Eureka Group Holdings Limited
Annual Report 2021

Plain-text annual report

2021 Annual Report ANNUAL REPORT 2021 Contents Executive Chairman’s Report Environmental, Social & Governance 2021 Results at a Glance Results Summary 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 i vii xiii xv 1 17 21 64 65 71 72 73 74 2 0 2 1 Annual Report EXECUTIVE CHAIRMAN’S REPORT Contents Executive Chairman’s Report Environmental, Social & Governance 2021 Results at a Glance Results Summary 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 i vii xiii xv 1 17 21 64 65 71 72 73 74 2 0 2 1 Annual Report ANNUAL REPORT 2021 Executive Chairman’s Report Portfolio Highlights Financial Review For the year ended 30 June 2021 (the year), Eureka Group Holdings Limited (Eureka) reported a profit after tax of $6.28 million. This compares to a profit after tax of $8.10 million in 2020. Key operating financial metrics improved over the prior year: Underlying earnings before interest, tax and depreciation (EBITDA) was $10.57 million, up 21%; Net operating cash flow was $7.85 million, up 13% after adjusting for a $0.64 million in 2020; and Net tangible assets per share was 37.5 cents, up 6% from 35.5 cents in 2020. The profit included a net gain on the revaluation of investment properties, including those held in a joint venture, of $2.94 million (2020: $2.47 million) and a gain on the sale of Terranora units of $0.73 million (2020: $1.03 million). Eureka achieved improved returns from its core asset base during the year, however, earnings per share growth stalled. The reduction in profit after tax and earnings per share compared to the prior year was caused by provisions made against legacy assets of $1.57 million and a higher effective tax rate of 28% (2020: 11%). Earnings per share was 2.80 cents, down from 3.52 cents. Net debt increased by $3.26 million to $55.28 million and the gearing ratio, calculated as net debt to net debt plus equity, was stable at 37.8% (2020: 37.7%). Total assets increased by 9.5% to $158.97 million. The asset recycling program and improved net operating cash flow for acquisitions made during the year. The weighted average capitalisation rate for the core portfolio was 9.9% (2020: 10.1%). supported funding During the year, the debt facility with the National Australia Bank increased to $77.5 million to facilitate acquisitions and the expiry date was extended to 31 March 2024. The facility will increase to $80 million upon settlement of the deferred consideration payable for the Hervey Bay acquisition and return of the associated bank guarantee in November 2022. i 2 0 2 1 Annual Report Achieved year-end occupancy rate of 98% Building an acquisition pipeline with network compared to 95% in 2020. synergies and incremental growth. Acquisition of two villages in Earlville (Cairns) Disposal of the final 31 units at Terranora, NSW and Hervey Bay, Qld comprising 123 units for for gross sale proceeds of $6.02 million. This $13 million in total. completes the sale of the 60 strata title units generating gross proceeds of $12.9 million. The 22-unit expansion of the Wynnum village, Brisbane is well progressed with target Solar energy enhancement completed at 13 completion in December 2021. villages. Development application lodged for a 110-unit Acquisition of a village in Brassall, South-East greenfield development in Kingaroy, Qld and Qld in July 2021 for $6.5 million comprising 59 feasibility is underway. units and land for development of a further 47 lots. Net gain on revaluation of investment properties including joint venture Key Results Profit after tax Income tax expense EBITDA Depreciation, amortisation & finance costs Gain on sale of Terranora units Impairment of legacy assets Transaction costs and non-recurring items Refund of prior period GST Underlying EBITDA Underlying Profit before tax Net operating cashflow Earnings per share Dividends per share FY2021 FY2020 $’000 6,283 2,459 3,214 11,956 (2,942) (741) 1,575 721 -- 10,569 7,356 7,849 Cents 2.73 1.18 $’000 8,095 980 3,099 12,174 (2,418) (1,031) 619 -- (644) 8,700 5,601 7,614 Cents 3.52 1.10 21% 31% 3% 7% Executive Chairman’s Report Portfolio Highlights EXECUTIVE CHAIRMAN’S REPORT Financial Review For the year ended 30 June 2021 (the year), Eureka Eureka achieved improved returns from its core asset Group Holdings Limited (Eureka) reported a profit base during the year, however, earnings per share after tax of $6.28 million. This compares to a profit growth stalled. The reduction in profit after tax and after tax of $8.10 million in 2020. earnings per share compared to the prior year was caused by provisions made against legacy assets of Key operating financial metrics improved over the $1.57 million and a higher effective tax rate of 28% prior year: (2020: 11%). Earnings per share was 2.80 cents, down Underlying earnings before interest, tax and depreciation (EBITDA) was $10.57 million, up 21%; Net operating cash flow was $7.85 million, up 13% after adjusting for a $0.64 million in 2020; and 9.9% (2020: 10.1%). from 3.52 cents. Net debt increased by $3.26 million to $55.28 million and the gearing ratio, calculated as net debt to net debt plus equity, was stable at 37.8% (2020: 37.7%). Total assets increased by 9.5% to $158.97 million. The asset recycling program and improved net operating cash flow supported funding for acquisitions made during the year. The weighted average capitalisation rate for the core portfolio was During the year, the debt facility with the National Australia Bank increased to $77.5 million to facilitate acquisitions and the expiry date was extended to 31 March 2024. The facility will increase to $80 million upon settlement of the deferred consideration payable for the Hervey Bay acquisition and return of the associated bank guarantee in November 2022. Net tangible assets per share was 37.5 cents, up 6% from 35.5 cents in 2020. The profit included a net gain on the revaluation of investment properties, including those held in a joint venture, of $2.94 million (2020: $2.47 million) and a gain on the sale of Terranora units of $0.73 million (2020: $1.03 million). Achieved year-end occupancy rate of 98% compared to 95% in 2020. Building an acquisition pipeline with network synergies and incremental growth. Acquisition of two villages in Earlville (Cairns) and Hervey Bay, Qld comprising 123 units for $13 million in total. Disposal of the final 31 units at Terranora, NSW for gross sale proceeds of $6.02 million. This completes the sale of the 60 strata title units generating gross proceeds of $12.9 million. The 22-unit expansion of the Wynnum village, Brisbane target completion in December 2021. is well progressed with Solar energy enhancement completed at 13 villages. Development application lodged for a 110-unit greenfield development in Kingaroy, Qld and feasibility is underway. Acquisition of a village in Brassall, South-East Qld in July 2021 for $6.5 million comprising 59 units and land for development of a further 47 lots. Key Results Profit after tax Income tax expense Depreciation, amortisation & finance costs EBITDA Net gain on revaluation of investment properties including joint venture Gain on sale of Terranora units Impairment of legacy assets Transaction costs and non-recurring items Refund of prior period GST Underlying EBITDA Underlying Profit before tax Net operating cashflow Earnings per share Dividends per share FY2021 $’000 FY2020 $’000 6,283 2,459 3,214 11,956 (2,942) (741) 1,575 721 -- 10,569 7,356 7,849 Cents 2.73 1.18 8,095 980 3,099 12,174 (2,418) (1,031) 619 -- (644) 8,700 5,601 7,614 Cents 3.52 1.10 21% 31% 3% 7% 2 0 2 1 Annual Report ii ANNUAL REPORT 2021 Operations Update Management has continued to build on the Five Pillar operating platform first implemented in 2019. Five Pillar Operating Platform - FY21 Update Occupancy, Revenue + Cost Initiatives Team Culture + Engagement Safety, Risk + Compliance Information Systems + Technology Applications Resident First culture Redefined roles is driving occupancy Regular review of risk management Improve and standardise Digital marketing initiatives and revenue Upskilling and systems training Productivity improvement Policies & procedures ensure ongoing safety and compliance Voice of the Resident survey underway Cost reduction initiatives enhance profitability Enhanced community engagement Improved enquiry levels The benefits of occupancy, revenue and cost initiatives are now reflected in village performance which has seen Underlying EBITDA grow 35% over the past 3 years. Over this period, the number of units owned and managed has increased by 3% to 2,191. Programs have commenced to upgrade the internal and external presentation of villages and to maintain consistent standards throughout the village network. Team culture and engagement was a significant focus during the year. The redefining of support office and village manager roles continues to evolve through the upskilling of staff, team development and training programs resulting in productivity improvement. Eureka has transitioned away from having independent village managers to employee village managers. Inherent in this structure is a cultural shift characterised by employees with empathy, purpose and accountability. Employees have embraced Eureka's Resident First culture based on social engagement, care advocacy, safety and security. Risk management systems are reviewed regularly and have been modified, where appropriate, to manage the COVID-19 environment. Cost-effective digital marketing initiatives have proven effective in generating enquiry and relationship building within local communities is strengthening the network for potential resident leads. To complement and capitalise on the investment made in Eureka’s support office and village teams during the year and to ensure scalability of the business into the future, attention has now turned to improving Eureka's technology platform and operating systems. iii 2 0 2 1 Annual Report Environmental, Social and Corporate Governance (ESG) Eureka is focused on creating sustainable communities within the social infrastructure segment in which it operates. A planned and responsible approach to the implementation of environmental standards is being developed. The ESG Committee will beresponsible for: Overseeing the implementation of ESG programs and measurement of The ‘Resident-first’ experience is facilitated through a high level of interaction between residents and staff outcomes; and and community engagement across the village Monitoring emerging ESG principles to network. A strong corporate governance culture exists throughout the organisation. understand their application to Eureka and long-term value proposition. Eureka has established an ESG Committee chaired by Mr Greg Paramor AO. COVID-19 Vigilance During the year, Eureka has continued to assiduously manage COVID-19 risks through a range of best practice and preventative measures to protect the well-being and health of all concerned and to minimise the risk of infection and transmission among employees and residents. Eureka 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. Eureka strongly recommends and actively encourages residents to be vaccinated against COVID-19 and is developing a policy to mandate vaccinations for all village and support office staff. Operations Update Management has continued to build on the Five Pillar operating platform first implemented in 2019. Five Pillar Operating Platform - FY21 Update Occupancy, Revenue + Cost Initiatives Team Culture + Engagement Safety, Risk + Compliance Information Systems Applications + Technology Resident First culture Redefined roles is driving occupancy Regular review of risk management Improve and standardise Digital marketing initiatives and revenue Upskilling and systems training Productivity improvement Policies & procedures ensure ongoing safety and compliance Voice of the Resident survey underway Cost reduction initiatives enhance profitability Enhanced community engagement Improved enquiry levels The benefits of occupancy, revenue and cost Employees have embraced Eureka's 'Resident-first' initiatives are now reflected in village performance culture based on social engagement, care advocacy, which has seen Underlying EBITDA grow 35% over safety and security. Risk management systems are the past 3 years. Over this period, the number of reviewed regularly and have been modified, where units owned and managed has increased by 3% to appropriate, to manage the COVID-19 environment. 2,191. Programs have commenced to upgrade the internal and external presentation of villages and to Cost-effective digital marketing initiatives have maintain consistent standards throughout the village proven effective in generating enquiry and network. relationship building within local communities is strengthening the network for potential resident Team culture and engagement was a significant leads. focus during the year. The redefining of support office and village manager roles continues to evolve To complement and capitalise on the investment through the upskilling of staff, team development made in Eureka’s support office and village teams and training programs resulting in productivity during the year and to ensure scalability of the improvement. Eureka has transitioned away from business into the future, attention has now turned to village managers. Inherent in this structure is a operating systems. cultural shift characterised by employees with empathy, purpose and accountability. EXECUTIVE CHAIRMAN’S REPORT Environmental, Social and Corporate Governance (ESG) Eureka is focused on creating sustainable communities within the social infrastructure segment in which it operates. A planned and responsible approach to the implementation of environmental standards is being developed. The ESG Committee will be responsible for: Overseeing the implementation of ESG programs and measurement of The Resident First experience is facilitated through a high level of interaction between residents and staff outcomes; and and community engagement across the village Monitoring emerging ESG principles to network. A strong corporate governance culture exists throughout the organisation. understand their application to Eureka and long-term value proposition. Eureka has established an ESG Committee chaired by Mr Greg Paramor AO. having independent village managers to employee improving Eureka's technology platform and have a higher risk of serious illness if they were to contract COVID-19 due to their age and propensity for COVID-19 Vigilance During the year, Eureka has continued to assiduously manage COVID-19 risks through a range of best practice and preventative measures to protect the well-being and health of all concerned and to minimise the risk of infection and transmission among employees and residents. Eureka acknowledges that many of its residents underlying health issues. Eureka strongly recommends and actively encourages residents to be vaccinated against COVID-19 and is developing a policy to mandate vaccinations for all village and support office staff. 2 0 2 1 Annual Report iv ANNUAL REPORT 2021 Dividends Eureka has paid the following unfranked dividends to shareholders for the year ended 30 June 2021: An interim dividend of 0.59 cents per share was paid on 21 April 2021; and A final dividend of 0.59 cents per share was paid on 28 September 2021. Eureka’s Dividend Reinvestment Plan (DRP) was established during the year as a capital management initiative and was active for both of the above dividends. The DRP participation rate was very strong. The issue of shares under the DRP was also fully underwritten by Taylor Collison Limited stockbrokers with the support of new and existing institutional and sophisticated investors. FY22 Priorities Considerable progress has been made in improving Eureka has a sound financial platform and is well resident experience, embedded in the Resident placed to accelerate its village acquisition and First culture. Eureka will continue to build on this development program. A capital management plan is ethos as it expands its business. being developed to support the strategic growth plan. Eureka’s corporate office has been established in Brisbane from September 2021. The relocation was driven by access to a deeper talent pool for recruitment of staff, intra and interstate travel advantages and domicile of key support services. Further assets have been identified for recycling and a pipeline of acquisitions, brownfield and greenfield development opportunities are being identified to underpin an earnings accretive scaling of the business. The upgrade of the technology platform remains a priority. v “Eureka is committed to profitable expansion that will enhance shareholder value on a sustainable basis.” 2 0 2 1 Annual Report Directors & Staff Eureka has a small, cohesive board that has a well-balanced skill set covering property investment and management, property funds management, finance, healthcare, organisational development, commercial experience and corporate governance including a comprehensive understanding of ESG principles and application. Eureka’s Board and management have undertaken a comprehensive review of human resource requirements and consequently key roles have been reset and upskilled to ensure the Company has in place the necessary capabilities for execution of its strategic plan. The Company has transitioned a successful cultural shift to empowering employees with a higher level of accountability and purpose while maintaining a philosophy of empathy, care and safety, fundamental to the services we provide in the social infrastructure sector. Cameron Taylor was the Group’s Chief Operating Officer during the year and has been appointed Chief Executive Officer effective 1 July 2021, reflecting Cameron’s continuing progress and the Board’s confidence for him to lead the growth path. In December 2020, Laura Fanning, Company Secretary was appointed Chief Financial Officer (CFO). Laura brings a wealth of experience and competency to this role having undertaken Company Secretary, CFO, corporate governance and finance leadership roles for nearly 20 years in the listed sector. Tracey Campion, the former CFO, was appointed General Manager - Operations. Tracey has a strong finance background and understanding of operating systems which has enhanced the focus on village performance, safety, security and support office and village team engagement. I thank all staff for their contribution and effort during a year of change. To our shareholders, the Board thanks you for your continued support. Murray Boyte EXECUTIVE CHAIRMAN MBoyteDividends Eureka has paid the following unfranked dividends to shareholders for the year ended 30 June 2021: An interim dividend of 0.59 cents per share was paid on 21 April 2021; and A final dividend of 0.59 cents per share was paid on 28 September 2021. Eureka’s Dividend Reinvestment Plan (DRP) was established during the year as a capital management initiative and was active for both of the above dividends. The DRP participation rate was very strong. The issue of shares under the DRP was also fully underwritten by Taylor Collison Limited stockbrokers with the support of new and existing institutional and sophisticated investors. FY22 Priorities Considerable progress has been made in improving Eureka has a sound financial platform and is well resident experience, embedded in the ‘Resident- placed to accelerate its village acquisition and first’ culture. Eureka will continue to build on this development program. A capital management plan is ethos as it expands its business. being developed to support the strategic growth plan. Eureka’s corporate office has been established in Brisbane from September 2021. The relocation was driven by access to a deeper talent pool for recruitment of staff, intra and interstate travel advantages and domicile of key support services. Further assets have been identified for recycling and a pipeline of acquisitions, brownfield and greenfield development opportunities are being identified to underpin an earnings accretive scaling of the business. priority. The upgrade of the technology platform remains a “Eureka is committed to profitable expansion that will enhance shareholder value on a sustainable basis.” EXECUTIVE CHAIRMAN’S REPORT Directors & Staff Eureka has a small, cohesive board that has a well-balanced skill set covering property investment and management, property funds management, finance, healthcare, organisational development, commercial experience and corporate governance including a comprehensive understanding of ESG principles and application. Eureka’s Board and management have undertaken a comprehensive review of human resource requirements and consequently key roles have been reset and upskilled to ensure the Company has in place the necessary capabilities for execution of its strategic plan. The Company has transitioned a successful cultural shift to empowering employees with a higher level of accountability and purpose while maintaining a philosophy of empathy, care and safety, fundamental to the services we provide in the social infrastructure sector. Cameron Taylor was the Group’s Chief Operating Officer during the year and has been appointed Chief Executive Officer effective 1 July 2021, reflecting Cameron’s continuing progress and the Board’s confidence for him to lead the growth path. In December 2020, Laura Fanning, Company Secretary was appointed Chief Financial Officer (CFO). Laura brings a wealth of experience and competency to this role having undertaken Company Secretary, CFO, corporate governance and finance leadership roles for nearly 20 years in the listed sector. Tracey Campion, the former CFO, was appointed General Manager - Operations. Tracey has a strong finance background and understanding of operating systems which has enhanced the focus on village performance, safety, security and support office and village team engagement. I thank all staff for their contribution and effort during a year of change. To our shareholders, the Board thanks you for your continued support. Murray Boyte EXECUTIVE CHAIRMAN 2 0 2 1 Annual Report vi MBoyteANNUAL REPORT 2021 Eureka's approach to ESG As a leading provider in the rental retirement living sector, we value the contribution we make within infrastructure this social segment and we have made a corporate commitment to uphold high Environmental, Social and Governance (ESG) standards. Integrating ESG considerations into our portfolio management and operational decision-making processes is fundamental to delivering the results our investors seek and the experience our employees and residents deserve. including Our corporate commitment to ESG extends to our people, residents, shareholders, employees