Fleetwood Limited
Annual Report 2019

Plain-text annual report

Annual Report for the year ended 30 June 2019 Fleetwood Corporation Limited ABN 69 009 205 261 Annual 19VILLAGE OPERATIONS Report MODULAR ACCOMMODATION PARTS AND SERVICES Contents Group Structure Board of Directors Executive Team Chairman’s Letter Managing Director & Chief Executive Officer’s Review Financial Report 2019 Directors’ Report Directors’ Declaration Auditor’s Independence Declaration Independent Auditor’s Report ASX Additional Information 1 2 4 6 7 17 19 31 32 72 78 Corporate Directory DIRECTORS Phillip Campbell Brad Denison Jeff Dowling Adrienne Parker Mark Southey COMPANY SECRETARIES Elizabeth Maynard Andrew Wackett AUDITOR Grant Thornton BANKER Westpac Banking Corporation SHARE REGISTRY Computershare Level 11 172 St Georges Terrace Perth, WA 6000 REGISTERED OFFICE & PRINCIPAL PLACE OF BUSINESS T: (08) 9323 2000 E: www.investorcentre.com/contact 21 Regal Place East Perth, WA 6004 T: (08) 9323 3300 E: info@fleetwood.com.au W: www.fleetwoodcorporation.com.au Design, manufacture and supply of accommodation for the education, corrections, affordable housing and mining industries. Modular Accommodation Operation of accommodation villages - Searipple in Karratha and Osprey in South Hedland. Village Operations Manufacture and distribution of recreational and commercial vehicle parts and accessories. Parts and Services 1 FleetwoodBoard Of Directors Phillip Campbell Brad Denison Jeff Dowling BENG, GAICD NON-EXECUTIVE CHAIRMAN BCOMM, FCPA MANAGING DIRECTOR AND CHIEF EXECUTIVE OFFICER BCOMM, FCA, FFIN, FAICD NON-EXECUTIVE DIRECTOR CHAIR OF AUDIT & RISK COMMITTEE Brad Denison has been Managing Director and Chief Executive Officer of Fleetwood Corporation Limited since 1 August 2014. Brad’s appointment to the position of Managing Director and Chief Executive Officer followed 12 years’ experience within the Company as Chief Financial Officer and Company Secretary. Brad has significant corporate experience in business acquisitions, strategy, finance and complex commercial projects. Brad is a qualified accountant and a Fellow of CPA Australia. Brad does not currently hold any other directorships and did not hold any other directorships with listed entities in the last three years. Phillip Campbell was appointed as Non-Executive Director on 12 August 2016, and thereafter as Non-Executive Chairman of the Board. Phillip is an experienced director, having been involved with a number of listed and unlisted entities in capacities including managing director and chairman. He has a proven track record of guiding businesses through challenging and volatile environments to restore and enhance shareholder value. Phillip’s business experience includes dealing with domestic and international companies across a range of industries including resources, construction, and manufacturing. He holds a Bachelor of Engineering, a Diploma of Corporate Finance and is a graduate member of the Australian Institute of Company Directors. Phillip held the following directorships of listed companies in the three years immediately before the end of the financial year: Non-Executive Director and Chairman of Vmoto Limited (appointed 31 May 2017). Jeff Dowling was appointed as Non-Executive Director on 1 July 2017, and thereafter as Chair of the Audit & Risk Committee. Jeff is a highly experienced corporate leader with over 40 years’ experience in professional services with Ernst & Young. Jeff held numerous leadership roles within Ernst & Young which focused on mining, oil and gas and other industries. Jeff’s expertise is centred around audit, risk and financial acumen derived from acting as lead partner on numerous large public company audits, capital raisings and corporate transactions. As a Non- Executive Director of a number of ASX listed companies Jeff has been involved with various corporate acquisitions and takeovers, debt restructures and equity raisings. Jeff holds a Bachelor of Commerce and is a Fellow of the Australian Institute of Company Directors, a Fellow of the Institute of Chartered Accountants, and a Fellow of the Financial Services Institute of Australasia. Jeff has held the following directorships of listed companies in the three years immediately before the end of the financial year: Non- Executive Chairman of S2 Resources Limited (appointed 29 May 2015), Non-Executive Director of NRW Holdings Limited (appointed 21 August 2013) and Lead Independent Director of Battery Minerals Limited (appointed 25 January 2018). 2 FleetwoodAdrienne Parker Mark Southey LLB NON-EXECUTIVE DIRECTOR CHAIR OF NOMINATIONS & DIVERSITY COMMITTEE BSC (HONS), MBA NON-EXECUTIVE DIRECTOR CHAIR OF REMUNERATION COMMITTEE Mark Southey was appointed as a Non-Executive Director on 10 October 2018, and thereafter as Chair of the Remuneration Committee. Mark is an experienced senior executive with extensive global experience in industrial technology and services and project development in the natural resources sectors. Mark has previously held senior executive positions with Honeywell and ABB in Australia and internationally, and was a member of the global executive leadership team within WorleyParsons where he held the position of Group Managing Director for the Minerals, Metals and Chemicals Sector. Mark holds a Bachelor of Science (Hons) in Engineering with Business Studies and has an MBA from the University of Sydney Business School. Mark has held the following directorships of listed companies in the three years immediately before the end of the financial year: Non-Executive Chairman of Arafura Resources Limited (appointed 30 January 2018). Adrienne Parker was appointed as a Non-Executive Director on 23 August 2017, and thereafter as Chair of the Nominations & Diversity Committee. Adrienne is a partner and Head of Pinsent Mason’s Perth office, a global law firm. Adrienne specialises in major construction, engineering and resources projects, including disputes in the infrastructure, mining, oil and gas and transport sectors. Adrienne’s experience includes advising parties on the procurement, management and delivery of infrastructure projects across Australia via traditional project delivery models and relationship contracting, including PPP projects. Adrienne has also acted in large scale complex disputes in many jurisdictions involving mining projects, processing plants, oil and gas facilities, and major commercial building and infrastructure projects. Adrienne holds a Bachelor of Laws and is a governing board member, deputy chair and member of the Remuneration and Nominations Committee of the Perth Public Art Foundation Inc. and a past president of the WA Chapter of National Association of Women in Construction. She is also a member of the Joint Law Council of Australia and Law Society of Western Australia’s Construction and Infrastructure Law Committee. Adrienne did not hold any other directorships with listed entities in the last three years. 3 FleetwoodExecutive Team Andrew Wackett Elizabeth Maynard Jarrod Waring BCOMM, CPA, FFIN CHIEF FINANCIAL OFFICER & COMPANY SECRETARY LLB (HONS), BCOMM GENERAL COUNSEL & COMPANY SECRETARY BECON CHIEF EXECUTIVE OFFICER MODULAR ACCOMMODATION Elizabeth Maynard commenced as General Counsel & Company Secretary on 3 September 2018. Prior to her appointment, Elizabeth spent a number of years in private practice as a Corporate / M&A lawyer with a top- tier Australian law firm advising clients in a variety of sectors on domestic and cross-border transactional and commercial matters. Elizabeth also has significant international experience, having spent over 3 years working in Singapore and the Asia-Pacific region at a top-tier UK law firm. Elizabeth holds a Bachelor of Laws (Hons) and Bachelor of Commerce (Accounting) and is also a member of the Law Society of Western Australia. Andrew Wackett commenced as Chief Financial Officer on 12 June 2017 and was appointed as Company Secretary on 5 July 2018. Prior to joining Fleetwood, Andrew was a Division Director of Macquarie Securities Group for 20 years. During that time, Andrew gained significant commercial experience with large Australian and international listed entities, developed an in depth knowledge of corporate governance, and statutory financial requirements, and has proven financial and leadership skills in guiding business, departments and teams in the formulation and execution of financial strategies. Prior to Macquarie, Andrew worked at Wesfarmers for over six years. Andrew holds a Bachelor of Commerce, is a Certified Practicing Accountant and a Fellow of the Financial Services Institute of Australasia. Jarrod Waring was promoted to the role of Chief Executive Officer of Modular Accommodation in November 2017. Prior to his appointment, Jarrod held several general management roles within Fleetwood overseeing the growth and development of its national Modular Accommodation operations and market expansion strategies in both the education and affordable housing sectors in Australia, having joined Fleetwood in February 2012. Jarrod’s period in senior roles at Fleetwood was proceeded by more than 20 years’ experience in both the public and private sector in Australia, Japan and China, where he gained extensive commercial and business development experience, including a four year posting to Japan where he held the position of Consul General / Senior Trade Commissioner with the Australian Government. Jarrod holds a Bachelor of Economics and Marketing, is a board member of prefabAUS and an executive member of the Modular Building Industry Association Australia. 4 FleetwoodManny Larre Dominic Letts BENG CHIEF EXECUTIVE OFFICER PARTS & SERVICES BA, MA (HRM&IR), GAICD EXECUTIVE GENERAL MANAGER VILLAGE OPERATIONS Dominic Letts was appointed as Executive General Manager Village Operations in January 2018. Prior to this, Dominic fulfilled General Manager and Operation Manager roles at Fleetwood for 9 years. Dominic served as an Australian Army Officer before joining Fleetwood. Dominic holds a Master of Human Resources Management and Industrial Relations, a Bachelor of Arts and is a Graduate of the Australian Institute of Company Directors. Manny Larre was promoted to the role of Chief Executive Officer of Parts & Services in August 2018. Prior to his appointment, Manny held several Executive General Management roles within the Company, overseeing the turnaround of several businesses and gaining further experience with business acquisitions and sales, having joined Fleetwood in September 2011. Prior to joining Fleetwood, Manny held various executive roles in the automotive and consumer products industries over a 25 year period. During that time, Manny gained significant operational and commercial experience with large Australian and international listed and private companies, leading several companies through operational turnarounds. Manny holds a Bachelor of Engineering and further studies in Management. 5 FleetwoodChairman’s Letter Dear Shareholder, In my three years or so to date on the Fleetwood Board, we have accelerated the execution of a strategy to restructure and refocus one of the longest listed companies on the Australian bourse. No easy task when the culture and traditions of the organisation date back to its founding in the caravan industry in 1964. However, I am pleased to report that Managing Director & Chief Executive Officer, Brad Denison, supported by a renewed Board, have nearly completed the transformation task. They are keenly focused on delivering market competitive shareholder returns from a restructured asset base generally related to accommodating people. The restructuring has involved the divestment, over the last two years, of businesses not seen as core to our future, or without a credible path back to profitability. Most recently, the Company’s caravan manufacturing business was sold. This transaction was complex, as unwinding the Company’s relationships with third parties had the potential to generate substantial liabilities. Fleetwood’s executive team executed this transaction with aplomb and accordingly the Company has not experienced any material residual liability. Fleetwood’s continuing operations generated EBITDA of $34.4m and EBITA of $25.3m for FY19; the best result since at least 2013, in part due to two new acquisitions and the divestments referenced above. Both acquisitions are delivering results in line with their acquisition cases and were funded via a fully underwritten $60m equity raising announced on 25 July 2018. The Board and executive team were buoyed by the support received during the equity raising from both existing and new shareholders. The implicit endorsement of the transformation strategy, especially by existing shareholders who participated in the equity raising, has been very encouraging. The acquisition of Sydney based Modular Building Systems (MBS) supported the strategy of developing a market leading position in modular accommodation across the country. The acquisition has placed our Modular Accommodation division in a leading position in the modular segments of the education, corrections, mining, affordable and retirement housing markets; but we do not plan to stop there. Across Europe, Japan and the USA, up to 10% of residential, commercial and industrial construction is completed using some or all off-site manufactured and/or modular components. In Australia the figure is just 3-5%. Realising the growth opportunities this represents will require careful analysis, judicious investment and cross border collaborations. Fleetwood will require a new generation of architects, designers, and technologists to meet this growth challenge and therefore, this year, we launched the Fleetwood Challenge Cup in association with prefabAUS, and major universities to encourage the next generation of young built environment design professionals who will help propel our industry into an innovative future. The acquisition of Northern RV (NRV) provided the opportunity to add services to the established Camec OEM and aftermarket parts offering and generate pull-through demand at the same time. This acquisition was also the catalyst for a restructure of the combined businesses and relocation to a lower cost environment in closer proximity to a significant number of our customers. In a volatile and consolidating market, the NRV acquisition gives the Parts and Services division greater strategic opportunities than were available previously. Our Village Operations division continued its year on year improvement in performance since 2016, recording a $11.5m EBITA result for FY19. Looking to the near term future, anticipated construction activity in the Karratha/ Dampier region and Fleetwood’s large, well located Searipple Accommodation Village places the Company in a good position. The Company generated significant positive cash flows during the year. While this was partly related to the sale of the caravan manufacturing business, working capital was well managed throughout the year. The result is that Fleetwood now has a substantial cash balance, and when combined with unused banking and surety facilities of $57.6m, the Company is well placed to fund growth. We recognise that the issue of remuneration is important to our investors. Two years ago we commenced consultations with external advisers and engaging regularly with a number of investors, to ensure our remuneration practices are not only well understood, but also reflective of market conditions. Following our 2018 AGM, we undertook a further assessment of our remuneration structure to ensure it aligned with our objective to reward value creation and deliver long term sustainable results. To recap, we have moved away from the previous trust structure and changed from a fixed issue of rights to one based on a percentage of fixed remuneration. I have written in more detail about this in a covering letter to the Remuneration Report. The Board considers that the FY19 remuneration appropriately reflects both performance as well as shareholder outcomes. Any future remuneration changes will be carefully considered in the context of the prevailing market conditions. Fleetwood is committed to social responsibility and community engagement. This has been demonstrated recently in Fleetwood’s response to a number of school fires in Queensland. The Mt Gravatt Primary School is a case in point. The fire started on Friday 14 June and Fleetwood, along with our partners delivered eight new school classrooms ready for students by Tuesday 18 June. I would encourage shareholders to watch the video on our website www.fleetwood.com.au where there is a link headed “from ashes to classroom in 3 days”. We are very proud of our committed employees who have given up their weekends on multiple occasions to be of service to their community. The Board has determined that due to potential capital requirements for upcoming projects, no final dividend will be paid. However a payout ratio of approximately 30% of free cash flow is expected to be implemented for future periods. On behalf of the Board, I would like to thank Managing Director & Chief Executive Officer, Brad Denison, his dedicated leadership team and all Fleetwood employees on a very solid performance. We can feel a rising level of pride in the organisation - Meeting the Challenge, and with improving financial performance. Finally, I would like to express my thanks to our shareholders for their ongoing support. Sincerely, Phillip Campbell Non-Executive Chairman Fleetwood Corporation Limited 6 FleetwoodManaging Director & Chief Executive Officer’s Review Review of Operations Fleetwood also has exposure to the Karratha / Dampier accommodation market, where it is expected new resources projects will bring large numbers of construction workers over the next three to five years. Supporting future growth is a strong Executive Team and a Board of Directors which has been refreshed over the last three years. Fleetwood has undergone significant transformation in the 2019 financial year. The transformation included selling the Company’s only remaining loss- making business, being Caravan Manufacturing, and making two new acquisitions, being Modular Building Systems (MBS) in New South Wales and Northern RV (NRV) in Melbourne. The two acquisitions were funded by a $60m capital raise in August 2018. Fleetwood is now in a very strong position, both from an organisation structure and balance sheet point of view, to capitalise on significant opportunities that exist in key growth markets. Fleetwood is now the largest modular construction business in Australia, with operations in four key States. Long term relationships with government clients provide an ideal basis for exposure to announced major spend in education, corrections and affordable housing. Fleetwood has a key presence in the outdoor leisure segment through its recreational vehicle Parts and Services segment, where there are opportunities to grow the services and aftermarket channels. 7 FleetwoodMANAGING DIRE CTO R & C H IE F E X E C U TI VE O FFI CE R’ S R E VI EW (CO N T ’D) Trading Results Earnings before interest, tax and amortisation (EBITA) from continuing operations of $25.3m in FY19 was $6.5m higher than FY18. The increase in EBITA in FY19 was predominantly the result of an improvement in Village Operations, combined with the initial contributions of Modular Building Systems (MBS) and Northern RV (NRV) to their segments with both delivering results in line with their respective acquisition cases. In the Modular Accommodation segment, MBS generated a strong result as it delivered its order book. This was partially offset by a lower contribution from the Victorian business which encountered project timing delays due to the State election. In addition, volumes remained low in the affordable housing sector following changes in ownership at two of the company’s major clients. As part of the acquisition of MBS, an acquired contract intangible Results Summary $ MILLION Revenue EBITDA Depreciation EBITA Amortisation of contract intangible Finance costs Pre-tax profit Tax expense (benefit) NPAT 8 Loss from discontinued operations Statutory NPAT of $14.9m has been recognised in the Statement of Financial Position. This was amortised at the rate of $3.1m in FY19. In FY20 the amortisation charge is expected to be approximately $4.2m. Following the sale of loss-making businesses Flexiglass and Caravan Manufacturing, these businesses have been treated as discontinued operations. Earnings per share decreased 11% to 17.7cps on an NPATA basis. Highlights + Revenue from continuing operations up 18% to $315m + EBITA from continuing operations up 34% to $25.3m + Two acquisitions completed, funded by $60m capital raise + $12m realised from sale of Caravan Manufacturing business plus $5m in assets yet to sell FY19 315.3 34.4 9.1 25.3 3.1 0.9 21.4 7.4 14.0 (20.3) (6.2) FY18 Change 267.0 25.2 6.3 18.8 0.0 1.2 17.6 5.4 12.2 (25.7) (13.5) 18% 37% 43% 34% n/a -31% 22% 37% 15% n/a n/a FleetwoodMANAGING DIRE CTO R & C H IE F E X E C U TI VE O FFI CE R’ S R E VI EW (CO N T ’D) Cash flow and Debt Net capex relates primarily to new education hire classrooms and the ongoing upgrade of Fleetwood’s IT system. Capex in FY20 is expected to be moderately higher than in FY19. The acquisition and financing cash flows represent the MBS and NRV acquisitions and associated capital raising conducted during the first half of the year. June 2019 net cash of $33.6m compares to December 2018 net cash of $16.3m. Fleetwood currently has total debt and bonding facilities of $65m compared to $37m in June 2018. Cash flow from operations of $31.9m was ahead of FY18 cash flow of $17.9m. This was driven by reduced cash outflows from discontinued businesses and improved working capital management. The cash inflow from the second completion of the Caravan Manufacturing business sale (announced to the ASX 4 March 2019) is included in the cash outflows from discontinued businesses. Highlights + Strong cash generation continued + Solid working capital performance + Exit from Caravan Manufacturing business will remain cash positive once tax benefits are taken into account Cash flow Summary $ MILLION EBITDA continuing Cash outflows from discontinued businesses Interest paid (net) Tax Working capital (and other) Operating cash flow Net capex Free cash flow Net acquisitions Financing cash flows Opening net cash (debt) Closing net cash (debt) FY19 34.4 (5.2) (0.7) (2.5) 6.0 31.9 (11.8) 20.1 (44.4) 57.2 0.6 33.6 FY18 25.2 (16.2) (1.1) 1.0 9.0 17.9 (21.7) (3.8) 7.2 (3.1) 0.4 0.6 9 FleetwoodMANAGING DIRE CTO R & C H IE F E X E C U TI VE O FFI CE R’ S R E VI EW (CO N T ’D) Modular Accommodation MBS results have been incorporated into Fleetwood’s Modular Accommodation division from 1 July 2018. This business made a strong contribution which was driven predominantly by the corrections sector. In addition to this work, MBS was successful in securing additional contractual volumes previously beyond its capacity through the utilisation of Fleetwood’s existing facility in Newcastle. Capturing these additional opportunities and synergies is an important focus for MBS going forward. The acquisition of MBS was a key development for the Modular Accommodation division and has given Fleetwood a strong foothold in the New South Wales market. The business has also been actively pursuing application of its proven modular build method to potential prison expansions in other geographic regions. The MBS contribution was partially offset by lower education demand in Victoria ahead of the State election. Volumes in Victoria recovered strongly after the election and the business has entered FY20 with solid operational momentum. The Victorian business began delivering permanent modular schools during FY19. This is a new area of government funding that the business did not previously have access to. This new business area has been cultivated by Fleetwood’s design and sales team based in Melbourne and demonstrates that traditional construction techniques are able to be competitively bid in a modular format. One of these projects, the Yallourn North Primary School, won the award for “the best permanent education structure under 10,000 square feet” at the Modular Building Institute’s annual trade show in Las Vegas. The Modular Accommodation business was also impacted by continued low volume from the affordable housing sector. This has led to a decision to temporarily place the company’s Newcastle production facility on care and maintenance. The ability to temporarily close manufacturing facilities is a key strategic aspect of the Modular Accommodation business. This is facilitated by running a just in time procurement system and a variable labour force. Project wins in the Western Australian resource sector saw this part of the business improve its revenue but trading results remained patchy due to a market overhang of second hand buildings. Whilst remaining confident of increased future spending in key sectors, future profitability will remain subject to the timing of contract awards. Moe Primary School, VIC 10 FleetwoodPreston North East Primary School, VIC Wellington Correctional Centre, NSW Highlights + MBS performance was strong in its first year + Innovation offering strengthened to drive our position in market + Improved advanced manufacturing techniques to allow for mass customisation, BIM and vertical integration + Launched the Fleetwood Challenge Cup in association with prefabAUS and major universities Modular Accommodation EBITA 15 12 9 6 3 0 $12.6m $10.1m FY18 FY19 Rules Club Wagga Hotel, NSW 11 FleetwoodMANAGING DIRE CTO R & C H IE F E X E C U TI VE O FFI CE R’ S R E VI EW (CO N T ’D) Village Operations Fleetwood’s Village Operations segment has continued to benefit from increased occupancy at Searipple Village in Karratha. Both operational and shutdown related accommodation demand was at higher than expected levels during the year. Overall division EBITA for FY19 of $11.5m was up 26% when compared to FY18. A lull in earnings in FY20 is forecast ahead of expected construction demand coming online in the medium term. In the medium term, we are aiming to expand our footprint in the Village Operations division to improve Fleetwood’s overall quality of earnings by targeting areas where there are multiple potential clients competing for accommodation supply. Fleetwood’s Modular Accommodation division provides that ability to develop new villages at a cost lower than competitors. Osprey Village, WA 12 FleetwoodHighlights + Searipple Village in Karratha benefited from high levels of customer maintenance + Osprey Village in Port Hedland saw higher occupancy over the year Searipple Village, WA Village Operations EBITA $11.5m $9.1m FY18 FY19 12 10 8 6 4 2 0 13 FleetwoodMANAGING DIRE CTO R & C H IE F E X E C U TI VE O FFI CE R’ S R E VI EW (CO N T ’D) Parts and Services Declining retail sales rates of locally manufactured product in the recreational vehicles industry saw Camec’s OEM revenue fall during FY19. This was partially recovered through aftermarket sales revenue from major retailers and trade repairers. Fleetwood completed the Northern RV acquisition in August 2018. The eleven-month performance from this business was in line with the acquisition case. The strategic intent behind this acquisition was to increase integration with our key OEM customers in Melbourne, with a focus on hedging the company against a greater mix of imported product now entering the market requiring Australian licenced gas and plumbing fitout. 