Gowing Bros. Limited
Annual Report 2017

Plain-text annual report

E S T 1 8 6 8 G O W I N G B R O S .LT D 2 4 9 1 I I W W g n i w o G d e T 149th Annual Report July 31 2017 Corporate Directory Contents Directors Professor Jonathan West (Chairman) Mr. John Gowing (Managing Director) Mr. Sean Clancy (Non-executive Director) Mr. John Parker (Non-executive Director) Secretaries Mr. Garth Grundy Ms. Belinda Flatters Stock Exchange Listing The Australian Securities Exchange Ticker Code: GOW Registered Office Suite 21, Jones Bay Wharf 26 – 32 Pirrama Road Pyrmont NSW 2009 Phone: 61 2 9264 6321 Fax: 61 2 9264 6240 Email: info@gowings.com Share Registry Office Computershare Investor Services Pty Limited Level 3, 60 Carrington Street Sydney NSW 2000 Phone: 1300 855 080 Fax: 61 2 8234 5050 Auditors HLB Mann Judd (NSW Partnership) Level 19, 207 Kent Street Sydney NSW 2000 Phone: 61 2 9020 4000 ABN 68 000 010 471 ACN 000 010 471 History and Innovation 1868 - 2017 About Gowings Managing Director’s review of operations The Board of Directors, executive management and general counsel Directors’ report Remuneration report ASX listing requirements Financial report 4 8 10 30 34 38 41 42 2 3 149th ANNUAL REPORT 2017 I Year ended 31 July 2017149th ANNUAL REPORT 2017 I Year ended 31 July 2017INVESTING TOGETHER FOR A SECURE FUTUREGOWING BROS. LIMITEDHistory and Innovation 1868 - 2017 E S T 1 8 6 8 GOWING BROS.LTD Gowings open 498 George St Gowings pioneers promotion of ‘Australian Made’ 1890 1901 Gowings establishes employee share scheme 1946 Ted Gowing establishes share portfolio 1953 Cash & wrap installed with self-service to counter wage explosion 1974 ‘Boys Go To Gowings’ Campaign Market st store refurbished. Gowings Whale trust established 1991 2000 Gowings establishes Pacific Coast Shopping Centres 2010 1868 1890s Australian Depression Great Depression WW2 Malay Emergency 1893-95 1929-39 1939-45 1950-60 Gowings is first retailer to install air con and music in the lifts 1960 First Gulf War 1990-91 Gowings online store opens 1998 Gowings sell the Market St Building 2006 2017 1899-1902 1914-18 1940 1950-53 1987 1995 1999 2008-11 John Ellis Gowing opens first Gowings Store Gowings Whale Trust partners with Sea Shepherd Boer War WW1 ‘GONE TO GOWINGS’ Campaign Korean war J.E. (John) Gowing appointed Managing Director Gowings Reintroduce Own Brand East Timor Peacekeeping Global Financial Crisis 1892 1908 1929 1941 1959-73 1968 1992 1996 2003 Gowings are one of the first companies to list in the telephone directory as ‘6321’ John Ellis Dies. Gowings Book released Gowings store George & Market St opens First steel structure building in Sydney CBD & one of the tallest buildings in Sydney EJ(Ted ) Gowing becomes a director vietnam War Gowings 100 Birthday Celebrations Gowings Journal re-issued Oxford St store opens. Wynyard store opens 319 George St, with "Blokeatorium" Gowings open QVB Link. Second Gulf War 4 5 149th ANNUAL REPORT 2017 I Year ended 31 July 2017149th ANNUAL REPORT 2017 I Year ended 31 July 2017INVESTING TOGETHER FOR A SECURE FUTUREGOWING BROS. LIMITEDHistory Preston and Isabel’s wedding, 1907 The Company, under 4 generations of the Gowing family, has prospered through 149 years of economic booms and busts, world wars and market crashes. The Company’s origins were in retailing which soon led to significant property investments being made across Sydney’s CBD. At one stage, the Gowings Market Street building completed in 1929 was the tallest building in the city. Gowings also had an early interest in equity investments being one of the founding investors in Woolworths. In the 1950’s, a significant re-allocation of capital was made into listed equities. Since then, the Company’s investment portfolio mix has shifted between equities, property and private equity investments according to the prospective outlook for each. The Gowing family started the company in 1868 and continues to use the company as its principal wealth creation and preservation vehicle. Gowings store, 1878. Charles Mac, left with toe on kerb; Preston Robert (wearing jacket) stands near the right post and John Ellis is the bearded gent, first to the right of the post. 6 7 149th ANNUAL REPORT 2017 I Year ended 31 July 2017149th ANNUAL REPORT 2017 I Year ended 31 July 2017INVESTING TOGETHER FOR A SECURE FUTUREGOWING BROS. LIMITEDAbout Gowings Net Assets £92,781 1928 $3.4M 1972 $214M 2017 Our Purpose Enriching people’s lives since 1868 Investment Objective The Company’s focus is to preserve and grow the value of its underlying financial and real assets and to grow net income from ordinary activities as the principal source of income to pay ordinary dividends. Investment Philosophy On 31 July 2017 Gowings completed its 149th year of operations and is looking forward to celebrating 150 years in 2018. Gowings is an investment company whose investment horizon is inter-generational. In fact, Gowings has had only four managing directors since its establishment in 1868. Being a shareholder in Gowings is for investors who share a similar investment philosophy and who wish to invest alongside the Gowings family. An important investment philosophy is to generate sustainable and reliable dividends that can provide income for shareholders. Investments are made across different asset classes to take advantage of changing economic cycles. The Company’s investment portfolio adjusts as opportunity and risk are managed. Gowings provides investors with access to opportunities not normally available to retail investors. The Company does not limit itself to ASX-listed equities, to any single national boundary or currency, or any particular industry type. Risk is actively managed through portfolio selection, natural hedges, diversity, and conservative gearing. The Company does not attempt to reduce risk and preserve capital by investing only in so-called “low- risk” assets, but rather seeks to offset risk with a balanced and diverse portfolio of different asset classes. As an inter-generational investment vehicle, the Company does not focus on the day-to-day ASX share price, but rather on preserving and increasing the long-term value of underlying assets, which are the ultimate source of income and growth. At Gowings, all the Board of Directors and key senior management are shareholders, giving rise to our commitment ‘Investing together for a secure future’ Transparent Communication As an investor itself, Gowings values transparent information. An audit review is conducted half-yearly and formal audited financial statements are provided annually along with regular informal company updates. All shareholder communication may be found at the Company’s website www.gowings.com or on the Australian Securities Exchange’s website www.asx. com.au. Investing in Gowings Gowings shares can be bought or sold through the Australian Securities Exchange under the ticker code GOW. Gowings is internally managed and does not pay performance fees to an external manager in relation to the administration of the company. There are no entry or exit fees and no trailing commissions for investors in Gowings. Our People Matter We’re Australian Everyone’s Business Environmentally Aware Our Values Working & Investing Together Commonsense Pioneers Customer First Integrity Endless Possibilities Quality & Value 8 149th ANNUAL REPORT 2017 I Year ended 31 July 2017 INVESTING TOGETHER FOR A SECURE FUTURE GOWING BROS. LIMITED 149th ANNUAL REPORT 2017 I Year ended 31 July 2017 9 CommunityManaging Director’s Review of Operations We have commenced our 150th year of operations which is a landmark year for a small company established by John Ellis Gowing in 1868. This is Gowings 149th Annual Report. The entrepreneurial spirit of the company has not waned over the years and if anything has accelerated over the last decade as we continue to position the company for a secure prosperous future. My father, Ted Gowing, is featured on the cover this year. Following his return to Australia after five years as a WWll fighter pilot in England, Ted established the Gowings listed investment portfolio in 1952. Paving the way for continual growth of the company for the next 65 years. Building the Team During the year we have invested in human resources and inter-generational continuity. Robert Ambrogio has been appointed to the position of Chief Financial Officer, Belinda Flatters has been appointed to the position of Company Secretary and in-house legal counsel, Dominic Power has been appointed as a senior member of the property team and Christian Hay has been appointed to the position of Investment Analyst. We warmly welcome these appointments to the company. Ellis Gowing and James Gowing have both accepted appointments as associate directors, this allows them to attend board meetings, to follow and learn the business and offer opinions, but not vote on matters before the meeting. This expanded team and new talent allows us to progress our business plans in the areas of property, investment and financial management. Key Developments Some of the key developments during the year include the acquisition of: • Surf Hardware International in December last year for $16 million; • A DA approved 165 lot residential sub-division in Lyons Rd Sawtell for $9 million; and • The Forestry Department’s mixed- use development lot in the Jetty Precinct on Harbour Drive, Coffs Harbour for $3 million. The Pacific Coast Shopping Centres There has been a significant amount of work undertaken during the year to add value to the centres and improve the investment in the Pacific Coast Shopping Centre Portfolio. At Coffs Harbour, following successful negotiations with Big W to surrender their lease we entered into a binding agreement with Kmart to take over an expanded and fully refurbished space. This refurbishment forms part of a $35 million upgrade and extension of the property. The ANZ bank has provided a flexible construction facility that transforms into long term finance when the construction is completed early next year. At Moonee Marketplace, following the completion of the upgraded road access from the Pacific Highway we have undertaken a strategic leasing campaign resulting in the centre having over 90% occupancy. At Port Macquarie, following an unsolicited letter of offer to purchase Port Central, we conducted a non-binding expression of interest campaign. Although we received a number of expressions of interest for Port Central, the Board decided it was in the best interests of shareholders to realise the longer term potential of the asset. Over the last several months there has been a lot of media attention given to the threat to Australian retailers and shopping centre owners over the entrance of Amazon into the Australian market. In spite of this new entrant risk and the prospect of an higher interest rate environment, we have significant development opportunities to add and capture value for shareholders. Our regional shopping centres continue to evolve with a mix of local and national brands providing a one stop solution with food as well as lifestyle and fashion offerings to remain relevant as the main community hub in the regional towns in which we operate. Murray Darling Food Company (MDFC) As part of our strategy of building exposure to listed and unlisted agricultural companies in Australia, we formed part of a consortium to establish the MDFC in late 2016. MDFC purchased the 11,500 acres Burrawang West Station and the Dorper Stud situated on the Station. In July MDFC settled the purchase of Bombah, a 6,000 acres mixed use property near Condobolin in central NSW. The strategy for MDFC is to continue building capacity in grass fed and organic lamb production, and to build its own vertically integrated brand giving customers traceability between paddock and plate. Financial Services During the year the board made the strategic decision that for the Company to continue to grow and prosper over the next 150 years that we should leverage our investment expertise and succesful track record by allowing wholesale investors to invest alongside Gowings in ventures such as The Murray Darling Food Company. To this end we have initiated the process of applying for an Australian Financial Services Licence for wholesale investors. Surf Hardware International We have owned Surf Hardware International (SHI) for 7 months, and so far, the acquisition has been positive. The Board and senior management have engaged strategically with the largely autonomous senior management team at SHI. We have held 2 off-site strategic planning retreats in the last 4 months. There are a lot of opportunities for SHI and we are working to make sure they have the right resources to take full advantage of them. Other Listed and Unlisted Investments Our largest single investment following the sale of our long term holding in Blackmores last year continues to be our investment in Boundary Bend Ltd (BBL). Our investment in BBL has appreciated significantly over the years and is now valued at $14 million. BBL had a normalised EBITDA per share this year of 81 cents. Our original investment cost per share was $1. We sold a number of other non-strategic long term investments to fund the establishment of the capital works at Coffs Harbour. This accounted for the $5.7 million in capital gains on sale of shares from our long term equity portfolio. The Gowings Whale Trust The Gowings Whale Trust (GWT) continues to operate with a presence in both Port Central and Coffs Central centres. During the year GWT made a donation to the Sea Shepard to help with the purchase of “Whale Warrior” the chase boat for Sea Shepard’s newly commissioned ship “Ocean Warrior”. Both boats participated in last year’s campaign to deter Japanese whalers from illegal whaling in the Antartic Ocean. Overview of Current Year Financial Performance and Outlook Last year’s result which included the capital gain made on the sale of our investment in Blackmores was always going to be difficult to match. This year’s result has been buoyed by further growth in the Pacific Coast Shopping Centre portfolio, resulting in unrealised gains of $23.2 million being brought to account. This performance will be difficult to replicate next year as we believe we are close to the top of the property cycle as reflected in the capitalisation rates. Further gains in value of our shopping centres will only be made by value adding activities. Our investment portfolio remains well diversified providing a solid mix of income and capital growth. This is the first year since the GFC that the Company is near fully invested as we seek to take advantage of sound opportunities that will enhance shareholder wealth over the long term. Following the acquisition of SHI, Gowings is now a truly global business, albeit in a small way. Despite escalating levels of public and private debt, business conditions currently appear favourable around the world. Final Dividend The directors have approved a final fully franked LIC dividend of 6c per share (last year 6c per share). Net income for ordinary activities after tax is the principal source of income to pay dividends. This has been steadily increasing over the last few years, however this year’s net income has been impacted negatively due to rental abatements during the development work at Coffs Central. Given that we are fully invested and have extensive contracted capital expenditure for the redevelopment of Coffs Central the directors feel it is prudent to maintain the final dividend at 6c per share. More details on the performance of Gowings and our investments can be found in the following pages of this report. Key Highlights Profit for the Year $23.2m Up 6.0% from 2016 Final Fully Franked Dividends 6.0¢ 6.0 cents in 2016 Total Shareholder Return +13.2% Net asset increase per share plus dividends Total Net Assets $214.0m $198.6 million in 2016 J. E. Gowing Director Sydney 28 September 2017 10 11 149th ANNUAL REPORT 2017 I Year ended 31 July 2017149th ANNUAL REPORT 2017 I Year ended 31 July 2017INVESTING TOGETHER FOR A SECURE FUTUREGOWING BROS. LIMITED Managing Director’s Review of Operations On behalf of the Board of Directors, I am pleased to comment on the results for the year ended 31 July 2017. Financial Review Net Assets per Share 2017 2016 2015 2014 2013 $4.43 $4.02 $3.77 $3.32 $2.90 Net assets per share before tax on unrealised gains increased 10.2% to $4.43 as at 31 July 2017 after the payment of 12c in dividends. Total Shareholder Return was 13.2% including the growth in net assets per share plus dividends paid to Shareholders. Net assets per share have grown strongly over the past 5 years driven by continued growth in our Pacific Coast Shopping Centre portfolio as well as solid returns achieved in the Equity portfolio. Net Profit After Tax 2017 2016 2015 2014 2013 $23.2m $22.0m $19.1m $14.1m $7.3m Net Profit After Tax for the year ended 31 July 2017 includes underlying income from ordinary activities such as rent, interest and dividends. This year’s profit was bolstered by the capital profit made on share sales within our equity portfolio and the revaluation upwards of the Company’s investment in the Pacific Coast Shopping Centre portfolio as reflected in the Statement of Profit or Loss. Dividends per Share DPS Total Dividend 2017 2016 2015 2014 2013 12.0c $6.4m 12.0c $6.4m 12.0c $5.8m 12.0c $5.8m 11.5c $4.9m The Company paid a total of 12c in fully franked LIC dividends for the 2017 year. The Company has maintained a prudent approach to dividends given the capital requirements of the Company having various development and investment opportunities currently under consideration. Shareholders will be aware that the LIC franking status passes on the benefit of an LIC capital gain through to eligible Shareholders who may receive up to a 50% reduction in their assessable taxable dividend income depending on their income tax status. Key Metrics For the year ended 31 July 2017 31 July 2016 31 July 2015 31 July 2014 31 July 2013 Net Assets Net Assets per Share -  Before tax on unrealised gains -  After tax on unrealised gains Net profit after tax Earnings per Share Dividends per Share Total Shareholder Return Shareholder Returns $214.0m $198.6m $186.8m $170.2m $157.2m $4.43 $3.93 $23.2m 43.29c 12.0c 13.2% $4.02 $3.70 $22.0m 40.92c 12.0c 9.8% $3.77 $3.47 $19.1m 35.48c 12.0c 16.3% $3.34 $3.16 $14.1m 26.10c 12.0c 15.2% $2.99 $2.92 $7.3m 13.50c 11.5c 9.5% The graph on the following page is compiled by Bloomberg and Andex Charts illustrating the growth in value of Gowings as an investment (share price and dividends reinvested) over 40 years in relation to other investments. An investment of $10,000 in Gowings in 1976 would be worth $1,559,167 in 2017. 12 13 149th ANNUAL REPORT 2017 I Year ended 31 July 2017149th ANNUAL REPORT 2017 I Year ended 31 July 2017INVESTING TOGETHER FOR A SECURE FUTUREGOWING BROS. LIMITED                A Strong Investment Over Time E S T 1 8 6 8 GOWING BROS.LTD $1,000,000 $100,000 $10,000 15% 10% 5% 0% 14 15% 10% 5% 0% 15 76777879808182838485868788899293949596979891907677787980818283848586878889929394959697989190Sources: Australian Bureau of Statistics, ASX Limited, Bloomberg Finance L.P., Commonwealth Bank of Australia, Melbourne Institute of Applied Economic and Social Research, MSCI Inc., Reserve Bank of Australia, Standard & Poors, Thomson Reuters.Notes: 1. One year returns are total returns from 30 June 2016, to 30 June 2017. Five, Ten, Twenty, Thirty and Forty-year returns are per annum returns to 30 June 2017. 2. Gowing Brothers Total Return data calculated by Bloomberg. 3. Index prior to January 1980 is the MSCI Australia Gross Total Return Index. From January 1980 the index is the Standard & Poors ASX All Ordinaries Accumulation Index. 4. MSCI World ex-Australia Gross Total Return Index. 5. S&P500 Total Return Index in AUD. 6. Data used in the construction of the index prior to January 1977 provided by the Reserve Bank of Australia. From January 1977 the index is the Commonwealth Bank All Series Greater than 10 Years Bond Accumulation Index. 7. Data used in the construction of the index prior to March 1987 provided by the Reserve Bank of Australia. 15%10%5%0%US$1.25US$1.00US$0.75US$0.5020%15%10%5%0%HOWARDKEATINGHAWKEFRASERGrowth of A$10,000with no acquisition costs or taxes & all income reinvested$10,000$100,000$1,000,000Stock MarketCrashIraq invades KuwaitAustralian dollar floatedAustralian population 7,032,034Life expectancy at birth males 69.6 yrsfemales 76.6 yrs"a recessionwe had to have"Asian Currency CrisisJohn Gowing appointed directorGowings 125th BirthdayGowings opens Wynyard storeGowings Market St store fully refurbished98990001020304050607080910111213141516179899000102030405060708091011121314151617Copyright © 2017 Andex Charts Pty Ltd.Reproduction either in whole or in part is expressly prohibited without the written permission of Andex Charts Pty Ltd.www.andex.com.auDisclaimer: The information contained herein is intended for informational purposes only. It is not intended as investment advice, and must not be relied upon as such. No responsibility is accepted for inaccuracies. Past performance does not guarantee future returns.From March 1987 the index is the Bloomberg AusBond Bank Bill Index. 8. Interest Rate prior to July 1981 is a short-term Government Bond rate. From July 1981 the interest rate is the Reserve Bank of Australia's Official Cash Rate. 9. Annualised rate of inflation.15%10%5%0%INFLATION RATE9US$1.25US$1.00US$0.75US$0.50USD/AUD EXCHANGE RATE20%15%10%5%0%INTEREST RATE8HOWARDRUDDGILLARDABBOTTTURNBULL$1,559,16713.1% p.a.$1,231,95112.5% p.a.$1,014,64311.9% p.a.$662,88610.8% p.a.$350,9729.1% p.a.$270,6368.4% p.a.