and stakeholders alike, the environment and our climate, the communities we are part of and our governance structure. Our social conscience is at the heart of our business and drives our Resident First culture. We value and engage with our residents, employees, and the wider communities in which we operate. promoting We are committed to creating sustainable communities, greater environmental responsibility and resource Eureka’s efficient operations and activities and driving positive change in our sector, within a framework of strong corporate governance. processes across The Board has commenced developing an investing and environmental sustainability strategy to guide the Group over the next few years to deliver on its broader economic, environmental, and social goals. Environmental, Social and Governance The Company’s core values are central to the Group’s Resident First philosophy. Teamwork, respect, empathy, community and kindness enable Eureka to make a difference in the lives of residents and to create communities that empower residents to live independently and provide enrichment through community engagement. Operating ethically, legally and with integrity, while maintaining safety and compliance standards ensures our residents can live in safe, secure communities. Our robust risk management framework with documented policies facilitates legislative and regulatory compliance and reporting. We are proud to be able to deliver strong business returns to shareholders that are underpinned by strong corporate values. We are pleased to present several new initiatives which have been implemented throughout the business over the past year as part of our commitment to our corporate ESG strategy. We will continue to develop our ESG footprint in the coming year. Environmental Governance Corporate Social Responsibility Solar energy Resident First Ethical business practices Water recyling Risk management systems One team Community engagement Dedicated dog parks Waste management Safety & compliance Community gardens The Kitchen Club Board governance “Our social conscience is at the heart of our business and drives our Resident First culture.” vii 2 0 2 1 Annual Report Environmental, Social and Governance EXECUTIVE CHAIRMAN’S REPORT RESULTS SUMMARY Eureka's approach to ESG As a leading provider in the rental retirement living sector, we value the contribution we make within this social infrastructure segment and we have made a corporate commitment to uphold high Environmental, Social and Governance (ESG) standards. Integrating ESG considerations into our portfolio management and operational decision-making processes is fundamental to delivering the results our investors seek and the experience our employees and residents deserve. Our corporate commitment to ESG extends to our people, including residents, shareholders, employees and stakeholders alike, the environment and our climate, the communities we are part of and our governance structure. Our social conscience is at the heart of our business and drives our Resident First culture. We value and engage with our residents, employees, and the wider communities in which we operate. We are committed to creating sustainable communities, promoting greater environmental responsibility and resource efficient processes across Eureka’s operations and activities and driving positive change in our sector, within a framework of strong corporate governance. The Board has commenced developing an investing and environmental sustainability strategy to guide the Group over the next few years to deliver on its broader economic, environmental, and social goals. The Company’s core values are central to the Group’s Resident First philosophy. Teamwork, respect, empathy, community and kindness enable Eureka to make a difference in the lives of residents and to create communities that empower residents to live independently and provide enrichment through community engagement. Operating ethically, legally and with integrity, while maintaining safety and compliance standards ensures our residents can live in safe, secure communities. Our robust risk management framework with documented policies facilitates legislative and regulatory compliance and reporting. We are proud to be able to deliver strong business returns to shareholders that are underpinned by strong corporate values. We are pleased to present several new initiatives which have been implemented throughout the business over the past year as part of our commitment to our corporate ESG strategy. We will continue to develop our ESG footprint in the coming year. Environmental Corporate Social Responsibility Governance Solar energy Resident First Ethical business practices Water recyling Risk management systems One team Community engagement Waste management Safety & compliance Dedicated dog parks Community gardens The Kitchen Club Board governance “Our social conscience is at the heart of our business and drives our Resident First culture.” 2 0 2 1 Annual Report 2 0 2 1 Annual Report viii ANNUAL REPORT 2021 Social Focus Resident First Philosophy Our mission is to empower our residents to live independently in safe and secure village communities and to provide enrichment through social engagement. We have introduced our Resident First culture which puts our residents at the heart of all decisions. This philosophy is underpinned by compassion, respect and trust and it is this mindset that ensures we can improve people’s lives while being a leading rental retirement living provider. Our team’s empathy and genuine interest in our residents is fundamental to our Resident First philosophy. Ensuring that we listen to and continue to meet our The inaugural VOR will provide a baseline measure of residents’ wants and needs is important to our resident satisfaction. Once the baseline is success. In July 2021, we commenced an inaugural established, the survey will be conducted annually to resident satisfaction survey across 16 villages to assess improvement. VOR results will become part of measure the Voice of the Resident (VOR). our everyday language as we continually shape our Resident First Philosophy into the future. Community Engagement Engaging local business operators and continually improving our social connections with charities and network groups cements our role as a leading provider of rental retirement villages in the local communities in which we operate. Work has commenced on establishing a program for cause associations, charity sponsorships and volunteering. Residents and employees enjoy supporting local and national charities through donations and fundraising. A highlight for Eureka in FY21 was a collective fundraising contribution for the Cancer Council through Australia’s Biggest Morning Tea event. ix 2 0 2 1 Annual Report One Team Culture Eureka fosters a culture which encourages diversity, and an inclusive workplace where employee differences in areas such as gender, age, culture, disability, and lifestyle choice are valued. Women represent more than 60% of employees, hold 50% of executive positions, and 25% of board positions. In addition to this, our mission to attract and retain employees who are empathetic and care about making a difference in the lives of our residents’ is also vital to building our ‘One Team Culture’. Our operations centre around our villages and our residents. Our village and support office teams have been chosen for their respective skills and experience to create ‘one team’ with a common goal. This has been an important cultural shift during the FY21 year and has translated into improved shareholder returns. Dedicated Dog Parks Pets are an important part of our lives and play a vital role in our residents’ overall wellbeing. As part of our commitment to ensuring our villages are pet friendly and provide improved facilities for our four-legged residents, we commenced the installation of dedicated dog parks in villages with open space. Social Focus Resident First Philosophy Our mission is to empower our residents to live independently in safe and secure village communities and to provide enrichment through social engagement. We have introduced our Resident First culture which puts our residents at the heart of all decisions. This philosophy is underpinned by compassion, respect and trust and it is this mindset that ensures we can improve people’s lives while being a leading rental retirement living provider. philosophy. Our team’s empathy and genuine interest in our residents is fundamental to our Resident First Ensuring that we listen to and continue to meet our The inaugural VOR will provide a baseline measure of residents’ wants and needs is important to our resident satisfaction. Once the baseline is success. In July 2021, we commenced an inaugural established, the survey will be conducted annually to resident satisfaction survey across 16 villages to assess improvement. VOR results will become part of measure the Voice of the Resident (VOR). our everyday language as we continually shape our Resident First Philosophy into the future. Community Engagement Engaging local business operators and continually improving our social connections with charities and network groups cements our role as a leading provider of rental retirement villages in the local communities in which we operate. Work has commenced on establishing a program for cause associations, charity sponsorships and volunteering. Residents and employees enjoy supporting local and national charities through donations and fundraising. A highlight for Eureka in FY21 was a collective fundraising contribution for the Cancer Council through Australia’s Biggest Morning Tea event. ENVIRONMENTAL, SOCIAL & GOVERNANCE One Team Culture Eureka fosters a culture which encourages diversity, and an inclusive workplace where employee differences in areas such as gender, age, culture, disability, and lifestyle choice are valued. Women represent more than 60% of employees, hold 50% of executive positions, and 25% of board positions. In addition to this, our mission to attract and retain employees who are empathetic and care about making a difference in the lives of our residents’ is also vital to building our ‘One Team Culture’. Our operations centre around our villages and our residents. Our village and support office teams have been chosen for their respective skills and experience to create ‘one team’ with a common goal. This has been an important cultural shift during the FY21 year and has translated into improved shareholder returns. Dedicated Dog Parks Pets are an important part of our lives and play a vital role in our residents’ overall wellbeing. As part of our commitment to ensuring our villages are pet friendly and provide improved facilities for our four-legged residents, we commenced the installation of dedicated dog parks in villages with open space. 2 0 2 1 Annual Report x ANNUAL REPORT 2021 The Kitchen Club Nothing brings people together like good food. A new initiative aimed at bringing together the talented chefs and cooks at our catered villages is The Kitchen Club. The Kitchen Club provides our kitchen teams with a platform to share meal ideas, menus and photos of food presentation and to inspire one another to provide our residents with nutritionally balanced, delicious, and eye-catching menus that they will enjoy. xi 2 0 2 1 Annual Report Environmental Initiatives Sustainability A core business focus in FY21 has centred around conserving energy, waste management, recycling and water storage. Key initiatives including a water recycling program and a biodegradable waste management plan have been introduced to ensure our environmental sustainability into the future. Building community gardens and veggie patches has been a welcomed initiative throughout our villages. Providing residents with the ability to be part of the beautification of our villages, creates a sense of pride in their home, a thriving community and a wonderful opportunity for social engagement. Solar Program As part of our commitment to reducing our carbon footprint and to providing affordable electricity for our residents, solar panels have been installed in 13 of our villages. With an additional five villages due to receive solar panels over the coming year, our goal by 2025 is for solar energy to be our main source of energy throughout all our villages. The Kitchen Club Nothing brings people together like good food. A new initiative aimed at bringing together the talented chefs and cooks at our catered villages is The Kitchen Club. The Kitchen Club provides our kitchen teams with a platform to share meal ideas, menus and photos of food presentation and to inspire one another to provide our residents with nutritionally balanced, delicious, and eye-catching menus that they will enjoy. ENVIRONMENTAL, SOCIAL & GOVERNANCE Environmental Initiatives Sustainability A core business focus in FY21 has centred around conserving energy, waste management, recycling and water storage. Key initiatives including a water recycling program and a biodegradable waste management plan have been introduced to environmental our sustainability into the future. ensure Building community gardens and veggie patches has been a welcomed initiative villages. Providing throughout our residents with the ability to be part of the beautification of our villages, creates a sense of pride in their home, a thriving community and a wonderful opportunity for social engagement. Solar Program As part of our commitment to reducing our carbon footprint and to providing affordable electricity for our residents, solar panels have been installed in 13 of our villages. With an additional five villages due to receive solar panels over the coming year, our goal by 2025 is for solar energy to be our main source of energy throughout all our villages. 2 0 2 1 Annual Report xii ANNUAL REPORT 2021 2,191 TOTAL UNITS UNDER MANAGEMENT 2% WA NT SA 40 VILLAGES 32 OWNED 8 UNDER MANAGEMENT 2021 results at a UNDERLYING EBITDA $10.57M 21% UNDERLYING PROFIT BEFORE TAX glance $7.36M 31% “Growth in core operations.” EARNINGS PER SHARE 2.73 cents 3.52 cents [FY20] DIVIDENDS PER SHARE 1.18 cents 7% INVESTMENT PROPERTY VALUES SA $24.9m VIC $9.7m NSW $21.0m QLD $83.4m OCCUPANCY 98% FROM 95% CAPITALISATION RATE 9.9% 10.1% [FY20] 37.8% GEARING NET DEBT TO NET DEBT PLUS EQUITY 4.5times INTEREST COVER QLD NSW VIC TAS xiii 2 0 2 1 Annual Report 2,191 TOTAL UNITS UNDER MANAGEMENT 2% WA NT SA 40 VILLAGES 32 OWNED 8 UNDER MANAGEMENT QLD NSW VIC TAS 2021 RESULTS AT A GLANCE UNDERLYING EBITDA $10.57M 2021 results at a glance $7.36M UNDERLYING PROFIT BEFORE TAX 21% 31% “Growth in core operations.” EARNINGS PER SHARE 2.73 cents 3.52 cents [FY20] DIVIDENDS PER SHARE 1.18 cents 7% INVESTMENT PROPERTY VALUES SA $24.9m VIC $9.7m NSW $21.0m QLD $83.4m OCCUPANCY 98% FROM 95% CAPITALISATION RATE 9.9% 10.1% [FY20] 37.8% GEARING NET DEBT TO NET DEBT PLUS EQUITY 4.5times INTEREST COVER 2 0 2 1 Annual Report xiv ANNUAL REPORT 2021 Results Summary I A D T B E g n i y l r e d n U $12m $10m $8m $6m $4m $2m $m 40.0% 30.0% 20.0% 10.0% 0.0% i I % n g r a M A D T B E g n i y l r e d n U FY17 FY18 FY19 FY20 FY21 1H 2H Underlying EBITDA margin Revenue & Other Income - $m Revenue growth driven by acquisition. 2017 2018 2019 2020 2021 Underlying EBITDA Growth in Underlying EBITDA and underlying EBITDA margin achieved through acquisition and recycling of non-core assets. 35% increase in Underlying EBITDA over 3 years while unit numbers increased by 3%. Profit Before Tax - $m FY21 profit was reduced by a $1.6m impairment of legacy assets. -0.3 2017 2018 2019 2020 2021 6.5 6.8 9.1 8.7 25.4 23.2 23.4 26.1 29.4 2017 2018 2019 2020 2021 Dividends - cents per share Steady dividend growth. Introduction of dividend reinvestment plan in FY21. 1.00 1.10 1.18 2017 2018 2019 2020 2021 4.1 4.2 4.7 Operating Cash Flow - $m Cash flow from operating activities increased by 3% in FY21 on a statutory basis and 13% excluding the impact of a prior year GST refund received in FY20. 7.6 7.8 Net Assets - $m Annual profits increasing net assets. 2017 2018 2019 2020 2021 74.9 74.7 81.5 85.9 90.9 xv 2 0 2 1 Annual Report Results Summary A D T I B E g n i y l r e d n U $12m $10m $8m $6m $4m $2m $m 40.0% 30.0% 20.0% 10.0% 0.0% % n i g r a M A D T I B E g n i y l r e d n U Underlying EBITDA Growth in Underlying EBITDA and underlying EBITDA margin achieved through acquisition and recycling of non-core assets. 35% increase in Underlying EBITDA over 3 years while unit numbers increased by 3%. FY17 FY18 FY19 FY20 FY21 1H 2H Underlying EBITDA margin Revenue & Other Income - $m Revenue growth driven by acquisition. 2017 2018 2019 2020 2021 RESULTS SUMMARY Profit Before Tax - $m FY21 profit was reduced by a $1.6m impairment of legacy assets. -0.3 2017 2018 2019 2020 2021 6.5 6.8 9.1 8.7 25.4 23.2 23.4 26.1 29.4 2017 2018 2019 2020 2021 Dividends - cents per share Steady dividend growth. Introduction of dividend reinvestment plan in FY21. 1.00 1.10 1.18 2017 2018 2019 2020 2021 4.1 4.2 4.7 Operating Cash Flow - $m Cash flow from operating activities increased by 3% in FY21 on a statutory basis and 13% excluding the impact of a prior year GST refund received in FY20. 7.6 7.8 Net Assets - $m Annual profits increasing net assets. 2017 2018 2019 2020 2021 74.9 74.7 81.5 85.9 90.9 2 0 2 1 Annual Report xvi 2021 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 2021 (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 AO PRINCIPAL ACTIVITIES The principal activities of the Group include the provision of: • • Accommodation and services to independent senior residents; and Specialist property management and caretaking services for seniors’ independent living communities. REVIEW OF OPERATIONS AND RESULTS The Group has reported a profit before tax for the year of $8.74 million (2020: $9.08 million) and a profit after tax of $6.28 million (2020: $8.10 million). Underlying EBITDA1 was $10.57 million (2020: $8.70 million) and Underlying Profit before tax1 was $7.36 million (2020: $5.60 million). The growth in the Group’s underlying results is due to the increased revenue and profit contribution from the Group’s portfolio of residential village assets, including the acquisition during the year of two rental villages, ownership of the 124-unit rental village in Bundaberg for the whole year and improved occupancy across the portfolio of owned villages to 98% (2020: 95%). The strong village performance has resulted in a net increase in the fair value of investment properties during the year, including the Tasmanian assets which are owned in a joint venture. The Group’s profit before tax is lower than the previous year due to a lesser gain on the sale of units at Terranora, a reduction in the carrying value of the Terranora land held for sale, impairment of the Couran Cove loan and receipt in the previous year of a multi-period goods and services tax (GST) refund. The financial impact of COVID-19 has been minimal with increased operating costs mitigated by Government support. The current year income tax expense of $2.46 million (2020: $0.98 million) is higher than the prior year because deferred tax assets relating to all carry forward revenue tax losses were recognised in the prior year. The Group’s statutory tax rate is 26% (2020: 30%). No cash tax will be payable until the Group has utilised its carry forward revenue tax losses. Net operating cash flow for the year was $7.85 million (2020: $7.61 million). At 30 June 2021, Eureka owned 32 villages (2020: 30), 5 of which are owned in a joint venture, and has 8 villages under management, representing 2,191 units (2020: 2,147 units). A summary of the Group’s performance and reconciliation to the Group’s Underlying EBITDA1 is shown below: Performance summary Profit before income tax expense Profit after income tax expense Basic earnings per share Diluted earnings per share Consolidated 30 June 2021 $’000 30 June 2020 $’000 8,742 6,283 2.73 2.72 9,075 8,095 3.52 3.52 1 The terms EBITDA, Underlying EBITDA and Underlying Profit before tax are defined on page 2. 1 ANNUAL REPORT 2021 1 2 0 2 1 Annual Report Eureka Group Holdings Limited and controlled entities Directors’ Report Consolidated 30 June 2021 $’000 30 June 2020 $’000 Underlying EBITDA1 reconciliation Profit after income tax expense Income tax expense Depreciation and amortisation Finance costs EBITDA1 Net gain on revaluation of investment properties, including joint venture properties Net loss on revaluation of assets held for sale Impairment of intangible and other assets Profit on sale of non-core assets Refund of prior periods GST Transaction costs – acquisitions, disposals and asset realisations Property expenses – non-recurring3 Other Underlying EBITDA1 6,283 2,459 587 2,626 11,955 (2,942) 525 1,050 (741) - 316 279 127 10,569 8,095 980 591 2,508 12,174 (2,471) 53 619 (1,031) (644) - - - 8,700 Underlying Profit before tax2 7,356 5,601 EBITDA (Earnings before interest, tax, depreciation and amortisation) is an unaudited non-IFRS measure. 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 is calculated from amounts disclosed in the financial statements. Underlying EBITDA is an unaudited non-IFRS measure that represents the operating performance of the Group and excludes valuation adjustments, asset disposals and certain non-core or non-recurring transactions. Underlying Profit before tax is an unaudited non-IFRS measure and equals Underlying EBITDA less finance costs, depreciation and amortisation. Prior year land tax estimate. 