6 5 4 3 2 1 0 Parts and Services EBITA $5.7m $3.6m FY18 FY19 14 FleetwoodMANAGING DIRE CTO R & C H IE F E X E C U TI VE O FFI CE R’ S R E VI EW (CO N T ’D) Discontinued Businesses CARAVAN MANUFACTURING RESOURCE SECTOR RENTAL OPERATIONS Operating losses of $0.3m were incurred during FY19 as residual assets continue to be sold. Following a review of current market values these assets were written down by $3.5m. The remaining assets of $5.4m are expected to be largely realised during FY20. The Caravan Manufacturing business generated operating losses of $13.2m in FY19 ($9.0m in H1 FY19) as the impending factory closure impacted results. First close on the sale to Apollo was achieved on 9 August 2018 with the payment for the Coromal and Windsor brands of $1m. The second phase of the sale which saw Apollo purchase agreed raw materials and finished goods stock from Fleetwood completed in the second half of FY19. The wind down of the Caravan Manufacturing business has progressed substantially with the factory now closed and the transition of the brands complete. Fleetwood has some residual vans and raw materials which are expected to be disposed of during FY20. The value of residual debtors, raw materials, vans and fixed assets were written down by $8m to reflect expected proceeds. In addition, a $4m provision for future warranty costs was taken to cover expected future claims. Fleetwood expects to incur further, albeit much reduced, operating losses in FY20. The full transition period for the Caravan Manufacturing business will determine the final value the company receives from the exit, but in cash terms, the overall process is still expected to be positive due to the recovery of goodwill, raw materials, finished goods and the future utilisation of tax losses. It is important to note that a key advantage of the sale was not incurring the very significant costs that would have to be incurred if the business was rapidly closed. These costs include potential liabilities to dealers and floor plan financiers and the balance sheet value of unfinished stock, which would have been highly challenging to realise under a straight closure scenario. Corporate Costs Costs grew by $0.5m in FY19 largely due to negotiation and execution of corporate transactions. These costs are expected to grow again in FY20 to meet support requirements of a larger business. Dividends We are presently tendering on a number of projects, which, if successful would require a commitment of working capital. Given this, no final dividend has been declared for FY19. Notwithstanding, the Company expects to implement a dividend payout ratio of approximately 30% of free cash flow. To support this, Fleetwood has $25.1m in franking credits available. 15 Fleetwood MANAGING DIRE CTO R & C H IE F E X E C U TI VE O FFI CE R’ S R E VI EW (CO N T ’D) Forward Strategy and Near Term Outlook MODULAR ACCOMMODATION PARTS AND SERVICES Fleetwood has successfully commenced adapting traditional areas of the construction industry towards modular construction. Based on overseas experience there are significant further opportunities, as well as traditional modular markets Fleetwood does not presently have exposure to. Tendering activity in the Modular Accommodation division is presently at the highest level it has been for a number of years. This activity is concentrated to a degree in the education sector, however the corrections, social housing and commercial sectors are also showing stronger signs of forward demand than at any time in recent history. The New South Wales government has announced $6.7b to build 190 new schools. This program is in the early stages and Fleetwood is participating in tendering for these projects. The Victorian government has announced a capital works program to build 45 new schools in the current electoral term. Fleetwood has already delivered multiple projects under this program in the last twelve months and continues to bid for future projects. The New South Wales government has also announced $3.8b to upgrade correctional capacity across its network. Fleetwood is a member of the approved panel which is delivering into this program. Approximately half of this volume has been procured with half remaining. There are also a number of resource sector projects which are either in the feasibility or active tendering stage. Fleetwood has the strongest capability in the industry to bid on these projects and this also remains a core focus. Diversifying sources of revenue in the Parts and Services division will make this segment more resilient to fluctuations in industry demand. The recreational vehicle manufacturing industry is presently demonstrating mixed demand indicators. Local caravan manufacturers have reduced volume in the last six months, however importers of caravans have maintained volume, particularly in low cost models. Fleetwood’s Parts and Services division has an exposure to the locally built market through its parts business Camec, and to both locally built and overseas imports through its services business, NRV. Expansion of the earnings base in this segment will be driven by a focus on services, with the key channel to market being the aftermarket segment, which includes on-line and instore retail, trade repairs and post-delivery services. VILLAGE OPERATIONS Developing a larger underlying base from Village Operations will improve Fleetwood’s overall quality of earnings in the medium term. A number of planned resource sector projects have the potential to impact Fleetwood’s earnings in the Karratha market. Despite additional capacity likely to come on line in the near term, the potential demand profile indicated by resource companies has increased further in the last three months. Fleetwood is also pursuing a strategy of increasing its portfolio of villages and has a number of opportunities under consideration. 16 FleetwoodFinancial Report FY19 For the year ended 30 June 2019 17 FleetwoodContents DIRECTORS’ REPORT CHAIRMAN’S LETTER REGARDING THE REMUNERATION REPORT REMUNERATION REPORT DIRECTORS’ DECLARATION AUDITOR’S INDEPENDENCE DECLARATION CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME CONSOLIDATED STATEMENT OF FINANCIAL POSITION CONSOLDIATED STATEMENT OF CHANGES IN EQUITY CONSOLIDATED STATEMENT OF CASH FLOWS NOTES TO THE FINANCIAL STATEMENTS INDEPENDENT AUDITOR’S REPORT ASX ADDITIONAL INFORMATION 19 21 22 31 32 33 34 35 36 37 72 78 18 FleetwoodDIRECTORS’ REPORT The Directors of Fleetwood Corporation Limited present their Report for the year ended 30 June 2019. DIRECTORS AND OFFICERS The Board is currently comprised of four non-executive Directors and the Managing Director. The Directors who are in office at the date of this Report are: Phillip Campbell Board Chair, Non-Executive Director Brad Denison Managing Director, CEO Jeff Dowling Non-Executive Director, Chair of Audit and Risk Committee Adrienne Parker Non-Executive Director, Chair of Nominations and Diversity Committee Mark Southey Non-Executive Director, Chair of Remuneration Committee PRINCIPAL ACTIVITIES The principal activities of the entities in the Group during the financial year were: + design, manufacture, and sale of manufactured accommodation; + operation of accommodation villages; and + manufacture and distribution of vehicle parts and accessories and associated services. OPERATIONS A review of operations for the year is contained in the Managing Director and Chief Executive Officer’s Review. Results of operations for the year are contained in the Financial Report. FINANCIAL POSITION A summary of the financial position of the Group is disclosed in the Managing Director and Chief Executive Officer’s Review. SIGNIFICANT EVENTS DURING THE REPORTING PERIOD Resignation and Appointment of Company Secretary On 5 July 2018, Yanya O’Hara resigned as Company Secretary. Andrew Wackett (Chief Financial Officer) and Elizabeth Maynard (General Counsel - Appointed 03/09/2019) were appointed as joint Company Secretaries. Successful Completion of Capital Raising On 27 July 2018, the Company announced the completion of the institutional component of its equity raising. On 17 August 2018, the Company announced the completion of the retail component of its equity raising. The institutional placement and the 1 for 2.9 pro-rata accelerated non-renounceable entitlement offer, raised approximately $57 million net of costs. Acquisition of Modular Building Systems On 8 August 2018, the Company announced that it had completed the acquisition of 100% of the shares of Modular Building Systems Pty Ltd ACN 127 380 330 (MBS), for $34.15 million plus a potential earnout. MBS is based in New South Wales and specialises in the manufacture and installation of prefabricated modular buildings. Acquisition of Northern RV On 7 August 2018, the Company announced that it had completed the acquisition of the business and assets of Northern RV (NRV), a Melbourne based caravan plumbing and electrical services and parts supplier, for $10 million plus a potential earnout. Founded in 2006, NRV is an established supplier of products and services to the Melbourne RV manufacturing sector. First and Second Completion of Caravan Manufacturing Sale On 10 August 2018, the Company announced the completion of the sale of the Coromal and Windsor Caravan brands to Apollo Tourism & Leisure Limited for $1 million. The second phase of the sale which saw Apollo purchase agreed raw materials and finished goods stock from Fleetwood completed in the second half of FY19. FUTURE DEVELOPMENTS The Company will continue to pursue increasing both profitability and market share in its major business sectors. Further information as to likely developments and expected future results are disclosed in the Review of Operations. DIVIDENDS No final dividend was declared or paid with respect to the year ended 30 June 2019. 19 FleetwoodSHARE OPTIONS AND UNITS An Executive Long Term Incentive Plan was approved by Shareholders at the 2018 Annual General Meeting. This plan replaced the Executive Share Unit and Executive Option Plans. No share units or options were issued or granted during the 2019 fiscal year or subsequent to year end. Details of share rights granted to Key Management Personnel following the 2018 Annual General Meeting are set out in the Remuneration Report. INDEMNIFICATION OF DIRECTORS, OFFICERS AND AUDITORS The Company has executed agreements with current and former Directors and officers in respect of indemnity, access to documents and insurance. Subject to the Corporations Act 2001 (Cth) and Fleetwood’s Constitution, Directors and officers are indemnified against all liabilities to another person (other than the Company or a related body corporate) that may arise from their position as Director or officer of the Company, except where the liability arises out of conduct involving a lack of good faith. The Company provides D&O insurance cover to current and former directors and officers. The contract of insurance prohibits disclosure of the nature of the cover, however insurance premiums paid during the financial year were $234,313 (2018: $120,500). The access deed provides, among other things, current and former directors and officers with access to certain Company information, during their tenure and for a period of seven years after they cease to be an officer or director. The Company has not otherwise, during or since the end of the financial year, except to the extent permitted by law, indemnified or agreed to indemnify an auditor of the Company or any related body corporate against liability incurred as an auditor. DIRECTOR, AUDIT AND RISK COMMITTEE, REMUNERATION AND NOMINATION AND DIVERSITY COMMITTEE MEETINGS During the financial year, ten Board meetings, three Audit Committee meetings, one Remuneration Committee meeting and one Nomination and Diversity Committee meeting were held. The number of Board, Audit Committee and Remuneration Committee meetings attended by each current and former Director of the Company during the financial year are as follows: BOARD AUDIT COMMITEE REMUNERATION COMMITTEE NOMINATIONS AND DIVERSITY COMMITTEE Eligible to attend Attended Eligible to attend Attended Eligible to attend Attended Eligible to attend Attended Phillip Campbell Brad Denison1 Jeff Dowling Adrienne Parker Mark Southey2 10 10 10 10 6 10 10 10 10 6 3 - 3 3 2 3 - 3 3 2 1 - 1 1 - 1 - 1 1 - 2 2 2 2 1 2 2 2 2 1 1 Notwithstanding he is not a member, Brad Denison attended relevant sections of the meetings as directed by the Chair of the Audit and Risk Committee and the Chair of the Remuneration Committee, respectively. 2 Appointed to the Board on 10/10/2018. DIRECTORS’ SHAREHOLDINGS The relevant interest of each Director in Company shares and options at the date of this Report, as notified by the Directors to the ASX in accordance with s205G(1) of the Corporations Act (Cth) 2001 are as follows: Phillip Campbell1 Brad Denison1 Jeff Dowling1 Adrienne Parker Mark Southey (Appointed 10/10/2017) NO. OF SHARES NO. OF SHARE UNITS NO. OF OPTIONS NO. OF SHARE RIGHTS 26,000 189,418 50,000 - - - 770,000 - - - - - - - - - 146,028 - - - 1 Phillip Campbell, Brad Denison and Jeff Dowling participated in the retail entitlement offer which was announced on 27 July 2018. 20 DIRECTORS’ REPORT (CONT’D)FleetwoodCHAIRMAN’S LETTER REGARDING THE REMUNERATION REPORT Dear Shareholders and readers of this report, We are pleased to present Fleetwood’s Remuneration report for the year ended 30 June 2019. Fleetwood’s remuneration framework is designed to align management remuneration with shareholder returns, the principles of which are outlined in the remuneration principles section of this report. I am pleased to be able to report that considerable progress has been made on the restructuring and future positioning of your company. This transformation of the company has been the result of significant commitment and hard work by Fleetwood employees across the business and in particular, the leadership of Brad Denison, our CEO and his executive team. Details of the remuneration framework applying to the leadership team are transparently and comprehensively disclosed in this report. Our objective is to implement remuneration policies that reward value creation and deliver sustainable value for Fleetwood shareholders. We strongly believe that if investors and their advisers carefully review our accomplishments and forward plans they will endorse the effectiveness of the plans implemented thus far and those which we are proposing as set out below. With respect to the key remuneration issues and outcomes in the 2019 financial year: + We have not made any underlying changes to the fixed remuneration of the CEO. + The STI structure was changed to ensure it relates to the current financial year, not the previous financial year. + The financial component of the STI was not met in FY18 or FY19, however several components of the non-financial component were met. These related mainly to changes in the structure of the group. + There have been no changes to the annual incentive policy other than to develop challenging and focused objectives for the management team to deliver through the past 12 months (FY19). + LTI Share Right awards were made to key management personnel as approved by shareholders at the 2018 AGM. + No Share Rights have vested given they vest over three years. With respect to our thinking going forward: + Limited remuneration increases would appear to be appropriate given the state of the economy and wage growth generally. Any changes to the remuneration of the CEO will of course be disclosed if and when made. + New equity awards are being considered on the same terms as approved by shareholders at the 2018 AGM: + Awards with performance periods of three years; + 50% weighted to total shareholder return; and + The balance equally weighted to earnings per share growth and return on equity subject to a maximum Debt to Equity ratio. The mandate of the Remuneration Committee remains unchanged. We urge shareholders to support us as we continue to develop and implement schemes which we consider to be in their best interest whilst recognising the particular challenges of the markets in which we work and the core objectives which have been set for those people appointed to manage our businesses. P Campbell Non-Executive Chairman 21 DIRECTORS’ REPORT (CONT’D)FleetwoodDIRECTORS’ RE PO RT (CON T ’ D) REMUNERATION REPORT (AUDITED) The Directors of Fleetwood Corporation Ltd (Fleetwood) present the Remuneration Report for Non-Executive Directors, Executive Directors and other Key Management Personnel (KMP), prepared in accordance with the Corporations Act 2001 (Cth) and the Corporations Regulations 2001 (Cth). The Remuneration Report is set out under the following main headings: 1. Principles used to determine the nature and amount of remuneration 2. Details of remuneration 3. Service agreements 4. Short term incentive included in remuneration 5. Share-based remuneration 6. Other information 1. PRINCIPLES USED TO DETERMINE THE NATURE AND AMOUNT OF REMUNERATION The principles of the Group’s executive strategy and supporting incentive programs and frameworks are: + to align rewards to business outcomes that deliver value to shareholders; + to drive a high performance culture by setting challenging objectives and rewarding high performing individuals; and + to ensure remuneration is competitive in the relevant employment market place to support the attraction, motivation and retention of executive talent. Fleetwood has structured a remuneration framework that is market competitive and complementary to the reward strategy of the Group. The Board has established a Remuneration Committee, chaired by Independent Non-Executive Director Mark Southey, which operates in accordance with its charter as approved by the Board. The Committee is responsible for recommending and reviewing compensation arrangements for the Directors and the Executive Team. The Committee has engaged independent remuneration consultants to provide necessary information to assist in the discharge of its responsibilities (refer to the disclosures below in section 1.4). The remuneration structure adopted by the Group consists of the following components: + fixed remuneration, being annual salary; + short term incentives, being cash bonuses; and + long term incentives, being share schemes. The Remuneration Committee assess the appropriateness of the nature and amount of remuneration on a periodic basis by reference to recent employment market conditions with the overall objective of ensuring maximum stakeholder benefit from the retention of a high quality Board and Executive Team. The payment of bonuses, share rights and other incentives are reviewed by the Remuneration Committee annually as part of the review of executive remuneration and a recommendation is put to the Board for approval. All bonuses, shares and incentives must be linked to pre-determined performance criteria and hurdles. During the financial year the Remuneration Committee reviewed: + conditions of service and remuneration of the Directors and Executives; + remuneration policies of the Group; + proposals for new issues under, or changes to, the Company’s long and short term incentive plans; + succession plans for senior management; and + other related matters. The remuneration components for each Executive are detailed below. 1.1 Total Fixed Remuneration (TFR) TFR comprises salary and superannuation capped at the concessional contribution limit. Fixed remuneration is set with reference to role, market and relevant experience and is reviewed annually or on promotion. 1.2 Short Term Incentive (STI) Fleetwood’s performance measures include the use of annual performance objectives, metrics and continuing emphasis on Company values. The performance measures are set annually after consultation with the Directors and Executives and are specifically tailored to the areas where each Executive has a level of control. The measures target areas the Board believes hold the greatest potential for expansion and profit and cover financial and non-financial measures. The performance measures for the STI comprise a combination of individual and company specific performance targets. The weighting is 50% non-financial and 50% financial. In setting the performance measures for the STI, the Remuneration Committee is conscious to ensure that all targets are measurable and provide a challenging but meaningful incentive to participants. 22 FleetwoodNon-financial metrics are based on performance against specific individual key performance targets. Individual performance targets are derived from position descriptions, key responsibilities, key competencies and period specific objectives which are in turn aligned with key business strategies identified annually during the business planning process following the Board’s sign off of budgets. Financial performance targets are derived from budgeted or forecast EBITA above a relevant qualifying gate which is considered an appropriate measure of the Company’s profitability. The maximum amount of these awards is based on a percentage of the Executive’s TFR (which is set out in table 4). The actual STI outcomes for the year are detailed in tables 3 and 5 below. 