Finbar Group Limited
Annual Report 2020

Plain-text annual report

CONTENTS P. 2 Chairman’s Report P. 6 Managing Director’s Report P. 9 Completed Projects P. 12 Projects Under Construction P. 14 Future Projects P. 21 Investment Properties P. 23 Financial Report chairman’s REPORT Dear Shareholder, It is a great honour to present you with Finbar’s 25th Annual Report as a property development company and to announce its 24th year of consecutive profit. Finbar has this year delivered an after-tax net profit of $7.1 million for the financial year ending June 30th 2020. While market commentary covering the past financial year can not help but factor in and reference the unprecedented impact of a global pandemic, we have been encouraged by improved sales activity since June buoyed by Western Australia’s faster than expected recovery and its strong performance in terms of managing and mitigating COVID-19 related impacts. While it represents a lower than anticipated profit for the period, we believe it remains a significant achievement given the nature of the external environment as a result of COVID-19 and its ongoing impact on buyer behaviour, consumer sentiment and the broader economy. We have managed to successfully preserve our strong balance sheet with no borrowings on development assets as a result of judicious economic management in order to ensure we are better positioned to take advantage of the next upswing in the local market. The pandemic’s impact, which continues to be felt across the globe, comes on top of what was already one of the most challenging periods in the company’s 25 year history and at a stage when many in the industry were beginning to see signs of a clear and sustained recovery in the local market. We are proud to have again delivered shareholders with a profit, albeit less than anticipated in light of the trading conditions, and to have maintained our position as Western Australia’s leading apartment developer with 6402 lots delivered over the course of our 25-year history. The ongoing sound management of the company by its board and management team has seen Finbar retain a strong cash position of $30.6 million despite global uncertainty and ongoing subdued local market activity, and we are buoyed by the pipeline of diverse stock that we are able to offer. Our ability to continue to deliver significant profits at times of global and local uncertainty is a testament to the quality and experience of our team and has placed us in the enviable position of being debt free on all current and completed stock. During the past financial year, Finbar has completed both the low rise Palmyra East and One Kennedy Maylands projects as well as the 167 unit mixed use Sabina project in Applecross with a combined total of 418 units across all projects representing an end value in excess of $223 million. Despite ongoing challenging conditions, the company is nearing construction completion of the 125 unit Riverena Apartments in inner city Rivervale and has commenced construction of the 128 unit development in Dianella. The company is expected to commence construction on the landmark Civic Heart project in South Perth and AT238 on Adelaide Terrace in the 2020/2021 financial year. Over the course of the last financial year we have sold 200 units across all of our projects with an end value of $109.3 million which again, represents a significant achievement during a period in which we have had to manage the impact of a global pandemic on significant buying decisions and ongoing instability in financial markets as a result. JOHN CHAN Message from The Chairman 2 FINBAR GROUP LIMITED ANNUAL REPORT 2020Our track record and reputation for delivering complex projects on time and on budget, and the ongoing strength of our commercial relationships has also underpinned our ability to deliver consecutive profits in the face of considerable external pressures. The completion of the 30 level Sabina apartment project in March this year, with an average unit price of more than $700,000, marked a significant milestone for the company and was the largest contributor to second half results for the financial year. Located in the growing Canning Bridge precinct, the key driver for sales continues to be demand from owner occupiers largely drawn from within a five-kilometre radius of its location and with significant sales also attributed to the slowly returning investor market. Our track record and reputation for delivering complex projects on time and on budget, and the ongoing strength of our commercial relationships has also underpinned our ability to deliver consecutive profits in the face of considerable external pressures. This has also been boosted by a continued focus on our core business activity of delivering projects of scale in the Perth CBD and selected, strategically located suburbs which satisfy Finbar’s prerequisite for access to key amenities, transport and infrastructure. While the market remains somewhat unpredictable in terms of the impact of COVID-19 restrictions which are currently having a marked impact on interstate and international travel, we remain cautiously optimistic about the continued recovery and improvement in sales throughout the course of the calendar year. Finbar’s ability to remain agile and responsive under such conditions has underpinned the company’s ongoing resilience and success while other operators have fallen by the wayside and again is testament to the prudent and strategic management of the company’s assets and resources. Our commitment as a company to ongoing agility and responsiveness to prevailing market conditions and evolving buyer behaviour continues to impact the location and markets we target and which we believe will deliver ongoing shareholder value. The Perth residential market continues to evolve in line with global trends, with an increasing diversity of buyer demographics swapping the demands of larger free standing homes on more substantial lots for the relative convenience and sociability that apartment living offers and which continues to stimulate and underpin buyer demand. First home buyers and empty nesting down sizers continue to drive the bulk of the growth in demand for apartments across Perth, with a large proportion looking for the ease of moving from a family home to a high amenity apartment in suburbs familiar to them or of opting to sample city life after years in the suburbs. While first home buyers have dominated sales at Finbar’s One Kennedy and Palmyra East low rise developments, demand and competition in this sector has directly impacted margins achieved on these projects with higher specifications at each needed to drive sales in this particular market which has impacted profit levels this financial year. Finbar also this year welcomed the approval of its landmark Civic Heart project in one of South Perth’s most iconic locations after a prolonged period of reviews and delays. I would personally like to take this opportunity to thank the WA Minister for Planning, Ms Rita Saffioti, who approved the project in February this year following a comprehensive review of the Joint Development Assessment Panel’s previous decision. FINBAR GROUP LIM IT ED AN NU A L R EP O R T 2020 3 As a largely CBD focused developer we are keen to see the revitalisation of the Perth CBD which has continued to struggle economically and socially and which is a key focus of the forthcoming Perth City Council elections. Thriving city centres require a concentration of residents that apartment living is able to facilitate. Making the city attractive to those seeking a more urban lifestyle is key to Perth’s ongoing growth and development and when managed in a thoughtful and considered way, sensible density will ensure Perth transforms into a thriving urban centre open for business and investment. While we are seeing the cautious return of investors to the market as rental vacancy rates across the city continue to drop, Perth’s persistent status as one of the country’s most affordable markets will help drive the return of investors in more significant numbers and provide a much needed boost to the local market. The establishment of Finbar to Rent last year at a time when investor numbers in terms of overall purchaser figures remained low, has enabled it to successfully embed its offering to capitalise on an anticipated upswing in investor activity. As the Perth market continues to show signs of growth, despite the March quarter’s COVID-19 related impairment, Finbar’s strong balance sheet and agility in terms of responsiveness ensures we are perfectly positioned to take advantage of the next upswing in market activity and a real return in consumer confidence. We are very pleased to be able to deliver continued value to our shareholders despite the impact of global recession and uncertainty backed by a multi-billion dollar pipeline of approved projects in some of Perth’s most sought after locations. Our fully franked dividend payment this year of $0.01 per share is designed to conserve our cash balance ahead of the anticipated commencement of construction of the capital-intensive Civic Heart project and AT238 project. On behalf of the Board of Directors and Shareholders, I would like to thank the Finbar management team for their continued hard work and dedication to the ongoing success of the company during what has been an unprecedented period in our State’s history. I would also like to take this opportunity to thank our joint venture partners, our primary building partner – Hanssen, relationship architect – SS Chang Architects, as well as our marketing and sales agents, suppliers, consultants and banking partners. Ours is a relationship based business and it is the efforts of the broader team that underwrite our ongoing success. J O H N C H A N Executive Chairman The Minister’s approval of the project, which has an estimated end value of more than $400 million, reinforces the findings of an independently appointed expert Design Review Panel which found the project to be of exemplary design and an exceptional entry statement to this iconic and highly visible precinct. We remain committed to delivering the people of South Perth a high quality project with a sophisticated range of resort style amenities and significant and inclusive communal spaces in an iconic and convenient location boasting some of the best views the city has to offer. The approval which came as part of the State Government’s recent overhaul of the development approval process in Western Australia, marks a significant step forward for sensible development in Perth and is part of its efforts to streamline what was an overly bureaucratic and convoluted process and is part of an ongoing effort to help rebuild the economy in the wake of the impact of COVID-19. The greatest contributor to the overall costs of our projects remains the labour cost, which accounts for approximately 60% of overall costs and without strong construction partnerships that Finbar has, provides a potential barrier to developers’ abilities to remain financially competitive, deliver a diversity of housing options and employ potentially thousands of Western Australians. The continued upswing and strong performance of the State’s resource sector continues to underpin both WA and Australia’s economic resilience and is a key factor in our ability to withstand some of the most challenging economic conditions in recent memory. 4 FINBAR GROUP LIMITED ANNUAL REPORT 2020FINBAR GROUP LIM IT ED AN NU A L R EP O R T 2020 5 MANAGING DIRECTOR’S REPORT In last year’s report, I referenced the previous financial year as one of the most challenging in our company’s 24-year history. Few could have foreseen or indeed planned for a global pandemic that would dominate our 25th year and impact virtually every aspect of our personal and working lives. While it is important to acknowledge the impact of COVID-19 on our fourth quarter performance this financial year, our underlying stable financial base leading into the pandemic and the agility of our compact team has helped mitigate many of the risk factors. In addition to this, there have also been some unexpected positive effects for Western Australia as a result of the pandemic which are supporting many of the business fundamentals through population growth. While we acknowledge that there is still much to play out and be learned in terms of the current and ongoing crisis and the impact of the various government stimulus measures, our ability to remain profitable despite considerable economic turmoil is certainly something we, as a company, are proud of. There have been a raft of Federal and State government stimulus measures and incentives released in the wake of the pandemic that have had a material effect on the WA property sector. While the bulk of the Federal measures have been pitched primarily at stimulating house and land building activity rather than the apartment sector directly, the State Government stamp duty concession is playing a part in supporting all sectors of the residential property market, with the overall effect of reducing the ‘in-cost’ to help stimulate buyer activity. Our sales levels took a direct hit in March and April as we experienced peak COVID- related uncertainty and restrictions, however we saw consumer confidence lift considerably across June, July and August as the impact of stimulus measures began to be felt and life in WA began to return to a ‘new normal’, with sales offices and display apartments once again open to the public. Remarkably, Finbar achieved an average of just under one sale per day during this three-month period, resulting in $44 million worth of sales – the highest monthly sales average in two years. Another factor contributing to the slow recovery of our sector is the ongoing repatriation of West Australians from overseas and other Australian States as a result of COVID-19, which is having a positive effect on population growth for the State. This is driving an increase in rental demand therefore improving investment returns for residential property, in turn increasing investor interest, or making ownership a more attractive proposition to existing tenants. COVID-related travel restrictions have impacted the number of people travelling to Western Australia, which has impacted on settlement times for foreign buyers, but we do see definite future opportunities in the wake of pandemic as WA’s isolation becomes a key selling point. The continued upswing in the resources sector and persistently high commodity prices are also beginning to impact the local property market in a more significant way, with a longer-term reversal in the erosion of the median house and unit price now looking far more optimistic. The resource led recovery, coupled with WA’s relatively low case numbers and absence of onerous restrictions on business, has helped fuel consumer confidence and remove some of the fear and insecurity around Western Australians making significant financial decisions such as the purchase of apartments. The combination of all of these factors has underwritten the resilience of the sector in the face of heightened economic uncertainty and paved the way for a far swifter recovery than many anticipated in March and April of this year. Once again, Finbar has finished the financial year with a solid $30.6 million in cash and we remain in the fortunate position of having no project related debt and $164 million in completed stock to fund future project commencements on selldown. DARREN PATEMAN Message from the Managing Director 6 FINBAR GROUP LIMITED ANNUAL REPORT 2020Finbar achieved an average of just under one sale per day during this three-month period, resulting in $44 million worth of sales – the highest monthly sales average in two years. Finbar’s net profit of $7.07 million for the full financial year ended June 30 2020, although less than anticipated pre-pandemic, marks 24 consecutive years of profit in what has proved to be one of the most challenging years in our Nation’s economic history. The figure was lower than originally predicted, due in part to the impact of COVID-19 on buyer behaviour and sales in the fourth quarter, but also because of the lower than anticipated margins on our low-rise Maylands and Palmyra projects. This primarily occurred due to a specification lift, conducted to ensure these projects remained competitive against the traditional entry level house and land package market that was offering significant incentives. The temporary closure of sales offices also impeded buyer engagement and activity while government imposed restrictions were in place, as did interstate and international travel bans which delayed foreign settlements, most notably at Sabina in Applecross during the current reporting period. The completion of our Palmyra East, One Kennedy in Maylands and Sabina projects this financial year has significantly boosted our pipeline of completed stock with settlements at Sabina noted as the largest contributor to our second half results. One of our key successes during the past financial year has undoubtedly been receiving development approval for our landmark South Perth Civic Heart project. The iconic project, which has an estimated end value of $400m and comprises two towers of 39 and 22 storeys respectively, was ultimately given approval by The Minister for Planning in February this year after years of protracted delays and disruptions. Civic Heart will be a gateway to South Perth linking the foreshore to the Perth Zoo and will create thousands of direct and indirect jobs for Western Australians during construction and into the future. Our pre-sales, launched in the midst of the pandemic, have been encouraging and we anticipate this momentum to continue as we head into the full marketing campaign which will take place around the time this report goes to print. The recovery of WA’s rental market, which recently recorded the lowest vacancy rates in eight years after a prolonged period of subdued pricing and activity, will also help underpin and drive the recovery in the residential market, further complemented by ongoing low interest rates and government stimulus measures. We believe these combined factors have the potential to push us further ahead in the recovery journey than we might otherwise have been if the Coronavirus had not been a factor in Western Australia. The ongoing reduction in vacancy rates across the Perth metropolitan area is also resulting in the cautious return of investors to the market, a factor we see as absolutely crucial to returning to the sorts of sales activity and profit levels we achieved ahead of the downturn in the WA property sector. The successful establishment last year of Finbar to Rent, an in house division dedicated to providing a streamlined management service exclusive to owners of Finbar properties, has ensured the company is well placed to take advantage of an upswing in the investor market and has grown from a standing start to now having 266 residential properties under management along with the management of Finbar’s own commercial office assets. The subsequent establishment of a dedicated in house Finbar Sales team, focused exclusively on the sales and marketing of a select number of Finbar properties, has further added to our offering and provides a continuity of service and professionalism to our client base. Another by-product of the resurgence in the WA resources sector has been the ongoing improvement of our Karratha asset, which continues to operate at full occupancy and is seeing continued growth in rental rates in line with the upswing in the resource sector. While it has never been Finbar’s intention to hold 7 FINBAR GROUP LIMITED ANNUAL REPORT 2020the asset long term, its performance continues to be a valued investment income source for the business. The Company acknowledges the tireless work of the WA Property Council, led by chief executive Sandra Brewer, and their continued advocacy for key reforms across the sector. They have been instrumental in assisting the reform process and have worked closely with both the Premier, Treasurer, and the Minister for Planning to help stimulate the WA property sector and economy more broadly via strategically positioned stimulus measures. While the changes to stamp duty as part of the WA Government’s stimulus measures have been well received, we welcome the further reforms and continue to advocate for dispensations to stimulate growth. The impact of the foreign buyers’ surcharge remains a significant deterrent to foreign investment and the continued recovery of the local property market, therefore we continue to work with other key sector figures to lobby the government for its removal. Its imposition in Western Australia in response to similar moves on the east coast has failed to generate any significant revenue for the State Government. Foreign buyers are one of the key drivers in terms of achieving pre-sale targets to commence construction on major projects and in turn help drive our local economic recovery. The WA State Government’s recent overhaul of the development approval process, designed to stimulate the sector in the wake of COVID-19, is also a significant and welcome move and will assist developers through what was previously an overly complex and risky bureaucratic maze that was a disincentive to anyone looking to invest in more complex developments in WA. Our key focus remains on areas where we are able to achieve density and scale, notably the Perth CBD, Applecross and South Perth, which have traditionally been where we have focused our efforts. As alluded to previously, we remain open to opportunities in Perth’s Western Suburbs where significant demand has been identified in the local downsizer market, however we remain judicious in our choice of location and our involvement in any opportunity will require scale to progress. While there continues to be no shortage of development sites presented to us on a daily basis, the softer market conditions ensure we continue to focus on projects that will allow us to deliver margin and scale in areas that are familiar to us. Typically, these are city-based projects where height limits allow us to use the available density to best utilise our competitive advantages. We believe our focus and track record of development in the Perth CBD ideally positions us to continue to be a significant contributor to the growth of the city block residential population. A thriving CBD underpins the economic sustainability of Western Australia, drives tourism and growth and we are keen to help deliver on this identified economic potential. I would like to also take this opportunity to thank our long-term joint venture partners, many of whom have been working alongside us for decades. Their loyalty and commitment further underpin our success in often challenging markets and allows us to continue to develop through these markets and we thank them for their long-term loyalty and partnership. As well as focusing on working through our current pipeline of product, our key focus for the coming financial year will be to commence construction of both Civic Heart and AT238 on Adelaide Terrace. Finbar also acknowledges and benefits from its loyal and consistent shareholder base that has supported us through the good and bad times. We thank you for that ongoing support and the trust you place in us. In light of our desire to conserve cash to fund our significant key projects this year, the Board has resolved to pay a final dividend of $0.01 per share, fully franked, bringing the distribution to $0.03 per share attributable to the year. D A R R E N P A T E M A N Managing Director These projects will involve significant capital investment from Finbar and its partners and therefore the continued sell down of stock and the completion of Riverena in October will remain our primary short-term focus. While we remain open to development opportunities that satisfy our key requirements in our core areas, our existing pipeline ensures we are under no pressure to actively source additional development sites. We remain in the fortunate position of having an adequate land bank so that our capital can be actively deployed into the next projects we have earmarked for launch, pending the market conditions as they evolve. We would also like to acknowledge the signing of The Perth City Deal, a joint State and Federal initiative designed to activate the Perth city centre and support small business and local jobs as we look forward. The recently announced initiative is also underpinned by the desire for a CBD-based university campus to facilitate density and vibrancy in the Perth City centre. 8 FINBAR GROUP LIMITED ANNUAL REPORT 2020COMPLETED PROJECTS Pictured: Sabina Applecross 9 FINBAR GROUP LIMITED ANNUAL REPORT 2020Palmyra APARTMENTS EAST PALMYRA APARTMENTS EAST 49 McGregor Road, Palmyra 43 McGregor Road Pty Ltd Fully Owned Subsidiary Project Company Entity Type Finbar’s Ultimate Interest 50% Marketing Commenced Construction Completed Total Lots Approximate Total Project Sales Value Value of Sales to Date Lots Sold Lots Unsold Jan-18 Sept-19 128 $49.7m $30.3m 81 (63%) 47 (37%) Situated on the doorstep of the historic port city of Fremantle, in the established community of Palmyra. Palmyra Apartment Estate is a transformative, three- storey gated residential community to be developed in two stages. Palmyra Apartments East (Stage 1) and Palmyra Apartments West (Stage 2) feature contemporary architectural design in a beautifully landscaped setting. ONE KENNEDY 1 Kennedy Street, Maylands 241 Railway Parade Pty Ltd Fully Owned Subsidiary Project Company Entity Type Finbar’s Ultimate Interest 50% Marketing Commenced Oct-18 Construction Completed May-20 Total Lots Approximate Total Project Sales Value Value of Sales to Date Lots Sold Lots Unsold $54.5m $24.5m 61 (50%) 62 (50%) 123 One Kennedy comprises 120 one, two, and three bedroom residential three storey walk-up apartments and 3 commercial lots. One Kennedy capitalises on its proximity to public transport, located only 200 metres from Maylands railway station, and connecting directly to the Central Business District 4.5 kilometres away. 10 FINBAR GROUP LIMITED ANNUAL REPORT 2020SABINA APPLECROSS 908 Canning Highway, Applecross Finbar Applecross Pty Ltd Fully Owned Subsidiary Project Company Entity Type Finbar’s Ultimate Interest 50% Marketing Commenced Construction Completed Total Lots Approximate Total Project Sales Value Value of Sales to Date Lots Sold Lots Unsold Feb-18 Feb-20 167 $120.0m $69.7m 96 (57%) 71 (43%) Located only metres from the Swan River and approximately 700 metres to the Canning Bridge Train Station. Sabina is the first stage of a three stage development and consists of 164 residential apartments and 3 ground floor commercial tenancies within a podium and 30 storey tower built form. Featuring a central shared lane and public amenity piazza. 