1 2 3 Financial Position Summary information in relation to the Group’s financial position is shown below: Total assets Net assets Cash and cash equivalents Debt – bank loan Shares on issue Net tangible assets per share Balance sheet gearing1 $’000 $’000 $’000 $’000 ‘000 cents % Consolidated 30 June 2021 30 June 2020 158,969 90,880 1,890 57,175 232,384 37.5 37.8 145,205 85,868 2,451 54,472 230,038 35.5 37.7 1 Balance sheet gearing is calculated as net debt (being interest-bearing drawn debt net of cash) divided by net debt plus equity. Significant balance sheet movements during the year are described below. ANNUAL REPORT 2021 2 2 2 0 2 1 Annual Report Eureka Group Holdings Limited and controlled entities Directors’ Report Acquisitions and asset management The Group acquired two rental villages for a total consideration of $13.00 million (excluding transactions costs) in November 2020 consisting of a 70-unit village in Earlville (Cairns), Qld and a 53 unit village in Hervey Bay, Qld. The Group also acquired an additional 3 units in its strata-titled village in Elizabeth Vale, South Australia for $0.35 million. The Group spent $3.19 million (2020: $1.94 million) on enhancing its owned villages through capital improvements including expenditure on its solar energy program, security and safety upgrades and progression of the Wynnum village expansion. There were no other significant acquisitions made during the year. Disposals – Terranora, NSW During the year, the Group completed the sale of all remaining units at Terranora, NSW. 31 units (2020: 27 units) were sold and settled for total consideration of $6.02 million (2020: $6.39 million) resulting in a gain on sale of $0.73 million (2020: $1.03 million). The total consideration and gain realised from the sale of the 60 units at Terranora since 2019 was $12.95 million and $1.76 million respectively. The Group still owns a vacant 4.8 hectare parcel of land at Terranora with a carrying value of $1.83 million (2020: $2.30 million) and a manager’s unit with a carrying value of $0.60 million (2020: $0.60 million). The land has been reclassified from investment property to non-current assets held for sale and a fair value decrement of $0.47 million (2020: $nil) has been recorded. A conditional contract for the sale of the land has been entered into since balance date for a value in line with the carrying value at year end. The contract is subject to due diligence and has a six month settlement period. The manager’s unit continues to be held as investment property and opportunities for the realisation of this asset are being considered. Couran Cove loans receivable The carrying value of the West Cabin loan receivable ($0.32 million) has not changed during the year. Since balance date, a 12 month repayment plan has been agreed. Two cabins at Couran Cove, Qld continue to be held as security against the loan. Details are contained in Note 8. The carrying value of a loan receivable for $3 million, including 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 has been reassessed following a thorough review during the year including independent assessment of the land held as security for the loan. The assessed fair value of $nil (2020: $1.05 million), resulted in an impairment charge of $1.05 million (2020: $0.19 million) being recorded during the year. There has been no change to the Group’s security arrangements, including a mortgage over the land. The loan expiry date was extended to 31 August 2021 during the year. Details are contained in Note 9. Capital management – debt & equity Debt During the year, the Group’s National Australia Bank (NAB) facility was increased from $60.00 million to $77.50 million to facilitate the acquisition of the new villages in Hervey Bay and Cairns, expansion of the Wynnum village and to provide headroom for future acquisitions. The expiry date was extended to 31 March 2024 and the limit will increase to $80 million upon settlement of the deferred consideration payable for the Hervey Bay acquisition and return of the associated bank guarantee in November 2022. 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 drawn amount under the facility was $57.18 million (2020: $54.47 million). Details are contained in Note 19. Equity Equity movements and balances for the year are as follows: • Dividends of $2.62 million (2020: $3.57 million) were paid during the year, comprising $1.98 million in cash (2020: $3.57 million) and $0.64 million in shares (2020: $nil) pursuant to the Dividend Reinvestment Plan (DRP) established during the year. 3 ANNUAL REPORT 2021 3 2 0 2 1 Annual Report Eureka Group Holdings Limited and controlled entities Directors’ Report • • • The DRP was in effect for the interim dividend paid in April 2021 and was fully underwritten resulting in 2,346,779 shares being issued for 57.73 cents per share on 21 April 2021. Existing shareholders subscribed for $0.64 million in shares and proceeds of $0.71 million were received from the DRP underwriter; There were 429,362 share rights outstanding at 30 June 2021 (2020: 429,362). Further details are provided in the Remuneration Report; and The on-market share buy-back was cancelled on 16 March 2021. No shares were bought back and cancelled during the year (2020: nil). DIVIDENDS Dividends paid during the year were as follows: Final dividend - 2020: 0.55 cents per share (2019: 1.0 cent per share) Interim dividend - 2021: 0.59 cents per share (2020: 0.55 cents per share) Total dividends paid 30 June 2021 $’000 30 June 2020 $’000 1,265 1,357 2,622 2,300 1,265 3,565 A final dividend for the year of 0.59 cents per share, amounting to $1.37 million, was declared at the date of signing these financial statements and is payable on 28 September 2021. The record date is 6 September 2021. The DRP will be in effect for this dividend. The financial effect of this dividend has not been brought to account in the financial statements for the year ended 30 June 2021 and will be recognised in subsequent financial reports. LIKELY DEVELOPMENTS AND EXPECTED RESULTS Eureka is committed to: • • • • • Developing its social, environmental and governance framework. The Board established an Environmental, Social & Governance Committee on 10 August 2021 that will be responsible for providing recommendations for social governance and environmental initiatives in accordance with the Group’s Resident First philosophy, its social licence to provide affordable rental accommodation to a growing number of seniors and minimising the Group’s environmental impact; 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 the 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; and Recycling of capital through the divestment of the Group’s non-core assets and active portfolio management including the disposal of assets which may cease to meet target performance levels, risk appetite levels or efficiency metrics. 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. 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: ANNUAL REPORT 2021 4 4 2 0 2 1 Annual Report Eureka Group Holdings Limited and controlled entities Directors’ Report • • • Covid-19 - 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 Group actively and strongly encourages residents to be vaccinated against Covid-19 and is developing its policy to mandate vaccinations for all village and support office 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 mitigates 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; and 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 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. 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: 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. 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. Other listed company directorships: National Tyre & Wheel Limited (ASX: NTD), Hillgrove Resources Ltd (ASX: HGO) and Former directorships (last 3 years) Special responsibilities: Interests in shares: Interests in options: Name: Title: Qualifications: Eumundi Group Ltd (ASX: EBG). Abano Healthcare Group Limited (NZX) Chair of the Board, Member of the Audit & Risk Committee, Member of the Nomination & Remuneration Committee, Member of the Environmental, Social & Governance Committee (appointed 10 August 2021). 782,920 Nil Sue Renkin Non-Executive Director RN, MBA, FCDA, GradDip Corp Gov, MAICD 5 ANNUAL REPORT 2021 5 2 0 2 1 Annual Report Eureka Group Holdings Limited and controlled entities Directors’ Report Experience & expertise: 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 July 2020, Member of the Environmental, Social & Governance Committee (appointed 10 August 2021). Nil Nil Interests in shares: Interests in options: 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. 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, Member of the Environmental, Social & Governance Committee (appointed 10 August 2021). 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: Folkestone Limited Member of Audit & Risk Committee (appointed 14 July 2020), Chair of the Environmental, Social & Governance Committee (appointed 10 August 2021) 5,337,500 Nil Interests in shares: Interests in options: ANNUAL REPORT 2021 6 6 2 0 2 1 Annual Report Eureka Group Holdings Limited and controlled entities Directors’ Report COMPANY SECRETARY Laura Fanning, B. Bus, CA, ACG (CS, CGP) Laura is a Chartered Secretary and Chartered Accountant with more than 25 years’ financial, governance and commercial experience. Laura is Eureka’s Chief Financial Officer and was previously the Company Secretary at National Tyre & Wheel Limited. She has 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 Directors’ Meetings Audit & Risk Committee Meetings Held 1 15 15 15 15 Attended 15 15 15 15 Held 1 7 7* 7 7 Attended 7 7* 7 6 Nomination & Remuneration Committee Meetings Held 1 Attended 1 1 1 1 1 1 1* 1* 1 * Number of meetings held while a director during the financial year. Attended by invitation. All directors have a standing invitation to attend Committee meetings, even when they are a member. 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 2021. 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) b) c) d) e) f) g) h) i) Principles of compensation of key management personnel Details of remuneration Non-executive director remuneration policy Service agreements Relationship between remuneration policy and Company performance Remuneration consultants Equity instruments held by key management personnel Loans to/from key management personnel Other transactions with key management personnel (a) PRINCIPLES OF COMPENSATION OF KEY MANAGEMENT PERSONNEL Compensation for 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 2021 7 2 0 2 1 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 upon 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 achievement of profit goals as a core component of the plan design; focusing on sustained growth in total shareholder returns, consisting of dividends and growth in share price, delivering constant or increasing return on assets as well as focusing the executive on key non-financial drivers of value including initiatives aligned to the Group’s commitment to social, governance and environmental focus areas; 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 total remuneration including 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. His agreed remuneration comprises fixed remuneration only. During the year, the non-executive Directors considered and resolved to pay the Executive Chairman a discretionary bonus of $150,000 (inclusive of superannuation) in recognition and acknowledgement of his contribution to Eureka’s growth, restructuring, capital recycling achievements and total shareholder return since his appointment as Executive Chairman in 2018. Given the Group’s sustained improvements in performance and total shareholder returns, the non- executive Directors consider the payment of a discretionary bonus, which Mr Boyte had no expectation of receiving or ability to influence the payment of, to be appropriate. 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 ended 30 June 2021, include a financial gateway hurdle. The percentage of fixed remuneration received as an STI will be capped and may vary between individuals, 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 (such as options and share rights) which are subject to 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 elements 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. ANNUAL REPORT 2021 8 8 2 0 2 1 Annual Report Eureka Group Holdings Limited and controlled entities Eureka Group Holdings Limited and controlled entities Eureka Group Holdings Limited and controlled entities Directors’ Report Directors’ Report Directors’ Report Short term incentives (STIs) Short term incentives (STIs) Senior executives’ entitlement to an STI is based upon achievement of agreed performance objectives including: Short term incentives (STIs) Senior executives’ entitlement to an STI is based upon achievement of agreed performance objectives including: Senior executives’ entitlement to an STI is based upon achievement of agreed performance objectives including: • Financial performance; • Financial performance; • Operational performance; • Financial performance; • Operational performance; • Strategic and innovative initiatives; • Operational performance; • Strategic and innovative initiatives; • Workplace health and safety; and • Strategic and innovative initiatives; • Workplace health and safety; and • Risk mitigation and management. • Workplace health and safety; and • Risk mitigation and management. • Risk mitigation and management. Actual performance criteria may vary between executives, having regard to their roles and responsibilities. Actual performance criteria may vary between executives, having regard to their roles and responsibilities. Actual performance criteria may vary between executives, having regard to their roles and responsibilities. The Board applies the following general principles when determining and measuring performance targets and any STI The Board applies the following general principles when determining and measuring performance targets and any STI incentive: The Board applies the following general principles when determining and measuring performance targets and any STI incentive: incentive: STI Pool STI Pool STI Pool Financial gateway Financial gateway Financial gateway Structure Structure Structure Performance targets Performance targets Performance targets The size of the STI pool is determined by the Board, upon advice from the Nomination & The size of the STI pool is determined by the Board, upon advice from the Nomination & Remuneration Committee, having regard to individual employment contracts. 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 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 In consultation with the Nomination & Remuneration Committee, the Board assesses the Group’s financial performance and the performance of KMP against agreed performance objectives. Group’s financial performance and the performance of KMP against agreed performance objectives. Payment of any STI is subject to achievement of the financial gateway. objectives. Payment of any STI is subject to achievement of the financial gateway. Achievement of budgeted Underlying EBITDA1 (introduced from the year ended 30 June Payment of any STI is subject to achievement of the financial gateway. Achievement of budgeted Underlying EBITDA1 (introduced from the year ended 30 June 2021). Achievement of budgeted Underlying EBITDA1 (introduced from the year ended 30 June 2021). 2021). 60% of the STI linked to the achievement of the budgeted Underlying EBITDA financial 60% of the STI linked to the achievement of the budgeted Underlying EBITDA financial hurdle; and 60% of the STI linked to the achievement of the budgeted Underlying EBITDA financial hurdle; and 40% of the STI linked to the achievement of non-financial performance objectives in the hurdle; and 40% of the STI linked to the achievement of non-financial performance objectives in the categories noted above. 40% of the STI linked to the achievement of non-financial performance objectives in the categories noted above. categories noted above. For the proportion of the STI linked to financial performance, entitlement is based For the proportion of the STI linked to financial performance, entitlement is based on the following tiers: For the proportion of the STI linked to financial performance, entitlement is based on the following tiers: on the following tiers: Entitlement Entitlement Entitlement 75% of the financial portion 75% of the financial portion 75% of the financial portion 90% of the financial portion 90% of the financial portion 90% of the financial portion 100% of the financial portion 100% of the financial portion 100% of the financial portion Financial hurdle Financial hurdle Financial hurdle Achievement of budgeted Underlying Achievement of budgeted Underlying EBITDA from core operations Achievement of budgeted Underlying EBITDA from core operations EBITDA from core operations Budget exceeded between 5% and 15% Budget exceeded between 5% and 15% Budget exceeded between 5% and 15% Budget exceeded by at least 15% Budget exceeded by at least 15% Budget exceeded by at least 15% The Board retains discretion in relation to the impact that non-recurring or unusual The Board retains discretion in relation to the impact that non-recurring or unusual items may have on achievement of the STIs. The Board retains discretion in relation to the impact that non-recurring or unusual items may have on achievement of the STIs. items may have on achievement of the STIs. 1 1 Refer to page 2 for the definition of Underlying EBITDA. Refer to page 2 for the definition of Underlying EBITDA. Refer to page 2 for the definition of Underlying EBITDA. 1 During the year, 83% of the total STI pool available for KMP was awarded, including 90% of the financial portion based on During the year, 83% of the total STI pool available for KMP was awarded, including 90% of the financial portion based on the budgeted Underlying EBITDA being exceeded by between 5% and 15%. Across the Group, 80% of the total STI pool was During the year, 83% of the total STI pool available for KMP was awarded, including 90% of the financial portion based on the budgeted Underlying EBITDA being exceeded by between 5% and 15%. Across the Group, 80% of the total STI pool was awarded. the budgeted Underlying EBITDA being exceeded by between 5% and 15%. Across the Group, 80% of the total STI pool was awarded. awarded. The actual amounts received by executives, as a result of achieving the above financial hurdle and any non-financial KPIs, The actual amounts received by executives, as a result of achieving the above financial hurdle and any non-financial KPIs, are listed in the remuneration tables below. The actual amounts received by executives, as a result of achieving the above financial hurdle and any non-financial KPIs, are listed in the remuneration tables below. are listed in the remuneration tables below. Long term incentives (LTIs) Long term incentives (LTIs) Equity instruments may be granted under the Omnibus Equity Plan (OEP) which was adopted on 23 November 2017. Each 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 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 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. 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. date, the exercise price, the vesting date, any applicable performance conditions and other specific terms. Share rights Share rights During the year, no new share rights were approved for issue by the Board. During the prior year, 429,362 share rights were Share rights During the year, no new share rights were approved for issue by the Board. During the prior year, 429,362 share rights were issued to the Chief Operating Officer pursuant to the OEP on the following key terms: During the year, no new share rights were approved for issue by the Board. During the prior year, 429,362 share rights were issued to the Chief Operating Officer pursuant to the OEP on the following key terms: issued to the Chief Operating Officer pursuant to the OEP on the following key terms: • • • The Vesting Date of the share rights is 30 September 2022, subject to meeting the performance and service conditions; The Vesting Date of the share rights is 30 September 2022, subject to meeting the performance and service conditions; The Vesting Date of the share rights is 30 September 2022, subject to meeting the performance and service conditions; ANNUAL REPORT 2021 ANNUAL REPORT 2021 ANNUAL REPORT 2021 9 9 9 9 2 0 2 1 Annual Report Eureka Group Holdings Limited and controlled entities Directors’ Report • • • • 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% 1 TSR CAGR is an unaudited non-IFRS measure. % of Rights to vest 0% 50% 70% to 100% on a straight-line basis 100% Service condition – the employee must remain employed by the Group from the Grant Date until the Last Vesting Date; 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); and 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 2021 there were 429,362 share rights outstanding (2020: 429,362). (b) DETAILS OF REMUNERATION The names of persons who were key management personnel of Eureka at any time during the financial year and at the date of this report are shown in the following table: Name Directors Murray Boyte Sue Renkin Role Period in role Executive Chair 24 November 2017 – ongoing Non-Executive Director 24 November 2017 – ongoing Russell Banham Non-Executive Director 21 November 2018 – ongoing Greg Paramor Executives Cameron Taylor Cameron Taylor Laura Fanning Tracey Campion Non-Executive Director 19 June 2020 – ongoing Chief Operating Officer 18 March 2019 – 30 June 2021 Chief Executive Officer 1 July 2021– ongoing Chief Financial Officer 1 December 2020 - ongoing Chief Financial Officer 21 January 2019 – 30 November 2020 Details of the remuneration of the Group's key management personnel for the years ended 30 June 2021 and 30 June 2020 are set out in the following tables. ANNUAL REPORT 2021 10 10 2 0 2 1 Annual Report Eureka Group Holdings Limited and controlled entities Directors’ Report Short term Post employment Salary/ fees3 $ STI/ bonus $ Non- monetary $ Super- annuation $ Share based payments $ Termi- nation benefits $ Total $ % of LTI that was awarded 30 June 2021 Directors 21,694 6,680 6,941 6,096 41,411 21,694 13,065 8,365 - - - - - 51,263 - - 43,124 51,263 - - - - - - - - - 486,000 77,000 80,000 70,000 713,000 445,532 174,903 112,196 732,631 - - - - - - - Murray Boyte1 314,306 150,000 Sue Renkin Russell Banham Greg Paramor 70,320 73,059 63,904 - - - Total Directors 521,589 150,000 Executives Cameron Taylor 296,315 76,260 Laura Fanning2 136,762 25,076 Tracey Campion2 86,142 17,689 Total Executives 519,219 119,025 Total KMP 1,040,808 269,025 - - - - - - - - - - Short term 30 June 2020 Directors Salary/ fees3 $ STI/ bonus $ Non- monetary $ Super- annuation $ 84,536 Post employment 51,263 1,445,631 - Share based payments $ Termin- ation benefits $ Total $ % of LTI that was awarded Murray Boyte1 314,997 Sue Renkin Russell Banham Greg Paramor2 Lachlan McIntosh2 67,123 68,493 1,967 35,000 Total Directors 487,580 - - - - - - Executives Cameron Taylor 309,403 71,454 Tracey Campion 217,405 21,699 Total Executives 526,808 93,153 Total KMP 1,014,388 93,153 - - - - - - 1,436 1,436 2,872 2,872 21,003 6,377 6,507 187 - 34,074 29,729 22,579 52,308 86,382 - - - - - - 4,775 - 4,775 4,775 - - - - - - - - - - 336,000 73,500 75,000 2,154 35,000 521,654 416,797 263,119 679,916 1,201,570 - - - - - 100 - 1 2 3 Murray Boyte’s fixed 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. KMP for part of the year only. Disclosure in remuneration includes executives’ annual remuneration as per their service agreement as well as accrued leave entitlements. The STIs will be paid subsequent to balance date. 11 ANNUAL REPORT 2021 11 2 0 2 1 Annual Report Eureka Group Holdings Limited and controlled