1.3 Long Term Incentive (LTI) Long-term incentives in the form of share rights received by Executives are determined in accordance with the provisions of the Executive Long Term Incentive Plan (LTI Plan), which was approved by shareholders at the 2018 Annual General Meeting (AGM). The objective of this plan is to retain and reward executives and to align their long term interests with those of shareholders. 50% of share rights are performance tested against total shareholder return (TSR) performance, 25% are tested against earnings per share (EPS) performance and the remaining 25% are tested against return on equity (ROE) performance over a 3 year period from a start date of 1 July 2018 (Start Date) to a test date of 30 June 2021 (End Date). The TSR performance condition will be met if the Company’s TSR performance is at or above 15% compound annual growth rate (CAGR) (over the period from the Start Date to the End Date). The EPS performance condition will be met if the Company’s EPS performance is at or above 15% compound annual growth rate in the 2021 financial year and the ROE performance condition will be met if the Company’s ROE is at or above 12% in the 2021 financial year (subject to a maximum debt to equity ratio of 30%). The maximum amount of LTI awards is based on a percentage of the Executive’s TFR (which is set out in table 4). Up until the implementation of the LTI Plan at the 2018 AGM, Executives participated in the Executive Share Unit and Executive Option Plans. The share units and options granted pursuant to those plans are noted and discussed in the 2018 Remuneration Report. Those plans will remain in effect until all granted units and options have been exercised, fortified or expired. No share units or options have been granted or issued since the introduction of the LTI Plan in 2018. Further details on these plans are contained in section 5. 1.4 Use of remuneration consultants Fleetwood’s Remuneration Committee took advice from external consultants regarding appropriate benchmarks for Executive TFR. The Committee also took advice from external consultants on the design and structure of the new LTI Plan. Under the terms of the engagement, EY provided remuneration recommendations as defined in section 9B of the Corporations Act 2001 and was paid $16,000 (excluding GST) for these services. EY has confirmed that the above recommendations have been made free from undue influence by members of the Group’s KMP. EY was engaged by, and reported directly to, the previous Chair of the Remuneration Committee, Jeff Dowling. The agreement was executed by the Chair of the Remuneration Committee under delegated authority on behalf of the Board. The services were provided by EY directly to the Chair of the Remuneration Committee. 1.5 Voting and comments made at the Company’s last Annual General Meeting Fleetwood received 55.7% of ‘yes’ votes on its Remuneration Report for the financial year ending 30 June 2018. The Company received no specific feedback on its Remuneration Report at the 2018 AGM. 1.6 Consequences of performance on shareholder wealth In considering the Group’s performance and benefits for shareholder wealth, the Board have regard to the following indices in respect of the current financial year and the previous four financial years: Table 1: Five year Snapshot of Continuing Operations Share price at start of year ($) Share price at end of year ($) Dividend per share (cents) Earnings per share (cents) Diluted earnings per share (cents) $ Million Revenue Profit before interest, tax and amortisation (EBITA) Net profit after tax (NPAT) 2015 2.33 1.37 - 13.2 13.2 2016 1.37 1.91 - 4.2 4.2 2017 1.91 2.36 5.0 24.8 24.8 2018 2.36 2.27 1.0 20.0 19.9 2019 2.27 1.70 - 15.4 15.4 245.9 233.0 262.4 267.0 315.3 15.3 8.1 5.3 2.6 22.7 15.2 18.8 12.2 25.3 14.0 23 DIRECTORS’ REPORT (CONT’D) REMUNERATION REPORT (AUDITED) (CONT’D)Fleetwood2. DETAILS OF REMUNERATION Details of the nature and amount of each element of the remuneration of each Director and Executive of Fleetwood are shown in the table below: Table 2: Non-Executive Directors Remuneration Summary SHORT-TERM EMPLOYEE BENEFITS POST EMPLOYMENT SHARE BASED PAYMENTS S E E F & Y R A L A S $ NON-EXECUTIVE DIRECTORS Phillip Campbell Chairman, Non-Executive Director 2019 2018 Jeff Dowling Non-Executive Director 2019 2018 Adrienne Parker Non-Executive Director 2019 2018 Stephen Boyle Non-Executive Director (Resigned 31/08/17) 2019 2018 Mark Southey Non-Executive Director (Appointed 10/10/18) 2019 2018 2019 2018 140,000 137,500 82,192 77,626 82,192 63,178 - 11,667 54,794 - 359,178 289,970 S U N O B $ - - - - - - - - - - - - Y R A T E N O M - N O N $ - - - - - - - - - - - - I N O T A U N N A - R E P U S $ - - 7,808 7,374 7,808 5,856 - - 5,205 - 20,822 13,231 M R E T G N O L R E H T O I S T F E N E B $ - - - - - - - - - - - - S N O T P O I $ - - - - - - - - - - - - I S T N U E R A H S $ - - - - - - - - - - - - I S T H G R E R A H S $ L A T O T $ - 140,000 - 137,500 - - 90,000 85,000 - - 90,000 69,034 - - - - - 11,667 60,000 - - 380,000 - 303,201 24 DIRECTORS’ REPORT (CONT’D) REMUNERATION REPORT (AUDITED) (CONT’D)Fleetwood Table 3: Executive Director and Executives Remuneration Summary SHORT-TERM EMPLOYEE BENEFITS POST EMPLOYMENT SHARE BASED PAYMENTS S E E F & Y R A L A S $ S U N O B $ Y R A T E N O M - N O N $ I N O T A U N N A - R E P U S $ M R E T G N O L R E H T O I S T F E N E B $ EXECUTIVE DIRECTOR AND OFFICERS Brad Denison Chief Executive Officer, Managing Director 2019 2018 548,384 100,000 23,410 25,000 4,835 585,327 219,143 28,243 25,000 34,766 Andrew Wackett Chief Financial Officer, Company Secretary 2019 2018 334,097 60,000 270,649 Elizabeth Maynard General Counsel, Company Secretary (Appointed 03/09/18) 2019 2018 Yanya O'Hara Company Secretary (Resigned 05/07/18) 2019 2018 187,922 - 14,707 193,293 29,608 - - - - Jarrod Waring Chief Executive Officer - Modular Accommodation 2019 2018 354,043 60,000 338,813 58,200 Manuel Larre Chief Executive Officer - Parts and Services 2019 2018 282,198 61,019 285,594 60,000 Peter Naylor Executive General Manager - Fleetwood RV Pty Ltd (Ceased being a KMP 20/06/18) 2019 2018 - - 308,564 25,000 Dominic Letts Executive General Manager - Village Operations (Appointed 01/01/18) 2019 2018 286,597 60,000 138,834 - Giles Everest Executive General Manager - Fleetwood Pty Ltd (Resigned 20/10/17) - - 117,575 105,000 - - - - - - - - - - - - - - - - 20,531 20,042 789 789 17,110 - 1,397 19,681 - - - 11,957 20,531 3,906 19,615 16,038 25,000 3,738 23,772 11,390 - - 25,000 3,616 25,000 10,545 3,172 7,377 - 8,300 - - 2019 2018 2019 2018 I S T N U E R A H S $ I S T H G R E R A H S $ L A T O T $ 112,524 6,732 820,885 136,579 - 1,029,058 26,706 3,059 445,183 54,861 - 346,341 - - 2,416 16,693 2,154 207,186 - - - - 18,520 271,233 25,669 3,171 467,321 21,212 - 453,878 30,485 2,740 405,180 23,770 - 404,526 - 21,696 - - - 383,875 11,252 2,637 388,658 6,649 - 163,405 - 8,077 - - - 238,952 S N O T P O I $ - - - - - - - - - - - - - - - - - - 2,007,948 341,019 23,410 134,569 16,441 - 209,052 20,494 2,752,933 2,238,649 496,951 28,243 151,956 85,933 - 289,536 - 3,291,269 25 DIRECTORS’ REPORT (CONT’D) REMUNERATION REPORT (AUDITED) (CONT’D)Fleetwood Table Notes: The Remuneration Committee changed the STI structure to ensure it relates to the current financial year not the previous financial year. As such, the 2019 STI in the above table relates to both FY18 and FY19. Whilst the financial component of the STI was not met in either year, several elements of the non-financial component were met. This included the sale of the Caravan Manufacturing and Flexiglass businesses and the successful acquisitions of MBS and NRV, together with the associated capital raising. Brad Denison’s salary and wages has been reduced by the amount of annual leave taken in the period previously recognised as salaries and wages in the Remuneration Report. Included in salary and fees are amounts of annual leave accrued during the reporting period. There are no post- employment benefits other than superannuation. Executive contracts do not provide for any termination payments, other than the payment of accrued leave entitlements. Other long term benefits comprise long service leave entitlements accrued to the Executive during the reporting period. The amount included in remuneration as share-based payments are not related to or indicative of the benefits (if any) that individual executives may ultimately realise should the equity instruments vest. 3. SERVICE AGREEMENTS Remuneration and other terms of employment for all Executives are formalised in a Service Agreement. The major provisions of the agreements relating to remuneration are set out below: Table 4: Executive Service Agreements KEY MANAGEMENT PERSONNEL Brad Denison Andrew Wackett Elizabeth Maynard (Appointed 03/09/18) Yanya O’Hara (Resigned 05/07/18) Jarrod Waring Manuel Larre Dominic Letts TFR 625,000 355,000 250,000 210,000 368,000 318,000 306,000 STIP % 50% 40% 40% 25% 40% 40% 40% LTIP % 50% 40% 40% 25% 40% 40% 40% NOTICE PERIOD 3 months 3 months 3 months 3 months 3 months 3 months 3 months The Remuneration Committee determines remuneration for all KMP listed under the guidelines contained in this Remuneration Report. 4. STI INCLUDED IN REMUNERATION Details of the STI cash bonuses awarded as remuneration to each KMP, the percentage of the available bonus that was paid in the financial year, and the percentage that was forfeited because the person did not meet the service and performance criteria is set out below. No part of the bonus is payable in future years. Table 5: STI summary KEY MANAGEMENT PERSONNEL Brad Denison Andrew Wackett Elizabeth Maynard (Appointed 03/09/18) Yanya O'Hara (Resigned 05/07/18) Jarrod Waring Manuel Larre Dominic Letts INCLUDED IN REMUNERATION EARNED % FOREFEITED % TOTAL AVAILABLE STI % 100,000 60,000 - - 60,000 61,019 60,000 17% 17% 0% 0% 16% 20% 19% 33% 23% 0% 25% 24% 20% 21% 50% 40% 0% 25% 40% 40% 40% A description of the STI is detailed in section 1.2 of this report and further details on the above outcomes are disclosed below table 3. 26 DIRECTORS’ REPORT (CONT’D) REMUNERATION REPORT (AUDITED) (CONT’D)Fleetwood5. SHARE-BASED REMUNERATION Fleetwood currently has three share based long term incentive plans, two of which are no longer in use. These are summarised below: + FY19: LTI Share Rights Plan. Key terms discussed in section 1.3 of this report. An expense of $34,174 was recorded in the FY19 accounts for this plan. KMP holdings of share rights under this plan are detailed in table 9. + FY15-FY18: Share Units Plan. No longer in use. The final grant date in relation to this plan was made on 20 December 2017 with a 3 year vesting period. An accounting expense of $306,002 was recorded in the FY19 accounts for this plan. KMP holdings of share units under this plan are detailed in table 10. + FY12-FY14: Share Options Plan. No longer in use. No expense for this plan was recorded in the FY19 accounts. KMP holdings of options under this plan are detailed in table 11. Details of share rights over ordinary shares in the Company that were granted as remuneration to each KMP are set out in the table below. Non-Executive Directors are not entitled to participate in the LTI Share Rights Plan. Table 6: FY2019 LTI summary KEY MANAGEMENT PERSONNEL Brad Denison Andrew Wackett GRANT DATE NO. AT GRANT DATE VALUE AT GRANT DATE 01/07/18 146,028 287,675 01/07/18 66,355 130,720 Elizabeth Maynard (Appointed 03/09/18) 01/07/18 46,729 92,056 Yanya O’Hara (Resigned 05/07/18) 01/07/18 - - Jarrod Waring Manuel Larre Dominic Letts 01/07/18 68,785 135,507 01/07/18 59,439 01/07/18 57,196 117,095 112,677 N/A 444,533 875,729 NO. UNITS VESTED DURING THE YEAR - - - - - - - - VALUE OF SHARE RIGHTS INCLUDED IN REMUNERATION 6,732 3,059 2,154 - 3,171 2,740 2,637 VESTING DATE 30/06/21 30/06/21 30/06/21 30/06/21 30/06/21 30/06/21 30/06/21 N/A 20,494 5.1 Valuation assumptions for the FY19 LTI (Share Rights Plan) The estimation of the fair value of share-based payment awards requires judgement concerning the appropriate valuation methodology. The choice of valuation methodology is determined by the structure of the awards, particularly the vesting conditions. A Monte-Carlo simulation valuation methodology was used to determine the value relative to TSR growth. The valuation methodology used was chosen from those available to incorporate an appropriate amount of flexibility with respect to the particular performance and vesting conditions of the award. The value recognised in the period for each KMP has been recognised straight-line over the vesting term as in line with accounting standards. For those portions of the granted rights with non-market vesting conditions, values have been estimated based on management’s judgments as to the number of units expected to vest. Key inputs to the model are detailed below. Table 7: Key inputs to FY2019 LTI Valuation GRANT DATE EXPIRY DATE VESTING TRANCHE VOLATILITY DIVIDEND YIELD RISK FREE INTEREST RATE SHARE PRICE AT GRANT DATE FAIR VALUE AT GRANT DATE 01/07/18 30/06/21 1 % 53.66 % 2.50 % 2.24 $ 1.97 $ 0.72 5.2 Valuation assumptions for the FY15-FY18 LTI (Share Units Plan) The fair value at grant date for KMP share units, is determined under option pricing methodology using a Monte-Carlo simulation model. The expected volatility is based on historical share price volatility over the past five years, and the risk-free interest rate and dividend yield have been assessed based on prevailing market conditions. 27 DIRECTORS’ REPORT (CONT’D) REMUNERATION REPORT (AUDITED) (CONT’D)FleetwoodKey inputs to the model are as follows: Table 8: Key inputs to FY2015-2018 LTI Valuation GRANT DATE EXPIRY DATE VESTING TRANCHE VOLATILITY % DIVIDEND YIELD % RISK FREE INTEREST RATE % FAIR VALUE AT GRANT DATE $ EXERCISE PRICE $ WEIGHTED AVERAGE SHARE PRICE AT GRANT DATE $ 18/12/14 18/12/19 18/12/15 18/12/20 20/12/16 18/12/21 12/06/17 12/06/22 20/12/17 20/12/22 1 2 3 1 2 3 1 2 3 1 2 3 1 2 3 47.57 47.57 47.57 50.21 50.21 50.21 49.48 49.48 49.48 49.48 49.48 49.48 51.84 51.84 51.84 3.20 3.20 3.20 3.20 3.20 3.20 3.20 3.20 3.20 1.90 1.90 1.90 1.80 1.80 1.80 2.40 2.40 2.40 1.73 1.73 1.73 2.33 2.33 2.33 2.53 2.53 2.53 2.43 2.43 2.43 0.43 0.42 0.39 0.46 0.42 0.37 0.82 0.74 0.68 0.91 0.83 0.72 1.21 1.12 1.01 1.35 1.35 1.35 1.22 1.22 1.22 1.94 1.94 1.94 2.19 2.19 2.19 2.84 2.84 2.84 1.35 1.35 1.35 1.22 1.22 1.22 1.94 1.94 1.94 2.19 2.19 2.19 2.84 2.84 2.84 6. OTHER INFORMATION 6.1 Share rights held by KMP (FY19 LTI) The number of share rights to acquire shares in the Company held during the 2019 reporting period by each of the KMP of the Group; including their related parties are set out below. No share rights are held by the Directors, except for the Managing Director, Brad Denison. Table 9: Details of share right holdings of KMP SHARE RIGHTS UNITS AT BEGINNING OF YEAR GRANTED AS REMUNERATION FORFEITED EXERCISED UNITS AT END OF YEAR VESTED DURING THE YEAR VESTED AT END OF YEAR PROCEEDS RECEIVED ON EXERCISE DIRECTOR Brad Denison 2019 2018 EXECUTIVES Andrew Wackett 2019 2018 Elizabeth Maynard (Appointed 03/09/18) 2019 2018 Jarrod Waring 2019 2018 Manuel Larre 2019 2018 Dominic Letts 28 2019 2018 2019 2018 NO. NO. NO. NO. NO. NO. NO. - - - - - - - - - - - - - - 146,028 - 66,355 - 46,729 - 68,785 - 59,439 - 57,196 - 444,533 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 146,028 - 66,355 - 46,729 - 68,785 - 59,439 - 57,196 - 444,533 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - $ - - - - - - - - - - - - - - DIRECTORS’ REPORT (CONT’D) REMUNERATION REPORT (AUDITED) (CONT’D)Fleetwood6.2 Share units held by KMP (FY15-FY18 LTI) The number of share units to acquire shares in the Company held during the 2019 reporting period by each of the KMP of the Group; including their related parties are set out below. No share units are held by the Directors, except for Managing Director, Brad Denison. Table 10: Details of share unit holdings of KMP SHARE UNITS UNITS AT BEGINNING OF YEAR GRANTED AS REM. FORFEITED EXERCISED UNITS AT END OF YEAR VESTED DURING THE YEAR VESTED AT END OF YEAR PROCEEDS RECEIVED ON EXERCISE NO. NO. NO. NO. NO. NO. NO. DIRECTOR Brad Denison 2019 2018 770,000 570,000 - 200,000 EXECUTIVES Andrew Wackett 2019 2018 110,000 60,000 - 50,000 Yanya O’Hara (Resigned 05/07/18) - - - - 2019 2018 53,760 63,000 - 40,000 - (49,240) Jarrod Waring 2019 2018 145,000 95,000 - 50,000 Manuel Larre 2019 2018 155,000 95,000 - 60,000 Peter Naylor (Ceased being a KMP 20/06/18) 2019 2018 115,000 55,000 - 60,000 Dominic Letts 2019 2018 73,200 53,200 - 20,000 Giles Everest (Resigned 20/10/17) - - - - - - - - - - - - - - - - - - - - - - 770,000 770,000 66,000 190,100 438,000 372,000 110,000 110,000 - - - - 53,760 53,760 - 36,910 53,760 53,760 145,000 145,000 9,900 31,700 71,900 62,000 155,000 155,000 9,900 31,700 71,900 62,000 115,000 115,000 6,600 18,500 31,900 25,300 73,200 73,200 6,600 20,000 46,800 40,200 $ - - - - - - - - - - - - - - 2019 2018 2019 2018 - 80,000 - - - (58,100) - (21,900) - - - - - - 1,421,960 1,071,200 - 480,000 - (107,340) - (21,900) 1,421,960 1,421,960 99,000 328,910 714,260 615,260 - 62,853 - 62,853 29 DIRECTORS’ REPORT (CONT’D) REMUNERATION REPORT (AUDITED) (CONT’D)Fleetwood6.3 Share options held by KMP (FY12-FY14 LTI) The number of share options to acquire shares in the Company held during the 2019 reporting period by each of the KMP of the Group; including their related parties are set out below. No share options are held by the Directors, except for Managing Director, Brad Denison. Table 11: Details of share option holdings of KMP OPTIONS AT BEGINNING OPTIONS OF YEAR GRANTED LAPSED EXERCISED OPTIONS AT END OF YEAR VESTED DURING THE YEAR VESTED AND EXERCISABLE AT END OF YEAR VESTED AND UNEXERCISABLE AT END OF YEAR NO. NO. NO. NO. NO. NO. NO. NO. DIRECTOR Brad Denison 2019 2018 100,000 150,000 - (100,000) (50,000) - - - - 100,000 EXECUTIVES Yanya O’Hara (Resigned 05/07/18) 2019 2018 Jarrod Waring 2019 2018 Manuel Larre 2019 2018 500 720 250 250 - - - - (500) (220) (250) - 40,000 55,000 - (40,000) (15,000) - Dominic Letts (Appointed 01/01/18) 2019 2018 2019 2018 1,000 1,660 141,750 207,630 - - - - (1,000) (660) (141,750) (65,880) - - - - - - - - - - - 500 - 250 - 40,000 - 1,000 - 141,750 - - - - - - - - - - - - - - - 100,000 - 500 - 250 - - - 1,000 - 1,750 - - - - - 40,000 - - - 140,000 6.4 Loans to KMP (FY15-FY18 LTI) Loans to KMP in connection with the FY15-FY18 LTI totalling $3,157,955 (2018: $3,157,955) were outstanding at the end of the reporting period. The value of shares in the Company held by the Share Trust exceeded the balance of loans outstanding at the end of the reporting period. The loans are non-recourse, there is no fixed term, and no allowance for doubtful debts or impairment loss has been recognised against them. The number of KMP included in the aggregate of loans is six. Brad Denison had loans totalling $1,426,910 (2018: $1,426,910) made to him at the end of the reporting period, with the total loan remaining outstanding at the end of the reporting period in connection with the LTIP. The loan is non-recourse, there is no fixed term, and no allowance for doubtful debts or impairment loss has been recognised against it. 6.5 Other transactions with KMP There were no other transactions with KMP during the period. END OF AUDITED REMUNERATION REPORT. 30 DIRECTORS’ REPORT (CONT’D) REMUNERATION REPORT (AUDITED) (CONT’D)FleetwoodDIRECTORS’ DECLARATION In the opinion of the directors of Fleetwood Corporation Limited: a) The financial statements and notes set out on pages 33 to 71, are in accordance with the Corporations Act (Cth) 2001, including: i. Complying with Australian Accounting Standards and the Corporations Regulations 2001 (Cth); and ii. Giving a true and fair view of the Group’s financial position as at 30 June 2019 and of its performance for the financial year ended on that date; 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; and c) There are reasonable grounds to believe that the Company and the companies to which the ASIC Corporations (Wholly-owned Companies) Instrument 2016/785 applies, as detailed in note 22 to the financial statements will, as a Group, be able to meet any obligations or liabilities to which they are, or may become, subject by virtue of the deed of cross guarantee. The Directors’ draw attention to note 1 to the financial statements, which includes a statement of compliance with International Financial Reporting Standards. The directors have been given the declarations required by s.295A of the Corporations Act (Cth) 2001 from the Managing Director. Signed in accordance with a resolution of the directors. On behalf of the Directors P Campbell Non-Executive Chairman 24 September 2019 Perth 31 FleetwoodAUDITOR’S INDEPENDENCE DECLARATION 32 FleetwoodGrant Thornton Audit Pty Ltd ACN 130 913 594asubsidiary or related entity of Grant Thornton Australia Ltd ABN 41 127 556 389‘Grant Thornton’ refers to the brand under which the Grant Thornton member firms provide assurance, tax and advisory services to their clients and/or refers to one or more member firms, as the context requires. Grant Thornton Australia Ltd is a member firm of Grant Thornton International Ltd (GTIL). GTIL and the member firms are not a worldwide partnership. GTIL and each member firm is a separate legal entity. Services are delivered by the member firms. GTIL does not provide services to clients. GTIL and its member firms are not agents of, and donot obligate one another and are not liable for one another’s acts or omissions. In the Australian context only, the use of the term ‘Grant Thornton’ may refer to Grant Thornton Australia Limited ABN 41 127 556 389 and its Australian subsidiaries and related entities. GTIL is not anAustralian related entity to Grant Thornton Australia Limited.Liability limited by a scheme approved under Professional Standards Legislation. www.grantthornton.com.auLevel 17, 383 Kent StreetSydney NSW 2000Correspondence to:Locked Bag Q800QVB Post OfficeSydney NSW 1230T+61 2 8297 2400F+61 2 9299 4445Einfo.nsw@au.gt.comWwww.grantthornton.com.auCentral Park, Level 43152-158 St Georges TerracePerth WA 6000Correspondence to: PO Box 7757Cloisters SquarePerth WA 6850T +61 8 9480 2000F +61 8 9480 2050E info.wa@au.gt.comW www.grantthornton.com.auAuditor’s Independence Declaration To the DirectorsofFleetwood Corporation LimitedIn accordance with the requirements of section 307C of the Corporations Act 2001, as lead auditor for the audit of Fleetwood Corporation Limited for the year ended 30June2019, I declare that, to the best of my knowledge and belief, there have been:anocontraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; andbno contraventions of any applicable code of professional conduct in relation to the audit.GRANT THORNTON AUDIT PTY LTDChartered AccountantsM D DewhurstPartner –Audit & AssurancePerth,24September 2019CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 JUNE 2019 Continuing operations Sales revenue Other income Materials used Sub-contract costs Employee benefits Operating leases Other expenses Profit before interest, tax, depreciation and amortisation (EBITDA) Depreciation and amortisation Profit before interest, tax and amortisation (EBITA) Amortisation of contract intangibles Profit before interest and tax (EBIT) Finance costs Profit before income tax expense Income tax expense Profit from continuing operations Loss from discontinued operation Profit (Loss) for the year CONSOLIDATED 2019 $’000 2018 $’000 NOTE 2 3 3 3 4 28 7, 20 315,088 225 (110,190) (87,159) (53,868) (7,227) (22,497) 34,372 (9,077) 25,295 (3,067) 22,228 (854) 21,374 (7,360) 14,014 (20,258) 266,816 233 (100,738) (82,238) (39,115) (6,934) (12,872) 25,152 (6,336) 18,816 - 18,816 (1,245) 17,571 (5,367) 12,204 (25,665) (6,244) (13,461) Other comprehensive income Items that may subsequently be reclassified to profit or loss: Net exchange difference - foreign controlled entities (net of tax) 20 211 172 Total comprehensive income (loss) for the year (6,033) (13,289) Earnings (loss) per share from continuing and discontinued operations Basic earnings (loss) per share (cents) Diluted earnings (loss) per share (cents) Earnings (loss) per share from continuing operations Basic earnings (loss) per share (cents) Diluted earnings (loss) per share (cents) To be read in conjunction with the accompanying notes 7 7 7 7 (6.9) (6.9) 15.4 15.4 (22.0) (22.0) 20.0 19.9 33 FleetwoodCONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2019 CONSOLIDATED 2019 $’000 2018 $’000 NOTE Current assets Cash and cash equivalents Trade and other receivables Contract assets Inventories Other financial assets Tax assets Non-current assets held for sale Total current assets Non-current assets Trade and other receivables Contract assets Property, plant and equipment Goodwill Intangible assets Deferred tax assets Total non-current assets Total assets Current liabilities Trade and other payables Contract liabilities Interest bearing liabilities Tax liabilities Provisions Earn out liability Total current liabilities Non-current liabilities Interest bearing liabilities Provisions Earn out liability Total non-current liabilities Total liabilities Net assets Equity Issued capital Reserves Retained earnings Total equity To be read in conjunction with the accompanying notes. 