Finbar Group Limited
Annual Report 2021

Plain-text annual report

2021 ANNUAL REPORT Developing better lifestyles for 26 years 1 Contents 3 Chairman’s Report 11 Key Financial Metrics 5 Managing Director’s Report 15 Finbar Milestones Looking out across the Perth CBD Skyline it’s hard not to notice the unmistakable footprint of Finbar. Since our beginnings in 1995, our vision has been to build better lifestyles – a philosophy that has seen us raise apartment development standards to new heights. In the 26 years that followed, a gold standard commitment to our craft has seen us become an award-winning company with an astonishing 100% delivery track record on over 6,527 apartments. With every Finbar development seen successfully through to completion, it’s no wonder that Finbar has earned the reputation as WA’s largest and most trusted apartment developer. 2 17 Our Finbar 19 Completed Projects 24 Projects Under Construction 27 Future Projects Defining Perth’s Skyline since 1995. We are privileged to have helped shape Perth into a vibrant modern city through over 75 landmark developments. 33 Investment Properties 36 Financial Report 2021 Finbar Group Annual Report2021 Finbar Group Annual Report 3 Chairman’s report Message from The Chairman JOHN CHAN “ In the rapidly changing market, there are green shoots from areas that were not previously anticipated. ” Dear Shareholder I am pleased to present Finbar Group’s Annual Report for 2021. Finbar has this year delivered a net profit after tax of $8.86 million. This is a pleasing achievement in an external environment that continues to be challenging for property development companies, and represents a 25 per cent increase on the previous year. It is the 25th year of consecutive profit reported by Finbar, a remarkable achievement through a number of different property cycles. At the end of the financial year, Finbar held $52.6 million in cash compared with $30.6 million at 30 June 2020. The company completed 486 sales – both finished product and off-the-plan – over the course of the year, valued at $296 million. Finbar held completed stock valued at $59.9 million as at June 30, which equates to a sell down of $137 million in debt free stock during the financial year. This strong cash position, bolstered by strong cashflow from completed stock settlements and increased confidence of improving operating conditions, allowed your company to pay a second half dividend of $0.02 per share, fully franked. This followed the interim dividend of $0.02 per share announced in February and brought the full year dividend to $0.04 per share, fully franked. The current market for apartment developers remains challenging, particularly in marketing to those buyers that traditionally have contributed to off-the-plan pre-sales for major developments. As a result of this, we are seeing many projects being delayed because the developer and financial backers are unable to proceed without reaching their pre- determined required level of pre-sales. At the same time, the cost of raw materials, particularly steel, and labour are continuing to increase, and therefore construction costs are seeing significant upward pressure. It is this environment where our long term and deep relationships with builders like Hanssen Pty Ltd provide us with cost advantages that helps Finbar offer a product that remains very good value for money amongst any remaining competition. Because of this, we believe the level of new apartment stock being developed and delivered to the market will continue to tighten. As demonstrated by Finbar’s sales of completed stock during the past financial year, there is good demand for well-located, well-presented and well-priced apartments. There is no question that there will be a decreased number of new apartments available for sale in the market in coming years which, if completed stock demand levels remain strong, will lead to price appreciation. To date, prices for apartments have not moved in step with the increases seen in development costs, despite the limited stock entering the market, but there are early signs that prices are beginning to move. This should ensure adequate margins are achieved for our current projects as well as those that will commence this financial year. With our strong balance sheet and cashflow, and support from our banking and joint venture partners, we are able to commit to commencing projects without reaching 4 The pre-sales achieved at Civic Heart stand at more than “ $117 million which is testament to the quality of Finbar’s developments and a reflection of the trust and goodwill we have earned over the years from the West Australian market. ” the usual level of pre-sales and this is a major competitive advantage in the current market. I wrote last year about the impacts caused by the COVID-19 pandemic and clearly they are still playing out and will continue to do so for several years. The stalling of immigration and international travel caused by COVID-19 continues to impact on Finbar. Sales to foreign buyers have historically accounted for approximately 20 per cent of total sales and this market has now almost completely disappeared and remains uncertain into the future. In the rapidly changing market however, there are green shoots from areas that were not previously anticipated. The advent of the pandemic has seen many Australians living and working overseas wanting to return home. Perth in particular has seen many expats entering from overseas and this has contributed to the acute shortage of available rental properties. The resulting low vacancy rates and increasing rental prices, in addition to the reduced supply of new stock as I discussed earlier, will put further pressure on property prices. Perth and parts of regional Western Australia will be seen as very attractive destinations when life returns to conditions closer to those that we enjoyed pre-COVID-19. We expect returning Australians to continue to boost demand for housing and accommodation in coming years and this should help negate the negative impacts caused by the reduced number of foreign investors actively looking to purchase in Perth. Unfortunately, the foreign buyer duty that imposes an additional 7 per cent cost on this sector of the market, does not look like it will be revoked, and certainly continues to discourage foreign investment in this sector. I am pleased to report that, at the time of writing, Finbar’s largest ever project Civic Heart in South Perth is progressing well with construction proceeding according to our expectations. Large projects become more complex as the scale increases. The lead time and construction timetable take longer and there are a number of issues that make these projects more difficult than projects of a smaller scale. It is a reflection of how Finbar has grown over the years and the intellectual property and in-house expertise it has built that we were able to commit to this project with our joint venture partners and progress it to its current point where construction is well underway. The pre-sales achieved at the project stand at more than $117 million which is testament to the quality of Finbar’s developments and a reflection of the trust and goodwill we have earned over the years from the West Australian market. Civic Heart will be an outstanding apartment development within the local community, bringing great amenity and a range of food and beverage options. The sales to date show it is an extremely attractive proposition for a range of people with pre-sales reflecting buyers coming from many different areas. As with Civic Heart, construction at Finbar’s Perth CBD Project – AT238 is also progressing well with the structure now reaching level three at the time of writing and with $21.1m in pre-sales secured. We look forward to completing this project in the next financial year. In closing, I want to take the opportunity to thank our sales agents, our builder - Hanssen, our joint venture partners and our banking partners for their ongoing support. I also want to thank all of our shareholders and look forward to working on your behalf with our senior management, as we focus on delivering our current and future projects to market. John Chan Chairman 2021 Finbar Group Annual Report2021 Finbar Group Annual Report 5 Managing Director’s Report Message from Managing Director DARREN PATEMAN “ We have built enormous goodwill in Western Australia and people trust us to deliver on our promise to deliver quality accommodation, a better lifestyle, and value for money. ” Finbar has this year delivered a 25 per cent increase in net profit after tax of $8.86 million in a year that has seen some very encouraging signs for the recovery of the residential apartment development sector. Our results were achieved predominately from improving market conditions that recovered quickly from lows of the pandemic news early last year to some of the highest sales months we have seen in many years. This has helped us sell down our previously completed existing stock and turn these funds into cash for reinvestment and the return of capital to shareholders through the dividend which I will discuss below. Furthermore, it is allowing us to grow our pre-sale book to support our new project launches. Pleasingly, we have now almost completely sold those projects that in recent years have contributed to an erosion of development margins due to many years of a weakening market. We expect margins to normalise as we begin to complete our new round of current projects to market, starting with Dianella which reached a stage of completion late last month with revenues expected at the time of publishing this report, and new projects under construction. At the end of the financial year, Finbar held $52.6 million in cash compared with $30.6 million at 30 June 2020. Finbar held completed stock valued at $59.9 million, which as the Chairman has noted, represents the sell down of $137 million in debt free stock during the financial year. During the year we sold 486 apartments with a total value of $296 million. A number of these sales can be attributed to the in-house sales team we established during the year that has performed ahead of expectations amidst volatile market conditions. Importantly, this cash and the cashflows from the settlement of our debt free stock selldown has allowed us to commence two very significant projects at Civic Heart and AT238 during the reporting period. We have also now committed to the commencement of major project Aurora and are also committed to commence The Point in this financial year. It also allowed the payment of the $0.04 per share fully franked dividend for the full year, up from $0.03 last year, which I hope has pleased our long-term shareholders who have continued to hold our shares during the Perth property downturn. The repatriation of Western Australians to the state has been a huge driver of accommodation demand. Furthermore, Western Australia is benefiting from a net gain in eastern states migration, the age group statistics indicating families are relocating to Western Australia to escape COVID-19 6 restrictions and in pursuit of career opportunities and older age groups indicating an attractive retirement destination. committed to commence major projects and rapidly bring them to the market as finished completed stock for sale. This has helped support our efforts in marketing existing stock which, prior to the completion of Dianella, was approximately just two months of existing stock available based on our current sales rates. Whilst the market has improved for completed stock, this is still not flowing through to off-the-plan pre-sales activity. It is not easy to launch new projects and expect them to be rapidly underpinned by off-the-plan pre-sales. The investor market has not yet returned to normal levels. Interest rates are at record lows and rental yields are improving due to high rental demand fuelled by population growth as previously mentioned, but property investors are cautious in stepping back into the property market. Investment property as an asset class is competing with other investment asset classes, like the equities market, which is seeing record highs and is easily accessible with smaller commitments. We believe the value erosion that has been experienced in property investments in recent years is still fresh in people’s minds and we believe that we need to see a period of increased values to convince investors to return to ‘bricks and mortar’ investments (or ‘concrete and steel’ in our case). It won’t be until we see sustained periods of price growth that investors are likely to return to the market. This difficulty in selling projects off-the-plan will ultimately assist Finbar in cementing our existing number one market position in the longer term. It continues to stifle competition and is the single largest barrier for any developer