11 FINBAR GROUP LIMITED ANNUAL REPORT 2020UNDER CONSTRUCTION Pictured: Riverena 12 Images are artist impressions only and are subject to change. FINBAR GROUP LIMITED ANNUAL REPORT 2020RIVERENA 5 Rowe Avenue, Rivervale Lot 1001-1003 Rowe Avenue Pty Ltd Equity Accounted Investee Project Company Entity Type Finbar’s Ultimate Interest 50% Marketing Commenced Estimated Completion Total Lots Approximate Total Project Sales Value Value of Sales to Date Lots Sold Lots Unsold Feb-19 Nov-20 125 $52.1m $18.8m 48 (38%) 77 (62%) Riverena is the second stage of the Arbor development in the Springs precinct, which will comprise 125 one, two, and three bedroom residential apartments. DIANELLA APARTMENTS 36 Chester Avenue, Dianella 36 Chester Avenue Pty Ltd Fully Owned Subsidiary Project Company Entity Type Finbar’s Ultimate Interest 100% Construction Commenced Aug-20 Estimated Completion Total Lots Approximate Total Project Sales Value Value of Sales to Date Lots Sold Lots Unsold FY22 128 $63.3m $11.5m 24 (19%) 104 (81%) Conveniently located next to Dianella Plaza, this new development combines 128 stylish apartments with resort style facilities, unique to this established and loved suburb. 13 FINBAR GROUP LIMITED ANNUAL REPORT 2020 FUTURE PROJECTS Pictured: Civic Heart 14 FINBAR GROUP LIMITED ANNUAL REPORT 2020CIVIC HEART 1 Mends Street, South Perth 1 Mends Street Pty Ltd Fully Owned Subsidiary Project Company Entity Type Finbar’s Ultimate Interest 50% Targeted Commencement FY21 Estimated Completion FY23 Total Lots 335 Approximate Total Project Sales Value Value of Sales to Date Lots Sold Lots Unsold $400m $30m 27 321 This iconic site bounded by Mends Street, Labouchere Road and Mill Point Road brings luxurious apartments, world-class facilities and a thriving ground floor commercial precinct to the historic suburb of South Perth. 15 FINBAR GROUP LIMITED ANNUAL REPORT 2020AT238 238 Adelaide Terrace, Perth 240 Adelaide Terrace Pty Ltd Fully Owned Subsidiary Project Company Entity Type Finbar’s Ultimate Interest 50% Estimated Completion TBC Total Lots 121 Approximate Total Project Sales Value $89m AT238 comprises of 119 Apartments & 2 commercial lots, and is set to become Finbar’s 10th Development comprising of 1502 lots developed along Adelaide Terrace. AURORA APPLECROSS 3 Kintail Road, Applecross Finbar Applecross Pty Ltd Fully Owned Subsidiary Project Company Entity Type Finbar’s Ultimate Interest 50% Construction Commenced TBC Estimated Completion TBC Total Lots 121 Approximate Total Project Sales Value Value of Sales to Date Lots Sold Lots Unsold $143.1m $670k 1 (1%) 120 (99%) The second stage of three in the Canning bridge precinct, Aurora combines luxurious apartment finishes & world-class facilities within an affluent Applecross address. Featuring a central shared lane and public amenity piazza. 16 FINBAR GROUP LIMITED ANNUAL REPORT 2020 CANNING HWY APPLECROSS STAGE 3 912 Canning Highway, Applecross Project Company Entity Type Finbar’s Ultimate Interest Estimated Completion Total Lots Approximate Total Project Sales Value Finbar Applecross Pty Ltd Fully Owned Subsidiary 50% TBC 154 $103m Located only metres from the Swan River and approximately 600 metres to the Canning Bridge Train Station, this 2,620sqm site fronting Canning Highway received DA approval in April 2017 as the third of 3 stages comprising 151 residential apartments and 3 ground floor commercial tenancies within a podium and 26 storey tower built form. Palmyra APARTMENTS WEST PALMYRA APARTMENTS WEST 45 McGregor Road, Palmyra 43 McGregor Road Pty Ltd Fully Owned Subsidiary Project Company Entity Type Finbar’s Ultimate Interest 50% Estimated Completion TBC Total Lots 130 Approximate Total Project Sales Value $52m Palmyra Stage 2 will commence to coincide with the completion of Stage 1 and will consist of 130 apartments comprised of one, two, and three bedroom apartments in a walkup low-rise structure with below ground parking over 13,421 square metres and has an anticipated end value of approximately $52 million. Both stages of the project are aligned with the Company’s strategy of providing entry level product in prime locations to appeal to the younger owner-occupier and broader investor market. 17 FINBAR GROUP LIMITED ANNUAL REPORT 2020THE POINT 31 Rowe Avenue, Rivervale 31 Rowe Avenue Pty Ltd Fully Owned Subsidiary Project Company Entity Type Finbar’s Ultimate Interest 50% Estimated Completion TBC Total Lots 176 Approximate Total Project Sales Value $90m The Point development is located 200 metres from Finbar’s highly successful Spring View Towers project and 350 metres from Finbar’s Arbor projects. The development is located on a 4,000 square metre site situated on the corners of Brighton Road, Rowe Avenue, and Great Eastern Highway in the Springs precinct in Rivervale. The Point will comprise of 167 one, two, and three bedroom apartments and 9 commercial lots on the ground floor and will be situated at the main entrance to the Springs precinct, opposite the Aloft Hotel. 239 GREAT EASTERN HIGHWAY 239 Great Eastern Highway Pty Ltd Fully Owned Subsidiary Project Company Entity Type Finbar’s Ultimate Interest 100% Estimated Completion Total Lots Approximate Total Project Sales Value TBC TBC $75m The 239 Great Eastern Highway project has an approved DA for 194 one and two bedroom apartments and 154sqm of ground floor commercial. 18 FINBAR GROUP LIMITED ANNUAL REPORT 2020 LOT 1000 32 Riversdale Road, Rivervale 32 Riversdale Road Pty Ltd Fully Owned Subsidiary Project Company Entity Type Finbar’s Ultimate Interest 50% Estimated Completion TBC Total Lots 150 Approximate Total Project Sales Value $65m Lot 1000 is the seventh development site to be secured by Finbar and its respective development partners within the Springs precinct. Whilst detailed design works will not commence for some time, and the ultimate yield is yet to be negotiated through formal development application with approval authorities, it is anticipated that the end project will yield approximately 150 residential apartments with an end sales value of approximately $65 million. 2 HOMELEA COURT Cnr Rowe Avenue & Homelea Court, Rivervale 2 Homelea Court Springs Pty Ltd Fully Owned Subsidiary Project Company Entity Type Finbar’s Ultimate Interest 100% Estimated Completion Total Lots Approximate Total Project Sales Value TBC 185 $83m Acquired in 2016, the 3,770 square metres of land located on the corners of Rowe Avenue and Homelea Court opposite Finbar’s Spring View Towers and is proposed to be developed into a project consisting of approximately 185 apartments within a 10 level building. The proposed apartment project has an estimated end value of approximately $83 million. 19 FINBAR GROUP LIMITED ANNUAL REPORT 2020 FORMER ABC STUDIOS 187 Adelaide Terrace, East Perth Finbar Sub 104 Pty Ltd Fully Owned Subsidiary Project Company Entity Type Finbar’s Ultimate Interest 100% Estimated Completion Total Lots Approximate Total Project Sales Value TBC TBC TBC The former ABC Radio Studios heritage building with a GFA of 3,711sqm over 3 levels. Finbar acquired the final stage from the JV partner to better leverage potential future development outcomes. LOT 888 2 Hawksburn Road, Rivervale Rowe Avenue Pty Ltd Equity Accounted Investee Project Company Entity Type Finbar’s Ultimate Interest 50% Estimated Completion TBC Total Lots TBC Approximate Total Project Sales Value $40m The current approved DA comprises a 6 level office building with 6,250sqm NLA. A concept has been developed for a residential outcome of 86 apartments and 1,200sqm of commercial. An alternative concept of a wholly commercial building is being explored that reflects current commercial office market demand. 20 FINBAR GROUP LIMITED ANNUAL REPORT 2020INVESTMENT PROPERTIES Pictured: Fairlanes 21 FINBAR GROUP LIMITED ANNUAL REPORT 2020FAIRLANES 181 Adelaide Terrace, East Perth Total Sqm Office Sqm Retail Sqm FY21 Forecasted Rent Sqm Leased 7582 7112 470 $2.2m 6810 (90%) PELAGO Sharpe Avenue, Karratha Total Lots Residential Lots Commercial Lots FY21 Forecasted Rent Lots Leased Residential Lots Leased Commercial Lots Leased 124 102 22 $4.76m 108 (87%) 96 (94%) 13 (59%) AURELIA 1 Harper Terrace, South Perth Total Sqm Estimated sales value Estimated income value 929 $5.605m $366,000 p.a. 22 FINBAR GROUP LIMITED ANNUAL REPORT 2020FINANCIAL REPORT Pictured: One Kennedy 23 FINBAR GROUP LIMITED ANNUAL REPORT 2020FINANCIAL REPORT For the Year Ended 30 June 2020 CONTENTS Directors’ Report (including Corporate Governance Statement) Consolidated Statement of Profit or Loss and Other Comprehensive Income Consolidated Statement of Changes in Equity Consolidated Statement of Financial Position Consolidated Statement of Cash Flows Notes to the Consolidated Financial Statements Directors’ Declaration Independent Auditor’s Report Lead Auditor’s Independence Declaration ASX Additional Information PAGE 25 42 43 44 45 46 80 81 86 87 24 FINBAR GROUP LIMITED ANNUAL REPORT 2020DIRECTORS’ REPORT For the Year Ended 30 June 2020 The Directors present their report together with the consolidated financial report of the Group, comprising Finbar Group Limited (‘the Company’), its subsidiaries and the Group’s interest in equity accounted investees for the financial year ended 30 June 2020 and the independent auditor’s report thereon. CONTENTS OF DIRECTORS’ REPORT PAGE 1 2 3 4 5 6 7 8 9 10 11 12 13 Directors Company Secretary Directors’ Meetings Corporate Governance Statement 4.1 4.2 4.3 Board of Directors Remuneration Committee Remuneration Report - Audited 4.3.1 4.3.2 4.3.3 4.3.4 4.3.5 Principles of Remuneration - Audited Directors’ and Executive Officers’ Remuneration - Audited Analysis of Bonuses included in Remuneration Report - Audited Directors’ and Executives Interests Equity Instruments - Audited 4.4 4.5 4.6 4.7 4.8 Audit Committee Risk Management Ethical Standards Communication with Shareholders Diversity Principal Activities Operating and Financial Review Dividends Events Subsequent to Reporting Date Likely Developments Directors’ Interests Indemnification and Insurance of Officers and Auditors Non-audit Services Lead Auditor’s Independence Declaration 26 27 27 28 28 28 29 29 31 32 33 33 34 34 35 35 36 36 36 39 40 40 40 40 41 41 25 FINBAR GROUP LIMITED ANNUAL REPORT 2020DIRECTORS’ REPORT (Continued) For the Year Ended 30 June 2020 1 Directors The Directors of the Company at any time during or since the end of the financial year are: Executive Director and Chairman John CHAN - BSc, MBA, MAICD Director since 27 April 1995 Chairman since 15 July 2010 John Chan is Executive Director and Chairman of Finbar, and a Director of its Subsidiaries and equity accounted investees. John was appointed director in 1995 and was instrumental in re-listing Finbar on the ASX as a property development company. Prior to joining Finbar, John headed several property and manufacturing companies both in Australia and overseas. John holds a Bachelor of Science from Monash University in Melbourne and a Master of Business Administration from the University of Queensland. John is a Member of the Australian Institute of Company Directors, is a Trustee for the Western Australian Chinese Chamber of Commerce, and is a former Senate Member of Murdoch University. Managing Director Darren John PATEMAN - EMBA, GradDipACG, ACSA, AGIA, MAICD Director since 6 November 2008 Managing Director since 15 July 2010 Darren Pateman is the Managing Director of Finbar and a Director of Finbar’s Subsidiaries and equity accounted investees. Darren commenced with Finbar prior to its relisting on the ASX as a property development company in 1995 and in this time has played a primary role in developing Finbar’s systems, strategy and culture. Darren has held several positions in his 25 years with the company which has given Darren an intimate knowledge of the key aspects of Finbar’s business. Darren was formerly Company Secretary from 1996 to 2010, Chief Executive Officer from 2008 to 2010, and was appointed Managing Director on 15 July 2010. Darren is a Chartered Secretary and holds an Executive Master of Business Administration from the University of Western Australia and a Graduate Diploma in Applied Corporate Governance (GradDipACG). Darren is an Associate of the Institute of Chartered Secretaries and Administrators and a Member of the Australian Institute of Company Directors. Executive Director and Chief Operations Officer Ronald CHAN Director since 24 February 2017 Ronald Chan is the Chief Operations Officer of Finbar and a Director of Finbar’s Subsidiaries and equity accounted investees. Ronald joined the Board as an Executive Director on 24 February 2017. Ronald brings 16 years of experience in Finbar’s Company operations where he has worked in several roles in the organisation including marketing, contract administration, and in 2013 was appointed Chief Operations Officer. In this role Ronald has gained an intimate understanding of the Company’s relationships and systems and managed the Company’s transition to digital and online marketing strategies. Non-executive Director Kee Kong LOH - B Acc, CPA Director since 28 April 1993 Kee Kong Loh joined the Board in April 1993 and has substantial experience in the governance of companies in property development, marine transportation, and electronics manufacturing sectors. He has a degree in accountancy from the University of Singapore and is a member of the Institute of Certified Public Accountants of Singapore. 26 FINBAR GROUP LIMITED ANNUAL REPORT 2020DIRECTORS’ REPORT (Continued) For the Year Ended 30 June 2020 1 Directors (continued) Non-executive Director Terence Siong Woon PEH - B.Comm, M.Comm Director since 24 April 2018 Terence Peh joined the Board on 24 April 2018. Terence is Chief Executive Officer and Executive Director of Chuan Hup Holdings Limited, an investment company listed on the Singapore Stock Exchange, and Finbar’s largest corporate shareholder. Terence has over 21 years of experience in property development investment and project management in Asia Pacific, and management experience in finance in the marine and electronics manufacturing services industries. Terence obtained his Bachelor of Commerce in Marketing from Curtin University and a Master of Commerce in Finance from the University of New South Wales. Non-executive (Independent) Director Lee VERIOS - LLB, MAICD Director since 6 December 2011 Lee Verios joined the Board in December 2011. He is a well credentialed commercial lawyer having practised in Western Australia for over 40 years. Until his retirement from practising law in 2012, Lee was partner in the international law firm of Norton Rose and the leader of their Commercial Property division in Perth. Throughout his legal career, Lee has held senior management roles in each of the firms of which he has been a member. In addition to his legal practice, Lee is an experienced company director, having held positions in a variety of public and private enterprises. He has been a director of privately owned investment company Wyllie Group Pty Ltd since July 2004. Lee is a member of the Australian Institute of Company Directors, the Law Society of WA and was previously Chairman of the Australian Indonesian Business Council (WA Branch). 2 Company Secretary The Company Secretary of the Company at any time during or since the end of the financial year is: Edward Guy BANK - B Bus, ASCPA Company Secretary since 2 December 2016 Edward Bank is the Company Secretary of Finbar, and of Finbar’s Subsidiaries and equity accounted investees. Ed is a Certified Practicing Accountant with 28 years experience in private practice including 8 years as the Company’s external accountant. Ed joined the Company in 2005 in the capacity of Chief Financial Officer. Ed continues to hold the position of Chief Financial Officer. 3 Directors’ Meetings The number of Directors’ meetings attended by each of the Directors of the Company, whilst being a Director, during the financial year are: Director John CHAN Darren John PATEMAN Ronald CHAN Kee Kong LOH Lee VERIOS Terence Siong Woon PEH Board Meetings Held Board Meetings Attended Resolutions Without Meetings Audit Committee Meetings Held Audit Committee Meetings Attended Remuneration Committee Meetings Held Remuneration Committee Meetings Attended 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 1 4 1 N/A N/A N/A 2 2 2 N/A N/A N/A 2 2 2 2 N/A N/A 2 2 2 2 N/A N/A 2 2 2 27 FINBAR GROUP LIMITED ANNUAL REPORT 2020DIRECTORS’ REPORT (Continued) For the Year Ended 30 June 2020 4 Corporate Governance Statement The Board (‘Board’) of Finbar Group Limited (‘Finbar’ or ‘the Company’), its subsidiaries and equity accounted investees (collectively the Group) is committed to maintaining a high standard of corporate governance in the conduct of the organisation’s business in order to create and deliver value to shareholders. In this regard, Finbar has established a corporate governance framework, including corporate governance policies and charters to assist in this commitment. A copy of these policies and charters are available from the governance page of Finbar’s website, www.finbar.com.au and are referenced throughout this document where relevant. The framework is reviewed and revised in response to changes to law, developments in corporate governance best practice and changes to the Finbar business environment. As a listed entity, Finbar is required to comply with Australian laws including the Corporations Act 2001 (Cth) and the Australian Securities Exchange Listing Rules, and to report against the ASX Corporate Governance Council’s Principles and Recommendations. 4.1 Board of Directors Role of the Board The Board Charter sets out the Board’s role, powers and duties, and establishes the functions reserved for the Board and those which are delegated to the management. The Board’s primary role is the protection and enhancement of long-term shareholder value. To fulfil this role, the Board is responsible for the overall corporate governance of the Group. The Board has delegated responsibility for the operation and administration of the Group to the Executive Chairman, the Managing Director and Senior Executives. Composition of Board The Board recognises the importance of ensuring that Directors are free from interests and relationships that could, or could reasonably be perceived to materially interfere with the Director’s ability to exercise independent judgement and act in the Group’s best interests. Accordingly, the Board has adopted guidelines, set out in the Board Charter, which are used to determine the independence of the Directors. Directors must keep the Board advised, on an ongoing basis, of any interest that could potentially conflict with those of the Group. Where the Board believes that a significant conflict exists for a Director on a Board matter, the Director concerned will be restricted from receiving materials, discussing or voting on the matter. Details of each of the non-executive Directors (Independent) are set out in the Directors Report (page 27). 4.2 Remuneration Committee The Remuneration Committee Charter sets out the Remuneration Committee’s role, powers and duties, and establishes the functions delegated to the Committee by the Board. The Remuneration Committee reviews and makes recommendations to the Board on remuneration packages and policies applicable to the Executive Officers and Directors themselves of the Company and of other Group Executives. It is also responsible for share option schemes, incentive performance packages, superannuation entitlements, retirement and termination entitlements, fringe benefits policies and professional indemnity and liability insurance policies. The following directors serve on the Remuneration Committee: » Kee Kong LOH (Chairman) - Non-executive Director » » » John CHAN - Executive Director and Chairman Lee VERIOS - Non-executive Independent Director Terence Siong Woon PEH - Non-executive Director The Remuneration Committee Charter sets out the process for the periodical evaluation of the performance of the Executive Chairman and Managing Director. These evaluations have been conducted during the period. The Remuneration Committee Charters sets out the process for the periodical evaluation of the performance of the Senior Executives. The Remuneration Committee in consultation with the Executive Chairman and Managing Director are responsible for the periodical evaluation of the performance of the Senior Executives. These evaluations have been conducted during the period. Finbar has a written agreement, either in the form of an employment contract or letter of employment, with each Executive Director and Senior Executive which sets out the terms of their appointment. A copy of the Remuneration Committee Charter is available on Finbar’s website www.finbar.com.au. 28 FINBAR GROUP LIMITED ANNUAL REPORT 2020DIRECTORS’ REPORT (Continued) For the Year Ended 30 June 2020 4 4.3 Corporate Governance Statement (continued) Remuneration Report - Audited 4.3.1 Principles of Remuneration Remuneration of Directors and Executives is referred to as remuneration as defined in AASB 124 Related Party Disclosures and Section 300A of the Corporations Act 2001. Key management personnel have authority and responsibility for planning, directing and controlling the activities of the Group, including Directors of the Company and other Executives. Key management personnel comprise the Directors of the Company and Executives for the Company and the Group including the Section 300A Executives. Remuneration levels for key management personnel and the secretary of the Company, and key management personnel and secretaries of the Group, are competitively set to attract and retain appropriately qualified and experienced Directors and Executives. The Remuneration Committee periodically obtains independent advice on the appropriateness of remuneration packages of both the Company and the Group given trends in comparative companies both locally and internationally and the objectives of the Company’s remuneration strategy. The remuneration structures explained below are designed to attract suitably qualified candidates, reward the achievement of strategic objectives and achieve the broader outcome of creation of value for shareholders. The remuneration structures take into account: » » » » » » the capability and experience of the key management personnel; the key management personnel’s ability to control the Group’s performance; the key management personnel’s contribution to revenue and future earnings potential; project outcomes; the key management personnel’s length of service; and the Group’s performance including: · the Group’s earnings; · the growth in share price and delivering constant returns on shareholder wealth; and · the amount of incentives within each key management person’s remuneration. Remuneration packages include a mix of fixed and variable remuneration, short-term performance-based incentives and can include long-term performance-based incentives. Fixed Remuneration Fixed remuneration consists of base remuneration (which is calculated on a total cost basis and includes any fringe benefit tax charges related to employee benefits including motor vehicles), as well as employer contributions to superannuation funds. Remuneration levels are reviewed annually through a process that considers individual, segment and overall performance of the Group. In addition, where appropriate, external consultants provide analysis and advice to ensure the Directors’ and Senior Executives’ remuneration is competitive in the market place. A Senior Executive’s remuneration is also reviewed on promotion. Performance Linked Remuneration Performance linked remuneration includes short-term incentives (STI) and can include long-term incentives (LTI), which are designed to reward key management personnel for meeting or exceeding their financial and personal objectives. The short-term incentive is an ‘at risk’ bonus provided in the form of cash, whilst the long-term incentive is provided as shares or options over ordinary shares of the Company under the rules of the Employee Incentive Plan 2013 and Director Share Plan 2014. As at 30 June 2020, there were no options on issue. Short-term Incentive The Remuneration Committee has elected to set the primary financial performance objective of ‘profit before tax’ as the key measure for the calculation of the short term incentives of key management personnel. The non-financial objectives vary with position and responsibility and include measures such as those outlined above. The STI for the current period was wholly based on a percentage of ‘profit before tax’. Contractual amounts are accrued in the current year and discretionary amounts are accounted for in the year of payment. The contractual amount is set at 3.3% of ‘profit before tax’ for 2020 financial year. At the end of the financial year the Remuneration Committee assess the actual performance of the Group, the relevant segment and the individual key management personnel contribution to the Group. The performance evaluation in respect of the year ended 30 June 2020 has taken place in accordance with this process. 