34 8 9 9 10 23 11 9 9 12 13 14 4 15 15 17 16 29 17 16 29 20 20 20 33,635 59,880 20,035 24,488 67 1,803 5,371 6,572 39,315 20,471 39,554 90 - 9,211 145,279 115,213 5,053 2,004 48,437 85,911 15,200 10,674 167,279 312,558 56,691 7,653 18 93 9,022 345 2,836 - 57,514 50,721 1,357 12,429 124,857 240,070 40,588 2,852 1,957 111 9,894 - 73,822 55,402 - 2,895 3,755 6,650 80,472 232,086 254,528 440 (22,882) 232,086 4,000 649 - 4,649 60,051 180,019 196,428 229 (16,638) 180,019 FleetwoodCONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2019 CONSOLIDATED Balance 1 July 2017 Loss for the year Exchange differences arising on translation of foreign operations Total comprehensive income for the year Dividends Share-based payments Balance at 30 June 2018 Loss for the year Exchange differences arising on translation of foreign operations Total comprehensive income for the year Issue of Share Capital Share-based payments Prior period adjustment FOREIGN CURRENCY TRANSLATION RESERVE $’000 57 - 172 172 - - 229 - 211 211 - - - ISSUED CAPITAL $’000 195,371 - - - 570 487 196,428 - - - 57,325 423 352 RETAINED EARNINGS $’000 487 (13,461) - (13,461) (3,664) - (16,638) (6,244) - (6,244) - - - TOTAL $’000 195,915 (13,461) 172 (13,289) (3,094) 487 180,019 (6,244) 211 (6,033) 57,325 423 352 Balance at 30 June 2019 254,528 440 (22,882) 232,086 To be read in conjunction with the accompanying notes 35 FleetwoodCONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 30 JUNE 2019 CONSOLIDATED 2019 $’000 2018 $’000 NOTE Cash flows from operating activities Receipts in the course of operations Payments in the course of operations Interest received Income taxes (paid) / refunds received Finance costs paid Net cash provided by operating activities Cash flows from investing activities Acquisition of property, plant and equipment Proceeds from sale of non-current assets Payment for intangible assets Payment for acquisition of subsidiary Proceeds on sale of investment Proceeds on sale of Coromal and Windsor brands Acquired through business combination Net cash used in investing activities Cash flows from financing activities Proceeds from borrowings Repayment of borrowings Dividends paid Proceeds from issue of shares Net cash used in financing activities 8 29 29 20 Net increase / (decrease) in cash and cash equivalents Cash and cash equivalents at the beginning of the financial year Effect of exchange rate changes on cash held in foreign currencies Cash and cash equivalents at the end of the financial year 8 To be read in conjunction with the accompanying notes 383,008 (347,883) 228 (2,480) (943) 31,930 (10,119) 323 (1,991) (45,645) - 1,000 283 370,095 (352,130) 226 1,037 (1,339) 17,889 (19,188) (17) (2,524) - 7,164 - - (56,149) (14,565) 26,000 (32,054) - 57,325 51,271 27,052 6,572 11 33,635 158,457 (157,500) (3,094) - (2,137) 1,187 5,383 2 6,572 36 FleetwoodNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 SUMMARY OF NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS BUSINESS PERFOMANCE BALANCE SHEET FINANCING CAPITAL GROUP STRUCTURE 2. SALES REVENUE 8. CASH AND CASH EQUIVALENTS 17. INTEREST BEARING LOANS AND BORROWINGS 20. EQUITY AND RESERVES 22. DEED OF CROSS GUARANTEE OTHER 19. COMMITMENTS 25. CONTROLLED ENTITIES 21. AUDITORS REMUNERATION 27. PARENT ENTITY DISCLOSURES 23. FINANCIAL RISK MANAGEMENT 28. DISCONTINUED OPERATIONS 24. CONTINGENT LIABILITIES 29. BUSINESS COMBINATIONS 26. RELATED PARTIES 30. SUBSEQUENT EVENTS 3. EXPENSES 9. TRADE AND OTHER RECEIVABLES AND CONTRACT ASSETS 18. FINANCING ARRANGEMENTS 4. TAX EXPENSE 10. INVENTORIES 5. SEGMENT INFORMATION 11. NON-CURRENT ASSETS HELD FOR SALE 6. DIVIDEND INFORMATION 12. PROPERTY, PLANT AND EQUIPMENT 7. EARNINGS PER SHARE 13. GOODWILL 14. INTANGIBLE ASSETS 15. TRADE AND OTHER PAYABLES AND CONTRACT LIABILITIES 16. PROVISIONS 37 Fleetwood1. ABOUT THIS REPORT The significant general policies which have been adopted in the preparation of this financial report are: 1.1 STATEMENT OF COMPLIANCE The financial report is a general purpose financial report which has been prepared in accordance with the Corporations Act 2001 (Cth), Accounting Standards and Interpretations, and complies with other requirements of the law. Compliance with Australian Accounting Standards ensures the consolidated financial statements and notes of the consolidated entity comply with International Financial Reporting Standards. The Company is a for profit entity and the financial statements comprise the consolidated financial statements of the Group. The financial statements were authorised for issue by the directors on 24 September 2019. New and revised Standards and Interpretations adopted during the reporting period The Group has adopted all of the new and revised Standards and Interpretations issued by the Australian Accounting Standards Board (AASB) that are relevant to its operations and effective for the current annual reporting period. Adoption of the following standards has had no effect on the amounts reported for the current or prior period. The Group has adopted AASB 15 ‘Revenue from Contracts with Customers’ and AASB 9 ‘Financial Instruments’ issued by the Australian Accounting Standards Board (the AASB) and are effective for the current reporting period. Further information relating to the new and revised standards and interpretations is included below. AASB 15 ‘Revenue from Contracts with Customers’ AASB 15 replaces AASB 118 ‘Revenue’, AASB 111 ‘Construction Contracts’ and several revenue-related Interpretations. The new Standard has been applied as at 1 July 2017 with no effect of initial application and thus no required adjustment to the opening balance of retained earnings at 1 July 2017. Details of revenue recognition policies under AASB 15 are included in Note 2. AASB 9 ‘Financial Instruments’ AASB 9 ‘Financial Instruments’ replaces AASB 139 ‘Financial Instruments: Recognition and Measurement’. It makes major changes to the previous guidance on the classification and measurement of financial assets and introduces an ‘expected credit loss’ model for impairment of financial assets. The new standard has been applied as at 1 July 2018 with no effect on initial application. The adoption of AASB 9 has not affected any of the company’s transactions and balances recognised in the financial statements for the period. Applicable standards and interpretations not yet effective At the date of authorisation of the financial statements, the following applicable standards and interpretations have been issued but are not yet effective: STANDARD AASB 16 ‘Leases’ EFFECTIVE FOR REPORTING PERIODS BEGINNING ON OR AFTER: EXPECTED TO BE APPLIED IN THE YEAR ENDING: 1 January 2019 30 June 2020 The Group has undertaken a detailed assessment of the impact of AASB 16. The assessment of the impact of AASB 16 has indicated a material inclusion of a right of use asset and lease liability in the consolidated statement of financial position and an immaterial impact in the consolidated statement of profit or loss and other comprehensive income when it is first adopted in 30 June 2020. Refer to Note 19. 1.2 BASIS OF PREPARATION The financial report has been prepared on the basis of historical costs, except for certain non-current assets and financial instruments that are measured at revalued amounts or fair values, as explained in the accounting policies below. Cost is generally based on the fair values of the consideration given in exchange for assets. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, regardless of whether that price is directly observable or estimated using another valuation technique. In estimating the fair value of an asset or a liability, the Group considers the characteristics of the asset or liability market participants would take into account when pricing the asset or liability at the measurement date. Fair value for measurement and/or disclosure purposes in these consolidated financial statements is determined on such a basis, except for share-based payment transactions that are within the scope of AASB 2, leasing transactions that are within the scope of AASB 117, and measurements that have some similarities to fair value but are not fair value, such as net realisable value in AASB 102 or value in use in AASB 136. Accounting policies have been consistently applied and except where there are changes in accounting policy, are consistent with those of the previous year. All amounts are presented in Australian Dollars unless otherwise noted. The Company has applied the relief available to it under ASIC Corporations (Rounding in Financial / Directors’ Reports) Instrument 2016 / 191 and accordingly, amounts in the financial statements and directors’ report have been rounded to the nearest $1,000, or in certain cases, the nearest dollar. 1.3 BASIS OF CONSOLIDATION 38 The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries). Control is achieved when the Company has power over the investee, is exposed, or has rights, to variable returns from its involvement with the investee, and has the ability to use its power to affect its returns. The Company reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control. All subsidiaries have a reporting date of 30 June. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT’D) FOR THE YEAR ENDED 30 JUNE 2019Fleetwood1. ABOUT THIS REPORT (CONT’D) When the Company has less than a majority of the voting rights of an investee, it has power over the investee when the voting rights are sufficient to give it the practical ability to direct the relevant activities of the investee unilaterally. The Company considers all relevant facts and circumstances in assessing whether or not the Company’s voting rights in an investee are sufficient to give it power, including the size of the Company’s holding of voting rights relative to the size and dispersion of holdings of the other vote holders, potential voting rights held by the Company, other vote holders or other parties, rights arising from other contractual arrangements, and any additional facts and circumstances that indicate that the Company has, or does not have, the current ability to direct the relevant activities at the time that decisions need to be made, including voting patterns at previous shareholders’ meetings. Income and expense of subsidiaries acquired or disposed of during the year are included in the consolidated statement of profit or loss and other comprehensive income from the effective date of acquisition and up to the effective date of disposal, as appropriate. Total comprehensive income of subsidiaries is attributed to the owners of the Company even if this results in the non-controlling interests having a deficit balance. Where necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies in line with those used by other members of the Group. All intra-group transactions, balances, income and expenses are eliminated on consolidation. When the Group loses control of a subsidiary, a gain or loss is recognised in the profit or loss and is calculated as the difference between (i) the aggregate of the fair value of the consideration received and the fair value of any retained interest and (ii) the previous carrying amount of the assets (including goodwill), and liabilities of the subsidiary and any non-controlling interests. When assets of the subsidiary are carried at revalued amounts or fair values and the related cumulative gain or loss has been recognised in other comprehensive income and accumulated in equity, the amounts previously recognised in other comprehensive income and accumulated in equity are accounted for as if the Group had directly disposed of the relevant assets (i.e. reclassified to profit or loss or transferred directly to retained earnings as specified by applicable Standards). The fair value of any investment retained in the former subsidiary at the date when control is lost is regarded as the fair value on initial recognition for subsequent accounting under AASB 139 ‘Financial Instruments: Recognition and Measurement’ or, when applicable, the cost on initial recognition of an investment in an associate. 1.4 COMPARATIVE INFORMATION Comparative information has been restated in the Statement of Financial Position to account for disclosure requirements under AASB 15 ‘Revenue from Contracts with Customers’. 1.5 FOREIGN CURRENCY Functional currency The individual financial statements of each group entity are presented in the currency of the primary economic environment in which the entity operates (its functional currency). The results and financial position of each group entity are expressed in Australian Dollars (‘$’), which is the functional currency of the Company and the presentation currency for the consolidated financial statements. Transactions Foreign currency transactions are translated to Australian currency at the rates of exchange ruling at the dates of the transactions. Amounts receivable and payable in foreign currencies at balance date are translated at the rate of exchange ruling on that date. Exchange differences relating to amounts payable and receivable in foreign currencies are brought to account as exchange gains or losses in the statement of profit or loss in the financial year in which they arise. Translation of controlled foreign operations The assets and liabilities of foreign operations, including subsidiaries, are translated at the rates of exchange ruling at balance date. Equity items are translated at historical rates. Exchange differences arising from translation are taken directly to the foreign currency reserve until disposal or partial disposal of the operations. Income and expense items are translated at the average exchange rates for the period. Exchange differences are recognised in other comprehensive income and accumulated in equity. 1.6 CRITICAL ACCOUNTING JUDGMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY In the application of accounting policies, management is required to make judgments, estimates and assumptions.  The estimates and associated assumptions are based on experience and other factors that are considered relevant. Actual results may differ from these estimates. The following are the key assumptions concerning the future, and other key sources of estimation uncertainty at the end of the reporting period, that have a risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year. + Accounting for construction contracts involves the continuous use of assessed estimates based on assumptions consistent with project scope and schedule, contract and risk management processes. Contracts may span over more than one accounting period.  Estimates of forecast costs are regularly updated in accordance with the agreed work scope and schedule under the contract. Forecasts are based on the cost expected to apply when the related activity is undertaken. Contingencies are included in order to cover the risks in those forecasts. Forecasted costs are used to determine revenue recognition over time as described in Note 2. Revenues reflect the price agreed in the contract and variations where they have been approved or if it is probable they will be approved. Claims are included in contract revenue only where negotiations have reached an advanced stage such that it is probable that the client will accept the claim and recovery of the amount involved is probable. 39 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT’D) FOR THE YEAR ENDED 30 JUNE 2019Fleetwood1. ABOUT THIS REPORT (CONT’D) + Determining whether goodwill is impaired requires an estimation of the value in use of the cash-generating units to which goodwill has been allocated except for where fair value less cost to sell has been applied. The value in use calculation requires the directors to estimate the future cash flows expected to arise from the cash-generating unit and a suitable discount rate in order to calculate the present value. Details of goodwill and the subsequent testing for impairment are set out in Note 13. Where the actual future cash flows are less than expected, a material impairment loss may arise. + The Group uses valuation techniques that include inputs that are not based on observable market data to estimate the fair value of share rights and share units issued during the year. Refer to Note 3. + The Group uses historical and observable market information to measure the value of assets classified as held for sale leading to an additional $3.5 million written down in the period in respect of the discontinued resource sector rental operations (Note 28). + In respect of the discontinued caravan manufacturing operation, the Group has recorded a provision for expected credit losses of $0.6 million, provision for warranty costs of $4.1 million, has written down inventories by $6.1 million and has impaired property, plant and equipment by $1.0 million. These charges resulted in a total expense recorded of $11.9 million as part of discontinued operations (Note 28). These estimates have been derived from the known obligations of the company and management estimates based on previous experience in closures of this nature. + The Group completed two business combinations during the period. As part of the purchase price allocation process, the Group makes judgments and estimates around the fair value of the assets and liabilities acquired, including that of identifiable intangible assets. Further, the Group makes fair value judgments around the determination of contingent consideration. Inputs and the underlying assumptions used to determine the fair value of identifiable intangible assets and contingent consideration amounts are disclosed in Note 29. + Management estimates the net realisable values of inventories, taking into account the most reliable evidence available at each reporting date. The future realisation of these inventories may be affected by future technology or other market-driven changes that may reduce future selling price. The Group is generally pro-active in identifying and stopping orders on slow moving or discontinued items such that these items are not carried at material amounts. 1.7 TAX CONSOLIDATION The Company and its wholly-owned Australian resident entities elected from 1 July 2003 to be taxed as a single entity. Fleetwood Corporation Limited, as the head entity, and the subsidiaries in the tax consolidated group continue to account for their own current and deferred tax amounts. The amounts are measured as if each entity continues to be a stand-alone taxpayer in its own right. The current tax balances are then transferred to the head entity via intercompany balances. The entities within the Group have entered a tax funding arrangement whereby each subsidiary will compensate the head entity for the amount of tax payable that would be calculated as if the subsidiary was a tax paying entity. The method used to calculate current and deferred tax amounts is summarised in Note 4. 1.8 GENERAL INFORMATION Fleetwood Corporation Limited is a public company listed on the Australian Securities Exchange (trading under the symbol ‘FWD’), incorporated in Australia and operating in Australia and New Zealand. The registered and business address of the Company is 21 Regal Place, East Perth, Western Australia. The telephone number of the company is (08) 9323 3300. 2. SALES REVENUE CONTINUING OPERATIONS Sales revenue Recognised at a point in time: Parts and Services Total revenue recognised at a point in time Recognised over time: Modular Accommodation Village Operations Total revenue recognised over time Total Sales Revenue 40 CONSOLIDATED 2019 $’000 2018 $’000 68,770 68,770 59,604 59,604 209,365 36,953 246,318 315,088 179,280 27,932 207,212 266,816 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT’D) FOR THE YEAR ENDED 30 JUNE 2019Fleetwood2. SALES REVENUE (CONT’D) RECOGNITION AND MEASUREMENT SALES REVENUE During the period, the Group adopted ‘AASB 15 – Revenues from contracts with customer’. AASB 15 replaces AASB 118 Revenue, AASB 111 Construction Contracts and several revenue-related Interpretations. The new Standard has been applied as at 1 July 2017 with no effect of initial application and thus no required adjustment to the opening balance of retained earnings at 1 July 2017. The adoption of AASB 15 has impacted the wording and terminology used to describe the company’s revenue recognition policies and balances and transactions presented, which are detailed below. Revenue from contracts with customers primarily arises from the following streams: Parts and Services segment: + The shipment of recreational vehicle parts and accessories; + the installation of vehicle parts and accessories; and + repairs and maintenance services of customers’ vehicles. Village Operations segment: + Hiring of Group-owned accommodation units; and + management fees for a village that was built by the Group and previously sold to a customer. Modular Accommodation segment: + The construction of modular accommodation units sold to customers; and + the hiring of modular accommodation units on short-term contracts. To determine whether to recognise revenue, the Group follows a 5-step process: 1. Identifying the contract with a customer 2. Identifying the performance obligations 3. Determining the transaction price 4. Allocating the transaction price to the performance obligations 5. Recognising revenue when/as performance obligation(s) are satisfied The transaction price is the fair value of consideration received or receivable net of goods and services tax (GST). Parts and Services Revenue from the sale of parts and services is for a fixed fee and recognised at a point in time. Recognition occurs when the Group transfers control of the asset to the customer. For parts and services, transfer of control of the asset to the customer is the date of receipt of the customer for the good or where the Group is providing a service such as installation, repairs or maintenance, recognition is the date in which the customer drives away with the installed or repaired product. The sale of parts and services are accompanied by standard manufacturer’s warranty arrangements, of which are not separately or incrementally paid for by the customer. Under these conditions, customers can return product for repair or replacement if it fails to perform in accordance with published specifications. These warranties are accounted for under AASB 137 Provisions, Contingent Liabilities and Contingent Assets. Refer to Note 16. Modular Accommodation Revenue The Group enters into contracts for the construction of modular accommodation units in exchange for a fixed fee and recognises the related revenue over time. Many of the Group’s contracts comprise the construction of several accommodation units each representing performance obligations under the contract. The Group evaluates the separability of each good or services based on whether they are ‘distinct’. A promised good or service is ‘distinct’ if both: + the customer benefits from the item either on its own or together with other readily available resources; and + it is ‘separately identifiable’ (i.e. the Group does not provide a significant service integrating, modifying or customising it). The transaction price for a contract excludes any amounts collected on behalf of third parties. To depict the progress by which the Group transfers control of a build to the customer, and to establish when and to what extent revenue can be recognised, the Group measures its progress towards complete satisfaction of the performance obligation by comparing actual costs spent to date with the total estimated costs required to construct each unit. This cost-to-cost basis provides the most faithful depiction of the transfer of goods and services to each customer due to the Group’s ability to make reliable estimates of the total costs required to perform, arising from its significant historical experience constructing similar units. In addition to the fixed fee, some contracts include bonus payments which the Group can earn by completing a project in advance of a targeted delivery date. At inception of each contract, the Group begins by estimating the amount of the bonus to be received using the “most likely amount” approach. This amount is then included in the Group’s estimate of the transaction price only if it is highly probable that a significant reversal of revenue will not occur once any uncertainty surrounding the bonus is resolved. In making this assessment, the Group considers its historical record of performance on similar contracts, whether the Group has access to the labour and materials resources needed to exceed the agreed-upon completion date, and the potential impact of other reasonably foreseen constraints. 