entities Directors’ Report 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 Cameron Taylor Laura Fanning Tracey Campion Fixed remuneration At Risk - STI At Risk - LTI 2021 2020 2021 2020 2021 2020 100% 100% 100% 100% N/A 77% 83% 83% 100% 100% 100% 100% 100% 60% - 83% - - - - - - - - - - 23% 17% 17% 16% - 17% - - - - - - - - - - - - - 24% - - The proportion of cash bonus paid/payable or forfeited: Executives Cameron Taylor Laura Fanning Tracey Campion Cash bonus paid/payable Cash bonus forfeited 2021 2020 2021 2020 82% 88% 83% 92% - 54% 18% 12% 17% 8% - 46% (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 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 2021 There was no increase in non-executive fees during the year. $120,000 $70,000 $10,000 $7,000 $347,000 Directors may also be reimbursed for travelling and other expenses incurred in connection with their Company duties. ANNUAL REPORT 2021 12 12 2 0 2 1 Annual Report Eureka Group Holdings Limited and controlled entities Directors’ Report (d) SERVICE AGREEMENTS Directors 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. Executives Remuneration and other terms of employment for other key management personnel are formalised in service agreements. The details of these agreements for executive key management personnel are as follows: Cameron Taylor - Chief Operating Officer to 30 June 2021; Chief Executive Officer from 1 July 2021 Commencement 18 March 2019 Term Details 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. Mr Taylor’s remuneration as Chief Operating Officer included total fixed remuneration (TFR) of $315,000, including a base salary, superannuation and car allowance. Certain benefits such as car parking, mobile phone expenses and use of laptop are also provided. His remuneration also included STI of up to 30% of his base salary and long term incentives of up to 40% of his TFR in the form of share rights, as determined by the Board from time to time. No share rights were issued during the year. Mr Taylor is responsible for management of the Group’s operations and reports to the Executive Chairman. Mr Taylor’s TFR was increased to $350,000 from 1 July 2021 upon his appointment as Chief Executive Officer. He is eligible for annual STI of up to 50% of his TFR and annual LTI of up to 50% of his TFR, as determined by the Board from time to time. Laura Fanning - Chief Financial Officer and Company Secretary Commencement 1 December 2020 Term The agreement has no fixed term and may be terminated by either the Company or Ms Fanning with 2 months’ notice or without notice by the Company in the event of a material breach or misconduct by Ms Fanning. Ms Fanning’s remuneration includes a TFR of $260,000, including a base salary and superannuation. Certain benefits such as car parking, mobile phone expenses and use of laptop are also provided. Her remuneration also comprises additional STI of up to 20% of her TFR. Entitlement to LTI is at the discretion of the Board. Ms Fanning is responsible for the accounting, finance and governance functions of the Company and its associated companies. Ms Fanning reports to the Chief Executive Officer. Tracey Campion - Chief Financial Officer Commencement 21 January 2019 ending 30 November 2020 Term The agreement had 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. Ms Campion’s remuneration included a TFR of $220,000, including a base salary and superannuation. Certain benefits such as car parking, mobile phone expenses and use of laptop are also provided. Her remuneration also comprises additional STI of up to 20% of her TFR. Entitlement to LTI was at discretion of the Board. Ms Campion was responsible for the accounting and finance functions of the Company and its associated companies. Ms Campion reported to the Chief Operating Officer. Details: Details: (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 Underlying 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 improvements in earnings per share, share price and total shareholder return from 2018 to 2021 demonstrate the effectiveness of the current policy. 13 ANNUAL REPORT 2021 13 2 0 2 1 Annual Report Eureka Group Holdings Limited and controlled entities Directors’ Report Metric Total revenue and other income Underlying EBITDA1 Profit/(loss) before tax Profit/(loss) after tax Earnings per share (basic) Share price at year end Dividend paid per share Total shareholder return KMP remuneration KMP remuneration Measure $’000 $’000 $’000 $’000 cents per share cents per share cents per share % of share price at start of year $’000 % of total revenue and other income 2021 29,434 10,569 8,742 6,283 2.73 61.0 1.14 91.2 2020 26,068 8,700 9,075 8,095 3.52 32.5 1.55 31.0 2019 23,394 2018 23,212 7,832 6,794 6,794 2.95 26.0 0.00 6,942 (276) (276) (0.12) 28.0 0.00 2017 25,427 5,931 6,538 6,538 2.84 37.0 0.00 (7.1) (24.3) (53.2) 1,446 1,201 868 1,445 1,042 4.9 4.6 3.7 6.2 4.1 1 Refer to page 2 for the definition of Underlying EBITDA. In prior years, EBITDA from core operations was the term used to describe Underlying EBITDA. (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. KMP Directors Murray Boyte Sue Renkin Russell Banham Greg Paramor Executives Cameron Taylor Laura Fanning Tracey Campion Total Balance 1 July 2020 Acquired during the year Disposed during the year Other changes during the year Balance 30 June 2021 250,000 532,920 - - - - 4,700,000 637,500 - - - - - - 4,950,000 1,170,420 - - - - - - - - - - - - - - - - 782,920 - - 5,337,500 - - - 6,120,420 ANNUAL REPORT 2021 14 14 2 0 2 1 Annual Report Eureka Group Holdings Limited and controlled entities Eureka Group Holdings Limited and controlled entities Directors’ Report Directors’ Report Share rights held Share rights held There were no share rights granted as compensation to key management personnel during the reporting period. In the prior There were no share rights granted as compensation to key management personnel during the reporting period. In the prior period, the following share rights were granted and a Black-Scholes methodology was used to value the share rights. period, the following share rights were granted and a Black-Scholes methodology was used to value the share rights. KMP KMP Number of share rights granted Number of share during 2020 rights granted during 2020 Grant date Grant date FV at grant date per FV at grant share right date per share right Exercise price per Exercise share right price per share right Value of share rights granted Value of share rights granted Expiry date Expiry date Cameron Taylor Cameron Taylor 429,362 429,362 27-May-20 27-May-20 $0.28 $0.28 - - $120,221 $120,221 30-Sep-24 30-Sep-24 The Vesting Date of the share rights is 30 September 2022, subject to meeting the performance and service conditions. The Vesting Date of the share rights is 30 September 2022, subject to meeting the performance and service conditions. Options held Options held There were no options granted as compensation to key management personnel during the year. There were no options granted as compensation to key management personnel during the year. (h) LOANS TO/FROM KEY MANAGEMENT PERSONNEL (h) LOANS TO/FROM KEY MANAGEMENT PERSONNEL There were no loans to any director or other key management personnel at any time during the year. There were no loans to any director or other key management personnel at any time during the year. (i) OTHER TRANSACTIONS WITH KEY MANAGEMENT PERSONNEL (i) OTHER TRANSACTIONS WITH KEY MANAGEMENT PERSONNEL There were no other transactions with key management personnel at any time during the year. There were no other transactions with key management personnel at any time during the year. This concludes the remuneration report, which has been audited. This concludes the remuneration report, which has been audited. SHARES UNDER OPTION & SHARE RIGHTS SHARES UNDER OPTION & SHARE RIGHTS There were 429,362 share rights on issue as at the date of this report. There were 429,362 share rights on issue as at the date of this report. INDEMNIFICATION AND INSURANCE OF OFFICERS 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 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 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. 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 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 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. of the nature of the liability and the amount of the premium. INDEMNIFICATION AND INSURANCE OF AUDITORS 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 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). 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. No payment has been made to indemnify Ernst & Young during or since the financial year. PROCEEDINGS ON BEHALF OF THE COMPANY 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 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 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 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. the year. NON-AUDIT SERVICES NON-AUDIT SERVICES Ernst & Young did not provide any non-audit services during the current year but was engaged to advise the Group on tax Ernst & Young did not provide any non-audit services during the current year but was engaged to advise the Group on tax related matters during the prior year. Details of the amounts paid or payable to the auditor for non-audit services provided are related matters during the prior year. Details of the amounts paid or payable to the auditor for non-audit services provided are set out in Note 31. 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 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. for auditors imposed by the Corporations Act 2001. 15 ANNUAL REPORT 2021 ANNUAL REPORT 2021 15 15 2 0 2 1 Annual Report Eureka Group Holdings Limited and controlled entities Directors’ Report 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. OFFICERS OF THE COMPANY WHO ARE FORMER PARTNERS OF ERNST & YOUNG No officers of the Company were partners of Ernst & Young at the time it 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 auditor’s independence declaration as required under section 307C of the Corporations Act 2001 is set out on page 71. 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 30th day of August 2021 ANNUAL REPORT 2021 16 16 2 0 2 1 Annual Report Eureka Group Holdings Limited and controlled entities Consolidated Statement of Profit or Loss and Other Comprehensive Income FOR THE YEAR ENDED 30 JUNE 2021 Note 30 June 2021 $’000 30 June 2020 $’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 Non-current assets held for sale Impairment of: Intangible assets 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 12 13 10 9 5 26 26 18,831 4,544 4,207 27,582 25 1,827 29,434 (13,687) (3,550) (2,626) (68) (587) (2,518) (23,036) 1,558 2,361 (525) - (1,050) 2,344 8,742 (2,459) 6,283 - - - 6,283 2.73 2.72 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 The consolidated statement of profit or loss and other comprehensive income is to be read in conjunction with the accompanying notes. 17 ANNUAL REPORT 2021 17 2 0 2 1 Annual Report Eureka Group Holdings Limited and controlled entities Consolidated Statement of Financial Position AS AT 30 JUNE 2021 30 June 2021 $’000 30 June 2020 $’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 Trade and other payables Provisions Other financial liabilities Deferred tax liability Total non-current liabilities Total liabilities Net assets Equity Share capital Share based payment reserve Accumulated losses Total equity 22 6 7 8 9 10 7 8 12 13 14 15 16 9 17 18 19 17 18 19 5 20 20 1,890 414 - 214 1,486 2,258 6,262 - 346 6,846 139,037 504 487 3,827 1,660 152,707 2,451 316 3,778 396 750 483 8,174 1,102 353 5,955 121,443 594 722 4,177 2,685 137,031 158,969 145,205 3,238 535 669 4,442 184 83 59,941 3,439 63,647 2,125 523 752 3,400 - 73 54,884 980 55,937 68,089 59,337 90,880 85,868 95,652 56 (4,828) 90,880 94,352 5 (8,489) 85,868 The consolidated statement of financial position is to be read in conjunction with the accompanying notes. ANNUAL REPORT 2021 18 18 2 0 2 1 Annual Report Eureka Group Holdings Limited and controlled entities Consolidated Statement of Cash Flows FOR THE YEAR ENDED 30 JUNE 2021 Note 30 June 2021 $’000 30 June 2020 $’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 repayments of loans provided Proceeds from sale on non-current assets held for sale Net cash used in investing activities Cash flows from financing activities Proceeds from borrowings Repayment of borrowings Payment of dividends Proceeds from share issue Payments for share issue transactions Principal portion of lease payments Payments of transaction costs related to borrowings Net cash provided by financing activities Net 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) 29,119 (19,040) 64 (2,295) 7,848 (15,170) (66) (55) - (344) - - 6,023 - 10 178 - (9,424) 10,954 (8,250) (1,981) 713 (54) (210) (157) 1,015 (561) 2,451 1,890 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 The consolidated statement of cash flows is to be read in conjunction with the accompanying notes. 19 ANNUAL REPORT 2021 19 2 0 2 1 Annual Report Eureka Group Holdings Limited and controlled entities Consolidated Statement of Changes in Equity FOR THE YEAR ENDED 30 JUNE 2021 Note Share capital $’000 Accumulated losses $’000 Share based payment reserve $’000 Total $’000 For the year ended 30 June 2021 Balance at 1 July 2020 Profit for the year, representing total comprehensive income for the year 94,352 - (8,489) 6,283 5 - 85,868 6,283 Transactions with owners in their capacity as owners: Issue of share capital Transactions costs from share issue Share based payments Dividends paid 20 20 20 21 Balance at 30 June 2021 For the year ended 30 June 2020 Balance at 1 July 2019 Opening adjustment on adoption of AASB 16 Leases Balance at 1 July 2019 (Restated) Profit for the year, representing total comprehensive income for the year Transactions with owners in their capacity as owners: Share based payments Dividends paid Balance at 30 June 2020 20 21 1,354 (54) - - 95,652 94,352 - 94,352 - - - 94,352 - - - (2,622) (4,828) (12,870) (149) (13,019) 8,095 - (3,565) (8,489) - - 51 - 56 1,354 (54) 51 (2,622) 90,880 - - - - 5 - 5 81,482 (149) 81,333 8,095 5 (3,565) 85,868 The consolidated statement of changes in equity is to be read in conjunction with the accompanying notes. ANNUAL REPORT 2021 20 20 2 0 2 1 Annual Report Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2021 1. INTRODUCTION The financial statements cover Eureka Group Holdings Limited and its subsidiaries (Eureka, the Group or the Consolidated Entity) for the year ended 30 June 2021. Eureka Group Holdings Limited is a company incorporated and domiciled in Australia. Eureka is a for-profit entity for the purposes of preparing the financial statements. The Group’s operations and principal activities comprise ownership and property management of senior independent living communities. The financial report is presented in Australian dollars and all values are rounded to the nearest thousand dollars ($'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 30 August 2021 by the Directors. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PREPARATION The principal accounting policies adopted by the Group 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 the Group complies with International Financial Reporting Standards (IFRS) and interpretations adopted by the International Accounting Standards Board (IASB). New, revised and amended Accounting Standards adopted by the Group Several amendments and interpretations apply for the first time for the year but do not have an impact on the consolidated financial statements of the Group. The Group has not early adopted any standards, interpretations or amendments that have been issued or which are not yet effective. This includes IFRS Interpretations Committee agenda decision Configuration or Customisation Costs in a Cloud Computing Arrangement, which includes software-as-a-service arrangements. The Group does not have any capitalised configuration or customisation costs. 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. HISTORICAL COST CONVENTION The financial statements have been prepared under the historical cost convention, except for, where applicable, financial assets and liabilities at fair value through profit or loss, investment properties, some assets held for sale 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 2021 and the results of all controlled entities for the year then ended. The effects of all transactions between entities in the Group are eliminated in full. Subsidiaries are entities controlled by the Company. Control exists when the Company is exposed to or has rights to variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct the activities of the entity. In assessing control, potential voting rights that presently are exercisable or convertible are taken into account. The financial statements of subsidiaries are included in the financial report from the date that control commences until the date that control ceases. 21 ANNUAL REPORT 2021 21 2 0 2 1 Annual Report Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2021 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. REVENUE FROM CONTRACTS WITH CUSTOMERS Catering income The revenue from contracts with residents for the provision of catering services includes one performance obligation. Revenue is recognised at a point in time when services are provided to the resident. Service and Caretaking fees The revenue from service and caretaking fees is recognised over time, as the customer simultaneously receives and consumes the benefits provided by the Group. 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. ANNUAL REPORT 2021 22 22 2 0 2 1 Annual Report Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2021 Deferred tax is recognised using the balance sheet method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognised for the differences relating to investments in subsidiaries to the extent that it is probable that it will not reverse in the foreseeable future. Deferred tax is measured at the tax rates that are expected to be applied to the temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date. Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets and liabilities and when the deferred tax balances relate to the same taxation authority. A deferred tax asset is recognised to the extent that it is probable that future taxable profits will be available against which the temporary difference can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised. TAX CONSOLIDATION The Company and its wholly-owned Australian resident entities have formed a tax-consolidation group with effect from 1 July 2003 and are therefore taxed as a single entity from that date. The head entity within the tax-consolidation group is Eureka Group Holdings Limited. Current 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 for 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. 23 ANNUAL REPORT 2021 23 2 0 2 1 Annual Report Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2021 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. • • • 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. 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. Transfers are made from investment property to non-current assets held for sale when the carrying amount will be recovered principally through a sale transaction rather than continuing use. The Group’s policy is 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 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. ANNUAL REPORT 2021 24 24 2 0 2 1 Annual Report Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2021 Upon loss of significant influence over the joint venture, the Group measures and recognises any retained investment at its fair value. Any difference between the carrying amount of the joint venture upon loss of joint control and the fair value of the retained investment and proceeds from disposal is recognised in profit or loss. PROPERTY PLANT & EQUIPMENT Property plant and equipment is recognised at cost. Depreciation and amortisation is calculated on the straight line or diminishing value 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 INTANGIBLE ASSETS Only intangible assets that have been purchased or paid for by the Group are recognised in the accounts. 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. Management rights have a finite life and are carried at cost less accumulated amortisation and accumulated impairment losses. 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. Rent rolls have a finite life and are carried at cost less accumulated amortisation and accumulated impairment losses. 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. 25 ANNUAL REPORT 2021 25 2 0 2 1 Annual Report Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2021 The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For the purpose of impairment testing, assets are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets (the “cash- generating unit”). The goodwill acquired in a business combination, for the purpose of impairment testing, is allocated to cash-generating units that are expected to benefit from the synergies of the combination. An impairment loss is recognised if the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. Impairment losses are recognised in profit or loss. Impairment losses recognised in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to the units and then to reduce the carrying amount of the other assets in the unit (group of units) on a pro rata basis. Impairment losses recognised in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. Except for goodwill, an impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised. FAIR VALUE MEASUREMENT When an asset or liability, financial or non-financial, is measured at fair value for recognition or disclosure purposes, the fair value is based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date and assumes that the transaction will take place either in the principal market or in the absence of a principal market, in the most advantageous market. Fair value is measured using the assumptions that market participants would use when pricing the asset or liability, assuming they act in their economic best interests. For non-financial assets including investment properties, the fair value measurement is based on its highest and best use. Valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value are used, maximising the use of relevant observable inputs and minimising the use of unobservable inputs. Assets and liabilities measured at fair value are classified, into three levels, using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. Classifications are reviewed at each reporting date and transfers between levels are determined based on a reassessment of the lowest level of input that is significant to the fair value measurement. For recurring and non-recurring fair value measurements, external valuers may be used when internal expertise is either not available or when the valuation is deemed to be significant. External valuers are selected based on market knowledge and reputation. Where there is a significant change in fair value of an asset or liability from one period to another, an analysis is undertaken, which includes a verification of the major inputs applied in the latest valuation and a comparison, where applicable, with external sources of data. FINANCIAL ASSETS AND LIABILITIES 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. ANNUAL REPORT 2021 26 26 2 0 2 1 Annual Report Eureka Group Holdings Limited and controlled entities Eureka Group Holdings Limited and controlled entities Eureka Group Holdings Limited and controlled entities Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements Notes to the Financial Statements Notes to the Financial Statements Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2021 FOR THE YEAR ENDED 30 JUNE 2021 FOR THE YEAR ENDED 30 JUNE 2021 FOR THE YEAR ENDED 30 JUNE 2021 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 Non-current assets (including those that are part of the disposal group) are not depreciated or amortised while they are held for sale are presented separately from the other assets in the statement of financial position. The liabilities of a 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 Non-current assets (including those that are part of the disposal group) are not depreciated or amortised while they are disposal group classified as held for sale are presented separately from other liabilities in the statement of financial position. 