$62,5494.6% p.a.Lehman Brothers collapseUS subprime crisisSydney OlympicGamesEnron & HIH collapseSeptember 11 terrorist attacksSecond Iraq warBoxing Day tsunamiBREXITGowings Market St store fully refurbishedMarket St Building soldGowings purchases Port Central Shopping CentreAustralian population 24,550,000Life expectancy at birth males 80.4 yrsfemales 84.5 yrsINVESTMENT OVER TIMEA STRONGINVESTMENTRETURNS15 YEARS10 YEARS20 YEARS30 YEARS40 YEARSGOWINGBROS217.7%6.4%8.0%8.8%13.4%AUSTRALIANSHARES311.6%3.5%8.1%8.4%12.2%INT.SHARES418.2%5.1%5.3%6.5%10.7%USSHARES521.3%8.2%7.0%9.4%12.5%AUST.BONDS64.3%6.2%6.2%8.5%9.1%CASH72.5%3.9%4.7%6.4%8.3%CPI2.0%2.4%2.6%3.0%4.4%Investment returns assume reinvestment of all dividends and entitlements. All figures are Australian dollars.149th ANNUAL REPORT 2017 I Year ended 31 July 2017149th ANNUAL REPORT 2017 I Year ended 31 July 2017INVESTING TOGETHER FOR A SECURE FUTUREGOWING BROS. LIMITEDManaging Director’s Review of Operations Managing Director’s Review of Operations Profit and Loss Statement Gowings at a Glance Strategic Equity Investments Surf Hardware International Boundary Bend Limited Carlton Investments Hydration Pharmaceuticals Murray Darling Food Company TPI Enterprises Limited Event Hospitality Group DiCE Molecules Hexima EFTsure Other listed investments Total Private Equity Funds Macquarie Wholesale Co Investment Fund OurCrowd Australia Our Innovation Fund Five V Capital Other Private Equity Funds Total Pacific Coast Shopping Centre Portfolio Sub-regional shopping centres Neighbourhood shopping centres Borrowings Total Other Direct Properties Sawtell Heights Estate - residential subdivision Solitary 30 - Coffs Harbour development land Other Properties Borrowings Total Cash and Other Cash Investment lending facility Tax liabilities Surf Hardware International consolidation impact¹ Other assets & liabilities Total Net assets before tax on unrealised gains on equities and investment properties Provision for tax on unrealised gains on equities and investment properties Net assets after tax on unrealised gains on equities and investment properties 31 July 2017 $’000 31 Jul 2016 $’000 16,000 13,961 5,521 2,003 2,045 2,801 1,578 1,230 749 250 3,831 46,969 884 1,092 750 300 275 3,301 173,280 45,300 (56,023) 162,557 9,044 3,190 16,365 (1,675) 26,925 5,886 3,000 (7,067) (1,581) (3,621) (4,834) 237,918 (23,942) 213,976 - 10,071 5,528 2,659 - 1,933 1,180 1,349 574 - 24,480 47,774 1,152 777 - - 750 2,679 147,747 34,238 (47,000) 134,985 - - 16,947 (1,775) 15,172 20,997 2,003 (8,294) - 583 15,289 215,899 (17,319) 198,580 Notes ¹ Total Net Income from Ordinary Activities of $11.5 million was 7% higher than in the prior corresponding period due to the acquisition of Surf Hardware International. ² Total Head Office Expenses of $4.0 million were 10% higher than the prior corresponding period largely due to an increase in administrative expenses due to planning and analysis work completed around strategic initiatives, and increase in employee head count to bolster resources to execute those plans. ³ Investment properties – unrealised gains of $23.3 million were 204% higher than the previous period mainly due to the revaluation of the Pacific Coast Shopping Centre Portfolio. ⁴ SHI – Consolidation acquisition cost of sales adjustment – GBL acquired Surf Hardware International on the 16 December 2016 and as a result of Australian Accounting Standards was required to record SHI inventory at fair value as at the date of acquisition. This represented an uplift of $3.1 million to the carrying value of inventory compared to cost. Of this $3.1 million uplift, $2.6 million has been recorded as cost of sales as at 31 July 2017. ⁵ Other Consulting Costs of $0.1 million represents consulting costs associated with the sales campaign for Port Central. 16 17 ¹ Difference between the investment in Surf Hardware International (at cost) and net assets attributable to the group on consolidation. For the year ended31 Jul 2017 $’00031 Jul 2016 $’000MovementNet Income from Ordinary ActivitiesInterest income672306120%Investment properties8,8108,7940%Equities1,1731,587-26%Surf Hardware International (7 months)802-n/aTotal Net Income from Ordinary Activities¹11,45710,6877%Head Office Expenses  Administration1,4821,17726%Depreciation1361332%Employee benefits1,8781,7189%Public Company 543609-11%Total Head Office Expenses24,0393,63711%Profit from Ordinary Activities7,4187,0505%Gains / (losses) on sale or revaluationInvestment Properties - Unrealised Gains³23,3027,665204%Equity - Realised Gains5,69618,581-69%Equity - Unrealised impairment(518)(1,640)68%Managed Private Equities(145)1,199-112%Derivatives367(1,100)-133%SHI Subsidiary AcquisitionAcquisition Costs(473)-n/aSHI - Consolidation acquisition cost of sales adjustment⁴(2,578)-n/aOtherConsulting Costs⁵(120)-n/aOther Costs (25)(310)92%Profit Before Tax32,92431,4445%Income tax expense (9,684)(9,455)2%Profit After Tax23,24021,9906%149th ANNUAL REPORT 2017 I Year ended 31 July 2017149th ANNUAL REPORT 2017 I Year ended 31 July 2017INVESTING TOGETHER FOR A SECURE FUTUREGOWING BROS. LIMITEDManaging Director’s Review of Operations Pacific Coast Shopping Centre Portfolio The highlight of the current year is continued growth in the underlying value of the Pacific Coast Shopping Centre Portfolio. Coffs Central Port Central Kempsey Central In February, Gowings commenced a $35 million development of Coffs Central which includes the extension of the centre to the adjoining site on the corners of Harbour Drive, Gordon and Vernon Streets. It also includes a reconfiguration of the first floor following the surrender of the BigW lease, allowing for a new full line Kmart and an additional 20 specialty stores. The development also includes additional carparking and two levels of commercial office space. Approval has been received from the State Government regional planning authority to build an 80 room hotel on top of the commercial office space. Allowance has been made in the foundations of the redevelopment to accommodate the approved hotel. We are optimistic that the hotel will meet our investment hurdle rates, however presently we are still in the process of preparing feasibility analysis. Moonee Marketplace The leasing and repositioning upgrade at Moonee Marketplace is nearing completion and has borne fruit during the period with the centre going from less than 30% occupancy 18 months ago to over 90% occupancy today. New retailers include: Moonee Beach Early Learning Centre; Swim Care; Nourished Earth; Maggie’s Dog Café; The Katsby World of Fashion and Aloy Dee Thai Street Food. Moonee Marketplace is an illustration of the Gowings approach to partnering with local operators to successfully lease shopping centres. Post year end there are a further six new retailers that are expected to be trading by Christmas. This leasing approach is very important from a strategic perspective because it results in a higher quality retail offer which translates into a higher return on investment over the long term. The significant improvement in occupancy has resulted in an increase in positive cashflow for the centre with an associated material appreciation in the underlying value of the centre. As shareholders know, we recently concluded an on-market expression of interest (EOI) campaign for the potential sale of Port Central. Whilst we were pleased with the EOIs received, we believe that the value to shareholders is greater over the long term through retaining ownership and realising the full potential of the asset, particulary when considering the opportunity cost of stamp duty and capital gains tax that would have been incurred had the sale proceeded. Retaining Port Central also re-enforces the strategic benefits of the portfolio and stability of income. Kempsey Central continues its retail turn-around anchored by Coles whose sales are growing at a greater rate than its national average. As shareholders would recall, we partnered with Council and a local cinema operator to win a $2 million Federal Government grant to build a cinema to deliver economic benefits to the city centre of Kempsey. Frustratingly, however, the cinema public-to-private partnership has still not received final approval by the NSW Office of Local Government. As well as securing a new tenant in the centre, the proposed cinema will strategically drive foot traffic and attract Kempsey’s large tourist population into the centre. 18 19 149th ANNUAL REPORT 2017 I Year ended 31 July 2017149th ANNUAL REPORT 2017 I Year ended 31 July 2017INVESTING TOGETHER FOR A SECURE FUTUREGOWING BROS. LIMITED Managing Director’s Review of Operations Strategic Equity Investments Surf Hardware International ($16 million) On the 16 December 2016, the company made an investment in Surf Hardware International (SHI), a manufacturer and global supplier of surf-related products under four highly recognised brands including FCS, Gorilla, Softech and Hydro. SHI was acquired for a total net consideration of $16 million with $10 million paid on 16 December 2016 and a deferred consideration amount of $6 million paid on 30 June 2017. SHI is a profitable business and is earnings accretive for Gowings. SHI delivered a EBITDA result of $2.0 million for the year ended 30 June 2017, and GBL has consolidated an EBITDA of $1.5 million for the 7 months from 16 December 2016 to 31 July 2017 before any inventory acquisition revaluation adjustments impacting cost of goods sold which are required to adhere to AASB 3 “Business Combinations”. The FCS brand began in the early 1990’s when SHI invented the detachable surfboard fin system, an innovation which would revolutionise the way surfboards were manufactured and ridden forever. FCS is a global leader in water board sports accessories and commands a market leadership position in fin systems and fins. The Gorilla brand was established in 1988 following the introduction of the revolutionary ‘Rocket Block’ providing surfers with an alternative to wax and paving the way for surfboard grip, and the Softech Soft board and Hydro Bodyboard brands which were acquired by SHI in 2010. See below for a review of the current years operation from Michael Heath, General Manager of SHI. During the year the business experienced some challenges with Surfboard and Stand Up Paddle Board (SUP) manufacturing down in key global markets and difficult retail conditions in the US and Australia. Despite this, growth was achieved in the key category of FCS II retail premium fins, along with the recently relaunched FCS Traction range and Softech soft boards continued to experience strong growth. At a regional level, while the challenges in the US market impacted its results, growth continued in Australasia, Europe (which included the recent integration of the key UK market previously managed under a distribution arrangement) and the Japanese business continued its growth momentum. FCS II patents were secured in the key US market along with Japan and are expected to proceed to grant in Australia and Europe in the near term providing the company with a key strategic advantage in the all-important production plug and retail premium fin markets (the core of the company’s business and a key growth driver over the past 3 years). FCS II system and fins. In total, 54 events and 11 world titles have now been won by surfers riding the FCS II system and fins. During the year Kolohe Andino also joined the FCS team as a 100% athlete alongside other key global athletes including world champion Gabriel Medina, Julian Wilson, Filipe Toledo, Jeremy Flores and Sally Fitzgibbons. Looking ahead, the business is planning the release of the FCS “Freedom Leash” in the coming 12 months, a key innovation project that will drive growth in the leash category along with further positioning FCS as the global leader in performance surf hardgoods. FCS athletes performed well during the year collecting 3 WSL event victories and a total of 16 events were won by surfers riding the New product launches are also planned across the balance of the brand portfolio including the launch of the FCS II system into the Softech softboard category, an industry first and key strategic initiative designed to further drive retail premium fin sales and a new offering of grip will be launched under the Gorilla brand, a key category focus moving forward. Launching a new brand tagline for the FCS brand will be a key marketing initiative in the next 12 months providing the brand with a platform for communicating one consistent marketing message globally. Additionally, the business is planning to invest in additional product resources in order to accelerate the product development process along with additional investment in the marketing and communication of its brand portfolio, each initiative designed to drive earnings growth in the medium term. 20 21 149th ANNUAL REPORT 2017 I Year ended 31 July 2017GOWING BROS. LIMITED149th ANNUAL REPORT 2017 I Year ended 31 July 2017INVESTING TOGETHER FOR A SECURE FUTUREManaging Director’s Review of Operations Strategic Equity Investments Murray Darling Food Company ($2 million) TPI Enterprises Limited ($2.8 million) TPI Enterprises (TPI), manufactures pharmaceutical grade morphine and successfully moved its manufacturing facility from Tasmania to Victoria. TPI was originally a private equity investment of Gowings prior to its listing last year. TPI is uniquely placed to capitalise on the supply gap in the market for pharmaceutical grade morphine due to its global leading efficient production process. During the year TPI announced two key licence and permit milestones which are central to TPI’s expansion into the UK, Europe and other open markets. In March 2017, TPI announced a placement to raise approximately $44 million in capital in which Gowings invested a further $0.6 million. In July 2017, TPI reached a binding agreement to acquire for $25.4 million the opiates and tableting division of Vistin Pharma, making TPE one of only four fully integrated manufacturers of opiate based pharmaceutical products globally. To help fund this acquisition TPI conducted an equity offering to raise $18 million in which Gowings invested a further $0.3 million. Hexima ($0.7 million) Hexima is an Australian biotechnology company focused on the research, development and commercialisation of anti-fungal technology for both plant and human applications. The company’s first significant commercial product-development project is a breakthrough treatment for onychomycosis (fungal nail infections), a US$3.2 billion global market. Preclinical data indicate that the company’s lead molecule, HXP124, enjoys multiple potential advantages over current onychomycosis therapies, in particular the ability to penetrate nails rapidly when applied topically and kill cells faster and at lower concentrations than current drugs. The company is proceeding to clinical trials for this product in 2017. It is in advanced discussions with possible global partners to bring the potential drug to market. In December 2016, Gowings formed a partnership with agricultural operators to undertake an investment into establishing a vertically integrated organic grain fed lamb business. As long term shareholders would know, Gowings has a view that agriculture will be a long term beneficiary of our world’s growing population and rising living standards. Having said that, agriculture is a difficult and volatile investment class often met with loss. Gowings was an early investor in both Tassal and Boundary Bend which generated significant returns over the years and we see many potential similarities to the present opportunity. Gowings believes that the organic and grass fed lamb market has the potential to provide for superior returns with a lower degree of risk compared to many other agricultural assets. Over the long term, the risk will be further mitigated and returns enhanced through establishing a vertically integrated business including branded meat sales. The central investment thesis to this is a relatively new breed of sheep which is more productive and resilient compared to traditional Merino wool and sheep meat. In this respect we have partnered with one of Australia’s leading Dorper studs to establish MDFC. MDFC raised $12 million including an initial $2 million cornerstone investment from Gowings. MDFC acquired its first asset being Burrawang West Station a Dorper lamb stud based in Ootha, western NSW. In January it commenced operations with sale of 100 Rams with an average price of $2,900 per ram. There has also been investment into DNA and IT equipment to efficiently manage the stud operations. MDFC’s first 6 months of operations to 30 June 2017 netted both financial and breeding results above expectations. The stud is gearing up for a promising ram sale in October 2017 at Burrawang West Station. In July 2017, MDFC settled on “Bombah”, a 6,000 acres property in Condobolin that will complement the current operations at Burrawang West Station. MDFC management succesfully converted Bombah’s existing wheat operations to a higher yielding sheep station. 22 23 149th ANNUAL REPORT 2017 I Year ended 31 July 2017149th ANNUAL REPORT 2017 I Year ended 31 July 2017INVESTING TOGETHER FOR A SECURE FUTUREGOWING BROS. LIMITED Managing Director’s Review of Operations Strategic Equity Investments Managing Director’s Review of Operations Strategic Equity Investments Boundary Bend Limited ($14 million) Hydration Pharmaceuticals ($2 million) DiCE Molecules ($1.3 million) EFTsure ($0.3 million) DiCE Molecules is a US biotech company with unique technology to identify cures for currently incurable diseases. In 2016, the company announced a successful agreement with Sanofi, the largest French Pharmaceutical company, to utilise DiCE’s technology. The Sanofi agreement validated DiCE’s frontier technology, and provided substantial financial support to further its research and development efforts. In 2017, the company is likely to announce another substantial partnership with a global pharmaceutical company, and will continue to pursue its own candidate drug molecules. EFTsure is an Australian owned IT company incorporated to deliver electronic payment authentication services to its customers. EFTsure provides an innovative, cost-effective and specialised software solution to businesses validating the integrity of their payment data ensuring prior that the name of the Payee matches the BSB and account number prior to making an EFT payment. Gowings holds a small holding in the company and Our Innovation Fund (in which Gowings is also an investor) made a subsequent commitment at the same valuation metrics as Gowings.The EFTsure customer base has grown and a number of strategic alliances, most notably with PwC, have been formed to target sales growth. Boundary Bend Limited, an unlisted public company, is Australia’s largest vertically integrated olive-oil producer, wholesaler, and consumer marketer. Boundary Bend owns the well-known brands Cobram Estate and Red Island. It is now the Company’s 2nd largest equity investment, having more than doubled in value during the year. In July this year, the company completed its olive harvest, which yielded 89,000 tonnes of fruit, producing 13.2 million litres of oil. This compared to approximately 55,000 tonnes of fruit in 2016, producing 9.7 million litres of oil. For the 2016 financial year Boundary Bend reported an operating cashflow surplus of $12.4 million (up from a surplus of $6.0 million in FY15). The company also commenced two major growth initiatives: launch of the Cobram Estate brand in the USA, including construction of a substantial processing facility in America’s olive heartland, California; and the launch of a new olive-products business, including supplements and other products derived from olives and olive leaves. In Australia, Aldi supermarkets announced in January this year that it will commence stocking all three Cobram Estate styles (Light, Classic, and Robust) in 500ml bottles. Significantly, Aldi’s policy is to stock almost exclusively “home brand” products in its stores, with third-party brands carried only when the company believes customers will defect to other supermarkets if Aldi doesn’t include them. The list of brands in Australia that meet this criterion is a Who’s Who of household names including Arnotts, Milo and Vegemite. The Hydration Pharmaceuticals Trust owns the global rights to the Hydralyte brand, Australia’s leading oral rehydration product. The company’s current focus is establishing its brand in North America. It has formed a major distribution partnership in the US with The Emerson Group, a foundation investor in the business. Hydration Pharmaceuticals successfully launched its range of products in the US earlier this year. The Hydralyte product, which is well known in Australia, has been well received in the US, however it is still very early days. The brand has also launched in Canada, and in 2016 achieved year-on-year growth of more than 35%. Carlton Investments ($5.5 million) and Event Hospitality Group ($1.6 million) Carlton Investments and Event Hospitality are essentially related investments. Gowings has been a very long term investor in Carlton Investments whom prior to the sale of the Gowings Building on the corner of Market and George Streets were our next door neighbours. Gowings had in fact sold the State Theatre site to the forerunner of Amalgamated Holdings Ltd in the late 1920s. These companies are very well run, with significant strategic property holdings in Sydney CBD, as well as significant exposure to the Australian, New Zealand and German tourism and Cinema markets. In April 2017 Event purchased 458-472 George Street Sydney which now gives them control of the south-eastern corner of George and Market Streets in Sydney, and subject to Council approval will look to add value through future redevelopment. 