to obtain debt funding on which high density development is so heavily reliant. The only way projects are commencing currently is with development companies committing more cash equity than in normalised market conditions, which means you need a strong balance sheet, good cashflows, sound banking relationships, and strong joint venture partnerships to see the construction of these projects commence. Finbar continues to outperform relative to the WA market in difficult conditions because Finbar and our joint venture partners have been willing to commit capital to the development of our projects even if pre-sales have not reached levels required by rival development companies. Whilst overall sales conditions have clearly improved, we still see this financial year playing out similarly to recent years where an approval, a signboard, and a selling agent does not make you a developer, and the construction of many local apartment projects will not get off the ground if developers are relying purely on a pre-sales campaign to underpin their commencement. We, with our joint venture partners, have committed to our major projects at Civic Heart in South Perth and AT238 on Adelaide Terrace in Perth. We will do the same at Aurora and The Point later in the financial year and I want to thank our joint venture partners who, with Finbar, have In total, during the current financial year we will have $726 million of product under construction. That is a big commitment to new projects, and our largest since the sector’s downturn which commenced seven years ago. Looking more closely at the current financial year, our project in Dianella is the only project expected to complete to add to the remaining stock and contribute to earnings this financial year. AT238 in Perth’s CBD is anticipated to be completed early next financial year, with the completion of Civic Heart expected to follow late FY2023 or early FY2024. Because of the timing of delivery of AT238, which is currently anticipated to fall into early next financial year, we expect earnings to moderate this year before building materially the following year with the completion of those previously mentioned major projects. We have also taken the decision to slowly release some of our investment properties in Karratha to the market, where our investment has continued to improve. When we first commenced our Karratha project in 2012 it was a unique time for the region with the State Government investing significant amounts into the Royalties for Regions program, banks were lending in the region, and a local and transient labour force was available so construction could take place and costs readily controlled. Now, some eight years later, none of the above three factors are available to Karratha and as such, Finbar’s asset is unique and not easily replicated. It is the best asset of its type in the city and it remains in high demand from an accommodation perspective. We will continue to increase rents to meet demand both improving our returns and value for Finbar’s retained property comprising 101 apartments plus ground floor commercial property. Although the investment has performed particularly well and generated respectable returns since 2012, we have never seen it as a long-term holding for the company nor necessarily the best use of our equity in the project. As property conditions in Karratha continue to improve, we have opted to release units progressively into the rising market. These sales will contribute to earnings where they exceed our current valuations and will release additional cash to Finbar for reinvestment in our core business. 2021 Finbar Group Annual Report2021 Finbar Group Annual Report 8 7 Managing Director’s Report continued As expected, Federal and State Government stimulus packages, put in place to counter the economic impacts of COVID-19 and the ongoing State hard border controls, have put upward pricing pressure on building costs, particularly on labour and the cost of subcontractors. Our building contracts are structured in a way to mitigate these risks and we also carry contingencies within our feasibilities to ensure we have adequate coverage to further accommodate these pressures from a budgeted margin and return perspective if required. Some strategies to control costs include supporting our primary builder, Hanssen, in the early pre-purchasing of bulk materials where required to help hedge against the increasing costs of raw materials like structural steel. As already outlined by our Chairman John Chan, we value our relationships with the major Australian banks, in particular Commonwealth Bank and Westpac Banking Corporation, who have been integral to Finbar’s continued development activity over multiple decades and many property cycles. I would like to add my personal thanks for the strong relationships we enjoy and the success of countless projects over our 26 years in the industry. We have built a dedicated team of senior management at Finbar, including many that have been with our Group for more than a decade. We are proud of the Finbar small office culture that we have which plays a major part in ensuring our corporate agility and I thank them all for diligently working to successfully address the recent volatility and remaining motivated to succeed in sometimes unrewarding market conditions, seeing Finbar through the property cycles. One area of focus during the slower market conditions we have experienced is to increase the promotional reach and possible sales channels for our projects. Two such channels to improve this reach was the establishment of Finbar to Rent as a way to provide an improved offering to investors and to reach renters, many of which will likely be future property owners. The other is in the establishment of a small in-house sales team to have a more intense knowledge, marketing control, and lead conversion to better leverage our significant project marketing spend. Whilst established as a promotional tool and as a service offering to our important buyers, Finbar to Rent has completed its first full year of operation and is now managing 360 Finbar developed properties and generated $197,000 in net profit after tax for the financial year. It is a business that has grown organically and will scale over time as new Finbar projects are completed. Importantly, Finbar to Rent allows us to retain a strong one-to-one monthly relationship with existing buyers of our apartments, as well as provide a database for introducing potential future buyers to Finbar properties by way of marketing to tenants. Finbar Sales achieved 136 sales to the value of $109.3 million in its first year of operation, writing $2.03 million dollars in commissions, and has sold 60% of the value sold at Civic Heart, 67% at Sabina, and 92% of all sales at Aurora. The commissions received from these sales have helped the team produce a first year net profit of $189,000. Finbar is a proud Western Australian property developer. The overwhelming majority of our shareholders are long term holders who purchased shares in Finbar knowing that Finbar is a beneficiary of the success or otherwise of the West Australian economy. We have become WA’s most trusted apartment developer because we continue to commit capital locally, to local projects, and continue to invest and develop projects in Western Australia through the economic cycle. We have built enormous goodwill in Western Australia and people trust us to deliver on our promise to deliver quality accommodation, a better lifestyle, and value for money. Finbar has made a long-term commitment to the local market, with long term management in place making investment decisions that are not based on short term factors. It is a business that has successfully operated this way over two and a half decades and I thank you for your ongoing support and interest in Finbar Group as we move into a far more encouraging market environment. By any measure, the overwhelmingly positive feedback we receive on completion of Finbar projects by the buyers of our apartments reflects well on our people, our product, and our business. Darren Pateman Managing Director 2021 Finbar Group Annual Report2021 Finbar Group Annual Report 9 The future is bright. The active sales environment means we’re able to fund all of our continued capital commitments for Civic Heart in South Perth and AT238 in Perth. Construction at both Aurora in Applecross and The Point in Rivervale will also commence this financial year. 486 apartments sold during the year with a total value of $296m Finbar has this year delivered a net profit after tax of $8.86m $0.04 per share fully franked dividend for the full year. 26 years on the ASX 1 0 Over 70% of buyers say the reputation of the developer is critical when choosing an apartment. Our reputation is everything to us. 100% delivery on 6,527 apartments over 75 landmark developments. Delivering on our commitment to develop better lifestyles. Our customers trust us to develop better lifestyles. For us, there is no greater inspiration. $726m of product under construction. 1.3 sales per day in FY21. 160% up on FY20. 89% of customers would recommend Finbar to a friend. Word of mouth is our strongest asset. Final Dividend FY21: $5,442m 486 apartments sold FY21 We understand that buying ‘off the plan’ can be daunting. Our process is transparent and simple, we empower our customers with open communication, and we’re rewarded with their trust. 84% of our customers rated buying ‘off the plan’ easy. 2021 Finbar Group Annual Report2021 Finbar Group Annual Report 11 Key Financial Metrics SOURCE OF EARNINGS TOTAL EARNINGS RENTAL INCOME 91% 6% 3% 66% 32% 2% Development Income Rental Income Other Pelago Fairlanes Other DEVELOPMENT INCOME FULLY FRANKED DIVIDEND PER YEAR (CENTS) Sabina Palmyra Riverena Vue 27% 17% 16% 15% One Kennedy 12% Motive Concerto 6% 5% Reva 2% $296m FY21 Sales 8.86m after tax profit $12.8m average sales of off-the-plan apartments per month $11.3m average sales of completed apartments per month 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 R A E Y L A I C N A N F I $0.00 $0.00 $0.01 $0.01 $0.01 $0.01 $0.03 $0.03 $0.03 $0.02 $0.03 $0.04 Interim Dividend Final Dividend $0.06 $0.06 $0.07 $0.075 $0.085 $0.085 $0.095 $0.10 $0.10 $0.07 $0.06 $0.06 $0.06 $0.03 $0.04 1 2 NET PROFIT AFTER TAX EARNINGS PER SHARE $MILLION $25.9 $8.1 $5.1 $13.8 $11.4 $7.1 $8.9 2015 2016 2017 2018 2019 2020 2021 $0.11 $ 2015 2016 2017 2018 2019 2020 2021 $0.04 $0.02 $0.06 $0.04 $0.02 $0.03 Finbars Net Profit After Tax increased by $1.8 MILLION Finbars EPS increased by 34% to $0.03 ENTERPRISE VALUE $MILLION PRESALES $MILLION 2015 2016 2017 2018 2019 2020 2021 $289.2 $239.1 $258.4 $252.7 $262.7 $223.9 $250.2 Finbar’s Enterprise Value increased by 11.74% to $250.2 MILLION $407.1 $447.6 2015 2016 2017 2018 2019 2020 2021 $260.9 $194.1 $117.9 $53.6 $189.6 The increase in Presales for FY2021 to $189.6 MILLION was largely due to presales achieved at Civic Heart, AT238 and Aurora, and the settlement of Riverena. With the launch of two new developments in FY2022 Finbar expects presales to continue to strengthen. PROJECT PIPELINE TOTAL DEVELOPED UNITS $BILLION UNITS 2015 2016 2017 2018 2019 2020 2021 $2.3b $2.2b $2.0b $1.8b $1.2b $1.3b $1.4b 2015 2016 2017 2018 2019 2020 2021 4421 4923 5293 5675 5984 6402 6527 25% increase in profit Dividend per share FY 21 $0.04c Finbar has rewarded shareholders with a fully franked dividend for the past 25 years, the last 16 by way of an interim and a final. The dividend paid for the full year ended 30 June 2021 is $0.04 cents per ordinary security fully franked. Finbar maintains a robust Project Pipeline of $1.4 BILLION to ensure that the company can capitalise on changing market conditions and bring new product to the market as quickly and efficiently as possible to maximise shareholder returns. Total Developed Units reached 6,527 by the end of FY2021 with the addition of 125 units from the completion of Riverena. Finbar continues to position itself as the largest residential apartment developer in Western Australia. 