29 FINBAR GROUP LIMITED ANNUAL REPORT 2020DIRECTORS’ REPORT (Continued) For the Year Ended 30 June 2020 4 4.3 Corporate Governance Statement (continued) Remuneration Report - Audited (continued) 4.3.1 Principles of Remuneration (continued) Long-term Incentive Incentive shares or options issued under the Employee Incentive Plan 2013 or Director Share Plan 2014 are made in accordance with thresholds set in the plans approved by shareholders at the relevant Annual General Meeting, subject to the Board’s discretion. Short-term and Long-term Incentive Structure The Remuneration Committee considers that the above performance-linked remuneration structure is generating the desired outcome. The evidence of this is in respect to the long term historical profit and dividend growth of the Company, coupled with the long term retention of key management personnel resulting in the retention of Company intellectual property. Consequences of Performance on Shareholders Wealth In considering the Group’s performance and benefits for shareholder wealth, the Remuneration Committee has regard to the following indices in respect of the current financial year and the previous four financial years: Total comprehensive income $7,068,000 $11,372,000 $13,760,000 $5,059,000 $8,127,000 2020 2019 2018 2017 2016 Profit before tax Dividends paid Change in share price Return on capital employed Return on total equity $10,488,000 $15,947,000 $18,786,000 $10,369,000 $10,687,000 $13,606,000 $16,302,000 $13,874,000 $16,219,000 $20,686,000 -$0.14 -$0.10 4.47% 2.92% 5.58% 4.58% $0.14 6.24% 5.46% -$0.03 -$0.36 4.76% 2.34% 4.26% 3.57% Profit before tax is considered as one of the financial targets in setting the STI. Dividends, changes in share price, and return of capital are included in the total shareholder return (TSR) calculation which is one of the performance criteria assessed for the LTI. The other performance criteria assessed for the LTI is growth in earnings per share, which takes into account the Group’s net profit. The overall level of key management personnel’s remuneration takes into account the performance of the Group over a number of years. Directors Total base remuneration for all Directors, last voted upon by shareholders at the November 2013 AGM, is not to exceed $360,000 per annum. Directors’ base fees are presently $197,790 per annum. In line with industry practice, as from 1 July 2017 executive salaries were varied to be inclusive of all directors duties and responsibilities. 30 FINBAR GROUP LIMITED ANNUAL REPORT 2020DIRECTORS’ REPORT (Continued) For the Year Ended 30 June 2020 4 4.3 Corporate Governance Statement (continued) Remuneration Report - Audited (continued) 4.3.2 Directors’ and Executive Officers’ Remuneration Details of the nature and amount of each major element of remuneration of each Director of the Company and of the named Group Executives who received the highest remuneration are: Short-Term Post - Employment Directors Fees and Committee Fees $ Salary $ STI Cash Bonus (A) $ Non Monetary Benefits $ Total $ Super- annuation $ Other Long Term $ Total $ - 532,130 134,694 - 666,824 26,817 (72,997) 620,644 - 668,906 134,694 90,556 894,156 21,173 11,026 926,355 - 373,257 67,347 - 440,604 21,173 23,048 484,825 76,105 65,930 69,661 - - - - - - - - - 76,105 65,930 69,661 - - 6,444 - - - 76,105 65,930 76,105 For the year ended 30 June 2020 Executive Directors Mr John Chan, Executive Chairman Mr Darren John Pateman, Managing Director Mr Ronald Chan, Chief Operating Officer* Non-executive Directors Mr Kee Kong Loh Mr Terence Siong Woon Peh Mr Lee Verios Executives Mr Edward Guy Bank, CFO* - 290,901 67,347 - 358,248 21,173 4,695 384,116 211,696 1,865,194 404,082 90,556 2,571,528 96,780 (34,228) 2,634,080 For the year ended 30 June 2019 Executive Directors Mr John Chan, Executive Chairman Mr Darren John Pateman, Managing Director Mr Ronald Chan, Chief Operating Officer* Non-executive Directors Mr Kee Kong Loh Mr Terence Siong Woon Peh Mr Lee Verios Executives - 532,130 175,153 - 707,283 23,183 8,869 739,335 - 669,549 175,153 104,000 948,702 20,531 11,075 980,308 - 308,172 87,577 - 395,749 20,531 5,020 421,300 76,105 65,930 69,661 - - - - - - - - - 76,105 65,930 69,661 - - 6,444 - - - 76,105 65,930 76,105 Mr Edward Guy Bank, CFO* - 291,544 87,577 - 379,121 20,531 4,752 404,404 211,696 1,801,395 525,460 104,000 2,642,551 91,220 29,716 2,763,487 * Excludes total accrued annual leave balance of $161,000 (2019: $152,000). 31 FINBAR GROUP LIMITED ANNUAL REPORT 2020DIRECTORS’ REPORT (Continued) For the Year Ended 30 June 2020 4 4.3 Corporate Governance Statement (continued) Remuneration Report - Audited (continued) 4.3.2 Directors’ and Executive Officers’ Remuneration (continued) Notes in relation to the Table of Directors’ and Executive Officers’ Remuneration - Audited (A) Short-term Incentive Cash Bonus: The short-term incentive bonus is for performance during the respective financial years using the criteria set out on Page 29. Details of the Group’s policy in relation to the remuneration that is performance related is discussed on Page 29. On 29th October 2014, Finbar Group Limited issued 250,000 fully paid ordinary shares to Darren Pateman as Director Incentive Shares under the rules of the Director Share Plan 2014. Payment was by way of an interest free loan of $360,000 which was repaid by 14th October 2019. The related benefit is disclosed in table 4.3.2 on page 31. On 31st August 2015, Finbar Group Limited issued 250,000 fully paid ordinary shares to Darren Pateman as Director Incentive Shares under the rules of the Director Share Plan 2014. Payment was by way of an interest free loan of $290,000 which is repayable by 31st August 2020. The related benefit is disclosed in table 4.3.2 on page 31. On 25th August 2016, Finbar Group Limited issued 250,000 fully paid ordinary shares to Darren Pateman as Director Incentive Shares under the rules of the Director Share Plan 2014. Payment was by way of an interest free loan of $207,500 which is repayable by 25th August 2021. The related benefit is disclosed in table 4.3.2 on page 31. On 13th September 2017, Finbar Group Limited issued 250,000 fully paid ordinary shares to Darren Pateman as Director Incentive Shares under the rules of the Director Share Plan 2014. Payment was by way of an interest free loan of $202,500 which is repayable by 13th September 2022. The related benefit is disclosed in table 4.3.2 on page 31. 4.3.3 Analysis of Bonuses included in Remuneration Details of the vesting profile of the short term incentive bonuses awarded as remuneration to each Director of the Company and each of the named Group Executives are detailed below. Executive Directors Mr John Chan Mr Darren John Pateman Mr Ronald Chan Executives Mr Edward Guy Bank Short Term Incentive Bonus Included in Remuneration $ % vested in year % 134,694 134,694 67,347 67,347 404,082 100% 100% 100% 100% 100% Amounts included in remuneration for the financial year represent the amount of entitlements in the financial year based on achievement of personal goals and satisfaction of performance criteria, as per Short Term Incentives (page 29). No discretionary bonus was paid to the Executives in the 2020 financial year (2019: NIL). Any discretionary amounts of executive bonuses relating to 2020 financial year are yet to be determined, and therefore may impact future financial years. 32 FINBAR GROUP LIMITED ANNUAL REPORT 2020DIRECTORS’ REPORT (Continued) For the Year Ended 30 June 2020 4 4.3 Corporate Governance Statement (continued) Remuneration Report - Audited (continued) 4.3.4 Directors’ and Executives Interests Movement in Shares The movement during the reporting period in the number of ordinary shares in Finbar Group Limited held, directly, indirectly or beneficially, by each key management person, including their related parties, is as follows: Directors Mr John Chan* Mr Darren John Pateman Mr Ronald Chan** Mr Kee Kong Loh Mr Terence Siong Woon Peh*** Mr Lee Verios Executives Mr Edward Guy Bank Directors Mr John Chan* Mr Darren John Pateman Mr Ronald Chan** Mr Kee Kong Loh Held at 1 July 2019 Purchases Sales Held at 30 June 2020 26,617,520 414,031 - 27,031,551 3,609,493 - - 3,609,493 5,074,074 10,406,987 - 15,481,061 2,000,904 55,837,175 72,393 300,000 - - - - - 2,000,904 - 55,837,175 - 72,393 - 300,000 Held at 1 July 2018 Purchases Sales Held at 30 June 2019 26,567,520 50,000 - 26,617,520 3,586,368 23,125 5,067,217 6,857 2,000,904 - - - - 3,609,493 5,074,074 2,000,904 Mr Terence Siong Woon Peh*** 54,932,348 904,827 - 55,837,175 Mr Lee Verios Executives Mr Edward Guy Bank 70,000 74,786 (72,393) 72,393 300,000 - - 300,000 * John Chan has interests in Forward International Pty Ltd which holds shares in Finbar Group Limited. ** Ronald Chan has interests in Forward International Pty Ltd and Blair Park Pty Ltd (from 2020 financial year) which hold shares in Finbar Group Limited. *** Terence Peh is a Director and shareholder of Chuan Hup Holdings Limited which holds shares in Finbar Group Limited. No options for shares were granted to key management personnel as remuneration during the reporting period. 4.3.5 Equity Instruments All options refer to options over ordinary shares of Finbar Group Limited issued under the Employee Incentive Plan 2013 or Director Share Plan 2014. As at 30 June 2020, there were no options on issue. 33 FINBAR GROUP LIMITED ANNUAL REPORT 2020 DIRECTORS’ REPORT (Continued) For the Year Ended 30 June 2020 4 4.4 Corporate Governance Statement (continued) Audit Committee The Audit Committee Charter sets out the Audit Committee’s role, powers and duties, and establishes the functions delegated to the Audit Committee by the Board. The Audit Committee advises on the establishment and maintenance of a framework of internal control and appropriate ethical standards for the management of the Group. A copy of the Audit Committee Charter is available on Finbar’s website www.finbar.com.au. The following directors serve on the Audit Committee: » Lee VERIOS (Chairman) - Non-executive Independent Director » Kee Kong LOH - Non-executive Director » Terence Siong Woon PEH - Non-executive Director 4.5 Risk Management Oversight of the Risk Management Procedures The Board has elected not to establish a separate Risk Committee to oversee risk management and instead the overall responsibility of risk management resides with the Board in its entirety. In this regard, risk management considerations form part of the Board’s discussions at scheduled meetings. The Board oversees the establishment, implementation, and annual review of the Group’s risk management procedures. Management has established and implemented informal risk management procedures for assessing, monitoring and managing all risks including operational, financial reporting and compliance risks for the Group. The Managing Director and Chief Financial Officer provide assurance, in writing to the Board, that the financial risk management and associated compliance and controls have been assessed and found to be operating effectively. Risk Management and Compliance Control Comprehensive practices have been established to ensure: » » capital expenditure with respect to land acquisitions or development agreements obtain prior Board approval; financial exposures are controlled, including use of derivatives. Further details of the Group’s policies relating to interest rates management and credit risk are included in Notes 5 and 24 in the Notes to the Consolidated Financial Statements; » management systems are monitored and reviewed to achieve high standards of performance and compliance with regulations; business transactions are properly authorised and executed; the quality and integrity of personnel (see below); financial reporting accuracy and compliance with the financial reporting regulatory framework (see below); and environmental regulation compliance (see below). » » » » Quality and Integrity of Personnel Training and development and appropriate remuneration and incentives with regular performance reviews create an environment of cooperation and constructive dialogue with employees and senior management. Financial Reporting The Managing Director and the Chief Financial Officer have provided assurance, in writing to the Board that the Group’s financial reports are founded on a sound system of risk management and internal compliance and control which implements the policies adopted by the Board. There is a comprehensive accounting system. Monthly actual results are reported against budgets approved by the Directors and revised forecasts for the year are prepared regularly. Procedures are in place to ensure price sensitive information is reported to the Australian Securities Exchange (ASX) in accordance with Continuous Disclosure Requirements. A review is undertaken at each half year end of all related party transactions. Environmental Regulation The Group’s operations are not subject to any significant environmental regulations under either Commonwealth or State legislation. Compliance with the requirements of environmental regulations and with specific requirements of site environmental licences was substantially achieved across all operations with no instances of non-compliance in relation to licence requirements noted. The Board is not aware of any significant breaches of environmental regulations during the period covered by this report. 34 FINBAR GROUP LIMITED ANNUAL REPORT 2020DIRECTORS’ REPORT (Continued) For the Year Ended 30 June 2020 4 4.6 Corporate Governance Statement (continued) Ethical Standards All Directors, Managers and Employees are expected to act with the utmost integrity and objectivity, striving at all times to enhance the reputation and performance of the Group. Conflict of Interest Directors must keep the Board advised, on an ongoing basis, of any interest that could potentially conflict with those of the Group. Where the Board believes that a significant conflict exists for a Director on a Board matter, the Director concerned does not receive the relevant Board papers and is not present at the meeting whilst the item is considered. Details of Director related entity transactions with the Company and the Group are set out in Note 28 in the Notes to the Consolidated Financial Statements. Code of Conduct All Directors, Managers and Employees are expected to maintain high ethical standards including the following: » » » » » » aligning the behaviour of the Board and Management with the code of conduct by maintaining appropriate core Group values and objectives; fulfilling responsibilities to shareholders by delivering shareholder value; usefulness of financial information by maintaining appropriate accounting policies, practices and disclosure; fulfilling responsibilities to clients, customers and consumers by maintaining high standards of product quality, service standards, commitments to fair value, and safety of goods produced; employment practices such as occupational health and safety, employment opportunity, training and education support, community activities, sponsorships and donations; responsibilities to the individual, such as privacy, use of privileged or confidential information, and conflict resolution; » managing actual or potential conflicts of interest; » » » » » » corporate opportunities such as preventing Directors and key executives from taking advantage of property, information or position for personal gain; confidentiality of corporate information; fair dealing; protection and proper use of the Group’s assets; compliance with laws; and reporting unlawful or of unethical behaviour including protection of those who report violations in good faith. Trading in General Company Securities by Directors and Employees The key elements of the Trading in Company Securities by Directors and Employees policy are: » identification of those restricted from trading - Directors and Senior Executives may acquire shares in the Company, but are prohibited from dealing in Company shares or exercising options: - within two trading days after either the release of the Company’s half-year and annual results to the Australian Securities Exchange (‘ASX’), the Annual General Meeting or any major announcement; - whilst in possession of price sensitive information not yet released to the market; » » » raising the awareness of legal prohibitions including transactions with colleagues and external advisers; raising awareness that the Company prohibits those restricted from trading in Company shares as described above from entering into transactions such as margin loans that could trigger a trade during a prohibited period; and requiring details to be provided of the trading activities of the Directors of the Company. 4.7 Communication with Shareholders The Board is committed to ensuring that the Company complies with its continuous disclosure obligations and to facilitate this, has approved a Continuous Disclosure Policy that applies to all Group personnel, including the Directors and Senior Executives. The Board seeks to promote investor confidence by seeking to ensure that trading in the Company’s shares take place in an informed market. Finbar provides information about itself, its activities and operations, and its governance via its website www.finbar.com.au. A copy of the Group’s Market Disclosure Policy is available on Finbar’s website www.finbar.com.au. 35 FINBAR GROUP LIMITED ANNUAL REPORT 2020 DIRECTORS’ REPORT (Continued) For the Year Ended 30 June 2020 4 4.8 Corporate Governance Statement (continued) Diversity The Board has considered the recommendation to formulate strict measurable targets for the purposes of the assessment of gender diversity within the organisation. Given the small size and relatively stable nature of its workforce it has formed the view that at this time it would not be appropriate or practical to establish a written policy regarding gender diversity. The Board will review this position at least annually. However, generally, when selecting new employees or advancing existing employees, no consideration is given to gender, age or ethnicity, but instead selections are based upon individual achievements, skill and expertise. Gender representation Board Key Management Personnel Senior Management Group 5 Principal Activities 2020 2019 Female - - 50% 53% Male 100% 100% 50% 47% Female - - 60% 48% Male 100% 100% 40% 52% The principal activities of the Group during the course of the financial year continued to be property development and investment. The Group’s focus is the development of medium to high-density residential buildings and commercial developments in Western Australia by way of direct ownership, ownership through fully owned Subsidiaries or by equity accounted investees (through companies registered specifically to conduct the development). The Group holds rental property through 175 Adelaide Terrace Pty Ltd, Finbar Karratha Pty Ltd and Finbar Commercial Pty Ltd. There were no significant changes in the nature of the activities of the Group during the financial year. 6 Operating and Financial Review Operating Results Total comprehensive income attributable to Owners of the Group 2020 2019 $7,068,000 $11,372,000 Total comprehensive income attributable to Owners of the Group Basic EPS Diluted EPS Dividends paid Dividends paid per share Market price per share Change in share price Return on capital employed attributable to Owners of the Group Return on total equity attributable to Owners of the Group 2020 2019 2018 2017 2016 $7,068,000 $11,372,000 $13,760,000 $5,062,000 $8,130,000 $0.02 $0.02 $0.04 $0.04 $0.06 $0.06 $0.02 $0.02 $0.04 $0.04 $13,606,000 $16,302,000 $13,874,000 $16,219,000 $20,686,000 $0.05 $0.70 $0.06 $0.84 -$0.14 -$0.10 4.47% 2.92% 5.58% 4.58% $0.06 $0.94 $0.14 6.24% 5.46% $0.07 $0.80 $0.09 $0.83 -$0.03 -$0.36 4.76% 2.34% 4.26% 3.57% Dividends for 2020 were fully franked and it is expected that dividends in future years will continue to be fully franked. Key transactions that contributed to the consolidated net profit of the Company for the 2020 financial year were the completion of Sabina in Applecross, Palmyra East Apartments in Palmyra and One Kennedy in Maylands, sales and settlements of completed stock held at 30 June 2019 as well as the ongoing rental of the Company’s commercial properties. See below for further information on the Company’s project completions. 36 FINBAR GROUP LIMITED ANNUAL REPORT 2020DIRECTORS’ REPORT (Continued) For the Year Ended 30 June 2020 6 Operating and Financial Review (continued) Review of Operations Finbar Group Limited’s (‘Finbar’ or ‘the Company’) core business lies in the development of medium to high density residential apartments and commercial property within the state of Western Australia. Finbar carries out its development projects in its own right or through incorporated special purpose entities and equity accounted investees, of which the Company either directly or indirectly holds interests in project profitability ranging between 50% and 100%. The Company operates predominantly within the Perth CBD and surrounding areas. Finbar’s business model involves the acquisition of suitable development land either directly or by way of an incorporated Special Purpose Vehicle or by development agreements with Land Owners. Equity partners are sought to allow the Company to leverage into larger development projects to take advantage of the benefits of economies of scale, and to help spread project risk. Finbar outsources its design, sales and construction activities to external parties. Finbar established an internal sales team in May 2020. The administration of the companies along with the operating, investment, and acquisitions decisions are made by Finbar’s Board and Management. The Company employs 26 staff in its corporate offices in East Perth, Western Australia and 1 member of staff in its office in the Pilbara. This outsourcing model ensures that the Company is and remains scalable, efficient and agile in a market where acquisition and project timing is critical in maintaining a competitive advantage, helping to protect margins and enhancing the returns Finbar can generate for its shareholders. There have been no significant changes in the Company’s operating model that occurred during the relevant reporting period and the Company continued to develop and invest in built-form projects within Western Australia throughout the year as its core business. During financial year 2020, Finbar Commercial Pty Ltd acquired 2 commercial investment properties at the Aurelia and Vue Tower development. There is less demand for investment property, however, a low interest rate environment coupled with weakened housing prices is helping drive owner occupier activity for company product. Factors that may affect the Company’s profit are generally restricted to items that would be considered to reside outside of the control of the Board and Management and are, in general, movements in interest rates, government rebates and incentives, changes in taxation and superannuation laws, banking lending policies and their regulatory changes, global economic factors, resources sector activity, and employment rates. The outbreak of COVID-19 globally and in Australia in the second half of the year ended 30 June 2020 was a significant risk event. The full impact on the Australian economy, travel restrictions and period of recovery is yet to be known. While the measures implemented by the Federal and State Governments were effective in reducing the impact of the virus, there may be ongoing outbreaks of COVID-19 which will require further government response. The COVID-19 pandemic resulted in a significant reduction in March and June 2020 quarter sales resulting in reduced settlement revenue for the reporting period. Delayed settlements in the Sabina project also contributed to the result with foreign buyers unable to travel to conclude settlement affairs. Apart from those tenants that were required by the government to close their business (e.g.: food and beverages tenancies), the major tenants have been able to stay open and trade safely during the pandemic. Rent abatements and/or rent deferrals have been and are still being provided to affected tenants in accordance to the relevant Code of Conduct legislation. The Company’s Management has remained diligent in ensuring it maintains a strong balance sheet to protect and improve the Company’s market position through this crisis. The launch of Civic Heart and construction commencement at Dianella positions the Company to benefit from the opportunities that may arise from decreased competition and general industry stress. The ability to source new viable development opportunities is central to Finbar’s ongoing success and the Board and Management has demonstrated a long track record of this ability. The Board and Management control the Company’s key risks through the implementation of control measures which include; land acquisitions generally secured without the use of debt funding, development funding which is carried out utilising senior bank funding (no mezzanine) from major Australian banks, and the Company’s small and agile structure which can rapidly adapt to changes in market conditions. There were no significant changes in the composition of overall assets and liabilities, with movements in assets from non-current to current and movements in liabilities from non-current to current as projects reach completion. The Company continued to focus on the generation of sales and rental revenue through property development and investment. The Board and Management do not currently have the view that there is a requirement to reposition the Company’s overall business model. The Board and Management continuously monitor market fluctuations and conditions and implement appropriate strategies to benefit from and insulate the Company against changing market conditions. 37 FINBAR GROUP LIMITED ANNUAL REPORT 2020DIRECTORS’ REPORT (Continued) For the Year Ended 30 June 2020 6 Operating and Financial Review (continued) Completed Projects Motive - 172 Railway Parade, West Leederville: 14 units have settled in the reporting period. 8 units remain for sale in the 143 unit development. Concerto - 189 Adelaide Terrace, East Perth: 13 units settled in the reporting period. 4 units remain for sale in the 227 unit development. Aurelia - 96 Mill Point Road, South Perth: 22 units have settled in the reporting period. The 138 unit development is fully sold. Aire West Perth - 647-659 Murray Street, West Perth: 21 units have settled in the reporting period. The 244 unit development is fully sold. Reva - 5 Harper Terrace, South Perth: 13 units have settled in the reporting period. 13 units remain for sale in the 59 unit development. Vue Tower - 63 Adelaide Terrace, East Perth: 44 units have settled in the reporting period. 40 units remain for sale in the 250 unit development. Palmyra East Apartments - 49 McGregor Road, Palmyra: Construction of the Palmyra East Apartments project completed in the first half of the financial year. 74 units have settled in the reporting period. 