24 25 149th ANNUAL REPORT 2017 I Year ended 31 July 2017149th ANNUAL REPORT 2017 I Year ended 31 July 2017INVESTING TOGETHER FOR A SECURE FUTUREGOWING BROS. LIMITEDGrowth Rate of Listed Equity Portfolio From 1987 To 2017 Gowings has a history of strong results within its listed equity portfolio & has successfully outperformed the ASX by more than 36% over a 30 year investment period. E S T 1 8 6 8 GOWING BROS.LTD 1988 1991 1995 1998 1999 2000 2001 2006 2007 2008 2013 2014 2016 2017 Gowings took advantage of undervalued shares in the stock market and added $2M worth of shares to its investment portfolio Gowings sold off its investment in Lavington Shopping Centre. The sale generated a healthy profit sufficient to meet Gowings’ capital investment plans over the next few years. Oct 1987 - known as ‘Black Monday’, the global stock market crashed. Gowings has still been informed by ASX that its shareholders, for the 4th year in succession, achieved a better return than most investors in the market. Gowings began actively reviewing its investments in the wholesale and venture capital markets. First step in this direction is a commitment at wholesale level to Macquarie Direct Investment, a subsidiary of Macquarie Bank. Many large capitalisation stocks moved up in valuations which were considered unsustainable. Subsequent weakness and unprecedented volatility in the Australian and world equity market has made Gowings’ decision to realise these investments timely. Gowings gained exceptional returns from its private equity investment in Open Telecommunications Ltd, which generated over $4M in profits. Another tech investment, Peg Technology Ltd had a market value of $4.8M, $3M in excess of its original entry price. The slump of tech stocks, negatively affecting the market value of our investment in PEG Technology Limited to $500K. On a positive note Gowings received its first return from Macquarie Investment Trust IIIB of approximately $476K when the fund successfully took their stake in HPAL Limited to IPO. Gowings took the opportunity of the weak stock market to increase its holdings in resource & energy stocks, increasing its weighting in our shares portfolio to approximately 25%. Investments with increment in market value over the last one year includes: BHP Billiton increased 33% to $17.3M; Blackmores increased 73% to $4.7M (7x increase to date); and Woolworths increased 43% to $4.9M (5x increase to date). Top realised gains include: Rural Press (profit of $1.8M); West Australian Newspaper (profit of $1.1M); and Noni B (profit of $1M) Global Financial Crisis. Realised Gains includes a range of write-offs and negative returns, notably the $2.5 million write off of Coolangatta Notes and $1.4 million in Babcock Brown. Top Gains are: Soul Pattinson $3.5 million realised gains, Westpac $2 million, ANZ $1.7 million, Invocare $1.9million, Hills $1.4million, Rio Tinto $1.3 million (83% gain) Good returns mainly from revaluation of shares. Boundary Bend doubled its cost at market value of $4M while Carlton Investment more than tripled its cost with market value of $3.9M, 39% increase from last year Boundary Bend increased a further 57% during the year to a MV of $6.4M. Carlton Investment up 29% from prior year with market value to $5M, representing a total of 330% increase from cost to date. $18M realisation of our investment in Blackmores, in excess of $2.9M paid out in dividend over the years. Over 300% appreciation in the market value of Boundary Bend Ltd. Realisation of financial services shares provided a net gain of $3.55M (ANZ $1.25M, Westpac $1M & BT Financial Mgmt $1.3M) Returns 51% 13% 15% -2% 14% 7% 1% 14% 23% -12% 25% 20% 20% 8% $300,000 $250,000 $200,000 $150,000 $100,000 $50,000 0 26 Growth of A$1,000 in Gowings listed equity portfolio in 1987, with no acquisition costs or taxes & all income reinvested. 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Gowings Listed Equity Portfolio ASX AllOrd Accum Index Bloomberg Ausbond Bank Bill Index (BAUBIL) RBA Cash Rate GOWINGS $243.872 11.00% p.a. ASX All Ord $154.695 9.46% p.a. BAUBIL $66.457 6.78% p.a. RBA Cash Rate $52.613 6.10% p.a. 27 149th ANNUAL REPORT 2017 I Year ended 31 July 2017149th ANNUAL REPORT 2017 I Year ended 31 July 2017INVESTING TOGETHER FOR A SECURE FUTUREGOWING BROS. LIMITEDManaging Director’s Review of Operations Private Equity Funds Managing Director’s Review of Operations Other Direct Properties Other Direct Properties OurCrowd Australia ($1.1 million) Macquarie Wholesale Co Investment Fund ($0.9 million) Solitary 30 – Development Site OurCrowd is the leading global equity crowdfunding platform for accredited investors. Managed by a team of seasoned investment professionals, OurCrowd vets and selects opportunities, invests its own capital, and brings companies to its accredited membership of global investors. OurCrowd provides post-investment support to its portfolio companies, assigns industry experts as mentors, and takes board seats. The OurCrowd community of almost 17,000 investors from over 110 countries has invested over $400 million into 110 portfolio companies and funds. Gowings has made a $US 0.9 million investment into OurCrowd of which $US 0.6 million has been deployed across 20 projects of our choice at varying startup stages with the remaining $US 0.3 million remains available to deploy. Macquarie Wholesale Co Investment Fund was established as a specialist investment vehicle formed for the purpose of making co-investments in Australian and New Zealand unlisted companies and assets across a range of industries, and making secondary investments, primarily in Australia where available. The funds current major investments are in Hirepool New Zealand’s largest equipment rental provider and SMABBQ a merger of Super A-Mart (SAM), a leading furniture and bedding retailer with BBQ’s Galore (BBQ), a barbeques and outdoor furniture retailer. SMABBQ has continued strong earnings growth and is positioned for an IPO in the second half of 2017. Currently Gowings investment in the fund is valued at $0.9m. Gowings purchased a 3,000m2 development site for $3 million at the prominent Jetty Village in Coffs Harbour. The site boasts 270 degree water views and is surrounded by cafes and restaurants and is considered to be one of the best development sites in Coffs Harbour. The site has some potential heritage issues that are to be addressed as part of the upcoming development planning phase. The best development use is still being evaluated with current zoning permitting any combination of residential apartments, hotel and mixed retail. Our Innovation Fund ($0.8 million) Five V Capital ($0.3 million) Sawtell Heights Estate – Residential Subdivision Our Innovation Fund is a newly established incorporated limited partnership which will invest in early stage businesses with innovative, high growth or disruptive technologies, processes, systems or intellectual properties which have significant market potential. The Fund will seek to make investments throughout various stages of company development (from seed through to early expansion), with particular attention given to the experience and mindset of the founders of potential investee companies, potential for the long term success of business models and the potential investment returns for Limited Partners in the Fund. Five V Capital Fund 2 has been set up and managed by Adrian McKenzie, an experienced Australian venture capital manager with whom Gowings have enjoyed a long relationship. Gowings have committed $1 million to Five V which also gives us co-investment rights in fund investments should there be additional capacity. The fund was structured to give free carry of 20% of the performance fee due to the manager from fund 1, ensuring an alignment of interests. The principals of Five V have committed $10 million of their own capital to Fund 2, also driving an alignment of the commercial interests between the managers and investors. During the 2016 financial year period Gowings made a $1.5 million commitment to Our Innovation Fund. The fund has so far made 3 investments including a $1 million commitment of the fund total of $50 million in EFTsure as discussed above. In April 2017, a second capital call was announced and Gowings invested a further $0.4 million to bring the total investment to $0.8million. This fund is structured to take advantage of the Innovation Package tax breaks. The fund is being run by the team behind OurCrowd Australia, with whom Gowings has a strong business relationship. In March 2017, Five V completed its first investment in Unified Health Group (UHG), an IT company that provides Australia’s leading B2B healthcare platform helping large corporates such as insurers, law firms and corporates search, book, pay and securely manage health information and services from healthcare providers. Gowings share of this investment is $0.2 million and additionally made a further co investment of $0.1 million. Five V has been investigating further investments in a range of different sectors and is looking to finalise a deal with a business operating in the cyber security sector. Lyons Road is a 165 lot approved residential sub-division located in the south of Coffs Harbour acquired for $ 9 million in December 2016. We are in the process of preparing a new development application to increase the lot yield and improve the quality of offer. Works are due to commence in late 2017 with pre-sales anticipated for mid-2018. Since acquisition, the supply of residential land in Coffs Harbour has tightened and we are optimistic of achieving pre-sales at favourable prices upon release. 28 29 149th ANNUAL REPORT 2017 I Year ended 31 July 2017149th ANNUAL REPORT 2017 I Year ended 31 July 2017INVESTING TOGETHER FOR A SECURE FUTUREGOWING BROS. LIMITEDThe Board of Directors The Board of Directors Jonathan West Chairman and Non-executive Director Bachelor of Arts, PHD (Harvard) Shareholdings: 397,581 shares Professor West was appointed Chairman of the Company in 2016 and is a member of the Audit Committee. Professor West has served as a strategic and investment advisor to the Company over the past ten years as an external consultant. Professor West has devoted most of his academic career to Harvard University, where he spent 18 years and was Associate Professor in the Graduate School of Business. In addition to his academic career, Professor West has extensive International and Australian business experience. He is a board member of Boundary Bend Ltd, the Hydralyte Pharmaceuticals Trust, the Bruny Island Cheese Company and chairman of Hexima Ltd. John Gowing Managing Director Bachelor of Commerce, CA, CPA Shareholding: 20,881,150 shares John serves as Managing Director and is a member of the Remuneration Committee. Over the years, John has steered the Company through the various global economic times and has overseen significant expansion of the Company. John was first appointed as Non-executive Director of the Company upon completion of his commerce degree from the University of New South Wales in 1983. John’s experience includes Arthur Young now known as Ernst & Young where he worked for 4 years in the audit division. After finishing his professional practice year and upon graduating as a chartered accountant, he accepted a fulltime position with the Company as Managing Director in 1987 and he continues in the role. John Parker Non-executive Director Bachelor of Economics Shareholding: 55,000 shares John has served as an independent Non-executive Director of Gowings since January 2002. John is a coach with Foresight’s Global Coaching, providing one-to-one business coaching to senior executives in Australia. John is Chairman of the Audit Committee. John brings considerable experience to the board with over 33 years in equities research and funds management in Sydney, London and South Africa. Sean Clancy Non-executive Director Diploma of Marketing Shareholding: 5,000 shares Sean was appointed as an independent Non-executive Director of the Company in 2016 and is Chairman of the Remuneration Committee and member of the Audit Committee. Sean grew his own business Creative Sales and Marketing Group from 1989 until 2007, when the business was sold to Clemenger BBDO. He has been a businessman with a career focus on sales and marketing. He successfully established and is currently CEO of Transfusion Ltd a business specialising in shopper marketing, licensing, merchandising and below the line marketing. Sean is a non-executive director of Mortgage Choice Ltd and is Board Ambassador to Business Events Sydney. He is also Chairman of Metropolis, a brand marketing digital and media agency and Touch To Buy, a mobile application specialist. Associate Directors* Ellis Gowing Associate Director Bachelor of International Business Shareholding: 55,368 Ellis has a degree in International Business from the University of Wollongong, he graduated in 2013. He has been working since 2013 for HLB Mann Judd Chartered Accountants in the business advisory division, with a focus on investment clients. Working in business advisory has given Ellis knowledge of the bureaucratic systems companies and individuals must navigate on their road to success and wealth generation. His contact with clients has engendered Ellis with great communication skills, this experience should render Ellis’ services to the company invaluable now, and moving forward. James Gowing Associate Director Bachelor of Business, CA Shareholding: 61,909 James graduated from UTS with a Bachelor of Business in 2014 majoring in Accounting and Marketing. He has worked for William Buck since November 2014, primarily in Audit and Assurance dealing with a wide range of clients in and around Sydney. James is also a qualified Chartered Accountant. While young, James’ work ethic and commitment to furthering his expertise in the field of accounting will, as the next generation of the family, prove invaluable to the future of the company and its direction. Importantly James’ work in auditing has given him an insight into how successful and poor businesses are run. *Associate Directors have access to board papers and are invited to attend board mettings in an observer capacity. Associate Directors do not hold any voting rights. 30 31 149th ANNUAL REPORT 2017 I Year ended 31 July 2017149th ANNUAL REPORT 2017 I Year ended 31 July 2017INVESTING TOGETHER FOR A SECURE FUTUREGOWING BROS. LIMITEDExecutive Management Garth Grundy General Manager and Company Secretary Bachelor of Commerce, CA, F Fin Shareholding: 349,707 shares Garth has 24 years of investment and corporate advisory experience gained from his past employment with Ernst & Young, Arthur Andersen, Coyne Capital and Hindal Corporate. Garth is a Fellow of the Financial Services Institute of Australia and of the Institute of Chartered Accountants in Australia and New Zealand. Robert Ambrogio Chief Financial Officer Bachelor of Economics, CA Shareholding: Nil Robert was appointed as Chief Financial Officer on 1 February 2017 and has over 20 years’ experience in managing and leading finance teams across advertising, marketing and social services sectors. Robert’s experience comes from his past employment with Arthur Andersen, XM Holdings, Creative Activation, and MTC Australia. Robert is a Member of the Institute of Chartered Accountants in Australia. Belinda Flatters General Counsel and Company Secretary Dip Law SAB, FGIA FCIS Shareholding: Nil Belinda was appointed Company Secretary of Gowing Bros. Limited on 13 March 2017. Belinda joins Gowings after a 19 year career as an in-house corporate counsel, 15 years of which she held the dual roles of company secretary and in-house counsel for a number of different listed entities. Belinda’s experience comes from previous roles held with CBHS Health Fund, Pan Pacific Petroleum, Worley Parsons, Novus Petroleum and Customers Limited. Belinda was admitted as a solicitor of the Supreme Court of New South Wales in 1998, she was awarded the Graduate Diploma of Corporate Governance in 2005 and was admitted as a Fellow of the Governance Institute of Australia in 2011. General Counsel 32 33 149th ANNUAL REPORT 2017 I Year ended 31 July 2017149th ANNUAL REPORT 2017 I Year ended 31 July 2017INVESTING TOGETHER FOR A SECURE FUTUREGOWING BROS. LIMITEDDirectors’ Report Directors’ Interests Your Directors are pleased to present their report on the Company for the year ended 31 July 2017. The following persons were directors or executives of Gowing Bros. Limited either during or since the end of the year. Results  For the year ended  31 July 2017 $'000 31 July 2016 $'000 Operating profit for the year before income tax Income tax expense Net profit after income tax Net profit attributable to members of Gowing Bros. Limited 32,924 (9,684) 23,240 23,242 31,445 (9,455) 21,990 21,990 Dividends $3,220,816 $3,220,816 $3,221,268 $3,221,532 A final fully franked LIC dividend of 6.0 cents per share is to be paid to shareholders on 26 October 2017 An interim fully franked LIC dividend of 6.0c per share was paid to shareholders on 27 April 2017 A final fully franked LIC dividend of 6.0c per share was paid to shareholders on 27 October 2016 An interim fully franked LIC dividend of 6.0c per share was paid to shareholders on 28 April 2016 Review of Operations The operations of the Company are reviewed in the Managing Director’s ‘Review of Operations’ on page 3. Environment The Company is committed to a policy of environmental responsibility in all its business dealings. This policy ensures that when the Company can either directly or indirectly influence decisions that have an impact on the environment, this influence is used responsibly. Principal Activities The principal activity of the Company is investment and wealth management. The Company maintains and actively manages a diversified portfolio of assets including long-term equity and similar securities, investment properties, managed private equity, property development projects and cash. Significant Changes in the State of Affairs There were no significant changes in the state of affairs of the Company other than as disclosed elsewhere in this report Matters Subsequent to the End of the Financial Year No matter or circumstance has arisen since the end of the financial year which has significantly affected, or may significantly affect, the operations of the Company, the results of those operations or the state of affairs of the Company in future financial years Likely Developments and Expected Results of Operations Further information on likely developments in the operations of the Company is included in the Managing Director’s ‘Review of Operations’ on page 3. 34 35 SharesProfessor J. West Non-Executive Chairman (appointed 7 April 2016)BA (Syd), PHD (Harvard) Director since April 2016 Member of the Audit CommitteeProfessor West is a former Associate Professor in the Graduate School of Business at Harvard University and is an experienced global businessman No other directorships held in listed companies over the past 3 years397,581J. E. Gowing Managing Director Executive Director Bachelor of Commerce Member of Chartered Accountants Australia and New Zealand Member of CPA Australia Member of the Remuneration Committee Director since 1983 No other directorships held in listed companies over the past 3 years20,881,150G. J. Grundy General Manager General Manager Bachelor of Commerce, CA, F Fin Company Secretary since December 2015 Garth also serves as General Manager to the Company349,707J. G. Parker Non-Executive DirectorBachelor of Economics Director since 2002 Chairman of the Audit CommitteeMr. Parker is a coach of senior executives, with over three decades as an investment professional. No other directorships held in listed companies over the past 3 years55,000S. J. Clancy Non-Executive Director (appointed 7 April 2016)Diploma of Marketing Director since April 2016 Chairman of the Remuneration Committee Member of the Audit CommitteeMr Clancy is an experienced businessman with a focus on sales and marketing and is presently a director of Mortgage Choice Limited, Metropolis Pty Ltd, Transfusion Pty Ltd and Touch To Buy Pty Ltd.5,000Robert Ambrogio Chief Financial OfficerBachelor of Economics, CAMr Ambrogio was appointed as Chief Financial Officer on 1 February 2017 and has over 20 years’ experience in managing and leading finance teams across advertising, marketing and social services sectors. Mr Ambrogio’s experience comes from his past employment with Arthur Andersen, XM Holdings, Creative Activation, and MTC Australia. _R.D. Fraser Non-Executive Director (resigned 20 December 2016)Bachelor of Economics, Bachelor of Laws (Hons) Director Since 2012A member of the Audit Committee and chairman of the remuneration committee. Mr Fraser is a corporate adviser and company director with over 27 years of investment banking experience. Mr Fraser is a director of Taylor Collison and non-executive director of ARB Corporation, FFI Holdings Limited and Magellan Financial Group Limited. _149th ANNUAL REPORT 2017 I Year ended 31 July 2017149th ANNUAL REPORT 2017 I Year ended 31 July 2017INVESTING TOGETHER FOR A SECURE FUTUREGOWING BROS. LIMITED                Meetings of Directors Attendance at Board, Audit Committee & Remuneration Committee meetings by each Director of the Company during the financial year is set out below: Audit and Non-Audit Fees During the year the following fees were paid or payable for services provided by the auditor of the Company and its related practices. Board Meetings Audit Committee Meetings Remuneration Committee Meetings 2017 $ 2016 $ Meetings eligible to attend Attended Meetings eligible to attend Attended Meetings eligible to attend Attended Audit services Prof J. West J. E. Gowing J. G. Parker R. D. Fraser S. J. Clancy 10 10 10 3 10 9 10 8 3 9 3 - 3 1 2 2 - 3 1 2 - 2 - - 2 - 2 - - 2 Remuneration Report The Company’s remuneration report, which forms a part of the Directors’ Report, is on pages 38 to 40. Corporate Governance The Company’s statement on the main corporate governance practices in place during the year is set out on the Company’s website at http://gowings.com/reports-announcements/ Auditor’s Independence Declaration A copy of the Auditor’s Independence Declaration as required under section 307C of the Corporations Act 2001 is set out on page 81. Shares Under Option There were no unissued shares under option at the date of this report. Indemnification and Insurance of Directors and Officers The Company’s constitution provides an indemnity for every officer against any liability incurred in his/her capacity as an officer of the Company to another person, except the Company or a body corporate related to the Company, unless such liability arises out of conduct involving lack of good faith on the part of the officer. The constitution further provides for an indemnity in respect of legal costs incurred by those persons in defending proceedings in which judgement is given in their favour, they are acquitted or the court grants them relief. During the year the Company paid insurance premiums in respect of the aforementioned indemnities. Disclosure of the amount of the premiums and of the liabilities covered is prohibited under the insurance contract. Non-Audit Services The Company may decide to employ the auditor on assignments additional to their statutory audit duties where the auditor’s expertise and experience with the Company are important. The Board of Directors has considered the