2021 Finbar Group Annual Report2021 Finbar Group Annual Report 13 Key Financial Metrics continued TOTAL SALES AND VALUE FINANCIAL YEAR Number Of Sales Total Value AVERAGE SALES PER DAY SINCE 1996 FINANCIAL YEAR Number Of Sales Average Sales Per Day AVERAGE SALES VALUE SINCE 1996 FINANCIAL YEAR Number Of Sales Average Sales 1 4 FY2021 REPEAT BUYERS 13% 87% Repeat Buyers New Buyers During the year we sold 486 apartments with a total value of $296 million 120 100 80 60 40 20 0 FIRB SALES 25 28 43 46 44 112 52 47 74 59 20 26 FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017 FY2018 FY2019 FY2020 FY2021 30% 25% 20% 15% 10% 5% 0% 25% 20% 15% 10% 5% 0% FY2021 - SALES ACROSS AGE GROUP 10% 18-24 26% 25-34 12% 35-39 16% 40-49 18% 50-59 18% 60+ FY2021 - LOCATION OF BUYER FROM THE DEVELOPMENTS 18% 12% 20% 17% 10% 3% 12% 3% 6% 2.5km or less 2.6-5km 6-10km 11-20km 21-30km 31-40km Regional WA Interstate Overseas 115178100230245309591305211138321184338547403430266235406264200486$0 $4 $6 $17 $17 $37 $86 $95 $329 $133 $198 $134 $334 $277 $304 $214 $296 010020030040050060070005010015020025030035040019961997199819992000200120022003200420052006200720082009201020112012201320142015201620172018201920202021Millions245054$143 $158 $94 $167 $140 $148 $110 $195 $45 117854501002302453095913052111383211843385474034302662354062642004860.00.10.50.60.71.60.60.50.91.51.11.20.70.61.10.70.51.3010020030040050060070000.20.40.60.811.21.41.61.81996199719981999200020012002200320042005200620072008200920102011201220132014201520162017201820192020202115240.80.80.40.90.10.10.3115241785450100230245309591305211138321184338547403430266235406264200486$330 $299 $232 $255 $319 $333 $365 $372 $389 $462 $519 $629 $678 $617 $730 $577 $611 $686 $706 $626 $598 $526 $559 $549 $610 0100200300400500600700 $- $100 $200 $300 $400 $500 $600 $700 $80019961997199819992000200120022003200420052006200720082009201020112012201320142015201620172018201920202021Thousands$557 2021 Finbar Group Annual Report2021 Finbar Group Annual Report15 Finbar Milestones 1 6 26 years on the ASX In our 26th year on the ASX, our shareholders benefit from a strong sales and settlement cashflow environment with an increase in dividend. Lists on ASX as Property Development Company operating out of a 2 bedroom Como apartment Commenced 1st Development Seville on the Point, South Perth $1m net profit milestone 1000 apartments milestone $10m net profit milestone $20m net profit milestone Secured first Pilbara project, Pelago West, Karratha 2014 $36.5m after tax profit Launched WA’s tallest residential building, Concerto. St. Mark’s awarded winner UDIA High Density Development and Urban Renewal Completed two projects; Aurelia and Aire West Perth consisting of 296 apartments, 64 serviced apartments and 22 commercial lots Commenced construction on four projects, Vue Tower, Reva, Palmyra East and Sabina consisting of 582 apartments and 26 commerecial lots 26th Year on the ASX Completed three projects; Sabina, Riverena and One Kennedy consisting of 415 apartments worth $223.5m completed Four projects; Norwood, Arbor North, Unison on Tenth and Linq consisting of 492 apartments and 10 ancillary commercial tenancies worth $249.3m completed 1995 1997 1998 2001 2005 2006 2008 2009 2010 2012 2014 2015 2016 2017 2018 2019 2020 2021 Completed 1st Development Seville on the Point, South Perth Maiden net profit $0.7m Relocated to first corporate office, Preston Street South Perth (4 staff) $100m market capitalisation Inclusion in All Ordinaries Index Completed The Westralian, first luxury project on Terrace Road, East Perth 2000 apartments milestone Commenced construction at AT238 and Civic Heart Completed two projects; Vue Tower and Reva consisting of 286 residential apartments and 23 commercial lots Completed Palmyra East consisting of 128 residential apartments Record launch at Aurelia, with $66m of sales in the 1st month Completed Finbar’s largest development to date, Subi Strand Spring View Towers awarded winner UDIA High Density Development 2015 Completed WA’s tallest residential apartment development to date, Concerto Completed over $3b worth of developments since 1995 5,000 apartment milestone Concerto awarded winner UDIA High Density Development 2017 Completed company’s first Pilbara project Fairlanes awarded winner UDA High Density Development Relocated to Fairlanes building, East Perth (13 staff) 3,000 apartment milestone 2012 26 years ago, with three staff operating out of a makeshift office and a vision to build better lifestyles, Finbar listed on the ASX. Today, we’re WA’s leading and most trusted residential apartment developer. 2021 Finbar Group Annual Report2021 Finbar Group Annual Report17 Our Finbar Finbar is one of Perth’s most successful and agile lifestyle property developers leading the way in the development of medium to high density residential apartments and commercial property in Western Australia. 1 8 At the heart of every Finbar development is a drive to develop better lifestyles. JOHN CHAN Executive Chairman 26 years DARREN PATEMAN Managing Director 26 years RONALD CHAN Executive Director 17 years KEE KONG LOH Non-Executive Director LEE VERIOS Non-Executive Director TERENCE PEH Non-Executive Director OUR PEOPLE A team of 19 staff in Finbar’s head office A team of 5 staff in Finbar to Rent A team of 3 staff in Finbar Sales Includes a management team with strong leadership skills and an excellent track record Are led by experienced and long serving management focusing on decisions that benefit the company for the long term OUR BUSINESS Retains a strong brand and a highly regarded reputation in WA Operates on a low cost base providing attractive profit margins and shareholder returns Maintains exemplary relationships with suppliers and stakeholders Manages a pipeline of projects to ensure economies of scale and future growth OUR COMMITMENT Our commitment to our customers, shareholders, State and local government and the environment has seen Finbar remain WA’s largest and most trusted apartment developer OUR PROJECTS Represent some of Perth’s most prestigious and well-appointed lifestyle apartments Remain committed to creating progressive and innovative designs which represent value for money Offer a successful fusion of residential, office and public space OUR INVESTMENT PROPERTIES Include the Fairlanes and Pelago buildings leased to reputable and proven businesses and individuals Provide consistent annual revenues from investments Ensure these additional revenue streams contribute to and smooth annual earnings OUR FUTURE Our vision is to remain WA’s leading medium to high density apartment developer Continue to focus development efforts in and around inner city Perth Sustain and enhance the quality of inner city living for current and future generations 2021 Finbar Group Annual Report2021 Finbar Group Annual Report 19 2 0 Completed Projects DIANELLA APARTMENTS 36 Chester Avenue, Dianella Project Company 36 Chester Avenue Pty Ltd Entity Type Fully Owned Subsidiary Finbar’s Ultimate Interest 100% Construction Commenced Aug-20 Construction Completed Sep-21 Total Lots 128 Approximate Total Project Sales Value Value of Sales to Date Lots Sold Lots Unsold $62.8m $32.1m 70 (55%) 58 (45%) A L L E N A D I Dianella Apartments is conveniently located to the amenity of Dianella Plaza and nearby high frequency public transport. Combined with resort facilities, the 128 residential apartments within a low-rise built form offer housing diversity within a local market devoid of housing choice. Construction has been completed and settlements have begun with the balance of unsold stock expected to meet the strong owner-occupier demand currently being experienced. 2021 Finbar Group Annual Report2021 Finbar Group Annual Report 21 2 2 Palmyra APARTMENTS EAST Lot 1001-1003 Rowe Avenue Pty Ltd Equity Accounted Investee RIVERENA 5 Rowe Avenue, Rivervale Project Company Entity Type Finbar’s Ultimate Interest 50% Marketing Commenced Feb-19 Construction Completed Nov-20 Total Lots 125 Approximate Total Project Sales Value Value of Sales to Date Lots Sold Lots Unsold $52.5m $46.6m 110 (88%) 15 (12%) A N E R E V I R Riverena is the second stage of the Arbor development in the Springs precinct, which comprises of 125 one, two, and three bedroom residential apartments. ONE KENNEDY 1 Kennedy Street, Maylands Project Company 241 Railway Parade Pty Ltd Entity Type Fully Owned Subsidiary Finbar’s Ultimate Interest 50% Marketing Commenced Oct-18 Construction Completed May-20 Total Lots 123 Approximate Total Project Sales Value Value of Sales to Date Lots Sold Lots Unsold $53.5m $46.5m 110 (89%) 13 (11%) Y D E N N E K E N O 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. SABINA APPLECROSS 908 Canning Highway, Applecross PALMYRA APARTMENTS EAST 49 McGregor Road, Palmyra Project Company Finbar Applecross Pty Ltd Project Company 43 McGregor Road Pty Ltd Entity Type Fully Owned Subsidiary Entity Type Fully Owned Subsidiary Finbar’s Ultimate Interest 50% Marketing Commenced Feb-18 Construction Completed Feb-20 Total Lots 167 Approximate Total Project Sales Value $117.5m Value of Sales to Date $113.2m Lots Sold Lots Unsold 163 (98%) 4 (2%) Finbar’s Ultimate Interest 50% Marketing Commenced Jan-18 Construction Completed Sept-19 Total Lots 128 Approximate Total Project Sales Value Value of Sales to Date Lots Sold Lots Unsold $49.9m $49.9m 128 (100%) 0 (0%) I A N B A S A R Y M L A P 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. Finalist in the Urban Development Industry Association Awards for Excellence for High Density in 2020 and received a judges’ commendation in the UDIA Awards for Excellence in 2021. Situated on the doorstep of the historic port city of Fremantle in the established suburb of Palmyra, Palmyra Apartments Estate East is the first stage of a transformative three-storey residential development. Achieving a strong response from first home buyers and downsizers, the project successfully responded to the growing owner-occupier demand for well-located, affordable and good amenity product. 2021 Finbar Group Annual Report2021 Finbar Group Annual Report 23 2 4 VUE TOWER 63 Adelaide Terrace, East Perth REVA 5 Harper Terrace, South Perth Project Company 63 Adelaide Terrace Pty Ltd Project Company 5-7 Harper Terrace Pty Ltd Entity Type Fully Owned Subsidiary Finbar’s Ultimate Interest 50% Marketing Commenced Feb-15 Construction Completed June-19 Total Lots 250 Approximate Total Project Sales Value $143.7m Value of Sales to Date $140.6m Lots Sold Lots Unsold 247 (99%) 3 (1%) R E W O T E U V Entity Type Fully Owned Subsidiary Finbar’s Ultimate Interest 100% Marketing Commenced Jul-17 Construction Completed Feb-19 Total Lots 59 Approximate Total Project Sales Value Value of Sales to Date Lots Sold Lots Unsold $47.4m $39.7m 50 (85%) 9 (15%) A V E R Vue Tower is located just 150 metres from Langley Park and 300 metres from the Perth foreshore. The apartments enjoy expansive views of the City, the Swan River, Heirisson Island, Optus Stadium and the Burswood Peninsula. The project consists of a 34 level building and podium, and comprises 245 residential apartments with ground floor commercial lots and office units on levels 1 & 2. Adjacent to Finbar’s highly successful Aurelia project in South Perth, Reva is situated fronting Harper Terrace and comprises of 41 luxury one, two, and three bedroom apartments with rooftop amenities, as well as 18 commercial lots that were developed within the Harper Terrace structure. A separate structure will also be developed on the secondary frontage of Mill Point Road. Projects Under Construction A r ti s t im p r e s s i o n 2021 Finbar Group Annual Report2021 Finbar Group Annual Report 25 2 6 CIVIC HEART 1 Mends Street, South Perth Project Company 1 Mends Street Pty Ltd Entity Type Fully Owned Subsidiary Finbar’s Ultimate Interest 52.5% Construction Commenced FY21 Estimated Completion Total Lots FY24 335 Approximate Total Project Sales Value $404.5m Value of Sales to Date $118.1m Lots Sold Lots Unsold 116 (35%) 219 (65%) T R A E H C I V I C This iconic site bounded by Mends Street, Labouchere Road and Mill Point Road offers luxurious apartments, world-class resort facilities, and a thriving ground floor commercial precinct anchored by the heritage South Perth Police Station and Post Office. Located in close proximity to the Swan River, Perth Zoo, and the Mends Street retail high street, Civic Heart is a transformational development that has achieved strong sales in a highly competitive localised market. AT238 238 Adelaide Terrace, Perth Project Company 240 Adelaide Terrace Pty Ltd Entity Type Fully Owned Subsidiary Finbar’s Ultimate Interest 50% Construction Commenced FY21 Estimated Completion Total Lots Approximate Total Project Sales Value Value of Sales to Date Lots Sold Lots Unsold FY23 121 $90.9m $21.6m 32 (26%) 89 (74%) 8 3 2 T A AT238 comprises 119 residential apartments and two ground floor commercial lots in a 34 storey tower and represents Finbar’s tenth development along Adelaide Terrace. Embracing expansive winter gardens, AT238 is positioned as an unique apartment product with a striking glazed façade and rooftop amenities that take full advantage of the expansive views. A r ti s t im p r e s s i o n s A r ti s t im p r e s s i o n s 2021 Finbar Group Annual Report2021 Finbar Group Annual Report 27 2 8 AURORA APPLECROSS 3 Kintail Road, Applecross THE POINT 31 Rowe Avenue, Rivervale Project Company Finbar Applecross Pty Ltd Project Company 31 Rowe Avenue Pty Ltd Entity Type Fully Owned Subsidiary Entity Type Fully Owned Subsidiary Finbar’s Ultimate Interest 50% Construction Commencement Estimated Completion Total Lots FY22 TBC 121 Approximate Total Project Sales Value $133.0m Value of Sales to Date $20.7m Lots Sold Lots Unsold 31 (25%) 90 (75%) Finbar’s Ultimate Interest 50% Construction Commencement Estimated Completion Total Lots Approximate Total Project Sales Value Value of Sales to Date Lots Sold Lots Unsold FY22 TBC 176 $97.1m $5.6m 9 (5%) 167 (95%) A R O R U A I T N O P E H T 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. 