953) -- -- -- 7,832 4,745 Cents 2.95 1.00 CHANGE 19% 24% 11% 60% 19% 10% i v 2 02 0 Annual Report 4 FY20 Recap �al‐ Business Gr FY20 Recap - Reset The Operating Platform Reset The Operating Platform owth + Scaling Exponen Occupancy, Revenue + Cost Initiatives Team Culture + Engagement Safety, Risk + Compliance Improve referral network  to grow occupancy & revenue  Cost reduc�on ini�a�ves Increase opera�ng intensity, accountability and quick decision making  Training & development strengthened to support team through COVID-19 period  Ongoing commitment to safety for all and standardisa�on of policies  Procedures implemented to mitigate COVID-19 risk Informa�o n Systems + Information Systems + Information Systems nology Tech Technology Technology +  Improve and standardise Applica �ons Applications Applications  Customer relationship management and data analytics  Marketing and digital channels to connect with customers and decision makers Impact of COVID-19 During the second half of the year, Eureka responded proactively to the Coronavirus pandemic (COVID-19), given that senior Australians are classiﬁed as a higher risk demographic. Eureka established a COVID-19 Management Response Team and introduced a management plan for higher risk infections and contagious illnesses within villages. The plan covered heightened hygiene practices, closure of communal areas, limiting visits to villages, raising symptom awareness, reinforcing the ‘stay at home’ and self-isolation’ messages and ensuring a safe and stable food supply. COVID-19 has had a profound social, economic and health impact on our daily lives. These changed circumstances have put considerable stress on our teams and residents. The health and wellbeing of our staff and residents in a safe, secure and comfortable environment has been the paramount consideration in establishing and administering the management plan for COVID-19. We thank our staff who have assiduously carried out the additional responsibilities to ensure the safety of our residents. We thank our residents, families and carers for their co-operation and compliance during a difficult period. Environmental, Social and Corporate Governance (ESG) Eureka values the contribution it makes within the social infrastructure segment in which it operates. to deliver on Eureka’s focus is on creating sustainable communities. The Board is developing an investing and environmental sustainability strategy to guide the Group over the next few years its broader economic, environmental and social goals. A key focus of the integrate and promote greater to strategy will be environmental responsibility and resource-efficient processes across Eureka’s operations and activities. The Board implementing and communicating some of these ESG initiatives in 2021. is committed to 2 0 2 0 Annual Report v Dividend Eureka paid the following dividends to shareholders for the year end 30 June 2020: • • an interim unfranked dividend of 0.55 cents per share was paid on 25 March 2020; and a ﬁnal unfranked dividend of 0.55 cents per share was paid on 25 September 2020. Outlook Eureka expects further beneﬁts from the Five Pillar Plan to ﬂow through to the 2021 ﬁnancial year including from revenue, occupancy and cost initiatives. Implementation of an integrated technology system is a priority in 2021. Recent new appointments in marketing and workplace, health and safety have provided further depth to operational management capability and resources to deliver on the second year of the Five Pillar Plan. The broadening of marketing activities through digital and social media channels to connect with new networks and customers is underway. The Eureka group has a strong empathetic culture with its residents and will continue to improve the customer proposition and experience in rental villages for independent seniors. Eureka is establishing a sound ﬁnancial platform and is well positioned to accelerate its village acquisition and development program. The focus on the growth of Eureka’s business as a provider of affordable rental accommodation for independent seniors will facilitate improved cash ﬂows and shareholder returns on operating assets in a low risk social infrastructure framework. Eureka is committed to the proﬁtable expansion of the business that will enhance shareholder value on a sustainable basis. The Eureka group has a strong empathetic culture with its residents and will continue to improve the customer proposition and experience in rental villages for independent seniors. v i 2 02 0 Annual Report 6 Directors and Staff On 31 December 2019, Mr Lachlan McIntosh resigned as a Non Executive Director. Mr McIntosh was a former Chair- man and substantial shareholder having joined the board in 2009. Mr Greg Paramor AO joined the board as an independent Non Executive Director on 19 June 2020. Mr Paramor is an experienced company director and brings extensive expertise to the board having been involved in the real estate and funds management industry for over 40 years. Mr Paramor’s commercial and real estate experience will be invaluable to Eureka as it develops and executes on its growth strategy in the affordable seniors' independent living sector. With Mr Paramor’s appointment, the Eureka board now has a well balanced skill set covering property investment and funds management, ﬁnance, management, property commercial healthcare, organisational development, experience and corporate governance. The senior management group has delivered on the ﬁrst stage of the business turnaround plan and set the frame- work for further business improvement and growth in 2021. I thank all staff for their contribution and effort during the year. To our shareholders, the Board thank you for your continued support during the year. Murray Boyte Executive Chairman 6 October 2020 2 02 0 Annual Report v i i 8 FY2020 Highlights 11% EBITDA in core operations to $8.7M [FY19: $7.83M] Earnings per share 19% | 3.52 cents 2.95 cents [FY20] [FY19] GROWTH IN CORE OPERATIONS 95% Occupancy from 91% [FY19] Dividends 10% to 1.1 cents per share Assets $ 145M Includes + 13.13M acquisition $ 37.7 % [FY19: 36.2%] Gearing $ 8.46M from non-core asset disposals REALISED 2,147 from 2,119 [FY19] UNITS v i i i 2 02 0 Annual Report Our Villages 38 Owned Eureka Presence Under Management C a i r n s N o r t h Q u e e n s l a n d C a p r i c o r n C o a s t W i d e B a y To o w o o m b a C e n t r a l N e w S o u t h W a l e s R e g i o n a l V i c t o r i a S E Q u e e n s l a n d C o ff s H a r b o u r, M a c q u a r i e , o r t P w c a s t l e N e C a n b e r r a V i c t o r i a T a s m a n i a S o u t h A u s t r a l i a Eureka is committed to the proﬁtable expansion of the business that will enhance shareholder value on a sustainable basis. 2 02 0 Annual Report i x 308(cid:31)(cid:30)(cid:29)(cid:31)(cid:30)(cid:29)(cid:28)(cid:28)(cid:27)(cid:31)(cid:27)(cid:28)(cid:26)(cid:25)(cid:31)(cid:26)(cid:28)(cid:24)(cid:27)(cid:31)(cid:26)(cid:28)(cid:26)(cid:28)(cid:24)(cid:31)(cid:25)(cid:28)(cid:23)(cid:22)(cid:21)(cid:31)(cid:24)(cid:28)(cid:25)(cid:27)(cid:28)(cid:31)(cid:23)(cid:28)20 20 Financial Report Eureka Group Holdings Limited and controlled entities Directors’ Report The Directors present their report on Eureka Group Holdings Limited (the “Company”) and its controlled entities (the “Group”, “Eureka” or the “Consolidated Entity”) for the year ended 30 June 2020 (“the year”). 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 Russell Banham Greg Paramor Lachlan McIntosh Appointed 19 June 2020 Resigned 31 December 2019 PRINCIPAL ACTIVITIES The principal activities of the Group include: • • Providing accommodation and services to independent senior residents; and Providing specialist property management and caretaking services for seniors’ independent living communities. REVIEW OF OPERATIONS AND RESULTS The Group has reported a profit after tax for the year of $8.10 million (2019: $6.79 million) and an EBITDA1 from core operations of $8.70 million (2019: $7.83 million). The Group’s portfolio of residential village assets performed well with increased revenue primarily due to the acquisition of a 124-unit rental village in Bundaberg Qld, improved occupancy to 95% (2019: 91%) across the portfolio coupled with cost savings from the installation of solar power. The Group’s results include a gain on the sale of units at Terranora NSW, asset revaluations, a refund of prior period goods and services tax (GST) and an increased profit contribution from the joint venture which owns and operates the Tasmanian village portfolio. A summary of the Group’s performance and reconciliation to the Group’s EBITDA1 from core operations is shown below: Performance Summary Profit after income tax expense Income tax expense Depreciation and amortisation Finance costs EBITDA1 (Gain)/Loss on fair value adjustment of: - - - Impairment of intangible and other assets Gain on sale of Terranora units Refund of prior period GST EBITDA1 from core operations Investment property Other assets Tasmanian villages – included in Share of profit of a joint venture Basic earnings per share Diluted earnings per share Consolidated 30 June 2020 $’000 8,095 980 591 2,508 12,174 30 June 2019 $’000 6,794 - 225 2,766 9,785 (1,383) 53 (1,088) 619 (1,031) (644) 8,700 3.52 3.52 (2,253) 300 - - - - 7,832 2.95 2.95 1 EBITDA (Earnings before interest, tax, depreciation and amortisation) is an unaudited non-IFRS measure, however, the Directors believe it is a readily calculated measure that has broad acceptance and is referred to by regular users of published financial statements as a proxy for overall operating performance. EBITDA presented has been calculated from amounts disclosed in the financial statements. The Directors note that 30 June 2020 EBITDA includes the impact of accounting for AASB 16 Leases, whilst the 30 June 2019 results were prepared under the previous lease accounting standard requirements; refer to notes 2 and 15 for further explanations. Eureka owns 30 villages, 5 of which are owned in a joint venture, and has 8 villages under management, representing 2,147 units (2019: 2,119 units). 1 ANNUAL REPORT 2020 1 2020 Annual Report Eureka Group Holdings Limited and controlled entities Directors’ Report The Group has recorded an income tax expense and a net deferred tax liability for the year of $0.98 million (2019: $nil). No cash tax will be payable until the Group has utilised its revenue tax losses, all of which have now been recognised. Financial Position Key financial information in relation to the Group’s financial position is shown below: Total assets Net assets Cash and cash equivalents Debt Shares on issue Net tangible assets per share1 Balance sheet gearing2 $’000 $’000 $’000 $’000 ‘000 cents % Consolidated 30 June 2020 30 June 2019 145,205 85,868 2,451 54,472 230,038 35.2 36.4 133,072 81,482 3,060 49,234 230,038 33.1 35.5 1 Net tangible assets per share excludes lease right of use (ROU) assets. 2 Balance sheet gearing is calculated as interest-bearing drawn debt, net of cash, divided by total assets net of cash. Significant balance sheet movements during the financial year were as follows: • • • A reduction in inventory ($4.33 million) due to the sale of Terranora units, the sale of other non-core assets ($2.07 million), net drawdown of debt ($5.24 million) and an increase in the value of investment properties ($16.04 million) through acquisitions, enhancements and asset revaluations. ROU assets ($0.72 million) and lease liabilities ($0.87 million) have been recognised at 30 June 2020 as a result of adopting AASB 16. Further details are contained in notes 2, 15 and 19. A deferred tax liability was recognised during the year ($0.98 million). Acquisitions and asset management The Group acquired a 124-unit rental village in Bundaberg, Qld for $13.13 million (excluding transaction costs), on 28 February 2020. The Group also increased its ownership in non-wholly owned villages by acquiring 7 units for $0.65 million (excluding transaction costs). The Group spent $1.94 million on enhancing its owned villages through capital improvements including expenditure of $0.60 million on its solar energy program. Disposals The Group’s program of realising non-core and underperforming assets continued during the year including: • • • settlement of 27 units at Terranora, NSW for $6.39 million; disposal of the property located at Bowen, Qld for $1.53 million; and the sale of two houses in Mt Gambier, SA for $0.54 million. Terranora During the year, 27 units were sold and settled for total consideration of $6.39 million. An additional 4 units have settled and 1 unit exchanged, totalling $1.43 million subsequent to year-end. The remaining unsold units are held in inventory and valued at the lower of cost or net realisable value. The Group continues to hold a vacant 4.8 hectares of land $2.30 million (2019: $2.30 million) and manager’s unit $0.60 million (2019: $0.60 million) as investment property at fair value. Couran Cove The McIntosh loan was repaid in full during the year. The West Cabin loan of $0.32 million (2019: $0.32 million), is due to be repaid upon settlement of the sale contracts for two cabins held as security against the loan. Note 8 contains further details. The land option, which gives the Group a first right of refusal to purchase 60 proposed cabin sites for $50,000 per site at Couran Cove, Qld is held at its assessed fair value of $1.05 million (2019: $1.24 million). Note 9 contains further details. ANNUAL REPORT 2020 2 2 and ued lion two t 2020 Annual Report Eureka Group Holdings Limited and controlled entities Directors’ Report Capital management – debt & equity Debt The Group’s National Australia Bank (NAB) facility was increased from $55.00 million to $60.00 million to partly fund the acquisition of the new village at Bundaberg, Qld. The Group was in compliance with all banking covenants during the year. Under the terms of its NAB debt facility, Eureka is able to deposit and withdraw funds in accordance with its working capital needs, subject to satisfaction of the bank’s covenants. At balance date the undrawn amount under the facility was $5.53 million. The Westpac debt facility of $1.76 million was repaid and closed during the year. Equity The following changes in equity occurred during the year: • • • the on-market share buy-back was extended until 16 March 2021. No shares were bought back and cancelled during the year (2019: nil); there were 429,362 share rights outstanding at 30 June 2020 (30 June 2019: nil). Further details are provided in the Remuneration Report; and dividends of $3.57 million were paid during the year as noted below. Impact of AASB 16 Leases The Group adopted AASB16 Leases from 1 July 2019 using the modified retrospective method, whereby the Group has recognised the cumulative effect of initially applying this standard as an adjustment to the opening balance of equity as at 1 July 2019 and has not restated comparatives, as permitted under the specific transition provisions in the standard. The leases relate to office space, office equipment and a number of residential units which the Group sub-leases. The adoption of AASB 16 Leases has resulted in a decrease in operating expenses and an increase in depreciation and finance costs. Given the effect of the new accounting standard on the year end results and balance sheet at 30 June 2020, the Directors have included the following tables. Further information on the impact of the new Leases standard is described in note 2 and 15. Impact on Consolidated Statement of Financial Position 30 June 2019 $’000 Adjustment on adoption of AASB 16 $’000 1 July 2019 $’000 Transactions during the year $’000 Assets Right of use assets Total assets Liabilities Other financial liabilities Total liabilities Net assets Equity Share capital Accumulated losses Total equity - 133,072 49,490 51,590 81,482 94,352 (12,870) 81,482 Impact on Statement of Profit and Loss and Other Comprehensive Income Lease expense1 Depreciation expense Interest expense Net profit before and after tax Impact on Consolidated Statement of Cashflows Cashflows from operating activities Cashflows from financing activities Net cashflows - - - - - - - 880 880 880 133,952 1,029 1,029 50,519 52,619 (149) 81,333 - (149) (149) 94,352 (13,019) 81,333 - - - - - - - - - - - - - - (158) (158) (162) (162) 4 - 4 4 (268) 216 48 (4) 220 (220) - 1 Lease expense is an unaudited non-IFRS measure and is the expense that would have been recognised under AASB117 if AASB16 had not been applied. 3 ANNUAL REPORT 2020 3 2020 Annual Report Eureka Group Holdings Limited and controlled entities Directors’ Report 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 33. DIVIDENDS Dividends paid during the year were as follows: Final dividend for 2019: 1.0 cent per share (2018: nil) Interim dividend for 2020: 0.55 cents per share (2019: nil) Total dividends paid 30 June 2020 $’000 30 June 2019 $’000 2,300 1,265 3,565 - - - A final dividend of 0.55 cents per share, amounting to $1.27 million, was declared at the date of signing these financial statements and is payable on 25 September 2020. The financial effect of this dividend has not been brought to account in the financial statements for the year ended 30 June 2020 and will be recognised in subsequent financial reports. LIKELY DEVELOPMENTS AND EXPECTED RESULTS In the 2021 financial year, Eureka is committed to: • • • • Further expanding its core business of providing rental accommodation for independent seniors through the active management of existing assets, the acquisition of additional villages and units, and the realisation of development opportunities, including an expansion of the Group’s village in Wynnum, Qld; Improving the performance of the existing portfolio with continued focus on maintaining and improving occupancy through the ongoing strengthening of our relationships within our communities; Implementing operational efficiencies, cost reduction and streamlined support services through process and systems improvements across our villages and support office; Recycling of capital through the divestment of the Group’s non-core assets. MATERIAL BUSINESS RISKS 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: • • • Covid-19 - during the second half of the year, the Board has overseen the Group’s response to the COVID-19 pandemic. The health, safety and wellbeing of Eureka’s staff, residents and families and the local communities in which it operates is paramount to the Company. The Group acknowledges that many of its residents have a higher risk of serious illness if they were to contract Covid-19, due to their age and propensity for underlying health issues. The Group has implemented a range of best practice and preventative measures as recommended by the relevant authorities to protect the health and well-being of all concerned and to minimise the risk of infection and transmission amongst residents and staff. The independent-living nature of the accommodation in Eureka’s villages means that residents are able to self- isolate readily and effectively to minimise the risk of viral transmission. Further, having a village network that is geographically widespread through predominantly regional centres of Australia means there are no village clusters, mitigating the risk of Covid-19 spreading from one village to another. The Group continues to closely monitor information and recommendations in relation to Covid-19. 