41 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT’D) FOR THE YEAR ENDED 30 JUNE 2019Fleetwood 2. SALES REVENUE (CONT’D) Most such arrangements include detailed customer payment schedules. When payments received from customers exceed revenue recognised to date on a particular contract, any excess (a contract liability) is reported in the statement of financial position. Similarly, if the Group satisfies a performance obligation before it receives the consideration, the Group recognises a contract asset in its statement of financial position. The construction of accommodation units typically takes between 6–12 months from commencement of design through to completion and delivery. In some situations, customer payments will be received over a period of one year or more. In these circumstances, the Group adjusts the transaction price used in determining revenue recognition by the effects of financing. In obtaining these contracts, the Group incurs a number of incremental costs, such as commissions paid to sales staff. The Group recognises such incremental costs as a contract asset if it expects to recover those costs from the customer. The contract asset is then amortised on a systematic basis consistent with the transfer to the customer the good or service to which the contract asset relates. However, as noted above, the amortisation period of these costs, if capitalised, would be less than one year, and thus the Group makes use of the practical expedient in AASB 15.94 and expenses them as they incur. Village Units and Management of Village Operation Services The Group rents its owned accommodation units to customers and recognises revenue over time based on either fixed or variable daily rental rates depending on whether formal arrangements with customers exist. Revenue for these transactions is therefore recognised over time based on monthly billing in arrears for daily accommodation services provided. In this respect, the Group has a right to the consideration and the amount billed corresponds directly with the value to the customer for the Group’s performance completed to date. For Osprey which the Group manages on behalf of its customer, revenue is recognised over time based on a fixed management fee billed to the customer as per the management contract. Revenue is therefore recognised upon billing as that timing corresponds directly with the value to the customer for the Group’s performance completed to date. Discontinued Operations The following revenue recognition policies pertain to segments that are now part of discontinued operations. Refer to Note 28. Caravan manufacturing operations: + Revenue from the sale of caravans is for a fixed fee and recognised at a point in time; + Recognition occurs when the Group transfers control of the asset to the end customer; + Control is considered transferred on the date of receipt of the van by the end customer. Flexiglass Challenge Pty Ltd: + Flexiglass Challenge was part of the Parts and Services segment and therefore the revenue recognition policies for that discontinued operations are the same as noted under Parts and Services. Flexiglass Challenge Pty Ltd was disposed by from the Group in 2018. Resource Sector Rental operations: + This discontinued segment recognises revenue at a point in time when the rental units are sold and the assets are received by the customer. + The sale proceeds are included in Revenues and the written down value of the asset on the date of disposal is charged to expense. 42 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT’D) FOR THE YEAR ENDED 30 JUNE 2019FleetwoodNOTES TO THE CON S OLI DAT E D FINA N CI AL STAT EME N TS (CO N T’ D) FOR THE YEAR ENDED 30 JUNE 2019 3. EXPENSES Expenses from continuing operations contain the following: CONTINUING OPERATIONS NOTE Cost of sales Employee benefits Salaries and wages Equity settled share-based payments Defined contribution superannuation Depreciation and amortisation of: Buildings Leasehold improvements Plant and equipment Product development Enterprise resource planning Finance costs: Bank loans and overdraft Net bad and doubtful debts Research and development costs 12 12 12 14 14 CONSOLIDATED 2019 $’000 2018 $’000 267,511 198,292 49,447 423 3,998 53,868 34 744 8,159 27 113 34,912 487 3,716 39,115 34 747 5,504 51 - 9,077 6,336 854 854 92 393 1,245 1,245 254 31 RECOGNITION AND MEASUREMENT OCCUPANCY-RELATED EXPENSES Payments made under operating leases are expensed on a straight-line basis over the term of the lease, except where an alternative basis is more representative of the pattern of benefits to be derived from the leased property. EMPLOYEE BENEFITS Share-based payments Equity-settled share-based payments to employees and others providing similar services are measured indirectly by reference to the fair value of the equity instruments at the grant date. The fair value of each equity instrument determined at grant date is multiplied by the number of instruments issued and the amount is expensed on a straight-line basis over the vesting period. Where non-market vesting conditions exist, management estimates the number of equity instruments that will eventually vest and multiplies that number by the fair value of each instrument. At the end of each reporting period, the estimate of the number of equity instruments expected to vest is reviewed. The impact of the revision is recognised in profit or loss such that the cumulative expense reflects the revised estimate, with a corresponding adjustment to equity. Market vesting conditions exist in the Group’s share-based payment programs. Thus, the fair value of the instruments granted has been determined using the Monte-Carlo simulation pricing model that takes into account factors specific to the share incentive plans. The performance condition related to the Executive Long-Term Incentive Plan (2019), being a market condition, has been incorporated into the measurement by means of estimation. The following principal assumptions were used in the valuation: Grant date: 01/07/2018 Vesting period ends: 30/06/2021 Share price at grant date: $1.97 Volatility: 53.66% Dividend yield: 2.50% Risk free rate: 2.24% Fair value at grant date: $0.72 Defined contribution superannuation Contributions to employee superannuation funds are expensed when the employees have rendered service entitling them to the contributions. 43 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT’D) FOR THE YEAR ENDED 30 JUNE 2019Fleetwood4. TAX EXPENSE CURRENT TAX EXPENSE NOTE 2019 $’000 2018 $’000 Current tax expense (benefit) from continuing and discontinued operations Deferred tax expense (benefit) relating to origination and reversal of temporary differences Under provision of income tax in prior year Continuing and discontinued operations (1,689) 719 (487) 857 (1,319) (4,582) - (3,863) Reconciliation of income tax expense to the accounting profit: Profit (loss) before tax from continuing and discontinued operations (7,563) (17,324) The tax rate used for 2019 and 2018 is the corporate tax rate of 30% payable by Australian corporate entities on taxable profits under Australian tax law. Income tax expense (benefit) calculated at 30% (2018: 30%) (2,269) Amortisation of leasehold improvements Effect of lower tax rates on overseas income Non-deductible expenses Research & development allowance Non-assessable amounts Sundry items Adjustments relating to income tax in prior year 8 (7) 127 (53) - 18 857 (5,197) 8 (25) 1,345 - (27) 33 - Continuing and discontinued operations (1,319) (3,863) Income tax expense (benefit) from: Continuing operations Discontinued operations Continuing and discontinued operations DEFERRED TAX ASSETS 7,360 (8,679) (1,319) 5,367 (9,230) (3,863) BALANCE 2017 CHARGED TO INCOME BALANCE ACQUIRED 2018 2019 CHARGED TO INCOME BALANCE 2019 $’000 $’000 $’000 $’000 $’000 $’000 Deferred tax relating to: Property, plant and equipment Contract intangible Employee provisions Impairment of RV Manufacturing raw materials Provision for expected RV warranty costs Other provisions Accruals Unused tax losses 6,097 - 2,208 - - 18 324 1,520 (723) - 954 5,374 - - (4,477) 485 920 3,162 203 (1,500) 5,859 (3,557) 1,865 2,175 2,175 - 6 15 (165) - 24 339 1,355 - - 853 - - (336) 1,839 1,241 (117) (339) 1,313 1,241 760 - 2,668 10,167 2,262 12,429 (3,421) 1,667 10,674 44 The company anticipates future profits will be earned to utilise deferred tax assets. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT’D) FOR THE YEAR ENDED 30 JUNE 2019Fleetwood4. TAX EXPENSE (CONTINUED) RECOGNITION AND MEASUREMENT CURRENT TAX Current tax is calculated by reference to the amount of income tax payable or recoverable in respect of the taxable profit or loss for the period. It is calculated using tax rates and tax laws that have been enacted or substantively enacted by the reporting date. Current tax for current and prior periods is recognised as a liability or asset to the extent that it is unpaid or refundable. Taxable profit differs from profit before tax as reported in the consolidated statement of profit or loss and other comprehensive income because of items of income or expense that are taxable or deductible in other years and items that are never taxable or deductible. DEFERRED TAX Deferred tax is accounted for using the comprehensive statement of financial position liability method in respect of temporary differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax base of those items. In principle, deferred tax liabilities are recognised for all taxable temporary differences. Deferred tax assets are recognised to the extent that it is probable that a sufficient taxable amount will be available against which deductible temporary differences or unused tax losses and tax offsets can be utilised. Deferred tax assets and liabilities are not recognised if the temporary differences arise from the initial recognition of assets and liabilities (other than as a result of a business combination) which affects neither taxable income nor accounting profit. Furthermore, a deferred tax liability is not recognised in relation to taxable differences arising from goodwill. Deferred tax liabilities are recognised for taxable temporary differences associated with investments in subsidiaries and associates, and interests in joint ventures, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets arising from deductible temporary differences associated with such investments and interests are only recognised to the extent that it is probable that there will be sufficient taxable profits against which to utilise the benefits of the temporary differences and they are expected to reverse in the foreseeable future. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the assets and the liabilities giving rise to them are realised or settled, based on tax rates and tax laws that have been enacted or substantively enacted by the reporting date. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the consolidated entity expects, at the reporting date, to recover or settle the carrying amount of its assets and liabilities. The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax assets and liabilities are offset when they relate to income taxes levied by the same taxation authority and the company/consolidated entity intends to settle its current tax assets and liabilities on a net basis. CURRENT AND DEFERRED TAX FOR THE PERIOD Current and deferred tax is recognised as an expense or income in the statement of profit or loss, except when it relates to items credited or debited directly to equity, in which case the deferred tax is also recognised directly in equity, or where it arises from the initial accounting for a business combination, in which case it is taken into account in the determination of goodwill. GOODS AND SERVICES TAX Revenues, expenses and assets are recognised net of goods and services tax (GST), except where the amount of GST incurred is not recoverable from the taxation authority. In these circumstances, GST is recognised as part of the cost of acquisition of the asset or as part of an item of expense. Receivables and payables are stated with the amount of GST included. The net GST recoverable from, or payable to, the taxation authority is included as a current asset or liability in the statement of financial position. Cash flows are included in the statement of cash flows on a gross basis. The GST component of cash flows arising from investing and financing activities, which are recoverable from, or payable to, the taxation authority are classified as operating cash flows. 45 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT’D) FOR THE YEAR ENDED 30 JUNE 2019Fleetwood5. SEGMENT INFORMATION Group operating segments are based on the internal reports that are reviewed and used by the Board of Directors (chief operating decision makers) in assessing performance and determining the allocation of resources. Business segments Parts and Services Products / Services Manufacture, installation and distribution of recreational vehicle parts and accessories Modular Accommodation Design, manufacture and sale of accommodation Village Operations Operation of accommodation villages Group revenue and results by reportable operating segment: SEGMENT REVENUE DEPRECIATION AND AMORTISATION SEGMENT RESULT (EBITA) 2019 2018 2019 2018 2019 2018 $’000 $’000 $’000 $’000 $’000 1,078 4,785 3,008 - 8,871 206 9,077 1,030 2,755 2,321 - 6,106 230 6,336 Parts and Services $’000 72,785 Modular Accommodation 209,364 Village Operations Intersegment eliminations 36,953 (4,163) 66,609 179,280 27,932 (6,996) Operating segment total 314,939 266,825 Unallocated Total 374 224 315,313 267,049 Amortisation of contract intangible (Modular Accommodation) Profit before interest and tax (EBIT) Finance costs Profit before income tax benefit Income tax (expense) benefit Profit from continuing operations Loss from discontinued operations 5,707 12,636 11,475 - 29,818 (4,523) 3,592 10,102 9,136 - 22,830 (4,014) 25,295 18,816 (3,067) 22,228 (854) 21,374 (7,360) 14,014 - 18,816 (1,245) 17,571 (5,367) 12,204 (20,258) (25,665) (6,244) (13,461) Loss attributable to members of the parent entity The unallocated line represents the results of the corporate function of the Group. The accounting policies of the reportable segments are the same as the Group’s accounting policies described in the Notes to the Financial Statements. Segment results represents earnings before interest and tax and amortisation without the allocation of corporate overheads. Group assets and liabilities by reportable operating segment: SEGMENT ASSETS ADDITIONS TO NON- CURRENT ASSETS SEGMENT LIABILITIES 2019 2018 2019 2018 2019 2018 Parts and Services Modular Accommodation Village Operations $’000 58,701 179,816 24,826 Operating segment total 263,343 Unallocated 49,215 $’000 42,097 117,222 19,800 179,119 60,951 $’000 $’000 2,644 7,779 - 10,423 1,716 1,287 17,218 - 18,505 3,020 $’000 13,128 51,240 8,605 72,973 7,499 $’000 11,030 25,115 2,782 38,927 21,124 Total 312,558 240,070 12,139 21,525 80,472 60,051 Unallocated segment assets include idle mining rental assets of $5.4 million (2018: $9.2 million) and caravan manufacturing assets of $9.0 million (2018: $36.0 million). 46 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT’D) FOR THE YEAR ENDED 30 JUNE 2019Fleetwood5. SEGMENT INFORMATION (CONT’D) For the purposes of monitoring segment performance and allocating resources all assets and liabilities are allocated to the reportable segments other than current and deferred tax amounts and assets and liabilities directly utilised by the Corporate entity. The Group operates in two principal geographical areas - Australia (country of domicile) and New Zealand. Group non- current assets and revenues by geographical segment: SEGMENT NON-CURRENT ASSETS REVENUE AND OTHER INCOME 2019 $’000 166,981 298 2018 $’000 124,558 299 2019 $’000 307,948 7,365 2018 $’000 260,360 6,689 167,279 124,857 315,313 267,049 GEOGRAPHICAL AREA Australia New Zealand 6. DIVIDEND INFORMATION Recognised amounts Final 2017 - paid 5 cents per share fully franked Interim 2018 - paid 1 cent per share fully franked No final dividend has been declared for 2019. Dividend franking account 30% franking credits available to shareholders of Fleetwood Corporation Limited for subsequent years 7. EARNINGS PER SHARE Earnings used in the calculation of basic and diluted earnings per share from continuing and discontinued operations Adjustment to exclude loss from discontinued operation Earnings used in the calculation of basic and diluted earnings per share from continuing operations 2019 $’000 2018 $’000 - - - 3,052 612 3,664 25,091 23,288 2019 $’000 2018 $’000 (6,244) 20,258 (13,461) 25,665 14,014 12,204 The weighted average number of ordinary shares used in the calculation of diluted earnings per share reconciles to the weighted average number of ordinary shares used in the calculation of basic earnings per share as follows: Weighted average number of ordinary shares used in the calculation of basic EPS WEIGHTED AVERAGE NUMBER OF SHARES USED 2019 91,024,924 2018 61,181,432 Number of shares deemed to be issued for no consideration in respect of options - 219,350 Weighted average number of ordinary shares used in the calculation of diluted EPS 91,024,924 61,400,782 From continuing and discontinued operations Basic earnings (loss) per share (cents) Diluted earnings (loss) per share (cents) From continuing operations Basic earnings (loss) per share (cents) Diluted earnings (loss) per share (cents) (6.9) (6.9) 15.4 15.4 (22.0) (22.0) 20.0 19.9 47 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT’D) FOR THE YEAR ENDED 30 JUNE 2019Fleetwood8. CASH AND CASH EQUIVALENTS Cash and cash equivalents 2019 2018 $’000 33,635 $’000 6,572 Reconciliation of operating profit after income tax to net cash provided by operating activities: Operating profit (loss) after income tax (6,244) (13,461) Items classified as investing activities: Loss on sale of non-current assets Loss on sale of investment Non-cash items: Equity settled share-based payments Depreciation and amortisation expense - continuing operations Depreciation and amortisation expense - discontinued operations Amortisation of contract intangible Provision for warranty Written down value of rental fleet sold Impairment of plant and equipment Impairment of intangible assets Impairment of raw materials Provision for restructuring Impairment of goodwill Impairment of non current assets held for sale Exchange differences arising on translation of foreign operations Changes in assets and liabilities during the year: Increase in inventories (Increase) decrease in trade and other receivables (Increase) in other financial assets Increase (decrease) in trade and other payables Increase in provisions (Decrease) increase in income taxes payable (Decrease) in deferred taxes receivable (Decrease) in other financial liabilities Net cash provided by operating activities RECOGNITION AND MEASUREMENT 2,136 - 423 9,077 463 3,067 4,137 - 1,027 - 6,131 - - 3,520 (211) 6,628 (4,859) 23 6,419 2,189 (18) (1,978) - 1,182 187 487 6,336 1,060 - - 6,579 2,805 1,177 7,250 4,000 4,510 947 (172) (11,286) 21,390 (90) (11,894) (147) 111 (2,719) (363) 31,930 17,889 Cash comprises cash on hand and demand deposits. Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash, which are subject to an insignificant risk of changes in fair value and have a maturity of three months or less at the date of acquisition. 48 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT’D) FOR THE YEAR ENDED 30 JUNE 2019Fleetwood9. TRADE AND OTHER RECEIVABLES AND CONTRACT ASSETS Trade and other receivables Current Trade receivables Less: allowance for doubtful debts Finance lease receivable Other debtors Total Non-current Finance lease receivable Other debtors Total Contract assets Current Non-current 2019 $’000 2018 $’000 49,014 (1,765) 1,254 11,377 30,760 (667) - 9,222 59,880 39,315 1,865 3,188 5,053 - 2,836 2,836 20,035 2,004 20,471 - Trade and other debtors are non-interest bearing and are generally on terms ranging between 7 and 60 days. The average credit period on sales of goods is 30 to 60 days. All trade and other debtors are expected to be settled within 60 days of year end. Retentions on construction contracts included within other debtors amount to $0.7 million (2018: $0.1 million), to be received from the customer on acceptance of the works performed and other contractual milestones. Other non-current debtors represent funds advanced to the Group’s Executive Share Trust in respect of grants the directors have elected to satisfy by advancing money to the trust to purchase shares on market for the employee and executive long-term incentive plans. The Group records finance lease receivables at the net present value of lease payments over the lease period as shown below. Finance Lease Receivable Current Non-current Total RECOGNITION AND MEASUREMENT Contract Assets LEASE PAYMENTS FINANCE CHARGES NET PRESENT VALUE $’000 $’000 $’000 1,367 1,927 3,294 (113) (62) (175) 1,254 1,865 3,119 In adoption of AASB 15 – Revenues from contracts with customers, the company re-classified $20.5 million of contract assets, the accounting policies of which are defined in Note 2, from Trade and other Receivables for 30 June 2018. The opening balance recognised at 30 June 2018 was utilised within the reporting period. Allowance for expected credit losses The Group makes use of a simplified approach in accounting for trade and other receivables as well as contract assets and records the loss allowance at the amount equal to the expected lifetime credit losses. In using this practical expedient, the Group uses its historical experience, external indicators and forward-looking information to calculate the expected credit losses using a provision matrix. Finance Leases The Group applies judgment in considering the substance of a lease agreement and whetherit transfers substantially all the risks and rewards incidental to ownership of the leased asset. Keyfactors considered include the length of the lease term in relation to the economic life of the asset,the present value of the minimum lease payments in relation to the asset’s fair value, and whether the Group obtains ownership of the asset at the end of the lease term. The rate applied in discounting lease payments is equivalent to the Group’s borrowing rate. 49 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT’D) FOR THE YEAR ENDED 30 JUNE 2019Fleetwood10. INVENTORIES Current Raw materials & stores Finished goods 2019 $’000 2018 $’000 9,142 15,346 24,488 11,869 27,685 39,554 The cost of inventories recognised as an expense during the year in respect of continuing operations was $105.6 million (2018: $100.7 million). The Group has also included $6.1 million of expense (2018: $7.3 million) resulting from the write down of inventories in its Caravan Manufacturing discontinued operation. This is included as part of the Impairment and Provisions expense reported in Note 28. RECOGNITION AND MEASUREMENT Inventories are carried at the lower of cost and net realisable value. Cost includes all expenses directly attributable to the manufacturing process as well as suitable portions of related production overheads, based on normal capacity. Costs of ordinarily interchangeable items are assigned using standard cost. Net realisable value represents the estimated selling prices for the inventories less all estimated costs of completion and costs necessary to make the sale. 11. NON-CURRENT ASSETS HELD FOR SALE Plant & equipment - idle mining rental assets RECOGNITION AND MEASUREMENT NON-CURRENT ASSETS HELD FOR SALE 2019 $’000 2018 $’000 5,371 9,211 Non-current assets classified as held for sale are measured at the lower of their carrying amount and fair value less costs to sell. Non-current assets are classified as held for sale if their carrying amount will be recovered through a sale transaction rather than through continuing use. This condition is only met when the sale is highly probable and the asset is available for immediate sale in its present condition and the sale is expected to be completed within one year from the date of classification. All balances on-hand as at 30 June 2019 are being carried at their fair value less cost to sell since this falls below the assets’ carrying values. The fair value less cost to sell has been determined with reference to letters of intent from third- party buyers that are valid up to the date of signing of these financial statements. 