47 units remain for sale in the 128 unit development. Sabina - 908 Canning Highway, Applecross: Construction of the Sabina project completed in the second half of the financial year. 78 units have settled in the reporting period. 75 units remain for sale in the 167 unit development. One Kennedy - 1 Kennedy Street, Maylands: Construction of the One Kennedy project completed in the second half of the financial year. 52 units have settled in the reporting period. 62 units remain for sale in the 123 unit development. Currently Under Construction Riverena - 5 Rowe Avenue, Rivervale: Construction works continue to progress well at Riverena, with completion expected during the financial year ending 30 June 2021. To date 43 sales have been achieved in the development of 125 residential apartments. Dianella Apartments - 36 Chester Avenue, Dianella: Construction works continue to progress well at Dianella, with completion expected during the financial year ending 30 June 2022. To date 24 sales have been achieved in the development of 128 residential apartments. Future Projects Civic Heart - 1 Mends Street, South Perth: Marketing of the Civic Heart project continues to progress, with construction expected to commence in the financial year ending 30 June 2021. To date 11 sales have been achieved in the development of 309 residential apartments and 26 commercial units. Aurora Applecross - 3 Kintail Road, Applecross (Stage 2): Marketing of the Aurora project continues to progress, with construction expected to commence in the financial year ending 30 June 2022. To date 1 sale has been achieved in the development of 118 residential apartments and 3 commercial units. 240 Adelaide Terrace, Perth: Development Approval has been received for 119 residential apartments and 2 commercial units. Marketing and construction are expected to commence in the financial year ending 30 June 2021. 912 Canning Highway, Applecross (Stage 3): Development Approval has been received for 151 residential apartments and 3 commercial units. Palmyra West Apartments - 43 McGregor Road, Palmyra (Stage 2): Development Approval has been received for 130 residential apartments. 239 Great Eastern Highway, Belmont: Development Approval has been received for a development of 194 residential apartments and 2 commercial units. The Point - 31 Rowe Avenue, Rivervale: Development Approval has been received for a development of 167 apartments and 9 commercial units. 2 Homelea Court, Rivervale: Finbar through a wholly owned subsidiary holds an additional four abutting parcels of land in the Springs precinct in Rivervale for a combined value of $5.15m. The four vacant sites are located on the corners of Rowe Avenue and Homelea Court and comprise a total of 3,770 square metres of land which Finbar intends to amalgamate to develop a project consisting of approximately 185 apartments within a 10 level building. Lot 1000 - 32 Riversdale Road, Rivervale: Development options are currently being explored. 187 Adelaide Terrace, East Perth: Development options are currently being explored. 38 FINBAR GROUP LIMITED ANNUAL REPORT 2020DIRECTORS’ REPORT (Continued) For the Year Ended 30 June 2020 6 Operating and Financial Review (continued) Investment Property Fairlanes - 175 Adelaide Terrace, East Perth: The Fairlanes property has been revalued during the reporting period. The valuation resulted in a $6,086,000 increase to the value of the property. The company continues to benefit from the investment income generated from the leased property. The property is currently 91% leased. The company continues to actively market the remaining tenancies for rental. Pelago Commercial - 23 & 26 Sharpe Avenue, Karratha: The Pelago commercial property has been revalued during the reporting period. The valuation resulted in a $938,000 reduction to the value of the property. The company continues to benefit from the investment income generated from the leased property. The property is currently 65% leased. The company continues to actively market the remaining tenancies for rental. Pelago Residential - 23 & 26 Sharpe Avenue, Karratha: The Pelago residential property has been revalued during the reporting period. The valuation resulted in a $1,055,000 increase to the value of the property. The company continues to benefit from the investment income generated from the leased property. The property is currently 98% leased. The company continues to actively market the remaining tenancies for rental. Vue Tower Commercial - 63 Adelaide Terrace, East Perth: Lot 4 at Vue Tower was acquired in December 2019 under Finbar Commercial Pty Ltd. The purchase price was $200,000. The property is leased to a non-profit organisation at $1 per annum until 13 June 2029. Aurelia Commercial - 96 Mill Point Road, South Perth: Lots 132-138 at Aurelia was acquired in June 2020 under Finbar Commercial Pty Ltd. The fair value of the properties was recorded at $5,605,000. The company is actively marketing the tenancies for rental. Significant Changes in State of Affairs Other than set out in this report, in the opinion of the Directors there were no significant changes in the state of affairs of the Group that occurred during the financial year under review. 7 Dividends Dividends paid or declared by the Company to members since the end of the previous financial year were: Dividends Paid During the Year 2020 Final 2019 ordinary Interim 2020 ordinary Total Dividends Paid Cents per Share Total Amount $’000 Franked / Unfranked Date of Payment 3.00 2.00 8,164 Franked 12 September 2019 5,442 Franked 26 March 2020 13,606 Franked dividends declared or paid during the year were franked at the rate of 30%. Proposed Dividend After the balance date the following dividend has been proposed by the Directors. The dividend has not been provided for and there are no income tax consequences. Final 2020 ordinary Total Dividend Proposed 1.00 2,721 Franked 21 September 2020 2,721 The financial effect of this dividend has not been brought to account in the financial statements for the year ended 30 June 2020 and will be recognised in subsequent financial reports. Dealt with in the financial report as - Dividends Dividend Reinvestment Plan Note 19 $’000 13,606 In accordance with Rule 13 of the Company’s Dividend Reinvestment Plan (DRP), the Directors have elected to suspend the DRP in the 2020 financial year until further notice. As such the DRP will not be active for the above mentioned dividend. 39 FINBAR GROUP LIMITED ANNUAL REPORT 2020DIRECTORS’ REPORT (Continued) For the Year Ended 30 June 2020 8 Events Subsequent to Reporting Date 36 Chester Avenue Pty Ltd entered into a construction contract with Hanssen Pty Ltd on 1 July 2020. The capital commitment on the Dianella Apartments project totalled to $32,369,000. With continuing economic uncertainty from the COVID-19 pandemic, the Company may require to grant further rent abatements and/or rent deferrals in accordance to the relevant Code of Conduct legislation. Further mandatory closures and government mandated restrictions will influence the Australian economy and property market which may have a future impact on property valuations. Other than mentioned, there has not arisen in the interval between the end of the financial year and the date of this report any item, transaction or event of a material and unusual nature likely, in the opinion of the Directors of the Company, to affect significantly the operations of the Group, the results of those operations, or the state of affairs of the Group in future financial years. 9 Likely Developments The Group will continue to pursue its policy of increasing the profitability and market share of its major business sectors during the next financial year. The Group will continue planned development projects on existing land and will continue to assess new development opportunities for the acquisition of land for future development. Further information about likely developments in the operations of the Group and the expected results of these operations in future years have not been included in this report as the disclosure of such information would, in the opinion of the Directors, be likely to result in unreasonable prejudice to the Group. 10 Directors’ Interests The relevant interest of each Director in the shares and options over such instruments by the companies within the Group, as notified by the Directors to the Australian Stock Exchange Limited in accordance with S205G(1) of the Corporations Act 2001, as at the date of this report is as follows: Director Mr John Chan Mr Darren John Pateman Mr Ronald Chan Mr Kee Kong Loh Mr Terence Siong Woon Peh Mr Lee Verios Ordinary Shares 27,031,551 3,609,493 15,481,061 2,000,904 55,837,175 72,393 11 Indemnification and Insurance of Officers and Auditors Indemnification The Company has agreed to indemnify the current Directors of the Company, its Subsidiaries and Equity Accounted Investees, against all liabilities to another person (other than the Company or related body corporate) that may arise from their position as Directors of the Company, its Subsidiaries and Equity Accounted Investees, except where the liability arises out of the conduct involving a lack of good faith. Insurance Premiums During the financial year the Company has paid insurance premiums of $38,000 (2019: $30,000) in respect of Directors and Officers liability and legal expenses insurance contracts for Directors and Officers, including Executive Officers of the Company. The insurance premiums relate to: » Costs and expenses incurred by the relevant Officers in defending proceedings, whether civil or criminal and whatever their outcome; and » Other liabilities that may arise from their position, with the exception of conduct involving a wilful breach of duty or improper use of information or position to gain a personal advantage. 40 FINBAR GROUP LIMITED ANNUAL REPORT 2020 DIRECTORS’ REPORT (Continued) For the Year Ended 30 June 2020 12 Non-audit Services During the year KPMG, the Group’s auditor, has performed certain other services in addition to their statutory duties. The Board has considered the non-audit services provided during the year by the auditor and is satisfied that the provision of those non-audit services during the year by the auditor is compatible with, and did not compromise, the auditor independence requirements of the Corporations Act 2001 for the following reasons: » » all non-audit services were subject to the corporate governance procedures adopted by the Group and have been reviewed to ensure they do not impact the integrity and objectivity of the auditor; and the non-audit services provided do not undermine the general principles relating to auditor independence as set out in APES 110 Code of Ethics for Professional Accountants, as they did not involve reviewing or auditing the auditor’s own work, acting in a management or decision making capacity for the Group, acting as an advocate for the Group or jointly sharing risks and rewards. Details of the amounts paid to the auditor of the Group, KPMG, and its related practices for audit and non-audit services provided during the year are set out below: Audit Services: Auditors of the Company Audit and review of the financial reports Audit and review of the financial reports of equity accounted investees Services Other Than Statutory Audit: Taxation compliance services Consolidated 2020 $ 2019 $ 126,697 141,083 - 169 126,697 141,252 20,286 34,929 20,286 34,929 13 Lead Auditor’s Independence Declaration The Lead Auditor’s Independence Declaration is set out on Page 86 and forms part of the Directors’ Report for the financial year ended 30 June 2020. Signed in accordance with a resolution of the Board of Directors: Darren Pateman Managing Director Dated at Perth this Twenty-fifth day of August 2020. 41 FINBAR GROUP LIMITED ANNUAL REPORT 2020CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME For the Year Ended 30 June 2020 Revenue Cost of sales Gross Profit Other income Administrative expenses Advertising expenses Revaluation increase of investment property Revaluation increase of property, plant and equipment Rental expenses Results from Operating Activities Finance income Finance costs Net Finance Income Share of profit of Equity Accounted Investees (net of income tax) Profit before Income Tax Income tax expense Profit for the year Other comprehensive income Items which will not be reclassified to profit or loss: Revaluation increase/(decrease) of property, plant and equipment Tax on items that will not be reclassified to profit or loss Other comprehensive income for the year, net of income tax Total comprehensive income for the year Earnings per Share: Basic earnings per share (cents per share) Diluted earnings per share (cents per share) Consolidated 2020 $’000 2019 $’000 154,307 154,690 (132,076) (126,263) 22,231 28,427 278 60 (7,159) (6,918) (7,779) (4,083) 6,203 627 964 114 (4,525) (4,152) 9,876 14,412 970 (332) 638 (26) 1,890 (781) 1,109 426 10,488 15,947 (3,864) (4,560) 6,624 11,387 635 (191) 444 (21) 6 (15) 7,068 11,372 2.43 2.43 4.18 4.18 Note 7 8 10 10 14 11 11 20 20 The Consolidated Statement of Profit or Loss and Other Comprehensive Income is to be read in conjunction with the Notes to the Financial Statements set out on Pages 46 to 79. 42 FINBAR GROUP LIMITED ANNUAL REPORT 2020CONSOLIDATED STATEMENT OF CHANGES IN EQUITY For the Year Ended 30 June 2020 Balance as at 1 July 2018 Total comprehensive income for the year Profit Other comprehensive income Transactions with owners, recognised directly in equity Issue of ordinary shares Buyback of shares Note Share Capital $’000 Retained Earnings $’000 Asset Revaluation Reserve $’000 Total Equity $’000 193,242 58,910 15 252,167 11,387 11,387 (15) (15) 2,036 (794) 2,036 (794) (16,302) Dividends to shareholders 19 (16,302) Balance as at 30 June 2019 194,484 53,995 - 248,479 Balance as at 1 July 2019 Total comprehensive income for the year Profit Other comprehensive income Transactions with owners, recognised directly in equity 194,484 53,995 - 248,479 6,624 6,624 444 444 Dividends to shareholders 19 (13,606) (13,606) Balance as at 30 June 2020 194,484 47,013 444 241,941 Amounts are stated net of tax The Consolidated Statement of Changes in Equity is to be read in conjunction with the Notes to the Financial Statements set out on Pages 46 to 79. 43 FINBAR GROUP LIMITED ANNUAL REPORT 2020CONSOLIDATED STATEMENT OF FINANCIAL POSITION As at 30 June 2020 Current Assets Cash and cash equivalents Trade and other receivables Inventories Prepayments Investments in Equity Accounted Investees Other assets Total Current Assets Non Current Assets Trade and other receivables Inventories Investment property Investments in Equity Accounted Investees Property, plant and equipment Deferred Tax Assets Other assets Total Non Current Assets Total Assets Current Liabilities Trade and other payables Loans and borrowings Current tax payable Employee benefits Total Current Liabilities Non Current Liabilities Trade and other payables Loans and borrowings Deferred tax liabilities Employee benefits Total Non Current Liabilities Total Liabilities Net Assets EQUITY Share capital Retained earnings Reserves Total Equity Consolidated 2020 $’000 2019 $’000 Note 18a 30,591 45,490 17 16 14 17 16 12 14 13 15 23 21 15 22 23 21 15 22 19 19 10,341 18,354 58,803 129,925 - 746 55 55 3,044 20 100,536 196,888 26,911 16,123 95,798 62,808 97,331 85,307 1,368 9,396 6,313 149 1,496 9,629 6,177 81 237,266 181,621 337,802 378,509 24,284 40,838 55,504 34,665 1,116 3,060 490 488 81,394 79,051 1,766 3,320 8,478 44,943 4,179 2,687 44 29 14,467 50,979 95,861 130,030 241,941 248,479 194,484 194,484 47,013 53,995 444 - 241,941 248,479 The Consolidated Statement of Financial Position is to be read in conjunction with the Notes to the Financial Statements set out on Pages 46 to 79. 44 FINBAR GROUP LIMITED ANNUAL REPORT 2020CONSOLIDATED STATEMENT OF CASH FLOWS For the Year Ended 30 June 2020 Cash Flows from Operating Activities Cash receipts from customers Cash paid to suppliers and employees Cash generated from/(used in) Operating Activities Interest paid Income tax paid Consolidated 2020 $’000 2019 $’000 Note 265,611 203,660 (235,864) (225,952) 29,747 (22,292) (1,231) (1,735) (4,643) (4,739) Net Cash generated from/(used in) Operating Activities 18b 23,873 (28,766) Cash Flows from Investing Activities Interest received Dividends received from Equity Accounted Investees Acquisition of property, plant and equipment Proceeds from sale of property, plant and equipment Acquisition of investment property Loans to Equity Accounted Investees Proceeds from loans to Equity Accounted Investees Cash held by subsidiary at acquisition* Net Cash (used in)/provided by Investing Activities Cash Flows from Financing Activities Buyback of shares Proceeds from borrowings Repayment of borrowings Dividends paid (net of DRP) Net Cash (used in)/provided by Financing Activities Net decrease in cash and cash equivalents Cash and cash equivalents at 1 July Cash and Cash Equivalents at 30 June 13 13 21 21 19 200 1,674 2,401 (91) 325 (4,142) 217 (38) 12 - (10,515) (298) 2,779 10,459 - 4 (9,043) 12,030 - (794) 64,264 99,993 (80,387) (80,456) (13,606) (14,267) (29,729) 4,476 (14,899) (12,260) 45,490 57,750 18a 30,591 45,490 * As at 30 June 2019, the Group acquired 36 Chester Avenue Pty Ltd’s remaining 50% interest from the joint venture partner. 36 Chester Avenue Pty Ltd is a wholly owned subsidiary of Finbar Group Limited from the 2019 financial year. The Consolidated Statement of Cash Flows is to be read in conjunction with the Notes to the Financial Statements set out on Pages 46 to 79. 45 FINBAR GROUP LIMITED ANNUAL REPORT 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the Year Ended 30 June 2020 Index to Notes to the Financial Statements NOTE PAGE NOTE PAGE 1. Reporting Entity 2. Basis of Preparation 3. Significant Accounting Policies 4. Determination of Fair Values 5. Financial Risk Management 6. Operating Segments 7. Revenue 8. Other Income 9. Personnel Expenses 10. Finance Income and Finance Costs 11. Income Tax Expense 12. Investment Property 13. Property, Plant and Equipment 14. Investments in Equity Accounted Investees 15. Tax Assets and Liabilities 16. Inventories 48 48 49 55 56 57 60 60 60 60 61 62 63 65 67 67 17. Trade and Other Receivables 18. Cash and Cash Equivalents 19. Capital and Reserves 20. Earnings per Share 21. Loans and Borrowings 22. Employee Benefits 23. Trade and Other Payables 24. Financial Instruments 25. Operating Leases 26. Capital and Other Commitments 27. Contingencies 28. Related Parties 29. Group Entities 30. Subsequent Events 31. Auditor’s Remuneration 32. Parent Entity Disclosures 67 68 68 70 71 72 73 73 75 76 76 77 78 79 79 79 46 FINBAR GROUP LIMITED ANNUAL REPORT 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) For the Year Ended 30 June 2020 Index to Significant Accounting Policies (Note 3) NOTE (a) Basis of Consolidation (b) Financial Instruments (c) Property, Plant and Equipment (d) Investment Property (e) Inventories (f) Impairment (g) Employee Benefits (h) Provisions (i) Revenue (j) Finance Income and Finance Costs (k) Income Tax (l) Goods and Services Tax (m) Earnings per Share (n) Segment Reporting (o) New Standards and Interpretations PAGE 49 50 50 51 51 52 52 53 53 54 54 54 54 54 55 47 FINBAR GROUP LIMITED ANNUAL REPORT 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) For the Year Ended 30 June 2020 1 Reporting Entity Finbar Group Limited (‘the Company’) is a public company domiciled in Australia. The address of the Company’s registered office is Level 6, 181 Adelaide Terrace, East Perth, WA 6004. The consolidated financial statements of the Group as at and for the year ended 30 June 2020 comprise the Company, its Subsidiaries (together referred to as ‘the Group’ and individually as ‘Group entities’) and the Group’s interest in equity accounted investees. The Group is a for-profit entity and is primarily involved in residential property development and property investment (see Note 6). 2 (a) Basis of Preparation Statement of Compliance The consolidated financial statements are general purpose financial statements which have been prepared in accordance with Australian Accounting Standards (AASBs) adopted by the Australian Accounting Standards Board (AASB) and the Corporations Act 2001. These consolidated financial statements of the Group comply with International Financial Reporting Standards (IFRSs) and interpretations adopted by the International Accounting Standards Board (IASB). The consolidated financial statements were approved by the Board of Directors on 25th August 2020. (b) Basis of Measurement The consolidated financial statements have been prepared on the historical cost basis except for the following: · financial instruments recognised through profit or loss are measured at fair value; and · investment property is measured at fair value. The methods used to measure fair values are discussed further in Note 4. (c) Functional and Presentation Currency These consolidated financial statements are presented in Australian dollars which is the functional currency for the Group. In accordance with ASIC Corporations (Rounding in Financial/ Directors’ Reports) Instrument 2016/191, amounts in the consolidated financial statements and directors’ report have been rounded off to the nearest thousand dollars, unless otherwise stated. (d) Use of Estimates and Judgements The preparation of consolidated financial statements in conformity with AASBs 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. (i) Assumptions and estimation uncertainties Information about assumptions made in measuring fair values and estimation uncertainties that have a significant risk of resulting in a material adjustment within the year ending 30 June 2020 are included in the following notes: » Note 12 - Valuation of investment property; » Note 13 - Property, plant & equipment; and » Note 24 - Valuation of financial instruments. (ii) Measurement of fair values A number of the Group’s accounting policies and disclosures require the measurement of fair values, for both financial and non- financial assets and liabilities. The Group has an established control framework with respect to the measurement of fair values. This includes the CFO who has overall responsibility for overseeing all significant fair value measurements, including Level 3 fair values. Significant valuation issues are reported to the Audit Committee. When measuring the fair value of an asset or a liability, the Group uses market observable data as far as possible. Fair values are categorised into different levels in a fair value hierarchy based on the inputs used in the valuation techniques as follows: » » » Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices) Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs) If the inputs used to measure the fair value of an asset or a liability might be categorised in different levels of the fair value hierarchy, then the fair value measurement is categorised in its entirety in the same level of the fair value hierarchy as the lowest level input that is significant to the entire measurement. The Group recognises transfers between levels of the fair value hierarchy at the end of the reporting period during which the change occurred. 48 FINBAR GROUP LIMITED ANNUAL REPORT 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) For the Year Ended 30 June 2020 2 (e) Basis of Preparation (continued) Changes in Accounting Policies Except for the changes below, the Group’s accounting policies are consistent with those disclosed in the financial statements as at and for the year ended 30 June 2019. The Group has initially adopted AASB 16 Leases from 1 July 2019. A number of other new standards, including IFRIC 23 Uncertainty over Income Tax Treatments, are effective from 1 July 2019 but they do not have a material effect on the Group’s financial statements. AASB 16 will result in almost all leases being recognised on the Balance Sheet, as the distinction between operating and finance leases is removed. Under the new standard, an asset (the right to use the leased item) and a financial liability to pay rentals are recognised. Lessees will be required to separately recognise the interest expense on the lease liability and the depreciation expense on the right-of-use asset. The only exceptions are short-term and low-value leases. The accounting for lessors will not change significantly. The Group leases printing equipment. However, the Group has elected not to recognise right-of-use assets and lease liabilities for the printing equipment (low-value assets). The Group recognises the lease payments associated with these leases as an expense on a straight-line basis over the lease term. The Group owns its business premises which are classified as Property, plant and equipment on Balance Sheet. The Group leases out its investment property. The group has classified these leases as operating leases. The accounting policies applicable to the Group as a lessor are not different from those under AASB 117. The Group is not required to make any adjustments on transition to AASB 16 for leases in which it acts as a lessor. As a result of initially applying AASB 16, there is no material effect on the Group’s financial statements. 