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 conducts comprehensive analysis and due diligence as part of its acquisition process. Changes in Government funding (pension, rent assistance and National Disability Insurance Scheme (NDIS)) – the Group provides affordable rental accommodation predominantly to seniors and many of the villages’ residents are reliant on government funding in the form of pensions or rent assistance and NDIS. An adverse change in government funding, ANNUAL REPORT 2020 4 4 2020 Annual Report Eureka Group Holdings Limited and controlled entities Directors’ Report 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. • Demand for non-core products and assets under review – the Group has exposure to non-core investments at Terranora NSW (property) and Couran Cove Qld (loans) and various other assets under review (property & management rights). The Group’s successful exit from these investments is dependent on sales occurring at forecast values within an acceptable timeframe. SUBSEQUENT EVENTS Details of events that occurred after the end of the financial year are contained in Note 33. 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: Name: Title: Qualifications: Experience & expertise: Murray Boyte Executive Chairman BCA, MAICD, CMInstD, CA 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), National Tyre & Wheel Limited (ASX: NTD) and Hillgrove Resources Ltd (ASX: HGO). Nil Chair of the Board, Member of the Audit & Risk Committee, Member of the Nomination & Remuneration Committee. 250,000 Nil Sue Renkin Non-Executive Director RN, MBA, FCDA, GradDip Corp Gov, MAICD Sue 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 Chair of Executive Growth, a Director of GMHBA Health Insurance, a Director of the National Imaging Facility’s Governing Board, Chair of the South Eastern Melbourne Primary Health Network and a strategic advisor to McKenzie Aged Care Group. She is also a previous Telstra Business Woman of the year. Other listed company directorships: Nil Nil Former directorships (last 3 years) Chair of the Nomination & Remuneration Committee, Member of the Audit & Risk Special responsibilities: Committee until 14 August 2020. Nil Nil Interests in shares: Interests in options: 5 ANNUAL REPORT 2020 5 2020 Annual Report Eureka Group Holdings Limited and controlled entities Directors’ Report Name: Title: Qualifications: Experience & expertise: Russell Banham Non-Executive Director B. Com, GAICD, FCA Russell has a Bachelor of Commerce degree, is a Graduate Member of the Australian Institute of Company Directors and is a fellow of the Institute of Chartered Accountants Australia and New Zealand. Russell is an experienced company director with a demonstrated history of working in various industries including mining & metals, property development and management, manufacturing and gaming and hospitality. He is skilled in financial management, risk management and corporate governance. He was an audit partner and had functional leadership responsibilities at Deloitte, Ernst & Young and Andersen. Russell currently serves as an independent non-executive director of HKSE listed MGM China Holdings Limited, LSE listed National Atomic Company Kazatomprom and Wiggins Island Coal Export Terminal Pty Ltd. He is also a member of the Audit and Risk Management Committee of the Queensland Audit Office. Other listed company directorships: MGM China Holdings Limited (HKSE); National Atomic Company Kazatomprom (LSE Former directorships (last 3 years) Special responsibilities: Interests in shares: Interests in options: Name: Title: Qualifications: Experience & expertise: and AIX) Nil Chair of Audit & Risk Committee, Member of the Nomination & Remuneration Committee (appointed 1 January 2020). Nil Nil Greg Paramor AO Non-Executive Director (appointed 19 June 2020) FAPI, FAICD, FRICS Greg has extensive property expertise with more than 40 years’ experience in the real estate and fund management industry. He was the co-founder of Growth Equities Mutual, Paladin Australia and the James Fielding Group. He was the CEO of Mirvac Group between 2004 and 2008 before becoming the Managing Director of Folkestone Limited, a specialist property funds management group. Greg is currently a non-executive director of ASX-listed Charter Hall Group, a board member of the Sydney Swans, the Chair of BackTrack Youth Works, a Trustee of The Nature Conservancy (Australia) and a board member of the Garvan Research Foundation. He was awarded an Officer in the General Division (AO) of the Order of Australia in January 2015. Other listed company directorships: Charter Hall Group Ltd (ASX: CHC). Former directorships (last 3 years) Special responsibilities: Interests in shares: Interests in options: Folkestone Limited Member of Audit & Risk Committee (appointed 14 July 2020) 4,700,000 Nil Name: Title: Qualifications: Experience & expertise: Lachlan McIntosh Non-Executive Director (resigned 31 December 2019) B Com, CA Lachlan has a Bachelor of Commerce degree and is a Member of Chartered Accountants Australia and New Zealand. Lachlan 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: Nil Former directorships (last 3 years) Special responsibilities: Interests in shares: Interests in options: Onterran Limited (ASX: OTR). Member of the Audit & Risk Committee (until 31 December 2019), Member of the Nomination & Remuneration Committee (until 31 December 2019). Nil Nil ANNUAL REPORT 2020 6 6 2020 Annual Report Eureka Group Holdings Limited and controlled entities Directors’ Report COMPANY SECRETARY Laura Fanning, B. Bus, CA, GradDip Corp Gov 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 Sue Renkin Russell Banham Greg Paramor Lachlan McIntosh Directors’ Meetings Audit & Risk Committee Meetings Held1 17 17 17 1 6 Attended 17 17 17 1 2 Held1 9 9 9 - 4 Attended 9 9 9 - 4 Nomination & Remuneration Committee Meetings Held1 Attended 4 4 4 4 4* 4* - - 1 2 1 Number of meetings held while a director during the financial year * Attended 2 by invitation only REMUNERATION REPORT (AUDITED) This report outlines the remuneration arrangements in place for Eureka’s non-executive directors, executive directors and other key management personnel (“KMP”) for the year ended 30 June 2020. The information provided in this remuneration report has been audited as required by Section 308(3C) of the Corporations Act 2001. Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the entity, directly or indirectly, including all directors. 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 policy 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 comprises remuneration determined having regard to industry practice and the need to attract and retain appropriately qualified 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 remuneration and reward. The Board of Directors (‘the Board’) ensures that executive reward satisfies the following key criteria for good remuneration governance practices: • • • • competitiveness and reasonableness; acceptability to shareholders; performance linkage/alignment of executive compensation, and transparency. 7 ANNUAL REPORT 2020 7 2020 Annual Report Eureka Group Holdings Limited and controlled entities Directors’ Report The Nomination & Remuneration Committee is responsible for determining and reviewing remuneration arrangements for the Group’s directors and executives and making recommendations to the Board for consideration and approval. 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. The reward framework is designed to align executive reward to shareholders' interests. The Board considers that it should seek to enhance shareholders' interests by: • • • having economic profit as a core component of plan design; focusing on sustained growth in shareholder wealth, consisting of dividends and growth in share price, and delivering constant or increasing return on assets as well as focusing the executive on key non-financial drivers of value; and attracting and retaining high calibre executives. Additionally, the reward framework should seek to enhance executives' interests by: • • • rewarding capability and experience; reflecting competitive reward for contribution to growth in shareholder wealth; and providing a clear structure for earning rewards. In accordance with best practice corporate governance, the structure of non-executive director and executive director remuneration is separate. Executive remuneration The Group aims to reward executives based on their position and responsibilities, with a level and mix of remuneration which has both fixed and variable components. The executive remuneration for the Executive Chairman was determined by the Nomination & Remuneration Committee, having regard to the additional responsibilities required in his executive capacity. It comprises fixed remuneration only. For other executives, the remuneration framework includes the following components: • • • Fixed remuneration – comprising base salary, superannuation contributions and other benefits, having regard to comparable market benchmarks. Executives may receive their fixed remuneration in the form of cash or other fringe benefits where it does not create any additional costs to the Group and provides additional value to the executive; STI program – an ‘at risk’ component of remuneration where, if individual and Group performance measures are met, senior executives will be awarded cash bonuses equal to a percentage of their fixed remuneration. Performance measures include financial and non-financial KPIs and, commencing from the year ending 30 June 2021, include a financial gateway hurdle. The percentage of fixed remuneration received as an STI will be capped, but may vary, between individuals and depending on the level of performance achieved. 100% of the STI is paid as cash; and LTI program – an ‘at risk’ component of remuneration for senior executives where 100% is awarded as equity instruments (e.g. options and share rights) which are subject to certain performance and service conditions. The number of equity instruments to be awarded will be determined by the Board having regard to the overall amount of executive remuneration. The combination of these comprises the executives’ total remuneration. The Board believes that this remuneration framework ensures that remuneration outcomes link to company performance and the long-term interests of shareholders. All executives have detailed job descriptions with identified key performance indicators against which annual reviews are undertaken. Short term incentives (STIs) Senior executives’ entitlement to an STI is based upon achievement of agreed performance objectives including: • Financial performance • Operational performance • • Workplace health and safety • Strategic and innovative initiatives Risk mitigation and management. Actual performance criteria may vary between executives, having regard to their roles and responsibilities. ANNUAL REPORT 2020 8 8 2020 Annual Report Eureka Group Holdings Limited and controlled entities Directors’ Report The Board applies the following general principles when determining and measuring performance targets and any STI incentive: STI Pool Structure The size of the STI pool is determined by the Board, upon advice from the Nomination & Remuneration Committee, having regard to individual employment contracts. In consultation with the Nomination & Remuneration Committee, the Board assesses the Group’s financial performance and the performance of KMP against agreed performance objectives. 60% of the STI to be linked to the achievement of budgeted EBITDA1 from core operations financial hurdles; and 40% of the STI to be linked to the achievement of non-financial performance objectives in the categories noted above. For the proportion of the STI linked to financial performance, entitlement is based on the following tiers: Performance targets Entitlement Financial hurdle 75% of the financial portion Achievement of budgeted EBITDA from core operations 90% of the financial portion Budget exceeded between 5% and 15% 100% of the financial portion Budget exceeded by at least 15% The Board retains discretion in relation to the impact that non-recurring or unusual items may have on achievement of the STIs. Financial gateway Achievement of budgeted EBITDA from core operations (introduced from the year ending 30 June 2021) 1 Refer to page 1 for further explanation on calculation of EBITDA. During the year, 79% of the total STI pool available for KMP was awarded, including 90% of the financial portion based on the budgeted EBITDA from core operations being exceeded by between 5% and 15%. Across the Group, 85% of the total STI pool was awarded. The actual amount received by executives, as a result of achieving the above financial hurdle and any non-financial KPIs, are listed in the remuneration tables below. Long term incentives (LTIs) Equity instruments may be granted under the Omnibus Equity Plan (OEP) which was adopted on 23 November 2017. Each equity instrument entitles the participant to subscribe for one ordinary share in the Company. The specific terms of a grant are set out in an offer from the Company to the executive which contains details of the application price (if any), the expiry date, the exercise price, the vesting date, any applicable performance conditions and other specific terms. Share rights During the year, 429,362 share rights were issued to the Chief Operating Officer pursuant to the OEP on the following specific key terms: • The Vesting Date of the share rights is 30 September 2022, subject to meeting the following performance and service conditions; Performance condition – total shareholder return (TSR) compound annual growth rate (CAGR) hurdle, to be tested on the Vesting Date: TSR CAGR1 Less than 7% per annum At least 7% but less than 10% At least 10% but less than 15% At least 15% % of Rights to vest 0% 50% 70% to 100% on a straight-line basis 100% 1 TSR CAGR is an unaudited non-IFRS measure. Service condition – the employee must remain employed by the Group from the Grant Date until the Last Vesting Date. • • 9 ANNUAL REPORT 2020 9 2020 Annual Report Eureka Group Holdings Limited and controlled entities Directors’ Report • • TSR includes share price appreciation, capital returns and dividends. Share price appreciation is determined as being the difference between the base VWAP of 28.88 cents (being the volume weighted average price of shares over the 5 trading days immediately after the release of Eureka’s results for the year ended 30 June 2019 on 31 August 2019) and vesting VWAP (the volume weighted average price of shares over the 5 trading days immediately after the release of Eureka’s results for the year ended 30 June 2022). Exercise price - $nil The last day on which the share rights may be exercised is 30 September 2024, at which time the rights expire and lapse. At 30 June 2020 there were 429,362 share rights outstanding (2019: Nil). (b) DETAILS OF REMUNERATION The names of persons who were key management personnel of Eureka at any time during the financial year are shown in the following table. At the date of this report and during the year, the key management personnel of the Group are: Name Directors Murray Boyte Sue Renkin Russell Banham Greg Paramor Role Period in role Executive Chair 24 November 2017 – ongoing Non-Executive Director 24 November 2017 – ongoing Non-Executive Director 21 November 2018 – ongoing Non-Executive Director 19 June 2020 – ongoing Lachlan McIntosh Non-Executive Director 20 July 2009 – 31 December 2019 Executives Cameron Taylor Tracey Campion Chief Operating Officer 18 March 2019 – ongoing Chief Financial Officer 21 January 2019 – ongoing Details of the remuneration of the Group's key management personnel for the years ended 30 June 2020 and 30 June 2019 are set out in the following tables: Short term Post employment Salary/ fees $ Bonus $ Non- monetary $ Super- annuation $ Share based payments $ Termin- ation benefits $ Total $ % of LTI that was achieved 30 June 2020 Directors Murray Boyte1 314,997 Sue Renkin Russell Banham Greg Paramor2 Lachlan McIntosh2 67,123 68,493 1,967 35,000 Directors Total 487,580 - - - - - - Executives Tracey Campion Cameron Taylor 217,405 21,699 309,403 71,454 Executives Total 526,808 93,153 Total 1,014,388 93,153 - - - - - - 1,436 1,436 2,872 2,872 21,003 6,377 6,507 187 - 34,074 22,579 29,729 52,308 86,382 - - - - - - - 4,775 4,775 4,775 - - - - - - 100 - - - - - - - - - - 336,000 73,500 75,000 2,154 35,000 521,654 263,119 416,797 679,916 1,201,570 1 Murray Boyte’s remuneration includes his chairman’s fee of $120,000 per annum and an additional $216,000 per annum for the period he is Executive Chair. 2 Key management personnel for part of the year only. 3 Disclosure in remuneration includes executive’s annual remuneration as per their service agreement as well as accrued leave entitlements. The STIs will be paid subsequent to year-end. ANNUAL REPORT 2020 10 10 2020 Annual Report Eureka Group Holdings Limited and controlled entities Directors’ Report Short term Post employment Salary/ fees $ Bonus $ Non- monetary $ Super- annuation $ Share based payments $ Termin- ation benefits $ Total $ % of LTI that was achieved 30 June 2019 Directors Murray Boyte1 324,082 Sue Renkin Lachlan McIntosh Russell Banham2 Nirmal Hansra2 59,361 65,000 36,600 25,000 Directors Total 510,043 Executives Tracey Campion2 Cameron Taylor2 91,540 82,768 Paul Cochrane2 139,452 Executives Total 313,760 Total 823,803 - - - - - - - - - - - - - - - - - - - - - - 20,531 5,639 - 3,477 - 29,647 8,075 6,084 13,062 27,221 56,868 - - - - - - - - (11,967) (11,967) (11,967) - - - - - - - - - - - 344,613 65,000 65,000 40,077 25,000 539,690 99,615 88,852 140,547 329,014 868,704 - - - - - - - - 1 Murray Boyte’s remuneration includes his chairman’s fee of $120,000 per annum and an additional $216,000 per annum for the period he is Executive Chair. 2 Key management personnel for part of the year only. 3 Disclosure in remuneration includes executive’s annual remuneration as per their service agreement as well as accrued leave entitlements. The proportion of remuneration linked to performance and the fixed proportion (at maximum performance levels) are as follows: Directors Murray Boyte Sue Renkin Russell Banham Greg Paramor Lachlan McIntosh Executives Tracey Campion Cameron Taylor Fixed remuneration At Risk - STI At Risk - LTI 2020 2019 2020 2019 2020 2019 100% 100% 100% 100% 100% 83% 60% 100% 100% 100% - 100% - - - - - - - 17% 16% - - - - - - - - - - - - - 24% - - - - - - - The proportion of cash bonus paid/payable or forfeited: Executives Tracey Campion Cameron Taylor Cash bonus paid/payable Cash bonus forfeited 2020 2019 2020 2019 54% 92% - - 46% 8% - - 11 ANNUAL REPORT 2020 11 2020 Annual Report Eureka Group Holdings Limited and controlled entities Directors’ Report (c) NON-EXECUTIVE DIRECTOR REMUNERATION POLICY 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. 