12. PROPERTY, PLANT AND EQUIPMENT Freehold land Cost Buildings Cost Accumulated depreciation Leasehold property and improvements Cost Accumulated amortisation Plant and equipment Cost Accumulated depreciation 50 Assets under construction Cost 2019 $’000 2018 $’000 2,703 2,964 1,343 (443) 900 50,428 (41,376) 9,052 95,213 (60,118) 35,095 687 48,437 1,342 (408) 934 50,391 (40,623) 9,768 85,451 (46,522) 38,929 4,919 57,514 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT’D) FOR THE YEAR ENDED 30 JUNE 2019Fleetwood12. PROPERTY, PLANT AND EQUIPMENT (CONT’D) 2019 Balance at 1 July 2018 Additions Transferred from non current assets held for sale Acquisition through business acquired Transferred from assets under construction Transferred to plant and equipment Disposals Depreciation and amortisation Impairment Effect of foreign exchange differences 2018 Balance at 1 July 2017 Additions Transferred from non current assets held for sale Transferred from assets under construction Transferred to plant and equipment Transferred to other debtors Disposals Depreciation and amortisation Impairment Effect of foreign exchange differences - - - - - (261) - - - - - - - - - - - - FREEHOLD LAND BUILDINGS LEASEHOLD PROPERTY PLANT AND EQUIPMENT ASSETS UNDER CONSTRUCTION $’000 $’000 $’000 $’000 $’000 TOTAL $’000 2,964 934 9,768 38,929 4,919 57,514 28 4,092 3,785 7,905 - - - - - - - - - - - 278 2,405 8,017 - (9,275) (34) (744) (8,328) - - - - (1,027) 4 - - - 278 2,405 8,017 (8,017) (8,017) - - - - (9,536) (9,106) (1,027) 4 2,964 968 10,514 - - - - - - - - - - - - 31,113 4,378 2,730 10,521 - - 1,289 46,848 15,819 20,197 - - 2,730 10,521 (10,521) (10,521) (1,009) (1,009) (1,155) (659) (1,814) (34) (746) (5,848) - - - - (2,805) (5) - - - (6,628) (2,805) (5) Balance at 30 June 2019 2,703 900 9,052 35,095 687 48,437 Balance at 30 June 2018 2,964 934 9,768 38,929 4,919 57,514 RECOGNITION AND MEASUREMENT PROPERTY, PLANT AND EQUIPMENT Each class of property, plant and equipment is stated at historical cost less, where applicable, any accumulated depreciation and impairment losses. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Property in the course of construction for production, supply or administrative purposes, or for purposes not yet determined, are carried at cost, less any recognised impairment loss. Cost includes professional fees and, for qualifying assets, borrowing costs capitalised in accordance with the Group’s accounting policy. Depreciation of these assets, on the same basis as other property assets, commences when the assets are ready for their intended use. Depreciation is recognised so as to write off the cost or valuation of assets (other than freehold land and properties under construction) less their residual values over their useful lives, using the straight-line method. The estimated useful lives, residual values and depreciation method are reviewed at the end of each reporting period, with the effect of any changes in estimate accounted for on a prospective basis. Freehold land is not depreciated. The cost of self-constructed assets includes the cost of materials and direct labour and any other costs attributable to bringing an asset to a working condition ready for its intended use. An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on the disposal or retirement of an item of property, plant and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in profit or loss. 51 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT’D) FOR THE YEAR ENDED 30 JUNE 2019Fleetwood12. PROPERTY, PLANT AND EQUIPMENT (CONT’D) ACQUISITION OF ASSETS All assets including property, plant and equipment and intangibles are initially recorded at their cost at the date of acquisition, being the fair value of the consideration provided plus incidental costs directly attributable to the acquisition. The costs of assets constructed or internally generated by the consolidated entity, other than goodwill, include the cost of materials, direct labour, directly attributable overheads and other incidental costs. Expenditure, including that on internally generated assets other than development costs, is only recognised as an asset when it is probable that future economic benefits will eventuate and the costs can be measured reliably. Costs attributable to feasibility and alternative approach assessments are expensed as incurred. Costs incurred on assets subsequent to initial acquisition are capitalised when it is probable future economic benefits will flow to the consolidated entity. Costs that do not meet the criteria for capitalisation are expensed as incurred. DEPRECIATION AND AMORTISATION All non-financial assets of the entity (except land) have limited useful lives and are depreciated/amortised using the straight-line method over their estimated useful lives to their estimated residual values. Assets are depreciated or amortised from the time an asset is ready for use. Depreciation and recognized on rates and methods and residual values are reviewed annually for appropriateness. When changes are made adjustments are reflected in current and future periods only. Depreciation and recognized on are expensed, except to the extent they are included in the carrying amount of another asset as an allocation of production overheads. Depreciation/amortisation rates used for each class of asset are as follows: Buildings Leasehold property and improvements Plant and equipment 2019 2.5% 2% - 25% 2018 2.5% 2% - 25% 2.5% - 50% 2.5% - 50% IMPAIRMENT OF ASSETS OTHER THAN GOODWILL At each reporting date, the carrying amounts of tangible and intangible assets are reviewed to determine whether there is any indication those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of any impairment loss. Where the asset does not generate cash flows that are independent from other assets, the consolidated entity estimates the recoverable amount of the cash-generating unit to which the asset belongs. Intangible assets with indefinite useful lives and intangible assets not yet available for use are tested for impairment annually and whenever there is an indication that the asset may be impaired. Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, 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 which the estimates of future cash flows have not been adjusted. If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognized in profit or loss immediately, unless the relevant asset is carried at fair value through equity, in which case the impairment loss is treated as a revaluation decrease. Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased to the revised estimate of its recoverable amount, but only to the extent the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognized for the asset (cash- generating unit) in prior years. A reversal of an impairment loss is recognized in profit or loss immediately, unless the relevant asset is carried at fair value through equity, in which case the reversal of the impairment loss is treated as a revaluation increase. 52 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT’D) FOR THE YEAR ENDED 30 JUNE 2019Fleetwood13. GOODWILL Goodwill Reconciliation of the carrying amount of Goodwill: Gross carrying amount Opening balance Goodwill recognised on business combination - MBS Goodwill recognised on business combination - NRV NOTE 29 29 Accumulated impairment Opening balance Impairment loss in respect of canopies, trays and accessories CGU Parts and Services Village Operations Modular accommodation 2019 $’000 2018 $’000 85,911 50,721 68,856 24,637 10,554 68,856 - - 104,047 68,856 (18,135) - (18,135) 22,955 2,196 60,760 85,911 (13,626) (4,509) (18,135) 12,401 2,196 36,124 50,721 The recoverable amount of the cash generating units has been determined based on value in use. The value in use has been calculated using cash flow projections based on financial budgets approved by the board with key assumptions based on past experience and where applicable external sources of information. Projections are extrapolated for a 5 year period using an estimated growth rate. 3.0% (2018: 3.0%) for Parts and Services CGU, 3.0% (2018: 3.0%) for Village Operations CGU and 3.0% (2018: 3.0%) for Modular Accommodation CGU. The terminal growth rate used for all CGUs is 3.0% (2018: 3.0%). Pre-tax discount rate assumptions utilised in the value-in-use calculations are: 12.04% (2018: 13.1%) for Parts and Services CGU, 12.04% (2018: 13.1%) for Village Operations CGU and 12.04% (2018: 13.1%) for Modular Accommodation CGU. The discount rate recognises the risk factor applicable to the industry in which each CGU operates. In respect of the Village Operations and Modular Accommodation CGUs, there are no reasonably possible changes in the key assumptions which would result in the carrying amounts exceeding the recoverable amounts. The assumptions used in the Parts and Accessories CGU are explained further below. In respect of the Parts and Services CGU, the discount rate, foreign exchange rates and EBIT are considered to be key assumptions used in the value-in-use calculations. The cash flow projection for 2020 assumes an increase in annual EBITA from the CGU’s actual 2019 by 3.0%. This is based on anticipated sales of new products and the effects of cost reduction initiatives on operating expenditures enacted in fiscal 2019. Otherwise, the projection for 2020 reflects stable profit margins achieved immediately before the budget period. Management has used the forecasts of industry specialists to determine the anticipated foreign exchange rates applied to overseas purchases in the forecasted periods. With all other inputs held constant, if the AUD were to weaken by approximately 10.2% to the USD when compared to the industry specialists’ predictions, the CGU’s recoverable amount would be equivalent to its carrying amount. With all other inputs held constant, if the earnings growth rate were to reduce by 1.6% the carrying amount would be equivalent to the recoverable value. RECOGNITION AND MEASUREMENT For the purposes of impairment testing, goodwill is allocated to each of the Group’s cash-generating units (or groups of cash-generating units) that is expected to benefit from the synergies of the combination. A cash-generating unit to which goodwill has been allocated is tested for impairment annually, or more frequently when there is an indication that the unit may be impaired. If the recoverable amount of the cash-generating unit is less than its carrying amount, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro rata based on the carrying amount of each asset in the unit. Any impairment loss for goodwill is recognised directly in profit or loss. An impairment loss recognised for goodwill is not reversed in subsequent periods. On disposal of the relevant cash-generating unit, the attributable amount of goodwill is included in the determination of the profit or loss on disposal. 53 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT’D) FOR THE YEAR ENDED 30 JUNE 2019Fleetwood14. INTANGIBLE ASSETS Product development At cost Accumulated amortisation Contract intangible Acquired Accumulated amortisation Enterprise Resource Planning At cost Accumulated amortisation Enterprise Resource Planning Software WIP At cost Reconciliation of the carrying amounts: Product development Cost Opening balance Additions Disposals Accumulated amortisation Opening balance Amortisation charged for the year Eliminated on disposal Contract intangible Cost Acquired through business combination 29 14,924 Amortisation Opening balance Amortisation charged for the year Enterprise Resource Planning Cost Transferred from Enterprise Resource Planning Software WIP Additions Amortisation Opening balance Amortisation charged for the year 54 - 3,067 3,067 2,108 134 2,242 - 113 113 2019 $’000 2018 $’000 970 (259) 711 14,924 (3,067) 11,857 2,242 (113) 2,129 503 15,200 262 708 - 970 232 27 - 259 262 (232) 30 - - - - - - 1,327 1,357 274 3 (15) 262 183 52 (3) 232 - - - - - - - - - - NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT’D) FOR THE YEAR ENDED 30 JUNE 2019Fleetwood14. INTANGIBLE ASSETS (CONT’D) Enterprise Resource Planning Software WIP Carrying amount at beginning of year Additions Impairment Transferred to Enterprise Resource Planning 2019 $’000 2018 $’000 1,327 1,284 - (2,108) 503 - 2,505 (1,178) - 1,327 15,200 1,357 Intangible assets have a useful life of 2 to 5 years. $1.2 million of impairment was recorded against the Enterprise Resource Planning Software WIP in relation to the discontinued Recreational Vehicles Manufacturing business in 2018. RECOGNITION AND MEASUREMENT PRODUCT DEVELOPMENT Expenditure on research activities is recognised as an expense in the period in which it is incurred. An intangible asset arising from product development (or from the development phase of an internal project) is recognised if the following are demonstrated: + the technical feasibility of completing the intangible asset so that it will be available for use or sale; + the intention to complete the intangible asset and use or sell it; + the ability to use or sell the intangible asset; + how the intangible asset will generate probable future economic benefits; + the availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset; and + the expenditure attributable to the intangible asset during its development can be measured reliably. The amount initially recognised for internally-generated intangible assets is the sum of the expenditure incurred from the date when the asset first meets the recognition criteria. Where no internally-generated asset can be recognised, development expenditure is recognised in profit or loss in the period in which it is incurred. Subsequent to initial recognition, internally generated intangible assets are reported at cost less accumulated amortisation and accumulated impairment losses and are amortised on a straight-line basis over their useful lives of 2 to 5 years. An intangible asset is derecognised on disposal, or when no future economic benefits are expected from use or disposal. Gains or losses arising from derecognition of an intangible asset, measured as the difference between the net disposal proceeds and the carrying amount of the asset, are recognised in profit or loss when the asset is derecognised. CONTRACT INTANGIBLE Contract intangible assets are initially recognized at fair value and amortised over the useful life of the asset. DEPRECIATION AND AMORTISATION All non-financial intangible assets of the entity have limited useful lives and are amortised using the straight-line method over their estimated useful lives to their estimated residual values. Assets are amortised from the time an asset is ready for use. Amortisation rates and methods and residual values are reviewed annually for appropriateness. When changes are made adjustments are reflected in current and future periods only. Amortisation is expensed, except to the extent it is included in the carrying amount of another asset as an allocation of production overheads. Amortisation rates used for each class of asset are as follows: Software Product development Contract intangible assets 2019 20% - 50% 20% - 50% 20% - 50% 2018 20% - 50% 20% - 50% 20% - 50% 55 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT’D) FOR THE YEAR ENDED 30 JUNE 2019Fleetwood15. TRADE AND OTHER PAYABLES AND CONTRACT LIABILITIES Current Trade creditors Payments in advance Other creditors and accruals Contract liabilities 2019 $’000 2018 $’000 33,278 114 23,299 56,691 31,862 48 8,678 40,588 7,653 2,852 Trade and other payables are non-interest bearing. The average credit period on purchases is 45 days. RECOGNITION AND MEASUREMENT TRADE CREDITORS, OTHER CREDITORS AND ACCRUALS Liabilities are recognised for amounts to be paid in the future for goods or services received regardless of whether they have been billed to the Group. They are carried at amortised cost. CONTRACT LIABILITIES In adoption of AASB 15 – Revenues from contracts with customers, the company re-classified $2.9 million of contract liabilities, the accounting policies of which are defined in Note 2, from Other creditors and accruals for 30 June 2018. The opening balance recognised at 30 June 2018 was utilised within the reporting period. 16. PROVISIONS Current Employee benefits 2019 $’000 2018 $’000 NOTE Provision for restructuring discontinued operation 28 Provision for warranty Other provisions Total Non-current Employee benefits Provision for warranty Total 5,443 458 2,562 559 9,022 760 2,135 2,895 5,894 4,000 - - 9,894 649 - 649 Aggregate employee benefits 6,203 6,543 Accruals for employee benefits represent accrued annual leave and long service leave entitlements. Based on past experience, the consolidated entity does not expect the full amount of annual leave and long service leave balances classified as current liabilities to be settled within the next 12 months. Provisions for warranty represent $4.1 million in relation to the discontinued Recreational Vehicles Manufacturing business and $0.6 million in relation to the businesses acquired during the period. RECOGNITION AND MEASUREMENT PROVISIONS Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that the Group will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the end of the reporting period, taking into account the risks and uncertainties surrounding the obligation. When a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows (where the effect of the time value of money is material). 56 When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, a receivable is recognised as an asset if it is virtually certain that reimbursement will be received and the amount of the receivable can be measured reliably. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT’D) FOR THE YEAR ENDED 30 JUNE 2019Fleetwood16. PROVISIONS (CONT’D) EMPLOYEE BENEFITS Wages, salaries, annual and long service leave Provision is made for benefits accruing to employees in respect of wages and salaries, annual leave, long service leave and sick leave when it is probable that settlement will be required and they are capable of being measured reliably. Provisions expected to be settled within 12 months are measured at their nominal values using the remuneration rate expected to apply at the time of settlement. Provisions which are not expected to be settled within 12 months are measured as the present value of the estimated future cash flows to be made in respect of services provided by employees up to the reporting date. The expected future payments incorporate anticipated future wage and salary levels, experience of employee departures and periods of service, and are discounted at rates determined by reference to market yields at the end of the reporting period on high quality corporate bonds that have maturity dates that approximate the timing of the estimated future cash flows. Any re-measurements arising from experience adjustments and changes in assumptions are recognised in profit or loss in the periods in which the changes occur. 17. INTEREST BEARING LOANS AND BORROWINGS Current - at amortised cost Floor Plan Finance Hire purchase creditors Non-current - at amortised cost Bank loans - secured RECOGNITION AND MEASUREMENT NOTE 2019 $’000 2018 $’000 18 18 - 18 18 - - 1,957 - 1,957 4,000 4,000 FINANCIAL LIABILITIES AND EQUITY INSTRUMENTS ISSUED BY THE GROUP Debt and equity instruments are classified as either liabilities or as equity in accordance with the substance of the contractual arrangement. Equity instruments issued by the Group are recognised at the amount received, net of direct issue costs. INTEREST BEARING LIABILITIES Bank loans are recognised initially at fair value net of transaction costs. Subsequent to initial recognition, bank loans are measured at amortised cost with any difference between the initial recognised amount and the redemption value being recognised in profit or loss over the period of the borrowing using the effective interest rate. Interest expense is recognised on an accrual basis. The Group derecognises liabilities when, the obligations are discharged, cancelled or expire. The difference between the carrying amount of the liability derecognised and the consideration paid and payable is recognised in profit or loss. 57 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT’D) FOR THE YEAR ENDED 30 JUNE 2019Fleetwood18. FINANCING ARRANGEMENTS NOTE 2019 $’000 2018 $’000 Facilities available Floor Plan Finance Facility Bank Loans Bank Guarantees Surety Bonds Total Facilities available Facilities utilised Floor Plan Finance Facility Bank Loans Bank Guarantees Surety Bonds Total Facilities utilised Facilities not utilised Floor Plan Finance Facility Bank Loans Bank Guarantees Surety Bonds Total Facilities not utilised Floor Plan Finance Facility 17 17 - 40,000 10,000 15,000 65,000 - - 5,870 1,541 7,411 - 40,000 4,130 13,459 57,589 2,000 27,500 7,500 - 37,000 1,957 4,000 4,347 - 10,304 43 23,500 3,153 - 26,696 The floor plan finance facility is securitised by caravan inventory held by the consolidated entity and bears interest at financier’s floorplan reference rate. Bank Loans Bank loans are secured by a mortgage debenture over the assets of the consolidated entity and bear interest at a rate plus 1.20% (2018: 1.20%) plus a line fee of 1.15% (2018: 1.15%). Bank Guarantees Bank guarantees are utilised for construction contracts. No liability has been recognised in the statement of financial position in respect of bank guarantees. Surety Bonds Surety bonds are utilised for construction contracts. No liability has been recognised in the statement of financial position in respect of surety bonds. 19. COMMITMENTS REAL ESTATE LEASES Maturity analysis - contractual undiscounted cash flows Less than one year One to five years More than five years 2019 $’000 2018 $’000 5,203 5,687 - 7,857 8,016 - 10,890 15,873 The Group has a number of non-cancellable operating lease arrangements for land and buildings with lease terms of between 1 to 5 years. The leases have varying terms and renewal rights. The majority of these lease contracts contain market review clauses in the event that the lessee exercises its options to renew. The lessee does not have the option to purchase the property at the expiry of the lease period. 