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 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. 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 disposal group classified as held for sale are presented separately from other liabilities in the statement of financial position. TRADE AND OTHER PAYABLES 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 TRADE AND OTHER PAYABLES which are unpaid at that date. The amounts are unsecured and are generally settled within 30-60 days. These amounts represent liabilities for goods and services provided to the Group prior to the end of the financial year and 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. 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 which are unpaid at that date. The amounts are unsecured and are generally settled within 30-60 days. BORROWINGS BORROWINGS Borrowings are initially recognised at fair value, net of transaction costs incurred. Borrowings are subsequently measured BORROWINGS at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption amount is recognised Borrowings are initially recognised at fair value, net of transaction costs incurred. Borrowings are subsequently measured in profit or loss over the period of the borrowings using the effective interest method. Fees paid on the establishment of 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 Borrowings are initially recognised at fair value, net of transaction costs incurred. Borrowings are subsequently measured loan facilities are recognised as transaction costs of the loan to the extent that it is probable that some or all of the facility 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 at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption amount is recognised 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 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 in profit or loss over the period of the borrowings using the effective interest method. Fees paid on the establishment of is probable that some or all of the facility will be drawn down, the fee is capitalised as a prepayment for liquidity services 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 loan facilities are recognised as transaction costs of the loan to the extent that it is probable that some or all of the facility and amortised over the period of the facility to which it relates. 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 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. 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 derecognised from the balance sheet when the obligation specified in the contract is discharged, cancelled and amortised over the period of the facility to which it relates. or expired. The difference between the carrying amount of a financial liability that has been extinguished or transferred to Borrowings are derecognised from the balance sheet when the obligation specified in the contract is discharged, cancelled another party and the consideration paid, including any non-cash assets transferred or liabilities assumed, is recognised Borrowings are derecognised 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 Borrowings are derecognised from the balance sheet when the obligation specified in the contract is discharged, cancelled in profit or loss as other income or finance costs. 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 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. 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 in profit or loss as other income or finance costs. for at least 12 months after the reporting period. Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability 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. 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. for at least 12 months after the reporting period. EMPLOYEE BENEFITS EMPLOYEE BENEFITS EMPLOYEE BENEFITS Short-term Employee Benefits 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 Short-term Employee Benefits reporting date are recognised in current liabilities and are measured as the amounts expected to be paid when the liabilities Liabilities for wages and salaries, annual leave and long service leave expected to be settled within 12 months of the Short-term Employee Benefits are settled inclusive of on-costs. Sick leave is non-vesting and is expensed as paid. 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 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. 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 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 Long-term Employee Benefits recognised in non-current liabilities, provided there is an unconditional right to defer settlement of the liability. The liability The liabilities for annual leave and long service leave not expected to be settled within 12 months of the reporting date are Long-term Employee Benefits is measured as the present value of expected future payments to be made in respect of services provided by employees 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 The liabilities for annual leave and long service leave not expected to be settled within 12 months of the reporting date are up to the reporting date. Consideration is given for expected future wage and salary levels, experience of employee 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 recognised in non-current liabilities, provided there is an unconditional right to defer settlement of the liability. The liability departures and periods of service. Expected future payments are discounted using market yields as at the reporting date 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 is measured as the present value of expected future payments to be made in respect of services provided by employees on corporate bond rates with the terms to maturity that match, as closely as possible, the estimated future cash outflows. 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 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. 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 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 Share based payments as consideration for equity instruments (equity-settled transactions). Employees of the Group receive remuneration in the form of share based payments, whereby employees render services 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). 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 as consideration for equity instruments (equity-settled transactions). appropriate valuation model. The cost of equity-settled transactions is determined by the fair value at the date when the grant is made using an 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. 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 (share based appropriate valuation model. payment reserve), over the period in which the service and, where applicable, the performance conditions are fulfilled (the That cost is recognised in employee benefits expense, together with a corresponding increase in equity (share based vesting period). The cumulative expense recognised for equity-settled transactions at each reporting date until the vesting That cost is recognised in employee benefits expense, together with a corresponding increase in equity (share based payment reserve), over the period in which the service and, where applicable, the performance conditions are fulfilled (the That cost is recognised in employee benefits expense, together with a corresponding increase in equity (share based date reflects the extent to which the vesting period has expired and the Group’s best estimate of the number of equity payment reserve), 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 payment reserve), over the period in which the service and, where applicable, the performance conditions are fulfilled (the instruments that will ultimately vest. The expense or credit in the statement of profit or loss for a period represents 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 vesting period). The cumulative expense recognised for equity-settled transactions at each reporting date until the vesting movement in cumulative expense recognised as at the beginning and end of that period. 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 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. 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 movement in cumulative expense recognised as at the beginning and end of that period. awards, but the likelihood of the conditions being met is assessed as part of the Group’s best estimate of the number of Service and non-market performance conditions are not taken into account when determining the grant date fair value of equity instruments that will ultimately vest. Market performance conditions are reflected within the grant date fair value. 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 Service and non-market performance conditions are not taken into account when determining the grant date fair value of Any other conditions attached to an award, but without an associated service requirement, are considered to be non- 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. awards, but the likelihood of the conditions being met is assessed as part of the Group’s best estimate of the number of vesting conditions. Non-vesting conditions are reflected in the fair value of an award and lead to an immediate expensing 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- equity instruments that will ultimately vest. Market performance conditions are reflected within the grant date fair value. of an award unless there are also service and/or performance conditions. 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 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. 27 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. 27 of an award unless there are also service and/or performance conditions. 27 27 ANNUAL REPORT 2021 ANNUAL REPORT 2021 ANNUAL REPORT 2021 ANNUAL REPORT 2021 27 2 0 2 1 Annual Report Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2021 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. 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, assets and liabilities 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. ANNUAL REPORT 2021 28 28 2 0 2 1 Annual Report Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2021 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. 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. 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: 29 ANNUAL REPORT 2021 29 2 0 2 1 Annual Report Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2021 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: • • • • Valuations undertaken by accredited external independent valuers; Acquisition price paid for the property; 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 Capitalised income projections based upon a property’s estimated maintainable earnings and capitalisation rate. 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 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. ANNUAL REPORT 2021 30 30 2 0 2 1 Annual Report Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2021 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. Eureka considers that it has materially less control over future contract renewals in single-owner villages than it does with the strata-titled 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). The Group does not track changes in credit risk, but instead recognises a loss allowance based on lifetime ECLs at each reporting date. 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, or become unlikely to be, exercised and this asset reverts 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 and satisfaction by the relevant Group entities of legislative requirements at each reporting date, 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. 31 ANNUAL REPORT 2021 31 2 0 2 1 Annual Report Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2021 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 where in the parent entity: • • Investments in subsidiaries are accounted for at cost, less any impairment; and Investments in joint ventures are accounted for at cost, less any impairment. 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. ANNUAL REPORT 2021 32 32 2 0 2 1 Annual Report Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2021 3. REVENUE Rental income Revenue from contracts with customers Catering – managed properties Catering – owned properties Total catering income Service fees Caretaking fees Total service and caretaking fees Total revenue from contracts with customers Total revenue Other income Gain on sale of inventory Gain on sale of investment property Gain on sale of intangible assets Insurance proceeds Other Total other income The gain on sale of inventory relates to the disposal of units at Terranora, NSW as part of the Group’s non-core capital asset disposal program and comprises the following: Units sold Sale proceeds 1 Cost of sales Write down to net realisable value Gain on sale of inventory Consolidated 30 June 2021 $’000 30 June 2020 $’000 18,831 16,874 1,508 3,036 4,544 3,307 900 4,207 1,544 2,679 4,223 2,822 890 3,712 8,751 7,935 27,582 24,809 731 - 10 595 491 1,827 1,031 3 - - 189 1,223 Consolidated 30 June 2021 # 30 June 2020 # 31 27 $’000 $’000 6,023 (5,140) (152) 731 6,386 (5,356) - 1,030 1 Sales proceeds in the prior year comprised $0.65 million in Bartercard and the balance in cash. 33 ANNUAL REPORT 2021 33 2 0 2 1 Annual Report Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2021 Disaggregation of revenue from contracts with customers The Group derives revenue from the transfer of goods (catering income) and services (service and caretaking fees) over time and at a point in time in Australia. Timing of revenue recognition At a point in time Over time Total 4. ITEMS INCLUDED IN PROFIT Profit before income tax expense includes the following specific items: Finance costs Interest and finance charges paid/payable for financial liabilities not at fair value through profit or loss Total finance costs 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 2021 $’000 30 June 2020 $’000 4,544 4,207 8,751 4,223 3,712 7,935 Consolidated 30 June 2021 $’000 30 June 2020 $’000 2,626 2,626 2,508 2,508 36 15 10 176 237 342 3 5 350 587 553 39 33 10 216 298 285 3 5 293 591 451 ANNUAL REPORT 2021 34 34 2 0 2 1 Annual Report Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2021 5. INCOME TAX The major components of income tax expense are as follows: Consolidated Statement of Profit or Loss Current income tax Deferred income tax Income tax expense reported in the Statement of Profit or Loss A reconciliation of income tax expense and the profit before tax multiplied by the applicable tax rate is as follows: Profit before tax Consolidated 30 June 2021 $’000 30 June 2020 $’000 - 2,459 2,459 - 980 980 Consolidated 30 June 2021 $’000 30 June 2020 $’000 8,742 9,075 Income tax calculated at 26% (2020: 30%) 2,273 2,722 Tax effect of permanent differences Non-deductible capital items - deferred tax assets not recognised in year Non-deductible capital items - deferred tax assets ceased to be recognised Under provision Recognition of net deferred tax assets not previously recognised Tax effect of changing deferred tax balances to 25% tax rate at 30 June 2021 Income tax expense reported in the Statement of Profit or Loss (95) 364 507 (108) (214) (268) 2,459 (20) - - - (1,722) - 980 35 ANNUAL REPORT 2021 35 2 0 2 1 Annual Report Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2021 Deferred tax balances have been stated at 25% (2020: 30%). 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 Non-deductible capital items Net unrecognised deferred tax assets Reconciliation of unrecognised tax balances: Opening balance Recognition and use of revenue tax losses Recognition and use of capital tax losses Movement attributable to non-deductible capital items Adjustment to prior period balances Tax effect of changing deferred tax balances to 25% tax rate at 30 June 2021 Total movement Closing balance Consolidated 30 June 2021 $’000 30 June 2020 $’000 6,734 (434) (9,739) (3,439) 601 1,230 1,831 1,472 - (214) 871 (29) (269) 359 1,831 8,665 167 (9,812) (980) 968 504 1,472 1,828 (1,828) - - 1,472 - (356) 1,472 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 because they relate to capital assets. The benefits of the Group’s recognised and unrecognised tax losses will only be realised if: • 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 2021 36 36 2 0 2 1 Annual Report Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2021 6. TRADE AND OTHER RECEIVABLES Trade receivables Accrued income and other Consolidated 30 June 2021 $’000 30 June 2020 $’000 220 194 414 192 124 316 Trade receivables are non-interest bearing unless otherwise stated and are generally on 30 day terms. Expected credit loss was considered not material at each reporting date. 7. INVENTORY Opening balance Additions Disposals Write down to net realisable value Closing balance Current Non-current Consolidated 30 June 2021 $’000 30 June 2020 $’000 4,880 66 (4,793) (153) - - - - 9,215 463 (4,798) - 4,880 3,778 1,102 4,880 Inventory comprises the rental units at Terranora, NSW which were sold as part of the Group’s non-core capital asset disposal program. The costs of development at Terranora were capitalised to the inventory as incurred. Further details are contained in Note 3. 37 ANNUAL REPORT 2021 37 2 0 2 1 Annual Report Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2021 8. LOANS RECEIVABLE Current Vendor finance 1 West Cabin loan 2 Non-current Vendor finance 1 West Cabin loan 2 Consolidated 30 June 2021 $’000 30 June 2020 $’000 79 135 214 166 180 346 81 315 396 353 - 353 1 2 The Group acquired loans receivable 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 at year end of between 1.7 and 2.2 years and interest is payable on these loans at a rate of between 5.50% to 6.25% per annum. 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. No interest accrues on this loan. The loan is secured by a real property mortgage over two existing cabins owned by CCH at Couran Cove, Qld and is guaranteed by Onterran Ltd 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. Subsequent to balance date, a repayment plan for the loan has been agreed. Eureka has reserved its rights under the loan agreement and the security. The Directors consider that the amount owed is recoverable due to the repayment plan agreed between the parties, 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 Capital replacement funds Non-current Bartercard 2 Other 3 Consolidated 30 June 2021 $’000 30 June 2020 $’000 1,116 140 230 1,486 1,660 - 1,660 450 300 - 750 1,635 1,050 2,685 ANNUAL REPORT 2021 38 38 2 0 2 1 Annual Report Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2021 1 2 3 Includes deposits for asset purchases. Bartercard is an alternative currency and operates as a trade exchange. At 30 June 2021, the Bartercard carrying value was $1.80 million (2020: $1.94 million) which is recorded at cost less any impairment. There was no impairment expense during the year (2020: $0.35 million). The amount classified in current assets is based on expected utilisation of Bartercard in the next 12 months. A loan to CCH Developments No 1 Pty Ltd (CCH) was formalised with effect from 31 December 2016 with a face value of $3.00 million. It is 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. No interest accrues on this loan. The loan was extended until 31 August 2021 during the year. Eureka has the option to extend the repayment date to 31 August 2023. During the year, a thorough review was undertaken by the Group of the recoverability of the loan including likely realisation methods. This included consideration of legal advice, an independent valuation of the relevant land which acts as security for the loan and the commercial arrangements applicable to land holdings and development at Couran Cove. As a result of this review, the directors have assessed the fair value of the loan to be $nil (2020: $1.05 million) and an impairment charge of $1.05 million was recorded for the year (2020: $0.19 million). The Group intends to pursue its rights for collection of the loan receivable. Although the loan and land option give Eureka a right of first refusal to purchase the proposed cabin sites for $50,000 per site, to be paid by way of set off against the loan on settlement, the Directors no longer consider this to be the most viable means of realising the asset. Refer to Note 24 for fair value hierarchy disclosures. 10. NON-CURRENT ASSETS HELD FOR SALE Current Opening balance Disposals Transfers from investment property Net loss on change in fair value Closing balance Consolidated 30 June 2021 $’000 30 June 2020 $’000 483 - 2,300 (525) 2,258 519 (517) 534 (53) 483 The balance at 30 June 2021 includes vacant land at Terranora for $1.83 million (2020: $nil). The net loss on change in fair value includes $0.46 million (2020: $nil) relating to the vacant Terranora land. Refer to Note 24 for fair value hierarchy disclosures. 