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 table below summarises Board and Committee fees payable to non-executive directors (inclusive of superannuation): Board fees Chair Non-executive director Committee fees payable to Chair of Committees (from 1 January 2020) Audit and Risk Remuneration and Nomination Annualised Board and Committee fees as at 30 June 2020 $120,000 $70,000 $10,000 $7,000 $347,000 Other than the introduction of Committee Chair fees from 1 January 2020, there was no increase in non-executive fees during the year. Directors may also be reimbursed for travelling and other expenses incurred in connection with their Company duties. (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. In addition, the Executive Chair has received written confirmation of additional remuneration of $18,000 per month ($216,000 per year) for the additional responsibility and time required to fulfil the executive chairman role, payable during his time in this role. Remuneration and other terms of employment for the Chief Operating Officer, Chief Financial Officer and other key management personnel are formalised in service agreements. The details of these agreements for executive key management personnel are as follows. There was no change to the agreements during the year, other than the award of share rights as noted below: Cameron Taylor (Chief Operating Officer) Agreement commenced 18 March 2019 Term of the Agreement: The agreement has no fixed term and may be terminated by either the Company or Mr Taylor with 2 months’ notice or without notice by the Company in the event of a material breach or misconduct by Mr Taylor. Details: Mr Taylor’s remuneration comprises a base salary of $285,000 (inclusive of 9.5% superannuation), additional car allowance of $25,000 and certain benefits such as car parking, mobile phone expenses and use of laptop. His remuneration also comprises additional short-term incentives of up to 30% of his base salary and long term incentives in the form of share rights. During the year, the Board determined to award Mr Taylor share rights based on 40% of his base salary and car allowance. Mr Taylor is responsible for management of the Group’s operations and reports to the Executive Chairman. Tracey Campion (Chief Financial Officer) Agreement commenced 21 January 2019 Term of the Agreement: The agreement has no fixed term and may be terminated by either the Company or Ms Campion with 2 months’ notice or without notice by the Company in the event of a material breach or misconduct by Ms Campion. Details: Ms Campion’s remuneration comprises a base salary of $220,000 (inclusive of 9.5% superannuation) and certain benefits such as car parking, mobile phone expenses and use of laptop. Her remuneration also comprises additional short-term incentives of up to 20% of her base salary. Her entitlement to long term incentives is currently being considered by the Board. Ms Campion is responsible for the accounting and finance functions of the Company and its associated companies. Ms Campion reports to the Chief Operating Officer. ANNUAL REPORT 2020 12 12 2020 Annual Report Eureka Group Holdings Limited and controlled entities Directors’ Report (e) RELATIONSHIP BETWEEN REMUNERATION POLICY AND COMPANY PERFORMANCE The Group’s current remuneration policy provides executives with a base level of remuneration as well as ‘at-risk’ components that are aligned with shareholder returns. The STI program is weighted towards EBITDA1 and therefore earnings per share. The LTI program is weighted towards total shareholder returns. The following table shows key metrics for the past 5 years of the Company. The improvement in earnings per share, share price and total shareholder return from 2018 to 2020 are reflective of the changes made to the previous remuneration framework and includes the effectiveness of the current policy. Total revenue and other income ($’000) Net Profit/(loss) after tax ($’000) EBITDA1 from core operations ($’000) Earnings per share (cents per share) Share price at year end ($) Dividend per share (cents per share) Total shareholder return (% of share price at start of year) KMP remuneration ($’000) KMP remuneration as a % of total revenue and income 2020 26,068 8,095 8,700 3.52 0.325 1.55 31.0 1,202 4.61 2019 23,394 6,794 7,832 2.95 0.26 0.00 (7.1) 868 3.71 2018 23,212 2017 25,427 (276) 6,942 (0.12) 0.28 0.00 6,538 5,931 2.84 0.37 0.00 (24.3) (53.2) 2016 20,114 10,467 - 2 5.19 0.79 0.00 54.9 1,445 1,042 1,040 6.23 4.10 5.17 1 EBITDA (Earnings before interest, tax, depreciation and amortisation) is an unaudited 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 from core operations has been calculated from amounts disclosed in the financial statements and is explained in the Directors’ report for the year and prior year. 2 EBITDA from core operations was not a reported measure in 2016. To enable some comparison, EBITDA prior to asset revaluations was $7.29 million. (f) REMUNERATION CONSULTANTS The Group did not engage any remuneration consultants during the year. (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 2019 Acquired during the year Disposed during the year Other changes during the year Balance 30 June 2020 KMP Directors Murray Boyte Sue Renkin Russell Banham Greg Paramor 250,000 - - - Lachlan McIntosh 6,700,138 Executives Cameron Taylor Tracey Campion Total - - 6,950,138 - - - - - - - - - - - - - - - 4,700,0001 250,000 - - 4,700,000 (6,700,138) - - - - - - - - (6,700,138) 4,700,000 4,950,000 1 Represents an interest in shares held at the time of appointment as a director. 13 ANNUAL REPORT 2020 13 2020 Annual Report Eureka Group Holdings Limited and controlled entities Directors’ Report Share rights held Details of share rights over ordinary shares in the Company, that were granted as compensation to key management personnel during the reporting period, are set out below. The Black-Scholes methodology was used for the valuation of the share rights. KMP Number of share rights granted during 2020 Grant date FV at grant date per share right Exercise price per share right Value of share rights granted in the year Expiry date Cameron Taylor 429,362 27-May-20 $0.28 - $120,221 30-Sep-24 The Vesting Date of the share rights is 30 September 2022, subject to meeting the performance and service conditions. Options held There were no options granted as compensation to key management personnel during the year. Reconciliation of share rights held by key management personnel The table below shows how many share rights were granted, vested and forfeited during the year. KMP Balance at start of year Granted during year Vested Forfeited Balance at end of year (unvested) Cameron Taylor - 429,362 - - 429,362 (h) LOANS TO/FROM KEY MANAGEMENT PERSONNEL The McIntosh loan, a loan assumed by Mr McIntosh in his personal capacity in August 2018, was repaid in full during the year. Interest accrued on the loan at an average rate of 8.14% per annum resulting in an interest charge of $0.01 million (2019: $0.02 million) and repayments of $0.32 million (2019: $0.06 million) were received during the year. As at 30 June 2020 the balance outstanding was $nil (2019: $0.31 million). The West Cabin Loan is a loan secured by a real property mortgage over two cabins at Couran Cove, Qld, for which Mr McIntosh is a guarantor in his personal capacity. This loan for $0.32 million remains unpaid as at 30 June 2020 (2019: $0.32 million), but is no longer considered a related party transaction as Mr McIntosh resigned and ceased to be a related party on 31 December 2019. Further details about these loans are contained in Note 8. There were no other loans to any director or other key management personnel at any time during the year and prior year. (i) OTHER TRANSACTIONS WITH KEY MANAGEMENT PERSONNEL As noted above, Mr McIntosh ceased to be a related party on 31 December 2019. Amounts disclosed below are for transactions that occurred while he was a director and a related party. Griffith Scenic Village Pty Ltd Griffith Scenic Village Pty Ltd, an entity associated with Mr McIntosh, paid the Group management fees of $3,301 on commercial terms (2019: $7,038). As at 30 June 2020 the amount outstanding from Griffith Scenic Village Pty Ltd was $nil (2019: $nil). Griffith Scenic Village Pty Ltd, an entity associated with Mr McIntosh, was paid $11,089 for a manager’s unit rental fees on commercial terms (2019: $22,178). As at 30 June 2020 the amount outstanding to Griffith Scenic Village Pty Ltd, as a related party transaction, was $nil (2019: $nil). During the year, the Group recognised lease liabilities associated with a right of use asset provided by Griffith Scenic Village Pty Ltd. The lease liabilities outstanding at 30 June 2020 are no longer considered to be liabilities to a related party (2019: $nil). ANNUAL REPORT 2020 14 14 2020 Annual Report Eureka Group Holdings Limited and controlled entities Directors’ Report Leisure Living Gladstone Pty Ltd Leisure Living Gladstone Pty Ltd, an entity associated with Mr McIntosh, paid the Group management fees of $9,625 on commercial terms (2019: $16,411). As at 30 June 2020 the amount outstanding from Leisure Living Gladstone Pty Ltd was $nil (2019: $nil). Leisure Living Gladstone Pty Ltd, an entity associated with Mr McIntosh, was paid $14,615 for a manager’s unit rental fees on commercial terms (2019: $29,229). As at 30 June 2020 the amount outstanding to Leisure Living Gladstone Pty Ltd, as a related party transaction, was $nil (2019: $nil). During the year, the Group recognised lease liabilities associated with a right of use asset provided by Leisure Living Gladstone Pty Ltd. The lease liabilities outstanding at 30 June 2020 are no longer considered to be liabilities to a related party (2019: $nil). 22 Resolution Pty Ltd 22 Resolution Pty Ltd, an entity associated with Mr McIntosh, earned $50,000 in consulting fees (2019: $33,000). At 30 June 2020, the amount outstanding to Mr McIntosh was $nil (2019: $33,000). Other The Group divested its investment in a property located in Bowen, Qld for $1.53 million. The property was sold at market value, based upon an independent external valuation, to an entity related to Mr McIntosh. This concludes the remuneration report, which has been audited. SHARES UNDER OPTION & SHARE RIGHTS There were 429,362 share 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 Ernst & Young were engaged to review and advise the Group on GST and tax related matters during the year. Details of the amounts paid or payable to the auditor for non-audit services provided during the year are set out in Note 31. The Directors are satisfied that the provision of the non-audit services is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The Directors are of the opinion that the services as disclosed in Note 31 do not compromise the auditor independence requirements of the Corporations Act 2001 for the following reasons: • • all non-audit services have been reviewed by the Audit & Risk Committee to ensure they do not impact the impartiality and objectivity of the auditor; and none of the services undermine the general principles relating to auditor independence as set out in APES 110 Code of Ethics for Professional Accountants. 15 ANNUAL REPORT 2020 15 2020 Annual Report Eureka Group Holdings Limited and controlled entities Directors’ Report OFFICERS OF THE COMPANY WHO ARE FORMER PARTNERS OF ERNST & YOUNG No officers of the Company were partners of Ernst & Young at the time they undertook the audit of the Company. ROUNDING OF AMOUNTS The company is of a kind referred to in ASIC Corporations (Rounding in Financial/Directors’ Reports) Instrument 2016/191’Class issued by the Australian Securities and Investment Commission, relating to ‘rounding-off’. The amounts contained in the financial and directors’ report have been rounded to the nearest $1,000 (where rounding is applicable) where noted ($’000). 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 72. AUDITOR 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 Murray Boyte Executive Chair Dated in Brisbane this 21st day of August 2020. ANNUAL REPORT 2020 16 16 2020 Annual ReportEureka Group Holdings Limited and controlled entities Consolidated Statement of Profit or Loss and Other Comprehensive Income FOR THE YEAR ENDED 30 JUNE 2020 Note 30 June 2020 $’000 30 June 2019 $’000 Rental income Catering income Service and caretaking fees Total revenue Finance income Other income Total revenue and other income Property expenses Employee expenses Finance costs Marketing expenses Depreciation & amortisation Other expenses Total operating expenses Share of profit of a joint venture Net gain/(loss) on change in fair value of: Investment property Other assets Impairment of: Intangibles Other assets Total other items Profit before income tax expense Income tax expense Profit after income tax expense Other comprehensive income Items that may be reclassified to profit or loss Items that will not be reclassified to profit or loss Other comprehensive income for the year, net of tax Total comprehensive income for the year Basic earnings per share (cents per share) Diluted earnings per share (cents per share) 3 3 3 3 4 4 4 12 13 9 5 26 26 16,874 4,223 3,712 24,809 36 1,223 26,068 (11,705) (3,027) (2,508) (95) (591) (1,758) (19,684) 1,980 1,383 (53) (80) (539) 2,691 9,075 (980) 8,095 - - - 8,095 3.52 3.52 15,847 4,257 3,132 23,236 57 101 23,394 (11,780) (2,327) (2,766) (187) (225) (1,980) (19,265) 712 2,253 (300) - - 2,665 6,794 - 6,794 - - - 6,794 2.95 2.95 The consolidated statement of profit or loss and other comprehensive income is to be read in conjunction with the accompanying notes. The Directors note that the 30 June 2020 results include the impact of accounting for AASB 16 Leases, whilst the 30 June 2019 results were prepared under the previous lease accounting standard requirements; refer to notes 2 and 15 for further explanations. 17 ANNUAL REPORT 2020 17 2020 Annual Report Eureka Group Holdings Limited and controlled entities Consolidated Statement of Financial Position AS AT 30 JUNE 2020 30 June 2020 $’000 30 June 2019 $’000 Note Current Assets Cash and cash equivalents Trade and other receivables Inventory Loans receivable Other assets Non-current assets held for sale Total current assets Non-Current Assets Inventory Loans receivable Joint Venture Investment Investment property Property, plant and equipment Right of use assets Intangible assets Other assets Total non-current assets Total Assets Current Liabilities Trade and other payables Provisions Other financial liabilities Total current liabilities Non-current liabilities Provisions Other financial liabilities Deferred tax liability Total non-current liabilities Total Liabilities Net Assets Equity Share capital Equity reserve Accumulated losses Total Equity 22 6 7 8 9 10 7 8 12 13 14 15 16 9 17 18 19 18 19 5 20 20 2,451 316 3,778 396 750 7,691 483 8,174 1,102 353 5,955 121,443 594 722 4,177 2,685 137,031 3,060 391 9,215 698 1,464 14,828 519 15,347 - 414 4,661 105,406 659 - 5,348 1,237 117,725 145,205 133,072 2,125 523 752 3,400 73 54,884 980 55,937 1,672 416 2,372 4,460 12 47,118 - 47,130 59,337 51,590 85,868 81,482 94,352 5 (8,489) 85,868 94,352 - (12,870) 81,482 The consolidated statement of financial position is to be read in conjunction with the accompanying notes. The Directors note that the 30 June 2020 results include the impact of accounting for AASB 16 Leases, whilst the 30 June 2019 results were prepared under the previous lease accounting standard requirements; refer to notes 2 and 15 for further explanations. ANNUAL REPORT 2020 18 18 2020 Annual Report Eureka Group Holdings Limited and controlled entities Consolidated Statement of Cash Flows FOR THE YEAR ENDED 30 JUNE 2020 Note 30 June 2020 $’000 30 June 2019 $’000 Cash Flows from Operating Activities Receipts from customers Payments to suppliers & employees Interest received Interest paid Net cash provided by Operating Activities 22(b) Cash Flows from Investing Activities Payments for additions to investment property Payments for additions to inventory Payments for property, plant & equipment Payments for intangible assets Payments made to sell inventory Payments made to sell non-current assets held for sale Payment of residential obligation loans Proceeds from sale of inventory Proceeds from sale of investment properties Proceeds from the sale of intangible assets Proceeds from the sale of property, plant & equipment Proceeds from repayments of loans provided Proceeds from sale on non-current assets held for sale Net cash provided by/(used) in Investing Activities Cash Flows from Financing Activities Proceeds from borrowings Repayment of borrowings Payment of dividends Principal portion of lease payments Payments of transaction costs related to borrowings Net cash provided by/(used in) Financing Activities 7 Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at the beginning of the financial year Cash and cash equivalents at the end of the financial year 22(a) 25,783 (15,884) 43 (2,328) 7,614 (16,585) (407) (17) (12) (462) (27) (99) 5,738 1,525 - - 208 540 (9,598) 15,500 (10,263) (3,565) (209) (88) 1,375 (609) 3,060 2,451 23,925 (17,150) 3 (2,033) 4,745 (1,589) (1,270) (61) - - - - 2,550 - 606 4 1,660 1,100 3,000 - (6,605) - - (66) (6,671) 1,074 1,986 3,060 The consolidated statement of cash flows is to be read in conjunction with the accompanying notes. The Directors note that the 30 June 2020 results include the impact of accounting for AASB 16 Leases, whilst the 30 June 2019 results were prepared under the previous lease accounting standard requirements; refer to notes 2 and 15 for further explanations. 19 ANNUAL REPORT 2020 19 2020 Annual Report Eureka Group Holdings Limited and controlled entities Consolidated Statement of Changes in Equity FOR THE YEAR ENDED 30 JUNE 2020 Share Capital $’000 Accumulated Losses $’000 Equity Reserves $’000 Total $’000 Note For the year ended 30 June 2020 Balance at 1 July 2019 Opening adjustment on adoption of AASB 16 Leases Balance at 1 July 2019 (Restated) Profit for the year Total comprehensive income for the year Transactions with owners in their capacity as owners: Dividends paid Share based payments 21 20 Balance at 30 June 2020 For the year ended 30 June 2019 Balance at 1 July 2018 Profit for the year Total comprehensive income for the year 94,352 - 94,352 - - - - 94,352 (12,870) (149) (13,019) 8,095 (4,924) (3,565) - (8,489) - - - - - - 5 5 81,482 (149) 81,333 8,095 89,428 (3,565) 5 85,868 94,352 (19,664) - - 6,794 6,794 12 74,700 - - 6,794 6,794 Transactions with owners in their capacity as owners: Cancellation of share rights and options Balance at 30 June 2019 - 94,352 - (12,870) (12) - (12) 81,482 The consolidated statement of changes in equity is to be read in conjunction with the accompanying notes. The Directors note that the 30 June 2020 results include the impact of accounting for AASB 16 Leases, whilst the 30 June 2019 results were prepared under the previous lease accounting standard requirements; refer to notes 2 and 15 for further explanations. ANNUAL REPORT 2020 20 20 2020 Annual Report Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2020 1. INTRODUCTION The financial statements cover Eureka Group Holdings Limited and its subsidiaries (“Eureka”, the “Group” or the “Consolidated Entity”) for the year ended 30 June 2020. Eureka Group Holdings Limited is a company incorporated and domiciled in Australia. Eureka is a for-profit entity for the purposes of preparing the financial statements. The Group’s operations and principal activities comprise ownership and property management of senior independent living communities. The financial report is presented in Australian dollars and all values are rounded to the nearest thousand dollars ($'000) unless otherwise stated. The registered office of the company is Suite 2D, 7 Short St, Southport QLD 4215. The financial report was authorised for issue on 21 August 2020 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 Eureka 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 applied AASB 16 Leases for the first time. The nature and effect of the changes as a result of adoption of this new accounting standard is described below. Other new accounting standards, amendments to accounting standards, and interpretations have been published that are not mandatory for the current reporting period and are not expected to have a material impact on the Group’s future financial reporting. AASB 16 Leases The new standard is effective for annual periods beginning on or after 1 January 2019. Details of the impact of this adoption on the Group’s consolidated financial statements are described below. The Group has adopted AASB 16 using the modified retrospective approach whereby the Group has recognised the cumulative effect of initially applying this standard as an adjustment to the opening balance of equity as at 1 July 2019. Accordingly, the Group has not restated comparative balances in this set of financial statements. AASB 16 sets out the principles for the recognition, measurement, presentation and disclosure of leases and requires lessees to account for leases under a single on-balance sheet model similar to the accounting for finance leases under AASB 117 Leases. The standard includes two recognition exemption for leases – lease of “low-value” assets and leases with a lease term of 12 months or less. Under AASB 16, a contract is a lease or contains a lease if the contract conveys the right to contract the use of an identified asset for a period of time in exchange for consideration. The distinction between finance and operating leases is eliminated for lessees Both finance leases and operating leases will result in the recognition of a right-of-use asset and a corresponding lease liability on the balance sheet. The ROU assets for these leases were measured on a retrospective basis as of lease commencement date and the assets depreciated on a straight-line basis over the term of each lease. The associated liabilities were measured at the present value of the remaining lease payments, discounted using the lessee’s incremental borrowing rate at 1 July 2019. 