58 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT’D) FOR THE YEAR ENDED 30 JUNE 2019Fleetwood19. COMMITMENTS (CONT’D) The Group is planning to adopt ‘AASB 16 – Leases’ on 1 July 2019 using the modified retrospective approach. Using this approach, the cumulative effect of initially applying AASB 16 is recognised as an adjustment to equity at the date of initial application. Comparative information will not be re-stated. The Group has assessed the initial impact of AASB 16 on future financial periods indicating a material inclusion of a right-of-use asset and lease liability in the consolidated statement of financial position and an immaterial impact in the consolidated statement of profit or loss and other comprehensive income. Amounts initially recognised in the statement of financial position Right-of-use asset Lease liabilities recognised (discounted) 20. EQUITY AND RESERVES ISSUED CAPITAL 1 JUL 2019 $’000 9,236 9,236 - 2019 $’000 2018 $’000 Issued and paid-up capital 94,611,055 (2018: 61,228,081) ordinary shares, fully paid 254,528 196,428 Holders of ordinary shares are entitled to receive dividends as declared and to one vote per share held. Movements in ordinary share capital Balance at beginning of year Equity settled share-based payments Shares issued pursuant to Dividend Reinvestment Plan Issue of Share Capital Prior period correction 2019 2018 # SHARES $’000 # SHARES $’000 61,228,081 196,428 61,039,412 195,371 46,948 - 423 - - 188,669 33,336,026 57,325 - 352 - - 487 570 - - Balance at the end of year 94,611,055 254,528 61,228,081 196,428 Ordinary shares are allotted under the dividend reinvestment plan at a discount to the weighted average price of ordinary shares sold on the ASX over the period 5 business days up to and including the record date. RESERVES Foreign currency translation reserve Balance at beginning of year Translation of foreign operations 2019 $’000 2018 $’000 229 211 440 57 172 229 Reserves relate to exchange difference on the translation of self-sustaining foreign operations. RETAINED EARNINGS Balance at beginning of year Profit (loss) attributable to members of the parent entity Dividends recognised 2019 $’000 (16,638) (6,244) - 2018 $’000 487 (13,461) (3,664) (22,882) (16,638) 59 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT’D) FOR THE YEAR ENDED 30 JUNE 2019Fleetwood21. AUDITORS REMUNERATION Audit services Other services - taxation and accounting assistance 2019 $ 165,000 - 2018 $ 155,000 5,000 165,000 160,000 Fleetwood Corporation Limited’s auditor is Grant Thornton Audit Pty Ltd. 22. DEED OF CROSS GUARANTEE Fleetwood Corporation Limited and certain wholly-owned subsidiaries are parties to a Deed of Cross Guarantee under which each company guarantees the debts of the other. By entering into the Deed, the wholly-owned entities have been relieved from the requirement to prepare a financial report and directors’ report under ASIC Corporations (Wholly-owned Companies) Instrument 2016/785 issued by the Australian Securities and Investments Commission. The companies below represent a ‘closed group’ for the purposes of the class order: Fleetwood Corporation Limited Northern RV Pty Ltd (formerly ACN 008 763 193 Pty Ltd) Recreational Vehicle Concepts Pty Ltd (formerly Fleetwood Recreational Vehicles Pty Ltd) Fleetwood Pty Ltd Camec Pty Ltd ACN 050 031 993 Pty Ltd (formerly Coromal Windsor Melbourne Pty Ltd) BRB Modular Pty Ltd Modular Building Systems Pty Ltd Fleetwood Finance (WA) Pty Ltd Set out below is a consolidated statement of comprehensive income and statement of financial position of the ‘closed group’. STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME DEED OF CROSS GUARANTEE Sales revenue Other income Materials used Sub-contract costs Employee benefits expense Operating leases Other expenses Profit before interest, tax, depreciation and amortisation and impairment Depreciation and amortisation expense Profit (loss) before amortisation, interest and tax Amortisation Profit (loss) before interest and tax Finance costs Profit (loss) before income tax expense for the year Income tax (expense) benefit Profit (loss) from continuing operations for the year Loss from discontinued operation CONSOLIDATED 2019 $’000 2018 $’000 307,612 224 (104,731) (87,159) (52,872) (6,883) (22,477) 33,714 (9,037) 24,677 (3,067) 21,610 (840) 20,770 (6,845) 13,925 (20,258) 261,239 636 (96,040) (82,238) (38,517) (6,620) (14,171) 24,289 (6,274) 18,015 - 18,015 (1,245) 16,770 (5,149) 11,621 (25,665) Total profit (loss) and other comprehensive income for the year (6,333) (14,044) 60 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT’D) FOR THE YEAR ENDED 30 JUNE 2019Fleetwood22. DEED OF CROSS GUARANTEE (CONT’D) STATEMENT OF FINANCIAL POSITION DEED OF CROSS GUARANTEE Current assets Cash and cash equivalents Trade and other receivables Contract assets Inventories Other financial assets Tax assets Non-current assets held for sale Total current assets Non-current assets Trade and other receivables Contract assets Investments Property, plant and equipment Goodwill Intangible assets Deferred tax assets Total non-current assets Total assets Current liabilities Trade and other payables Interest bearing liabilities Provisions Earn out liability Total current liabilities Non-current liabilities Interest bearing liabilities Provisions Earn out liability Total non-current liabilities Total liabilities Net assets Equity Issued capital Reserves Retained earnings Total equity CONSOLIDATED 2019 $’000 2018 $’000 32,643 58,859 20,035 22,545 67 1,803 5,371 6,320 38,299 20,471 37,327 90 - 9,211 141,323 111,718 5,053 2,004 65 48,354 85,911 15,198 10,857 167,442 308,765 63,796 18 8,961 345 73,120 122 2,895 3,755 6,772 79,892 228,873 254,524 460 (26,111) 228,873 2,836 - 78 57,413 5,742 46,443 12,536 125,048 236,766 42,391 1,957 9,847 - 54,195 4,670 649 - 5,319 59,514 177,252 196,422 327 (19,497) 177,252 61 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT’D) FOR THE YEAR ENDED 30 JUNE 2019Fleetwood23. FINANCIAL RISK MANAGEMENT CAPITAL MANAGEMENT The Group manages capital to ensure it will be able to continue as a going concern, while maximising returns to shareholders through optimisation of debt and equity balances. The categories of financial instruments of the entity are apparent from the statement of financial position. The capital structure of the Group includes borrowings and related repayment terms (as detailed in Note 17), cash and cash equivalents (as detailed in Note 8) and equity attributable to equity holders of the parent, comprising issued capital, reserves and retained earnings (as detailed in Note 20). Operating cash flows are used to maintain and expand the Group’s operating assets, make payments of tax and dividends and to repay debt. Group policy is to borrow centrally to meet funding requirements. The Group does not have a target gearing ratio. The Group has covenants imposed under its facility agreement with its financier. FINANCIAL RISK MANAGEMENT OBJECTIVES Financial instruments comprise cash, receivables, payables, hire purchase creditors, and bank loans. All financial instruments except forward foreign exchange contracts are carried at amortised cost. The Group manages its exposure to key financial risks, including interest rate and currency risk in accordance with the Group financial risk management framework. The objective of the framework is to support delivery of financial targets whilst providing financial security. The main financial instrument risks are interest rate, foreign currency, credit and liquidity risk. Different methods are used to measure and manage risks including monitoring exposure to interest and foreign exchange rates and assessments of market forecasts for interest and foreign exchange rates. Ageing analysis and monitoring of specific credit allowances are undertaken to manage credit risk. Liquidity risk is monitored through the development of rolling cash flow forecasts. FOREIGN CURRENCY RISK MANAGEMENT The Group undertakes transactions denominated in foreign currencies. Consequently, exposures to exchange rate fluctuations arise. Exchange rate exposures are managed within approved policy parameters utilising forward exchange contracts. The Group is mainly exposed to United States Dollars and the Euro. 2019 Profit 2018 Profit 2019 Equity 2018 Equity USD $’000 (708) (981) (708) (981) - 10% EURO $’000 (573) (786) (573) (786) TOTAL $’000 (1,281) (1,767) (1,281) (1,767) USD $’000 708 981 708 981 + 10% EURO $’000 573 786 573 786 TOTAL $’000 1,281 1,767 1,281 1,767 FORWARD FOREIGN EXCHANGE CONTRACTS Group policy is to enter into forward foreign exchange contracts to manage the risk associated with anticipated purchases denominated in foreign currency. Anticipated purchases are assessed out to twelve months from the date the contract is entered into, with 0-100% of the anticipated exposure covered. Basis adjustments are made to the carrying amounts of non-financial items when the anticipated purchase transaction takes place. OUTSTANDING CONTRACTS Buy USD Less than 3 months 3 to 6 months 6 to 12 months Buy Euro Less than 3 months 3 to 6 months 6 to 12 months AVERAGE EXCHANGE RATE FOREIGN CURRENCY NOTIONAL VALUE FAIR VALUE 2019 2018 2019 2018 2019 2018 2019 2018 $ $ FC’000 FC’000 $’000 $’000 $’000 $’000 0.72 0.71 0.72 0.62 0.62 0.61 0.75 0.76 0.80 0.64 0.63 0.63 1,086 500 1,000 1,348 1,076 190 1,517 700 1,397 171 150 75 250 39 60 277 242 121 1,801 1,416 237 387 62 95 29 11 21 1 3 2 23 39 19 6 1 1 67 90 62 During 2019 a profit of $66,603 was recognised in profit and loss pertaining to forward exchange contracts (2018: $89,504 profit). NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT’D) FOR THE YEAR ENDED 30 JUNE 2019Fleetwood23. FINANCIAL RISK MANAGEMENT (CONT’D) INTEREST RATE RISK MANAGEMENT Interest rate risk arises from borrowings. Group policy is to manage finance costs by using a mix of fixed and variable rate debt after considering market forecasts. - 75 BPS + 75 BPS CARRYING AMOUNT $’000 PROFIT $’000 EQUITY $’000 PROFIT $’000 EQUITY $’000 Financial assets 2019 - Cash and cash equivalents 2018 - Cash and cash equivalents 33,635 6,572 Financial liabilities 2019 - Borrowings 2018 - Borrowings 2019 2018 CREDIT RISK MANAGEMENT 18 5,957 (252) (49) - 45 (252) (5) (252) (49) - 45 (252) (5) 252 49 - (45) 252 5 252 49 - (45) 252 5 Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group. Group policy is to deal with creditworthy counterparties and obtain sufficient collateral where appropriate as a means of mitigating the risk of financial loss from default. Reviews of customer creditworthiness are undertaken before payment and delivery terms are offered. The review assesses credit quality of the customer, taking into account its financial position, past experience, industry reputation and other factors. Purchase limits are established for each customer, and compliance with credit limits is regularly monitored. Customers that fail to meet benchmark creditworthiness may transact with the Group only on a prepayment basis. Sales to retail customers are required to be settled in cash or by using major credit cards, mitigating credit risk. With respect to credit risk arising from other financial assets of the Group, which comprise cash and cash equivalents, the Group’s exposure to credit risk arises from default of the counter party, with a maximum exposure equal to the carrying amount of these instruments. The Group’s maximum exposure to credit risk at the report date was: 2019 $’000 2018 $’000 Cash and cash equivalents Trade receivables NOTE 8 9 The aging of the Group’s non-impaired trade receivables past due at reporting date was: 33,635 49,014 82,649 30 JUNE 2019 Gross carrying amount ($’000s) Expected credit loss rate ($’000s) Lifetime expected credit loss 30 JUNE 2018 Gross carrying amount ($’000s) Expected credit loss rate ($’000s) Lifetime expected credit loss CURRENT GREATER THAN 30 DAYS GREATER THAN 60 DAYS 39,715 5,565 - 0% 27,353 - 0% - 0% 1,275 - 0% 3,735 1,765 47% 2,132 667 31% 6,572 30,760 37,332 TOTAL 49,015 1,765 4% 30,760 667 2% The carrying amount of financial assets recorded in the financial statements represents the Group’s maximum exposure to credit risk. 63 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT’D) FOR THE YEAR ENDED 30 JUNE 2019Fleetwood23. FINANCIAL RISK MANAGEMENT (CONT’D) LIQUIDITY RISK MANAGEMENT Ultimate responsibility for liquidity risk management rests with the Board of Directors, who have built an appropriate liquidity risk framework for the management of short, medium and long-term funding. Liquidity risk is managed by maintaining adequate reserves and banking facilities, by monitoring forecast and actual cash flows and by matching the maturity profiles of financial assets and liabilities. Note 18 lists unused facilities that the Group has at its disposal to reduce liquidity risk. The remaining contractual maturities of the Group are: + 3 months or less: Trade and other payables as disclosed at Note 15. Trade and other payables do not attract an interest charge and are expected to be settled within 60 days of year end. + 3 months or less: Bank Loans as disclosed at Note 18. FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES The fair value of financial assets and liabilities recognised in the statement of financial position is based on cash flows due from customers or payable to suppliers. The cash flows have not been discounted to their present value, except as disclosed in the table below. The carrying values approximate fair value. The fair values of financial instruments are derived from quoted prices (unadjusted) in active markets for identical assets or liabilities. There are clearly observable quoted prices for all financial instruments held by the Group. Some of the Group’s financial assets and liabilities are measured at fair value and the end of each reporting period. Information about how the fair values of these financial liabilities are determined (in particular, the valuation techniques and inputs used). FAIR VALUE AS AT 2019 2018 FAIR VALUE HIERARCHY VALUATION TECHNIQUE AND KEY INPUTS Financial assets Foreign currency forward contracts Non-financial assets Contract intangible Financial liabilities Foreign currency forward contracts $’000 $’000 67 90 Level 2 11,857 Nil Nil Nil Level 3 Level 2 Non-financial liabilities Contingent consideration 4,100 Nil Level 3 Discounted cash flow. Future cash flows are estimated based on forward exchange rates and contract forward rates, discounted to their present value. Discounted cash flow. Future cash flows are estimated based on customer contracts and synergies with existing businesses. Discounted cash flow. Future cash flows are estimated based on forward exchange rates and contract forward rates, discounted to their present value. Discounted cash flow. Future cash flows are probability-weighted based on management expectation of target levels being reached. FAIR VALUE OF NON-FINANCIAL ASSETS The fair value of non-financial assets recognised in the statement of financial position is based on cash flows due from customers or payable to suppliers. The cash flows have been discounted to their present value. The carrying values approximate fair value. RECOGNITION AND MEASUREMENT FOREIGN CURRENCY FORWARD CONTRACTS The Group enters into foreign exchange forward contracts to manage its exposure to foreign exchange rate risk. The Group’s foreign currency forward contracts are initially recognised at fair value at the date the contract is entered into and are subsequently remeasured to their fair value at the end of each reporting period. These contracts are fair valued using observable forward exchange rates and interest rates corresponding to the maturity of the contract. The resulting gain or loss is recognised in Statement of Profit or Loss and Other Comprehensive Income immediately. CONTINGENT CONSIDERATION The fair value of contingent consideration related to the acquisitions of Modular Building Systems Pty Ltd and Northern RV (See note 29) is estimated using a present value technique. The $2,037,778 and $2,061,795 fair value for MBS and NRV respectively is estimated by probability-weighting the estimated future cash flows and discounting by the Group’s discount rate. The probability-weighted cash outflows of $2,511,589 and $2,900,000 for MBS and NRV respectively reflect management’s estimate of a 100% and 85% probability that the contract’s target levels will be achieved. The discount rate used is the Corporate weighted average cost of capital. 64 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT’D) FOR THE YEAR ENDED 30 JUNE 2019Fleetwood23. FINANCIAL RISK MANAGEMENT (CONT’D) CONTRACT INTANGIBLE ASSET The fair value of the contract intangible asset that has arisen from the acquisition of Modular Building Systems Pty Ltd has been initially estimated using a present value technique. The $14,923,628 fair value for the contract intangible asset is estimated by using the estimated future cash flows and discounting by the Group’s discount rate. The estimated future cash flows are based on contracts at acquisition, supply contracts and synergies with the Groups existing businesses. The estimated future cash flows of $18,055,070 reflect management’s estimate of the benefits flowing from MBS’ client relationships. The discount rate used is the Corporate weighted average cost of capital. The asset is subsequently recognised at amortised cost. 24. CONTINGENT LIABILITIES Under the terms of the Deed of Cross Guarantee, the Company has guaranteed the repayment of all current and non- current liabilities totalling $79,892,277 (2018: $59,514,044) in the event any of the entities which are party to the Deed are wound up. The Directors are not aware of any circumstances or information that would lead them to believe these liabilities will crystallise and consequently no provisions are included in the financial statements in respect of these matters. Certain claims arising out of construction and insurance contracts have been made by or against controlled entities in the ordinary course of business, some of which involved litigation or adjudication. The Directors do not consider the outcome of any of these claims will have a material adverse impact on the financial position of the consolidated entity. 25. CONTROLLED ENTITIES Fleetwood Corporation Limited (Ultimate parent entity) Continuing Operations CONTROLLED ENTITIES PLACE OF INCORPORATION PRINCIPAL ACTIVITIES INTEREST HELD (%) 2019 2018 Northern RV Pty Ltd (formerly ACN 008 763 193 Pty Ltd) Australia Caravan plumbing and electrical services and parts supplier. 100 100 BRB Modular Pty Ltd Australia Accommodation solutions provider to the resources, education and affordable housing sectors. 100 100 Camec Pty Ltd Australia Manufacturer and distributor of parts and accessories to the recreational vehicles industry. 100 100 Fleetwood Pty Ltd Australia Accommodation solutions provider to the resources, education and affordable housing sectors. 100 100 Modular Building Systems Pty Ltd Australia Accommodation solutions provider to the resources, education, affordable housing and corrections sectors. Camec (NZ) Limited New Zealand Manufacturer and distributor of parts and accessories to the recreational vehicles industry. Fleetwood Share Plans Pty Ltd Australia Administration of Employee Long Term Incentive Plan 100 0 100 100 100 100 65 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT’D) FOR THE YEAR ENDED 30 JUNE 2019Fleetwood25. CONTROLLED ENTITIES (CONT’D) Discontinued and Dormant operations CONTROLLED ENTITIES PLACE OF INCORPORATION PRINCIPAL ACTIVITIES INTEREST HELD (%) ACN 050 031 993 Pty Ltd (formerly Coromal Windsor Melbourne Pty Ltd) Australia Discontinued retail of caravans, parts and accessories operation Fleetwood Finance (WA) Pty Ltd Australia Dormant 2019 2018 100 100 100 100 ACN 624 111 328 Pty Ltd (formerly Coromal Windsor Brisbane Pty Ltd) Australia Discontinued retail of caravans, parts and accessories operation 100 100 Recreational Vehicle Concepts Pty Ltd (formerly Fleetwood Recreational Vehicles Pty Ltd) ACN 625 109 702 Pty Ltd (formerly Coromal Windsor Sydney Pty Ltd) ACN 625 109 793 Pty Ltd (formerly Coromal Windsor Central Pty Ltd) Fleetwood Limited (formerly Flexiglass Challenge Industries (NZ) Limited) Australia Discontinued caravan manufacturing operation 100 100 Australia Dormant 100 100 Australia Dormant 100 100 New Zealand Dormant 100 100 Fleetwood Corporation Limited is the head entity within the tax consolidated group. All companies incorporated in Australia are members of the tax consolidated group. 26. RELATED PARTIES DIRECTORS The names of each person holding the position of Director of Fleetwood Corporation Limited during the financial year were P Campbell, B Denison, A Parker, J Dowling and M Southey. No Director has entered into a material contract with the Company or the consolidated entity during and since the end of the financial year and there were no material contracts involving directors’ interests existing at year-end. Directors of the Company or its controlled entities may purchase goods from the consolidated entity. These purchases are on the same terms and conditions as those entered into by other consolidated entity employees. Further information on remuneration of directors and key management personnel can be found in the Remuneration Report. KEY MANAGEMENT PERSONNEL Aggregate compensation of the key management personnel of the consolidated entity and the Company for the year: Short-term employee benefits Post-employment benefits Other long term benefits Share-based payments CONSOLIDATED 2019 $ 2018 $ 2,731,555 3,053,813 155,391 16,441 165,186 85,933 229,546 289,536 3,132,933 3,594,468 Transactions between Fleetwood Corporation and its related parties During the financial year subsidiaries of the parent company paid no dividends (2018: $5,000,000) to the parent entity. Non-current loans totaling $142,875,034 (2018: $150,907,061) repayable to the parent are outstanding at reporting date. 66 Transactions and balances between the company and its subsidiaries were eliminated in the preparation of the consolidated financial statements of the Group. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT’D) FOR THE YEAR ENDED 30 JUNE 2019Fleetwood27. PARENT ENTITY DISCLOSURES PARENT 2019 $’000 2018 $’000 NOTE 27.1 Financial position Assets Current assets Non-current assets Total assets Liabilities Current liabilities Non-current liabilities Total liabilities Equity Issued capital Retained earnings Total equity 27.2 Financial performance (Loss) profit for the year Other comprehensive income Total comprehensive (loss) income 30,790 189,628 11,801 153,676 220,418 165,477 2,104 693 2,797 1,894 6,161 8,055 254,529 (36,908) 196,428 (39,006) 217,621 157,422 (4,403) (25,090) - - (4,403) (25,090) 27.3 Guarantees entered into by the parent entity Guarantee provided under the deed of cross guarantee 24 79,892 59,514 27.4 Commitments Operating lease commitments Within one year One year or later and no later than five years Later than five years 420 343 - 763 208 122 - 330 The accounting policies of the parent entity, which have been applied in determining the financial information above are the same as those applied in the consolidated financial statements. Under the terms of the Deed of Cross Guarantee, the Company has guaranteed the repayment of all current and non-current liabilities totaling $79,892,277 (2018: 59,514,044) in the event any of the entities which are party to the Deed are wound up. The parent entity had no other contingent liabilities as at 30 June 2019 (2018: nil). 