39 ANNUAL REPORT 2021 39 2 0 2 1 Annual Report Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2021 11. INVESTMENT IN SUBSIDIARIES 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 (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 Brassall Pty Ltd Eureka Earlville Pty Ltd 1 Eureka Glenvale Pty Ltd Eureka Group Care Pty Ltd Eureka Hervey Bay Pty Ltd Eureka Kingaroy Pty Ltd Eureka Liberty Villas Pty Ltd 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 Country of Incorporation 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 Australia Australia Australia Australia Equity Holding 30 June 2021 % 100% 30 June 2020 % 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% - 100% - 100% - - 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 1 Eureka Earlville Pty Ltd was formerly Eureka Care Communities (Mount Gambier 3) 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 2021 40 40 2 0 2 1 Annual Report Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2021 12. JOINT VENTURE INVESTMENT The Group has a 50% interest in a joint venture (JV) comprising Affordable Living Unit Trust and Affordable Living Services Unit Trust. The JV 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, and a reconciliation with the carrying amount of the investment in the consolidated financial statements are set out below: Movements in carrying amount: Opening balance Share of profit from JV 1 Cash distribution received Closing balance Consolidated 30 June 2021 $’000 30 June 2020 $’000 5,955 1,558 (667) 6,846 4,661 1,980 (686) 5,955 1 Share of profit from JV includes a net increase in the fair value of the Tasmanian village property assets. The Group’s 50% share was $0.58 million (2020: $1.09 million). Summarised statement of financial position of Affordable Living Unit Trust: Current assets, including cash and cash equivalents Non-current assets, comprising investment property Current liabilities 1 Non-current liabilities 2 Net assets Group’s share in net assets – 50% 30 June 2021 $’000 30 June 2020 $’000 357 22,468 (333) (8,800) 13,692 6,846 172 21,146 (523) (8,885) 11,910 5,955 Group’s carrying amount of the investment 6,846 5,955 1 2 Current liabilities includes borrowings of $0.10 million (2020: $0.30 million), repayable within 12 months. Non-current liabilities includes long term borrowings of $8.80 million (2020: $8.88 million). Summarised statement of profit or loss of Affordable Living Unit Trust: Revenue and other income 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 2021 30 June 2020 $’000 $’000 5,751 (2,363) (272) 3,116 - 3,116 3,116 1,558 6,177 (1,908) (335) 3,934 - 3,934 3,934 1,967 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 2021 41 2 0 2 1 Annual Report Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2021 Summarised statement of financial position of Affordable Living Services Unit Trust: This entity has been dormant since May 2020. Summarised statement of profit or loss of Affordable Living Services Unit Trust: Revenue and other income 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 2021 $’000 30 June 2020 $’000 - - - - - - - - 386 (360) - 26 - 26 26 13 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 2021 (2020: nil). 13. INVESTMENT PROPERTY Consolidated 30 June 2021 $’000 30 June 2020 $’000 Investment properties at fair value 139,037 121,443 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 property, plant and equipment Net gain on change in fair value Balance at end of year 121,443 14,265 - 3,185 - (2,300) - 83 2,361 139,037 105,406 14,667 (1,516) 1,941 (714) (534) 810 - 1,383 121,443 1 2 Includes the acquisition of villages in Cairns and Hervey Bay on 4 November 2020 and 3 individual units in the Group’s its strata-titled village in Elizabeth Vale, South Australia. The prior period includes the acquisition of a 124- unit rental village in Bundaberg, Qld, acquired on 28 February 2020 and 7 individual units in strata-titled villages. During the prior year, the Group divested a property located in Bowen, Qld. 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 this note and consist of 27 rental village assets (2020: 25) 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. ANNUAL REPORT 2021 42 42 2 0 2 1 Annual Report Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2021 At 30 June 2021, the Group undertook a review of the fair value of all investment properties held and recorded a net increase in fair value for the year of $2.36 million (2020: $1.38 million). This adjustment related to all assets in the asset class and was based on inputs and assumptions disclosed in Note 24. The net change in fair value is recognised in profit or loss in the reporting period in which the assessment is made. The Group’s external valuation program resumed during the year, with nine properties being independently valued. These included the four properties which were due for an independent external valuation by 30 June 2020 but which were deferred due to the outbreak of COVID-19 and consequent visitor restrictions at the villages. The external valuations undertaken during the year but before February 2021 noted that due to COVID-19, there was a market uncertainty resulting in significant valuation uncertainty. As a result, the reports note that the assessed values could change significantly and unexpectedly over a short period of time. The external valuer has confirmed that as at 30 June 2021, there was no longer a market uncertainty resulting in significant valuation uncertainty and that had those properties been valued at 30 June 2021, such a comment would not have been included. The directors have taken this into account in assessing the fair value of the properties at 30 June 2021 and note that the financial impact of COVID-19 on the Group’s business has been minimal to date, there continues to be strong demand for affordable retirement living options as evidenced by the Group’s increased occupancy levels during the current year, and the results of independent and internal appraisals performed in the year which support key estimates of maintainable earnings and capitalisation rates used in valuation assessments. Refer to Note 24 for fair value hierarchy disclosures relating to investment properties. Amounts recognised in profit or loss for investment properties: Rental income Catering income Direct operating expenses generating rental and catering income Net gain on change in fair value of investment properties Consolidated 30 June 2021 $’000 30 June 2020 $’000 18,831 3,036 (12,268) 2,361 16,874 2,679 (9,894) 1,383 The Group has no restrictions on the realisability of its investment properties. It has contractual obligations to expand the Wynnum village, complete the acquisition of a village in Brassall, Qld for $6.50 million and acquire two units in its strata- titled village in Rockhampton for $0.26 million. 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 as detailed in Note 19. 43 ANNUAL REPORT 2021 43 2 0 2 1 Annual Report Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2021 Details of investment properties are as follows: Property 33 Mardross Court Lavington Koinonia Village 92 Primrose Street Belgian Gardens 61 Marana Street Bilambil Heights (Terranora) Broken Hill Village Avenell Village on Vasey Bundaberg 3 Ovens Street Bundaberg Cascade Gardens Cairns Lot 51 Christie Downs Community Centre (manager’s unit) 60-66 Ishmael Rd Earlville Elizabeth Vale Scenic Village 1 Elizabeth Vale Scenic Village 2 Rockhampton Village 1 Rockhampton Village 2 15/8 Wicks Street, New Auckland Freshwater Villas Lot 49 Hackham Community Centre (manager’s unit) Lot 97 144 Main South Road Hackham 15-23 McNally St Scarness Lismore Village Cascade Gardens Mackay 43 Macdonnell Court Margate 344 San Mateo Avenue Mildura Mt Gambier 2 Village Albert Street Gardens Village Salisbury 60 Poplar Avenue Shepparton 7 Meron Street Southport Lot 6,8,9,20,21&22 56A Moores Pocket Road Tivoli Galilee Lodge Myall Place Village 40 Federation Street Wynnum A summary of the investment properties by state is as follows: State Queensland New South Wales Victoria South Australia Carrying amount 30 Jun 21 Carrying amount 30-Jun-20 $’000 4,778 1,317 1,488 600 3,032 5,304 14,748 4,973 316 8,777 6,329 4,680 3,562 5,644 50 4,492 266 291 5,702 6,992 9,527 4,908 4,668 3,392 5,590 4,971 5,072 4,286 748 940 4,700 6,894 139,037 $’000 4,741 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 - 5,816 9,344 4,866 4,595 3,363 5,724 4,883 4,674 4,261 452 929 4,404 5,590 121,443 Carrying amount 30 Jun 21 Carrying amount 30-Jun-20 $’000 $’000 83,360 20,992 9,740 24,945 139,037 66,220 21,790 9,269 24,164 121,443 ANNUAL REPORT 2021 44 44 2 0 2 1 Annual Report Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2021 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 Reconciliation of movements in property, plant & equipment: Consolidated 30 June 2021 $’000 30 June 2020 $’000 619 (249) 370 223 (131) 92 81 (39) 42 504 619 (234) 385 320 (163) 157 81 (29) 52 594 Opening balance at 1 July 2019 Additions at cost Depreciation expense Closing balance at 30 June 2020 Opening balance at 1 July 2020 Additions at cost Transfer to investment property Depreciation expense Closing balance at 30 June 2021 Buildings $’000 Plant & equipment $’000 Motor vehicles $’000 Total $’000 417 - (32) 385 385 - - (15) 370 178 18 (39) 157 157 54 (83) (36) 92 64 - (12) 52 52 - - (10) 42 659 18 (83) 594 594 54 (83) (61) 504 45 ANNUAL REPORT 2021 45 2 0 2 1 Annual Report Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2021 15. RIGHT OF USE ASSETS Leased property Opening balance Modification on leases Depreciation expense Closing balance Leased equipment Opening balance Depreciation expense Closing balance 30 June 2021 $’000 30 June 2020 $’000 714 (59) (173) 482 8 (3) 5 869 58 (213) 714 11 (3) 8 Total right of use assets 487 722 Income received from sub-leasing right of use assets was $0.03 million for the year (2020: $0.03 million). 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 Consolidated 30 June 2021 $’000 30 June 2020 $’000 3,547 (1,772) 1,775 3,547 (1,430) 2,117 140 (52) 88 25 (16) 9 140 (49) 91 25 (11) 14 1,955 1,955 3,827 4,177 The Group’s business activities include the ownership and management (through management letting rights agreements) of seniors’ rental accommodation throughout Australia. The intangible assets were separately classified in accordance with accounting standards following village acquisitions. 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 managed by Eureka, after allowing for overhead costs attributable to respective village management. Goodwill has been allocated to the property management CGU. The Group tests goodwill for impairment on at least an annual basis. The recoverable amount of a CGU is determined based on value-in-use calculations which require the use of assumptions. The calculations use cash flow projections covering a five-year period comprising a one-year budget period and four-year forecast period. Cash flows beyond the five-year period are extrapolated using an estimated long term growth rate. ANNUAL REPORT 2021 46 46 2 0 2 1 Annual Report Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2021 Key assumptions are those to which the recoverable amount of an asset or CGU is most sensitive. The following key assumptions were used in the discounted cash flow model: • • • • • cash flows are forecast by management taking into account historical results and current expectations of future performance including renewal of management agreements; cash flows were projected over a five-year period by applying a 2% growth rate (2020: 2%); the terminal value was calculated using a growth rate of 2% (2020: 2%); cash flows have been discounted using a pre-tax discount rate of 15% (2020: 15%); and cash flows assume no additional villages will be managed. Reconciliation of movements in intangible assets: Management rights $’000 Rent rolls $’000 Goodwill $’000 Other intangibles $’000 Total $’000 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 Opening balance at 1 July 2020 Amortisation expense Closing balance at 30 June 2021 3,291 - - - (80) (810) (284) 2,117 2,117 (342) 1,775 95 - - - - - (4) 91 91 (3) 88 1,955 - - - - - - 1,955 1,955 - 1,955 7 12 (28) 28 - - (5) 14 14 (5) 9 5,348 12 (28) 28 (80) (810) (293) 4,177 4,177 (350) 3,827 The remaining amortisation period for the management rights, on a weighted average basis, is 11 years (2020: 12 years). 17. TRADE & OTHER PAYABLES Current Trade creditors and accruals Capital replacement fund liability Non-current Capital replacement fund liability Consolidated 30 June 2021 $’000 30 June 2020 $’000 3,192 46 3,238 184 184 2,125 - 2,125 - - 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 47 Consolidated 30 June 2021 $’000 30 June 2020 $’000 535 535 83 83 523 523 73 73 ANNUAL REPORT 2021 47 2 0 2 1 Annual Report Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2021 19. OTHER FINANCIAL LIABILITIES Current Accrued interest Lease liability Insurance funding Non-current Bank loan - secured1 Deferred consideration liability2 Lease liability Borrowing costs 1 Bank loan - secured Consolidated 30 June 2021 $’000 30 June 2020 $’000 506 163 - 669 57,175 2,431 471 (136) 59,941 467 221 64 752 54,472 - 646 (234) 54,884 As at 30 June 2021, the Group has access to National Australia Bank (NAB) facilities with the following terms: • • Maximum limit of $77.50 million (2020: $60.00 million). Total drawings on this facility were $57.18 million (2020: $54.47 million). The facility expires on 31 March 2024. Interest is payable at a fixed rate of 4.77% on $35.00 million until 31 December 2021 and at variable rates (currently 1.98%) on the remaining drawn amount, inclusive of facility fees. A facility fee applies to any undrawn amount. No principal payments are required and interest is paid quarterly. $2.50 million bank guarantee facility to secure the deferred consideration payable for the acquisition of the new village at Hervey Bay. Refer to footnote 2 below. The NAB facilities are secured by a first priority general security over all present and future acquired property. As at 30 June 2021, the Group’s property assets, with a carrying value of $141.30 million (2020: $126.81 million), have been pledged by the Group. During the year, the facility terms were amended to extend the expiry date from 31 January 2022 to 31 March 2024 and to increase the facility limit from $60.00 million to $77.50 million to facilitate the acquisition of two new villages, expansion of the Wynnum village and to provide headroom for future acquisitions. The limit will increase to $80.00 million upon settlement of the deferred consideration payable for Hervey Bay and return of the associated bank guarantee in November 2022. The loan 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. 2 Vendor finance arrangement relating to the acquisition of the Hervey Bay village on 4 November 2020. $2.50 million is payable 2 years after settlement date with no interest. The balance at 30 June 2021 represents the present value of the amount payable to the vendor. The Group has provided a $2.50 million bank guarantee to the vendor as security, the costs of which are borne by the vendor. ANNUAL REPORT 2021 48 48 2 0 2 1 Annual Report Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2021 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. Opening balance Shares issued at $0.5773 under the Dividend Reinvestment Plan Transaction costs Closing balance Consolidated 30 June 2021 Number 230,037,638 2,346,779 - 232,384,417 30 June 2021 $’000 94,352 1,354 (54) 95,652 30 June 2020 Number 230,037,638 30 June 2020 $’000 94,352 - - - - 230,037,638 94,352 Share buy back The Company closed the on-market share buyback on 15 March 2021. No ordinary shares were bought back and cancelled during the year (2020: nil). Share based payment reserve 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. Opening balance Share based payments expense Closing balance 21. DIVIDENDS Dividends on ordinary shares declared and paid: Final dividend - 2020: 0.55 cents per share (2019: 1.0 cents per share) Interim dividend - 2021: 0.59 cents per share (2020: 0.55 cents per share) 30 June 2021 $’000 30 June 2020 $’000 5 51 56 - 5 5 30 June 2021 $’000 30 June 2020 $’000 1,265 1,357 2,622 2,300 1,265 3,565 The 2021 interim dividend was fully underwritten. Details of shares issued under the Dividend Reinvestment Plan are shown in Note 20. Proceeds received from the underwriter were $0.71 million. Since 30 June 2021, the Board has declared a final dividend of 0.59 cents per share, amounting to $1.37 million payable on 28 September 2021. The financial effect of this dividend has not been brought to account in the financial statements for the year ended 30 June 2021 and will be recognised in subsequent financial reports. 49 ANNUAL REPORT 2021 49 2 0 2 1 Annual Report Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2021 22. CASH FLOW INFORMATION (a) Reconciliation of cash Cash at bank and on hand Consolidated 30 June 2021 $’000 30 June 2020 $’000 1,890 2,451 (b) Reconciliation of profit before tax to net cash flow from operating activities Profit after income tax expense Depreciation and amortisation Net (gain)/loss on change in fair value of investment properties Net (gain)/loss on change in fair value of 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 inventory Gain on sale of management rights Share based payments expense Non-cash purchases (Increase)/decrease in: - Trade and other receivables - Other current assets Increase/(decrease) in: - Trade and other payables - Provisions - Other financial liabilities - Deferred tax liability Net cash provided by operating activities (c) Non-cash investing and financing activities Consolidated 30 June 2021 30 June 2020 $’000 $’000 6,283 587 (2,361) 525 1,050 (1,558) 667 - (731) (10) 51 35 (1) (86) 916 22 - 2,459 7,848 8,095 591 (1,383) 53 619 (1,980) 686 (3) (1,031) - 5 38 (76) (71) 974 168 (46) 980 7,614 During the year, the Group acquired goods and services of $0.13 million with Bartercard dollars (2020: $0.06 million). Shares valued at $0.64 million were issued pursuant to the Dividend Reinvestment Plan in lieu of the payment of dividends. Details of other prior year non-cash transactions are disclosed are contained in the Group’s financial report for the year ended 30 June 2020. ANNUAL REPORT 2021 50 50 2 0 2 1 Annual Report Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2021 23. FINANCIAL INSTRUMENTS Overall policy The Board has overall responsibility for the establishment and oversight of the Group’s risk management framework. The Board 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. CAPITAL MANAGEMENT When managing capital, the objective is to ensure the Group has sufficient funds available for working capital and to meet its commitments, 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 to ensure that there is sufficient cash flow for working capital, settling obligations when due and ensuring funding is available for growth opportunities. (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 cash and cash equivalents, receivables from residents and amounts due from the seniors’ independent living communities in accordance with management agreements in place, 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 2021 $’000 30 June 2020 $’000 1,890 414 560 1,800 - 4,664 2,451 316 749 1,935 1,050 6,501 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 as the majority of residents are 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 2021 51 2 0 2 1 Annual Report Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2021 The ageing of trade receivables and other receivables at the reporting date was: Trade and other receivables - gross amount receivable Due 0-30 days Past due 30-60 days Past due 60-90 days Past due 90 + days Consolidated 30 June 2021 $’000 30 June 2020 $’000 362 44 2 6 414 240 - 9 67 316 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 7 individual loan contracts (2020: 10). The Group manages the units which are being held as security for the vendor finance 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 loans receivable. The Group has no concentrations of credit risk that have not been provided for. Loans receivable – gross amount receivable Current Non-current Consolidated 30 June 2021 $’000 30 June 2020 $’000 214 346 560 396 353 749 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 Eureka has a $3.00 million loan receivable from CCH Developments No 1 Pty Ltd (2020: $3.00 million). It is secured by a real property mortgage over 60 proposed cabin sites at Couran Cove. Eureka has a right of first refusal (option) to purchase the proposed cabin sites to offset the loan. During the year, the asset has been impaired by $1.05 million (2020: $0.19 million) and its carrying value at year end is $nil (2020: $1.05 million). 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 acquisitions. The Group had unused borrowing facilities of $20.32 million (2020: $5.53 million) at the reporting date. The tables below show the Group’s financial liabilities classified into relevant maturity groupings based on their contractual maturities. 