21 ANNUAL REPORT 2020 21 2020 Annual Report Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2020 On transition, the Group elected to apply the following practical expedients: • • • • • Application of a single incremental borrowing rate to a portfolio of leases with reasonably similar characteristics; Application of the short-term lease exemption to leases with a lease term that ends within 12 months of the date of initial application; Application of the low value assets exemption for assets with a value less than $5,000; Excluding initial direct costs from the measurement of the ROU asset at the date of initial application; and Use of hindsight in determining the lease term if the contract contains options to extend or terminate the lease. Right of Use (ROU) assets The Group recognises ROU assets at the commencement date of the lease i.e. the date the underlying asset is available for use. ROU assets are initially measured at cost, comprised of the initial measurement of the related lease liability, any lease payments made at or before the commencement of the contract, less any lease incentives received, any initial direct costs and any restoration costs. Subsequently the asset is measured at cost less any accumulated depreciation and impairment losses and adjusted for certain re-measurements of the lease liability. ROU assets are depreciated over the shorter period of either the useful life of the underlying asset or the lease term. Lease liabilities The lease liability is initially measured at the present value of the lease payments that are not paid at commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Group’s incremental borrowing rate. Generally, the Group uses its incremental borrowing rate as the discount rate. The lease liability is subsequently increased by the interest cost on the lease liability and decreased by lease payments made. It is re-measured when there is a change in future lease payments arising from a change in an index or rate, or as appropriate, changes in the assessment of whether an extension option is reasonably certain to be exercised. Key judgements and estimates in applying AASB 16 The Group has applied judgement to determine the lease term for some lease contracts in which it is a lessee that include renewal options. The assessment of whether the Group is reasonably certain to exercise such options impacts the lease term, which affects the measurement of the lease liabilities and ROU assets recognised. The incremental borrowing rate is the estimated rate of the interest that the Group would have to pay to borrow over a similar term, and with a similar security, the funds necessary to obtain an asset of a similar value to the right of use asset in a similar economic environment. Depreciation of ROU assets is calculated using the straight-line method to allocate their costs, net of their residual value, over their estimated useful lives being the lesser of the remaining lease term or the life of the underlying asset. Sub-leases The Group’s sub-leases continue to be classified as operating leases and expensed on a straight-line basis over the term of the lease. Leases The Group has lease contracts for various items of equipment and property. On adoption of AASB 16, the Group recognised lease liabilities in relation to these leases which had previously been classified as ‘operating leases’ under the principles of AASB 117. These liabilities were measured at the present value of remaining lease payments, discounted using the lessee’s incremental borrowing rate as on 1 July 2019. The weighted average incremental borrowing rate applied to the lease liabilities on 1 July 2019 was 4.18%. The lease liabilities as at 1 July 2019 can be reconciled to the operating lease commitments disclosed as at 30 June 2019 as follows: Operating lease commitments as at 30 June 2019 Discounted using the incremental borrowing rate Add: other lease commitment Less: low-value leases not recognised Lease liabilities as at 1 July 2019 (under AASB 16) $’000 1,385 1,008 56 (35) 1,029 ANNUAL REPORT 2020 22 22 2020 Annual Report Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2020 The associated ROU assets for leases were measured on a retrospective basis as if the AASB 16 standard had been applied since the lease commencement date, discounted using the lessee’s incremental borrowing rate at the date of initial application. Consequently, lease liabilities exceeded the ROU assets’ carrying amount on 1 July 2019 by $0.15 million which has been adjusted in retained earnings on 1 July 2019. Effect of adoption of AASB 16 The following table summarises the impact on transition to AASB 16 on 1 July 2019: Assets Right of use assets Total assets Liabilities Other financial liabilities Total liabilities Net assets Equity Share capital Retained earnings Total equity 30 June 2019 $’000 Adjustment on adoption of AASB 16 $’000 1 July 2019 $’000 - 133,072 49,490 51,590 81,482 94,352 (12,870) 81,482 880 880 1,029 1,029 149 - (149) (149) 880 133,952 50,519 52,619 81,333 94,352 (13,019) 81,333 The application of AASB 16 has no cash effect to the Group and the changes are for financial reporting purposes only. As a result of initially applying AASB 16, for the leases that were previously classified as operating leases, the Group recognised $0.88 million of right of use assets and $1.03 million of lease liabilities in the consolidated statement of financial position on 1 July 2019. The lease term and amount were modified on two of the ROU assets during the year 30 June 2020. Refer to note 15. Each lease payment is now allocated between the liability and the finance cost. Previously, lease payments were expensed in full to the profit or loss. The finance cost is now charged over the lease period, from transition date, so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The ROU asset is depreciated over the lease term, from lease commencement date, on a straight-line basis. During the year ended 30 June 2020, the Group recognised $0.22 million of depreciation charges and $0.05 million of interest costs from these leases. The adoption of AASB 16 has impacted the consolidated statement of cash flows with the reclassification of the lease liability portion of the lease payments from operating to financing activities. Payments associated with short-term leases and leases of low-value assets are recognised on a straight-line basis as an expense in the consolidated statement of profit or loss. Short-term leases are leases with a lease term of 12 months or less. Low-value assets comprise of office equipment. 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 2020 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. ANNUAL REPORT 2020 23 23 2020 Annual Report Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2020 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. BUSINESS COMBINATIONS The acquisition method of accounting is used to account for business combinations regardless of whether equity instruments or other assets are acquired. The consideration transferred is the sum of the acquisition-date fair values of the assets transferred, equity instruments issued or liabilities incurred by the acquirer to former owners of the acquiree and the amount of any non-controlling interest in the acquiree. For each business combination, the non-controlling interest in the acquiree is measured at either fair value or at the proportionate share of the acquiree's identifiable net assets. All acquisition costs are expensed as incurred to profit or loss. On the acquisition of a business, the 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. 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. ANNUAL REPORT 2020 24 24 2020 Annual Report Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2020 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 income tax expense, 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 and other receivables are recognised initially at original invoice amount, and subsequently adjusted for Expected Credit Loss (ECL). An ECL allowance is recognised by analysing the age of outstanding balances and applying historical default percentages. Historical loss rates are adjusted to reflect forward-looking observable data affecting the ability of customers to settle debts. INVESTMENT PROPERTY Investment property comprises land and/or buildings held to earn rental income and/or for capital appreciation. In accordance with applicable accounting standards, the buildings, including plant and equipment, are not depreciated. Investment property is initially measured at cost, including transaction costs. Subsequent to initial recognition, investment property is stated at fair value, which reflects market conditions at the reporting date. Gains or losses arising from changes in the fair values of investment property are recognised in profit or loss in the period in which they arise. Transfers are made to (or from) investment property only when there is a change in use. For a transfer from investment property to owner-occupied property, the deemed cost for subsequent accounting is the fair value at the date of change in use. If owner-occupied property becomes an investment property, the Group accounts for such property in accordance with the policy stated under property, plant and equipment up to the date of change in use. 25 ANNUAL REPORT 2020 25 2020 Annual Report Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2020 Transfers are made to (or from) investment property to inventory only when there is a change in use. For a transfer from investment property to inventory, the deemed cost for subsequent accounting is the fair value at the date of change in use. If inventory becomes an investment property, the Group accounts for it in accordance with the policy stated under inventory up to the date of change in use. Transfers are made to (or from) investment property from intangibles only when there is a change in use in the underlying asset. For a transfer from investment property to intangibles, the deemed cost for subsequent accounting is the fair value at the date of change in use. If an intangible (management rights) becomes an investment property, the Group accounts for it in accordance with the policy stated under intangibles up to the date of change in use. 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. 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. 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. Upon loss of significant influence over the joint control, 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 Plant and equipment Rate 6-33% Method Straight-line or Diminishing value Buildings 2.5% Straight-line ANNUAL REPORT 2020 26 26 2020 Annual Report Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2020 INTANGIBLE ASSETS Only intangible assets that have been purchased or paid for by the Group are recognised in the accounts. Management rights have a finite life and are carried at the lower of cost less accumulated amortisation and accumulated impairment losses and are tested annually for impairment. The management rights are amortised using the straight-line method over their estimated useful life. If the contractual or other legal rights of the management rights can be renewed, the useful life of the intangible asset includes the renewal period if there is evidence to support renewal by the entity without significant cost. Otherwise the management rights are amortised over the life of the contract. Intangible assets with finite lives are amortised over the useful economic life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation method for an intangible asset with a finite useful life are reviewed at least at the end of each reporting period. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are considered to modify the amortisation period or method, as appropriate, and are treated as changes in accounting estimates. The amortisation expense on intangible assets with finite lives is recognised in the statement of profit or loss in the expense category that is consistent with the function of the intangible assets. 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 website development which is amortised using the straight-line method over 3-10 years being the estimated useful life. 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 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, 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. ANNUAL REPORT 2020 27 27 2020 Annual Report Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2020 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 Current and non-current financial assets and liabilities within the scope of AASB 9 are classified as fair value through profit or loss, fair value through other comprehensive income or amortised cost. The Group determines the classification of its financial assets and liabilities at initial recognition with the classification depending on the purpose for which the asset or liability was acquired or issued. Financial assets and liabilities are initially recognised at fair value plus directly attributable transaction costs, unless their classification is at fair value through profit or loss. They are subsequently measured at fair value or amortised cost using the effective interest method. 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 it relates. 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. 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. ANNUAL REPORT 2020 28 28 2020 Annual Report Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2020 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 not expected to 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). 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. 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 loans do not meet the solely payments of principal and interest criteria. 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. 29 ANNUAL REPORT 2020 29 2020 Annual Report Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2020 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 use or sale, subsequent finance costs are expensed when incurred. All other finance costs are expensed when incurred. GOODS AND SERVICES TAX Revenues, expenses and assets are recognised net of the amount of goods and services tax (GST), except where the amount of GST incurred is not recoverable from the taxation authority, it is recognised as part of the cost of acquisition of an asset or as part of an item of expense. Receivables and payables are recognised inclusive of GST. The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables. LEASES The Group assesses at contract inception whether a contract is, or contains, a lease. That is, if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Group as a lessee The Group applies a single recognition and measurement approach for all leases, except for short-term leases and leases of low-value assets. The Group recognises lease liabilities to make lease payments and right-of-use assets representing the right to use the underlying assets. i) Right-of-use assets The Group recognises right-of-use assets at the commencement date of the lease (i.e. the date the underlying asset is available for use). Right-of-use assets are measured at cost, less any accumulated depreciation and impairment losses and adjusted for any remeasurement of lease liabilities. The cost of right-of-use assets includes the amount of lease liabilities recognised, initial direct costs incurred, and lease payments made at or before the commencement date less any lease incentives received. Right-of-use assets are depreciated on a straight-line basis over the shorter of the lease term and the estimated useful lives of the assets. If ownership of the leased asset transfers to the Group at the end of the lease term or the cost reflects the exercise of a purchase option, depreciation is calculated using the estimated useful life of the asset. The right-of-use assets are also subject to impairment. Refer to the accounting policy on Impairment of non-financial assets. ii) Lease liabilities At the commencement date of the lease, the Group recognises lease liabilities measured at the present value of lease payments to be made over the lease term. The lease payments include fixed payments (including in substance fixed payments) less any lease incentives receivable, variable lease payments that depend on an index or a rate, and amounts expected to be paid under residual value guarantees. The lease payments also include the exercise price of a purchase option reasonably certain to be exercised by the Group and payments of penalties for terminating the lease, if the lease term reflects the Group exercising the option to terminate. Variable lease payments that do not depend on an index or a rate are recognised as expenses in the period in which the event or condition that triggers the payment occurs. In calculating the present value of lease payments, the Group uses its incremental borrowing rate at the lease commencement date where the interest rate implicit in the lease is not readily determinable. After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made. In addition, the carrying amount of lease liabilities is remeasured if there is a modification, a change in the lease term, a change in the lease payments (e.g. changes to future payments resulting from a change in an index or rate used to determine such lease payments) or a change in the assessment of an option to purchase the underlying asset. The Group’s lease liabilities are included in Financial liabilities. iii) Short-term leases and leases of low-value assets The Group applies the short-term lease recognition exemption to its short-term leases of plant and equipment (i.e. leases that have a lease term of 12 months or less from the commencement date and do not contain a purchase option). It also applies the lease of low-value assets recognition exemption to leases of office equipment that are considered to be low value. Lease payments on short-term leases and leases of low value assets are recognised as expense on a straight-line basis over the lease term. ANNUAL REPORT 2020 30 30 2020 Annual Report Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2020 Group as a lessor Leases in which the Group does not transfer substantially all the risks and rewards incidental to ownership of an asset are classified as operating leases. Rental income arising is accounted for on a straight-line basis over the lease terms and is included in revenue in the statement of profit or loss due to its operating nature. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognised over the lease term on the same basis as rental income. Contingent rents are recognised as revenue in the period in which they are earned. 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 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 asset disposals 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. Information about significant areas of estimation uncertainty and critical judgements in applying accounting policies that have the most significant effect on the amount recognised in the financial statements are: 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 selling 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) Valuations undertaken by accredited external independent valuers; b) Acquisition price paid for the property; c) 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 d) Capitalised income projections based upon a property’s estimated maintainable earnings and capitalisation rate. 31 ANNUAL REPORT 2020 31 2020 Annual Report Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2020 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. The returns from the Group’s investment property include rental income and income from provision of ancillary services, including 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 assessing qualitative factors, which include both operational and legislative considerations, and quantitative factors, which includes comparing: • • the fair value of the ancillary services to the total income generated from the property; and the profit generated from ancillary services to the total profit generated from the property Properties that do not meet this criteria are classified as property, plant and equipment. Inventory Inventory consists of property being sold as part of a capital disposal program and is valued at the lower of cost and net realisable value. Net realisable value is the estimated selling price of the inventory, less estimated costs of completion and the estimated costs necessary to make the sale. Goodwill Goodwill is allocated to the property management cash-generating unit (CGU). The Group tests the carrying value of goodwill on an annual basis to assess for any impairment, or more frequently, if events or changes in circumstances indicate impairment. The recoverable amount of the CGU is 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 their estimated useful life. If the contractual or other legal rights of the management rights can be renewed, the useful life of the intangible asset includes the renewal period if there is evidence to support renewal by the entity without significant cost. Otherwise the management rights are amortised over the life of the contract. For strata-titled villages (where units are individually owned by third parties) where management rights are attached, the Group generally 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 considers the expected usage of the assets, the legal rights over the asset and the renewal period of the management rights agreements. Where there is evidence to support renewal of the management rights, the amortisation period is 40 years, similar to the life of the property the management rights are attached to, otherwise the amortisation period is the term of the management rights agreement. For single-owner villages (where all units in the village are owned by a single third party) where management rights are attached, the 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 it does not own or have any sort of tenure in respect of the managers unit and a single vote of the owner can elect to not renew Eureka’s management rights contract. The amortisation period and the amortisation method for management rights are reviewed at least at the end of each reporting period. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are considered to modify the amortisation period or method, as appropriate. Recovery of Receivables At each reporting date the Group assesses the recoverability of trade, loan and other receivables by reference to the expected future cash flows, the credit worthiness of the borrowers and the value of security provided. For trade and other receivables, the Group applies a simplified approach in calculating expected credit losses (ECLs). Therefore, the Group does not track changes in credit risk, but instead recognises a loss allowance based on lifetime ECLs at each reporting date. ANNUAL REPORT 2020 32 32 2020 Annual Report Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2020 Non-Current Amount Receivable and Associated 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. Should these options not be exercised and this asset revert back to a receivable it will be assessed for impairment as a loan receivable at that point in time. Refer to Note 9 for significant assumptions made in the assessment of impairment for this asset. Bartercard Bartercard assets are initially recorded at cost. At each balance date an assessment is made of the cash equivalent value obtainable on the expenditure of Bartercard. If this value exceeds cost, no adjustment is made, however if the cash price equivalent is less than cost, an impairment charge is made to this asset. 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 and income tax losses. These assets are only recognised if the Group considers it probable that future taxable amounts will be available to utilise those temporary difference assets. Judgement is required in assessing the availability of income tax losses primarily involving the satisfaction by the relevant Group entities of legislative requirements at each reporting date by the Group including for certain years satisfaction of the “Same Business Test” as defined in S.165-210 of the Income Tax Assessment Act 1997. 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. 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 significant unobservable inputs as disclosed in Note 24. Leases - Estimating the incremental borrowing rate The Group cannot readily determine the interest rate implicit in the lease, therefore, it uses its incremental borrowing rate (IBR) to measure lease liabilities. The IBR is the rate of interest that the Group would have to pay to borrow over a similar term, and with a similar security, the funds necessary to obtain an asset of a similar value to the right-of-use asset in a similar economic environment. The IBR therefore reflects what the Group ‘would have to pay’, which requires estimation when no observable rates are available (such as for subsidiaries that do not enter into financing transactions) or when they need to be adjusted to reflect the terms and conditions of the lease (for example, when leases are not in the subsidiary’s functional currency). The Group estimates the IBR using observable inputs (such as market interest rates) when available and is required to make certain entity-specific estimates (such as the subsidiary’s stand-alone credit rating). 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 32. 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. 33 ANNUAL REPORT 2020 33 2020 Annual Report Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2020 3. REVENUE Rental income 16,874 15,847 Consolidated 30 June 2020 $’000 30 June 2019 $’000 Revenue from contracts with customers Catering – managed properties Catering – owned properties Total catering income Service fees Caretaking fees Total service and catering fees 1,544 2,679 4,223 2,822 890 3,712 1,602 2,655 4,257 2,334 798 3,132 Total revenue from contracts with customers 7,935 7,389 Total revenue 24,809 23,236 Other Income Gain on sale of inventory1 Gain on sale of investment property Gain on sale of intangibles Other income Total other income 1 Refer to note 7 for further information. Disaggregation of revenue from contracts with customers The Group derives revenue from the transfer of goods and services over time and at a point in time in Australia. Timing of revenue recognition At a point in time Over time Total 1,031 3 - 189 1,223 - - 69 32 101 30 June 2020 $’000 30 June 2019 $’000 4,223 3,712 7,935 4,257 3,132 7,389 ANNUAL REPORT 2020 34 34 2020 Annual Report Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2020 4. ITEMS INCLUDED IN PROFIT Profit before income tax expense includes the following specific items: Finance cost - Interest and finance charges paid/payable for financial liabilities not at fair value through profit or loss Total finance cost Depreciation - Plant & equipment - Buildings - Motor vehicles - Right of use assets Total depreciation Amortisation - Management rights - Rent rolls - Other Total amortisation Total depreciation and amortisation Defined contribution superannuation expense Consolidated 30 June 2020 $’000 30 June 2019 $’000 2,508 2,508 2,766 2,766 39 33 10 216 298 285 3 5 293 591 451 50 17 7 - 74 146 3 2 151 225 393 Employee expenses 3,027 2,327 5. INCOME TAX The major components of income tax expense for the years ended 30 June 2020 and 2019 are: Consolidated Statement of Profit or Loss Current income tax Deferred income tax Income tax expense reported in the Statement of Profit or Loss Consolidated 30 June 2020 $’000 30 June 2019 $’000 - 980 980 - - - 35 ANNUAL REPORT 2020 35 2020 Annual Report Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2020 A reconciliation of income tax expense and the profit before tax multiplied by the applicable tax rate of 30% is as follows: Profit before tax Income tax calculated at 30% Tax effect of permanent differences Recognition of net deferred tax assets not previously recognised Income tax expense reported in the Statement of Profit or Loss Recognised in the Statement of Financial Position Deferred tax assets Tax losses - revenue Net (assessable) and deductible differences on sundry items Deferred tax liabilities Investment properties, property, plant and equipment Net deferred tax liability Not recognised in the Statement of Financial Position Unrecognised deferred tax assets Tax losses - capital Tax losses - revenue Net (assessable) and deductible differences on sundry capital 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 2020 $’000 30 June 2019 $’000 9,075 6,794 2,722 2,038 (20) (1,722) 980 - (2,038) - Consolidated 30 June 2020 $’000 30 June 2019 $’000 8,665 167 (9,812) (980) 968 - 504 1,472 1,828 (1,828) 1,472 (356) 1,472 7,122 945 (8,067) - - 1,828 - 1,828 4,205 - (2,774) 397 (2,377) 1,828 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, including for certain years satisfaction of the “Same Business Test” as defined in S.165-210 of the Income Tax Assessment Act 1997; the Group earns taxable income in future periods; and applicable tax laws are not changed, causing the losses to be unavailable. ANNUAL REPORT 2020 36 36 b. c. 2020 Annual Report Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2020 6. TRADE AND OTHER RECEIVABLES Trade receivables Other debtors Consolidated 30 June 2020 $’000 30 June 2019 $’000 192 124 316 88 303 391 Trade receivables are non-interest bearing unless otherwise stated and are generally on 30 day terms. Expected credit loss was considered not material during the year. 7. INVENTORY Balance at beginning of reporting period Additions – Terranora units Disposals – Terranora units Disposals – Couran Cove units Transfer to investment properties Balance at end of reporting period Current Non-current Consolidated 30 June 2020 $’000 30 June 2019 $’000 9,215 463 (4,798) - - 4,880 3,778 1,102 4,880 11,783 412 (380) (2,000) (600) 9,215 9,215 - 9,215 Inventory comprises of property being sold as part of the Group’s capital disposal program. At 30 June 2020, the Group’s inventory balance comprises unit properties at Terranora NSW. During the year, 27 units at Terranora were sold for total consideration of $6.39 million (which comprised of $0.65 million in Bartercard and the balance in cash). The Bartercard received had a face value of $0.93 million, however has been recorded at its assessed fair value of $0.65 million on initial recognition. The total gain on the sale of units was $1.03 million, consisting of total consideration of $6.39 million less associated costs of $5.36 million. The costs of development at Terranora are capitalised to the inventory as incurred. Current inventory is expected to be realised within 12 months via sales to third parties. Non-current inventory is expected to be realised within two years via sales to third parties. The sale of the Couran Cove units was completed in the prior year. 37 ANNUAL REPORT 2020 37 2020 Annual Report Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2020 8. LOANS RECEIVABLE Vendor finance 1 McIntosh Loan 2 West Cabin Loan 3 Current Non-current Consolidated 30 June 2020 $’000 30 June 2019 $’000 434 - 315 749 396 353 749 486 306 320 1,112 698 414 1,112 1 2 3 The Group acquired a loan book as part of the purchase of Elizabeth Vale Scenic Village Pty Ltd in 2015. Security for the loans consists of a first ranking mortgage over the property to which the loan pertains. The loans have maturity dates of between 2.7 and 3.8 years and interest is payable on these loans at a rate of between 5.50%-6.25% per annum. The McIntosh loan (refer Note 28) was repaid in full during the year. The West Cabin Loan is a secured loan to CCH Developments No 1 Pty Ltd (CCH) in its personal capacity and as trustee of the CCH Developments No 1 Trust for $0.32 million. No interest accrues on this loan. The loan is secured by a real property mortgage over two existing cabins owned by CCH and is guaranteed by Onterran Ltd (Onterran) and Mr Lachlan McIntosh in his personal capacity. Mr McIntosh was a director of Eureka until 31 December 2019, is the Executive Chairman of Onterran Ltd and a director of CCH. Recourse against CCH in respect of the loan is limited to the two existing cabins. The loan is expected to be repaid upon settlement of the sale contracts for the two cabins held as security against the loan. Eureka has reserved its rights under the loan agreement and the security. The Directors consider that the amount owed is recoverable, due to the validity and enforceability of the real property mortgages held by Eureka and the personal guarantee provided by Mr McIntosh. 9. OTHER ASSETS Current Prepayments and other assets 1 Bartercard 2 Non-current Bartercard 2 Other 3 Consolidated 30 June 2020 $’000 30 June 2019 $’000 450 300 750 1,635 1,050 2,685 409 1,055 1,464 - 1,237 1,237 ANNUAL REPORT 2020 38 38 2020 Annual Report Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2020 1 Amounts included relate to prepaid expenses and deposits for assets. 2 Bartercard is an alternative currency and operates as a trade exchange. The Group has utilised Bartercard in the current reporting period and in recent years. At 30 June 2020, the Bartercard carrying value was $1.94 million (2019: $1.76 million comprising $1.05 million in Other assets and $0.71 million in Investment Property). During the year, the Group received Bartercard valued at $0.65 million from the sale of Terranora units, expended $0.12 million and recorded an impairment expense of $0.35 million on the remaining Bartercard balance. Amounts classified in current is based on expected utilisation of Bartercard in the next 12 months. 3 A loan to CCH Developments No 1 Pty Ltd (CCH) secured by a real property mortgage over land owned by CCH relating to 60 proposed cabin sites at Couran Cove, Qld. This loan is guaranteed by Onterran Ltd (Onterran). No interest accrues on this loan. Eureka has a right of first refusal to purchase the proposed cabin sites for $50,000 per site. The purchase price is to be paid by way of set off against the loan on settlement. The right can be exercised until the repayment date for the loan, which is 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. Although the intention is to recover this loan in full, the directors have assessed its fair value to be $1.05 million at 30 June 2020 (2019: $1.24 million). An additional impairment expense of $0.19 million has been recorded in the year ended 30 June 2020 (2019: $nil). Fair value hierarchy disclosures for the land options have been provided in Note 24. Total impairment on other assets of $0.54 million includes impairment for Bartercard $0.35 million and land option of $0.19 million. 10. NON-CURRENT ASSETS HELD FOR SALE Current Non-current assets held for sale Consolidated 30 June 2020 $’000 30 June 2019 $’000 483 483 519 519 The balance at 30 June 2020 comprised two managers’ units in Village Life Caboolture. The sale of two residential houses in Mt Gambier was completed during the year for a total consideration of $0.54 million. 39 ANNUAL REPORT 2020 39 2020 Annual Report Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2020 11. INVESTMENT IN SUBSIDIARIES Country of Incorporation Comptons Caboolture Pty Ltd Comptons 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 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 Liberty Villas Pty Ltd1 Eureka Living Pty Ltd Eureka Property Pty Ltd Eureka Whitsunday Pty Ltd Fig Investments Pty Ltd Rockham Two Pty Ltd SCV Leasing Pty Ltd SCV Manager Pty Ltd SCV No. 1 Pty Ltd The Trustee for Rockham Unit Trust 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 Equity Holding 30 June 2020 % 100% 30 June 2019 % 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% 1 Eureka Liberty Villas Pty Ltd was formerly Eureka Care Communities (Mount Gambier 2) Pty Ltd There are no significant restrictions on the Company’s ability to access or use the assets and settle the liabilities of the Group. ANNUAL REPORT 2020 40 40 2020 Annual Report Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2020 12. JOINT VENTURE INVESTMENT The Group has a 50% Joint Venture (JV) interest in each of Affordable Living Services Unit Trust and Affordable Living Unit Trust, a Joint Venture (JV) which owns five 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: Movements in aggregate carrying amount: Opening balance Share of profit from JV1 Cash distribution received Closing balance 30 June 2020 $’000 30 June 2019 $’000 4,661 1,980 (686) 5,955 4,672 712 (723) 4,661 1 Share of profit from JV included a 50% share of the increase in the fair value of the Tasmanian village property assets of $1.09 million (2019: $nil). Summarised statement of financial position of Affordable Living Unit Trust: Current assets, including cash and cash equivalents Non-current assets1 Current liabilities2 Non-current liabilities3 Equity Group’s share in equity – 50% 30 June 2020 $’000 30 June 2019 $’000 172 21,146 (523) (8,885) 11,910 5,955 125 18,844 (483) (9,166) 9,320 4,660 Group’s carrying amount of the investment 5,955 4,660 1 Non-current assets includes investment property of $21.14 million (2019: $18.84 million). 2 Current liabilities includes borrowings of $0.30 million (2019: $0.30 million), repayable within 12 months. 