position in accordance with advice received from the Audit Committee and is satisfied that the provision of the non-audit services is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The Directors are satisfied that the provision of non-audit services by the auditor, as set out below, did not compromise the auditor independence requirements of the Corporations Act 2001 for the following reasons: • all non-audit services have been reviewed by the Audit Committee to ensure that they do not impact the impartiality and objectivity of the auditor; • none of the services undermine the general principles relating to auditor independence as set out in APES110 Code of Ethics for Professional Accountants, including reviewing or auditing the auditor’s own work, acting in a management or a decision-making capacity for the Company, acting as advocate for the Company or jointly sharing economic risk and rewards. Audit and review of financial reports and other audit work under the Corporations Act 2001 98,372 83,500 Taxation services Tax compliance services, including review of Company income tax returns General tax advisory services 21,000 30,240 14,000 7,150 Rounding of Amounts The Company is of a kind referred to in ASIC Corporations (Rounding in the Financial/ Directors’ Reports) Instrument 2016/191 issued by the Australian Securities and Investments Commission relating to the “rounding off” of amounts in the Directors’ report and financial report. Amounts in the Directors’ report and financial report have been rounded to the nearest thousand dollars in accordance with that Legislative Instrument, unless otherwise indicated. Environmental Regulation No significant environmental regulations apply to the Company. This report is made in accordance with a resolution of the Directors of Gowing Bros. Limited. Professor J. West Director Sydney 28 September 2017 J. E. Gowing Director Sydney 28 September 2017 36 37 149th ANNUAL REPORT 2017 I Year ended 31 July 2017149th ANNUAL REPORT 2017 I Year ended 31 July 2017INVESTING TOGETHER FOR A SECURE FUTUREGOWING BROS. LIMITED Remuneration Report The Remuneration Report is set out under the following main headings: • Principles used to determine the nature and amount of remuneration • Details of remuneration • Service agreements • Additional information The information provided in this remuneration report has been audited as required by section 308(3C) of the Corporations Act 2001 Principles used to Determine the Nature and Amount of Remuneration It is the Company’s objective to provide maximum stakeholder benefit from the retention of a high quality board and executive team by remunerating Directors and executives fairly and appropriately with reference to relevant employment market conditions and the nature of Company operations. The Board has established a Remuneration Committee which consists of the following Directors: • S. J. Clancy, Chairman of the Remuneration Committee • J. E. Gowing, Managing Director • R. D. Fraser (Resigned 20 December 2016) Non-Executive Directors For Non-executive Directors, remuneration is by way of Directors’ fees as described below. For the Executive Director and senior executives, remuneration is by way of a fixed salary component and a discretionary incentive component as described below. Persons who were Non-executive Directors of the Company for all or part of the financial year ended 31 July 2017 were: • Prof. J. West, Chairman of the Board • J. G. Parker • R. D. Fraser (Resigned 20 December 2016) • S. J. Clancy Directors’ Fees The remuneration of Non-executive Directors is determined in accordance with the Directors’ remuneration provisions of the Company’s constitution. Fees and payments to Non-executive Directors reflect the demands which are made on, and the responsibilities of, the Directors. Non-executive Directors’ fees and payments are reviewed annually by the Remuneration Committee in line with the market and approved by the Board. The Chairman’s fees are determined independently to the fees of Non-executive Directors based on comparative roles in the external market. Non-executive Directors do not receive any performance based remuneration or share options. There is no scheme to provide retirement benefits to Non- executive Directors. Executives Executives are officers of the Company who are involved in, concerned with, take part in and are able to influence decisions in the management of the affairs of the Company. Persons who were executives for all or part of the financial year ended 31 July 2017 were: • J. E. Gowing, Managing Director • G. J. Grundy, General Manager and appointed joint Company Secretary • R. Ambrogio, Chief Financial Officer (appointed 1 February 2017) • J. Chorn, Chief Financial Officer (ceased 1 February 2017) and Company Secretary (resigned 13 March 2017) Executive remuneration is a combination of a fixed total employment cost package and a discretionary incentive element which may be awarded by cash or invitation to participate in the Company’s Employee Share & Option Scheme or Deferred Employee Share Plan Scheme. Remuneration is referenced to relevant employment market conditions and reviewed annually to ensure that it is competitive and reasonable. The incentive element is awarded at the discretion of the Remuneration Committee and approved by the Board on the basis of recommendations from the Managing Director. The Managing Director’s incentive element is awarded at the discretion of the Remuneration Committee and approved by the Board. In determining the amount (if any) of bonus payments or of options or shares issued, consideration is given to an executive’s effort and contribution to both the current year performance and the long term performance of the Company, the scope of the executive’s responsibility within the Company, the scale and complexity of investments required to be managed, the degree of active management required and the degree of skill exhibited in the overall process. Regard is also given to the quantum of an executive’s total remuneration. The 2017 Financial Year bonus is limited to 40% of the base package of the relevant executive, subject to the discretion of the Committee, for exceptional performance. Details of Remuneration Details of the remuneration of the Directors and key management personnel are set out in the following tables: 2017 Cash salary and fees Cash bonus Movement in provision for annual leave Non- monetary benefits Share based Share bonus Post – employment Superannuation Long term Total Movement in provision for long service leave Non-executive Directors Prof. J. West (Chairman) 127,397 J. G. Parker S. J. Clancy R. D. Fraser 1 55,000 56,315 21,063 Non-executive Directors 259,775 Executive Directors J. E. Gowing 232,876 Other key management personnel G. J. Grundy R. Ambrogio 2 J. Chorn 3 Total key management personnel compensation 284,999 109,589 167,453 1,054,692 - - - - - - - - - - - - - - - - - - - - 35,358 3,943 - - - - - - 2,603 5,000 5,350 2,001 14,954 - - - - - 130,000 60,000 61,665 23,064 274,729 22,123 (3,595) 290,745 16,239 3,731 (9,370) - - - 17,250 - - 30,000 10,411 14,315 4,772 2,020 353,260 125,751 (3,518) 168,880 45,958 3,943 17,250 91,803 (321) 1,213,325 1 R. D. Fraser resigned 20 December 2016 2 R. Ambrogio was appointed as Chief Financial Officer on 1 February 2017 3 J. Chorn ceased to be Chief Financial Controller on 31 January 2017 and Company Secretary on 13 March 2017 2016 Cash salary and fees Cash bonus Movement in provision for annual leave Non- monetary benefits Share based Share bonus Post – employment Superannuation Long term Total Movement in provision for long service leave Non-executive Directors Prof. J. West (Chairman) 1 J. G. Parker R. D. Fraser W. A. Salier (Chairman) 3 S. J. Clancy 1 Non-executive Directors Executive Directors 42,009 50,000 54,795 54,888 14,238 215,930 - - - - - - - - - - - - - - - - - - J. E. Gowing 227,169 100,000 (3,654) 5,582 Other key management personnel4 - - - - - - - 824 10,000 5,205 - 1,374 17,403 - - - - - - 42,833 60,000 60,000 54,888 15,612 233,333 31,081 15,034 375,212 G. J. Grundy 2 J. Chorn2 Total key management personnel compensation 280,582 188,807 - - (9,320) 9,370 - - 120,000 - 30,311 17,937 12,975 434,548 3,518 219,632 912,488 100,000 (3,604) 5,582 120,000 96,732 31,527 1,262,725 1 Prof. J. West and S. J. Clancy were both appointed 7 April 2016 2 G. J. Grundy and J. Chorn were both appointed joint Company secretary 8 December 2015 3 W. A. Salier resigned 7 April 2016 4 J. Zulman was Company Secretary to 8 December 2015 and was not remunerated for these services Share based compensation includes shares issued from the Deferred Employee Share Plan. 38 39 149th ANNUAL REPORT 2017 I Year ended 31 July 2017149th ANNUAL REPORT 2017 I Year ended 31 July 2017INVESTING TOGETHER FOR A SECURE FUTUREGOWING BROS. LIMITEDRemuneration Report The relative proportions of remuneration that are linked to performance and those that are fixed are as follows: ASX Listing Requirements 1. Shareholders at 2 October 2017 Fixed Performance Range of shares No. of shareholders The information provided in this remuneration report has been audited as required by section 308(3C) of the Corporations Act 2001 JP Morgan Nominees Australia Limited RBC Investor Services Australia nominees Pty Limited Additional Information 4. Top 20 Equity Security Holders at 2 October 2017 Executive Directors J. E. Gowing Other key management personnel G. J. Grundy J. Chorn (Resigned 30 April 2017) R. Ambrogio 2017 (%) 2016 (%) 2017 (%) 2016 (%) 100 95 100 100 73 72 100 - - 5 - - 27 28 - - Service Agreements R. Ambrogio, Chief Financial Officer There are service agreements in place with J. Parker, R. Fraser, J. Gowing, Prof. J. West, G. Grundy and R. Ambrogio. Remuneration and other terms of employment for the Managing Director, executives and other key management personnel are approved by the Board and provide for the provision of performance-related incentives. Other major provisions relating to remuneration are set out below: J. E. Gowing, Managing Director • No fixed term • Base salary, inclusive of superannuation, as at 31 July 2017 of $295,000, to be reviewed annually by the Remuneration Committee • Non-monetary benefits included motor vehicle and FBT related charges for the year ended 31 July 2017 of $3,943 • No termination benefit is payable G. J. Grundy, General Manager and Company Secretary • No fixed term • Base salary, inclusive of superannuation, as at 31 July 2017 of $286,018, to be reviewed annually by the Remuneration Committee • Other benefits included motor vehicle allowance for the year ended 31 July 2017 of $28,982 • No termination benefit is payable • No fixed term • Base salary, inclusive of superannuation, as at 31 July 2017 of $240,000, to be reviewed annually by the Remuneration Committee • No termination benefit is payable Employee Share & Option Scheme: The scheme is operational. No shares or options were issued under this scheme during the year. Deferred Employee Share Plan Scheme: All employees and non-executive directors are eligible to participate in the Company’s Deferred Employee Share Plan Scheme. Shares issued under this plan during the year were purchased on market. The Company Employee Share & Option Scheme and Deferred Employee Share Plan Scheme may be utilised as a part of the award of any incentive payment for all employees which in turn assists in aligning the interests of employees with the long term performance of the Company. The table set out below reflects the relationship between Remuneration Policies and Company Performance: The table set out below reflects the relationship between Remuneration Policies and Company Performance: 2017 2016 2015 2014 2013 Net Profit after tax Basic and diluted earnings per share Dividends per share Share buy back – number of shares Share buy back – value Share price at financial year end $23.2m 43.29c 12.0c 12k $41k $3.23 $22.0m 40.92c 12.0c 181k $565k $3.62 $19.1m 35.48c 12.0c 20k $58k $3.20 $14.1m 26.10c 12.0c 7k $19k $2.78 $7.3m 13.50c 11.5c - - $2.60 1 – 1,000 shares 1,001 – 5,000 shares 5,001 – 10,000 shares 10,001 – 100,000 shares Over 100,000 shares Total shareholders The number of shareholdings held in less than marketable parcels is 97. 2. Voting Rights Members voting personally or by proxy have one vote for each share. 3. Substantial Shareholders at 2 October 2017 The substantial shareholders as defined by Section 9 of the Corporations Act 2001 are: John Edward Gowing Carlton Hotel Limited 288 443 187 335 42 1,295 20,881,150 4,701,144 3,438,895 3,314,166 Ordinary shares Ordinary shares Ordinary shares Ordinary shares In accordance with Australian Securities Exchange Listing Rule 4.10, the top 20 equity security holders are: No. of ordinary shares % of issued shares 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Warwick Pty Limited Audley Investments Pty Limited Carlton Hotel Limited Mr John Edward Gowing J P Morgan Nominees Australia Limited RBC Investor Services Australia Nominees Pty Limited Woodside Pty Limited Josseck Pty Limited Mr John Gowing Mr Frederick Bruce Wareham Enbeear Pty Limited Beta Gamma Pty Limited Mr Graeme Legge Mrs Jean Kathleen Poole-Williamson T N Phillips Investments Pty Limited Mythia Pty Limited Mr Ronald Langley and Mrs Rhonda Langley Cadmea Pty Limited Cadmea Pty Limited Melbourne Business School Limited Total Total issued share capital 7,211,378 5,263,957 4,701,144 3,676,709 3,438,895 3,314,166 3,105,594 1,337,622 1,187,189 1,152,358 636,829 605,000 582,350 568,443 550,000 423,500 374,580 349,707 345,436 300,000 39,124,857 53,680,259 13.43 9.81 8.76 6.85 6.41 6.17 5.79 2.49 2.21 2.15 1.19 1.13 1.08 1.06 1.02 0.79 0.70 0.65 0.64 0.56 72.89 5. Corporate Governance Practices The Company’s statement on the main corporate governance practices in place during the year is set out on the Company’s website at www.gowings.com/reports-announcements/. 40 41 149th ANNUAL REPORT 2017 I Year ended 31 July 2017149th ANNUAL REPORT 2017 I Year ended 31 July 2017INVESTING TOGETHER FOR A SECURE FUTUREGOWING BROS. LIMITEDFinancial Report Consolidated Statement of Profit or Loss Consolidated statement of profit or loss Consolidated statement of other comprehensive income Consolidated statement of financial postion Consolidated statement of changes in equity Consolidated statement of cash flows Notes to the consolidated financial statements Directors’ declaration Auditor’s independence declaration Independent auditor’s report 43 44 45 46 47 48 80 81 82 The consolidated financial statements were authorised for issue by the Directors on 28 September 2017. The Directors have the power to amend and reissue the consolidated financial statements. For the year ended Revenue Interest income Equities Private equities Investment properties Revenue from the sale of goods (Surf Hardware International) Total revenue Other income Gains / (losses) on disposal or revaluation of: Equities Private equities Investment properties Development properties Derivatives Other income Total other income Total revenue and other income Expenses Investment properties Notes 31 July 2017 $’000 31 July 2016 $’000 5 17 14 15 17 17 5 18 6 672 1,173 173 19,672 24,546 46,236 5,696 (318) 23,302 - 367 299 29,346 75,582 7,876 26,313 1,532 2,986 469 1,948 543 473 42,140 33,442 (518) 32,924 (9,684) 23,240 23,242 (2) 23,240 306 1,587 1,156 19,094 - 22,143 18,581 43 7,665 17 (1,100) (327) 24,879 47,022 7,293 - 1,177 3,007 133 1,718 609 - 13,937 33,085 (1,640) 31,445 (9,455) 21,990 21,990 - 21,990 43 Finished goods, raw materials and other operating expenses (Surf Hardware International) Administration Borrowing cost Depreciation Employee benefits Public Company Business acquisition costs Total expenses Profit from continuing operations before impairment & income tax expense Unrealised impairment - equities Profit before income tax expense Income tax expense Profit from continuing operations Profit from continuing operations is attributable to: Members of Gowing Bros. Limited Non-controlling interests Profit from continuing operations 42 The above Consolidated Statement of Profit or Loss should be read in conjunction with the accompanying Notes. 149th ANNUAL REPORT 2017 I Year ended 31 July 2017149th ANNUAL REPORT 2017 I Year ended 31 July 2017INVESTING TOGETHER FOR A SECURE FUTUREGOWING BROS. LIMITED              Consolidated Statement of Other Comprehensive Income Consolidated Statement of Financial Position For the year ended Notes 31 July 2017 $’000 31 July 2016 $’000 As at   Notes 31 July 2017 $’000 31 July 2016 $’000 Profit from continuing operations 23,240 21,990 Other comprehensive income Items that may be reclassified to profit or loss: Transfer from unrealised reserves for realised (gains) / losses net of tax Increase in fair value of investments net of tax Exchange rate differences on translating foreign operations net of tax Gain on revaluation of property, plant and equipment net of tax Total comprehensive income Total comprehensive income attributable to: Members of Gowing Bros. Limited Non-controlling interests Total comprehensive income Earnings per share Basic earnings per share Diluted earnings per share (3,528) 1,984 (162) 345 21,879 21,881 (2) 21,879 43.29c 43.29c (6,862) 2,716 - 692 18,536 18,536 - 18,536 40.92c 40.92c 40 40 The above Consolidated Statement of Other Comprehensive Income should be read in conjunction with the accompanying Notes. Current assets Cash and cash equivalents Development properties Loans receivable Inventories Trade and other receivables Other Total current assets Non-current assets Receivables Equities Private equities Development properties Investment properties Property, plant and equipment Intangibles Deferred tax assets Other Total non-current assets Total assets Current liabilities Trade and other payables Borrowings Derivatives Current tax liabilities Provisions Total current liabilities Non-current liabilities Trade and other payables Borrowings Provisions Deferred tax liabilities Total non-current liabilities Total liabilities Net assets Equity Contributed equity Reserves Retained profits 7 8 12 11 9 10 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 Contributed equity and reserves attributable to members of Gowing Bros. Limited Non-controlling interests Total equity 5,886 297 3,000 6,636 7,527 1,220 24,566 760 33,969 3,301 13,707 226,661 7,828 3,190 4,631 1,839 295,886 320,452 9,902 9,330 733 1,725 1,075 22,765 275 49,023 498 33,915 83,711 106,476 213,976 12,611 103,229 98,138 213,978 (2) 213,976 44 The above Consolidated Statement of Financial Position should be read in conjunction with the accompanying Notes. 20,997 535 2,394 - 1,908 618 26,452 99 47,774 2,679 1,463 192,716 4,890 - 4,191 1,827 255,639 282,091 3,332 27,775 1,100 3,943 263 36,413 - 21,000 237 25,861 47,098 83,511 198,580 12,652 104,590 81,338 198,580 - 198,580 45 149th ANNUAL REPORT 2017 I Year ended 31 July 2017149th ANNUAL REPORT 2017 I Year ended 31 July 2017INVESTING TOGETHER FOR A SECURE FUTUREGOWING BROS. LIMITED                                                                                                                         Consolidated Statement of Changes in Equity Consolidated Statement of Cash Flows Capital Profits Reserve-Pre CGT Profits $’000 Revaluation Reserves $’000 Foreign Currency Reserve $’000 Contributed Equity $’000 Balance at 1 August 2015 13,217 90,503 17,541 Retained Profits $’000 65,510 21,990 - (6,162) 81,338 Non- Controlling Interests $’000 - - - - - Total $’000 186,771 18,536 (565) (6,162) 198,580 - - - - - Total comprehensive income for the year Transactions with owners in their capacity as owners: Share buy-back Dividends paid Balance at 31 July 2016 Total comprehensive income for the year Transactions with owners in their capacity as owners: Share buy-back Dividends paid Balance at 31 July 2017 - (565) - 12,652 - (41) - 12,611 - - - (3,454) - - 90,503 14,087 - - - (1,199) (162) 23,242 (2) 21,879 - - - - - (6,442) 98,138 - - (41) (6,442) (2) 213,976 90,503 12,888 (162) The above Consolidated Statement of Changes in Equity should be read in conjunction with the accompanying Notes. 46 For the year ended  Notes 31 July 2017 $’000 31 July 2016 $’000 Cash flows from operating activities Receipts in the course of operations (inclusive of GST) Payments to suppliers and employees (inclusive of GST) Dividends received Interest received Borrowing costs Income taxes paid Net cash inflows from operating activities 42 Cash flows from investing activities Payments for purchases of properties, plant and equipment Payments for purchases of intangibles Payments for purchases of development properties Payments for purchases of investment properties Payments for purchases of equity investments Loans made Proceeds from sale of properties, plant and equipment Proceeds from sale of financial assets Proceeds from sale of investment properties Proceeds from loans on development properties Payment for subsidiary, net of cash acquired Proceeds from sale of development properties Net cash inflows/(outflows) from investing activities Cash flows from financing activities Payments for share buy-backs Proceeds from borrowings Repayment of borrowings Dividends paid Net cash (outflows) from financing activities Net increase in cash held Cash and cash equivalents at the beginning of the financial year Cash and cash equivalents at the end of the financial year 48,300 (36,687) 1,172 465 (2,986) (5,780) 4,484 (297) (117) (12,244) (12,653) (6,198) (997) 3 22,046 1,600 391 (14,293) 85 (22,674) (41) 35,667 (26,105) (6,442) 3,079 (15,111) 20,997 5,886 The above Consolidated Statement of Cash Flows should be read in conjunction with the accompanying Notes. 