3 Significant Accounting Policies The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements, and have been applied consistently by Group entities. (a) (i) Basis of Consolidation Subsidiaries Subsidiaries are entities controlled by the Group. The Group controls an entity when it is exposed to or has rights to variable returns from its investment with the entity and has the ability to affect those returns through its power over the entity. The financial statements of Subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. The accounting policies of subsidiaries have been changed when necessary to align them with the policies adopted by the Group. (ii) Equity Accounted Investees Equity accounted investees are those entities over whose activities the Group has joint control, established by contractual agreement and requiring unanimous consent for strategic and operating decisions. Investments in equity accounted investees are accounted for using the equity method (Equity Accounted Investees) and are initially recognised at cost. The consolidated financial statements include the Group’s share of the income and expenses and equity movements of Equity Accounted Investees, after adjustments to align the accounting policies with those of the Group, from the date that the joint control commences until the date the joint control ceases. When the Group’s share of losses exceeds its interest in an Equity Accounted Investee, the carrying amount of that interest is reduced to nil and the recognition of further losses is discontinued except to the extent that the Group has an obligation or has made payments on behalf of the Equity Accounted Investee. Investments in equity accounted investees are carried at the lower of the equity accounted amount and the recoverable amount. Investments in equity accounted investees are treated as current assets where it is expected that the investment will be realised within a twelve month time frame. (iii) Joint Operations A joint operation is carried on by each venturer using its own assets in pursuit of the joint operations. The consolidated financial statements include the assets that the Group controls and the liabilities that it incurs in the course of pursuing the joint operation, and the expenses that the Group incurs and its share of the income that it earns from the joint operation. (iv) Transactions Eliminated on Consolidation Intra-group balances and transactions, and any unrealised gains and losses or income and expenses arising from intra-group transactions, are eliminated in preparing the consolidated financial statements. Unrealised gains arising from transactions with Equity Accounted Investees are eliminated against the investment to the extent of the Group’s interest in the Equity Accounted Investee. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment. Gains and losses are recognised as the contributed assets are consumed or sold by the Equity Accounted Investee or, if not consumed or sold by the Equity Accounted Investee, when the Group’s interest in such entities is disposed. 49 FINBAR GROUP LIMITED ANNUAL REPORT 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) For the Year Ended 30 June 2020 3 (b) (i) Significant Accounting Policies (continued) Financial Instruments Non-derivative Financial Instruments Non-derivative financial assets Trade and other receivables and debt securities issued are initially recognised when they are originated. All other financial assets (including assets designated at fair value through profit or loss – FVTPL) are initially recognised when the Group becomes a party to the contractual provisions of the instrument. A financial asset is measured at amortised cost if it meets both of the following conditions and is not designated as at FVTPL: » » it is held within a business model whose objective is to hold assets to collect contractual cash flows; and its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. The Group derecognises a financial asset when the contractual rights to the cash flows from the financial asset expire, or it transfers the rights to receive the contractual cash flows in a transaction in which substantially all of the risks and rewards of ownership of the financial asset are transferred or in which the Group neither transfers nor retains substantially all of the risks and rewards of ownership and it does not retain control of the financial asset. Any interest in transferred financial assets that is created or retained by the Group is recognised as a separate asset or liability. Accounting for finance income and expense is discussed in Note 3(j). Non-derivative financial liabilities Trade and other payables, commercial bills and subordinated liabilities are initially recognised when they are originated at fair value plus any directly attributable transaction costs. Subsequent to initial recognition these financial liabilities are measured at amortised cost using the effective interest rate method. All other financial liabilities (including liabilities designated at fair value through profit or loss) are initially recognised when the Group becomes a party to the contractual provisions of the instrument. The Group derecognises a financial liability when its contractual obligations are discharged or cancelled or expire. Financial assets and liabilities are offset and the net amount presented in the statement of financial position when, and only when, the Group has a legal right to offset the amounts and intends either to settle on a net basis or to realise the asset and settle the liability simultaneously. (ii) Share Capital Ordinary shares Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of ordinary shares and share options are recognised as a deduction from equity, net of any tax effects. Repurchase of share capital When share capital recognised in equity is repurchased, the amount of the consideration paid, which includes directly attributable costs, net of any tax effects, is recognised as a deduction from equity. Dividends Dividends are recognised as a liability in the period in which they are declared. (c) (i) Property, Plant and Equipment Recognition and Measurement Items of plant and equipment are measured at cost or deemed cost less accumulated depreciation and impairment losses. Cost includes expenditure that is directly attributable to the acquisition of the asset. The cost of self-constructed assets include the cost of materials, direct labour, any other costs directly attributable to bringing the asset to a working order for its intended use, the costs of dismantling and removing the items and restoring the site on which they are located, and capitalised borrowing costs (see below). Items classified as property are measured at fair value. Refer Note 3(c)(iv). Where parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items (major components) of property, plant and equipment. Gains on disposal of an item of property, plant and equipment are determined by comparing the proceeds from disposal with the carrying amount of property, plant & equipment and are recognised net within “Other income” in profit or loss. Losses on disposal of an item of property, plant and equipment are determined by comparing the proceeds from disposal with the carrying amount of property, plant & equipment and are recognised net within “Administrative expenses” in profit or loss. When revalued assets are sold, the amounts included in the revaluation reserve are transferred to retained earnings. In respect to borrowing costs relating to qualifying assets, the Group capitalises costs directly attributable to the acquisition, construction or production of a qualifying asset as part of the cost of the asset. 50 FINBAR GROUP LIMITED ANNUAL REPORT 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) For the Year Ended 30 June 2020 3 (c) (ii) Significant Accounting Policies (continued) Property, Plant and Equipment (continued) Reclassification to Investment Property Property that is being constructed for future use as investment property is accounted for as property, plant and equipment until construction or development is complete, at which time it is remeasured to fair value and reclassified as investment property. Any gain or loss arising on remeasurement is recognised in profit or loss. When the use of a property changes from owner-occupied to investment property, the property is remeasured to fair value and reclassified as investment property. Any loss is recognised in the revaluation reserve to the extent that an amount is included in revaluation reserve for that property, with any remaining loss recognised immediately in profit or loss. Any gain arising on revaluation is recognised in profit or loss to the extent the gain reverses a previous impairment loss on the property, with any remaining gain recognised in a revaluation reserve in equity. (iii) Subsequent Costs The cost of replacing part of an item of property, plant and equipment is recognised in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the Group and its cost can be reliably measured. The carrying amount of the replaced part is derecognised. The costs of the day-to-day servicing of property, plant and equipment are recognised in profit or loss as incurred. (iv) Revaluation Model for Property After recognition as an asset, the Group has elected to carry an item of property whose fair value can be reliably measured shall be carried at a revalued amount, being its fair value at the date of the revaluation less any subsequent accumulated impairment losses. Revaluations are made with sufficient regularity to ensure that the carrying amount does not differ materially from that which would be determined using fair value at the end of the reporting period. If an item of property is revalued, the entire class of property to which that asset belongs shall be revalued. Any gain or loss arising on remeasurement is recognised in other comprehensive income and asset revaluation reserve. Refer Note 4. (v) Depreciation and Amortisation Depreciation and amortisation is recognised in profit or loss on a straight-line basis over the estimated useful lives of each part of an item of property, plant and equipment. Assets are depreciated or amortised from the date of acquisition. Land is not depreciated. The estimated useful lives in the current and comparative periods are as follows: » Office property » Office furniture and equipment, fixtures and fittings » Plant and equipment 40 years 5 - 25 years 1 - 10 years Depreciation and amortisation rates and methods are reviewed at each reporting date. When changes are made, adjustments are reflected prospectively in the current and future periods only. (d) Investment Property Investment property is property held either to earn rental income or for capital appreciation or for both, but not for sale in the ordinary course of business, used in the production or supply of goods and services or for administrative purposes. Investment property is measured at fair value (see Note 4) with any change therein recognised in profit or loss. Cost includes expenditure that is directly attributable to the acquisition of the investment property. The self-constructed investment property transferred from inventory are recognised at fair value. When the use of a property changes such that it is reclassified as property, plant or equipment, its fair value at the date of reclassification becomes its cost for subsequent accounting. (e) Inventories Inventories and work in progress, including land held for resale, are stated at the lower of cost and net realisable value. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses. Cost includes the cost of acquisition, development costs, holding costs and directly attributable interest on borrowed funds where the development is a qualifying asset. Capitalisation of borrowing costs is ceased during extended periods in which active development is interrupted. When a development is completed and ceases to be a qualifying asset, borrowing costs and other costs are expensed as incurred. 51 FINBAR GROUP LIMITED ANNUAL REPORT 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) For the Year Ended 30 June 2020 3 (e) Significant Accounting Policies (continued) Inventories (continued) Current and Non-current Inventory Assets Inventory is classified as current when it satisfies any of the following criteria: » » » it is expected to be realised in, or is intended for sale or consumption in, the entity’s normal operating cycle; it is held primarily for the purpose of being traded; or it is expected to be realised within twelve months of the reporting date. All other inventory is treated as non-current. (f) (i) Impairment Financial Assets Under the expected credit losses (ECL) model in accordance with AASB 9 Financial Instrument, the Group calculates the allowance for credit losses by considering on a discounted basis the cash shortfalls it would incur in various default scenarios for prescribed future periods and multiplying the shortfalls by the probability of each scenario occurring. The allowance is the sum of these probability-weighted outcomes. At each reporting period, the Group assess whether the credit risk on a financial instrument has increased significantly since initial recognition, by analysing reasonable and supportable information that is available without undue cost or effort about past events, current conditions and forecasts of future economic conditions. Except for purchased or originated credit-impaired financial assets, trade receivables, AASB 15 contract assets and lease receivables, at each reporting date: · the Group measures the loss allowance for a financial instrument at an amount equal to the ‘lifetime expected credit losses’ if the credit risk on that financial instrument has increased significantly since initial recognition; and · if the credit risk on a financial instrument has not increased significantly since initial recognition, the Group measure the loss allowance for that financial instrument at an amount equal to ‘12 month expected credit loss’. The allowance and any changes in the expected credit loss are recognised as impairment gain and losses in profit or loss. (ii) Non-financial Assets The carrying amounts of the Group’s non-financial assets other than investment property, inventories and deferred tax assets, are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists then the asset’s recoverable amount is estimated. 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 that cannot be tested individually are grouped together into the smallest group of assets that generates cash flow from continuing use that are largely independent of the cash flows of other assets or groups of assets (the “cash generating unit”). 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 prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. 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. (g) (i) Employee Benefits Superannuation Contributions Obligations for contributions to superannuation funds are recognised as an expense in profit or loss. (ii) Long-term Employee Benefits The Group’s obligation in respect of long-term service benefits is the amount of future benefit that employees have earned in return for their service in the current and prior periods plus related on costs; that benefit is discounted to determine its present value, and the fair value of any related assets is deducted. The discount rate is the yield at the reporting date on AA credit-rated or government bonds that have maturity dates approximating the terms of the Group’s obligations. The calculation is performed using the projected unit credit method. Any actuarial gains or losses are recognised in profit or loss in the period in which they arise. 52 FINBAR GROUP LIMITED ANNUAL REPORT 2020 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) For the Year Ended 30 June 2020 3 (g) (iii) Significant Accounting Policies (continued) Employee Benefits (continued) Termination Benefits Termination benefits are recognised as an expense when the Group is demonstrably committed, without realistic possibility of withdrawal, to a formal detailed plan to either terminate employment before the normal retirement date, or to provide termination benefits as a result of an offer made to encourage voluntary redundancy. Termination benefits for voluntary redundancies are recognised as an expense if the Group has made an offer encouraging voluntary redundancy, it is probable that the offer will be accepted, and the number of acceptances can be reliably estimated. (iv) Short-term Employee Benefits Short term employee benefits are measured on an undiscounted basis and are expensed as the related service is provided. A liability is recognised for the amount expected to be paid under short-term cash bonus or profit-sharing plans if the Group has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be recognised reliably. (v) Share-based Payment Transactions At the grant date, fair value of options granted to employees is recognised as an employee expense, with a corresponding increase in equity, over the period in which the employees become unconditionally entitled to the options. The amount recognised is adjusted to reflect the actual number of share options that vest, except for those that fail to vest due to market conditions not being met. (h) Provisions A provision is recognised if, as a result of a past event, the Group has a present legal or constructive obligation that can be reliably estimated, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. (i) Revenue Under AASB 15, Revenue is measured based on the consideration specified in a contract with a customer and excludes amounts collected on behalf of third parties. The Group recognises revenue when it transfers control over a product or service to a customer. (i) Property Sales Revenue from property sales include: · Sale of residential and commercial property; · Development costs fees which represent the fees charged to recoup project development costs from the Land Owners; and · Profit Share fees which represent percentage profit sharing revenue based on net project profit. Revenue is recognised when control of the assets is transferred and the amount of revenue is measured based on the contracted amount. The timing of transfer of control vary depending on the individual terms of the contract of sale. For projects with an external landowner when the Group is engaged as a property developer of the land, the Group is deemed to be acting as the principal in the transaction and as such, property sales revenue and cost of sale are grossed up by the land cost base. The cost of sales allocated to individual units is based on the estimated overall selling price for the project and is updated at each reporting date. (ii) Supervision Fees Supervision fees represents the management fees charged to the Equity Accounted Investees. Revenue is recognised in profit or loss in proportion to the stage of project completion which is by reference to an assessment of the costs incurred and the costs to be incurred. Revenue is measured based on the contracted amount and constrained to the amount that is highly probable. (iii) Management Fee Management fees represents the management fee charged to the Equity Accounted Investees shareholders. Revenue is recognised in profit or loss at project completion and is measured based on the contracted amount and constrained to the amount that is highly probable. (iv) Rental Income Rental income from investment property is recognised in profit or loss on a straight-line basis over the term of the lease in accordance with AASB 117. Lease incentives granted are recognised as an integral part of the total rental income, over the term of the lease. 53 FINBAR GROUP LIMITED ANNUAL REPORT 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) For the Year Ended 30 June 2020 3 (j) Significant Accounting Policies (continued) Finance Income and Finance Costs Finance income comprises interest income on funds invested (including available-for-sale financial assets), interest on loans to Equity Accounted Investees, dividend income, gains on the disposal of available-for-sale assets, changes in the fair value of financial assets at fair value through profit or loss, and gains on hedging instruments that are recognised in profit or loss. Interest income is recognised as it accrues in profit or loss, using the effective interest method. Dividend income is recognised in profit or loss on the date that the Group’s right to receive payment is established, which in the case of quoted securities is the ex-dividend date. Finance costs comprise interest expense on borrowings, changes in fair value of financial assets at fair value through profit or loss, impairment losses recognised on financial assets, and losses on hedging instruments that are recognised in profit or loss. Borrowing costs that are not directly attributable to the acquisition or production of a qualifying asset are recognised in profit or loss using the effective interest method. (k) Income Tax Income tax expense comprises current and deferred tax. Current and deferred tax are recognised in profit or loss except to the extent that it relates to items recognised directly in equity or in other comprehensive income. Current tax is the expected tax payable on the taxable income or loss for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years. Deferred tax is recognised in respect of 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 following temporary differences: the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss, and differences relating to investments in subsidiaries and equity accounted investees to the extent that it is probable that they will not reverse in the foreseeable future. In addition, deferred tax is not recognised for taxable temporary differences arising on the initial recognition of goodwill. 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 if there is a legally enforceable right to offset current tax liabilities and assets and they relate to taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realised simultaneously. A deferred tax asset is recognised for unused tax losses, tax credits and deductible temporary differences, to the extent that it is probable that future taxable profits will be available against which they 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. Additional income tax expenses that arise from the distribution of dividends are recognised at the same time as the liability to pay the related dividend is recognised. The Group does not distribute non-cash assets as dividends to its shareholders. (l) Goods and Services Tax Revenue, expenses and assets are recognised net of the amount of goods and services tax (GST), except where the amount of GST incurred is not recoverable from the Australian Taxation Office (ATO). In these circumstances, the GST is recognised as part of the cost of acquisition of the asset or as part of the expense. Receivables and payables are stated with the amount of GST included. The net amount of GST recoverable from, or payable to, the ATO is included as a current asset or liability in the balance sheet. Cash flows are included in the statement of cash flows on a gross basis. The GST components of cash flows arising from investing and financing activities which are recoverable from, or payable to, the ATO are classified as operating cash flows. (m) Earnings per Share The Group presents basic and diluted earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding during the period. Diluted EPS is determined by adjusting the profit or loss attributable to ordinary shareholders and the weighted average number of ordinary shares outstanding for the effects of all dilutive potential ordinary shares, which comprise share options granted to employees. (n) Segment Reporting Determination and Presentation of Operating Segments An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Group’s other components. An operating segment’s operating results are regularly reviewed by the Chief Operating Decision Maker (CODM) to make decisions about resources to be allocated to the segment and assess its performance, and for which discrete information is available. Segment results that are reported to the CODM include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Unallocated items comprise mainly corporate assets (primarily the Group’s headquarters), head office expenses, and income tax assets and liabilities. Segment capital expenditure is the total cost incurred during the period to acquire property, plant and equipment, and intangible assets other than goodwill. 54 FINBAR GROUP LIMITED ANNUAL REPORT 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) For the Year Ended 30 June 2020 3 (o) (i) Significant Accounting Policies (continued) New Standards and Interpretations New accounting standards and interpretations effective from 1 July 2019 The Group’s financial statements have been prepared on the basis of accounting policies consistent with those in the prior year except for the adoption of AASB 16 Leases issued by the AASB which have been applied for the first time in the 30 June 2020 reporting period. Refer to Note 2(e) for the impact of new standards. (ii) New Standards and Interpretations A number of new standards are effective for annual periods beginning after 1 July 2020 and earlier application is permitted; however, the Group has not early adopted the new or amended standards in preparing these consolidated financial statements. The potential impact of the new standards, amendments to standards and interpretations has been considered and they are not expected to have a significant impact on the financial statement. 