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. A r ti s t im p r e s s i o n A r ti s t im p r e s s i o n s Future Projects 2021 Finbar Group Annual Report2021 Finbar Group Annual Report 29 3 0 Palmyra APARTMENTS WEST PALMYRA APARTMENTS WEST 45 McGregor Road, Palmyra Project Company 43 McGregor Road Pty Ltd Entity Type Fully Owned Subsidiary Finbar’s Ultimate Interest 50% Estimated Completion Total Lots TBC 130 Approximate Total Project Sales Value $52m A R Y M L A P LOT 101 HAY STREET Finbar Sub 107 Pty Ltd CANNING HWY APPLECROSS STAGE 3 912 Canning Highway, Appl ecross 239 GREAT EASTERN HIGHWAY Project Company Finbar Sub 107 Pty Ltd Project Company Finbar Applecross Pty Ltd Project Company 239 Great Eastern Highway Pty Ltd Entity Type Fully Owned Subsidiary Entity Type Fully Owned Subsidiary Entity Type Fully Owned Subsidiary Finbar’s Ultimate Interest 50% Estimated Completion Total Lots TBC 331 Approximate Total Project Sales Value $200m Finbar’s Ultimate Interest 50% Estimated Completion Total Lots TBC 153 Approximate Total Project Sales Value $103m Finbar’s Ultimate Interest 100% Estimated Completion Total Lots Approximate Total Project Sales Value TBC TBC TBC The Palmyra second stage has received an amended DA to incorporate market feedback from stage one. Comprising 130 residential apartments, the introduction of lifts and re-alignment of apartment typologies within a low-rise structure, is designed to respond to first home buyer and downsizer drivers within the strong owner-occupier purchaser demographic. With an anticipated end value of $52 million. Positioned opposite the high amenity Queens Gardens in East Perth, the proposed development currently comprises 331 residential apartments and 1283sqm of commercial plot ratio across 13 ground floor tenancies within two towers of 37 and 26 storeys above a six level podium. The commercial component is anchored by the heritage Materials Science building located on the corner of Hay and Plain Streets. A DA has been lodged with the Metropolitan Redevelopment Authority and expected to be determined in the first half of FY22. A r ti s t im p r e s s i o n 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. The 239 Great Eastern Highway project has an approved DA for 194 one and two bedroom apartments and 154sqm of ground floor commercial. 2021 Finbar Group Annual Report2021 Finbar Group Annual Report 31 3 2 LOT 1000 32 Riversdale Road, Rivervale 2 HOMELEA COURT Cnr Rowe Avenue & Homelea Court, Rivervale LOT 888 2 Hawksburn Road, Rivervale FORMER ABC STUDIOS 187 Adelaide Terrace, East Perth Project Company 32 Riversdale Road Pty Ltd Project Company Entity Type Fully Owned Subsidiary 2 Homelea Court Springs Pty Ltd Project Company Rowe Avenue Pty Ltd Entity Type Equity Accounted Investee Project Company Finbar Sub 104 Pty Ltd Entity Type Fully Owned Subsidiary Finbar’s Ultimate Interest 50% Estimated Completion Total Lots TBC 143 Approximate Total Project Sales Value $80m Entity Type Fully Owned Subsidiary Finbar’s Ultimate Interest 100% Estimated Completion Total Lots TBC 185 Approximate Total Project Sales Value $83m Finbar’s Ultimate Interest 50% Estimated Completion Total Lots Approximate Total Project Sales Value TBC TBC TBC Finbar’s Ultimate Interest 100% Estimated Completion Total Lots Approximate Total Project Sales Value TBC TBC TBC A development application is being prepared for lodgement with the WAPC as part of the Part 17 Significant Development approvals pathway. Initial plans propose a 19 storey tower with over 140 residential apartments, leveraging the direct connection with the Swan River reserve, close proximity to the Burswood train station, adjacent extensive bicycle path network, and the excellent amenity surrounding the Optus Stadium. Acquired in 2016, the 3,770 square metres of land located on the corner of Rowe Avenue and Homelea Court, opposite Finbar’s Spring View Towers 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. 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. 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. 2021 Finbar Group Annual Report2021 Finbar Group Annual Report 33 3 4 PELAGO Sharpe Avenue, Karratha Total Lots Residential Lots Commercial Lots 122 100 22 FY22 Forecasted Rent $5.14m Lots Leased 113 (93%) Residential Lots Leased 97 (97%) Commercial Lots Leased 16 (73%) FAIRLANES 181 Adelaide Terrace, East Perth Total Sqm Office Sqm Retail Sqm 7582 7112 470 FY22 Forecasted Rent $1.96m Sqm Leased 7366 (97%) AURELIA 1 Harper Terrace, South Perth Total Sqm 929 Estimated sales value $6.5m Estimated income value $366,000 p.a. Total Sales value $129.8m Investment Property 2021 Finbar Group Annual Report2021 Finbar Group Annual Report35 3 6 Financial Report CONTENTS PAGE 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 37 54 55 56 57 58 94 95 100 101 2021 Finbar Group Annual Report2021 Finbar Group Annual ReportDIRECTORS’ REPORT For the Year Ended 30 June 2021 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 2021 and the independent auditor’s report thereon. CONTENTS OF DIRECTORS’ REPORT PAGE 1 Directors 2 Company Secretary 3 Directors’ Meetings 4 Corporate Governance Statement 4.1 Board of Directors 4.2 Remuneration Committee 4.3 Remuneration Report - Audited 4.3.1 Principles of Remuneration - Audited 4.3.2 Directors’ and Executive Officers’ Remuneration - Audited 4.3.3 Analysis of Bonuses included in Remuneration Report - Audited 4.3.4 Directors’ and Executives Interests 4.3.5 Equity Instruments - Audited 4.4 Audit Committee 4.5 Risk Management 4.6 Ethical Standards 4.7 Communication with Shareholders 4.8 Diversity 5 Principal Activities 6 Operating and Financial Review 7 Dividends 8 Events Subsequent to Reporting Date 9 Likely Developments 10 Directors’ Interests 11 Indemnification and Insurance of Officers and Auditors 12 Non-audit Services 13 Lead Auditor’s Independence Declaration 38 39 39 39 40 40 40 40 42 44 44 45 45 45 46 47 47 47 48 51 51 51 52 52 53 53 DIRECTORS’ REPORT For the Year Ended 30 June 2021 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 re-listing 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 26 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 17 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. 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 22 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. 37 3 8 2021 Finbar Group Annual Report2021 Finbar Group Annual Report DIRECTORS’ REPORT For the Year Ended 30 June 2021 1. Directors (continued) Non-executive (Independent) Director Lee VERIOS - LLB, MAICD Director since 6 December 2011 DIRECTORS’ REPORT For the Year Ended 30 June 2021 4. Corporate Governance Statement (continued) 4.1 Board of Directors Role of the Board 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. 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. In addition to his legal practice, Lee is an experienced company director, having held positions in a variety of public and private enterprises. Composition of the Board 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 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 John CHAN Darren John PATEMAN Ronald CHAN Kee Kong LOH Lee VERIOS Terence Siong Woon PEH 4 4 4 4 4 4 4 4 4 4 4 4 1 1 1 1 1 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 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. 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 39). 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. 4.3 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. 39 4 0 2021 Finbar Group Annual Report2021 Finbar Group Annual Report 4. Corporate Governance Statement (continued) 4.3 Remuneration Report - Audited (continued) 4.3.1 Principles of Remuneration (continued) 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. 4. Corporate Governance Statement (continued) 4.3 Remuneration Report - Audited (continued) 4.3.1 Principles of Remuneration (continued) 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 $8,863,000 $7,068,000 $11,372,000 $13,760,000 $5,059,000 2021 2020 2019 2018 2017 Profit before tax Dividends paid Change in share price Return on capital employed Return on total equity $12,043,000 $10,488,000 $15,947,000 $18,786,000 $10,369,000 $8,163,000 $13,606,000 $16,302,000 $13,874,000 $16,219,000 $0.15 3.82% 3.65% -$0.14 4.47% 2.92% -$0.10 5.58% 4.58% $0.14 6.24% 5.46% -$0.03 4.76% 2.34% 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. Performance Linked Remuneration 4.3.2 Directors’ and Executive Officers’ 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 2021, 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 2021 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 2021 has taken place in accordance with this process. 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. 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 $ Superannuation $ Other Long Term $ Total $ - 527,692 132,272 - 659,964 25,000 8,869 693,833 - 663,948 132,272 47,134 843,354 21,614 11,032 876,000 - 368,298 66,136 - 434,434 21,614 6,069 462,117 71,710 61,535 65,490 - - - - - - - - - 71,710 61,535 65,490 - - 6,220 - - - 71,710 61,535 71,710 For the year ended 30 June 2021 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* - 290,381 66,136 - 356,517 21,694 4,707 382,918 198,735 1,850,319 396,816 47,134 2,493,004 96,142 30,677 2,619,823 41 4 2 DIRECTORS’ REPORT (Continued)For the Year Ended 30 June 2021DIRECTORS’ REPORT (Continued)For the Year Ended 30 June 20212021 Finbar Group Annual Report2021 Finbar Group Annual Report 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 4. Corporate Governance Statement (continued) 4.3 Remuneration Report - Audited (continued) 4.3.2 Directors’ and Executive Officers’ Remuneration (continued) 4. Corporate Governance Statement (continued) 4.3 Remuneration Report - Audited (continued) 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. Short-Term Post - Employment Directors Fees and Committee Fees $ Salary $ STI Cash Bonus (A) $ Non Monetary Benefits $ Total $ Superannuation $ Other Long Term $ Total $ - 532,130 134,694 - 666,824 26,817 (72,997) 620,644 Mr John Chan Executive Directors - 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 Mr Darren John Pateman Mr Ronald Chan Executives Mr Edward Guy Bank Short Term Incentive Bonus Included in Remuneration $ % vested in year % 132,272 132,272 66,136 66,136 396,816 100% 100% 100% 100% 100% 76,105 65,930 69,661 - - - - - - - - - 76,105 65,930 69,661 - - 6,444 - - - 76,105 65,930 76,105 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 41). No discretionary bonus was paid to the Executives in the 2021 financial year (2020: NIL). Any discretionary amounts of executive bonuses relating to 2021 financial year are yet to be determined, and therefore may impact future financial years. Mr Edward Guy Bank, CFO* - 290,901 67,347 - 358,248 21,173 4,695 384,116 4.3.4 Directors’ and Executives Interests 211,696 1,865,194 404,082 90,556 2,571,528 96,780 (34,228) 2,634,080 Movement in Shares * Excludes total accrued annual leave balance of $186,000 (2020: $161,000). 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 41. Details of the Group’s policy in relation to the remuneration that is performance related is discussed on Page 41. 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 was repaid in August 2020. The related benefit is disclosed in table 4.3.2 on page 42. 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 was repaid in August 2021. The related benefit is disclosed in table 4.3.2 on page 42. 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 42. 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: Held at 1 July 2020 Purchases Sales Held at 30 June 2021 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 Mr Terence Siong Woon Peh*** Mr Lee Verios Executives Mr Edward Guy Bank 27,031,551 3,609,493 15,481,061 2,000,904 55,837,175 72,393 286,714 23,000 1,610,037 - - - 300,000 - Held at 1 July 2019 Purchases Sales 26,617,520 3,609,493 5,074,074 2,000,904 55,837,175 72,393 414,031 - 10,406,987 - - - 300,000 - - - - - - - - - - - - - - - 27,318,265 3,632,493 17,091,098 2,000,904 55,837,175 72,393 300,000 Held at 30 June 2020 27,031,551 3,609,493 15,481,061 2,000,904 55,837,175 72,393 300,000 * 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. 