22,046 (11,325) 1,587 306 (3,007) (1,359) 8,248 (197) - (163) (3,850) (12,346) (2,003) 90 27,463 146 811 - 866 10,817 (565) - (4,180) (6,162) (10,907) 8,158 12,839 20,997 47 149th ANNUAL REPORT 2017 I Year ended 31 July 2017149th ANNUAL REPORT 2017 I Year ended 31 July 2017INVESTING TOGETHER FOR A SECURE FUTUREGOWING BROS. LIMITED                                                                                                                    Notes to the Consolidated Financial Statements 1. Summary of Significant Accounting Policies (Continued) 1. Summary of Significant Accounting Policies Gowings Bros. Limited (“the Company”) is a company limited by shares incorporated in Australia whose shares are publicly traded on the Australian Securities Exchange (“ASX”). The consolidated financial statements comprise the Company and its controlled entities (referred herein as “the Group”). The principal accounting policies adopted in the preparation of the consolidated financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. (a) Basis of preparation These general purpose consolidated financial statements have been prepared in accordance with Australian Accounting Standards, other authoritative pronouncements of the Australian Accounting Standards Board and the Corporations Act 2001. Compliance with IFRS The consolidated financial statements comply with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). Historical cost convention These consolidated financial statements have been prepared under the historical cost convention, as modified by the revaluation of equities (available-for-sale financial assets), private equities (financial assets at fair value through profit or loss), investment properties and certain classes of property, plant and equipment. Critical accounting estimates The preparation of consolidated financial statements in conformity with Australian Accounting Standards requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group’s accounting policies. Areas involving a higher degree of judgement and complexity or where assumptions and estimates are significant to the consolidated financial statements are disclosed in note 3. New and amended standards adopted The Group has adopted all of the new, revised or amending Accounting Standards and Interpretations issued by the Australian Accounting Standards Board (‘AASB’) that are mandatory for the current reporting period. The adoption of these standards did not have a material impact. Any new, revised or amending Accounting Standards or Interpretations that are not yet mandatory have not been early adopted. Comparative information Information has been reclassified where applicable to enhance comparability. (b) Principles of Consolidation The consolidated financial statements incorporate all the assets, liabilities and results of the Company and all the subsidiary companies and other interests it controlled during the year ended 31 July 2017. The Company controls an entity when it is exposed to, or has the rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Details of subsidiary companies and other interests of the Company are set out in note 37. The assets, liabilities and results of its subsidiaries are fully consolidated into the financial statements of the Group from the date which control is obtained by the Group. The consolidation of a subsidiary is discontinued from the date that control ceases. Intercompany transactions, balances and unrealised gains or losses on transactions between group entities are fully eliminated on consolidation. Accounting policies of subsidiaries have been changed and adjustments made where necessary to ensure uniformity of the accounting policies of the Group. Equity interests in a subsidiary not attributable, directly or indirectly, to the Group are presented as “non-controlling interests”. The Group initially recognises non-controlling interests that are present ownership interests in subsidiaries and are entitled to a proportionate share of the subsidiary’s net assets on liquidation at either fair value or at the non-controlling interests’ proportionate share of the subsidiary’s net assets. Subsequent to initial recognition, non-controlling interests are attributed their share of profit or loss and each component of other comprehensive income. Non-controlling interest are shown separately with the equity section of the consolidated statement of financial position and consolidated statement of comprehensive income. (c) Business combinations Business combinations occur where the Group acquires control over one or more businesses. A business combination is accounted for by applying the acquisition method, unless it is a combination involving entities or businesses under common control. The business combination will be accounted for from the date that control is attained, whereby the fair value of the identifiable assets acquired and liabilities (including contingent liabilities) assumed is recognised (subject to certain limited exceptions). When measuring the consideration transferred in the business combination, any asset or liability resulting from a contingent consideration arrangement is also included. Subsequent to initial recognition, contingent consideration classified as equity is not remeasured and its subsequent settlement is accounted for within equity. Contingent consideration classified as an asset or liability is remeasured in each reporting period to fair value, recognising any change to fair value in profit or loss, unless the change in value can be identified as existing at acquisition date. Where settlement of any part of cash consideration is deferred, the amounts payable in the future are discounted to their present value as at the date of exchange. The discount rate used is the entity’s incremental borrowing rate, being the rate at which a similar borrowing could be obtained from an independent financier under comparable terms and conditions. Goodwill is tested for impairment annually and is allocated to the Group’s cash-generating units or groups of cash-generating units, which represents the lowest level at which goodwill is monitored but where such level is not larger than an operating segment. Gains and losses on the disposal of an entity include the carrying amount of goodwill related to the entity sold. All transaction costs incurred in relation to business combinations are recognised as expenses in profit and loss when incurred. The acquisition of a business may result in the recognition of goodwill or a gain from a bargain purchase. (d) Goodwill Goodwill is carried at cost less any accumulated impairment losses. Goodwill is carried as the excess of the sum of: (i) (ii) (iii) the consideration transferred; any non-controlling interest (determined under either the full goodwill or proportionate interest method); and the acquisition date fair value of any previously held equity interest; over the acquisition date fair value of net identifiable net assets acquired. The acquisition date fair value of the consideration transferred for a business combination plus the acquisition date fair value of any previously held equity interest form the cost of the investment. Fair value re-measurements in any pre-existing equity holdings are recognised in profit or loss in the period in which they arise. Where changes in the value of such equity holdings had previously been recognised in other comprehensive income, such amounts are recycled to profit or loss. The amount of goodwill recognised on acquisition of each subsidiary in which the Group holds a less than 100% interest will depend on the method adopted in measuring the non-controlling interest. The Group can elect in most circumstances to measure the non-controlling interest in the acquiree either at fair value (“full goodwill method”) or at the non-controlling interest’s proportionate share of the subsidiary’s identifiable net assets (“proportionate interest method”). In such circumstances, the Group determines which method to adopt for each acquisition and this is stated in the respective notes to these financial statements disclosing the business combination. Under the full goodwill method, the fair value of the non- controlling interests is determined using valuation techniques which make the maximum use of market information where available. Under this method, goodwill attributable to the non- controlling interest is recognised in the consolidated financial statements. Goodwill on acquisitions of subsidiaries is included in intangible assets. Changes in the ownership interests in a subsidiary that do not result in a loss of control are accounted for as equity transactions and do not affect the carrying amounts of goodwill. (e) Segment reporting Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker including: • Cash and fixed interest • Equities • Private equities • Investment properties • Development properties • Surf Hardware International business • Other (f) Foreign currency translation (i) (ii) Functional and presentation currency Items included in the consolidated financial statements of the Group are measured using the currency of the primary economic environment in which the Group operates (“functional currency”). The consolidated financial statements are presented in Australian dollars, which is the Group’s functional and presentation currency. Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Translation differences on private equities and development properties held at fair value through profit or loss are recognised in profit or loss as part of the fair value gain or loss. Translation differences on equities are recognised in equity. (iii) Foreign Operations The financial results and position of foreign operations, whose functional currency is different from the Group’s presentation currency, are translated as follows: (a) (b) (c) assets and liabilities are translated at exchange rates prevailing at the end of the reporting period; income and expenses are translated at average exchange rates for the period; and retained earnings are translated at the exchange rates prevailing at the date of the transaction. 48 49 149th ANNUAL REPORT 2017 I Year ended 31 July 2017149th ANNUAL REPORT 2017 I Year ended 31 July 2017INVESTING TOGETHER FOR A SECURE FUTUREGOWING BROS. LIMITED1. Summary of Significant Accounting Policies (Continued) 1. Summary of Significant Accounting Policies (Continued) Exchange differences arising on translation of foreign operations with functional currencies other than Australian dollars are recognised in other comprehensive income and included in the foreign currency translation reserve in the consolidated statement of financial position. The cumulative amount of these differences is reclassified into profit or loss in the period in which the operation is disposed of. (g) Income tax The income tax expense or revenue for the period is the tax payable on the current period’s taxable income adjusted by changes in deferred tax assets and liabilities attributable to temporary differences and to unused tax losses. Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. Deferred tax assets and liabilities are recognised for temporary differences at the tax rates expected to apply when the assets are recovered or liabilities are settled. No deferred tax asset or liability is recognised in relation to these temporary differences if they arose in a transaction, other than a business combination, that at the time of the transaction did not affect either accounting profit or loss or taxable profit or loss. Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses. Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset tax assets and liabilities and when the deferred tax balances relate to the same taxation authority. Current tax assets and tax liabilities are offset where the Group has a legally enforceable right to offset and intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously. Current and deferred tax is recognised in profit or loss, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case, the tax is also recognised in other comprehensive income or directly in equity, respectively. (h) Impairment of assets Assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purpose of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash inflows which are largely independent of the cash inflows from other assets or groups of assets (cash generating units). Non-financial assets that suffered impairment are reviewed for possible reversal of the impairment at each reporting date. (i) Property, plant and equipment Property, plant and equipment (excluding freehold properties) are measured at cost. Costs are measured at fair value of assets given up, shares issued or liabilities undertaken at the date of acquisition plus incidental costs directly attributable to the acquisition. Freehold properties are measured at fair value, with changes in fair value recognised in other comprehensive income. Depreciation is calculated on a straight-line basis to write off the net cost or revalued amount of each item of plant and equipment (excluding freehold land) over its expected useful life to the Group. Estimates of remaining useful lives are made on a regular basis for all assets, with annual reassessments for major items. Land is not depreciated. Depreciation is calculated to allocate cost or revalued amounts, net of their residual values, over their estimated useful lives, as follows: Furniture, fittings and equipment Motor vehicles Buildings 3 to 10 years 6 years 40 years The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each statement of financial position date. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount. Gains and losses on disposal are determined by comparing proceeds with carrying amount. These are included in profit or loss. (j) Inventories Inventories comprise raw materials and finished goods and are stated at the lower of cost and net realisable value. Costs of raw materials and finished goods are determined after deducting rebates and discounts. Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale. (k) Intangibles Other than Goodwill Intangible assets are identifiable non-monetary assets without physical substance. They are recognised only if it is probable the asset will generate future benefits for the Group. Those assets with an indefinite useful life are tested for impairment annually. All intangible assets are tested for impairment when there is an indication that carrying amounts may be greater than recoverable amounts as set out in note 1(h). (i) (ii) Patents and trademarks Patents and trademarks have a finite useful life and are carried at cost less accumulated amortisation and impairment losses. Amortisation is calculated using the straight-line method to allocate the cost of patents and trademarks over their useful lives which is currently 20 years. Brand Names Brand names are initially recognised at fair value when acquired in a business combination. Brand names are assessed to have an indefinite useful and are carried at cost less accumulated impairment. An indefinite useful life is considered appropriate when there is no foreseeable limit to the period over which the brand name is expect to generate cash flows. (l) Revenue recognition Revenue is recognised for the major business activities as follows: (i) (ii) Equities Dividend income is recognised when received. Revenue from the sale of investments is recognised at trade date. Property rental Rental income is recognised in accordance with the underlying rental agreements. (iii) Land development and sale Revenue is recognised on settlement. (iv) Sales of goods (v) Revenue from the sales of goods is recognised at the point of delivery as this corresponds to the transfer of significant risks and rewards of ownership of the goods and the cessation of all involvement with those goods. Property construction and sale Contract revenue and expenses are recognised in accordance with the percentage completion method unless the outcome of the contract cannot be reliably estimated. Where the outcome of a contract cannot be reliably estimated, contract costs are recognised as an expense when incurred, and where it is probable that costs will be recovered, revenue is recognised to the extent of costs incurred. Where it is probable that a loss will arise from a construction contract, the excess of the total expected contract costs over total expected contract revenue is recognised as an expense immediately. (vi) Other investment revenue Changes in fair value of private equities are recognised through profit or loss. Trust income and option income is recognised when earned. (vii) Other property revenue Other property revenue is recognised in accordance with underlying agreements. (viii) Interest revenue Interest income is recognised on an accrual basis. (m) Trade and other receivables Receivables consists mainly of amounts due from rental income. Amounts are usually due within seven days from invoice date. Amounts due for the sale of financial assets and properties are usually due on settlement unless the specific contract provides for extended terms. (n) Investments and other financial assets The Group classifies its investments in the following categories: private equities (financial assets at fair value through profit or loss) and equities (available-for-sale financial assets). The classification depends on the purpose for which it was acquired. Management determines the classification on initial recognition. (i) Equities Equities, comprising principally marketable equity securities, are either designated in this category or not classified in any of the other categories. They are included in non-current assets unless management intends to dispose of the investment within 12 months of the statement of financial position date. (ii) Private equities Private equities are held with the view that they are long term investments. Recognition/de-recognition and subsequent measurement Regular purchases and sales of investments are recognised on trade-date - the date on which the Group commits to the purchase or sale of the asset. Investments in equities are initially recognised at fair value plus transaction costs. Investments in private equities are initially recognised at fair value, and transaction costs are expensed in profit or loss. Interests in equities are brought to account at fair value, with the change in fair value reflected in the long term revaluation reserve. Interests in private equities are brought to account at fair value, with any change in fair value reflected in profit or loss. The interest in joint ventures is accounted for as set out in note 38. Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or have been transferred and the Group has transferred substantially all the risks and rewards of ownership. The fair values of quoted investments are based on current market prices. If the market for a financial asset is not active (and for unlisted securities), the Group establishes fair value by using valuation techniques. These include the use of recent arm’s length transactions, reference to other instruments that are substantially the same and relying as little as possible on Group-specific inputs. Impairment The Group assesses at each balance date whether there is objective evidence that a financial asset or group of financial assets is impaired. In the case of equities, a significant or prolonged decline in the fair value of a security below its cost is considered as an indicator that the security is impaired. If any such evidence exists for equities, the cumulative loss – measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that asset previously recognised in profit or loss, is transferred to profit or loss. Impairment losses recognised in profit or loss on equities are not reversed through profit or loss. (o) Investment properties Investment property, principally comprising freehold commercial and retail buildings, is held for long-term rental yields and is not occupied by the Group. Investment property is carried at fair value determined annually by management. Changes in fair values are recorded in profit or loss as part of other income. (p) Joint ventures Jointly controlled assets The proportionate interests in the assets, liabilities and expenses of joint venture activities have been incorporated in the consolidated financial statements under the appropriate headings. Details of the joint ventures are set out in note 38. 50 51 149th ANNUAL REPORT 2017 I Year ended 31 July 2017149th ANNUAL REPORT 2017 I Year ended 31 July 2017INVESTING TOGETHER FOR A SECURE FUTUREGOWING BROS. LIMITED 1. Summary of Significant Accounting Policies (Continued) 1. Summary of Significant Accounting Policies (Continued) The changes made to accounting requirements by these standards include: • simplifying the classifications of financial assets into those carried at amortised cost and those carried at fair value and an allowance for debt instruments to be carried at fair value through other comprehensive income in certain circumstances • simplifying the requirements for embedded derivatives • allowing an irrevocable election on initial recognition to present gains and losses on investments in equity instruments that are not held for trading in other comprehensive income. Dividends in respect of these investments that are a return on investment can be recognised in profit or loss and there is no impairment or recycling on disposal of the instrument • financial assets will need to be reclassified where there is a change in an entity’s business model as they are initially classified based on (a) the objective of the entity’s business model for managing the financial assets; and (b) the characteristics of the contractual cash flows • amending the rules for financial liabilities that the entity The Group is yet to assess its full impact however initial indications are that it may affect the Group’s accounting of its available-for-sale financial assets, since AASB 9 only permits the recognition of fair value gains and losses in other comprehensive income if they relate to equity investments that are not held for trading. AASB 15 Revenue from Contracts with Customers (applicable for annual reporting periods commencing on or after 1 January 2018) AASB 15 establishes a single, comprehensive framework for revenue recognition, and replaces the previous revenue Standards AASB 118 Revenue and AASB 111 Construction Contracts. The new standard is based on the principle that revenue is recognised when control of a good or service transfers to a customer. The Group is yet to assess its full impact on the Group’s financial statements. AASB 16 Leases (applicable for annual reporting periods commencing on or after 1 January 2019) elects to measure at fair value, requiring changes in fair value attributed to the entity’s won credit risk to be presented in other comprehensive income AASB 16 removes the classification of leases between finance and operating leases, effectively treating all leases as finance leases for the lessee. • • introducing new general hedge accounting requirements intended to more closely align hedge accounting with risk management activities as well as the addition of new disclosure requirements requirements for impairment of financial assets The Group is yet to assess its full impact on the Group’s financial statements. The Group has decided against early adoption of these standards. (q) Trade and other payables These amounts represent liabilities for goods and services provided to the Group prior to the end of the financial year and which are unpaid. The amounts are unsecured and are usually paid within 30 days after the end of the month of recognition. (r) Borrowings Bills payable are carried at their principal amounts. Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the statement of financial position date. (s) Dividends Provision is made for the amount of any dividend declared, determined or publicly recommended by the Directors on or before the end of the financial year but not distributed at balance date. (t) Employee entitlements (i) Wages, salaries and annual leave (ii) Liabilities for wages, salaries and annual leave are recognised in other creditors, and are measured as the amount unpaid at the reporting date in respect of employees’ services up to that date at pay rates expected to be paid when the liabilities are settled. Long service leave A liability for long service leave is recognised, and is measured as the present value of expected future payments to be made in respect of services provided by employees up to the reporting date. Consideration is given to expected future wage and salary levels and periods of service. (u) Borrowing costs Borrowing costs are recognised as expenses in the period in which they are incurred except where they are included in the costs of qualifying assets. Only borrowing costs relating specifically to the qualifying asset are capitalised. Borrowing costs include interest on bank overdrafts and short-term and long-term borrowings, including amounts paid or received on interest rate swaps. (v) Cash and cash equivalents For purposes of the statement of cash flows, cash includes deposits at call which are readily convertible to cash on hand and are subject to an insignificant risk of changes in value, net of outstanding bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities in the consolidated statement of financial position. (w) Leases Leases of property, plant and equipment where the Group, as lessee, has substantially all the risks and rewards of ownership are classified as finance leases. Finance leases are capitalised at the lease’s inception at the fair value of the leased property or, if lower, the present value of the minimum lease payments. The corresponding rental obligations, net of finance charges, are included in other short-term and long-term payables. Each lease payment is allocated between the liability and finance costs. The finance cost is charged to profit or loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The property, plant and equipment acquired under finance leases is depreciated over the asset’s useful life or over the shorter of the asset’s useful life and the lease term if there is no reasonable certainty that the Group will obtain ownership at the end of the lease term. (x) Earnings per share (i) Basic earnings per share Basic earnings per share is calculated by dividing the profit attributable to equity holders of the Group, excluding any costs of servicing equity other than ordinary shares, by the weighted average number of ordinary shares outstanding during the financial year, adjusted for bonus elements in ordinary shares issued during the year. (ii) Diluted earnings per share Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account the after tax effect of the interest and other financing costs associated with dilutive potential ordinary shares and the weighted average number of shares assumed to have been issued for no consideration in relation to dilutive potential ordinary shares. (y) Rounding of amounts The Company is of a kind referred to in ASIC Corporations (Rounding in the Financial/ Directors’ Reports) Instrument 2016/191 issued by the Australian Securities and Investments Commission relating to the “rounding off” of amounts in the directors’ report and financial report. Amounts in the directors’ report and financial report have been rounded to the nearest thousand dollars in accordance with that Legislative Instrument, unless otherwise indicated. (z) New accounting standards and interpretations The AASB has issued new and amended accounting standards and interpretations that have mandatory application dates for future reporting periods and which the Group has decided not to early adopt. A discussion of those future requirements and their impact on the Group is as follows: AASB 9 Financial Instruments (applicable for annual reporting periods commencing on or after 1 January 2018) AASB 9 includes requirements for the classification and measurement of financial assets, the accounting requirements for financial liabilities, impairment testing requirements and hedge accounting requirements. 52 53 149th ANNUAL REPORT 2017 I Year ended 31 July 2017149th ANNUAL REPORT 2017 I Year ended 31 July 2017INVESTING TOGETHER FOR A SECURE FUTUREGOWING BROS. LIMITED2. Financial Risk Management 2. Financial Risk Management (Continued) The Group’s activities expose it to a variety of financial risks: market risk (including foreign exchange risk, price risk and interest rate risk), liquidity risk, credit risk and fair value estimation risk. The Group’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the financial performance of the Group through the mix of investment classes. The Board of Directors and management undertake various risk management practices, both informally on a daily basis and formally on a monthly basis at board level. Risks are identified and prioritised according to significance and probability. Progress towards managing these risks is documented and formally reviewed on a monthly basis. Market risk (i) Foreign exchange risk Foreign exchange risk arises when future commercial transactions and recognised assets and liabilities are denominated in a currency that is not the Group’s functional currency. The Group does not have a policy with regard to hedging currency risk. The Group has not hedged its foreign currency investments. The multiple currencies provide diversification benefits to the portfolio. The Group monitors foreign currency movements daily and seeks advice from foreign currency specialists as to potential courses of action that may protect or enhance the value of the Group’s investments. The Group’s exposure to foreign currency risk at the reporting date was as follows: Currency exposure in AUD Cash Development and investment properties Loans receivable Trade and other receivables Trade and other payables Equities Private equities USD $’000 915 1,189 - 2,222 (168) 3,233 1,092 EUR $’000 352 - - 1,784 (58) - 272 31st July 2017 GBP $’000 27 JPY $’000 137 - - - - - - - - 826 - - - 31st July 2016 EUR $’000 - - - - - - 236 GBP $’000 1,179 - - - - - - JPY $’000 - - - - - - - USD $’000 2,696 1,109 391 - - 4,008 777 Based on the cash held at 31 July 2017, if the Australian dollar weakened / strengthened by 10% against the US dollar cash would have been $101,667 higher / $83,182 lower (2016: $299,583 higher / $245,114 lower). If the Australian dollar weakened / strengthened by 10% against the GBP cash would have been $3,000 higher / $2,455 lower (2016: $130,983 higher / $107,168 lower). If the Australian dollar weakened / strengthened by 10% against the EUR cash would have been $39,111 higher / $32,000 lower (2016: $nil higher / $nil lower). If the Australian dollar weakened / strengthened by 10% against the JPY cash would have been $15,222 higher / $12,455 lower (2016: $nil higher / $nil lower). Based on the development and investment properties held at 31 July 2017, if the Australian dollar weakened / strengthened by 10% against the US dollar development and investment properties would have been $132,111 higher / $108,091 lower (2016: $123,170 higher / $100,775 lower). Based on the trade and other receivables held at 31 July 2017, if the Australian dollar weakened / strengthened by 10% against the US dollar receivables would have been $246,889 higher / $202,000 lower (2016: $nil higher / $nil lower). If the Australian dollar weakened/ strengthened by 10% against the Euro, the receivables would have been $198,222 higher/ $162,182 lower (2016: $nil higher/$nil lower). If the Australian dollar weakened / strengthened by 10% against the JPY, the receivables would have been $91,778 higher / $75,091 lower (2016: $nil higher / $nil lower). Based on the trade and other payables held at 31 July 2017, if the Australian dollar weakened / strengthened by 10% against the US dollar payables would have been $18,667 higher / $15,273 lower (2016: $nil higher / $nil lower). If the Australian dollar weakened/ strengthened by 10% against the Euro, the payables would have been $6,444 higher/ $5,273 lower (2016: $nil higher/$nil lower). Based on the equities held at 31 July 2017, if the Australian dollar weakened / strengthened by 10% against the US dollar equities would have been $359,222 higher / $293,909 lower (2016: $295,444 higher / $241,729 lower). Based on the private equities held at 31 July 2017, if the Australian dollar weakened / strengthened by 10% against the Euro private equities would have been $30,222 higher / $24,727 lower (2016: $26,203 higher / $21,439 lower). If the Australian dollar weakened / strengthened by 10% against the US dollar private equities would have been $121,333 higher / $99,273 lower (2016: $86,327 higher / $70,632 lower). The percentage change is the expected overall volatility of the significant currencies, which is based on management’s assessment of reasonable possible fluctuations taking into consideration movements over the last 6 months each year and the spot rate at each reporting date. (ii) Price risk The Group is exposed to asset price risk. This arises from equities and private equities held by the Group and classified on the Consolidated Statement of Financial Position either as available-for-sale or at fair value through profit or loss. A price reduction at 5% and 10% spread equally over the investment portfolio would reduce its value by $1,863,505 (2016: $2,522,665) and $3,727,010 (2016: $5,045,830) respectively. The Group seeks to reduce market risk at the investment portfolio level by ensuring that it is not overly exposed to one company or one particular sector of the market. The relative weightings of the individual investments and the relevant market sectors are reviewed regularly and risk can be managed by reducing exposure where necessary. The Group does not have set parameters as to a minimum or maximum amount of the portfolio that can be invested in a single company or sector. The writing and purchasing of options provides some protection against a fall in market prices by both generating income to partially compensate for a fall in capital values and buying put protection to lock in asset prices. (iii) Cash flow and fair value interest rate risk The Group’s interest-rate risk arises from long-term borrowings and cash on deposit. Borrowings issued at variable rates expose the Group to cash flow interest-rate risk. Borrowings issued at fixed rates expose the Group to fair value interest-rate risk. The Group’s interest bearing assets include deposits on the overnight money market. Interest earnt on these deposits varies according to the Reserve Bank’s monetary policy decisions. As at the reporting date, the Group had the following variable rate borrowings and embedded derivative interest rate swap contracts in use: Weighted average interest rate 31st July 2017 Balance $’000 Weighted average interest rate 31st July 2016 Balance $’000 Borrowings Interest rate swaps (notional principal amount) Net exposure to cash flow interest rate risk 3.09% 3.53% 58,342 (35,000) 23,342 3.87% 4.73% 48,775 (35,000) 13,775 Credit risk The Group has loan receivables of $3.0m (2016: $2.4m) which are secured against land and development properties. The Group has no material exposure to trade receivables. Liquidity risk This is the risk that an entity will encounter difficulty in meeting obligations associated with financial liabilities. Prudent liquidity risk management implies maintaining sufficient cash and marketable securities, the availability of funding through an adequate amount of committed credit facilities and the ability to close-out market positions. Management monitors its cash flow requirements daily. Furthermore, management monitors the level of contingent payments on a weekly basis by reference to known sales and purchases of securities and dividends and distributions to be paid or received. Maturity of Financial Liabilities 31 July 2017 Non-derivatives Non-interest bearing Variable rate Total non-derivatives Derivatives Fixed rate Less than 1 year $’000 9,902 9,319 19,221 733 Between 1-2 years Between 2-5 years Over 5 years Total contractual cash flow $’000 275 1,023 1,298 - $’000 $’000 $’000 - 14,000 14,000 - 34,000 34,000 10,177 58,342 68,519 - - 733 54 55 149th ANNUAL REPORT 2017 I Year ended 31 July 2017149th ANNUAL REPORT 2017 I Year ended 31 July 2017INVESTING TOGETHER FOR A SECURE FUTUREGOWING BROS. LIMITED2. Financial Risk Management (Continued) Maturity of Financial Liabilities (Continued) 31 July 2016 Non-derivatives Non-interest bearing Variable rate Total non-derivatives Derivatives Fixed rate Fair value estimation risk Less than 1 year $’000 3,332 27,775 31,107 1,100 Between 1-2 years $’000 - 7,000 7,000 - Between 2-5 years $’000 Over 5 years Total contractual cash flow $’000 $’000 - 14,000 14,000 - - - - - 3,332 48,775 52,107 1,100 The fair value of financial assets and financial liabilities must be estimated for recognition and measurement or for disclosure purposes. Fair value hierarchy The Group measures fair value using the following fair value hierarchy that reflects the significance of the inputs used in making the measurements. Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities that the Group can access at the measurement date. Level 2: inputs other quoted prices included within level 1 that are observable for the assets or liabilities, either directly or indirectly. Level 3: unobservable inputs for the assets or liability. The following tables present the Group’s assets and liabilities measured at fair value at 31 July 2017 and 31 July 2016. 31 July 2017 Financial assets - available for sales Investments - Australian equities Investments - Global equities Financial assets - designated at fair value through profit or loss Investments - private equities Investments - properties Other assets - designated at fair value Freehold - properties Financial liabilities - designated at fair value through profit or loss Derivatives Total financial assets and liabilities 31 July 2016 Financial assets - available for sales Investments - Australian equities Investments - Global equities Financial assets - designated at fair value through profit or loss Investments - private equities Investments - properties Other assets - designated at fair value Freehold - properties Level 1 $’000 13,731 - - - - - 13,731 Level 1 $’000 33,097 - - - Level 2 $’000 - - - - - (733) (733) Level 2 $’000 - - - - Level 3 $’000 17,004 3,234 3,301 226,661 Total $’000 30,735 3,234 3,301 226,661 6,401 6,401 - 256,601 Level 3 $’000 (733) 269,599 Total $’000 10,669 43,766 4,008 4,008 2,679 192,716 2,679 192,716 - - 4,217 4,217 Financial liabilities - designated at fair value through profit or loss Derivatives Total financial assets and liabilities - 33,097 (1,100) (1,100) - (1,100) 214,289 246,286 2. Financial Risk Management (Continued) There were no transfers between level 1 and level 2 for recurring fair value measurements during the year. For transfers in and out of level 3 see below. The Group had no assets or liabilities measured at fair value on a non-recurring basis in the current period. • The fair value of listed equities is based on quoted market prices at the reporting date. • The fair value of directly held unlisted equity investments is determined by management valuations in accordance with the AVCAL valuation guidelines. A variety of methods are used including reference to recent shares issued and net assets of underlying investments. • The fair value of investment properties are determined by capitalisation rates derived by using the income approach method and/ or using external registered property valuers: refer to note 17. • Investments in private equities primarily consist of investments in managed private equity funds, each of which consists of a number of investments in individual companies, none of which are material. Fair value of managed private equity investments has been determined using fund manager valuations, which are prepared in accordance with AVCAL Guidelines. Directors have reviewed those valuations. The valuations have been based on appropriate multiples applied to estimated maintainable earnings. Estimated maintainable earnings have been based on historical results, and expected future results. • The fair value of freehold properties included in Property, Plant and equipment is determined by Directors based on comparable property market information. 31 July 2017 Reconciliation of level 3 fair value movements 31 July 2017 $’000 31 July 2016 $’000 Opening balance Transfers to level 1 Transfers from development properties Purchases Sales Amortisation and depreciation Gain recognised in profit or loss or other comprehensive income Closing balance Refer to the following notes for reconciliation for individual class of assets: • Equities • Private equities • Investment properties - refer to note 14 - refer to note 15 - refer to note 17 3. Critical Accounting Estimates & Judgements 214,289 - 153 19,780 (2,109) (1,260) 25,748 256,601 197,640 (2,000) - 7,500 (388) (1,178) 12,715 214,289 Managed and Direct Private Equity The Group’s practice for ‘Managed Private Equity’ valuations is to procure each Fund Manager’s published unit price valuation and review it for reasonableness, potential misstatements and impairments. In reviewing each Fund Manager’s valuation, consideration is given to audited accounts, compliance with Australian Venture Capital Association (AVCAL) valuation guidelines, Australian Accounting Standards, valuation methodology and assumptions, peer valuations, recent market prices, liquidity and control provisions, discussions with the Fund Manager and, where considered relevant, meetings with the underlying investee company’s management. The impact of the revaluation of managed private equities at 31 July 2017 was a loss of $318,123 (2016: a loss of $17,824) recognised in profit or loss. The Group holds ‘Direct Private Equity’ investments in unlisted private companies which have been valued using the Board and management’s best estimation of market value. The valuation considerations for managed private equity are applied to direct private equity based on recent shares issued and net assets of underlying investments, liquidity and minority shareholder provisions. Investment property Investment property valuations are estimated by the board and management with reference where possible to external valuations, market appraisals, recent comparable sales, date of purchase and capitalisation rate valuations. The impact on profit or loss relating to the revaluation of investment properties was a gain of $23,302,000 (2016: gain of $7,665,000). 56 57 149th ANNUAL REPORT 2017 I Year ended 31 July 2017149th ANNUAL REPORT 2017 I Year ended 31 July 2017INVESTING TOGETHER FOR A SECURE FUTUREGOWING BROS. LIMITED                                                                                       4. Segment Information 4. Segment Information (Continued) The Group comprises of the following business segments, based on the group’s management reporting systems: For the year ended • Cash and fixed interest • Equities • Private equities • Investment properties • Development properties • Surf Hardware International business • Other For the year ended Segment revenue Cash and fixed interest – interest received Equities – dividends and option income Private equities – distributions received Investment properties – rent received Surf Hardware International business – sale of goods Segment other income Equities – realised gains on disposal Private equities – unrealised fair value gains/(losses) Investment properties – unrealised fair value gains Development properties – realised gains on disposal Other Total segment revenue and other income Segment result Cash and fixed interest Equities Private equities Investment properties Development properties Surf Hardware International business Other Income tax (expense) Net profit after tax Revenue from external customers by geographical region Australia United States of America Japan Europe Total revenue from external customers 31 July 2017 $’000 31 July 2016 $’000 25,459 8,458 3,937 6,364 44,218 19,094 - - - 19,094 31 July 2017 $’000 31 July 2016 $’000 The Group only derives revenue from external customers in the Investment properties and Surf Hardware International business segments. 