3 Non-current liabilities includes long term borrowings of $8.88 million (2019: $9.16 million). Summarised statement of profit or loss of Affordable Living Unit Trust: Revenue Cost of Sales Finance costs Profit before tax Income tax expense1 Profit for the year Total comprehensive income for the year Group’s share of profit for the year 30 June 2020 30 June 2019 $’000 6,177 (1,908) (335) 3,934 - 3,934 3,934 1,967 $’000 3,611 (1,733) (456) 1,422 - 1,422 1,422 711 1 Eureka and its JV partner are presently entitled to the net income of the trust for tax purposes. As a result, there is no tax payable or expensed in the JV. 41 ANNUAL REPORT 2020 41 2020 Annual Report Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2020 Summarised statement of financial position of Affordable Living Services Unit Trust: Current assets, including cash and cash equivalents Non-current assets Current liabilities Non-current liabilities Equity Group’s share in equity – 50% Group’s carrying amount of the investment 30 June 2020 $’000 30 June 2019 $’000 - - - - - - - 87 3 (88) - 2 1 1 Summarised statement of profit or loss of Affordable Living Services Unit Trust: Revenue Cost of Sales Finance costs Profit before tax Income tax expense1 Profit for the year Total comprehensive income for the year Group’s share of profit for the year 30 June 2020 $’000 30 June 2019 $’000 386 (360) - 26 - 26 26 13 440 (438) - 2 - 2 2 1 1 Eureka and its JV partner are presently entitled to the net income of the trust for tax purposes. As a result, there is no tax payable or expensed in the JV. The joint venture had no contingent liabilities or commitments as at 30 June 2020 (2019: nil). 13. INVESTMENT PROPERTY Consolidated 30 June 2020 $’000 30 June 2019 $’000 Investment properties at fair value 121,443 105,406 Movements in investment properties: Balance at beginning of year Acquisitions 1 Disposals 2 Capital expenditure Transfer of Bartercard deposit to other assets Transfer to non-current assets held for sale Transfer from intangibles – management rights 3 Transfer from inventory – Terranora Manager’s residence Net increment due to fair value adjustment Balance at end of year 105,406 14,667 (1,516) 1,941 (714) (534) 810 - 1,383 121,443 100,756 177 - 1,620 - - - 600 2,253 105,406 ANNUAL REPORT 2020 42 42 2020 Annual Report Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2020 1 Includes the acquisition of a 124-unit rental village in Bundaberg, Qld, acquired on 28 February 2020. 2 During the year, the Group divested its investment in a property located in Bowen, Qld for cash consideration of $1.53 million. The village was sold at market value, based upon an independent external valuation, to an entity related to Mr McIntosh, a director during the year. 3 Management rights held in relation to villages and units that are wholly owned by the Group, for which no external revenue stream exists and which were previously classified as intangibles, have been reclassified to investment property and are included in the fair value of the respective properties. The Group’s investment properties are shown individually in the table below and consist of 25 (2019: 25) retirement village assets along with associated manager’s units and other rental units. The Group considers investment properties reside in one class of asset, being seniors’ rental villages. At 30 June 2020, the Group undertook a review of the fair value of all investment properties held and recorded a net revaluation gain of $1.38 million (2019: $2.25 million). This adjustment related to all assets in the asset class and was based on inputs and assumptions disclosed in Note 24. Four properties were due for an independent external valuation by 30 June 2020 under the Group’s accounting policy and requirements of its financing facility. Due to the outbreak of COVID-19 and visitor restrictions at the villages, these independent valuations have been postponed. A waiver has been received from the Group’s lender to extend the independent valuations due date to 31 December 2020. These four properties have been internally valued using the earnings methodology and capitalisation rates disclosed in Note 24. The recorded fair value of these properties at 30 June 2020 was $7.20 million (2019: $7.12 million). The net change in fair value is recognised in profit or loss in the reporting period in which the assessment is made. Fair value hierarchy disclosures for investment properties have been provided in Note 24. Amounts recognised in profit or loss for investment property: Rental income Catering income Direct operating expenses generating rental and catering income Net gain on revaluation of investment property to fair value Consolidated 30 June 2020 $’000 30 June 2019 $’000 16,874 2,679 (9,894) 1,383 15,847 2,655 (9,982) 2,253 The Group has no restrictions on the realisability of its investment property and has a contractual obligation to complete a solar energy enhancement program. There are no other contractual obligations to either purchase, construct or develop investment properties or for repairs, maintenance and enhancements. Certain assets are pledged as security for borrowings – Refer to Note 19(a). 43 ANNUAL REPORT 2020 43 2020 Annual Report Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2020 Details of investment properties are as follows: Property Location Acquisition date Carrying amount Carrying amount 30 Jun 20 30-Jun-19 $’000 $’000 Ayr QLD Belgian Gardens QLD Bilambil Heights NSW Bowen QLD Broken Hill NSW Bundaberg QLD Bundaberg QLD Caboolture QLD Caboolture QLD Cairns QLD Koinonia Village 92 Primrose Street Belgian Gardens 61 Marana Street Bilambil Heights (Terranora) Bowen Village Broken Hill Village Avenell Village on Vasey Bundaberg 3 Ovens Street Bundaberg Lot 43 134-136 King Street Caboolture (manager’s unit) 80 134-136 King Street Caboolture (manager’s unit) Cascade Gardens Cairns Lot 51 Christie Downs Community Centre (manager’s unit) Christie Downs SA Elizabeth Vale SA Elizabeth Vale Scenic Village 1 Elizabeth Vale SA Elizabeth Vale Scenic Village 2 Frenchville QLD Rockhampton Village 1 Frenchville QLD Rockhampton Village 2 Gladstone QLD 15/8 Wicks Street, New Auckland Gympie QLD Freshwater Villas Hackham SA Lot 49 Hackham Community Centre (manager’s unit) Hackham SA Lot 97 144 Main South Road Hackham Lavington NSW 33 Mardross Court Lavington Lismore NSW Lismore Village Mackay QLD Cascade Gardens Mackay Margate QLD 43 Macdonnell Court Margate Mildura VIC 344 San Mateo Avenue Mildura Mt Gambier SA Mt Gambier 2 Retirement Village Orange NSW Albert Street Gardens Village Salisbury East SA Salisbury Shepparton VIC 60 Poplar Avenue Shepparton Southport QLD 7 Meron Street Southport Tivoli QLD Lot 6,8,9,20,21&22 56A Moores Pocket Road Tivoli Townsville QLD Galilee Lodge Whyalla SA Myall Place Retirement Village Wynnum QLD 40 Federation Street Wynnum Various Investment Property Enhancements Aug-17 Jun-16 Dec-15 Dec-15 Dec-16 Oct-14 Feb-20 May-14 Jan-15 Jul-14 Dec-14 Oct-14 Apr-15 Oct-15 Dec-15 Sep-16 Jul-17 Oct-14 May-15 Jun-15 May-15 Apr-14 Jun-16 Jun-15 Dec-15 Sep-16 Feb-16 Jun-15 Jun-16 Mar-15 Aug-17 Jan-15 Oct-15 Jun-17 1,296 1,469 2,900 - 2,609 5,202 14,017 - - 4,773 301 5,902 4,760 3,810 5,733 50 4,428 266 285 4,741 5,816 9,344 4,866 4,595 3,363 5,724 4,883 4,674 4,261 452 929 4,404 5,590 - 1,260 1,382 2,900 1,543 2,016 5,060 - 268 271 4,680 301 5,662 4,740 3,010 5,520 50 4,400 266 285 4,700 5,657 9,156 4,217 4,550 3,314 5,338 4,094 4,290 4,233 541 922 4,527 5,540 714 121,443 105,406 ANNUAL REPORT 2020 44 44 2020 Annual Report Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2020 14. 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 2020 $’000 30 June 2019 $’000 619 (234) 385 320 (163) 157 81 (29) 52 594 619 (202) 417 302 (124) 178 81 (17) 64 659 Reconciliation of movements in property, plant & equipment: Opening balance at 1 July 2018 Additions at cost Disposals Depreciation expense Closing balance at 30 June 2019 Opening balance at 1 July 2019 Additions at cost Depreciation expense Closing balance at 30 June 2020 Buildings $’000 Plant & Equipment $’000 Motor Vehicle $’000 Total $’000 434 - - (17) 417 417 - (32) 385 211 17 - (50) 178 178 18 (39) 157 37 41 (7) (7) 64 64 - (12) 52 682 58 (7) (74) 659 659 18 (83) 594 45 ANNUAL REPORT 2020 45 2020 Annual Report Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2020 15. RIGHT OF USE ASSETS Right of use assets have arisen upon adoption of AASB 16 Leases from 1 July 2019. Refer to note 2 for further information. Leased property Adjustment on adoption of AASB 16 on 1 July 2019 Modification on leases Depreciation expense Closing balance at 30 June 2020 Leased equipment Adjustment on adoption of AASB 16 on 1 July 2019 Depreciation expense Closing balance at 30 June 2020 Total Right of use assets at 30 June 2020 Income received from sub-leasing right of use assets was $0.03 million for the year. 16. INTANGIBLE ASSETS Management rights – at cost Accumulated amortisation and impairment Net Rent rolls – at cost Accumulated amortisation Net Other intangibles – at cost Accumulated amortisation Net Goodwill Total intangible assets 30 June 2020 $’000 869 58 (213) 714 11 (3) 8 722 Consolidated 30 June 2020 $’000 30 June 2019 $’000 3,547 (1,430) 2,117 140 (49) 91 25 (11) 14 1,955 4,177 4,695 (1,404) 3,291 140 (45) 95 41 (34) 7 1,955 5,348 ANNUAL REPORT 2020 46 46 2020 Annual Report Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2020 The Group’s business activities include the ownership and management (through management rights agreements) of seniors’ rental accommodation throughout Australia. The Group’s intangible assets are management rights and goodwill. These intangible assets were separately classified in accordance with accounting standards following village acquisitions. During the year, management rights held in relation to villages that are wholly owned by the Group, for which no external revenue stream exists and which were previously classified as intangibles, have been reclassified to investment property and are included in the fair value of the respective properties. Impairment tests for Goodwill Goodwill is monitored by the Board of Directors (who are identified as the chief operating decision makers) based upon the net profit of the villages that Eureka manages, after allowing for overhead costs attributable to the management of these villages. Goodwill has been allocated to the property management cash generating unit. The Group tests goodwill for 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 (2019: 2%) to the most recent year's cash flows; the terminal value was calculated using a growth rate of 2% (2019: 2%); cash flows have been discounted using a pre-tax discount rate of 15% (2019: 15%); cash flows do not take into account the management of any new villages; and cash flows are based on historical results and any potential impact of Covid-19. Reconciliation of movements in intangible assets: Management Rights $’000 Rent Rolls $’000 Goodwill $’000 Other intangibles $’000 Total $’000 Opening balance at 1 July 2018 Additions at cost Disposals 1 Amortisation expense Closing balance at 30 June 2019 Opening balance at 1 July 2019 Additions at cost Disposals (cost) Disposals (accumulated amortisation) Impairment expense Transfer to investment property Amortisation expense Closing balance at 30 June 2020 3,437 - - (146) 3,291 3,291 - - - (80) (810) (284) 2,117 98 - - (3) 95 95 - - - - - (4) 91 1,955 - - - 1,955 1,955 - - - - - - 1,955 545 - (536) (2) 7 7 12 (28) 28 - - (5) 14 6,035 - (536) (151) 5,348 5,348 12 (28) 28 (80) (810) (293) 4,177 The remaining amortisation period for the management rights, on a weighted average basis, is 12 years (2019: 12 years). 1 In the prior year, the Group divested of certain trading and operating licences. 47 ANNUAL REPORT 2020 47 2020 Annual Report Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2020 17. TRADE & OTHER PAYABLES Trade creditors and accruals Retirement Village Resident Loans Acquisition related accruals Consolidated 30 June 2020 $’000 30 June 2019 $’000 2,123 2 - 2,125 1,367 98 207 1,672 The carrying amounts of trade and other payables are considered to be the same as their fair value, due to their short term nature. 18. PROVISIONS Current Employee benefits Non-current Employee benefits 19. OTHER FINANCIAL LIABILITIES Current Accrued interest Commercial bills – secured 1 Lease liability 2 Insurance funding Non-current Commercial bills – secured 1 Lease liability 2 Borrowing costs 1 Commercial bills - secured Consolidated 30 June 2020 $’000 30 June 2019 $’000 523 523 73 73 416 416 12 12 Consolidated 30 June 2020 $’000 30 June 2019 $’000 467 - 221 64 752 54,472 646 (234) 54,884 499 1,763 - 110 2,372 47,471 - (353) 47,118 As at 30 June 2020, the Group has access to National Australia Bank (“NAB”) facilities with the following terms: • Maximum limit of $60.00 million (2019: $55.00 million). Interest is payable at a fixed rate of 4.87% on $35.00 million and at variable rates (currently 2.16%) on the remaining drawn amount. A facility fee of 0.90% applies to any undrawn amount. The facility expires on 31 December 2021. Quarterly interest only payments are required. At 30 June 2020, total drawings on the facility were $54.47 million (2019: $47.47 million). ANNUAL REPORT 2020 48 48 2020 Annual Report Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2020 The NAB facilities are secured by a first priority general security over all present and future acquired property. As at 30 June 2020, the Group’s property assets, with a carrying value of $126.81 million (2019: $115.15 million), have been pledged by the Group. The commercial bill facilities are subject to covenants which are commensurate with normal secured lending terms. The Group complied with its covenants throughout the current and prior year. During the year, a commercial loan of $1.76 million previously provided by Westpac Banking Corporation was repaid in full. Interest was payable at a variable rate on this facility. The facility was closed during the year. 2 Lease liabilities have arisen upon adoption of AASB 16 Leases from 1 July 2019. Refer to note 2 for further information. 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 beginning and end of year Consolidated 30 June 2020 Number 230,037,638 30 June 2020 $’000 94,352 30 June 2019 Number 230,037,638 30 June 2019 $’000 94,352 Share Buy Back The Company extended the share buy back period for a further 1 year from 16 March 2020. No ordinary shares were bought back and cancelled during the year (2019: nil). 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 27 for further details of these plans. As at 1 July 2018 Share options and share rights forfeited during the year At 30 June 2019 Share-based payments expense during the year At 30 June 2020 21. DIVIDENDS Cash dividends on ordinary shares declared and paid: Final dividend for 2019: 1.0 cent per share (2018: nil) Interim dividend for 2020: 0.55 cents per share (2019: nil) 49 Share based payments $000 12 (12) - 5 5 30 June 2020 $’000 30 June 2019 $’000 2,300 1,265 3,565 - - - ANNUAL REPORT 2020 49 2020 Annual Report Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2020 Since 30 June 2020, the Board has declared a final dividend of 0.55 cents per share, amounting to $1.27 million payable on 25 September 2020. The record date is 1 September 2020. The financial effect of this dividend has not been brought to account in the financial statements for the year ended 30 June 2020 and will be recognised in subsequent financial reports. 22. CASH FLOW INFORMATION (a) Reconciliation of cash Cash at bank and on hand (b) Reconciliation of profit before tax to net cash flow from operating activities Profit after tax Depreciation and amortisation Gain on revaluation – investment properties and other assets Impairment of intangibles and other assets Share of profit of joint venture Distribution received from joint venture Gain on sale of investment property Gain on sale of intangibles Gain on sale of inventory Loss on sale of property, plant and equipment Non-cash purchases (Increase)/decrease in: - Trade and other receivables - Other current assets - Equity reserve Increase/(decrease) in: - Trade and other payables - Provisions - Other financial liabilities - Deferred tax liability Consolidated 30 June 2020 $’000 30 June 2019 $’000 2,451 3,060 Consolidated 30 June 2020 30 June 2019 $’000 $’000 8,095 591 (1,330) 619 (1,980) 686 (3) - (1,031) - 38 (76) (71) (5) 979 168 (46) 980 6,794 225 (1,953) - (712) 723 - (69) - 3 11 (260) (11) 12 (4) 20 (34) - Net cash flow from operating activities 7,614 4,745 (c) Non-cash investing and financing activities During the year, the Group received Bartercard dollars of $0.65 million (2019: nil) and acquired goods and services of $0.06 million with Bartercard dollars (2019: nil). The Group paid director’s fees and other fees of $0.14 million to Mr McIntosh (2019: $0.13 million) which were offset against the McIntosh loan balance during the year. ANNUAL REPORT 2020 50 50 2020 Annual Report Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2020 23. FINANCIAL INSTRUMENTS Overall policy The Board of Directors has overall responsibility for the establishment and oversight of the risk management framework. The Board of Directors is responsible for developing and monitoring the Group’s risk management policy 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 the Group’s activities. The Group aims to develop a disciplined and constructive control environment in which all employees understand their roles and obligations. a) Credit risk Credit risk is the risk of financial loss to the 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 residents and amounts due from the seniors’ independent living communities in accordance with management agreements in place. Credit risk arises principally from the Group’s cash and cash equivalents, receivables, other assets and loans receivable. Maximum exposure to credit risk Cash and cash equivalents Trade and other receivables Loans receivable Bartercard Other assets Consolidated 30 June 2020 $’000 30 June 2019 $’000 2,451 316 749 1,935 1,050 6,501 3,060 391 1,112 1,055 1,237 6,855 Cash and cash equivalents Deposits of cash are only held with approved banks and financial institutions. The Group 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 counterparty or resident. The Group has a diverse range of counterparties and residents and therefore there is no significant concentration of credit risk with any single counterparty or group of counterparties. Exposure to credit risk is limited with the majority of residents supported by the government pension. The Group has a credit policy under which each new counter party or resident is analysed individually for creditworthiness before the Group enters into a services agreement 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 is 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. The 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 amounts past due as management believes these amounts will be received. 51 ANNUAL REPORT 2020 51 2020 Annual Report Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2020 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 2020 Gross amount receivable $’000 30 June 2019 Gross amount receivable $’000 240 - 9 67 316 391 - - - 391 Loans receivable The Group’s exposure to credit risk arises from the vendor finance loans which were part of the acquisition of Elizabeth Vale Scenic Village Pty Ltd and the West Cabin loan as detailed in Note 8. The vendor finance 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 relation to the loan amount loans receivable. The Group has no concentrations of credit risk that have not been provided for. Loans receivable Current Non-current Consolidated 30 June 2020 Gross amount receivable $’000 30 June 2019 Gross amount receivable $’000 396 353 749 698 414 1,112 Bartercard Bartercard is an alternative currency and operates as a trade exchange. Bartercard is recorded at cost less any accumulated impairment, or at fair value, where Bartercard has been advanced to suppliers in exchange for future supply of goods. Eureka will no longer receive Bartercard dollars. The use of Bartercard dollars to purchase goods and services is actively managed to reduce this exposure. Other assets The Couran Cove option is a right of first refusal for the Group to purchase proposed cabin sites at Couran Cove to offset against a $3.00 million loan receivable from CCH Developments No 1 Pty Ltd. It is secured by a real property mortgage over the proposed cabin sites. Refer Note 9 for further details. 