43 4 4 DIRECTORS’ REPORT (Continued)For the Year Ended 30 June 2021DIRECTORS’ REPORT (Continued)For the Year Ended 30 June 20212021 Finbar Group Annual Report2021 Finbar Group Annual Report 4. Corporate Governance Statement (continued) 4.3 Remuneration Report - Audited (continued) 4.3.5 Equity Instruments 4. Corporate Governance Statement (continued) 4.5 Risk Management (continued) Financial Reporting (continued) 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 2021, there were no options on issue. A review is undertaken at each half year end of all related party transactions. 4.4 Audit Committee Environmental Regulation 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 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. 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 page 46.). 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. 4.6 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. 45 4 6 DIRECTORS’ REPORT (Continued)For the Year Ended 30 June 2021DIRECTORS’ REPORT (Continued)For the Year Ended 30 June 20212021 Finbar Group Annual Report2021 Finbar Group Annual Report 4. Corporate Governance Statement (continued) 4.6 Ethical Standards (continued) 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 6. Operating and Financial Review Operating Results Total comprehensive income attributable to Owners of the Group 2021 2020 $8,863,000 $7,068,000 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 2021 2020 2019 2018 2017 $8,863,000 $7,068,000 $11,372,000 $13,760,000 $5,062,000 $0.03 $0.03 $0.02 $0.02 $0.04 $0.04 $0.06 $0.06 $0.02 $0.02 $8,163,000 $13,606,000 $16,302,000 $13,874,000 $16,219,000 $0.03 $0.85 $0.15 3.82% 3.65% $0.05 $0.70 -$0.14 4.47% $0.06 $0.84 -$0.10 5.58% 2.92% 4.58% $0.06 $0.94 $0.14 6.24% 5.46% $0.07 $0.80 -$0.03 4.76% 2.34% 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. Dividends for 2021 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 2021 financial year were the completion of Riverena, sales and settlements of completed stock held at 30 June 2020 as well as the ongoing rental of the Company’s commercial properties. See below for further information on the Company’s project completions. A copy of the Group’s Market Disclosure Policy is available on Finbar’s website www.finbar.com.au. Review of Operations 4.8 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 2021 Female - - 50% 55% Male 100% 100% 50% 45% 2020 Female - - 50% 53% Male 100% 100% 50% 47% 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. 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 and construction activities to external parties. The administration of the companies along with the operating, investment, and acquisitions decisions are made by Finbar’s Board and Management. The Company employs 27 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. 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 2020 remains as 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. 47 4 8 DIRECTORS’ REPORT (Continued)For the Year Ended 30 June 2021DIRECTORS’ REPORT (Continued)For the Year Ended 30 June 20212021 Finbar Group Annual Report2021 Finbar Group Annual Report 6. Operating and Financial Review (continued) 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 construction commencement of Civic Heart in South Perth and AT238 in East Perth as well as the imminent completion of the project at Daniella 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 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. Completed Projects Motive - 172 Railway Parade, West Leederville: 16 units have settled in the reporting period. The 143 unit development is now fully sold and settled. Concerto - 193 Adelaide Terrace, East Perth: 11 units settled in the reporting period. The 227 unit development is now fully sold and settled. Aire West Perth - 647-659 Murray Street, West Perth: 2 units have settled in the reporting period. The 244 unit development is now fully sold. Reva - 5 Harper Terrace, South Perth: 3 units have settled in the reporting period. 9 commercial units remain for sale in the 59 unit development. Vue Tower - 63 Adelaide Terrace, East Perth: 12 units have settled in the reporting period. 4 units remain for sale in the 250 unit development. Palmyra East Apartments - 43 McGregor Road, Palmyra: 51 units have settled in the reporting period. The 128 unit development is now fully sold. Sabina - 908 Canning Highway, Applecross: 53 units have settled in the reporting period. 9 residential units and 3 commercials units remain for sale in the development of 164 residential apartments and 3 commercial units. One Kennedy - 241 Railway Parade, Maylands: 33 units have settled in the reporting period. 18 units remain for sale in the development of 120 residential apartments and 3 commercial units. Riverena - Lot 1001-1003 Rowe Avenue, Rivervale: 91 units have settled in the reporting period. 16 units remain for sale in the development of 125 residential apartments. Currently Under Construction Dianella Apartments - 36 Chester Avenue, Dianella: Construction works continues to progress well, with completion expected in September 2021. To date 65 sales have been achieved in the development of 128 residential apartments. Civic Heart - 1 Mends Street, South Perth: Construction works continues to progress well, with completion expected during financial year ending 30 June 2024. To date 110 sales have been achieved in the development of 309 residential apartments and 26 commercial units. AT238 - 240 Adelaide Terrace, Perth: Construction works commenced in March 2021. To date 29 residential sales and 1 commercial sale have been achieved in the development of 119 residential apartments and 2 commercial units. 6. Operating and Financial Review (continued) Future Projects 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 30 residential sales have been achieved in the development of 118 residential apartments and 3 commercial units. The Point - 31 Rowe Avenue, Rivervale: Marketing of The Point is currently underway and construction is anticipated to commence in financial year ending 30 June 2022. To date 2 residential sales and 1 commercial sale have been achieved in the development of 167 residential units and 9 commercial units. 912 Canning Highway, Applecross (Stage 3): Development Approval has been received for 148 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 development is currently in redesign to a new low rise scheme. Springs Commercial - 2 Hawksburn Road, Rivervale: The company has not secured a lease to date which would underpin the viability of the development of a commercial building on this land. The company will continue to seek a leasing pre-commitment. 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. Lot 101 Hay Street, East Perth: A development application has been lodged comprising 332 residential units and 13 commercial units. Investment Property Fairlanes - 175 Adelaide Terrace, East Perth: The Fairlanes property has been revalued during the reporting period. The valuation resulted in $131,502 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 93% 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 $467,800 increase in value of the property. The company continues to benefit from the investment income generated from the leased property. The property is currently 61% 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 $1,010,000 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 99% leased. The company continues to actively market tenancies for rental as they become available. Vue Tower Commercial - 63 Adelaide Terrace, East Perth: Lot 4 at Vue Tower - Finbar Commercial Pty Ltd continues to be 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 were revalued during the period. The valuation resulted in $75,000 decrease to the value of the property. 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. 49 5 0 DIRECTORS’ REPORT (Continued)For the Year Ended 30 June 2021DIRECTORS’ REPORT (Continued)For the Year Ended 30 June 20212021 Finbar Group Annual Report2021 Finbar Group Annual Report7. Dividends 10. Directors’ Interests Dividends paid or declared by the Company to members since the end of the previous financial year were: Dividends Paid During the Year 2021 Final 2020 ordinary Interim 2021 ordinary Total Dividends Paid Cents per Share 1.00 2.00 8,163 Total Amount $’000 Franked / Unfranked Date of Payment 2,721 Franked 21 September 2020 5,442 Franked 19 March 2021 Mr Darren John Pateman Director Mr John Chan 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. Mr Ronald Chan Mr Kee Kong Loh Mr Terence Siong Woon Peh Mr Lee Verios 11. Indemnification and Insurance of Officers and Auditors 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: Ordinary Shares 27,318,265 3,632,493 17,091,098 2,000,904 55,837,175 72,393 Final 2021 ordinary Total Dividend Proposed 2.00 5,442 Franked 10 September 2021 Indemnification 5,442 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. The financial effect of this dividend has not been brought to account in the financial statements for the year ended 30 June 2021 and will be recognised in subsequent financial reports. Insurance Premiums During the financial year the Company has paid insurance premiums of $55,000 (2020: $38,000) 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. Dealt with in the financial report as - Dividends Dividend Reinvestment Plan Note 19 $’000 8,163 In accordance with Rule 13 of the Company’s Dividend Reinvestment Plan (DRP), the Directors have elected to suspend the DRP in the 2021 financial year until further notice. As such the DRP will not be active for the above mentioned dividend. 8. Events Subsequent to Reporting Date 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. 51 5 2 DIRECTORS’ REPORT (Continued)For the Year Ended 30 June 2021DIRECTORS’ REPORT (Continued)For the Year Ended 30 June 20212021 Finbar Group Annual Report2021 Finbar Group Annual Report CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME For the Year Ended 30 June 2021 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: Consolidated 2021 $ 2020 $ Audit Services: Auditors of the Company Audit and review of the financial reports Services Other Than Statutory Audit: Taxation compliance services 129,115 129,115 16,560 16,560 126,697 126,697 20,286 20,286 Finance income Finance costs Net Finance Income 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 Gain on disposal of investment properties Results from Operating Activities 13. Lead Auditor’s Independence Declaration The Lead Auditor’s Independence Declaration is set out on Page 100 and forms part of the Directors’ Report for the financial year ended 30 June 2021. Signed in accordance with a resolution of the Board of Directors: Darren Pateman Managing Director Dated at Perth this Twenty-fourth day of August 2021. Share of profit/(loss) 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 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) Note Consolidated 2021 $’000 2020 $’000 7 8 10 10 14 11 11 20 20 101,965 154,307 (81,664) (132,076) 20,301 22,231 1,429 (7,796) (1,054) 1,534 196 278 (7,159) (7,779) 6,203 627 (4,439) (4,525) 129 - 10,300 9,876 858 (52) 806 937 12,043 (3,196) 8,847 23 (7) 16 8,863 970 (332) 638 (26) 10,488 (3,864) 6,624 635 (191) 444 7,068 3.25 3.25 2.43 2.43 53 5 4 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 58 to 93. DIRECTORS’ REPORT (Continued)For the Year Ended 30 June 20212021 Finbar Group Annual Report2021 Finbar Group Annual ReportCONSOLIDATED STATEMENT OF CHANGES IN EQUITY For the Year Ended 30 June 2021 CONSOLIDATED STATEMENT OF FINANCIAL POSITION For the Year Ended 30 June 2021 Balance as at 1 July 2019 Total comprehensive income for the year Profit Other comprehensive income Transactions with owners, recognised directly in equity Note Share Capital $’000 Retained Earnings $’000 Asset Revaluation Reserve $’000 Total Equity $’000 194,484 53,995 - - 6,624 - - - 444 248,479 6,624 444 Dividends to shareholders 19 - (13,606) - (13,606) Balance as at 30 June 2020 194,484 47,013 444 241,941 Balance as at 1 July 2020 Total comprehensive income for the year Profit Other comprehensive income Transactions with owners, recognised directly in equity 194,484 47,013 444 241,941 - - 8,847 - - 16 8,847 16 Dividends to shareholders 19 - (8,163) - (8,163) Balance as at 30 June 2021 194,484 47,697 460 242,641 Amounts are stated net of tax ASSETS Current Assets Cash and cash equivalents Trade and other receivables Inventories Investments in Equity Accounted Investees Other assets Total Current Assets Non Current Assets Trade and other receivables Inventories Investment property Prepayments Investments in Equity Accounted Investees Property, plant and equipment Deferred tax assets Other assets Total Non Current Assets Total Assets LIABILITIES 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 Note 2021 $’000 2020 $’000 18a 17 16 14 17 16 12 14 13 15 23 21 15 22 23 21 15 22 19 19 52,599 8,085 57,736 139 65 30,591 10,341 58,803 746 55 118,624 100,536 26,024 82,105 97,925 434 2,235 9,218 6,719 154 26,911 95,798 97,331 - 1,368 9,396 6,313 149 224,814 237,266 343,438 337,802 22,240 2,228 1,454 567 24,284 55,504 1,116 490 26,489 81,394 37 69,254 4,957 60 1,766 8,478 4,179 44 74,308 14,467 100,797 95,861 242,641 241,941 194,484 194,484 47,697 47,013 460 444 242,641 241,941 The Consolidated Statement of Changes in Equity is to be read in conjunction with the Notes to the Financial Statements set out on Pages 58 to 93. The Consolidated Statement of Financial Position is to be read in conjunction with the Notes to the Financial Statements set out on Pages 58 to 93. 