4 Determination of Fair Values A number of the Group’s accounting policies and disclosures require the determination of fair value, for both financial and non- financial assets and liabilities. Fair values have been determined for measurement and/or disclosure purposes based on the following methods. Where applicable, further information about the assumptions made in determining fair values is disclosed in the notes specific to that asset or liability. (a) Investment Property and Property carried at fair value An external, independent valuation company, having appropriately recognised professional qualifications and recent experience in the location and category of the property being valued, values the Group’s investment property portfolio and property no less than once every three years. The fair values are based on market values, being the estimated amount for which a property could be exchanged on the date of the valuation between a willing buyer and a willing seller in an arm’s length transaction after proper marketing wherein the parties had each acted knowledgeably and willingly. In the absence of current prices in an active market, the valuations are prepared by considering the aggregate of the estimated cash flows expected to be received from renting out the property. A yield that reflects the specific risks inherent in the net cash flows is then applied to the net annual cash flows to arrive at the property valuation. Valuations reflect, where appropriate: the type of tenants actually in occupation or responsible for meeting lease commitments or likely to be in occupation after letting vacant accommodation, the allocation of maintenance and insurance responsibilities between the Group and the lessee, and the remaining economic life of the property. When rent reviews or lease renewals are pending with anticipated reversionary increases, it is assumed that all notices and where appropriate counter-notices, have been served validly and within the appropriate time. Properties that have not been independently valued as at the balance sheet date are carried at fair value by way of directors valuation. (b) Trade and Other Receivables The fair value of trade and receivables, excluding construction work in progress, is estimated as the present value of future cash flows, discounted at the market rate of interest at the reporting date. This fair value is determined for disclosure purposes. (c) Share-based Payment Transactions The fair value of employee stock options is measured using the Black-Scholes (or similar) option-pricing model. Measurement inputs include share price on measurement date, exercise price of the instrument, expected volatility (based on weighted average historic volatility adjusted for changes expected due to publicly available information), weighted average expected life of the instruments (based on historical experience and general option holder behaviour), expected dividends, and the risk-free interest rate (based on government bonds). Service and non-market performance conditions attached to the transactions are not taken into account in determining fair value. (d) Financial Guarantees For financial guarantee contracts liabilities, the fair value at initial recognition is determined using a probability weighted discounted cash flow approach. This method takes into account the probability of default by the guaranteed party over the term of the contract, the loss given default (being the proportion of the exposure that is not expected to be recovered in the event of default) and exposure at default (being the maximum loss at the time of default). 55 FINBAR GROUP LIMITED ANNUAL REPORT 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) For the Year Ended 30 June 2020 5 Financial Risk Management Overview The Group has exposure to the following risks from their use of financial instruments: » » credit risk liquidity risk » market risk This note presents information about the Group’s exposure to each of the above risks, their objectives, policies and processes for measuring and managing risk, and the management of capital. Further quantitative disclosures are included throughout these consolidated financial statements. Risk Management Framework The Board of Directors has overall responsibility for the establishment and oversight of the risk management framework. The Board is responsible for developing and monitoring risk management policies. Risk management policies are established to identify and analyse the risks faced by the Group, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Group’s activities. The Group, through its training and management standards and procedures, aims to develop a disciplined and constructive control environment in which all employees understand their roles and obligations. The Group Audit Committee oversees how management monitors compliance with the Group’s risk management policies and procedures and reviews the adequacy of the risk management framework in relation to the risks faced by the Group. Credit Risk Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Group’s receivables from customers and investment securities. Trade and Other Receivables The nature of the Group’s business means that most sales contracts occur on a pre-sales basis, before significant expenditure has been incurred on the development. All pre-sale contracts require a deposit at the point of entering into the contract, these funds being held in trust independently of the Group. Generally, pre-sale contracts are executed on an unconditional basis. Possession of a development property does not generally pass until such time as the financial settlement of the property has been completed, and title to a development property does not pass until the financial settlement of the property has been completed. Where possession of the development property is granted prior to settlement, title to the property remains with the Group until financial settlement of the property has been completed. The demographics of the Group’s customer base has little or no influence on credit risk. Approximately 2.31% (2019: 10.92%) of the Group’s revenue is attributable to multiple sales transactions with single customers. The Board of Directors has established a credit policy which undertakes an analysis of each sale. Purchase limits are established on customers, with these purchase limits being reviewed on each property development. The Group’s trade and other receivables relate mainly to the Group’s loans to Equity Accounted Investees (within which the Group holds no more than a 50% interest) and Goods and Services Tax refunds due from the Australian Taxation Office. The loans to Equity Accounted Investees are repaid from proceeds on settlement and bear interest at BBSY plus agreed margin. The Group has not established an allowance for impairment, as no losses are expected to be incurred in respect of trade and other receivables. Liquidity Risk Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group’s reputation. The Group uses project by project costing to cost its products and services, which assists it in monitoring cash flow requirements and optimising its cash return on investments. Typically the Group ensures that it has sufficient cash on demand to meet expected operational expenses for a period of 60 days, including the servicing of financial obligations; this excludes the potential impact of extreme circumstances that cannot reasonably be predicted, such as natural disasters. Market Risk Market risk is the risk that changes in market prices, such as interest rates and equity prices 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, whilst optimising the return. Interest Rate Risk The Group continuously reviews its exposure to changes in interest rates and where it is considered prudent will enter into borrowings on a fixed rate basis. 56 FINBAR GROUP LIMITED ANNUAL REPORT 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) For the Year Ended 30 June 2020 5 Financial Risk Management (continued) Capital Management The Board’s policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business. The Board of Directors monitors the return on capital, which the Group defines as total comprehensive income attributable to the group divided by total shareholders’ equity, excluding non-controlling interests. The Board of Directors also monitors the level of dividends to shareholders. The Board seeks to maintain a balance between the higher returns that might be possible with higher levels of borrowings and the advantages and security afforded by a sound capital position. The Group’s target is to achieve a return on assets of between 6.00% and 8.00%; for the year ended 30 June 2020 the return was 3.39% (2019: 4.41%). In comparison the weighted average interest expense on interest-bearing borrowings (excluding liabilities with imputed interest) was 1.74% (2019: 2.84%). The Group’s debt-to-capital ratio at the end of the financial year was as follows: Interest-bearing debt Market Capitalisation as at 30 June Total Capital Debt-to-capital ratio at 30 June Note 2020 $’000 2019 $’000 21 42,854 49,829 190,486 228,583 233,340 278,412 18% 18% From time to time the Company purchases its own shares on the market; the timing of these purchases depends on market prices and availability of unallocated company cash resources where not required for core business activity. Shares purchased are cancelled from issued capital on purchase. The intention of the Board of Directors in undertaking such purchases is to enhance the capital return to the shareholders of the Company. Buy decisions are made on a specific transaction basis by the Board of Directors. In accordance with Rule 13 of the Company’s Dividend Reinvestment Plan (DRP), the Directors have elected to suspend the DRP in the 2020 financial year until further notice. As such the DRP will not be active for the above mentioned dividend. 6 Operating Segments The Group operates predominantly in the property development sector and has identified 4 reportable segments, as described below, which are the Group’s three strategic business units, as well as the Corporate office. The strategic business units offer different products, and are managed separately because they require different technology, marketing strategies and have different types of customers. For each of the strategic business units, the Chief Operating Decision Maker (CODM) reviews internal management reports on a regular basis. The following describes the operations in each of the Group’s reportable segments: » Residential apartment development in Western Australia; » Commercial office/retail development in Western Australia; » Rental of property in Western Australia; and » Corporate costs includes supervision fees, management fees and net assets attributable to the corporate office. 57 FINBAR GROUP LIMITED ANNUAL REPORT 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) For the Year Ended 30 June 2020 6 Operating Segments (continued) Information about Reportable Segments For the Year ended 30 June 2020 Residential Apartment Development $’000 Commercial Office/Retail Development $’000 Rental of Property $’000 Corporate $’000 Total $’000 External Revenues - Company and Subsidiaries 136,630 10,458 7,127 370 154,585 External Revenues - Equity Accounted Investees 4,171 - 16 - 4,187 External Revenues - Total 140,801 10,458 7,143 370 158,772 Reportable Segment Profit before Income Tax - Company and Subsidiaries Reportable Segment Profit before Income Tax - Equity Accounted Investees 7,241 (3,811) 2,202 4,573 10,205 (24) 4 10 (27) (37) Reportable Segment Profit before Income Tax - Total 7,217 (3,807) 2,212 4,546 10,168 Reportable Segment Assets - Company and Subsidiaries 145,852 17,701 98,285 23,369 285,207 Reportable Segment Assets - Equity Accounted Investees Reportable Segment Liabilities - Company and Subsidiaries Reportable Segment Liabilities - Equity Accounted Investees* Capital Expenditure 18,012 51,653 11,195 - 2,016 - - 20,028 1,959 36,108 846 90,566 44 - - - 1 87 11,240 87 For the Year ended 30 June 2019 External Revenues - Company and Subsidiaries 141,550 6,019 6,875 306 154,750 External Revenues - Equity Accounted Investees 11,546 - 30 - 11,576 External Revenues - Total 153,096 6,019 6,905 306 166,326 Reportable Segment Profit before Income Tax - Company and Subsidiaries Reportable Segment Profit before Income Tax - Equity Accounted Investees Reportable Segment Profit before Income Tax - Total 10,806 68 2,723 6,655 20,252 643 11,449 9 77 24 (11) 665 2,747 6,644 20,917 Reportable Segment Assets - Company and Subsidiaries 184,548 28,130 85,477 18,708 316,863 Reportable Segment Assets - Equity Accounted Investees 8,171 2,083 - - 10,254 Reportable Segment Liabilities - Company and Subsidiaries 83,541 1,386 37,783 1,572 124,282 Reportable Segment Liabilities - Equity Accounted Investees* Capital Expenditure 3,055 - 34 - - - - 43 3,089 43 * Excludes Liabilities payable to Finbar Group. The Group’s share of revenues from equity accounted investees are reported in this table as they are managed by Finbar and reported to the CODM. Revenues from equity accounted investees are not reported in the statement of profit or loss and other comprehensive income. 58 FINBAR GROUP LIMITED ANNUAL REPORT 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) For the Year Ended 30 June 2020 6 Operating Segments (continued) Reconciliation of Reportable Segment Revenues, Profit or Loss, Assets and Liabilities Revenues Total revenue for development reportable segments Total revenue for rental segments Total revenue for other reportable segments Consolidated Revenue Total revenue for development reportable segments - Equity Accounted Investees Total revenue for rental segments - Equity Accounted Investees Total Reportable Segments Revenue Profit or Loss Total profit or loss for reportable segments Finance income - Company and Subsidiaries Finance costs - Company and Subsidiaries Unallocated amounts: Administrative expenses Revaluation of investment property Revaluation of property, plant and equipment Income tax applicable to share of profit of Equity Accounted Investees Consolidated Profit before Income Tax Assets Total assets for reportable segments Cash and cash equivalents Investments in Equity Accounted Investees Other assets** Consolidated Total Assets Liabilities Total liabilities for reportable segments Other liabilities Consolidated Total Liabilities ** Includes receivables due to Finbar Group Limited from Equity Accounted Investees. Geographical information The Group operates predominantly in the one geographical segment of Western Australia. 2020 $’000 2019 $’000 147,089 147,570 7,127 6,875 369 305 154,585 154,750 4,171 11,546 16 30 158,772 166,326 10,168 20,917 970 (332) 1,890 (781) (7,159) (6,918) 6,203 627 11 964 114 (239) 10,488 15,947 285,207 316,863 30,591 45,490 2,113 4,540 19,890 11,615 337,802 378,508 90,566 124,282 5,295 5,748 95,861 130,030 59 FINBAR GROUP LIMITED ANNUAL REPORT 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) For the Year Ended 30 June 2020 7 Revenue Property development sales Rental Income Supervision fees Gain on transfer to investment property Total Revenue 8 Other Income Administration fees Management fees Other Total Other Income 9 Personnel Expenses Wages and salaries Superannuation contributions Increase in liability for annual leave (Decrease)/Increase in liability for long service leave Directors and committee fees Non Executive Directors - superannuation contributions Total Personnel Expenses 10 Finance Income and Finance Costs Recognised in Profit or Loss Interest income on loans to Equity Accounted Investees Interest income on loans Interest income on bank deposits Interest income on property settlements Total Finance Income Interest expense Bank charges Total Finance Costs Net Finance Income Analysis of Finance Costs Total finance costs Less: Finance costs capitalised to inventory Add: Finance costs relating to property developments sold Made up of: Finance costs relating to property developments sold Finance costs relating to administration Finance costs relating to rental properties 60 2020 $’000 2019 $’000 145,410 147,570 7,127 6,875 91 1,679 245 - 154,307 154,690 60 217 1 278 53 5 2 60 4,029 3,946 260 26 (10) 212 6 236 5 68 212 6 4,523 4,473 319 482 109 60 970 326 6 332 638 608 458 616 208 1,890 775 6 781 1,109 1,518 1,785 (1,126) (1,004) 492 884 552 7 325 884 626 1,407 626 9 772 1,407 FINBAR GROUP LIMITED ANNUAL REPORT 2020 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) For the Year Ended 30 June 2020 11 Income Tax Expense Recognised in Income Statement Current Tax Expense Current year Income tax recognised directly to equity Write off and reversal of previously recognised tax assets Non-recoverable amounts Deferred Tax Expense Movement Origination and reversal of temporary differences Income Tax Expense excluding share of Income Tax on Equity Accounted Investees Income tax relating to components of other comprehensive income 2020 $’000 2019 $’000 1,801 5,426 58 281 426 58 (138) 40 2,566 5,386 1,298 1,298 3,864 191 (826) (826) 4,560 (6) Total Income Tax Expense excluding share of Income Tax on Equity Accounted Investees 4,055 4,554 Numerical Reconciliation between Tax Expense and Pre-tax Net Profit Profit for the year Total income tax expense Profit before Income Tax Income tax using the domestic rate of 30% (2019: 30%) Increase in income tax expense due to: Non-deductible expenses Non-recoverable amounts Write off and reversal of previously recognised tax assets Decrease in income tax expense due to: Tax effect of share of equity accounted investees loss Total Income Tax Expense Made up of: Income Tax Expense excluding share of Income Tax on Equity Accounted Investees Income tax relating to components of other comprehensive income Income Tax Recognised Directly in Equity Decrease in income tax expense due to: Tax incentives not recognised in income statement Total Income Tax Recognised Directly in Equity 6,624 11,387 3,864 4,560 10,488 15,947 3,147 4,784 2 426 281 2 40 (138) 8 3,864 (128) 4,560 3,864 4,560 191 (6) 4,055 4,554 (58) (58) (58) (58) 61 FINBAR GROUP LIMITED ANNUAL REPORT 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) For the Year Ended 30 June 2020 12 12a Investment Property Reconciliation of Carrying Amount Balance at 1 July Sale of Investment Property Acquisition of Investment Property Change in fair value Balance at 30 June 2020 $’000 2019 $’000 85,307 84,769 - (425) 5,821 6,203 - 963 97,331 85,307 Investment property comprises commercial properties at five developments and residential properties at two developments which are leased to third parties (see Note 25). During the year ended 30 June 2020, Finbar Commercial Pty Ltd acquired 2 investment properties at the Aurelia and Vue Tower development. The increase in the revaluation was a result of a significant extension of the weighted average lease term from prior year, offset by COVID-19 impacts. 12b Measurement of fair values (i) Fair Value Hierarchy The fair value of investment property was determined by external, independent property valuers, having appropriate recognised professional qualifications and recent experience in the location and category of the property being valued or by director’s valuation. In accordance with the Company’s policy, independent valuations were undertaken in December 2019 on all existing properties at the time of valuation. At June reporting period, a Directors’ valuation was undertaken which assessed the negative impact on valuation of the properties due to the uncertainty from the COVID-19 pandemic. Factors considered include longer letting up allowance and potential mandatory rent relief post 30 June 2020 in accordance to the Code of Conduct legislation. The fair value assessment of the Company as at the reporting date includes the best estimate of the impacts of COVID-19 pandemic using information available at the time of preparation of the financial statements and appropriate forward looking assumptions. The fair value measurement for investment property of $97,331,000 has been categorised as a Level 3 fair value based on the inputs to the valuation technique used (see Note 2(d)). (ii) Level 3 Fair Value Note 12a shows a reconciliation from the opening balances to the closing balances for Level 3 fair values. (iii) Valuation technique and significant unobservable inputs The following table shows the valuation technique used in measuring the fair value of investment property, as well as the significant unobservable inputs used. Valuation Technique Significant unobservable inputs Inter-relationship between key unobservable inputs and fair value measurement Discounted cash flows: The valuation model considers the present value of net cash flows able to be generated from the property taking into account expected rental growth rate, void periods, occupancy rate, lease incentive costs, such as rent-free periods and other costs not paid by tenants. The expected net cash flows are discounted using risk-adjusted discount rates. Among other factors, the discount rate estimation considers the quality of a building and its location (prime vs secondary), tenant credit quality and lease terms. Expected market rental growth 0.00% - 5.00%; Weighted average 2.76%; Void periods (average 7.8 months after the end of each lease); Occupancy rate 89.82%; Rent-free periods (21 - 57 month period on certain new leases); and Risk-adjusted discounted rates (weighted average 7.75%). The estimated fair value would increase (decrease) if: Expected market rental growth were higher (lower); Void periods were shorter (longer); Occupancy rate were higher (lower); Rent-free periods were shorter (longer); or Risk-adjusted discount rate were lower (higher). Capitalisation of income valuation: The capitalisation of income valuation method capitalises the current rent received, at a rate analysed from the most recent transactions of comparable property investments. The capitalisation rate used varies across properties. Valuations reflect, where appropriate, lease term remaining, the relationship of current rent to the market rent, location and prevailing investment market conditions. Adopted capitalisation rate 7.25% - 10.00%; Gross rent per annum $450 - $600 per sqm; Occupancy rate 56.35% - 99.02%; and Lease term remaining (years) 0.01 - 8.01. The estimated fair value would increase (decrease) if: Adopted capitalisation rate were higher (lower); Gross rent per annum were higher (lower); Occupancy rate were higher (lower); or Lease term remaining were longer (shorter). 62 FINBAR GROUP LIMITED ANNUAL REPORT 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) For the Year Ended 30 June 2020 13 Property, Plant and Equipment Cost or Valuation Balance at 1 July 2018 Additions Change in fair value Disposals Balance at 30 June 2019 Balance at 1 July 2019 Additions Change in fair value Disposals Balance at 30 June 2020 Depreciation Balance at 1 July 2018 Revaluation Depreciation and amortisation charge for the year Balance at 30 June 2019 Balance at 1 July 2019 Disposals Revaluation Depreciation and amortisation charge for the year Balance at 30 June 2020 Carrying Amounts At 1 July 2018 At 30 June 2019 At 1 July 2019 At 30 June 2020 Office Furniture and Equipment $’000 Property $’000 Plant and Equipment $’000 Fixtures and Fittings $’000 Total $’000 6,229 - (79) - 773 43 - - 10,102 91 17,195 - - (12) - - - 43 (79) (12) 6,150 816 10,090 91 17,147 6,150 - 1,091 - 816 87 - - 10,090 91 17,147 - - (2,407) - - - 87 1,091 (2,407) 7,241 903 7,683 91 15,918 - 556 5,960 - 42 - 888 598 6,848 67 - 5 72 6,583 (172) 1,107 7,518 (172) 172 - - - (171) 171 - 6,229 6,150 6,150 7,241 598 6,848 72 7,518 - - 107 705 217 218 218 198 (1,762) - 655 - - 4 (1,762) (171) 937 5,741 76 6,522 4,142 3,242 3,242 1,942 24 19 19 15 10,612 9,629 9,629 9,396 For each revalued class the carrying amount that would have been recognised had the assets been carried on historical cost basis are as follows: Revalued assets at deemed cost Cost Less accumulated depreciation Net book value at 30 June 2020 Property $’000 6,871 (1,403) 5,468 63 FINBAR GROUP LIMITED ANNUAL REPORT 2020 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) For the Year Ended 30 June 2020 13 Property, Plant and Equipment (continued) Measurement of fair values (i) Fair Value Hierarchy The fair value of property was determined by external, independent property valuers, having appropriate recognised professional qualifications and recent experience in the location and category of the property being valued or by director’s valuation. In accordance with the Company’s policy, independent valuations were undertaken in December 2019 on all existing properties at the time of valuation. At June reporting period, a Directors’ valuation was undertaken which assessed the negative impact on valuation of the properties due to the uncertainty from the COVID-19 pandemic. Factors considered include longer letting up allowance and potential mandatory rent relief post 30 June 2020 in accordance to the Code of Conduct legislation. The fair value assessment of the Company as at the reporting date includes the best estimate of the impacts of COVID-19 pandemic using information available at the time of preparation of the financial statements and appropriate forward looking assumptions. The fair value measurement for property of $7,241,000 has been categorised as a Level 3 fair value based on the inputs to the valuation technique used (see Note 2(d)). (ii) Level 3 Fair Value The following table shows a reconciliation from the opening balances to the closing balances for Level 3 fair values. Balance at 1 July Revaluation increase included in ‘profit or loss’ Revaluation increase/(decrease) included in ‘other comprehensive income’ Depreciation Balance at 30 June (iii) Valuation technique and significant unobservable inputs 2020 $’000 2019 $’000 6,150 6,229 627 635 (171) 7,241 114 (21) (172) 6,150 The following table shows the valuation technique used in measuring the fair value of investment property, as well as the significant unobservable inputs used. Valuation Technique Significant unobservable inputs Inter-relationship between key unobservable inputs and fair value measurement Discounted cash flows: The valuation model considers the present value of net cash flows able to be generated from the property taking into account expected rental growth rate, void periods, occupancy rate, lease incentive costs, such as rent-free periods and other costs not paid by tenants. The expected net cash flows are discounted using risk-adjusted discount rates. Among other factors, the discount rate estimation considers the quality of a building and its location (prime vs secondary), tenant credit quality and lease terms. Expected market rental growth 0.00% - 5.00%; Weighted average 2.76%; Void periods (average 7.8 months after the end of each lease); Occupancy rate 89.82%; Rent-free periods (21 - 57 month period on certain new leases); and Risk-adjusted discounted rates (weighted average 7.75%). The estimated fair value would increase (decrease) if: Expected market rental growth were higher (lower); Void periods were shorter (longer); Occupancy rate were higher (lower); Rent-free periods were shorter (longer); or Risk-adjusted discount rate were lower (higher). Capitalisation of income valuation: The capitalisation of income valuation method capitalises the current rent received, at a rate analysed from the most recent transactions of comparable property investments. The capitalisation rate used varies across properties. Valuations reflect, where appropriate, lease term remaining, the relationship of current rent to the market rent, location and prevailing investment market conditions. Adopted capitalisation rate 7.25% - 10.00%; Gross rent per annum $450 - $600 per sqm; Occupancy rate 56.35% - 99.02%; and Lease term remaining (years) 0.01 - 8.01. The estimated fair value would increase (decrease) if: Adopted capitalisation rate were higher (lower); Gross rent per annum were higher (lower); Occupancy rate were higher (lower); or Lease term remaining were longer (shorter). 