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 has 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 especially in relation to financing of proposed investment property acquisitions. The Group had unused borrowing facilities of $5.53 million at the reporting date. ANNUAL REPORT 2020 52 52 2020 Annual Report Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2020 The tables below show the Group’s financial liabilities classified into relevant maturity groupings based on their contractual maturities. 30 June 2020 Trade and other payables Commercial bills 1 Other financial liabilities Total 30 June 2019 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 2,123 58,201 1,256 61,580 2,123 1,555 185 3,863 - 1,087 100 1,187 - 55,559 128 55,687 - - 843 843 Contractual cash flows $’000 Less than 6 months $’000 Consolidated 6 - 12 months $’000 1 – 2 years $’000 More than 2 years $’000 1,367 55,315 110 56,792 1,367 3,406 110 4,883 - - - 1,110 2,218 48,581 - - - 1,110 2,218 48,581 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. 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. At 30 June 2020, $19.47 million of the Group’s commercial bills are at variable rates while $35.00 million is fixed (refer to Note 19). The Group regularly reviews its interest rate exposure, taking into account potential renewals of existing finance facilities, alternative financing, hedging options and the mix of fixed and variable interest rates. 24. FAIR VALUE MEASUREMENTS Fair value hierarchy Investment properties, other assets (land option) and retirement village resident loans payable are measured at fair value, using a three level hierarchy, based upon 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. 53 ANNUAL REPORT 2020 53 2020 Annual Report Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2020 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. Level 1 $'000 Level 2 $'000 Level 3 $'000 Total $'000 Consolidated – 2020 Assets Other assets – land option Investment property Total assets Liabilities Retirement Village Resident Loans Total liabilities Consolidated – 2019 Assets Other assets – land option Investment property Total assets Liabilities Retirement Village Resident Loans Total liabilities - - - - - - - - - - - - - - - - - - 1,050 121,443 122,493 1,050 121,443 122,493 2 2 2 2 1,237 105,406 106,643 1,237 105,406 106,643 98 98 98 98 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 may be valued using two 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. Valuation processes Independent valuations have been obtained for a number of investment property assets during the year ended 30 June 2020 in accordance with the Group’s accounting policy and were used as the basis for determining their related fair values. Valuer selection criteria include market knowledge, experience and qualifications, reputation, independence and whether professional standards are maintained. Where an independent valuation was not performed on an investment property as at 30 June 2020, management has estimated the fair values by performing internal valuations based upon an income capitalisation method taking into account the most recent external valuation undertaken by an independent valuer. Retirement village resident loans are measured as the ingoing contribution less deductions over time for the period of tenancy as a percentage 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 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 payables. The land option valuation is based on the net present value of the loan over the period it is expected to be realised, using a discount rate of 30%. Given the probability of the loan being realised between 3-5 years, it has been classified as a non- current other asset. ANNUAL REPORT 2020 54 54 2020 Annual Report Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2020 The level 3 assets significant unobservable inputs and sensitivity are as follows: Description Valuation technique Significant unobservable inputs Range (weighted average) Other assets – land option Net present value (NPV) Discount pre-tax rate 2020 30% 2019 35% Time frame of realisation 3 – 5 years 4 years Relationship of unobservable input to fair value A change in the discount rate would result in the following impact on NPV: +5%: NPV decreases by $147,000 (2019: $90,000) - 5%: NPV increases by $178,000 (2019: $119,000) A change in the timeframe for realisation would result in the following impact on NPV: +1 year: NPV decreases by $242,000 (2019: $315,000) - 1 year: NPV increases by $315,000 (2019: $437,000) Investment properties – Retirement Villages Capitalisation method 1 Capitalisation rate 8.25%-11.38% (10.04%) 2 8.25%- 11.00% (10.22%) 2 Capitalisation rate has an inverse relationship to valuation. Stabilised occupancy 87%-100% (95%) 85%-100% (93%) Occupancy has a direct correlation to valuation (i.e. the higher the occupancy, the greater the value). Investment properties – Individual Village Units Direct comparison approach Comparable sales evidence N/A N/A Comparable sales evidence has a direct relationship to valuation. Retirement village resident loans Ingoing contribution less deductions for length of stay Estimated length of stay of residents 1 – 10 years 1– 10 years The longer the length of stay, the lower the value of resident loans. 1 2 Significant changes in any of the significant unobservable valuation inputs under the capitalisation method would result in a significantly lower or higher fair value measurement. Excludes three complexes with a capitalisation rate range of 6% to 6.5% and a village in which National Disability Insurance Scheme services revenue is earned with a capitalisation rate of 16%. 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 9, 13 and 17. 55 ANNUAL REPORT 2020 55 2020 Annual Report Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2020 25. COMMITMENTS AND CONTINGENCIES The Group had no material commitments as at 30 June 2020. The Group has given bank guarantees to various landlords as at 30 June 2020 of $0.05 million (2019: $0.05 million). From time to time Eureka may be subject to various claims and litigation from third parties during the ordinary course of its business. The directors have given consideration to such matters which are, or may, be subject to claims or litigation at year end and, unless specific provisions have been made, are of the opinion that no material contingent liability for such claims exists. 26. EARNINGS PER SHARE Basic earnings per share is determined by dividing profit attributable to the ordinary shareholders by the weighted average number of ordinary shares on issue during the year. Diluted earnings per share is determined by dividing profit attributable to the ordinary shareholders by the weighted average number of ordinary shares and dilutive potential ordinary shares on issue during the year. Net profit after tax used in calculating basic and diluted earnings per share Weighted average number of ordinary shares used in calculating basic earnings per share 30 June 2020 $’000 30 June 2019 $’000 8,095 6,794 #’000 230,038 #’000 230,038 Effects of dilution from share rights1 41 - Weighted average number of ordinary shares & potential ordinary shares used in calculating diluted earnings per share 230,079 230,038 Basic earnings per share Diluted earnings per share 3.52 cents 3.52 cents 2.95 cents 2.95 cents 1 The share rights (refer to Note 27) are unquoted securities. Conversion to ordinary shares and vesting to executives is subject to performance and service conditions. There have been no other transactions involving ordinary shares or potential ordinary shares between the reporting date and the date of authorisation of these financial statements. 27. SHARE BASED PAYMENTS During the period ended 30 June 2020 the following equity instruments were issued: Share rights The Company has a long term incentive (LTI) plan pursuant to which share rights were granted to key management personnel during the year, subject to service and performance conditions. A total of 429,362 share rights were issued during the year (2019: nil) with an exercise price of $nil (2019: $nil). The share rights vest on 30 September 2022, subject to the satisfaction of performance and service conditions. 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. The fair value of the share rights is estimated at the grant date using the Black Scholes 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. 2 0 2 0 Annual Report ANNUAL REPORT 2020 56 56 Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2020 Options During the prior year, 500,000 options granted to the former Chief Financial Officer lapsed as a result of his resignation. Share based payment expense 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 Movements during the year 30 June 2020 $’000 30 June 2019 $’000 5 5 (12) (12) The following table illustrates the number and weighted average exercise prices (WAEP) of, and movements in, share rights during the year: Share rights 30 June 2020 Number 2020 WEAP 30 June 2019 Number 2019 WAEP Outstanding at the beginning of the year Granted during the year Forfeited during the year Outstanding at the end of the year - 429,362 - 429,362 - - - - 319,375 - (319,379) - - - - - The following table illustrates the number and weighted average exercise prices (WAEP) of, and movements in, share options during the year: Options 30 June 2020 Number 2020 WEAP 30 June 2019 Number 2019 WEAP Outstanding at the beginning of the year Granted during the year Forfeited during the year Outstanding at the end of the year - - - - - - - - 500,000 $0.33 - (500,000) - - - - No options were issued during the year or outstanding at 30 June 2020. The following table list the inputs to the model used to value the share rights issued during the year: Grant date Expiry date Share price at grant date ($) Exercise price ($) Fair value of right ($) Dividend yield (%) Expected volatility (%) Risk-free interest rate (%) Expected life of share rights (years) Model used 2020 Share rights 27 May 2020 30 September 2024 0.315 0.00 0.28 3.5 32.15 0.26 4.35 Black Scholes The expected volatility reflects the assumption that the historical volatility over the last 12 months will be an indication of the expected future volatility of the company’s share price, which may not necessarily be the actual outcome. 57 ANNUAL REPORT 2020 57 2020 Annual Report Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2020 28. RELATED PARTY TRANSACTIONS (a) Key management personnel compensation Short term employee benefits Post-employment benefits Other employee benefits Total Consolidated 30 June 2020 30 June 2019 $’000 $’000 1,110 86 5 1,201 824 57 (12) 869 Detailed disclosures relating to key management personnel are set out in the remuneration report within the Directors' Report. (b) Other transactions with related parties (i) Sales and purchases The following table shows the income earned, expenses incurred and balances arising from related party transactions during the year: Sales to/(purchases from) related parties Amounts owed by/(to) related parties 1 30 June 2020 $’000 30 June 2019 $’000 30 June 2020 $’000 30 June 2019 $’000 282 13 (26) (50) 262 23 (51) (33) 24 - - - 29 - - (33) Joint venture Management fees Director-related entities 2 Management fees Rent (manager’s units) Consulting fees 1 The amounts are classified as trade receivables and trade payables, respectively. 2 The Group transacted with parties related to a director, Mr Lachlan McIntosh, during the year. Mr McIntosh ceased to be a director and related party on 31 December 2019 and as such no transaction or balance date amounts for the period after 31 December 2019 are disclosed. All transactions were made on commercial terms and conditions and at market rates. Outstanding balances are unsecured and are repayable in cash. (ii) Loan to a director, Mr McIntosh Balance at beginning of reporting period Loans advanced Loan repayments received 1 Net interest charged Balance at end of reporting period Consolidated 30 June 2020 $’000 30 June 2019 $’000 306 - (319) 13 - - 350 (61) 17 306 1 Loan repayments included director’s fees and other fees of $0.14 million (2019: $0.13 million) which were offset against the loan balance during the year. Mr McIntosh has provided a personal guarantee in respect to the West Cabin Loan. Refer to Note 8 for further details. ANNUAL REPORT 2020 58 58 2020 Annual Report Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2020 (iii) Lease liabilities associated with right of use assets provided by related parties As a result of the application of AASB 16 Leases, the Group recognised lease liabilities associated with right of use assets provided by related parties. The Group is the lessee for leases associated with two managers’ units in entities associated with Mr McIntosh. As Mr McIntosh ceased to be a director and related party at 31 December 2019, there are no lease liabilities associated with right of use assets provided by related parties at 30 June 2020. (iv) Other material transactions with director related entities During the year, the Group divested its investment in a property located in Bowen, Qld for $1.53 million. The property was sold at market value, based upon an independent external valuation, to an entity related to Mr McIntosh. 29. ULTIMATE PARENT ENTITY The parent entity within the group is Eureka Group Holdings Limited, which is the ultimate parent entity within Australia. 30. OPERATING SEGMENTS Identification of reportable operating segments and principal services The Group is organised into two operating segments located in Australia: Rental Villages – ownership of seniors’ rental villages; and Property Management - management of seniors’ independent living communities. • • The operating segments have been identified based upon reports reviewed by the Board of Directors, who are identified as the chief operating decision makers and 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. 59 ANNUAL REPORT 2020 59 2020 Annual Report Rental Villages 1 $’000 Property Management 2 Unallocated 3 $’000 $’000 Total $’000 Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2020 Cash flows are not measured or reported by segment. Consolidated - 30 June 2020 Revenue Interest revenue Other income 21,426 3,383 - 50 - - Total revenue and other income 21,476 3,383 Expenses Interest expense Total operating expenses Net gain/(loss) on change in fair value of: Investment property Other assets Share of profit of a joint venture Impairment of intangibles and other assets Total other items Profit/(loss) before income tax expense Income tax (expense)/benefit Profit/(loss) after income tax expense Segment Assets Segment Liabilities Non-cash and other significant items included in profit: Gain on revaluation of investment property Loss on revaluation of other assets Impairment of intangibles and other assets Depreciation & amortisation Amortisation of borrowing costs Share of profit of joint venture (9,894) (2,460) (12,354) 1,383 (53) 1,980 - 3,310 12,432 (3,730) 8,702 129,236 60,131 1,383 (53) - (82) (207) 1,980 (2,222) (45) (2,267) - - - (80) (80) 1,036 (311) 725 4,977 1,393 - - (80) (380) - - - 36 1,173 1,209 (5,060) (3) (5,063) - - - (539) (539) (4,393) 3,061 (1,332) 10,992 (2,187) - - (539) (129) - - 24,809 36 1,223 26,068 (17,176) (2,508) (19,684) 1,383 (53) 1,980 (619) 2,691 9,075 (980) 8,095 145,205 59,337 1,383 (53) (619) (591) (207) 1,980 ANNUAL REPORT 2020 60 60 2020 Annual Report Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2020 Consolidated - 30 June 2020 Segment acquisitions: Rental Villages $’000 Property Management $’000 Unallocated $’000 Total $’000 Acquisition of property, plant and equipment Acquisition and subsequent expenditure of investment property Additions to inventory - 16,608 - - - - 18 - 463 18 16,608 463 1 Rental villages includes the investment in the Joint Venture. 2 Property management includes management rights. 3 Unallocated includes Terranora inventory and the profit on sale of units, Couran Cove and other loans receivable, Bartercard, cash, support office costs and corporate overheads. Segment liabilities include a deferred tax asset which is netted off against deferred tax liabilities in the Group balance sheet. Consolidated - 30 June 2019 Revenue Interest revenue Other income Rental Villages $’000 Property Management $’000 19,866 3,370 - 10 - - Total revenue and other income 19,876 3,370 Unallocated $’000 Total $’000 (2,177) - (4,340) - (2,177) (4,340) Expenses Interest expense Total operating expenses Net gain on change in fair value of: Investment property Other assets Share of profit of a joint venture Total other items Profit/(loss) before income tax expense Income tax expense Profit/(loss) after income tax expense Segment Assets Segment Liabilities Non-cash and other significant items included in profit: Gain on revaluation of investment property Depreciation & amortisation Amortisation of borrowing costs Loss on revaluation of other assets Share of profit of joint venture (9,982) (2,766) (12,748) 2,253 (300) 712 2,665 9,793 - 9,793 112,283 51,131 2,253 (74) (232) (300) 712 61 - - - - 1,193 - 1,193 5,892 104 - (151) - - - - 57 91 148 - - - - (4,192) - (4,192) 14,897 355 23,236 57 101 23,394 (16,499) (2,766) (19,265) 2,253 (300) 712 2,665 6,794 - 6,794 133,072 51,590 - - - - - 2,253 (225) (232) (300) 712 ANNUAL REPORT 2020 61 2020 Annual Report Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2020 Consolidated - 30 June 2019 Segment acquisitions: Acquisition of property, plant and equipment Acquisition and subsequent expenditure of investment property Additions to inventory Rental Villages $’000 Property Management $’000 Unallocated $’000 Total $’000 - 1,797 - - - - 58 - 564 58 1,797 564 1 Rental villages includes the investment in the Joint Venture. 2 Property management includes management rights. 3 Unallocated includes Terranora inventory and the profit on sale of units, Couran Cove and other loans receivable, Bartercard, cash, support office costs, corporate overheads and tax. 31. REMUNERATION OF AUDITORS During the year the following fees were paid or payable for services provided by the auditor of the company and its related practices: Fees to Ernst & Young (Australia) Fees for auditing the statutory financial report of the parent covering the group and auditing the statutory financial reports of any controlled entities Fees for assurance services that are required by legislation to be provided by the auditor Fees for other assurance and agreed-upon-procedures services under other legislation or contractual arrangements where there is discretion as to whether the service is provided by the auditor or another firm Fees for other services: GST advice Tax advice Total fees to Ernst & Young (Australia) Fees to other overseas member firms of Ernst & Young (Australia) Fees for auditing the financial report of any controlled entities Total fees to overseas member firms of Ernst & Young (Australia) Consolidated 30 June 2020 30 June 2019 $ $ 146,100 145,454 - - - 20,900 167,000 - - - - 7,000 - 152,454 - - Total auditor’s remuneration 167,000 152,454 ANNUAL REPORT 2020 62 62 2020 Annual Report Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2020 32. PARENT ENTITY DISCLOSURES Information relating to Eureka Group Holdings Limited (parent entity): Results of the parent entity Profit/(loss) for the year Other comprehensive income Total comprehensive income/(loss) 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 2020 30 June 2019 $’000 $’000 5,303 - 5,303 1,915 93,848 95,763 895 55,218 56,113 94,353 5 (54,708) 39,650 (4,915) - (4,915) 4,355 81,571 85,926 887 47,118 48,005 94,353 - (56,432) 37,921 Guarantees entered into by the parent entity The parent entity has not provided financial guarantees in relation to the debts of its subsidiaries. Contingent liabilities of the parent entity The parent entity did not have any contingent liabilities as at 30 June 2020. Refer to Note 25 for further details. Contractual commitments for capital items The parent entity had no capital commitments for property, plant and equipment as at 30 June 2020. 