30 June 2021 Trade and other payables Loans - secured 1 Other financial liabilities Deferred payment liability Total Contractual cash flows $’000 Less than 6 months $’000 Consolidated 6 - 12 months $’000 1 – 2 years $’000 More than 2 years $’000 3,422 61,481 841 2,500 68,244 3,422 1,137 64 - 4,623 - 893 64 - 957 - 1,300 128 2,500 3,928 - 58,151 585 - 58,736 ANNUAL REPORT 2021 52 52 2 0 2 1 Annual Report Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2021 30 June 2020 Trade and other payables Loans - secured 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 2,125 58,201 1,256 61,582 2,125 1,555 185 3,865 - 1,087 100 1,187 - 55,559 128 55,687 - - 843 843 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 bank borrowings. Borrowings issued at variable rates expose the Group to interest rate risk. At 30 June 2021, $22.18 million of the Group’s bank loan is 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, non-current assets held for sale and other assets (Couran Cove loan including land option) 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 2021 53 2 0 2 1 Annual Report Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2021 Fair value of financial instruments (unrecognised) The Group has a number of financial assets and financial liabilities which are required to be 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 – 2021 Assets Other assets – loan including land option Non-current assets held for sale Investment property Total assets Consolidated – 2020 Assets Other assets – loan including land option Non-current assets held for sale Investment property Total assets - - - - - - - - - 2,258 - 2,258 - 483 - 483 - - 139,037 139,037 1,050 - 121,443 122,493 - 2,258 139,037 141,295 1,050 483 121,443 122,976 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 future maintainable earnings of each village into perpetuity and applying a capitalisation rate. The capitalisation rate is based on current market evidence. Future earnings projections take into account occupancy rates, 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 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 2021, management has estimated the fair values by performing internal valuations using the capitalisation method taking into account the most recent external valuation undertaken by an independent valuer. The fair value of Eureka’s $3.00 million loan receivable (including land option at Couran Cove) has been assessed having regard to an independent external valuation of the secured land as at 30 June 2021, commercial considerations related to land holdings and development at Couran Cove and legal advice as to the avenues available to the Group to realise the asset. Refer Note 9 for further details. In the prior year, the fair value assessment was based on the net present value of the loan over the period it was expected to be realised, using a discount rate of 30%. It has been classified as a non- current other asset as it is not expected to be realised within 12 months. ANNUAL REPORT 2021 54 54 2 0 2 1 Annual Report Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2021 The level 3 assets significant unobservable inputs and sensitivity are as follows: Description Valuation technique Significant unobservable inputs Range (weighted average) Relationship of unobservable input to fair value Other assets – loan including land option External valuation Comparable sales evidence 2021 N/A Costs to realise the loan N/A Net present value (NPV) Discount pre-tax rate N/A 2020 N/A N/A 30% The external valuation has a direct correlation to the loan’s value. Costs of realisation have an indirect correlation to the loan’s value (i.e. the lower they are, the greater the value). A change in the discount rate would result in the following impact on NPV. In 2020: +5%: NPV decreases by $147,000 - 5%: NPV increases by $178,000 Time frame of realisation N/A 3 – 5 years A change in the timeframe for realisation would result in the following impact on NPV. In 2020: +1 year: NPV decreases by $242,000 - 1 year: NPV increases by $315,000 Investment properties – rental villages Capitalisation method 1 Capitalisation rate 9.00%-11.00% (9.92%) 2 8.25%- 11.38% (10.08%) 2 Capitalisation rate has an inverse relationship to valuation. Stabilised occupancy 88%-100% (97.2%) 87%-100% (95.8%) Investment properties – individual village units Direct comparison approach Comparable sales evidence N/A N/A Occupancy has a direct correlation to valuation (i.e. the higher the occupancy, the greater the value). Comparable sales evidence has a direct relationship to valuation. 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 four apartment-style complexes with a capitalisation rate range of 6.5% to 8% and a village in which National Disability Insurance Scheme services revenue is earned with a capitalisation rate of 14%. 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, 10, 13 and 17. 55 ANNUAL REPORT 2021 55 2 0 2 1 Annual Report Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2021 25. COMMITMENTS AND CONTINGENCIES As at the 30 June 2021, the Group had the following commitments: • • • • • Bank guarantees to various landlords of $0.03 million (2020: $0.05 million); Bank guarantee facility of $2.50 million to secure deferred consideration payable for the acquisition of the Hervey Bay village; Unconditional contract to acquire 2 units at its strata titled village in Rockhampton, Qld for $0.26 million; Unconditional contract to acquire Gainsborough Lifestyle Village in Brassall, Qld for $6.50 million; and Wynnum construction costs of $1.80 million. The Group had no other material commitments as at 30 June 2021. 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. Profit after income tax expense Weighted average number of ordinary shares used in calculating basic earnings per share 30 June 2021 $’000 30 June 2020 $’000 6,283 8,095 #’000 230,494 #’000 230,038 Effects of dilution from share rights 1 429 41 Weighted average number of ordinary shares & potential ordinary shares used in calculating diluted earnings per share 230,923 230,079 Basic earnings per share Diluted earnings per share 2.73 cents 2.72 cents 3.52 cents 3.52 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. ANNUAL REPORT 2021 56 56 2 0 2 1 Annual Report Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2021 27. SHARE BASED PAYMENTS Share rights The Company has a long term incentive plan pursuant to which share rights are granted to key management personnel, subject to service and performance conditions. No share rights were issued during the year. In the prior year 429,362 share rights were issued with an exercise price of $nil. The share rights vest on 30 September 2022, subject to the satisfaction of performance and service conditions. 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. Options No options were issued during the year or outstanding at 30 June 2021. Share based payment expense The expense recognised during the year is shown in the following table: Total expense arising from share based payment transactions Movements during the year 30 June 2021 $’000 30 June 2020 $’000 51 5 The following table illustrates the number and weighted average exercise prices (WAEP) of, and movements in, share rights during the year: Share rights 30 June 2021 Number 2021 WEAP 30 June 2020 Number 2020 WAEP Outstanding at the beginning of the year 429,362 Granted during the year Forfeited during the year Outstanding at the end of the year - - 429,362 - - - - - 429,362 - 429,362 - - - - The following table list the inputs to the model used to value the share rights issued to key management personnel in the prior period: Grant date Expiry date Share price at grant date ($) Exercise price ($) Fair value of right ($) Dividend yield (%) Expected volatility (%) Risk-free interest rate (%) Expected life of share rights (years) Model used 57 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 ANNUAL REPORT 2021 57 2 0 2 1 Annual Report Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2021 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. 28. RELATED PARTY TRANSACTIONS (a) Key management personnel compensation Short term employee benefits Post-employment benefits Other employee benefits Total Consolidated 30 June 2021 30 June 2020 $’000 $’000 1,310 85 51 1,446 1,110 86 5 1,201 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: Joint venture Management fees Sales to related parties Amounts owed by related parties 30 June 2021 $’000 30 June 2020 $’000 30 June 2021 $’000 30 June 2020 $’000 294 282 41 24 Amounts owed by related parties are classified as trade receivables. All transactions were made on commercial terms and conditions and at market rates. Outstanding balances are unsecured and are repayable in cash. There were no transactions with parties related to a director during the year. Details of prior period transactions with former director-related entities are contained in the Group’s financial report for the year ended 30 June 2020. 29. ULTIMATE PARENT ENTITY The parent entity within the group is Eureka Group Holdings Limited, which is the ultimate parent entity within Australia. ANNUAL REPORT 2021 58 58 2 0 2 1 Annual Report Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2021 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 segment’s 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 per Note 2 and Australian Accounting Standards. Balances have been allocated to segments as follows: • • • Rental villages includes the investment in the joint venture; Property management includes management rights; and Unallocated includes Terranora inventory and the sale of units, Terranora vacant land, Couran Cove assets 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. Cash flows are not measured or reported by segment. 59 ANNUAL REPORT 2021 59 2 0 2 1 Annual Report Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2021 Rental villages $’000 Property management $’000 Unallocated $’000 Total $’000 Consolidated - 30 June 2021 Revenue Finance income Other income Total revenue and other income Expenses Finance costs 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 24,126 - 688 24,814 (12,268) (2,575) (14,843) 2,361 (59) 1,558 - 3,860 13,831 (3,596) 10,235 147,430 62,592 Non-cash and other significant items included in profit: Gain on revaluation of investment property Loss on revaluation of other assets Share of profit of joint venture Impairment of intangibles and other assets Depreciation & amortisation Amortisation of borrowing costs Segment acquisitions: Acquisition and subsequent expenditure of investment property Acquisition of property, plant and equipment Additions to inventory 2,361 (59) 1,558 - (39) (266) 17,450 - - 3,456 - 10 3,466 (2,193) (37) (2,230) - - - - - 1,236 (413) 823 4,799 880 - - - - (438) - - - - - 25 1,129 1,154 (5,949) (14) (5,963) - (466) - (1,050) (1,516) (6,325) 1,550 (4,775) 6,740 4,617 - (466) - (1,050) (110) - - 55 66 27,582 25 1,827 29,434 (20,410) (2,626) (23,036) 2,361 (525) 1,558 (1,050) 2,344 8,742 (2,459) 6,283 158,969 68,089 2,361 (525) 1,558 (1,050) (587) (266) 17,450 55 66 ANNUAL REPORT 2021 60 60 2 0 2 1 Annual Report Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2021 Consolidated - 30 June 2020 Revenue Finance income Other income Rental villages $’000 Property management $’000 21,426 3,383 - 50 - - Total revenue and other income 21,476 3,383 Expenses Finance costs Total operating expenses (9,894) (2,460) (12,354) (2,222) (45) (2,267) 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 1,383 (53) 1,980 - 3,310 12,432 (3,730) 8,702 129,236 60,131 Non-cash and other significant items included in profit: Gain on revaluation of investment property Loss on revaluation of other assets Share of profit of joint venture Impairment of intangibles and other assets Depreciation & amortisation Amortisation of borrowing costs Segment acquisitions: Acquisition and subsequent expenditure of investment property Acquisition of property, plant and equipment Additions to inventory 1,383 (53) 1,980 - (82) (207) 16,608 - - - - - (80) (80) 1,036 (311) 725 4,977 1,393 - - - (80) (380) - - - - Unallocated $’000 Total $’000 - 36 1,173 1,209 (5,060) (3) (5,063) - - - (539) (539) (4,393) 3,061 (1,332) 10,992 (2,187) - - - (539) (129) - - 18 463 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) 1,980 (619) (591) (207) 16,608 18 463 61 ANNUAL REPORT 2021 61 2 0 2 1 Annual Report Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2021 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 tax advice Total auditor’s remuneration 32. PARENT ENTITY DISCLOSURES Information relating to Eureka Group Holdings Limited (parent entity): Results of the parent entity Profit for the year Other comprehensive income Total comprehensive income for the year Financial position of parent entity at year-end Current assets Non-current assets Total assets Current liabilities Non-current liabilities Total liabilities Share capital Equity reserve Accumulated losses Total equity Consolidated 30 June 2021 30 June 2020 $ $ 200,000 - 200,000 146,100 20,900 167,000 30 June 2021 30 June 2020 $’000 $’000 12,789 - 12,789 3,466 106,216 109,682 1,262 57,252 58,514 95,652 56 (44,540) 51,168 5,303 - 5,303 1,915 93,848 95,763 895 55,218 56,113 94,353 5 (54,708) 39,650 Guarantees entered into by the parent entity From time to time, the parent entities provides financial guarantees in relation to the debts of its subsidiaries, in the ordinary course of business. Contingent liabilities of the parent entity The parent entity did not have any contingent liabilities as at 30 June 2021. 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 2021. ANNUAL REPORT 2021 62 62 2 0 2 1 Annual Report Eureka Group Holdings Limited and controlled entities Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2021 33. SUBSEQUENT EVENTS Subsequent to year end, the following significant transactions have occurred: • • • Brassall acquisition – the purchase of Gainsborough Lifestyle village (Brassall, Qld) was completed on 9 July 2021 which consists of 59 relocatable homes and surplus land. Total consideration paid was $6.50 million excluding transaction costs. A deposit of $0.32 million is recorded in other assets – current at year end. Terranora disposal – the Group entered into a conditional contract for the sale of the vacant land at Terranora, NSW for total sale proceeds of $2.1 million including GST. The contract is subject to the purchaser’s due diligence and contains a 6 month settlement period. If the contract becomes unconditional, settlement would be expected in early 2022. Eureka continues to own the manager’s unit at the property. Dividend – the Company declared a final dividend in respect of the year of 0.59 cents per share, payable on 28 September 2021 amounting to $1.37 million. Other than the above mentioned items, no other matter or circumstance has arisen since 30 June 2021 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 2021 63 2 0 2 1 Annual Report Eureka Group Holdings Limited and controlled entities Directors’ Declaration FOR THE YEAR ENDED 30 JUNE 2021 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 2021 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 2021. On behalf of the Board Murray Boyte Executive Chair Dated in Brisbane this 30th of August 2021. ANNUAL REPORT 2021 64 64 2 0 2 1 Annual Report Ernst & Young 111 Eagle Street Brisbane QLD 4000 Australia GPO Box 7878 Brisbane QLD 4001 Tel: +61 7 3011 3333 Fax: +61 7 3011 3100 ey.com/au Ernst & Young 111 Eagle Street Brisbane QLD 4000 Australia GPO Box 7878 Brisbane QLD 4001 Tel: +61 7 3011 3333 Fax: +61 7 3011 3100 ey.com/au Independent Auditor's Report to the Members of Eureka Group Holdings Limited Independent Auditor's Report to the Members of Eureka Group Holdings Report on the Audit of the Financial Report Limited Opinion Report on the Audit of the Financial Report 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 Opinion as at 30 June 2021, the consolidated statement of profit or loss and other 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 We have audited the financial report of Eureka Group Holdings Limited (the Company) and its the directors' declaration. subsidiaries (collectively the Group), which comprises the consolidated statement of financial position as at 30 June 2021, the consolidated statement of profit or loss and other comprehensive income, In our opinion, the accompanying financial report of the Group is in accordance with the Corporations consolidated statement of changes in equity and consolidated statement of cash flows for the year then Act 2001, including: ended, notes to the financial statements, including a summary of significant accounting policies, and the directors' declaration. a) In our opinion, the accompanying financial report of the Group is in accordance with the Corporations Act 2001, including: b) a) complying with Australian Accounting Standards and the Corporations Regulations 2001. giving a true and fair view of the consolidated financial position of the Group as at 30 June 2021 and of its consolidated financial performance for the year ended on that date; and giving a true and fair view of the consolidated financial position of the Group as at 30 June 2021 and of its consolidated financial performance for the year ended on that date; and Basis for Opinion complying with Australian Accounting Standards and the Corporations Regulations 2001. b) 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 Basis for Opinion 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 We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under Accountants including Independence Standards (the Code) that are relevant to our audit of the financial those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. 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 We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional our opinion. 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. Key Audit Matters We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. 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 Key Audit Matters 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. 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. A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation 65A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation 65 65 2 0 2 1 Annual Report Ernst & Young 111 Eagle Street Brisbane QLD 4000 Australia GPO Box 7878 Brisbane QLD 4001 Tel: +61 7 3011 3333 Fax: +61 7 3011 3100 ey.com/au Independent Auditor's Report to the Members of Eureka Group Holdings We have fulfilled the responsibilities described in the Auditor’s Responsibilities for the Audit of the 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 Limited 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 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 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 Report on the Audit of the Financial Report performed to address the matters below, provide the basis for our audit opinion on the accompanying financial report. financial report. Opinion Valuation of Investment Properties Valuation of Investment Properties • • • • complying with Australian Accounting Standards and the Corporations Regulations 2001. • Held inquiries of management to assess: • Held inquiries of management to assess: giving a true and fair view of the consolidated financial position of the Group as at 30 June 2021 and of its consolidated financial performance for the year ended on that date; and methodology used across the portfolio and tested the methodology used across the portfolio and tested the inputs and assumptions including capitalisation rates, inputs and assumptions including capitalisation rates, occupancy levels and maintainable earnings. occupancy levels and maintainable earnings. The inputs and assumptions used in valuations at The inputs and assumptions used in valuations at 30 June 2021. 30 June 2021. Asset specific matters that are factored in the Asset specific matters that are factored in the valuations such as major development activity. valuations such as major development activity. How our audit addressed the key audit matter How our audit addressed the key audit matter In conducting our audit we performed the following audit procedures: In conducting our audit we performed the following audit procedures: • Evaluated the suitability of the valuation • Evaluated the suitability of the valuation 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 Why significant as at 30 June 2021, the consolidated statement of profit or loss and other comprehensive income, Why significant consolidated statement of changes in equity and consolidated statement of cash flows for the year then At 30 June 2021, the Group had investment ended, notes to the financial statements, including a summary of significant accounting policies, and At 30 June 2021, the Group had investment properties carried at $139.0m, representing the directors' declaration. properties carried at $139.0m, representing 87% of total assets at that date. 87% of total assets at that date. In our opinion, the accompanying financial report of the Group is in accordance with the Corporations Investment properties are initially recognised Act 2001, including: Investment properties are initially recognised at cost, including transaction costs, and at cost, including transaction costs, and subsequently measured at fair value. Gains or a) subsequently measured at fair value. Gains or losses arising from changes in fair value are losses arising from changes in fair value are recognised in the statement of profit or loss recognised in the statement of profit or loss and other comprehensive income. b) and other comprehensive income. Fair value measurement involves a high Fair value measurement involves a high degree of estimation and judgement, and the Basis for Opinion degree of estimation and judgement, and the involvement of external valuation specialists. involvement of external valuation specialists. The key inputs include capitalisation rates, We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under The key inputs include capitalisation rates, occupancy levels and maintainable earnings. those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial occupancy levels and maintainable earnings. Report section of our report. We are independent of the Group in accordance with the auditor Significant assumptions and judgements used independence requirements of the Corporations Act 2001 and the ethical requirements of the Significant assumptions and judgements used in the valuation of investment property are Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional in the valuation of investment property are inherently subjective and in times of • Assessed the qualifications, competence and Accountants including Independence Standards (the Code) that are relevant to our audit of the financial inherently subjective and in times of economic uncertainty the degree of • Assessed the qualifications, competence and report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. economic uncertainty the degree of subjectivity higher than it might be otherwise. subjectivity higher than it might be otherwise. The fair value of investment property is We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for The fair value of investment property is estimated based on conditions existing at 30 our opinion. estimated based on conditions existing at 30 June 2021. June 2021. Review and assess a sample of external property Note 2, 13 and 24 of the financial report Review and assess a sample of external property valuations. Key Audit Matters Note 2, 13 and 24 of the financial report details the accounting policy for investment valuations. details the accounting policy for investment property assets, key inputs and sensitivities • Assist with the assessment of capitalisation Key audit matters are those matters that, in our professional judgment, were of most significance in our property assets, key inputs and sensitivities associated with reasonably possible changes • Assist with the assessment of capitalisation rates adopted by management across the audit of the financial report of the current year. These matters were addressed in the context of our associated with reasonably possible changes in those inputs. rates adopted by management across the portfolio . audit of the financial report as a whole, and in forming our opinion thereon, but we do not provide a in those inputs. portfolio . separate opinion on these matters. For each matter below, our description of how our audit addressed Valuation of investment property is the matter is provided in that context. Valuation of investment property is considered a key audit matter due to the considered a key audit matter due to the significance of this balance and the level of significance of this balance and the level of estimation and judgement involved in estimation and judgement involved in determining its carrying value determining its carrying value objectivity of the independent valuation experts used objectivity of the independent valuation experts used by the Group. by the Group. Involved our real estate valuation specialists to: Involved our real estate valuation specialists to: • • • Conducted site visits to selected assets to understand • Conducted site visits to selected assets to understand asset specific adjustments factored in the valuation. asset specific adjustments factored in the valuation. • Assessed whether the valuations appropriately • Assessed whether the valuations appropriately considered the impact of COVID-19. considered the impact of COVID-19. • Assessed appropriateness of disclosures included in • Assessed appropriateness of disclosures included in the financial report, particularly those in relation to the financial report, particularly those in relation to investment property valuation. 