672 1,173 173 19,672 24,546 46,236 5,696 (318) 23,302 - 342 29,022 75,258 672 6,351 (145) 32,112 - (1,776) (4,290) 32,924 (9,684) 23,240 306 1,587 1,156 19,094 - 22,143 18,581 43 7,665 17 (1,427) 24,879 47,022 306 18,528 1,199 16,459 17 - (5,064) 31,445 (9,455) 21,990 As at Segment assets Cash Equities Private equities Investment properties Development properties Surf Hardware International business Unallocated assets Total assets Segment liabilities Investment properties Surf Hardware International business Unallocated liabilities Total liabilities Non-current assets by geographical region Australia United States of America Japan Europe Total non-current assets  31 July 2017 $’000 31 July 2016 $’000 5,886 33,969 3,301 226,661 14,004 14,841 21,790 320,452 57,698 3,743 45,035 106,476 290,255 5,294 216 121 20,997 47,774 2,679 192,716 2,389 - 15,536 282,091 48,775 - 34,736 83,511 250,280 5,359 - - 295,886 255,639 58 59 149th ANNUAL REPORT 2017 I Year ended 31 July 2017149th ANNUAL REPORT 2017 I Year ended 31 July 2017INVESTING TOGETHER FOR A SECURE FUTUREGOWING BROS. LIMITED                                                                                                                      4. Segment Information (Continued) As at Payments for the acquisition of: - Investment properties - Development properties - Equities - Surf Hardware International business, net of cash acquired Gains / (losses) on disposal or revaluation of: - Investment properties - Development properties - Equities - Private equities - Impairment – equities Unallocated: 31 July 2017 $’000 31 July 2016 $’000 12,653 12,244 6,198 14,293 23,302 - 5,696 (318) (518) 3,850 163 12,346 - 7,665 17 18,581 43 (1,640) - Payments for the acquisition of property, plant and equipment 297 197 Accounting policies Segment information is prepared in conformity with the accounting policies of the Group as disclosed in note 1. Segment revenues, expenses, assets and liabilities are those that are directly attributable to a segment and the relevant portion that can be allocated to a segment on a reasonable basis. All segments other than Surf Hardware International business segment Segment assets include all assets used by a segment and consist primarily of operating cash, investments, investment properties and plant and equipment, net of related provisions. While most of these assets can be directly attributable to individual segments, the carrying amounts of certain assets used jointly by segments are allocated based on reasonable estimates of usage. Segment liabilities consist of borrowings. Segment assets and liabilities do not include income taxes. Tax assets and liabilities, trade and other creditors and employee entitlements are represented as unallocated amounts. Surf Hardware International business segment Segment assets include all assets used by a segment and consist primarily of operating cash, trade and other payables, inventories, plant and equipment and intangibles, net of related provisions. While most of these assets can be directly attributable to individual segments, the carrying amounts of certain assets used jointly by segments are allocated based on reasonable estimates of usage. Segment liabilities consist of borrowings, trade and other payables and employee entitlements. Segment assets and liabilities do not include income taxes. Tax assets and liabilities are represented as unallocated amounts. Segment cash flows Segment information is not prepared for cash flows as management consider it not relevant to users in understanding the financial position and liquidity of the Group. 5. Operating Profit For the year ended Profit from continuing operations before income tax expense includes the following specific items: Gains Private equity investment distributions Expenses Interest paid Employee benefits Cost of sales 6. Income Tax Expense For the year ended Current tax Deferred tax (Over) / under provided in prior years Income tax attributable to: Profit from continuing operations Aggregate income tax expense on profit Reconciliation of income tax expense to prima facie tax payable Profit from continuing operations before income tax expense Tax at the Australian tax rate of 30% (2016: 30%) Deferred tax assets not recognised Tax effect of amounts which are not deductible (taxable) in calculating taxable income: Non-assessable income Franked dividends (Over) / under provision in prior year Income tax expense Amounts recognised directly in equity Aggregated current and deferred tax arising in the reporting period and not recognised in net profit or loss but directly debited or (credited) to equity 7. Cash and Cash Equivalents As at Cash at bank and on hand 8. Current Development Properties 31 July 2017 $’000 31 July 2016 $’000 173 2,986 7,908 16,795 1,156 3,007 2,871 - 31 July 2017 $’000 31 July 2016 $’000 2,421 7,658 (395) 9,684 9,684 9,684 32,924 9,877 409 49 (256) (395) 9,684 (503) 4,409 4,695 351 9,455 9,455 9,455 31,445 9,433 - 54 (383) 351 9,455 (1,480) 31 July 2017 $’000 5,886 31 July 2016 $’000 20,997 Development Properties 297 535 60 61 149th ANNUAL REPORT 2017 I Year ended 31 July 2017149th ANNUAL REPORT 2017 I Year ended 31 July 2017INVESTING TOGETHER FOR A SECURE FUTUREGOWING BROS. LIMITED                       9. Current Trade and Other Receivables 15. Non-Current Private Equities 31 July 2017 $’000 31 July 2016 $’000 As at 31 July 2017 $’000 31 July 2016 $’000 7,770 (243) 7,527 2,130 (222) 1,908 At fair value through profit or loss Balance at beginning of year Revaluation to fair value Additions Disposal proceeds Net gain on disposal Balance at end of year 2,679 (318) 1,449 (509) - 3,301 Prepayments 1,220 618 Changes in fair values of private equities at fair value through the profit or loss are recorded in other income. 16. Non-Current Development Properties As at Trade debtors Less: Provision for doubtful debts Balance at end of year 10. Other Current Assets 11. Current Inventories At cost of net realisable value Raw materials and finished goods Balance at end of year 12. Current Loan Receivables 6,636 6,636 - - At cost or net realisable value Balance at beginning of year Additions Balance at end of year Loan to property developers 3,000 2,394 17. Non-Current Investment Properties Loans to property developers are charged at commercial interest rates. The Directors believe that the fair value of loan receivables equals their carrying amounts. 13. Non-Current Receivables Loans to employees Other loans Balance at end of year 14. Non-Current Equities At fair value Balance at beginning of year Revaluation to fair value Additions Impairment Disposal proceeds Net gain on disposal Balance at end of year Changes in fair value of equities are recorded in equity. 2 758 760 47,774 (2,195) 4,749 (518) (21,537) 5,696 33,969 2 97 99 51,905 (5,923) 12,072 (1,640) (27,221) 18,581 47,774 Balance at beginning of year Additions Disposal proceeds Transfers in/(out) Amortisation on incentives Net gain from fair value adjustment Balance at end of year Amounts recognised in profit of loss for investment properties Rental revenue Direct operating expenses from rental generating properties Gain on revaluation Changes in fair values of investment properties are recorded in other income. 2,604 (18) 274 (242) 61 2,679 1,454 9 1,463 182,787 4,435 (146) (880) (1,145) 7,665 192,716 19,094 (7,293) 7,665 19,466 1,463 12,244 13,707 192,716 15,041 (1,600) (1,582) (1,216) 23,302 226,661 19,672 (7,876) 23,302 35,098 62 63 149th ANNUAL REPORT 2017 I Year ended 31 July 2017149th ANNUAL REPORT 2017 I Year ended 31 July 2017INVESTING TOGETHER FOR A SECURE FUTUREGOWING BROS. LIMITED       17. Non-Current Investment Properties (Continued) 18. Non-Current Property, Plant and Equipment Valuation Method Weighted average cap rate 2017 Weighted average cap rate 2016 31 July 2017 $’000 31 July 2016 $’000 Freehold Property $’000 Motor vehicles $’000 Furniture, fittings & equipment $’000 Sub-regional shopping centres (Coffs Central & Port Central) Neighbourhood shopping centres (Kempsey Central and Moonee Marketplace) Other properties (a) (a) (b) 6.47% 7.38% n/a 7.29% 173,280 147,747 8.26% n/a 45,300 34,238 8,081 226,661 10,731 192,716 (a) Fair value is based on capitalisation rates, which reflect vacancy rates, tenant profile, lease expiry, developing potential and the underlying physical condition of the centre. The higher the capitalisation rate, the lower the fair value. Capitalisation rates used at 31 July 2017 were based on management prepared valuations and externally prepared valuations. Where a property is under development, the investment property fair value is based on the fair value of the property “as if complete” less the estimated costs to complete. Development risks (such as construction and letting risks) are taken into consideration when determining the fair value of investment property. (b) Current prices in an active market for properties of similar nature or recent prices of different nature in less active markets. Year ended 31 July 2017 Opening net book amount Acquired on business combination (note 32) Additions Disposals Transfers in/(out) Revaluation to fair value Depreciation charge Closing net book amount At 31 July 2017 Cost or fair value Accumulated depreciation Net book amount Year ended 31 July 2016 Opening net book amount Additions Disposals Transfers in / (out) Revaluation to fair value Depreciation charge Closing net book amount At 31 July 2016 Cost or fair value Accumulated depreciation Net book amount 4,217 - - - 1,735 493 (44) 6,401 6,774 (373) 6,401 227 66 - - - - (46) 247 499 (252) 247 446 821 297 (5) - - (379) 1,180 6,577 (5,397) 1,180 Freehold Property $’000 Motor vehicles $’000 Furniture, fittings & equipment $’000 2,381 - - 880 989 (33) 4,217 4,546 (329) 4,217 278 115 (117) - - (49) 227 414 (187) 227 415 82 - - - (51) 446 940 (494) 446  Total $’000 4,890 887 297 (5) 1,735 493 (469) 7,828 13,850 (6,022) 7,828  Total $’000 3,074 197 (117) 880 989 (133) 4,890 5,900 (1,010) 4,890 64 65 149th ANNUAL REPORT 2017 I Year ended 31 July 2017149th ANNUAL REPORT 2017 I Year ended 31 July 2017INVESTING TOGETHER FOR A SECURE FUTUREGOWING BROS. LIMITED                                                      19. Non-Current Intangibles 21. Other Non-Current Assets As at Goodwill Brand names Patents Balance at end of year 31 July 2017 $’000 31 July 2016 $’000 2,023 1,050 117 3,190 - - - - As at Other assets 22. Current Trade and Other Payables Intangible assets, other than goodwill and brand names have finite useful lives. Goodwill and brand names have an indefinite useful life. Goodwill and brand names are allocated to the Surf Hardware International business segment (“the cash-generating unit”). The Group tests whether goodwill has suffered any impairment at each reporting period. The recoverable amount of the cash-generating unit is determined based on value-in-use calculations. Value-in-use is calculated based on the present value of cash flow projections over a five year period with the period extending beyond four years extrapolated using an estimated growth rate. Five year projected cash flows in respect of the Surf Hardware International business segment are $7.5m. Key assumptions include: (a) 12.5% discount rate; (b) 3% per annum projected gross margin growth rate; (c) 3% per annum increase in operating expenses; and (d) 3% terminal growth rate. Based on these assumptions the Directors have determined that no impairment charge shall be recognised during the current reporting period. Trade creditors Other creditors and accruals Balance at end of year 23. Current Borrowings Bill payable – secured Trade facility – secured Finance lease – secured Balance at end of year 31 July 2017 $’000 1,839 31 July 2016 $’000 1,827 5,507 4,395 9,902 8,675 644 11 9,330 1,893 1,439 3,332 27,775 - - 27,775 20. Deferred Tax Assets As at The balance comprises temporary differences attributable to: Employee benefits Accruals Equities Private equities Derivatives Other Net deferred tax assets Movements: Opening balance at 1 August Acquired on business combination (note 32) (Debited) / credited to profit or loss Closing balance at 31 July Deferred tax assets to be recovered after 12 months Deferred tax assets to be recovered within 12 months 31 July 2017 $’000 31 July 2016 $’000 329 915 1,229 1,655 220 283 4,631 4,191 258 182 4,631 1,534 3,097 4,631 140 283 1,961 1,134 330 343 4,191 4,331 - (140)  4,191 877  3,314  4,191 Risk The Group’s exposure to interest rate changes arising from current and non-current borrowings is set out in note 2. Refinancing / Repayment The Group expects to renew or refinance current borrowing facilities on normal commercial terms and rates that are acceptable to the Group prior to the respective repayment dates. Alternatively, the Group believes it has the ability to repay any outstanding debt under these facilities from excess cash reserves, proceeds received from the disposal of assets or from cash sourced or raised through the Group’s operating or financing activities. Security Information about the security relating to each of the secured liabilities and the fair value of each of the borrowings is provided in note 26. 24. Current Tax Liabilities As at Income tax 25. Current Provisions Employee entitlements Other Balance at end of year 26. Non-Current Borrowings 31 July 2017 $’000 1,725 31 July 2016 $’000 3,943 1,075 - 1,075 248 15 263 Bill payable - secured 49,023 21,000 Risk The Group’s exposure to interest rate changes arising from current and non-current borrowings is set out in note 2. Security Details of the security relating to each of the secured liabilities and further information on banks loans are set out below. 66 67 149th ANNUAL REPORT 2017 I Year ended 31 July 2017149th ANNUAL REPORT 2017 I Year ended 31 July 2017INVESTING TOGETHER FOR A SECURE FUTUREGOWING BROS. LIMITED                                         26. Non-Current Borrowings (Continued) 26. Non-Current Borrowings (Continued) Total secured liabilities The total secured liabilities (current and non-current) are as follows: Bills payable¹ Trade facility – secured² Finance lease – secured Assets pledged as security 31 July 2017 $’000  31 July 2016 $’000 57,698 644 11 58,353 48,775 - - 48,775 The interest rates during the year and at balance date were up to a maximum of 8.65% on the secured bill facilities (2016: 5.5%). On-balance sheet The fair value of borrowings is based upon market prices where a market exists or by discounting the expected future cash flows by the current interest rates for liabilities with similar risk profiles. Off-balance sheet There are no off-balance sheet borrowings or contingencies other than as referred to in note 2. 27. Non-Current Provisions As at Employee entitlements Other provisions 28. Deferred Tax Liabilities The balance comprises temporary differences attributable to: Prepayments Intangibles Investment properties Equities Other Net deferred tax liabilities Movements: Opening balance at 1 August Acquired on business combination (note 32) Charged/(credited) to profit or loss Charged/(credited) to equity Closing balance at 31 July Deferred tax liabilities to be settled within 12 months Deferred tax liabilities to be settled after 12 months 1$1.675m bill is secured against 328-332 Bong Bong St, Bowral; the facility is BBSY plus 1.68%. 1$34.0 million bill is secured against Port Central Shopping Centre (“SC”); the facility is BBSY plus 0.95%. The bank requires the business and Company to meet certain financial ratios: the SC business must have a minimum interest coverage ratio of 2.5 times; the SC loan to valuation ratio not to exceed 40% (the LVR is measured against the specific asset/debt under this approval); the Company gearing ratio must not exceed 40%. 1$7.0 million bill is secured against Kempsey Central SC; the facility is BBSY plus 1.95%. The bank requires the business and Company to meet certain financial ratios: the SC business must have a minimum interest coverage ratio of 1.80 times; the SC loan to valuation ratio not to exceed 57% on day one and 51% 18 months from funding (the LVR is measured against the specific asset/debt under this approval); the Company gearing ratio must not exceed 40% and total tangible assets less total liabilities must be no less than $60 million. 1$14.0 million and $1.02 million bills are secured against Coffs Central SC; the facility is BBSY plus 1.55% and 1.7% respectively. The bank requires the business and Company to meet certain financial ratios: the SC business must have a minimum interest coverage ratio of 2.0 times and the SC loan to valuation ratio not to exceed 40% (the LVR is measured against the specific asset/debt under this approval. 2 $0.64 million trade facility is held by Gowings SHI Pty Limited and secured by the assets of Gowings SHI Pty Limited, Fin Control Systems Pty Ltd, Oz4u Holdings Pty Ltd, SHI Holdings Pty Ltd, Sunbum technologies Pty Ltd, Surfing Hardware International Holdings Pty Ltd, Surf Hardware International Pty Ltd, Surf Hardware International Pty Ltd and Surf Hardware International Asia Pty Ltd. Interest is 8.65% and the bank requires that that Gowings SHI Pty Limited meet certain financial ratios: minimum EBITDA of $1 million and total tangible assets less total liabilities must be no less than $5 million. As at Financing Arrangements Unrestricted access was available at balance date to the following lines of credit: 31 July 2017 $’000 31 July 2016 $’000 Total facilities Secured bank overdrafts Secured bill facilities Secured trade facilities Used at balance date Secured bill facilities Secured trade facilities Unused at balance date Secured bank overdrafts Secured bill facilities Secured trade facilities 68 1,000 82,240 2,000 85,240 57,698 644 58,342 1,000 24,542 1,356 26,898 1,000 48,775 - 49,775 48,775 - 48,775 1,000 - - 1,000 31 July 2016 $’000 31 July 2015 $’000 498 - 498 303 315 27,699 5,047 551 33,915 25,861 729 7,828 (503) 33,915 398 33,517 33,915 219 18 237 186 - 19,674 5,705 296 25,861 22,867 - 4,474 (1,480) 25,861 186 25,675 25,861 69 149th ANNUAL REPORT 2017 I Year ended 31 July 2017149th ANNUAL REPORT 2017 I Year ended 31 July 2017INVESTING TOGETHER FOR A SECURE FUTUREGOWING BROS. LIMITED               29. Contributed Equity Share capital Ordinary shares fully paid Movements in ordinary share capital Date Details 31/07/2016 Balance 27/10/16 Share buy back 31/07/2017 Balance Number of shares 2017 Number of shares 2016 2017 $’000 2016 $’000 53,680,259 53,692,199 12,611 12,652 Number of shares 53,692,199 (11,940) 53,680,259 Issue price per share 3.45 $’000 12,652 (41) 12,611 Ordinary shares Ordinary shares entitle the holder to participate in dividends and the proceeds on winding up of the Company in proportion to the number of and amounts paid on the shares held. On a show of hands every holder of ordinary shares present at a meeting in person or by proxy is entitled to one vote, and upon a poll each share is entitled to one vote. Dividend Reinvestment Plan The Dividend Reinvestment Plan may be offered to shareholders by Directors, and allows shareholders to reinvest dividends into shares in the Company. The Dividend Reinvestment Plan remains suspended for current and future dividends. Deferred Employee Share Plan The Deferred Employee Share Plan may be used as part of any incentive payments for all employees. For transaction cost reasons, where possible shares bought back as part of the Company’s ongoing capital reduction program are recognised for this purpose rather than cancelled. Options There were no options on issue at the time of this report. On-market share buy back 11,940 shares were bought back during the year (2016: 181,402). Capital risk management The Company’s objective when managing capital is to safeguard the ability to continue as a going concern, so that continued returns to shareholders and benefits for other stakeholders can be provided while maintaining an optimal capital structure. 30. Reserves As at  Movements Capital profits reserve¹ Opening balance Transfer from retained profits Closing balance Long term investment revaluation reserve² Opening balance Fair value adjustments on available for sale assets - Equities - Deferred tax applicable to fair value adjustments Closing balance Asset revaluation reserve³ Opening balance Fair value adjustments on property, plant and equipment - Property, plant and equipment - Deferred tax applicable to fair value adjustments  Closing balance Foreign currency translation reserve⁴ Opening balance Exchange differences on translation of foreign operations  Closing balance Total reserves 31 July 2017 $’000 31 July 2016 $’000 90,503 - 90,503 13,395 (2,195) 651 11,851 692 493 (148) 1,037 - (162) (162) 103,229 90,503 - 90,503 17,541 (5,923) 1,777 13,395 - 989 (297) 692 - - - 104,590 ¹ The capital profits reserve is used to record pre-CGT profits. ² The long term investment revaluation reserve is used to record increments and decrements on equities recognised in other comprehensive income. Amounts are reclassified to profit or loss when the equities are sold. Impaired amounts are recognised in profit or loss. ³ The asset revaluation reserve is used to record increases and decreases in the fair value of property, plant and equipment recognised in other comprehensive income. ⁴ The foreign currency translation reserve records exchange rate differences arising on translation differences on foreign controlled subsidiaries. 70 71 149th ANNUAL REPORT 2017 I Year ended 31 July 2017149th ANNUAL REPORT 2017 I Year ended 31 July 2017INVESTING TOGETHER FOR A SECURE FUTUREGOWING BROS. LIMITED          31. Dividends As at Ordinary shares 2016 final dividend of 6.0 cents (2015: 6.0 cents final) per share 2017 interim dividend of 6.0 cents (2016: 6.0 cents interim) per share Total dividends declared Dividends paid in cash 31 July 2017 $’000 31 July 2016 $’000 3,221 3,221 6,442 6,442 6,442 2,940 3,222 6,162 6,162 6,162 Franked dividends declared and paid during the year were fully franked at the tax rate of 30% (2016: 30%). Dividends declared after year end Subsequent to year end the Directors have declared the payment of a final dividend of 6.0 cents per ordinary share fully franked based on tax paid at 30%. The maximum amount of the proposed dividend expected to be paid on 26 October 2017 out of retained profits at 31 July 2017 is $3,221,816. The financial effect of the dividend declared subsequent to the reporting date has not been brought to account in the financial statements for the year ended 31 July 2017 and will be recognised in subsequent financial reports. The Dividend Reinvestment Plan (DRP) remains suspended for the final dividend declared. Franked dividends The franked portions of the final dividends declared after 31 July 2017 will be franked out of existing franking credits or out of franking credits arising from the payment of income tax in the year ending 31 July 2018. Franking credits available for subsequent financial years (tax paid basis) 13,700 10,092 The above amounts are based on the balance of the franking account at year end, adjusted for: (a) franking credits that will arise from the payment of the current tax liability; (b) franking debits that will arise from the payment of dividends recognised as a liability at the reporting date; (c) franking credits that will arise from the receipt of dividends recognised as receivables at the reporting date; and (d) franking credits that may be prevented from being distributed in subsequent financial years. 