67 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT’D) FOR THE YEAR ENDED 30 JUNE 2019Fleetwood28. DISCONTINUED OPERATIONS DISCONTINUED OPERATION BACKGROUND Flexiglass Challenge Pty Ltd On 11 December 2017 the company announced the sale of Flexiglass Challenge Pty Ltd after Resource Sector Rental Operations undertaking a strategic review of this business. The sale was finalised on 31 January 2018. On 1 March 2016 the company ceased resource sector rental operations due to the downturn in the mining industry and the resulting reduction in demand for construction workforce accommodation. Caravan Manufacturing Operations On 21 June 2018 the company announced the sale of the Coromal and Windsor brands and associated raw materials and finished goods stock after undertaking a strategic review. FLEXIGLASS CHALLENGE PTY LTD RESOURCE SECTOR RENTAL SEGMENT CARAVAN MANUFACTURING TOTAL DISCONTINUED OPERATIONS 2019 2018 2019 2018 2019 2018 2019 2018 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 28.1 Financial results Revenue Impairment and provisions Loss on sale Expenses Loss from discontinued operation before income Attributable income tax benefit Loss from discontinued operation after income 28.2 Cash flow information Net cash inflows from operating activities Net cash inflows (outflows) from investing Net cash inflow from discontinued operations 28.3 Financial Position Assets Liabilities Net Assets in discontinued operation - - - - - - 12,014 1,746 7,319 30,962 34,097 32,708 53,430 (4,509) (3,520) (947) (11,925) (15,232) (15,445) (20,688) (187) - - - - - (187) (13,388) (2,033) (7,838) (44,167) (46,224) (46,200) (67,450) (6,070) (3,807) (1,466) (25,130) (27,359) (28,937) (34,895) 494 1,142 440 7,537 8,296 8,679 9,230 - (5,576) (2,665) (1,026) (17,593) (19,063) (20,258) (25,665) - - - (26) (287) 7,686 (4,945) (21,914) (5,232) (14,254) 32 (26) (366) 26 (1,648) - (1,982) 6 (313) 7,320 (4,919) (23,562) (5,232) (16,236) 5,371 9,211 8,999 36,031 14,370 45,242 - - 4,967 14,769 4,967 14,769 5,371 9,211 4,032 21,262 9,403 30,473 28.4 Loss per share from discontinued operation Basic loss per share (cents) Diluted loss per share (cents) Proft attributable to members of the consolidated entity relates to: Profit from continuing operations Loss from discontinued operation Profit (loss) for the year (22.3) (40.7) (22.2) (40.5) 14,014 12,204 (20,258) (25,665) (6,244) (13,461) 68 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT’D) FOR THE YEAR ENDED 30 JUNE 2019Fleetwood28. DISCONTINUED OPERATIONS (CONT’D) RECOGNITION AND MEASUREMENT A discontinued operation is a component of the Group that has either been disposed of, or is held for sale, and; + represents a separate major line of business or geographical area of operations; + is part of a single coordinated plan to dispose of a separate major line of business or geographical area of operations; or + is a subsidiary acquired exclusively with a view to resale. Profit or loss from discontinued operations, including prior year components of profit or loss, are presented in a single amount in the statement of profit or loss and other comprehensive income. This amount, which comprises the post-tax profit or loss of discontinued operations, is analyzed above. 29. BUSINESS COMBINATIONS 29.1 Acquisition of Modular Building Systems Pty Ltd The company completed the acquisition of 100% of the shares of Modular Building Systems Pty Ltd (MBS), for $34.2 million, a working capital adjustment plus a potential earn out effective 1 July 2018. MBS is based in New South Wales and specialises in the manufacture and installation of prefabricated modular buildings and provides a strong entry point for Fleetwood into the New South Wales corrections, education and commercial sectors. The fair value of the identifiable assets of MBS at the effective date of acquisition, the total cost and cash flows of the acquisition were as follows. Fair value of identifiable net assets acquired: Cash and cash equivalents Trade and other receivables Property, plant and equipment Contract assets Contract intangible Deferred tax assets Inventory Total assets Trade and other payables Interest bearing liabilities Deferred tax liabilities Provisions Total liabilities Fair value of identifiable net assets acquired Fair value of identifiable net assets acquired Goodwill Cost of the combination: Cash paid at acquisition Potential earn out Direct costs relating to the acquisition (expensed in the income statement) Total cost of the acquisition The cash flow on acquisition is as follows: Net cash acquired with the business (inflow) Direct costs relating to the acquisition Cash paid Net consolidated cash outflow CARRYING VALUE FAIR VALUE RECOGNISED $’000 $’000 283 7,937 2,211 1,352 283 7,937 2,211 1,352 14,924 14,924 785 488 785 488 27,980 27,980 8,261 115 4,477 2,616 15,469 12,511 8,261 115 4,477 2,616 15,469 12,511 12,511 24,637 37,148 35,110 2,038 215 37,363 (283) 215 35,110 35,042 69 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT’D) FOR THE YEAR ENDED 30 JUNE 2019Fleetwood29. BUSINESS COMBINATIONS (CONT’D) The purchase agreement included an additional consideration payable only if the profits of MBS for 2019 and 2020 exceed a target level agreed by both parties. The $2,037,778 fair value of the contingent earn out liability initially recognised represents the present value of the Group’s probability weighted estimate of the cash outflow. It reflects management’s estimate that the targets will be achieved and is discounted using a pre-tax corporate rate. As at 30 June 2019 there have been no changes in the estimate of the probable cash outflow. Goodwill of $24,636,738 is primarily related to growth expectations, expected future profitability, the substantial skill and expertise of MBS’ workforce and expected synergies. Goodwill has been allocated to the Modular Accommodation cash- generating unit at 30 June 2019. The goodwill that arose from the business combination is not expected to be deductible for tax purposes. The effective date of the acquisition of MBS was 1 July 2018. The revenue and earnings of Modular Building Systems Pty Ltd have been included within the Modular Accommodation segment results for the period. 29.2 Acquisition of Northern RV On 7 August 2018, the company announced that it had completed the acquisition of the business and assets of Northern RV (NRV), a Melbourne based caravan plumbing and electrical services and parts supplier for $10 million, a working capital adjustment plus a potential earn out. NRV gives Fleetwood the opportunity to further integrate with key OEM customers. The fair value of the identifiable assets of NRV at the effective date of acquisition, the total cost and cash flows of the acquisition were as follows. CARRYING VALUE FAIR VALUE RECOGNISED $’000 $’000 Fair value of identifiable net assets acquired: Trade and other receivables Property, plant and equipment Deferred tax assets Inventory Total assets Trade and other payables Provisions Total liabilities Fair value of identifiable net assets acquired Fair value of identifiable net assets acquired Goodwill Cost of the combination: Cash paid at acquisition Potential earn out Direct costs relating to the acquisition (expensed in the income statement) Total cost of the acquisition The cash flow on acquisition is as follows: Direct costs relating to the acquisition Cash paid Net consolidated cash outflow 70 2,825 61 270 540 3,696 754 900 1,654 2,042 2,825 61 270 540 3,696 754 900 1,654 2,042 2,042 10,554 12,596 10,534 2,062 76 12,672 76 10,534 10,610 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT’D) FOR THE YEAR ENDED 30 JUNE 2019Fleetwood29. BUSINESS COMBINATIONS (CONT’D) The purchase agreement included an additional consideration payable only if the average profits of NRV for financial years 2019, 2020 and 2021 exceed a target level agreed by both parties. The $2,061,795 fair value of the contingent earn out liability initially recognised represents the present value of the Group’s probability weighted estimate of the cash outflow. It reflects management’s estimate of a 85% chance that the targets will be achieved and is discounted using a pre-tax corporate rate. As at 30 June 2019 there have been no changes in the estimate of the probable cash outflow. Goodwill of $10,553,955 is primarily related to growth expectations, expected future profitability and integration opportunities of NRV. Goodwill has been allocated to cash-generating units at 30 June 2019. The goodwill that arose from the business combination is not expected to be deductible for tax purposes. The acquired business contributed revenues of $13,742,366 and net profit after tax of $2,410,197 (excluding incremental interest) to the Group for the period 8 August 2018 to 30 June 2019. Had the assets of NRV been acquired at 1 July 2018, the revenue from continuing operations for the Group would have been $316,910,405, and the net profit from continuing operations attributable to members of the parent entity would have been $14,294,539. In determining the ‘pro-forma’ revenue and profit of the Group the revenue and earnings of NRV have been extrapolated for the period from acquisition date to 30 June 2019. RECOGNITION AND MEASUREMENT Acquisitions of businesses are accounted for using the acquisition method. The consideration transferred in a business combination is measured at fair value which is calculated as the sum at the acquisition-date of the fair values of assets transferred by the Company, liabilities incurred by the Company to the former owners of the acquiree and the equity instruments issued by the Company in exchange for control of the acquiree. Acquisition related costs are recognised in profit or loss as incurred. At the acquisition date, the identifiable assets acquired and the liabilities assumed are recognised at their fair value, except that deferred tax assets or liabilities or assets related to employment benefit arrangements are recognised and measured in accordance with AASB 112 ‘Income Taxes’ and AASB 119 ‘Employee Benefits’ respectively. Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree, and the fair value of the acquirer’s previously held equity interest in the acquiree (if any) over the net of the acquisition date amounts of the identifiable assets acquired and the liabilities assumed. If, after reassessment, the net of the acquisition date amounts of the identifiable assets acquired and liabilities assumed exceeds the sum of the consideration transferred, the amount of any non- controlling interests in the acquiree and the fair value of the acquirer’s previously held interest in the acquiree (if any), the excess is recognised immediately in profit or loss as a bargain purchase gain. 30. SIGNIFICANT EVENTS AFTER THE REPORTING PERIOD No significant items have occurred subsequent to 30 June 2019 and before this report was issued. 71 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT’D) FOR THE YEAR ENDED 30 JUNE 2019FleetwoodINDEPENDENT AUDITOR’S REPORT 72 FleetwoodGrant Thornton Audit Pty Ltd ACN 130 913 594asubsidiary or related entity of Grant Thornton Australia Ltd ABN 41 127 556 389‘Grant Thornton’ refers to the brand under which the Grant Thornton member firms provide assurance, tax and advisory servicesto their clients and/or refers to one or more member firms, as the context requires. Grant Thornton Australia Ltd is a member firmof Grant Thornton International Ltd (GTIL). GTIL and the member firms are not a worldwide partnership. GTIL and each member firm is a separate legal entity. Services are delivered by the member firms. GTIL does not provide services to clients. GTIL and its member firms are not agents of, and do not obligate one another and are not liable for one another’s acts or omissions. In the Australian context only, the use of the term ‘Grant Thornton’ may refer to Grant Thornton Australia Limited ABN 41 127 556 389 and its Australian subsidiaries and related entities. GTIL is not an Australian related entity to Grant Thornton Australia Limited.Liability limited by a scheme approved under Professional Standards Legislation. www.grantthornton.com.auLevel 17, 383 Kent StreetSydney NSW 2000Correspondence to:Locked Bag Q800QVB Post OfficeSydney NSW 1230T+61 2 8297 2400F+61 2 9299 4445Einfo.nsw@au.gt.comWwww.grantthornton.com.auCentral Park, Level 43152-158 St Georges TerracePerth WA 6000Correspondence to: PO Box 7757Cloisters SquarePerth WA 6850T +61 8 9480 2000F +61 8 9480 2050E info.wa@au.gt.comW www.grantthornton.com.auIndependent Auditor’s ReportTo the Members of Fleetwood Corporation LimitedReport on the audit of the financial reportOpinionWe have audited the financial report of Fleetwood Corporation Limited (the Company)and its subsidiaries (the Group),which comprises the consolidated statement of financial position as at 30June2019, the consolidated statement of profit or loss and other comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the periodthen ended, and notes to the consolidated financial statements, including a summary of significantaccounting policies, and the Directors’ declaration.In our opinion,the accompanying financial report of the Groupis in accordance with the Corporations Act 2001, including:agiving a true and fair view of the Group’s financial position as at 30 June 2019and of its performance for the year ended on that date; and bcomplying with Australian Accounting Standards and the Corporations Regulations 2001.Basis for opinionWe conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Reportsection of our report. We are independent of the Groupin accordance with theauditorindependence requirements of the Corporations Act 2001andthe ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code ofEthics for Professional Accountants(the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.INDEPENDENT AUDITOR’S REPORT (CO NT’D) 73 Key audit matters 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, andin forming our opinion thereon, and we do not provide a separate opinion on these matters. We have determined the matters described below to be the key audit matters to be communicated in our report.Key audit matterHow our audit addressed the key audit matterRevenue recognition for construction contractsNote 2For the year ended 30 June 2019, the Group recognised $209.364millionin revenues from its construction contracts within its Modular Accommodation operating segment.The Group recognises revenues from construction contracts with reference to AASB 15 Revenues from Contractswith Customers. AASB 15 was adopted during the period and replaced AASB 111 Construction Contracts and several revenue-related Interpretations.The first-time adoption of a new standard introduces the risk that revenue recognition policies being applied are not in-line with the standard.Further, this area is a key audit matter due to the degree of management estimation and judgementrequired withregard to applying judgments and estimates in determining revenue recordedoverthetimeof its contracts. In the case of the Group’s revenue recognition policies, this is performed with reference to costs incurred relative to the total expected costs oneach contract.Our procedures included, amongst others:obtaining management’s impact assessment of AASB 15 –Revenues from Contracts with Customersand tested forcompliance with the requirements of the standard, includingchecking application to a number of underlying agreements;testing a sample of costs incurredin the yearthrough tosupporting documentation such asinvoicesor approvedtimesheetsand their allocation to projects;selecting a sample of contracts and agreeing contract pricesand contract costs to supporting documentation;recalculating revenue, including contract assets and contractliabilities, on a sample of open contracts at year end andcomparing to management’s estimates;analysing management’s ability to forecast by:comparing margins on open contracts at 30 June 2018 to actual margins once contracts were completed during the 2019 financial year; comparing margins on open contracts at 30 June 2019 to margins reported by management in the months subsequent to year end;andassessingthe appropriateness of financial statementdisclosures.FleetwoodINDEPENDENT AUDITOR’S REPORT (CO NT’D) 74 Key audit matterHow our audit addressed the key audit matterBusiness combinationsNote 29During the period, the Group acquired all the shares of Modular Building Systems Pty Ltd (“MBS”) and all assets and liabilities of Northern RV (“NRV”). Both acquisitions were treated as Business Combinationsas defined by AASB 3.In performing the purchase price allocations for the acquisitions, the Group identified and estimated the fair value of all assetsacquiredand liabilities assumed. In the case of the MBS acquisition, this included contract intangible assets totalling$14.924 million. The purchase price allocation has resulted in Goodwill of $24.637 million and $10.554 million being recognised in relation to the MBS and NRV acquisitions respectively. This area is a key audit matter due tothe management estimates and judgmentsapplied in identifying separately identifiable intangible assets and in determining the fair value of any separately identifiable intangible assets and earn out liabilities.Our procedures included, amongst others, performing the following:obtaining the acquisition trial balance and performing openingbalance audit procedures to evaluate the completeness andaccuracy of assets acquired and liabilities assumed;ensuring the total cost of the combinationsincluded allelements of consideration paid and payable with reference tosigned purchase agreements;tracing cash consideration paid to bank statements;evaluating management’s purchase price allocationdocumentation and challenging their assessment ofseparately identifiable intangible assets;assessing management’s judgments and estimates indetermining and applying the inputs to its fair value calculationof earn out obligations;testing management’s judgments and estimates indetermining the fair value of its contract intangible assets,including:involving our internal corporate finance experts to assessvaluation techniques and inputs used in the discounted cash flows;checking forecasted cash flows to supporting evidence as well as analysing estimates for reasonableness;corroborating against industrydata and forecasts;andre-calculating Goodwill balances reported by deducting the fair value of identifiable net assets acquired by the total costs of the combinations; andensuringthe appropriateness of related financial statementdisclosures.FleetwoodINDEPENDENT AUDITOR’S REPORT (CO NT’D) 75 Key audit matterHow our audit addressed the key audit matterGoodwill valuation Note 13As at 30 June 2019, the Group reports$85.911millioninGoodwill across various cash-generating units(“CGU”).Goodwill is required to be assessed for impairmentannually as prescribed in AASB 136 –Impairment of Assets.The Group estimates the fair value of its cash-generating units by employing a discounted cash flow model and, in doing so, determining the following:forecasted cash flows from operationsworking capital adjustmentscapital expenditure estimatesdiscount and growth ratesa terminal valueThis area is a key audit matter due to the significant level of management estimatesand judgementsapplied in supporting these carrying values.Our procedures included, amongst others, obtaining management’s discounted cash flow model and performing the following audit procedures:understanding and documenting management’s identificationof CGUs andassessing the appropriateness of the inclusionof cash flows from companies determined to be within eachCGU;identifying the key assumptionsand adjustmentsin the model;testingthe mathematical accuracy of the modelensuringcompliance with AASB 136;analysingthe reasonableness of the cash flow forecastsusedin the modelby:comparing tohistorical performance, includingmanagement’s ability to forecast;agreeing to Board approved corporate business plansand supporting information;performingsensitivity analysis on the key assumptions; andcorroborating against industry forecasts.involving our internal corporate finance experts to assess thereasonableness of discountrates, working capital and capitalexpenditure adjustments, and foreign exchange forecasts;andensuringthe appropriateness of related financial statementdisclosures.FleetwoodINDEPENDENT AUDITOR’S REPORT (CO NT’D) 76 FleetwoodInformation other than the financial report and auditor’s report thereonThe Directors are responsible for the other information.The other information comprises the information included in the Group’s annualreport for the year ended 30June2019, but doesnot include the financial report and our auditor’s report thereon.Our opinion on the financial report does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, consider whether the other information is materiallyinconsistent with the financial report or our knowledge obtained in the audit or otherwise appears to be materially misstated.If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact.We have nothing to report in this regard.Responsibilities of the Directorsfor the financial report The Directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the Directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. In preparing the financial report, the Directors are responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Directors either intend to liquidate the Groupor to cease operations, or have no realisticalternative but to do so. Auditor’s responsibilities for the audit of the financial report Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this financial report. A further description of our responsibilities for the audit of the financial report is located at the Auditing and Assurance Standards Board website at: http://www.auasb.gov.au/auditors_responsibilities/ar1.pdf. This description forms part of our auditor’s report.INDEPENDENT AUDITOR’S REPORT (CO NT’D) 77 FleetwoodReport on the remuneration reportOpinionon the remuneration reportWe have audited the Remuneration Reportincludedin pages 22to30of the Directors’ report for the yearended 30 June 2019.In our opinion, the Remuneration Report of Fleetwood Corporation Limited, for the year ended 30 June 2019 complies with section 300A of the Corporations Act 2001.ResponsibilitiesThe Directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. GRANT THORNTON AUDIT PTY LTDChartered AccountantsM D Dewhurst Partner –Audit & AssurancePerth,24September2019ASX ADDITIONAL INFORMATION AS AT 14 OCTOBER 2019 Additional Information required by the Australian Securities Exchange Limited Listing Rules and not disclosed elsewhere in this report is set out below: Twenty largest shareholders NAME HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED CITICORP NOMINEES PTY LIMITED NATIONAL NOMINEES LIMITED KARRAD PTY LTD J P MORGAN NOMINEES AUSTRALIA PTY LIMITED ONE MANAGED INVT FUNDS LTD BNP PARIBAS NOMINEES PTY LTD ONE MANAGED INVT FUNDS LTD <1 A/C> SMARTEQUITY EIS PTY LTD MIRRABOOKA INVESTMENTS LIMITED JARLI PTY LTD BNP PARIBAS NOMS PTY LTD ECAPITAL NOMINEES PTY LIMITED MR GREG TATE CREATIVE LIVING (QLD) PTY LTD MR JOHN IAN AMOS + MRS CINTRA GAIL AMOS MR BRIAN GARFIELD BENGER MR MARK TERENCE O’DONOGHUE CAMITOSA PTY LTD NEWECONOMY COM AU NOMINEES PTY LIMITED <900 ACCOUNT> Others minority shareholders Substantial shareholders The number of shares held by substantial shareholders are set out below: NAME HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED CITICORP NOMINEES PTY LIMITED MR GREG TATE NATIONAL NOMINEES LIMITED Distribution of equity security holders CATEGORY 1 -1,000 1,001 - 5,000 5,001 - 10,000 10,001 - 100,000 100,001 and over 78 Shareholders holding less than a marketable parcel NUMBER OF ORDINARY SHARES HELD 21,901,315 14,448,233 7,570,138 7,355,992 3,884,084 3,540,680 3,086,839 2,551,923 1,626,200 1,504,680 1,084,000 1,037,307 750,000 338,873 330,000 309,143 237,370 188,276 183,519 179,976 % 23.15% 15.27% 8.00% 7.77% 4.11% 3.74% 3.26% 2.70% 1.72% 1.59% 1.15% 1.10% 0.79% 0.36% 0.35% 0.33% 0.25% 0.20% 0.19% 0.19% 72,108,548 76.22% 22,502,507 23.78% 94,611,055 100.00% 22,014,257 14,448,233 8,858,865 7,663,938 23.27% 15.27% 9.36% 8.10% NUMBER OF SHAREHOLDERS 1,997 1,972 500 426 36 4,931 713 FleetwoodASX ADDITIONAL IN FOR MAT IO N (CO NT ’ D) FOR THE YEAR ENDED 30 JUNE 2019 Voting rights of shareholders On a show of hands, every member in person or by proxy shall have one vote. Upon a poll, voting rights of such members shall be one vote for each share held. On market buy-back There is no current on market buy-back. Other information Fleetwood Corporation Limited, incorporated and domiciled in Australia, is a publicly listed company limited by shares. 79 FleetwoodFleetwood Corporation Limited ABN 69 009 205 261 21 Regal Place, East Perth WA 6004 T 08 9323 3300 E info@fleetwood.com.au www.fleetwoodcorporation.com.au 

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