65 investment property valuation. • • 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 A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation 66 66 66 2 0 2 1 Annual Report Ernst & Young 111 Eagle Street Brisbane QLD 4000 Australia GPO Box 7878 Brisbane QLD 4001 Tel: +61 7 3011 3333 Fax: +61 7 3011 3100 ey.com/au Independent Auditor's Report to the Members of Eureka Group Holdings Impairment Testing of Goodwill Limited Impairment Testing of Goodwill Generating Units. Generating Units. model prepared to test goodwill impairment. How our audit addressed the key audit matter requirements of Australian Accounting Standards. • Tested the mathematical accuracy of the impairment model prepared to test goodwill impairment. • Assessed whether the impairment model met the • Evaluated the Group’s assessment of Cash • Tested the mathematical accuracy of the impairment How our audit addressed the key audit matter In conducting our audit we performed the following audit procedures: In conducting our audit we performed the following audit procedures: • Evaluated the Group’s assessment of Cash Why significant Report on the Audit of the Financial Report Why significant As at 30 June 2021, the Group carried $2.0m of goodwill. Opinion As at 30 June 2021, the Group carried $2.0m of goodwill. As described in Note 16, the Group tests We have audited the financial report of Eureka Group Holdings Limited (the Company) and its goodwill for impairment on an annual basis. subsidiaries (collectively the Group), which comprises the consolidated statement of financial position As described in Note 16, the Group tests as at 30 June 2021, the consolidated statement of profit or loss and other comprehensive income, goodwill for impairment on an annual basis. The recoverable amount has been determined consolidated statement of changes in equity and consolidated statement of cash flows for the year then for goodwill based on a value in use model ended, notes to the financial statements, including a summary of significant accounting policies, and The recoverable amount has been determined based on discounted forecast cash flows. This the directors' declaration. for goodwill based on a value in use model model contains estimates and significant based on discounted forecast cash flows. This judgements and inputs regarding forecast In our opinion, the accompanying financial report of the Group is in accordance with the Corporations • Assessed whether the impairment model met the model contains estimates and significant cashflows, discount rate and growth rate. Act 2001, including: requirements of Australian Accounting Standards. judgements and inputs regarding forecast • Tested the accuracy of the Group’s historical cash cashflows, discount rate and growth rate. flow forecasts. We agreed the forecasts to Board Significant assumptions and judgements used a) giving a true and fair view of the consolidated financial position of the Group as at 30 June 2021 • Tested the accuracy of the Group’s historical cash approved budgets and compared those forecasts to in the impairment testing referred to above and of its consolidated financial performance for the year ended on that date; and flow forecasts. We agreed the forecasts to Board Significant assumptions and judgements used previously achieved results and considered any are inherently subjective and in times of approved budgets and compared those forecasts to in the impairment testing referred to above adjustments required for current trading and market economic uncertainty the degree of b) previously achieved results and considered any are inherently subjective and in times of activities. subjectivity is higher than it might otherwise adjustments required for current trading and market economic uncertainty the degree of be. The estimate of carrying value is based on activities. subjectivity is higher than it might otherwise conditions existing at 30 June 2021. Basis for Opinion be. The estimate of carrying value is based on • Assessed key assumptions within the impairment conditions existing at 30 June 2021. Due to the significance of this balance and the We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under level of estimation and judgement involved, those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Due to the significance of this balance and the the impairment assessment of goodwill was Report section of our report. We are independent of the Group in accordance with the auditor level of estimation and judgement involved, considered a key audit matter. independence requirements of the Corporations Act 2001 and the ethical requirements of the the impairment assessment of goodwill was Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional June 2021 to the net assets of the Group. considered a key audit matter. 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. model including the growth rate, forecast cash flows and discount rate. model including the growth rate, forecast cash flows and discount rate. • Compared the Group’s market capitalisation at 30 • Assessed the appropriateness of disclosures included in the financial report, particularly those in relation to • Assessed the appropriateness of disclosures included goodwill impairment testing included in Note 16. in the financial report, particularly those in relation to goodwill impairment testing included in Note 16. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. complying with Australian Accounting Standards and the Corporations Regulations 2001. • Compared the Group’s market capitalisation at 30 • Assessed key assumptions within the impairment June 2021 to the net assets of the Group. Information Other than the Financial Report and Auditor’s Report Thereon Key Audit Matters The directors are responsible for the other information. The other information comprises the Information Other than the Financial Report and Auditor’s Report Thereon information included in the Group’s Annual Report, but does not include the financial report and our The directors are responsible for the other information. The other information comprises the Key audit matters are those matters that, in our professional judgment, were of most significance in our auditor’s report thereon. information included in the Group’s Annual Report, but does not include the financial report and our audit of the financial report of the current year. These matters were addressed in the context of our auditor’s report thereon. audit of the financial report as a whole, and in forming our opinion thereon, but we do not provide a Our opinion on the financial report does not cover the other information and accordingly we do not separate opinion on these matters. For each matter below, our description of how our audit addressed express any form of assurance conclusion thereon, with the exception of the Remuneration Report and Our opinion on the financial report does not cover the other information and accordingly we do not the matter is provided in that context. our related assurance opinion. 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 In connection with our audit of the financial report, our responsibility is to read the other information report or our knowledge obtained in the audit or otherwise appears to be materially misstated. 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. A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation 65 67 A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation 67A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation 67 2 0 2 1 Annual Report Ernst & Young 111 Eagle Street Brisbane QLD 4000 Australia GPO Box 7878 Brisbane QLD 4001 Tel: +61 7 3011 3333 Fax: +61 7 3011 3100 ey.com/au Independent Auditor's Report to the Members of Eureka Group Holdings Limited 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. Report on the Audit of the Financial Report Responsibilities of the Directors for the Financial Report Opinion The directors of the Company are responsible for the preparation of the financial report that gives a We have audited the financial report of Eureka Group Holdings Limited (the Company) and its true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 subsidiaries (collectively the Group), which comprises the consolidated statement of financial position and for such internal control as the directors determine is necessary to enable the preparation of the as at 30 June 2021, the consolidated statement of profit or loss and other comprehensive income, financial report that gives a true and fair view and is free from material misstatement, whether due to consolidated statement of changes in equity and consolidated statement of cash flows for the year then fraud or error. ended, notes to the financial statements, including a summary of significant accounting policies, and the directors' declaration. 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 In our opinion, the accompanying financial report of the Group is in accordance with the Corporations going concern basis of accounting unless the directors either intend to liquidate the Group or to cease Act 2001, including: operations, or have no realistic alternative but to do so. a) giving a true and fair view of the consolidated financial position of the Group as at 30 June 2021 and of its consolidated financial performance for the year ended on that date; and Auditor's Responsibilities for the Audit of the Financial Report complying with Australian Accounting Standards and the Corporations Regulations 2001. b) 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 Basis for Opinion 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 We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under if, individually or in the aggregate, they could reasonably be expected to influence the economic those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial decisions of users taken on the basis of this financial report. 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 As part of an audit in accordance with the Australian Auditing Standards, we exercise professional Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional judgment and maintain professional scepticism throughout the audit. We also: 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. • 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 We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not our opinion. 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. Key Audit Matters • Obtain an understanding of internal control relevant to the audit in order to design audit Key audit matters are those matters that, in our professional judgment, were of most significance in our procedures that are appropriate in the circumstances, but not for the purpose of expressing an audit of the financial report of the current year. These matters were addressed in the context of our opinion on the effectiveness of the Group’s internal control. 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. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors. 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 65 68 68 2 0 2 1 Annual Report Ernst & Young 111 Eagle Street Brisbane QLD 4000 Australia GPO Box 7878 Brisbane QLD 4001 Tel: +61 7 3011 3333 Fax: +61 7 3011 3100 ey.com/au Report on the Audit of the Financial Report Independent Auditor's Report to the Members of Eureka Group Holdings Limited • 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. 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 2021, the consolidated statement of profit or loss and other comprehensive income, • Evaluate the overall presentation, structure and content of the financial report, including the consolidated statement of changes in equity and consolidated statement of cash flows for the year then disclosures, and whether the financial report represents the underlying transactions and events ended, notes to the financial statements, including a summary of significant accounting policies, and in a manner that achieves fair presentation. the directors' declaration. Opinion • Obtain sufficient appropriate audit evidence regarding the financial information of the entities or In our opinion, the accompanying financial report of the Group is in accordance with the Corporations business activities within the Group to express an opinion on the financial report. We are Act 2001, including: responsible for the direction, supervision and performance of the Group audit. We remain solely responsible for our audit opinion. giving a true and fair view of the consolidated financial position of the Group as at 30 June 2021 and of its consolidated financial performance for the year ended on that date; and a) We communicate with the directors regarding, among other matters, the planned scope and timing of complying with Australian Accounting Standards and the Corporations Regulations 2001. b) the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. Basis for Opinion 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 We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under matters that may reasonably be thought to bear on our independence, and where applicable, actions those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial taken to eliminate threats or safeguards applied. 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 From the matters communicated to the directors, we determine those matters that were of most Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional significance in the audit of the financial report of the current year and are therefore the key audit Accountants including Independence Standards (the Code) that are relevant to our audit of the financial matters. We describe these matters in our auditor’s report unless law or regulation precludes public report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. 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 We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for reasonably be expected to outweigh the public interest benefits of such communication. our opinion. Report on the Audit of the Remuneration Report Key Audit Matters Opinion on the Remuneration Report 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 We have audited the Remuneration Report included in the directors' report for the year ended 30 June audit of the financial report as a whole, and in forming our opinion thereon, but we do not provide a 2021. separate opinion on these matters. For each matter below, our description of how our audit addressed the matter is provided in that context. In our opinion, the Remuneration Report of Eureka Group Holdings Limited for the year ended 30 June 2021, complies with section 300A of the Corporations Act 2001. A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation 69A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation 65 69 2 0 2 1 Annual Report Ernst & Young 111 Eagle Street Brisbane QLD 4000 Australia GPO Box 7878 Brisbane QLD 4001 Tel: +61 7 3011 3333 Fax: +61 7 3011 3100 ey.com/au Independent Auditor's Report to the Members of Eureka Group Holdings Limited Responsibilities Report on the Audit of the Financial Report 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 Opinion Auditing Standards. 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 2021, the consolidated statement of profit or loss and other 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 Ernst & Young the directors' declaration. In our opinion, the accompanying financial report of the Group is in accordance with the Corporations Act 2001, including: a) Wade Hansen Partner Brisbane b) 30 August 2021 giving a true and fair view of the consolidated financial position of the Group as at 30 June 2021 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. 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 65 70 70 2 0 2 1 Annual Report Ernst & Young 111 Eagle Street Brisbane QLD 4000 Australia GPO Box 7878 Brisbane QLD 4001 Tel: +61 7 3011 3333 Fax: +61 7 3011 3100 ey.com/au Ernst & Young 111 Eagle Street Brisbane QLD 4000 Australia GPO Box 7878 Brisbane QLD 4001 Tel: +61 7 3011 3333 Fax: +61 7 3011 3100 ey.com/au Independent Auditor's Report to the Members of Eureka Group Holdings Limited Report on the Audit of the Financial Report Auditor’s Independence Declaration to the Directors of Eureka Group Opinion Holdings Limited 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 2021, the consolidated statement of profit or loss and other comprehensive income, As lead auditor for the audit of the financial report of Eureka Group Holdings Limited for the financial consolidated statement of changes in equity and consolidated statement of cash flows for the year then year ended 30 June 2021, I declare to the best of my knowledge and belief, there have been: ended, notes to the financial statements, including a summary of significant accounting policies, and the directors' declaration. a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and In our opinion, the accompanying financial report of the Group is in accordance with the Corporations b) no contraventions of any applicable code of professional conduct in relation to the audit. Act 2001, including: a) This declaration is in respect of Eureka Group Holdings Limited and the entities it controlled during the giving a true and fair view of the consolidated financial position of the Group as at 30 June 2021 financial year. and of its consolidated financial performance for the year ended on that date; and b) complying with Australian Accounting Standards and the Corporations Regulations 2001. Basis for Opinion Ernst & Young 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. Wade Hansen Partner Brisbane 30 August 2021 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. 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 65 71 2 0 2 1 Annual Report Eureka 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 (4th 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/. ANNUAL REPORT 2021 72 72 2 0 2 1 Annual Report Eureka Group Holdings Limited and controlled entities Security Holder Information Distribution of Securities as at 6 August 2021 Number of Securities 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 and over No of Shareholders 350 221 100 297 98 Total Security Holders 1,066 Marketable Shares There were 314 holders of less than a marketable parcel of 826 shares holding a total of 55,712 shares. Voting Rights Ordinary Shares carry voting rights of one vote per share. Options and share rights carry no voting rights. Substantial Holders as at 6 August 2021 NAOS Asset Management Limited Cooper Investors Pty Limited Tribeca Investment Partners Charter Hall Property Securities Management Limited 1 Ethical Partners Funds Management Pty Ltd Sunsuper Pty Ltd Total No of Ordinary Shares Held % of Issued Share Capital 46,213,010 32,934,541 25,365,406 19,706,125 19,268,057 14,632,669 158,119,808 19.89 14.17 10.92 8.48 8.29 6.30 68.05 1 Includes One Management Investment Funds Limited 11,865,789 5.11 Twenty Largest Ordinary Shareholders as at 6 August 2021 National Nominees Limited HSBC Custody Nominees (Australia) Limited J P Morgan Nominees Australia Pty Limited One Managed Investment Funds Limited Netwealth Investments Limited Bond Street Custodians Limited H & G Limited Mr Alister C Wright HIDIV Pty Ltd NEJA Pty Ltd Gold Tiger Investments Pty Ltd Citicorp Nominees Pty Limited HSBC Custody Nominees (Australia) Limited – A/C 2 Acadia Park Pty Ltd EXLDATA Pty Ltd Cobbitty Garden Centre Pty Ltd Strategic Value Pty Ltd EXLDATA Pty Ltd Mr Murray Raymond Boyte & Mrs Jane Elizabeth Boyte ACN 002 938 614 Limited Armada Trading Pty Ltd Total 73 No of Ordinary Shares Held % of Issued Share Capital 97,537,012 38,592,495 19,576,578 13,300,000 5,337,500 4,987,505 3,195,359 1,975,000 1,898,075 1,848,743 1,648,743 1,555,188 1,554,668 1,439,563 1,207,507 1,000,000 1,000,000 841,001 782,920 750,000 747,021 41.97 16.61 8.42 5.72 2.30 2.15 1.38 0.85 0.82 0.80 0.71 0.67 0.67 0.62 0.52 0.43 0.43 0.36 0.34 0.32 0.32 200,774,878 86.40 ANNUAL REPORT 2021 73 2 0 2 1 Annual Report Eureka Group Holdings Limited and controlled entities Corporate Directory Registered Address & Contact Details Suite 2D 7 Short St, Southport QLD 4215 PO Box 10819, Southport BC QLD 4215 07 5568 0205 www.eurekagroupholdings.com.au info@eurekagroupholdings.com.au Executive Chair Chief Executive Officer Chief Financial Officer & Company Secretary General Manager - Operations Registered Address Postal Address Phone number Website Email Board of Directors Murray Boyte Russell Banham Sue Renkin Greg Paramor AO Senior Management Cameron Taylor Laura Fanning Tracey Campion Solicitors Jones Day Riverside Centre Level 31/123 Eagle Street Brisbane QLD 4000 Tel: 07 3085 7000 Fax: 07 3085 7099 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 ANNUAL REPORT 2021 74 74 2 0 2 1 Annual Report This page is intentionally left blank 75 2 0 2 1 Annual Report This page is intentionally left blank 2 0 2 1 Annual ReportContact Details 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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