64 FINBAR GROUP LIMITED ANNUAL REPORT 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) For the Year Ended 30 June 2020 14 Investments in Equity Accounted Investees Equity Accounted Investees The Group accounts for investments in Equity Accounted Investees using the equity method. The Group has the following investments in Equity Accounted Investees (all stated at 100% of the values) : Equity Accounted Investees Assets 2019 36 Chester Avenue Pty Ltd* 647 Murray Street Pty Ltd Axis Linkit Pty Ltd Finbar Sub 5050 Pty Ltd Lot 1001 - 1003 Rowe Avenue Pty Ltd Rowe Avenue Pty Ltd Roydhouse Street Subiaco Pty Ltd Equity Accounted Investees Liabilities 2019 36 Chester Avenue Pty Ltd* 647 Murray Street Pty Ltd Axis Linkit Pty Ltd Finbar Sub 5050 Pty Ltd Lot 1001 - 1003 Rowe Avenue Pty Ltd Rowe Avenue Pty Ltd Roydhouse Street Subiaco Pty Ltd Equity Accounted Investees Assets 2020 240 Adelaide Terrace Pty Ltd (Formerly Finbar Sub 106 Pty Ltd**) 647 Murray Street Pty Ltd Axis Linkit Pty Ltd Finbar Sub 5050 Pty Ltd Lot 1001 - 1003 Rowe Avenue Pty Ltd Rowe Avenue Pty Ltd Roydhouse Street Subiaco Pty Ltd Ownership Current Assets $’000 Non-current Assets $’000 Total Assets $’000 0.00% 50.00% 50.00% 50.00% 50.00% 50.00% 50.00% - - - 10,328 1,327 11,655 - - 10 1 3 - 1 7,495 4,024 - - 1 7,505 4,025 3 10,342 12,847 23,189 Ownership Current Liabilities $’000 Non-current Liabilities $’000 Total Liabilities $’000 0.00% 50.00% 50.00% 50.00% 50.00% 50.00% 50.00% - 5,247 - - 51 13 3 - 321 1 4 - 5,568 1 4 8,019 8,070 450 - 463 3 5,314 8,795 14,109 Ownership Current Assets $’000 Non-current Assets $’000 Total Assets $’000 50.00% 50.00% 50.00% 50.00% 50.00% 50.00% 50.00% 3 7,239 1,649 - - - - 1 7,242 1,649 - 1 543 28,321 28,864 10 2 4,094 4,104 - 2 2,207 39,655 41,862 65 FINBAR GROUP LIMITED ANNUAL REPORT 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) For the Year Ended 30 June 2020 14 Investments in Equity Accounted Investees (continued) Equity Accounted Investees Liabilities 2020 240 Adelaide Terrace Pty Ltd (Formerly Finbar Sub 106 Pty Ltd**) 647 Murray Street Pty Ltd Axis Linkit Pty Ltd Finbar Sub 5050 Pty Ltd Lot 1001 - 1003 Rowe Avenue Pty Ltd Rowe Avenue Pty Ltd Roydhouse Street Subiaco Pty Ltd Ownership Current Liabilities $’000 Non-current Liabilities $’000 Total Liabilities $’000 50.00% 50.00% 50.00% 50.00% 50.00% 50.00% 50.00% 17 141 - - 7,226 7,243 19 1 4 160 1 4 1,654 28,033 29,687 17 1 522 - 539 1 1,830 35,805 37,635 Profit/(Loss) Before Income Tax Recognised from Equity Accounted Investees 2019 Ownership 36 Chester Avenue Pty Ltd* 647 Murray Street Pty Ltd Axis Linkit Pty Ltd Finbar Sub 5050 Pty Ltd Lot 1001-1003 Rowe Avenue Pty Ltd Rowe Avenue Pty Ltd Roydhouse Street Subiaco Pty Ltd 0.00% 50.00% 50.00% 50.00% 50.00% 50.00% 50.00% Profit/(Loss) Before Income Tax Recognised from Equity Accounted Investees 2020 Ownership 240 Adelaide Terrace Pty Ltd (Formerly Finbar Sub 106 Pty Ltd**) 647 Murray Street Pty Ltd Finbar Sub 5050 Pty Ltd Lot 1001 - 1003 Rowe Avenue Pty Ltd Rowe Avenue Pty Ltd Roydhouse Street Subiaco Pty Ltd 50.00% 50.00% 50.00% 50.00% 50.00% 50.00% Revenues $’000 Expenses $’000 Profit/(Loss) before income tax $’000 - - - 23,164 21,152 2,012 - - - - 12 - 1 - (1) 410 (410) 5 13 (5) (1) 23,176 21,581 1,595 Revenues $’000 Expenses $’000 - 1 8,342 7,809 - - - 8 1 369 (3) 3 Profit/(Loss) before income tax $’000 (1) 533 (1) (369) 3 5 8,350 8,180 170 * As at 30 June 2019, 36 Chester Avenue Pty Ltd is a wholly owned subsidiary of Finbar Group Limited (Note 29). The Group acquired the remaining 50% interest from the joint venture partner. Acquisition of the net liability has been included under Share of profit of Equity Accounted Investees in Consolidated Statement of Profit and Loss. ** Finbar Sub 106 Pty Ltd was a fully owned subsidiary as at 30 June 2019. Refer to Note 29. 66 FINBAR GROUP LIMITED ANNUAL REPORT 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) For the Year Ended 30 June 2020 15 Tax Assets and Liabilities The current tax liability for the Group of $1,116,000 (2019: $3,060,000) represents the amount of income taxes payable in respect of current and prior periods. Recognised Deferred Tax Assets and Liabilities Deferred tax assets and liabilities are attributable to the following: Inventories Interest bearing loans and borrowings Revaluation of investment property Other items Tax value of carry-forward losses recognised Tax assets/(liabilities) Set off of tax Net Tax 16 Inventories Current Work in progress Completed stock Total Current Inventories Non Current Work in progress Completed stock Total Non Current Inventories 17 Trade and Other Receivables Current Trade receivables Other receivables Amounts receivable from equity accounted investees Total Current Trade and Other Receivables Non Current Trade receivables Other receivables Amounts receivable from equity accounted investees Total Non Current Trade and Other Receivables Assets Liabilities 2020 $’000 2019 $’000 2020 $’000 2019 $’000 (1,164) (1,164) (9,902) (8,069) 30 112 2,065 2,383 859 7,248 9,038 511 6,302 - (504) 3,502 - - - 3,415 - 8,144 (6,904) (4,654) (2,725) (1,967) 2,725 1,967 6,313 6,177 (4,179) (2,687) 2020 $’000 2019 $’000 - 70,549 58,803 59,376 58,803 129,925 50,651 40,238 45,147 22,570 95,798 62,808 9,632 15,713 709 - 782 1,859 10,341 18,354 5,382 7,952 13,577 4,302 8,242 3,579 26,911 16,123 67 Amounts receivable from equity accounted investees bear interest at BBSY plus agreed margin. The Group’s exposure to credit risk and impairment losses to trade and other receivables are disclosed at Note 24. FINBAR GROUP LIMITED ANNUAL REPORT 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) For the Year Ended 30 June 2020 18a Cash and Cash Equivalents Bank balances Cash and Cash Equivalents in the Statement of Cash Flows Note 2020 $’000 2019 $’000 30,591 45,490 30,591 45,490 The Group’s exposure to interest rate risk and a sensitivity analysis for financial assets and liabilities is disclosed at Note 24. 18b Reconciliation of Cash Flows from Operating Activities Cash Flows from Operating Activities Profit for the year Adjustments for: Depreciation and amortisation Loss on Disposal of Assets Revaluation of investment property Revaluation of property, plant & equipment Gain on transfer to investment property Net financing income Share of net profit/(loss) of equity accounted investees Income tax expense Operating Profit before Changes in Working Capital and Provisions Change in trade and other receivables Change in inventories Change in prepayments Change in provision for employee benefits Change in trade and other payables Cash generated from/(used in) Operating Activities Interest paid Income taxes paid Net Cash generated from/(used in) Operating Activities 13 11 16 22 6,624 11,387 937 320 1,107 - (6,203) (963) (627) (1,679) - - (560) (1,117) 26 3,864 (426) 4,560 2,702 14,548 6,945 15,408 38,132 (47,821) 55 17 107 73 (18,104) (4,607) 29,747 (22,292) (1,231) (1,735) (4,643) (4,739) 23,873 (28,766) The increases and decreases in trade and other receivables as well as trade and other payables reflect only those changes that relate to operating activities. The remaining increases and decreases relate to investing activities. 19 Capital and Reserves Share Capital On issue at 1 July Issued under Dividend Reinvestment Plan Bought back for cash On Issue at 30 June - Fully Paid Company Ordinary Shares 2020 2019 272,123,142 270,769,961 - - 2,319,774 (966,593) 272,123,142 272,123,142 The Company does not have authorised capital or par value in respect of its issued shares. The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at meetings of the Company. All shares rank equally with regard to the Company’s residual assets. 68 FINBAR GROUP LIMITED ANNUAL REPORT 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) For the Year Ended 30 June 2020 19 Capital and Reserves (continued) Dividends Dividends recognised in the current year by the Group are: Dividends Paid During the Year 2020 Final 2019 ordinary Interim 2020 ordinary Total Amount Dividends Paid During the Year 2019 Final 2018 ordinary Interim 2019 ordinary Total Amount Cents per Share Total Amount $’000 Franked / Unfranked Date of Payment 3.00 2.00 3.00 3.00 8,164 Franked 12 September 2019 5,442 Franked 26 March 2020 13,606 8,123 Franked 14 September 2018 8,179 Franked 12 March 2019 16,302 Franked dividends declared or paid during the year were franked at the rate of 30%. After 30 June 2020 the following dividend has been proposed by the Directors. The dividend has not been provided. The declaration and subsequent payment of dividends has no income tax consequences. Proposed Dividend Dividend proposed by the Group are: Final 2020 ordinary Total Amount Cents per Share Total Amount $’000 Franked / Unfranked Date of Payment 1.00 2,721 Franked 21 September 2020 2,721 The financial effect of this dividend has not been brought to account in the financial statements for the financial year ended 30 June 2020 and will be recognised in subsequent financial reports. Dividend Reinvestment Plan The Company has a dividend reinvestment plan under which holders of ordinary shares may elect to have all or part of their dividend entitlements satisfied by the issue of new ordinary shares rather than by being paid in cash. In accordance with Rule 13 of the Company’s Dividend Reinvestment Plan (DRP), the Directors have elected to suspend the DRP in the 2020 financial year until further notice. As such the DRP will not be active for the above mentioned dividend. Dividend Franking Account Company 2020 $’000 2019 $’000 30% franking credits available to shareholders of Finbar Group Limited for subsequent financial years 8,311 10,531 The above available amounts are based on the balance of the dividend franking account at year-end adjusted for: (a) franking credits that will arise from the payment of current tax liabilities; (b) franking debits that will arise from the payment of dividends recognised as a liability at the year-end; (c) franking credits that will arise from the receipt of dividends recognised as receivables at the year-end; and (d) franking credits that the entity may be prevented from distributing in subsequent years. The ability to utilise the franking credits is dependent upon there being sufficient available profits to declare dividends. The impact on the dividend franking account of dividends proposed after the balance sheet date but not recognised as a liability is to reduce it by $1,166,000 (2019: $3,499,000). Nature and purpose of reserve Asset revaluation reserve The revaluation reserve relates to the revaluation of non investment property carried at fair value. 69 FINBAR GROUP LIMITED ANNUAL REPORT 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) For the Year Ended 30 June 2020 20 Earnings per Share Basic Earnings per Share The calculation of basic earnings per share at 30 June 2020 was based on the profit attributable to ordinary shareholders of $6,624,000 (2019: $11,387,000) and a weighted average number of ordinary shares on issue during the year ended 30 June 2020 of 272,123,142 (2019: 272,316,724), calculated as follows: Profit Attributable to Ordinary Shareholders Weighted Average Number of Ordinary Shares Issued ordinary shares at 1 July Effect of share issue - Dividend Reinvestment Plan 14 September 2018 Effect of share buyback Effect of share buyback Effect of share buyback Effect of share buyback Effect of share buyback Effect of share buyback Effect of share buyback Effect of share buyback Effect of share buyback Effect of share buyback Effect of share buyback Effect of share buyback Effect of share buyback Effect of share buyback Effect of share buyback Effect of share buyback Effect of share buyback Effect of share buyback Effect of share buyback Effect of share buyback Effect of share buyback Effect of share buyback Effect of share buyback Effect of share buyback Effect of share buyback Effect of share buyback Effect of share buyback Effect of share buyback Effect of share buyback Effect of share buyback 70 24 January 2019 25 January 2019 29 January 2019 30 January 2019 31 January 2019 1 February 2019 7 February 2019 8 February 2019 11 February 2019 12 February 2019 5 March 2019 6 March 2019 13 March 2019 14 March 2019 18 March 2019 21 March 2019 25 March 2019 28 March 2019 2 April 2019 4 April 2019 8 April 2019 9 April 2019 10 April 2019 11 April 2019 12 April 2019 15 April 2019 16 April 2019 24 April 2019 7 May 2019 14 May 2019 2020 $’000 2019 $’000 6,624 11,387 Ordinary Shares 2020 2019 272,123,142 270,769,961 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 1,843,108 (42,088) (16,635) (12,946) (16,289) (24,822) (10,274) (15,781) (15,671) (15,342) (15,233) (10) (909) (12,055) (2,252) (11,507) (10,244) (16,110) (1,442) (8,620) (1,199) (16) (9,096) (8,986) (130) (133) (7,073) (113) (883) (753) (4,603) FINBAR GROUP LIMITED ANNUAL REPORT 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) For the Year Ended 30 June 2020 20 Earnings per Share (continued) Weighted Average Number of Ordinary Shares (continued) Effect of share buyback Effect of share buyback Effect of share buyback Effect of share buyback 15 May 2019 16 May 2019 17 May 2019 20 May 2019 Ordinary Shares 2020 2019 - - - - (5,151) (1,023) (4,932) (4,024) Weighted Average Number of Ordinary Shares at 30 June 272,123,142 272,316,724 Basic Earnings per Share (cents per share) 2.43 4.18 Diluted Earnings per Share The calculation of diluted earnings per share at 30 June 2020 was based on the profit attributable to ordinary shareholders of $6,624,000 (2019: $11,387,000) and a weighted average number of ordinary shares on issue during the year ended 30 June 2020 of 272,123,142 (2019: 272,316,724), calculated as follows: Profit Attributable to Ordinary Shareholders (Diluted) Weighted Average Number of Ordinary Shares (Diluted) Weighted average number of ordinary shares at 30 June Diluted Earnings per Share (cents per share) 21 Loans and Borrowings 2020 $’000 2019 $’000 6,624 11,387 272,123,142 272,316,724 2.43 4.18 This note provides information about the contractual terms of the Group’s interest-bearing loans and borrowings. For more information about the Group’s exposure to interest rate risk see Note 24. Current Commercial bills (Secured) Investor loans to subsidiaries (Unsecured) Total Current Loans and Borrowings Non Current Commercial bills (Secured) Investor loans to subsidiaries (Unsecured) Total Non Current Loans and Borrowings 2020 $’000 2019 $’000 35,858 28,364 19,646 6,301 55,504 34,665 - 21,465 8,478 8,478 23,478 44,943 71 FINBAR GROUP LIMITED ANNUAL REPORT 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) For the Year Ended 30 June 2020 21 Loans and Borrowings (continued) Terms and debt repayment schedule Terms and conditions of outstanding loans are as follows: Current Commercial bills (Secured)* Commercial bills (Secured) ** Commercial bills (Secured) Investor loans to subsidiaries (Unsecured) Investor loans to subsidiaries (Unsecured)*** Investor loans to subsidiaries (Unsecured)*** Investor loans to subsidiaries (Unsecured)*** Total Current Loans and Borrowings Non Current Commercial bills (Secured) Investor loans to subsidiaries (Unsecured)*** Investor loans to subsidiaries (Unsecured)*** Total Non Current Loans and Borrowings Nominal Interest Rate Financial Year of Maturity BBSY+2.00% BBSY+2.00% BBSY+1.70% BBSY+1.50% BBSY+2.00% 2021 2021 2020 2021 2021 2020 2020 2021 2023 2021 2020 2019 Carrying Amount $’000 Carrying Amount $’000 14,393 15,893 21,465 - - 12,471 6,996 12,650 - - - - 4,218 2,083 55,504 34,665 - 21,465 8,478 8,478 - 15,000 8,478 44,943 * At the maturity of the commercial bill on 6 April 2021, the Company intentions to extend the facility on Pelago investment property with the current lender. As at 30 June 2019, due to a breach of debt covenant, the commercial bill on the Pelago investment property was classified as a current liability. Subsequent to the finacial year ended 30 June 2019, the bank agreed to waive the breach. ** At the maturity of the commercial bill on 30 April 2021, the Company intentions to extend the facility on Fairlanes investment property with the current lender. *** These are loans from land owners which are non interest bearing. Financing Arrangements Commercial bills Commercial bills (refer Note 24) are denominated in Australian dollars. The commercial bill loans of the Subsidiaries are secured by registered first mortgages over the investment property land and buildings of the Controlled entity as well as a registered mortgage debenture over the Controlled entity’s assets and undertakings. Investor Loans Investor Loans are repayable upon the completion of the project. 22 Employee Benefits Current Liability for annual leave Liability for long-service leave Total Current Employee Benefits Non Current Liability for long-service leave Total Non Current Employee Benefits 72 2020 $’000 2019 $’000 51 439 490 44 44 25 463 488 29 29 FINBAR GROUP LIMITED ANNUAL REPORT 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) For the Year Ended 30 June 2020 23 Trade and Other Payables Current Trade and other payables Other payables and accrued expenses Total Current Trade and Other Payables Non Current Trade and other payables Other payables and accrued expenses Total Non Current Trade and Other Payables 2020 $’000 2019 $’000 23,581 39,478 703 1,360 24,284 40,838 1,765 3,240 1 80 1,766 3,320 At 30 June 2020, Consolidated trade and other payables include retentions of $264,000 (2019: $436,000) relating to construction contracts in progress. The Group’s exposure to liquidity risk related to trade and other payables is disclosed at Note 24. 24 Financial Instruments Credit Risk Exposure to Credit Risk The carrying amount of the Group’s financial assets represent the maximum credit exposure. The Group’s maximum exposure to credit risk at the reporting date was: Trade and other receivables - current Trade and other receivables - non-current Cash and cash equivalents The Group’s maximum exposure to credit risk for trade and other receivables at the reporting date by receivable category was: Equity Accounted Investees GST refunds due and other trade debtors Other receivables Working capital advances and bonds Impairment Losses Note 17 17 18a Carrying Amount 2020 $’000 2019 $’000 10,341 18,354 26,911 16,123 30,591 45,490 67,843 79,967 13,577 5,438 10,229 10,063 8,661 18,245 4,785 730 37,252 34,476 None of the Group’s trade or other receivables are past due and based on historic default rates and security held the Group believes that no impairment allowance is necessary in respect of trade or other receivables. 73 FINBAR GROUP LIMITED ANNUAL REPORT 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) For the Year Ended 30 June 2020 24 Financial Instruments (continued) Liquidity Risk The following are the contractual maturities of non-derivative financial liabilities, including estimated interest payments and excluding the impact of netting agreements: Non-derivative Financial Liabilities Commercial bills* Investor Loans* Trade and other payables Non-derivative Financial Liabilities Commercial bills* Investor Loans* Trade and other payables Note 21 21 23 Note 21 21 23 30 June 2020 Carrying Amount $’000 Contractual Cash Flows $’000 1 Year or Less $’000 1-3 Years $’000 35,858 36,978 36,978 28,124 28,306 19,828 26,050 26,050 24,284 - 8,478 1,766 90,032 91,334 81,090 10,244 30 June 2019 Carrying Amount $’000 Contractual Cash Flows $’000 1 Year or Less $’000 1-3 Years $’000 49,829 52,505 15,184 37,321 29,779 29,779 6,301 23,478 44,158 44,158 40,838 3,320 123,766 126,442 62,323 64,119 * Refer to Note 21 Loan and Borrowings for details on loan maturity. Interest Rate Risk Profile At the reporting date the interest rate profile of the Group’s interest-bearing financial assets and liabilities was: Variable Rate Instruments Financial Assets Financial Liabilities Carrying Amount 2020 $’000 2019 $’000 44,168 50,928 (42,854) (49,829) 1,314 1,099 Cash Flow Sensitivity Analysis for Variable Rate Instruments A change of 100 basis points in interest rates would have (decreased)/increased the Group’s equity and profit or loss by the amounts shown below. This analysis assumes that all variables remain constant. The analysis is on the same basis for 2019. 30 June 2020 Variable rate instruments 30 June 2019 Variable rate instruments 74 Profit or Loss Equity 100bp Increase $’000 100bp Decrease $’000 100bp Increase $’000 100bp Decrease $’000 (867) 867 (867) 867 100bp Increase $’000 100bp Decrease $’000 100bp Increase $’000 100bp Decrease $’000 (627) 627 (627) 627 FINBAR GROUP LIMITED ANNUAL REPORT 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) For the Year Ended 30 June 2020 24 Financial Instruments (continued) Fair Values Fair Values Versus Carrying Amounts The fair values of financial assets and liabilities, as detailed below, are equal to the carrying amounts shown on the balance sheet: Trade and other receivables Cash and cash equivalents Secured bank loans Investor loans Trade and other payables Fair Values 2020 $’000 2019 $’000 37,252 34,477 30,591 45,490 (35,858) (49,829) (28,124) (29,779) (26,050) (44,158) Note 17 18a 21 21 23 The methods and assumptions used to estimate the fair value of financial instruments are as follows: Unsecured shareholder loans Due to the short term nature of these financial rights and obligations, their carrying values approximate to their fair values. Long term loans are secured and interest bearing at bank business interest rates. Cash and short term deposits The carrying amount is fair value due to the liquid nature of these assets. Bank loans The carrying amount is a reasonable approximation of fair value. 25 Operating Leases Leases as Lessor The Group leases out its investment properties held under operating leases. Rental income received from investment property Other rental property income received Future minimum lease receipts At 30 June, the future minimum lease receipts under non-cancellable leases are receivable as follows: Less than one year Between one and five years More than 5 years Note 2020 $’000 2019 $’000 7,123 6,871 4 4 7 7,127 6,875 4,059 5,029 308 3,833 3,674 469 9,396 7,976 The COVID-19 mandatory closure by Federal and/or State governments have impacted some of our food and beverages and medical tenancies. Majority of our tenants continued to operate during the pandemic. Rent abatements and/or rent deferrals has been and are still being provided to affected tenants in accordance to the relevant Code of Conduct legislation. Rent relief totalling $60,000 was recorded in the financial year ended 30 June 2020. 75 FINBAR GROUP LIMITED ANNUAL REPORT 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) For the Year Ended 30 June 2020 26 Capital and Other Commitments Commitments and Contingent Liabilities Property Development Contracted but not provided for and payable: Within one year Later than one year Total Property Development Commitments Property Development - Equity Accounted Investees Contracted but not provided for and payable: Within one year Later than one year Total Property Development Commitments - Equity Accounted Investees Group’s Share of Property Development - Equity Accounted Investees Contracted but not provided for and payable: Within one year Later than one year Total Share of Property Development Commitments - Equity Accounted Investees Group’s Property Development Commitments including Equity Accounted Investees Contracted but not provided for and payable: Within one year Later than one year Total Property Development Commitments including Equity Accounted Investees Note 2020 $’000 2019 $’000 - - - 51,065 - 51,065 9,343 - 9,343 4,672 - 4,672 - - - - - - 4,672 51,065 - - 4,672 51,065 Disclosed under Note 30 Subsequent event, 36 Chester Avenue Pty Ltd entered into a construction contract with Hanssen Pty Ltd on 1 July 2020. The capital commitment on the Dianella Apartments project totalled to $32,369,000. 27 Contingencies The Directors are of the opinion that provisions are not required in respect of these matters, as it is not probable that a future sacrifice of economic benefits will be required or the amount is not capable of reliable measurement. Guarantees The Company has guaranteed the bank facilities of certain controlled entities 2020 $’000 2019 $’000 16,577 18,077 The Company has guaranteed the bank facilities of certain equity accounted investees - - 76 FINBAR GROUP LIMITED ANNUAL REPORT 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) For the Year Ended 30 June 2020 28 Related Parties The key management personnel compensation included in ‘personnel expenses’ is as follows: Short term employee benefits Other long term benefits Post employment benefits Employee benefits 2020 $’000 2019 $’000 2,572 2,643 (34) 97 30 91 2,634 2,763 Individual Directors and Executives Compensation Disclosures Information regarding individual directors and executives compensation are provided in the Remuneration Report section of the Directors’ report on pages 29 to 33. On 29th October 2014, Finbar Group Limited issued 250,000 fully paid ordinary shares to Darren Pateman as Director Incentive Shares under the rules of the Director Share Plan 2014. Payment was by way of an interest free loan of $360,000 which was repaid by 14th October 2019. The related benefit is disclosed in table 4.3.2 on page 31. On 31st August 2015, Finbar Group Limited issued 250,000 fully paid ordinary shares to Darren Pateman as Director Incentive Shares under the rules of the Director Share Plan 2014. Payment was by way of an interest free loan of $290,000 which is repayable by 31st August 2020. The related benefit is disclosed on table 4.3.2 on page 31. On 25th August 2016, Finbar Group Limited issued 250,000 fully paid ordinary shares to Darren Pateman as Director Incentive Shares under the rules of the Director Share Plan 2014. Payment was by way of an interest free loan of $207,500 which is repayable by 25th August 2021. The related benefit is disclosed on table 4.3.2 on page 31. On 13th September 2017, Finbar Group Limited issued 250,000 fully paid ordinary shares to Darren Pateman as Director Incentive Shares under the rules of the Director Share Plan 2014. Payment was by way of an interest free loan of $202,500 which is repayable by 13th September 2022. The related benefit is disclosed on table 4.3.2 on page 31. Other Related Party Transactions Equity Accounted Investees Loans are made by the Group to equity accounted investees for property development undertakings. Loans outstanding between the Group and joint ventures are interest bearing and are repayable at the completion of the equity accounted investees development project. As at 30 June the balance of these loans were as follows: 240 Adelaide Terrace Pty Ltd (Formerly Finbar Sub 106 Pty Ltd*) 647 Murray Street Pty Ltd Axis Linkit Pty Ltd Finbar Sub 5050 Pty Ltd Lot 1001 - 1003 Rowe Avenue Pty Ltd Rowe Avenue Pty Ltd * Refer to Note 14 Investments in Equity Accounted Investees. 