55 5 6 2021 Finbar Group Annual Report2021 Finbar Group Annual ReportCash Flows from Operating Activities Cash receipts from customers Cash paid to suppliers and employees Cash generated from Operating Activities Interest paid Income tax paid Net Cash generated from Operating Activities Cash Flows from Investing Activities Proceeds from sales of investment properties 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 Net Cash provided by/(used in) Investing Activities Cash Flows from Financing Activities Proceeds from borrowings Repayment of borrowings Dividends paid Net Cash used in Financing Activities Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at 1 July Cash and Cash Equivalents at 30 June Consolidated Note 2021 $’000 2020 $’000 169,139 265,611 (150,909) (235,864) 18,230 29,747 (71) (2,492) 15,667 (1,231) (4,643) 23,873 725 1,762 676 (70) - - - 200 2,401 (91) 325 (4,142) (7,985) (10,515) 12,595 7,703 2,779 (9,043) 40,193 64,264 (33,392) (8,163) (1,362) (80,387) (13,606) (29,729) 22,008 30,591 52,599 (14,899) 45,490 30,591 18b 13 13 21 21 19 18a NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the Year Ended 30 June 2021 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 60 60 61 67 68 70 73 73 73 73 74 75 76 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 81 81 82 84 85 86 86 87 89 26. Capital and Other Commitments 89 27. Contingencies 28. Related Parties 29. Group Entities 90 90 92 93 93 93 14. Investments in Equity Accounted Investees 78 30. Subsequent Events 15. Tax Assets and Liabilities 16. Inventories 80 81 31. Auditor’s Remuneration 32. Parent Entity Disclosures The Consolidated Statement of Cash Flows is to be read in conjunction with the Notes to the Financial Statements set out on Pages 58 to 93. 57 5 8 CONSOLIDATED STATEMENT OF CASH FLOWSFor the Year Ended 30 June 20212021 Finbar Group Annual Report2021 Finbar Group Annual ReportIndex to Significant Accounting Policies (Note 3) 1.Reporting Entity 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 61 62 62 63 64 64 65 65 65 66 66 67 67 67 67 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 2021 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. Basis of Preparation (a) 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 24th August 2021. (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 2021 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. Valuations are reported to the Audit Committee at each reporting date. 59 6 0 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)For the Year Ended 30 June 2021NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)For the Year Ended 30 June 20212021 Finbar Group Annual Report2021 Finbar Group Annual Report 2. Basis of Preparation (continued) (d) Use of Estimates and Judgements (continued) (ii) Measurement of fair values (continued) 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. (e) Changes in Accounting Policies The Group’s accounting policies are consistent with those disclosed in the financial statements for the year ended 30 June 2020. 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) Basis of Consolidation (i) 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. 3. Significant Accounting Policies (continued) (b) Financial Instruments (i) 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) Property, Plant and Equipment (i) 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. 61 6 2 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)For the Year Ended 30 June 2021NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)For the Year Ended 30 June 20212021 Finbar Group Annual Report2021 Finbar Group Annual Report 3. Significant Accounting Policies (continued) (c) Property, Plant and Equipment (continued) (i) Recognition and Measurement (continued) 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. (ii) 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. 3. Significant Accounting Policies (continued) (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. 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) Impairment (i) 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. 63 6 4 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)For the Year Ended 30 June 2021NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)For the Year Ended 30 June 20212021 Finbar Group Annual Report2021 Finbar Group Annual Report 3. Significant Accounting Policies (continued) (g) Employee Benefits (i) Superannuation Contributions 3. Significant Accounting Policies (continued) (i) Revenue (continued) (i) Property Sales (continued) 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. 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) Termination Benefits (iii) Management Fee 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. 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. (j) 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. 65 6 6 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)For the Year Ended 30 June 2021NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)For the Year Ended 30 June 20212021 Finbar Group Annual Report2021 Finbar Group Annual Report 3. Significant Accounting Policies (continued) (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. 4. Determination of Fair Values (continued) (a) Investment Property and Property carried at fair value (continued) 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. 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. (b) Trade and Other Receivables (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. 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). Segment capital expenditure is the total cost incurred during the period to acquire property, plant and equipment, and intangible assets other than goodwill. 5. Financial Risk Management (o) New Standards and Interpretations Overview A number of new standards are effective for annual periods beginning after 1 July 2021 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. The Group has exposure to the following risks from their use of financial instruments: • credit risk • liquidity risk • market risk 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. 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. 67 6 8 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)For the Year Ended 30 June 2021NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)For the Year Ended 30 June 20212021 Finbar Group Annual Report2021 Finbar Group Annual Report 5. Financial Risk Management (continued) 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 4.80% (2020: 2.31%) 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. 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 2021 the return was 3.51% (2020: 3.39%). In comparison the weighted average interest expense on interest-bearing borrowings (excluding liabilities with imputed interest) was 0.43% (2020: 1.74%). 5. Financial Risk Management (continued) Capital Management (continued) 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 2021 $’000 2020 $’000 21 62,135 42,854 231,305 190,486 293,440 233,340 21% 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 2021 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. 69 7 0 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)For the Year Ended 30 June 2021NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)For the Year Ended 30 June 20212021 Finbar Group Annual Report2021 Finbar Group Annual Report 6. Operating Segments (continued) 6. Operating Segments (continued) Information about Reportable Segments For the Year ended 30 June 2021 Residential Apartment Development $’000 Commercial Office/Retail Development $’000 Rental of Property $’000 Corporate $’000 Total $’000 Reconciliation of Reportable Segment Revenues, Profit or Loss, Assets and Liabilities Revenues External Revenues - Company and Subsidiaries External Revenues - Equity Accounted Investees External Revenues - Total 90,961 17,618 108,579 2,328 7,871 2,234 103,394 Total revenue for development reportable segments - - - 17,618 Total revenue for rental segments 2,328 7,871 2,234 121,012 Total revenue for other reportable segments Reportable Segment Profit before Income Tax - Company and Subsidiaries Reportable Segment Profit before Income Tax - Equity Accounted Investees 8,205 (436) 2,967 5,501 16,237 Total revenue for development reportable segments - Equity Accounted Investees 1,366 - - (28) 1,338 Total revenue for rental segments - Equity Accounted Investees Total Reportable Segments Revenue Consolidated Revenue Reportable Segment Profit before Income Tax - Total 9,571 (436) 2,967 5,473 17,575 Reportable Segment Assets - Company and Subsidiaries 132,813 16,473 98,868 25,017 273,171 Reportable Segment Assets - Equity Accounted Investees Reportable Segment Liabilities - Company and Subsidiaries Reportable Segment Liabilities - Equity Accounted Investees* Capital Expenditure 22,673 49,449 18,523 - 2,044 - - 241 43,355 1,341 53 - - - 1 27 24,717 94,386 18,577 27 For the Year ended 30 June 2020 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 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 Gain on disposal of investment properties Income tax applicable to share of profit of Equity Accounted Investees Consolidated Profit before Income Tax 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 Assets Total assets for reportable segments (24) 4 10 (27) (37) Cash and cash equivalents 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 1,959 44 - - 36,108 - - - 846 1 87 20,028 90,566 11,240 87 Investments in Equity Accounted Investees Other assets** Consolidated Total Assets Liabilities Total liabilities for reportable segments Other liabilities Consolidated Total Liabilities 2021 $’000 2020 $’000 93,289 147,089 7,871 2,234 7,127 369 103,394 154,585 17,618 4,171 - 16 121,012 158,772 17,575 10,168 858 (52) 970 (332) (7,796) (7,159) 1,534 196 129 (401) 6,203 627 - 11 12,043 10,488 273,171 285,207 52,599 30,591 2,374 2,113 15,294 19,890 343,438 337,801 94,386 90,566 6,411 5,295 100,797 95,861 * Excludes Liabilities payable to Finbar Group. ** Includes receivables due to Finbar Group Limited from Equity Accounted Investees. 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. Geographical information The Group operates predominantly in the one geographical segment of Western Australia. 71 7 2 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)For the Year Ended 30 June 2021NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)For the Year Ended 30 June 20212021 Finbar Group Annual Report2021 Finbar Group Annual Report 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 Increase/(decrease) in liability for long service leave Directors and committee fees Non Executive Directors - superannuation contributions Total Personnel Expenses Personnel expenses are included in administrative expenses on the Consolidated Statement of Profit or Loss and Other Comprehensive Income for the year ended 30 June 2021. 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 2021 $’000 2020 $’000 93,289 145,410 7,871 7,127 805 - 91 1,679 101,965 154,307 X X 52 850 527 1,429 X X 4,781 322 36 57 199 6 60 217 1 278 4,029 260 26 (10) 212 6 5,401 4,523 11. Income Tax Expense Recognised in Income Statement Current Tax Expense Current year Income tax recognised directly to equity (Reversal)/write off 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 Total Income Tax Expense excluding share of Income Tax on Equity Accounted Investees 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% (2020: 30%) Increase in income tax expense due to: Non-deductible expenses Non-recoverable amounts (Reversal)/write off of previously recognised tax assets (Decrease)/increase in income tax expense due to: Tax effect of share of equity accounted investees (profit)/loss X X Total Income Tax Expense 532 291 15 20 858 45 7 52 806 319 482 109 60 970 326 6 332 638 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 2021 $’000 2020 $’000 2,962 1,801 58 (140) 2 58 281 426 2,882 2,566 314 314 3,196 7 3,203 1,298 1,298 3,864 191 4,055 8,847 3,196 6,624 3,864 12,043 10,488 3,613 3,147 2 2 (140) 2 426 281 (281) 3,196 8 3,864 3,196 7 3,203 3,864 191 4,055 (58) (58) (58) (58) 73 7 4 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)For the Year Ended 30 June 2021NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)For the Year Ended 30 June 20212021 Finbar Group Annual Report2021 Finbar Group Annual Report12. Investment Property 12a Reconciliation of Carrying Amount Balance at 1 July Sale of Investment Property Acquisition of Investment Property Change in fair value Balance at 30 June 2021 $’000 2020 $’000 12. Investment Property (continued) 12b Measurement of fair values (continued) (iii) Valuation technique and significant unobservable inputs (continued) 97,331 85,307 (940) - 1,534 - 5,821 6,203 97,925 97,331 Investment property comprises commercial properties at five developments and residential properties at two developments which are leased to third parties (see Note 25). The increase in the revaluation was as a result of an 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 2020 on existing properties, Pelago in Karratha and Fairlanes in East Perth and in June 2021 for Aurelia in South Perth. At June reporting period the Directors confirm that there is no change to the valuations undertaken in December 2020. 