33. SUBSEQUENT EVENTS Subsequent to year end, the following significant transactions have occurred: • • Terranora NSW -– the settlement of 4 units, totalling $1.13 million was completed, with an additional 1 unit exchanged for $0.30 million, totalling $1.43 million. Dividend – the Company declared a final dividend in respect of the year of 0.55 cents per share, payable on 25 September 2020 amounting to $1.27 million. Other than the above mentioned items, no other matter or circumstance has arisen since 30 June 2020 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. 63 ANNUAL REPORT 2020 63 2020 Annual Report Eureka Group Holdings Limited and controlled entities Directors’ Declaration FOR THE YEAR ENDED 30 JUNE 2020 In accordance with a resolution of the directors of Eureka Group Holdings Limited, I state: 1. 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, including: i. giving a true and fair view of the Group’s financial position as at 30 June 2020 and of its performance 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 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 with Section 295A of the Corporations Act 2001 for the financial year ended 30 June 2020. On behalf of the Board Murray Boyte Executive Chair Dated in Brisbane this 21st day of August 2020. ANNUAL REPORT 2020 64 64 2020 Annual ReportErnst & 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 2020, 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) b) giving a true and fair view of the consolidated financial position of the Group as at 30 June 2020 and of its consolidated financial performance for the year ended on that date; and 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 including Independence Standards (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 65 A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation ANNUAL REPORT 2020 | 65 2020 Annual ReportRecognition and Valuation of Investment Properties Why significant How our audit addressed the key audit matter Our audit procedures included the following: • Assessing significant investment property acquisitions made during the year as to whether they were correctly classified as an asset or business acquisition. In doing so, we analysed related contracts of purchase and settlement statements. • Evaluating the Group’s assessment of properties classified as investment properties under Australian Accounting Standards, with consideration as to how significant returns are derived from these assets. • We agreed investment properties to applicable title and other documents evidencing ownership. • Assessing the Group’s fair value determination of investment properties. In doing so, we performed the following procedures: • Assessed the sustainable earnings for each property, including occupancy assumptions, in particular changes made as a result of COVID-19. Considered the capitalisation rates of properties by region with the involvement of our real estate valuation specialists. • Holding discussions with management to • understand the impact that COVID-19 has had on the Group’s investment properties. This included considerations of the impact that COVID-19 has had on key assumptions such as the future maintainable earnings and capitalisation rates. • Evaluating the compliance of the note disclosures with Australian Accounting Standards including specific uncertainties arising from the COVID-19 pandemic. The recognition and valuation of investment properties was a key audit matter due to the value of the recorded asset (30 June 2020: $121,443,000) relative to total assets and the degree of estimation and judgement required to be made by the Group, specifically concerning classification and determination of fair value. The Group assesses whether new acquisitions are classified as an asset acquisition (individual acquisitions of investment property assets) or business acquisitions. Investment properties are assessed each year by the Group to determine if they continue to meet the requirements under Australian Accounting Standards to be classified as investment property. All investment properties are recorded at their fair value. Fair values are determined every six months by reference to independent valuations or internal valuations with reference to current market conditions. Changes in fair values are recognised in the consolidated statement of comprehensive income. Assumptions used in valuations have been impacted by the economic uncertainty resulting from the COVID-19 pandemic and are critical to the assessment of fair value. Significant assumptions used in the valuation of the Group’s investment property are inherently subjective and in times of economic uncertainty the degree of subjectivity is higher than it might otherwise be. At 30 June 2020 the property market, and broader economy, were significantly impacted by the restrictions and economic uncertainty resulting from the COVID-19 pandemic. Given the market conditions at the balance date, it has not been possible for independent valuers to undertake independent valuations under the Group’s three-year independent valuation cycle for four properties. As a result, we consider the property valuations and the related disclosures in the financial statements to be particularly significant to our audit. For the same reasons we consider it important that attention is drawn to A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation ANNUAL REPORT 2020 | 66 66 2020 Annual Reportthe Notes 2 and 13 of the financial report disclosing the investment property assets and Note 24 disclosing the assumptions used in the valuation of these assets. Impairment Testing of Intangible Assets Why significant How our audit addressed the key audit matter Our audit procedures included the following: • Evaluating the Group’s assessment of impairment indicators for management letting rights. • Evaluating the Group’s assessment of Cash Generating Units. • Testing the mathematical accuracy of the impairment model. • Considering the accuracy of the Group’s historical cash flow forecasts. We agreed the forecasts to Board approved budgets and compared those forecasts to previously achieved results and considered any adjustments required for current trading and market activities, such as the impact of COVID-19. • Assessing the key assumptions within the impairment model including the growth rate and discount rate. • Applying our knowledge of the business and corroborating our work with external information where possible, including published earnings multiples for similar assets, specifically management letting rights based on profitability and tenure. • Assessing the adequacy of the fair value disclosures included in Note 16 to the financial report. Impairment testing of intangible assets was a key audit matter due to the value of the recorded asset (30 June 2020: $4,177,000) and the degree of estimation required to be made by the Group in calculating the value-in- use using discounted cash flow forecasts. Note 16 of the financial report discloses the Group’s intangible assets and the key assumptions used in testing these assets for impairment, including those used in the cash flow forecasts. The Group performs an annual impairment assessment of goodwill, while amortising intangible assets, such as management letting rights, are assessed for indicators of impairment. The recoverable amount has been determined based on a value in use model with discounted cash flows, estimates and other significant judgments regarding future projections which have been impacted by the economic uncertainty resulting from the COVID-19 pandemic and are critical to the assessment of impairment. Significant assumptions used in the impairment testing referred to above are inherently subjective and in times of economic uncertainty the degree of subjectivity is higher than it might otherwise be. Based on the size of the asset and the judgement involved in determining the recoverable amount, we have considered this a key audit matter. A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation 67 A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation ANNUAL REPORT 2020 | 67 2020 Annual ReportNon-Core Assets Why significant The Group is in the process of realising a number of non-core assets. These assets are: • • • Couran Cove Land Option (Note 9) - $1,050,000 Loan Receivable from former related parties (Note 8) - $315,000 Terranora Unit Inventory (Note 7) - $4,880,000 These assets are material to the Group, require judgment in determining the appropriate accounting treatment and in assessing their carrying value. As a result, this was considered to be a key audit matter. The Group assessed the recoverability of these assets as follows: • • The Couran Cove Land Option has been carried at fair value based on estimates of future cash flows expected to be received from the land assets. Future projections have been impacted by the economic uncertainty resulting from the COVID-19 pandemic and are critical to the assessment of value. Significant assumptions used in the valuation assessment referred to above are inherently subjective and in times of economic uncertainty the degree of subjectivity is higher than it might otherwise be. Based on the size of the asset and the judgement involved in determining the recoverable amount, we have considered this a key audit matter. Loan Receivable from former related parties has been assessed based on expected future cash flows, the credit worthiness of the borrowers and the value of security provided. The borrowers are expected to settle the loan using the proceeds from the sale of real property. However, given the uncertainty resulting from the COVID-19 pandemic, the sale contracts have been How our audit addressed the key audit matter Our audit procedures concerning the land option included the following: • Reviewing contractual terms and other legal correspondence in the period to assess if the Group has legal title to the assets. • Comparing key market-derived estimates, including expected selling price, to external data, where available. This includes consideration of the impact of COVID-19 has had on the expected selling price of the land. • Understanding changes and developments in the asset in the period. • Performing sensitivity analyses to assess the range of acceptable recoverable value estimates. • Testing the mathematical accuracy of the models. • Assessing the adequacy of the related disclosure in the financial report. Our audit procedures relating to loan receivable included the following: • Reviewing the loan agreement. • Reviewing legal correspondence to confirm the existence of the loan and its terms. • Reviewing management’s assessment of recoverability of the loan, including creditworthiness of the borrowers, and security on the loan. • Assessing the adequacy of the provision for expected credit losses including any uncertainties arising from the COVID-19 pandemic. • Testing the mathematical accuracy of the interest calculation. • Assessing the adequacy of the related disclosure in the financial report. Our audit procedures concerning the Terranora inventory included the following: • Testing additions and disposals to supporting documentation and bank statements on a sample basis. • Testing management’s estimated costs of completion and realisation based on recent transactions. • Assessing the adequacy of the related disclosure in the financial report. A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation ANNUAL REPORT 2020 | 68 68 2020 Annual ReportFor all assets above we evaluated management’s assessment of whether the asset is likely to be realised within 12 months of the balance date. • extended resulting in the extension of the repayment of the receivable. The Terranora asset has been assessed to be capital inventory and is carried at the lower of cost and net realisable value. The net realisable value has been assessed by management using external independent valuations and estimates of cost to complete (building works) and realise this asset. The Group has also assessed the expected time frames for recovery of these assets in order to determine their recording as either current or non-current assets. Information Other than the Financial Report and Auditor’s Report Thereon The directors are responsible for the other information. The other information comprises the information included in the Group’s 2020 Annual Report, but does not include the financial report and our auditor’s report thereon. Our opinion on the financial report does not cover the other information and accordingly we do not express any form of assurance conclusion thereon, with the exception of the Remuneration Report and our related assurance opinion. In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of the Directors for the Financial Report The directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. In preparing the financial report, the directors are responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters relating to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so. A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation 69 A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation ANNUAL REPORT 2020 | 69 2020 Annual ReportAuditor's Responsibilities for the Audit of the Financial Report Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this financial report. As part of an audit in accordance with the Australian Auditing Standards, we exercise professional judgment and maintain professional scepticism throughout the audit. We also: • • • • • • Identify and assess the risks of material misstatement of the financial report, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors. Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial report or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern. Evaluate the overall presentation, structure and content of the financial report, including the disclosures, and whether the financial report represents the underlying transactions and events in a manner that achieves fair presentation. Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the financial report. We are responsible for the direction, supervision and performance of the Group audit. We remain solely responsible for our audit opinion. We communicate with the directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide the directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, actions taken to eliminate threats or safeguards applied. A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation ANNUAL REPORT 2020 | 70 70 2020 Annual ReportFrom the matters communicated to the directors, we determine those matters that were of most significance in the audit of the financial report of the current year and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. Report on the Audit of the Remuneration Report Opinion on the Remuneration Report We have audited the Remuneration Report included in the directors' report for the year ended 30 June 2020. In our opinion, the Remuneration Report of Eureka Group Holdings Limited for the year ended 30 June 2020, complies with section 300A of the Corporations Act 2001. Responsibilities The directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. Ernst & Young Brad Tozer Partner Brisbane 21 August 2020 A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation 71 A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation ANNUAL REPORT 2020 | 71 2020 Annual ReportErnst & 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 Auditor’s Independence Declaration to the Directors of Eureka Group Holdings Limited As lead auditor for the audit of the financial report of Eureka Group Holdings Limited for the financial year ended 30 June 2020, I declare to the best of my knowledge and belief, there have been: a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and b) no contraventions of any applicable code of professional conduct in relation to the audit. This declaration is in respect of Eureka Group Holdings Limited and the entities it controlled during the financial year. Ernst & Young Brad Tozer Partner 21 August 2020 A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation ANNUAL REPORT 2020 | 72 72 2020 Annual ReportEureka Group Holdings Limited and controlled entities 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: https://www.eurekagroupholdings.com.au/investors/corporate-governance/. 73 ANNUAL REPORT 2020 73 2020 Annual Report Eureka Group Holdings Limited and controlled entities Security Holder Information Distribution of Securities as at 12 August 2020 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 332 193 102 290 140 1,057 Substantial Holders as at 12 August 2020 NAOS Asset Management Limited Cooper Investors Pty Limited Tribeca Investment Partners Charter Hall Property Securities Management Limited Sunsuper Pty Ltd Salt Funds Management Total Marketable Shares There were 353 holders of less than a marketable parcel of 1,351 shares holding a total of 108,382 shares. Voting Rights Ordinary Shares carry voting rights of one vote per share. Options and share rights carry no voting rights. No of Ordinary Shares Held % of Issued Share Capital 45,736,198 32,934,541 25,365,406 15,800,658 14,632,669 11,792,176 146,261,648 19.88 14.32 11.03% 6.87 6.36 5.13 63.58 Twenty Largest Ordinary Shareholders as at 12 August 2020 No of Ordinary Shares Held % of Issued Share Capital National Nominees Limited J P Morgan Nominees Australia Pty Limited HSBC Custody Nominees (Australia) Limited One Managed Investment Funds Limited Tolani Estate Pty Ltd Mr Alister C Wright H & G Limited Mr Richard Mews & Mrs Wee Khoon Mews Equipment Company of Australia Pty Limited HSBC Custody Nominees (Australia) Limited – A/C 2 HIDIV Pty Ltd Graeme Webb Holdings Pty Ltd NEJA Pty Ltd UBS Nominees Pty Ltd Gold Tiger Investments Pty Ltd Acadia Park Pty Ltd Wulguru Townsville Pty Ltd Condon Townsville Pty Ltd EXLDATA Pty Ltd Citicorp Nominees Pty Ltd Total 96,778,654 20,464,628 17,688,584 8,000,000 4,400,000 3,650,000 3,195,359 2,188,607 2,185,360 2,018,372 1,898,075 1,770,000 1,750,000 1,500,000 1,500,000 1,425,000 1,283,334 1,283,334 1,207,507 1,176,950 42.07 8.90 7.69 4.38 1.91 1.59 1.39 0.95 0.95 0.88 0.83 0,77 0.76 0.65 0.65 0.62 0.56 0.56 0.52 0.51 177,563,991 77.19 ANNUAL REPORT 2020 74 74 2020 Annual Report Eureka Group Holdings Limited and controlled entities Corporate Directory Registered Address & Contact Details Registered Address Postal Address Phone number Website Email Suite 2D 7 Short St, Southport QLD 4215 PO Box PO Box 10819, Southport BC QLD 4215 07 5568 0205 www.eurekagroupholdings.com.au info@eurekagroupholdings.com.au Board of Directors Murray Boyte (Executive Chair) Russell Banham Sue Renkin Greg Paramor AO Chief Operating Officer Chief Financial Officer Senior Management Cameron Taylor Tracey Campion Company Secretary 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 7 151 Clarence Street Sydney NSW 2000 Tel: 02 8289 5800 Fax: 02 9247 1315 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 Securities Exchange Listing ASX Limited ASX Code: EGH (ordinary shares) Australian Business Number 15 097 241 159 75 ANNUAL REPORT 2020 75 2020 Annual Report This page is intentionally left blank 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

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