2020 $’000 2019 $’000 274 (20) 1 2 - 1,859 1 2 13,252 3,537 68 39 13,577 5,438 In the financial statements of the Group, investments in equity accounted investees are carried at the lower of the equity accounted amount and the recoverable amount. Ventrade Australia Pty Ltd and Ventrade Maylands Pty Ltd are related parties of Chuan Hup Holdings Limited who owns 20.53% of Finbar Group. The Company entered into a joint venture arrangement with Ventrade Australia Pty Ltd, under 240 Adelaide Terrace Pty Ltd, during the financial year ended 30 June 2020. The project end value is estimated at $92 million. Development approval has been received and construction is anticipated to commence in the financial year ended 30 June 2021. Included within the trade and other payables balance is $2,802,000 (2019: NIL) owing to Ventrade Maylands Pty Ltd. Included within the trade and other receivables balance is $520,000 (2019: $5,667,000 payable) receivable from Ventrade Australia Pty Ltd. The payables and receivables are in relation to development projects, are at arms length, non-interest bearing and at call. 77 FINBAR GROUP LIMITED ANNUAL REPORT 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) For the Year Ended 30 June 2020 Country of Incorporation Shareholding/ Unit Holding $ Ownership Interest 2020 2019 Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 0% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 0% 100% 100% 100% 100% 100% 100% 0% 100% 100% 0% 100% 100% 1 1 1 1 2 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 2 1 1 1 1 1 1 1 33 29 Group Entities Parent Company Finbar Group Limited Subsidiaries 1 Mends Street Pty Ltd 2 Homelea Court Springs Pty Ltd 31 Rowe Avenue Pty Ltd 32 Riversdale Road Pty Ltd 36 Chester Avenue Pty Ltd 43 McGregor Road Pty Ltd 5-7 Harper Terrace Pty Ltd 63 Adelaide Terrace Pty Ltd 88 Terrace Road Pty Ltd 96 Mill Point Road Pty Ltd 172 Railway Parade West Leederville Pty Ltd 175 Adelaide Terrace Pty Ltd 239 Great Eastern Highway Pty Ltd 241 Railway Parade Pty Ltd 262 Lord Street Perth Pty Ltd 269 James Street Pty Ltd 280 Lord Street Perth Pty Ltd Finbar Applecross Pty Ltd Finbar Commercial Pty Ltd Finbar Finance Pty Ltd Finbar Fund Pty Ltd Finbar Karratha Pty Ltd Finbar Port Hedland Pty Ltd Finbar Project Management Pty Ltd Finbar To Rent Pty Ltd Finbar Sales Pty Ltd Finbar Sub 104 Pty Ltd Finbar Sub 106 Pty Ltd* Finbar Sub 107 Pty Ltd Finbar Executive Rentals Pty Ltd Lot 1 to 10 Whatley Crescent Pty Ltd * Refer to Note 14 Investments in Equity Accounted Investees. 78 FINBAR GROUP LIMITED ANNUAL REPORT 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) For the Year Ended 30 June 2020 30 Subsequent Events 36 Chester Avenue Pty Ltd entered into a construction contract with Hanssen Pty Ltd on 1 July 2020. The capital commitment on the Dianella Apartments project totalled to $32,369,000. With continuing economic uncertainty from the COVID-19 pandemic, the Company may require to grant further rent abatements and/ or rent deferrals in accordance to the relevant Code of Conduct legislation. Further mandatory closures and government mandated restrictions will influence the Australian economy and property market which may have a future impact on property valuations. Other than mentioned, there has not arisen in the interval between the end of the financial year and the date of this report any item, transaction or event of a material and unusual nature likely, in the opinion of the Directors of the Company, to affect significantly the operations of the Group, the results of those operations, or the state of affairs of the Group in future financial years. 31 Auditors’ Remuneration Audit Services: Auditors of the Group Audit and review of the financial reports Audit and review of the financial reports of equity accounted investees Services other than Statutory Audit: Taxation compliance services 32 Parent Entity Disclosures 2020 $’000 2019 $’000 126,697 141,083 - 169 126,697 141,252 20,286 34,929 20,286 34,929 As at, and throughout the financial year ending 30 June 2020 the parent company of the Group was Finbar Group Limited. Result of the Parent Entity Profit for the year Total Comprehensive Income for the year Financial Position of the Parent Entity Current Assets Total Assets Current Liabilities Total Liabilities Total Equity of the Parent Entity comprising of: Share capital Retained earnings Total Equity Parent Entity Contingencies 2020 $’000 2019 $’000 7,846 7,846 4,739 4,739 29,391 33,397 212,270 218,802 815 859 1,600 1,630 194,483 194,483 16,928 22,689 211,411 217,172 The Directors are of the opinion that provisions are not required in respect of these matters, as it is not probable that a future sacrifice of economic benefits will be required or the amount is capable of reliable measurement. 79 FINBAR GROUP LIMITED ANNUAL REPORT 2020 Directors’ Declaration 1. In the opinion of the Directors of Finbar Group Limited (‘the Company’): a) The Consolidated Financial Statements and notes that are contained in Pages 42 to 79 and the Remuneration report in the Directors’ report, set out on Pages 29 to 33, are in accordance with the Corporations Act 2001, including: i) ii) giving a true and fair view of the Group’s financial position as at 30 June 2020 and of its performance for the year ended on that date; and complying with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Regulations 2001; and b) There are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable. 2. 3. The Directors have been given the declarations required by Section 295A of the Corporations Act 2001 from the Managing Director and the Chief Financial Officer for the financial year ended 30 June 2020. The Directors draw attention to Note 2(a) to the consolidated financial statements, which contains a statement of compliance with International Financial Reporting Standards. Signed in accordance with a resolution of the Board of Directors: Darren Pateman Managing Director Dated at Perth this Twenty-fifth day of August 2020. 80 FINBAR GROUP LIMITED ANNUAL REPORT 2020Independent Auditor’s Report To the shareholders of Finbar Group Limited Report on the audit of the Financial Report Opinion We have audited the Financial Report of Finbar Group Limited (the Company). In our opinion, the accompanying Financial Report of the Company is in accordance with the Corporations Act 2001, including: • giving a true and fair view of the Group’s financial position as at 30 June 2020 and of its financial performance for the year ended on that date; and • complying with Australian Accounting Standards and the Corporations Regulations 2001. The Financial Report comprises: • Consolidated statement of financial position as at 30 June 2020. • 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 including a summary of significant accounting policies • Directors’ Declaration. The Group consists of the Company and the entities it controlled at the year-end or from time to time during the financial year. Basis for opinion We conducted our audit in accordance with Australian Auditing Standards. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. 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 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 fulfilled our other ethical responsibilities in accordance with the Code. Key Audit Matters The Key Audit Matters we identified are: • Valuation of Investment Property • Carrying Value of Inventory. Key Audit Matters are those matters that, in our professional judgement, were of most significance in our audit of the Financial Report of the current period. These matters were addressed in the context of our audit of the Financial Report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. Liability limited by a scheme approved under Professional Standards Legislation. 81 FINBAR GROUP LIMITED ANNUAL REPORT 2020 Valuation of Investment Property ($97.3million) Refer to Note 12 to the Financial Report The key audit matter How the matter was addressed in our audit Valuation of investment properties is a key audit matter due to the: • • • • Significance of the balance to the financial statements Judgement required in assessing the capitalisation rates applied to the projected income of individual properties in the income valuation model. A small percentage movement in the capitalisation rate would result in a significant financial impact to the investment property balance and the income statement. Timing of the valuations performed by the Group’s external valuer. It is the Group’s policy when the valuation was not performed at year end for the directors to assess and confirm the valuation to be adopted in the financial report. We evaluated the external and internal valuations Judgemental valuation inputs with respect to the Karratha investment properties ($55.0million), as there is limited availability of comparable sales and leasing evidence due to the low transaction levels in the Karratha region. This results in a higher level of judgement being applied by the Group to the valuation of both commercial and residential properties in that development, increasing our audit effort applied in this area. Our procedures included: • Understanding the Group’s process regarding the valuation of investment property, including specific considerations of the impact of COVID- 19. • We assessed the scope, objectivity, competence and capabilities of the Group’s external valuer. • We compared the valuations prepared using the income valuation model to the alternate discounted cashflow method valuation where prepared, as a comparator, by the external valuers. • We informed our evaluation of the external valuations and the director’s internal valuations, by comparing values to recent sales evidence and other published reports of industry commentators. • We challenged the capitalisation rates applied, particularly for the Karratha investment property, based on our knowledge of the property portfolio and other published reports of industry commentators. • We also compared, on a sample basis, the following key inputs to the valuations to existing lease contracts and published CPI statistics by the Australian Bureau of Statistics: − Gross rent; − Occupancy rate; − Lease term remaining; and − CPI • We assessed the appropriateness of the Group’s • Consideration of the economic impacts of COVID-19 on valuations including leasing and rental relief assumptions. leasing and rental relief assumptions with consideration of the industry sector of the Group’s Tenants. • We assessed the disclosures in the financial report, using our understanding obtained from our 82 FINBAR GROUP LIMITED ANNUAL REPORT 2020Valuation of Investment Property ($97.3million) Refer to Note 12 to the Financial Report The key audit matter How the matter was addressed in our audit Valuation of investment properties is a key Our procedures included: audit matter due to the: • Understanding the Group’s process regarding the Significance of the balance to the valuation of investment property, including financial statements specific considerations of the impact of COVID- Judgement required in assessing the 19. capitalisation rates applied to the • We assessed the scope, objectivity, competence projected income of individual and capabilities of the Group’s external valuer. • • properties in the income valuation model. A small percentage movement in the capitalisation rate would result in a significant financial impact to the investment property balance and the income statement. • Timing of the valuations performed by the Group’s external valuer. It is the Group’s policy when the valuation was not performed at year end for the directors to assess and confirm the valuation to be adopted in the financial report. We evaluated the external and internal valuations • We compared the valuations prepared using the income valuation model to the alternate discounted cashflow method valuation where prepared, as a comparator, by the external valuers. • We informed our evaluation of the external valuations and the director’s internal valuations, by comparing values to recent sales evidence and other published reports of industry commentators. • We challenged the capitalisation rates applied, particularly for the Karratha investment property, based on our knowledge of the property portfolio and other published reports of industry • Judgemental valuation inputs with commentators. respect to the Karratha investment properties ($55.0million), as there is limited availability of comparable sales and leasing evidence due to the low transaction levels in the Karratha region. This results in a higher level of judgement being applied by the Group to the valuation of both commercial and residential properties in that • We also compared, on a sample basis, the following key inputs to the valuations to existing lease contracts and published CPI statistics by the Australian Bureau of Statistics: − Gross rent; − Occupancy rate; − Lease term remaining; and development, increasing our audit effort − CPI applied in this area. • We assessed the appropriateness of the Group’s • Consideration of the economic impacts leasing and rental relief assumptions with of COVID-19 on valuations including consideration of the industry sector of the leasing and rental relief assumptions. Group’s Tenants. • We assessed the disclosures in the financial report, using our understanding obtained from our testing, against accounting standards requirements. Carrying value of Inventory ($154.6million) Refer to Note 16 to the Financial Report The key audit matter How the matter was addressed in our audit Valuation of inventory, being both completed units and work in progress, is a key audit matter due to the: • • Significance of the balance to the financial statements Significant judgement and our effort applied to assessing forecast selling prices and costs to complete for work in progress. These factors impact the assessment of net realisable value, as in accordance with accounting standards, inventory must be carried at the lower of cost and net realisable value. Work in progress comprises developments currently under construction and future projects, which are long term in nature where forecast costs could be negatively impacted by issues encountered during planning or construction. In addition, forecast selling prices can fluctuate significantly based on property market conditions. This includes consideration of economic impacts of COVID-19 on forecast selling prices. These factors increase the level of forecasting judgement and audit complexity when assessing forecast selling prices and costs to complete for inventory. Our procedures included: • We selected a sample of significant developments under construction and future projects to understand project design complexity, sub-contractor reliance, other project risks and project funding which could negatively impact costs to complete. This was done through enquiry of senior management, and inspection of documentation such as budgets, funding agreements, supplier contracts and internal reports. • We compared a sample of actual to forecast selling prices and actual to forecast construction costs to inform our evaluation of forecast selling prices and costs to complete respectively. We have considered the impact of COVID-19 on the forecast selling prices. • We undertook sample testing of sales made during the year and subsequent to year end to sales contracts to assess sales margins achieved during the year and post year end. This informs our evaluation of the carrying value of inventory at balance date against the Group’s policy for recording inventory at the lower of cost and net realisable value. • We compared forecast selling prices to forecast total costs for significant projects. We did this to assess the carrying value of inventory against the Group’s policy for recording inventory at the lower of cost and forecast net realisable value. Other Information Other Information is financial and non-financial information in Finbar Group Limited’s annual reporting which is provided in addition to the Financial Report and the Auditor’s Report. The Directors are responsible for the Other Information. The Other Information we obtained prior to the date of this Auditor’s Report was the Directors’ Report. The remaining Other Information consisting of Key Financial Metrics, Chairman’s Report, Managing Directors’ Report, Finbar Overview, Key Achievements, Development Overview and 83 FINBAR GROUP LIMITED ANNUAL REPORT 2020 Finbar’s Investment Properties are expected to be made available to us after the date of the Auditor’s Report. Our opinion on the Financial Report does not cover the Other Information and, accordingly, we do not express an audit opinion or 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. In doing so, we 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. We are required to report if we conclude that there is a material misstatement of this Other Information, and based on the work we have performed on the Other Information that we obtained prior to the date of this Auditor’s Report we have nothing to report. Responsibilities of the Directors for the Financial Report The Directors are responsible for: • preparing the Financial Report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 • • implementing necessary internal control to enable the preparation of a Financial Report that gives a true and fair view and is free from material misstatement, whether due to fraud or error assessing the Group and Company’s ability to continue as a going concern and whether the use of the going concern basis of accounting is appropriate. This includes disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless they either intend to liquidate the Group and Company or to cease operations, or have no realistic alternative but to do so. Auditor’s responsibilities for the audit of the Financial Report Our objective is: • • to obtain reasonable assurance about whether the Financial Report as a whole is free from material misstatement, whether due to fraud or error; and to issue an Auditor’s Report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error. They are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the Financial Report. A further description of our responsibilities for the audit of the Financial Report is located at the Auditing and Assurance Standards Board website at http://www.auasb.gov.au/auditors_responsibilities/ar1.pdf This description forms part of our Auditor’s Report. 84 FINBAR GROUP LIMITED ANNUAL REPORT 2020 Finbar’s Investment Properties are expected to be made available to us after the date of the Auditor’s Report on the Remuneration Report Opinion Directors’ responsibilities In our opinion, the Remuneration Report of Finbar Group Limited for the year ended 30 June 2020, complies with Section 300A of the Corporations Act 2001. 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 responsibilities We have audited the Remuneration Report included in paragraph 4.3 of the Directors’ report for the year ended 30 June 2020. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. KPMG Derek Meates Partner Perth 25 August 2020 Report. misstated. Our opinion on the Financial Report does not cover the Other Information and, accordingly, we do not express an audit opinion or 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. In doing so, we 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 We are required to report if we conclude that there is a material misstatement of this Other Information, and based on the work we have performed on the Other Information that we obtained prior to the date of this Auditor’s Report we have nothing to report. Responsibilities of the Directors for the Financial Report The Directors are responsible for: • preparing the Financial Report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 implementing necessary internal control to enable the preparation of a Financial Report that gives a true and fair view and is free from material misstatement, whether due to fraud or error assessing the Group and Company’s ability to continue as a going concern and whether the use of the going concern basis of accounting is appropriate. This includes disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless they either intend to liquidate the Group and Company or to cease operations, or have no realistic alternative but to do so. Auditor’s responsibilities for the audit of the Financial Report Our objective is: to obtain reasonable assurance about whether the Financial Report as a whole is free from material misstatement, whether due to fraud or error; and to issue an Auditor’s Report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Australian Auditing Standards will always detect a material misstatement when it Misstatements can arise from fraud or error. They are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the Financial Report. A further description of our responsibilities for the audit of the Financial Report is located at the Auditing and Assurance Standards Board website at http://www.auasb.gov.au/auditors_responsibilities/ar1.pdf This description forms part of our Auditor’s • • • • exists. Report. 85 FINBAR GROUP LIMITED ANNUAL REPORT 2020 Lead Auditor’s Independence Declaration under Section 307C of the Corporations Act 2001 To the Directors of Finbar Group Limited I declare that, to the best of my knowledge and belief, in relation to the audit of Finbar Group Limited for the financial year ended 30 June 2020 there have been: i. ii. no contraventions of the auditor independence requirements as set out in the Corporations Act 2001 in relation to the audit; and no contraventions of any applicable code of professional conduct in relation to the audit. KPM_INI_01 R_SIG_01 PAR_NAM_01 PAR_POS_01 PAR_DAT_01 PAR_CIT_01 KPMG Derek Meates Partner Perth 25 August 2020 86 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. Liability limited by a scheme approved under Professional Standards Legislation. FINBAR GROUP LIMITED ANNUAL REPORT 2020 Lead Auditor’s Independence Declaration under Section 307C of the Corporations Act 2001 To the Directors of Finbar Group Limited I declare that, to the best of my knowledge and belief, in relation to the audit of Finbar Group Limited for the financial year ended 30 June 2020 there have been: i. ii. no contraventions of the auditor independence requirements as set out in the Corporations Act 2001 in relation to the audit; and no contraventions of any applicable code of professional conduct in relation to the audit. KPM_INI_01 R_SIG_01 PAR_NAM_01 PAR_POS_01 PAR_DAT_01 PAR_CIT_01 KPMG Derek Meates Partner Perth 25 August 2020 ASX Additional Information Additional information required by the ASX Limited Listing Rules and not disclosed elsewhere in this report is set out below. SHAREHOLDINGS (AS AT 30 JUNE 2020) Substantial Shareholders The number of shares held by substantial shareholders and their associates are set out below: Shareholder Name Chuan Hup Holdings Limited Thorney Holdings Proprietary Limited John Chan Westoz Funds Management Pty Ltd Voting rights Ordinary shares Refer to Note 19 in the Notes to the Financial Statements. Distribution of Equity Security Holders Range 1-1,000 1,001-5,000 5,001-10,000 10,001-100,000 100,001-over Number % 55,871,363 20.53 28,362,797 10.42 27,031,551 17,450,000 9.93 6.41 Number of Holders Ordinary Shares 390 536 361 843 143 113,298 1,583,790 2,824,613 26,618,327 240,983,114 2,273 272,123,142 The number of shareholders holding less than a marketable parcel of ordinary shares is 311. Stock Exchange The Company is listed on the Australian Securities Exchange. The Home exchange is Perth. ASX Code: FRI Other Information Finbar Group Limited, incorporated and domiciled in Australia, is a publicly listed company limited by shares. KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. Liability limited by a scheme approved under Professional Standards Legislation. 87 FINBAR GROUP LIMITED ANNUAL REPORT 2020 ASX Additional Information (continued) Twenty largest shareholders of ordinary shares as disclosed in the share register : Chuan Hup Holdings Limited HSBC Custody Nominees (Australia) Limited Zero Nominees Pty Ltd J P Morgan Nominees Australia Pty Limited Blair Park Pty Ltd RUBI HOLDINGS PTY LTD FORWARD INTERNATIONAL PTY LTD MR JAMES CHAN 3RD WAVE INVESTORS LTD APEX INVESTMENTS PTY LTD CITYCORP NOMINEES PTY LTD HANSSEN PTY LTD MRS SIEW ENG MAH CHAN FAMILY SUPER (WA) PTY LTD MILTON CORPORATION LIMITED MR AH-HWA LIM MS YI XIAN CHAN DENSHIR PTY LTD MR WAN SOON CHAN NATIONAL NOMIEES LIMITED TOP 20 Number of Ordinary Shares Held % 53,837,175 19.78 33,376,190 12.27 17,604,343 15,570,038 8,497,045 7,912,358 6,472,922 6,231,290 6,100,000 5,798,876 5,793,967 5,000,000 4,820,000 4,100,000 3,642,464 3,155,770 2,892,126 2,839,322 2,435,137 2,366,761 6.47 5.72 3.12 2.91 2.38 2.29 2.24 2.13 2.13 1.84 1.77 1.51 1.34 1.16 1.06 1.04 0.89 0.87 198,445,784 72.92 88 FINBAR GROUP LIMITED ANNUAL REPORT 2020ASX Additional Information (continued) Offices and Officers Directors Mr John Chan (Executive Chairman) Mr Darren John Pateman (Managing Director) Mr Ronald Chan (Chief Operations Officer) Mr Kee Kong Loh Mr Lee Verios Mr Terence Siong Woon Peh Company Secretary Mr Edward Guy Bank (Chief Financial Officer) Principal Registered Office Finbar Group Limited Level 6 181 Adelaide Terrace EAST PERTH WA 6004 PO Box 3380 EAST PERTH WA 6892 Telephone: +61 8 6211 3300 Facsimile: +61 8 9221 8833 Email: info@finbar.com.au Website: www.finbar.com.au Share Registry Computershare Investor Services Pty Ltd Level 11 172 St Georges Terrace PERTH WA 6000 Telephone: +61 8 9323 2000 Auditors KPMG 235 St Georges Terrace PERTH WA 6000 FINBAR GROUP LIM IT ED AN NU A L R EP O R T 2020 89 90 finbar.com.au FINBAR GROUP LIMITED ANNUAL REPORT 2020

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