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 $97,925,000 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%; The estimated fair value would increase (decrease) if: Weighted average 2.86%; Void periods (average 7.8 months after the end of each lease); Occupancy rate 84%; Risk-adjusted discounted rates (weighted average 7.75%). 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). 75 Valuation Technique Significant unobservable inputs 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 - $650 per sqm; Occupancy rate 61% - 99%; and Rent free period 28.5 months Inter-relationship between key unobservable inputs and fair value measurement 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). 13. Property, Plant and Equipment Cost or Valuation Balance at 1 July 2019 Additions Change in fair value Disposals Balance at 30 June 2020 Balance at 1 July 2020 Additions Change in fair value Disposals Balance at 30 June 2021 Depreciation Balance at 1 July 2019 Disposals Revaluation Depreciation and amortisation charge for the year Balance at 30 June 2020 Balance at 1 July 2020 Disposals Revaluation Depreciation and amortisation charge for the year Balance at 30 June 2021 Office Furniture and Equipment $’000 Plant and Equipment $’000 Fixtures and Fittings $’000 Property $’000 Total $’000 6,150 - 1,091 - 7,241 7,241 - 47 - 816 87 - - 10,090 91 17,147 - - (2,407) - - - 87 1,091 (2,407) 903 7,683 91 15,918 903 70 - - 7,683 91 15,918 - - - - - - 70 47 - 7,288 973 7,683 91 16,035 - - (171) 171 - - - (172) 172 - 598 6,848 72 7,518 - - 107 705 (1,762) - 655 5,741 - - 4 76 (1,762) (171) 937 6,522 705 5,741 76 6,522 - - 61 766 - - 231 5,972 - - 3 79 - (172) 467 6,817 7 6 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)For the Year Ended 30 June 2021NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)For the Year Ended 30 June 20212021 Finbar Group Annual Report2021 Finbar Group Annual Report 13. Property, Plant and Equipment (continued) Carrying Amounts At 1 July 2019 At 30 June 2020 At 1 July 2020 At 30 June 2021 Office Furniture and Equipment $’000 Plant and Equipment $’000 Fixtures and Fittings $’000 Property $’000 Total $’000 6,150 7,241 7,241 7,288 218 198 198 207 3,242 1,942 1,942 1,711 19 15 15 12 9,629 9,396 9,396 9,218 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 2021 Measurement of fair values (i) Fair Value Hierarchy Property $’000 6,871 (1,575) 5,296 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 2020 on existing properties, Pelago in Karratha and Fairlanes in East Perth. At June reporting period the Directors confirm that there is no change to the valuations undertaken in December 2020. 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 $7,288,000 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. 13. Property, Plant and Equipment (continued) Measurement of fair values (continued) (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. 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. Expected market rental growth 0.00% - 5.00%; The estimated fair value would increase (decrease) if: Weighted average 2.86%; Void periods (average 7.8 months after the end of each lease); Expected market rental growth were higher (lower); Void periods were shorter (longer); Occupancy rate 84%; Occupancy rate were higher (lower); Risk-adjusted discounted rates (weighted average 7.75%). Rent-free periods were shorter (longer); or Adopted capitalisation rate 7.25% - 10.00%; Gross rent per annum $450 - $650 per sqm; Occupancy rate 61% - 99%; and Rent free period 28.5 months Risk-adjusted discount rate were lower (higher). 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). 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): Balance at 1 July Revaluation increase included in ‘profit or loss’ Revaluation increase included in ‘other comprehensive income’ Depreciation Balance at 30 June 77 2021 $’000 2020 $’000 7,241 6,150 196 23 (172) 7,288 627 635 (171) 7,241 Equity Accounted Investees Assets 2020 240 Adelaide Terrace 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 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 7 8 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)For the Year Ended 30 June 2021NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)For the Year Ended 30 June 20212021 Finbar Group Annual Report2021 Finbar Group Annual Report 14.Investments in Equity Accounted Investees (continued) 14.Investments in Equity Accounted Investees (continued) Equity Accounted Investees Liabilities 2020 240 Adelaide Terrace 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 2021 Finbar Sub 107 Pty Ltd* 240 Adelaide Terrace 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 2021 Finbar Sub 107 Pty Ltd* 240 Adelaide Terrace 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 79 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 19 1 4 7,243 160 1 4 1,654 28,033 29,687 17 1 522 - 539 1 1,830 35,805 37,635 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% 50.00% 350 563 155 - - 5,515 1 - 17,495 17,099 - - 1 6,426 4,169 - 17,845 17,662 155 - 1 11,941 4,170 - 6,584 45,190 51,774 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% 50.00% 12 2,294 17,836 15,790 17,848 18,084 (5) - - - 2 5 (5) 2 5 355 10,127 10,482 - - 611 - 611 - 2,656 44,371 47,027 Profit/(Loss) Before Income Tax Recognised from Equity Accounted Investees 2020 Ownership 240 Adelaide Terrace 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% Profit/(Loss) Before Income Tax Recognised from Equity Accounted Investees 2021 Ownership Finbar Sub 107 Pty Ltd* 240 Adelaide Terrace 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% 50.00% 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 Revenues $’000 Expenses $’000 Profit/ (Loss) before income tax $’000 - - 681 - 3 602 652 1 (3) (602) 29 (1) 34,568 31,307 3,261 - - 7 - (7) - 35,249 32,572 2,677 * Finbar Sub 107 Pty Ltd was a fully owned subsidiary as at 30 June 2020. Refer to Note 29. In October 2020, the Group entered into a joint venture with Ventrade Australia Pty Ltd to acquire Lot 101 Hay Street, East Perth. 15.Tax Assets and Liabilities The current tax liability for the Group of $1,454,000 (2020: $1,116,000) 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 Assets Liabilities 2021 $’000 2020 $’000 2021 $’000 2020 $’000 (1,131) (1,164) (9,347) (9,902) 31 1,654 2,008 6,217 8,779 30 2,065 859 7,248 9,038 (2,060) (2,725) - (481) 2,811 - (7,017) 2,060 6,719 6,313 (4,957) - (504) 3,502 - (6,904) 2,725 (4,179) 8 0 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)For the Year Ended 30 June 2021NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)For the Year Ended 30 June 20212021 Finbar Group Annual Report2021 Finbar Group Annual Report 16. Inventories Current Work in progress Completed stock Total Current Inventories Non Current Work in progress Completed stock Total Non Current Inventories 2021 $’000 2020 $’000 18 Cash and Cash Equivalents (continued) 18b Reconciliation of Cash Flows from Operating Activities 24,000 33,736 57,736 - 58,803 58,803 78,246 3,859 82,105 50,651 45,147 95,798 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 Gain on sale of investment property Net financing income 17.Trade and Other Receivables x x Current Trade receivables Other receivables 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 Amounts receivable from equity accounted investees bear interest at BBSY plus agreed margin. 7,458 627 9,632 709 8,085 10,341 7,105 10,344 8,575 26,024 5,382 7,952 13,577 26,911 Share of net (loss)/profit 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 Operating Activities Interest paid Income taxes paid The Group’s exposure to credit risk and impairment losses to trade and other receivables are disclosed at Note 24. Net Cash generated from Operating Activities Note 2021 $’000 2020 $’000 13 11 16 22 8,847 6,624 467 3 937 320 (1,534) (6,203) (196) (627) - (1,679) (129) (729) (937) 3,196 8,988 (1,433) - (560) 26 3,864 2,702 6,945 14,760 38,132 (434) 93 55 17 (3,744) (18,104) 18,230 29,747 (71) (2,492) (1,231) (4,643) 15,667 23,873 18.Cash and Cash Equivalents 18a Cash and Cash Equivalents Bank balances Cash and Cash Equivalents in the Statement of Cash Flows 2021 $’000 2020 $’000 52,599 52,599 30,591 30,591 The Group’s exposure to interest rate risk and a sensitivity analysis for financial assets and liabilities is disclosed at Note 24. 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 On Issue at 30 June - Fully Paid Company Ordinary Shares 2021 2020 272,123,142 272,123,142 272,123,142 272,123,142 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. 81 8 2 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)For the Year Ended 30 June 2021NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)For the Year Ended 30 June 20212021 Finbar Group Annual Report2021 Finbar Group Annual Report19. Capital and Reserves (continued) Dividends Dividends recognised in the current year by the Group are: Dividends Paid During the Year 2021 Final 2020 ordinary Interim 2021 ordinary Total Amount Dividends Paid During the Year 2020 Final 2019 ordinary Interim 2020 ordinary Total Amount Cents per Share Total Amount $’000 Franked / Unfranked Date of Payment 1.00 2.00 3.00 2.00 2,721 5,442 8,163 8,164 5,442 13,606 Franked 21 September 2020 Franked 19 March 2021 Franked 12 September 2019 Franked 26 March 2020 19. Capital and Reserves (continued) Dividend Franking Account 30% franking credits available to shareholders of Finbar Group Limited for subsequent financial years Company 2021 $’000 2020 $’000 10,481 8,311 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 $2,332,000 (2020: $1,166,000). Nature and purpose of reserve Asset revaluation reserve Franked dividends declared or paid during the year were franked at the rate of 30%. The revaluation reserve relates to the revaluation of non investment property carried at fair value. After 30 June 2021 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 2021 ordinary Total Amount Cents per Share Total Amount $’000 Franked / Unfranked Date of Payment 2.00 5,442 5,442 Franked 10 September 2021 The financial effect of this dividend has not been brought to account in the financial statements for the financial year ended 30 June 2021 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. 20. Earnings per Share Basic Earnings per Share The calculation of basic earnings per share at 30 June 2021 was based on the profit attributable to ordinary shareholders of $8,847,000 (2020: $6,624,000) and a weighted average number of ordinary shares on issue during the year ended 30 June 2021 of 272,123,142 (2020: 272,123,142), calculated as follows: Profit Attributable to Ordinary Shareholders Weighted Average Number of Ordinary Shares Issued ordinary shares at 1 July Weighted Average Number of Ordinary Shares at 30 June 2021 $’000 2020 $’000 8,847 6,624 Ordinary Shares 2021 2020 272,123,142 272,123,142 272,123,142 272,123,142 Basic Earnings per Share (cents per share) 3.25 2.43 Diluted Earnings per Share The calculation of diluted earnings per share at 30 June 2021 was based on the profit attributable to ordinary shareholders of $8,847,000 (2020: $6,624,000) and a weighted average number of ordinary shares on issue during the year ended 30 June 2021 of 272,123,142 (2020: 272,123,142), 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 2021 $’000 2020 $’000 8,847 6,624 Ordinary Shares 2021 2020 272,123,142 272,123,142 Diluted Earnings per Share (cents per share) 3.25 2.43 83 8 4 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)For the Year Ended 30 June 2021NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)For the Year Ended 30 June 20212021 Finbar Group Annual Report2021 Finbar Group Annual Report 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 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 2021 $’000 2020 $’000 87 480 567 60 60 51 439 490 44 44 X X 21,262 23,581 978 703 22,240 24,284 - 37 37 1,765 1 1,766 At 30 June 2021, consolidated trade and other payables include retentions of $217,000 (2020: $264,000) relating to construction contracts in progress. The Group’s exposure to liquidity risk related to trade and other payables is disclosed at Note 24. 21. Loans and Borrowings 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 Terms and debt repayment schedule Terms and conditions of outstanding loans are as follows: Current Commercial bills (Secured) Commercial bills (Secured) Investor loans to subsidiaries (Unsecured) Investor loans to subsidiaries (Unsecured)* Total Current Loans and Borrowings Non Current Commercial bills (Secured) Commercial bills (Secured) Investor loans to subsidiaries (Unsecured)* Investor loans to subsidiaries (Unsecured) Total Non Current Loans and Borrowings 2021 $’000 2020 $’000 1,500 728 2,228 35,858 19,646 55,504 41,340 27,914 69,254 - 8,478 8,478 Nominal Interest Rate BBSY+2.00% BBSY+2.00% BBSY+1.50% BBSY+2.00% BBSY+2.00% 3.00% 2021 2020 Financial Year of Maturity Carrying Amount $’000 Carrying Amount $’000 2022 2021 2022 2021 2024 2023 2024 2023 1,500 - 728 - 2,228 19,500 21,840 9,347 18,567 69,254 14,393 21,465 6,996 12,650 55,504 - - 8,478 - 8,478 * 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. The Group has successfully refinanced both commercial bills during the year ended 30 June 2021 with an increase in facility limit of $6,607,000. Investor Loans Investor Loans are repayable upon the completion of the project. 85 8 6 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)For the Year Ended 30 June 2021NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)For the Year Ended 30 June 20212021 Finbar Group Annual Report2021 Finbar Group Annual Report 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 2021 $’000 2020 $’000 8,085 26,024 52,599 86,708 10,341 26,911 30,591 67,843 8,575 9,922 10,971 4,641 13,577 10,229 8,661 4,785 34,109 37,252 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. 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 2021 Carrying Amount $’000 Contractual Cash Flows $’000 1 Year or Less $’000 1-3 Years $’000 42,840 28,642 22,277 93,759 44,037 28,813 22,277 95,127 2,081 899 22,240 25,220 41,956 27,914 37 69,907 30 June 2020 Carrying Amount $’000 Contractual Cash Flows $’000 1 Year or Less $’000 1-3 Years $’000 35,858 28,124 26,050 90,032 36,978 28,306 26,050 91,334 36,978 19,828 24,284 81,090 - 8,478 1,766 10,244 * Refer to Note 21 Loans and Borrowings for details on loan maturity. 24. Financial Instruments (continued) 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 2021 $’000 2020 $’000 61,175 44,168 (43,568) (42,854) 17,607 1,314 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 2020. 30 June 2021 Variable rate instruments 30 June 2020 Variable rate instruments Fair Values Fair Values Versus Carrying Amounts Profit or Loss Equity 100bp Increase $’000 100bp Decrease $’000 100bp Increase $’000 100bp Decrease $’000 (914) - (914) - 100bp Increase $’000 100bp Decrease $’000 100bp Increase $’000 100bp Decrease $’000 (867) 867 (867) 867 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 2021 $’000 2020 $’000 34,109 52,599 37,252 30,591 (42,840) (35,858) (28,642) (28,124) (22,277) (26,050) Note 17 18a 21 21 23 87 8 8 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)For the Year Ended 30 June 2021NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)For the Year Ended 30 June 20212021 Finbar Group Annual Report2021 Finbar Group Annual Report 24. Financial Instruments (continued) Fair Values Versus Carrying Amounts (continued) 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. 26. Capital and Other Commitments (continued) Property Development - Equity Accounted Investees Contracted but not provided for and payable: Within one year Later than one year Long term loans are secured and interest bearing at bank business interest rates. Total Property Development Commitments - Equity Accounted Investees 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 Note 2021 $’000 2020 $’000 7,724 147 7,871 7,123 4 7,127 7 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 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 4,349 3,622 188 8,159 4,059 5,029 308 9,396 97,610 66,264 163,874 - - - 2021 $’000 2020 $’000 33,772 9,343 57 - 33,829 9,343 16,886 4,672 29 - 16,915 4,672 114,496 4,672 66,293 - 180,789 4,672 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 27. Contingencies x x 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 23,184 16,577 28. Related Parties x x 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 2,493 2,572 31 96 (34) 97 2,620 2,634 89 9 0 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)For the Year Ended 30 June 2021NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)For the Year Ended 30 June 20212021 Finbar Group Annual Report2021 Finbar Group Annual Report 28. Related Parties (continued) 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 40 to 45. 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 was repaid in August 2020. The related benefit is disclosed in table 4.3.2 on page 42. 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 was repaid in August 2021. The related benefit is disclosed in table 4.3.2 on page 42. 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 42. 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: Finbar Sub 107 Pty Ltd* 240 Adelaide Terrace 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 2021 $’000 2020 $’000 334 3,360 - 1 2 - 274 (20) 1 2 4,775 13,252 103 68 8,575 13,577 * Refer to Note 14 Investments in Equity Accounted Investees. 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 Finbar Sub 107 Pty Ltd, during the financial year ended 30 June 2021. The project end value is estimated at $200 million. Included within the trade and other payables balance is $3,793,000 (2020: 2,802,000) owing to Ventrade Maylands Pty Ltd. Included within the trade and other receivables balance is $207,000 (2020: $520,000 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. 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 (Deregistered) 269 James Street Pty Ltd 280 Lord Street Perth Pty Ltd (Deregistered) 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 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. Country of Incorporation Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Shareholding/Unit Holding Ownership Interest $ 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 32 2021 2020 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 0% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 91 9 2 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)For the Year Ended 30 June 2021NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)For the Year Ended 30 June 20212021 Finbar Group Annual Report2021 Finbar Group Annual Report 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 54 to 93 and the Remuneration report in the Directors’ report, set out on Pages 40 to 45, are in accordance with the Corporations Act 2001, including: i) giving a true and fair view of the Group’s financial position as at 30 June 2021 and of its performance for the year ended on that date; and ii) 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. 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 2021. 3. 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-fourth day of August 2021. 30. Subsequent Events 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 Services other than Statutory Audit: Taxation compliance services 32. Parent Entity Disclosures As at, and throughout the financial year ending 30 June 2021 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 2021 2020 129,115 126,697 129,115 126,697 16,560 16,560 20,286 20,286 2021 $’000 2020 $’000 11,285 11,285 7,846 7,846 43,094 29,391 215,701 212,270 1,107 1,168 815 859 194,483 194,483 20,050 16,928 214,533 211,411 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. 93 9 4 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)For the Year Ended 30 June 20212021 Finbar Group Annual Report2021 Finbar Group Annual Report 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 2021and of its financial performance for the year ended on that date; and The Financial Report comprises: • Consolidated statement of financial position as at 30 June 2021 • 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 • complying with Australian Accounting Standards and the Corporations Regulations 2001. 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 Properties; and • 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 global organisation of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved. The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organisation. Liability limited by a scheme approved under Professional Standards Legislation. Valuation of Investment Properties ($97.9million) 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 involved KPMG Real Estate Specialists to inform our evaluation of the external and internal valuations for specific properties. • Consideration of the economic impacts of COVID-19 on valuations including leasing and rental relief assumptions. 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. • Working with our KPMG Real Estate specialists, we assessed the appropriateness of the property valuation methodology adopted, key assumptions and supporting market commentary in the valuations for specific properties. • 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, based on our knowledge of the property portfolio and other published reports of industry commentators. • We also tested, 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 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 testing, against accounting standards requirements. 95 9 6 2021 Finbar Group Annual Report2021 Finbar Group Annual Report Carrying value of Inventory ($139.8million) 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 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 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: https://www.auasb.gov.au/admin/file/content102/c3/ar1_2020.pdf. This description forms part of our Auditor’s Report. 97 9 8 2021 Finbar Group Annual Report2021 Finbar Group Annual Report Report on the Remuneration Report Opinion Directors’ responsibilities In our opinion, the Remuneration Report of Finbar Group Limited for the year ended 30 June 2021, 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 2021. 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 24 August 2021 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 2021 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. KPMG Derek Meates Partner Perth 24 August 2021 99 1 00 KPMG, an Australian partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved. The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organisation. Liability limited by a scheme approved under Professional Standards Legislation. 2021 Finbar Group Annual Report2021 Finbar Group Annual Report ASX ADDITIONAL INFORMATION Additional information required by the ASX Limited Listing Rules and not disclosed elsewhere in this report is set out below. Twenty largest shareholders of ordinary shares as disclosed in the share register : Shareholdings (as at 30 June 2021) 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 28,362,797 27,318,265 23,615,000 % 20.53 10.42 10.04 8.68 Number of Holders Ordinary Shares 390 500 334 804 154 2,182 105,770 1,472,980 2,572,666 25,527,382 242,444,344 272,123,142 The number of shareholders holding less than a marketable parcel of ordinary shares is 300. 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. Chuan Hup Holdings Limited UBS Nominees Pty Ltd Zero Nominees Pty Ltd Citicorp Nominees Pty Limited Blair Park Pty Ltd Rubi Holdings Pty Ltd (John Rubino S/F A/C) 3RD Wave Investors Pty Ltd Forward International Pty Ltd Mr James Chan J P Morgan Nominees Australia Pty Limited Hanssen Pty Ltd Mrs Siew Eng Mah BNP Paribas Nominees Pty Ltd (DRP) Apex Investments Pty Ltd Chan Family Super (WA) Pty Ltd (Chan Family S/F A/C) Milton Corporation Limited Mr Ah-Hwa Lim Ms Yi Xian Chan Denshir Pty Ltd Mr Wan Soon Chan Top 20 Number of Ordinary Shares Held % 53,837,175 19.78 28,362,797 10.42 23,781,255 9,079,790 8,497,045 7,912,358 6,500,000 6,472,922 6,141,290 5,960,860 5,000,000 4,820,000 4,570,596 4,298,481 4,177,072 3,642,464 3,155,770 2,892,126 2,739,322 2,435,137 8.74 3.34 3.12 2.91 2.39 2.38 2.26 2.19 1.84 1.77 1.68 1.58 1.53 1.34 1.16 1.06 1.01 0.89 194,276,460 71.39 101 1 02 ASX ADDITIONAL INFORMATION (Continued) 2021 Finbar Group Annual Report2021 Finbar Group Annual Report 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 Email: info@finbar.com.au Website: www.finbar.com.au ABN 97 009 113 473 ACN 009 113 473 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 103 THIS PAGE LEFT BLANK INTENTIONALLY ASX ADDITIONAL INFORMATION (Continued) 2021 Finbar Group Annual ReportT HIS PAGE LE F T BLANK I NTEN TION ALLY finbar.com.au 

Continue reading text version or see original annual report in PDF format above