32. Business Combination Acquisition of SHI Holdings Pty Limited On 16 December 2016, a subsidiary of the Group, Gowings SHI Pty Ltd, acquired 100% of the issued shares in SHI Holdings Pty Limited and its controlled entities (“Surf Hardware International”) for total consideration of $16,000,000. Surf Hardware International is a manufacturer and global supplier of surf related hardware products. The acquisition is aligned with the Group’s continued focus of investing in selected direct private equity investments in its investment portfolio. Details of the purchase consideration, the net assets acquired and goodwill are as follows: Purchase consideration The acquisition-date fair value of the total purchase consideration was $16,000,000. The purchase consideration is split into two tranches as follows: 32. Business Combination (Continued) Purchase consideration was payable in two tranches, the first tranche was paid on the acquisition date in cash and the second tranche was paid in cash on 30 June 2017. At 31 July 2017 no purchase consideration remains outstanding in relation to this acquisition. Fair value of identifiable assets and liabilities recognised as a result of the acquisition Fair value of identifiable assets recognised as a result of the acquisition are as follows: Cash and cash equivalents Trade and other receivables Inventories Other assets Property, plant and equipment Intangibles Deferred tax assets Total fair value of identifiable assets acquired Fair value of identifiable liabilities recognised as a result of the acquisition are as follows: Trade and other payables Employee provisions Other provisions Lease liability Income tax payable Deferred tax liabilities Total fair value of identifiable assets acquired $’000 1,707 4,655 10,392 324 887 1,050 258 19,273 $’000 1,726 989 334 17 1,501 729 5,296 The fair value of assets and liabilities acquired have been recorded on a provisional basis at the end of the year. The Group may retrospectively adjust the provisional amounts recognised and also recognise additional assets and liabilities during the measurement period, based on new information obtained about the facts and circumstances that existed at the date of acquisition. The measurement period ends on either the earlier of (i) 12 months from the date of acquisition; or (ii) when the Group receives all possible information to determine the fair value of assets and liabilities acquired. Goodwill The Group has measured the fair value of identifiable assets and liabilities acquired at acquisition date (refer to (b) above) with the remainder of the purchase price being attributed to goodwill. This treatment is consistent with the Group’s accounting policy at note 1(d) Goodwill recorded in relation to the acquisition of Surf Hardware International is as follows: Purchase price Less: net fair value of identifiable assets and liabilities acquired Goodwill recorded on acquisition $’000 16,000 (13,977) 2,023 Purchase consideration (first tranche) – cash paid on acquisition date Purchase consideration (second tranche) – cash paid on 30 June 2017  Total fair value of the total purchase consideration $’000 10,000 6,000 16,000 The goodwill is attributed to Surf Hardware’s strong position in the global surf related hardware market and future growth potential. Goodwill is not deductible for tax purposes. Revenue and profit contribution During the period from acquisition through to 31 July 2017, Surf Hardware International contributed sales revenue of $24,546,236 and a loss before tax of $2,080,601 to the Group’s results. The loss includes an amount of $2,577,653 relating to fair value adjustments made to Surf Hardware International’s inventory on acquisition. 72 73 149th ANNUAL REPORT 2017 I Year ended 31 July 2017149th ANNUAL REPORT 2017 I Year ended 31 July 2017INVESTING TOGETHER FOR A SECURE FUTUREGOWING BROS. LIMITED       32. Business Combination (Continued) 36. Related Parties (Continued) Acquisition costs Acquisition costs of $473,143 have been expensed in the consolidated statement of profit or loss in relation to the acquisition of Surf Hardware International. Acquired receivables The gross contractual amount for trade receivables due is $4,729,720, of which $74,601 is expected to be uncollectible. 33. Remuneration of Auditors Audit and review – parent entity Audit and review – subsidiary companies Tax services 34. Commitments for Expenditure 31 July 2017 $’000 31 July 2016 $’000 102 60 68 230 84 - 21 105 Capital commitments – Private equities The Group has uncalled capital commitments of up to $1,528,000 (2016: $4,950,000) over a period of up to 10 years in relation to private equity and property fund investments held at year end. Capital commitments – Investment properties The Group has capital commitments of $18,939,143 (2016: $nil) in relation to construction works on investment properties at year end. Operating lease commitments The Group has entered into leases for commercial premises and office equipment. Commitments for minimum lease payments in relation to non-cancellable operating leases are payable as follows: Within one year Later than one year but not later than five years Later than five years 35. Employee Entitlements Long service leave (note 27) Accrual for annual leave (note 24) Other accruals 36. Related Parties 1,193 1,539 168 2,900 498 1,075 771 2,344 - - - - 219 248 435 902 Directors The names of persons who were Directors of Gowing Bros. Limited at any time during the financial year were Messrs J. E. Gowing, J. G. Parker, R. D. Fraser, Prof. J. West and S. J. Clancy. Those persons that were also Directors during the year ended 31 July 2016 were Messrs J. E. Gowing, J. G. Parker, R. D. Fraser, Prof. J. West and S. J. Clancy. Remuneration Information on remuneration of Directors and other key management personnel is disclosed in the remuneration report. Directors and other key management personnel Short-term employee benefits Share based compensation Post-employment benefits Long-term benefits Detailed remuneration can be found in the remuneration report on pages 38 to 40. 31 July 2017 $ 31 July 2016 $ 1,104,593 17,250 91,803 (321) 1,213,325 1,014,466 120,000 96,732 31,527 1,262,725 Movement in shares Key management person J. E. Gowing J. G. Parker Prof. J. West S. J. Clancy R. D. Fraser G. J. Grundy *Directly and indirectly Shares acquired/ Shares acquired/ Shares held* at (disposed) during Shares held* at (disposed) during Shares held* at 31-Jul-15 No. 18,989,368 50,000 - - 63,118 260,148 the year No. 1,891,782 5,000 397,581 5,000 6,311 84,559 31-Jul-16 No. 20,881,150 55,000 397,581 5,000 69,429 344,707 the year No. - - - - N/A 5,000 31-Jul-17 No. 20,881,150 55,000 397,581 5,000 N/A 349,707 Mr R. D. Fraser resigned as Non-executive Director during the year. Other key management personnel did not hold shares in the company. Receivables from Directors and Executives At year end there were no receivables from the Directors and executives (2016: $nil). Transactions with key Management Personnel & Directors Key management person Transaction type J. E. Gowing J. E. Gowing Marketing services Associate director services 31 July 2017 $ 44,640 3,650 31 July 2016 $ 65,891 - The wife of Mr J E Gowing, Managing Director, is a Director of Creative License Pty Limited. Creative License Pty Limited provided marketing services totalling $34,094 for the year. Dealings were at commercial rates (2016: $63,161). The sons of Mr J E Gowing provided marketing services at market rates during the year on a casual basis, $10,546 (2016: $2,730) and associate director services $3,650 (2016: $nil). There were no other transactions with Directors and Director related entities and Executives. 74 75 149th ANNUAL REPORT 2017 I Year ended 31 July 2017149th ANNUAL REPORT 2017 I Year ended 31 July 2017INVESTING TOGETHER FOR A SECURE FUTUREGOWING BROS. LIMITED36. Related Parties (Continued) Other Related Party Matters Mr John E Gowing, the managing director of Gowing Bros. Limited was a minority shareholder of the following entities controlled by the Group. 38. Interests in Joint Ventures The Group has entered into a joint venture operation known as Regional Retail Properties, a long term investment in a small regional retail centre. The Group has a 50% participating interest in this joint venture and is entitled to 50% of its output. Ownership Interest % The Group’s interests in the assets employed in the joint ventures are included in the consolidated statement of financial position, in accordance with the accounting policy described in note 1(p), under the following classifications: Entity Name Gowings SHI Pty Ltd Pacific Coast Developments 357 Fund Pacific Coast Developments 112 Fund The interests in these entities were no longer held by Mr John E Gowing at 31 July 2017. 37. Interests in Other Entities (Excluding Joint Ventures) The Group’s principal subsidiaries and other interests are set out below: 0.1 0.1 0.1 Unless otherwise stated, subsidiaries and other interests listed below have share capital comprising of ordinary shares or ordinary units which are held directly by the Group. The proportion of ownership interests held equals the voting rights held by the Group. Entity Name Pacific Coast Developments 357 Pty Ltd Pacific Coast Developments 357 Fund Pacific Coast Developments Pty 112 Ltd Pacific Coast Developments 112 Fund Gowings SHI Pty Ltd SHI Holdings Pty Ltd* Fin Control Systems Pty Ltd* Surfing Hardware International Holdings Pty Ltd* Surf Hardware International Asia Pty Ltd* Surf Hardware International Europe SARL* Surf Hardware International UK* OZ4U Holdings Pty Ltd* Sunbum Technologies Pty Ltd* Surfing Hardware International USA Inc.* Surf Hardware International USA Inc.* Surf Hardware International Hawaii Inc.* Surf Hardware International Japan KK* Surf Hardware International Pty Ltd* Surf Hardware International Brazil Com. De Mat. Esportivos LTDA* Country of Incorporation Ownership Interest % 2017 Non-controlling Interest % 2017 Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia United States of America United States of America United States of America Japan France Brazil 100 99.9 100 99.9 99.9 99.9 99.9 99.9 99.9 99.9 99.9 99.9 99.9 99.9 99.9 99.9 99.9 99.9 99.9 - 0.1 - 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 *SHI Holdings Pty Limited and controlled entities acquired by Gowings SHI Pty Ltd during the year (note 32). No other interests in subsidiaries or other entities (excluding joint ventures) were held by the Group in the 31 July 2017 financial year. Non-controlling interests in subsidiaries and other interests of the Group are not material to the Group. Significant Restrictions Other than certain assets pledged as security for the secured trade facility which is detailed in note 26, there are no significant restrictions over the Group’s ability to access or use assets, and settle liabilities, of the Group. Current assets Cash Trade and other receivables Total current assets Non-current assets Investme properties Total non-current assets Current share of assets employed in joint venture Current liabilities Trade and other payables Borrowings Total current liabilities Non-current liabilities Borrowings Total non-current liabilities Current share of liabilities employed in joint venture Net assets employed in joint venture 31 July 2017 $’000 31 July 2016 $’000 35 40 75 3,000 3,000 3,075 5 1,675 1,680 - - 1,680 1,395 30 18 48 3,000 3,000 3,048 21 1,775 1,796 - - 1,796 1,252 $1.675 million of borrowings is secured against investment properties of Regional Retail Properties (note 26). 39. Share Based Payments The Deferred Employee Share Plan has been in operation since 2006 which allows fully paid ordinary shares to be issued for no cash consideration from shares held by the Plan. All Australian resident permanent employees and non-executive directors are eligible to participate in the scheme. Employees may elect not to participate in the scheme. Shares are acquired on-market prior to the issue. Shares issued under the scheme may not be sold until the earlier of three years after issue or cessation of employment of the Group. In all other respects the shares rank equally with other fully-paid ordinary shares on issue. Options No options were on issue at year end (2016: Nil). 40. Earnings Per Share Basic earnings per share (cents) Diluted earnings per share (cents) Weight average number of ordinary shares on issue Net profit after tax 31 July 2017 31 July 2016 43.29c 43.29c 53,683,040 $23,240,000 40.92c 40.92c 53,736,761 $21,990,000 76 77 149th ANNUAL REPORT 2017 I Year ended 31 July 2017149th ANNUAL REPORT 2017 I Year ended 31 July 2017INVESTING TOGETHER FOR A SECURE FUTUREGOWING BROS. LIMITED 41. Parent Entity Information 42. Reconciliation of Net Profit to Net Cash Inflow from Operating Activites The following information has been extracted from the books and records of the Company and has been prepared in accordance with Australian Accounting Standards: Statement of Financial Position 31 July 2017 $’000 31 July 2016 $’000 Assets Current assets Non-current assets Total assets Liabilities Current liabilities Non-current liabilities Total liabilities Net assets Equity Issued capital Capital profits reserve Long term investment revaluation reserve Asset revaluation reserve Retained earnings Total equity 10,403 308,163 318,566 19,540 82,770 102,310 216,256 12,611 90,503 11,851 1,037 100,254 216,256 26,452 255,639 282,091 36,413 47,098 83,511 195,580 12,652 90,503 13.395 692 81,338 195,580 Profit from ordinary activities after income tax Amortisation Depreciation Impairment – equities Net gain on sale of equities and private equities Net loss on sale of development properties Net loss on sale of property, plant and equipment Revaluation of investment properties to market value Revaluation of equities and private equities to market value Revaluation of derivative to market value Other (expense) / income Decrease / (increase) in receivables Decrease / (increase) in prepayments Decrease / (increase) in inventories Increase / (decrease) in income taxes Increase / (decrease) in employee entitlements Increase / (decrease) in trade creditors and accruals Net cash inflow from operating activities 43. Subsequent Events 31 July 2017 $’000 31 July 2016 $’000 23,240 1,396 469 518 (5,696) - 1 (23,302) 318 (367) (17) (2,184) (475) 3,755 5,435 83 1,310 4,484 21,990 1,325 133 1,640 (18,642) (17) 27 (7,665) 18 1,100 - (270) 62 - 8,101 126 320 8,248 No matter or circumstance has arisen since the end of the financial year which has significantly affected, or may significantly affect, the operations of the Group, the results of those operations or the state of affairs of the Group in future financial years. Statement of Profit or Loss and other Comprehensive Income 44. Other Information Net profit after income tax Total comprehensive income 31 July 2017 $’000 31 July 2016 $’000 25,358 24,159 21,990 18,856 Parent entity contractual commitments The Company has no contractual commitments other than uncalled capital commitments for private equities and commitments for construction works on investment properties as noted in note 34 (2016: Uncalled capital commitments for private equities as noted in note 34). Parent entity contingent liabilities The Company has no contingent liabilities at year end (2016: None). Gowing Bros. Limited is incorporated and domiciled in New South Wales. The registered office, and principal place of business, is Unit 21, Jones Bay Wharf, 26 – 32 Pirrama Rd, Pyrmont NSW 2009. Phone: 61 2 9264 6321 Facsimile: 61 2 9264 6240 Email: info@gowings.com Website: www.gowings.com Gowing Bros. Limited shares are listed on the Australian Securities Exchange. The joint Company Secretaries are Mr G. J. Grundy and Ms B. J. Flatters. Parent entity guarantees in respect to debts of its subsidiaries The Company has not entered into any guarantees in respect to debts of its subsidiaries at year end (2016: None). The share register is maintained by Computershare Investor Services Pty. Limited, Level 3, 60 Carrington Street, Sydney NSW 2000, Telephone 1300 855 080, Overseas callers +61 (0)2 8234 5000, Facsimile + 61 (0)2 8234 5050. 78 79 149th ANNUAL REPORT 2017 I Year ended 31 July 2017149th ANNUAL REPORT 2017 I Year ended 31 July 2017INVESTING TOGETHER FOR A SECURE FUTUREGOWING BROS. LIMITED Directors’ Declaration 1. In the directors’ opinion: (a) the consolidated financial statements and notes set out on pages 43 to 79 are in accordance with the Corporations Act 2001, including: (i) ccomplying with Accounting Standards and the Corporations Regulations 2001 and other mandatory professional reporting requirements; and (i) giving a true and fair view of the Group’s financial position as at 31 July 2017 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. 2. The notes to the consolidated financial statements include a statement of compliance with International Financial Reporting Standards. 3. The directors have been given the declarations by the chief executive officer and chief financial officer for the year ended 31 July 2017 required by section 295A of the Corporations Act 2001. This declaration is made in accordance with a resolution of the directors. AUDITOR’S INDEPENDENCE DECLARATION As lead auditor for the audit of the consolidated financial report of Gowing Bros. Limited for the year ended 31 July 2017, I declare that, to the best of my knowledge and belief, there have been no contraventions of: (a) the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and (b) any applicable code of professional conduct in relation to the audit. This declaration is in relation to Gowing Bros. Limited and the entities it controlled during the year. Professor J. West Director Sydney 28 September 2017 J. E. Gowing Director Sydney 28 September 2017 Sydney, NSW 28 September 2017 S Grivas Partner 80 81 AUDITOR’S INDEPENDENCE DECLARATION As lead auditor for the audit of the consolidated financial report of Gowing Bros. Limited for the year ended 31 July 2017, I declare that, to the best of my knowledge and belief, there have been no contraventions of: (a)the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and(b)any applicable code of professional conduct in relation to the audit.This declaration is in relation to Gowing Bros. Limited and the entities it controlled during the year. Sydney, NSW S Grivas 28 September 2017 Partner AUDITOR’S INDEPENDENCE DECLARATION As lead auditor for the audit of the consolidated financial report of Gowing Bros. Limited for the year ended 31 July 2017, I declare that, to the best of my knowledge and belief, there have been no contraventions of: (a)the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and(b)any applicable code of professional conduct in relation to the audit.This declaration is in relation to Gowing Bros. Limited and the entities it controlled during the year. Sydney, NSW S Grivas 28 September 2017 Partner AUDITOR’S INDEPENDENCE DECLARATION As lead auditor for the audit of the consolidated financial report of Gowing Bros. Limited for the year ended 31 July 2017, I declare that, to the best of my knowledge and belief, there have been no contraventions of: (a)the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and(b)any applicable code of professional conduct in relation to the audit.This declaration is in relation to Gowing Bros. Limited and the entities it controlled during the year. Sydney, NSW S Grivas 28 September 2017 Partner 149th ANNUAL REPORT 2017 I Year ended 31 July 2017149th ANNUAL REPORT 2017 I Year ended 31 July 2017INVESTING TOGETHER FOR A SECURE FUTUREGOWING BROS. LIMITED INDEPENDENT AUDITOR’S REPORT To the Members of Gowing Bros. Limited REPORT ON THE AUDIT OF THE FINANCIAL REPORT Opinion We have audited the financial report of Gowing Bros. Limited (“the Company”) and its controlled entities (“the Group”), which comprises the consolidated statement of financial position as at 31 July 2017, the consolidated statement of profit or loss, the consolidated statement of other comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies, and the directors’ declaration. In our opinion, the accompanying financial report of the Group is in accordance with the Corporations Act 2001, including: (a) giving a true and fair view of the Group’s financial position as at 31 July 2017 and of its financial performance for the year then ended; and (b) complying with Australian Accounting Standards and the Corporations Regulations 2001. Basis for Opinion We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report. We are independent of the Group in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (“the Code”) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key Audit Matters INDEPENDENT AUDITOR’S REPORT (CONTINUED) Key Audit Matter How our audit addressed the key audit matter Valuation of subregional and neighbourhood shopping centre investment properties Note 17 The aggregate fair value of the Group’s subregional and neighbourhood shopping centre investment properties as at 31 July 2017 is $218.580 million, representing 68.2% of the Group’s total assets as at that date. The fair values of the Group’s investment properties were assessed either by management and /or assessed by management based on independent valuations prepared by an independent valuer. The valuation of the Group’s investment properties requires judgement and the use of subjective assumptions and estimates in determining fair value including selecting the appropriate valuation methodology, market rental rates, vacancy allowances and capitalisation rates and, for investment properties under development, an estimation of costs to complete the investment property. We have identified the valuation of the Group’s investment properties as a key audit matter because of the significance to the Group’s consolidated financial statements and level of significant judgements and assumptions applied to determine fair value. Our audit procedures to assess the valuation of investment properties included: • assessing the competence, capability, experience, independence and objectivity of external valuers appointed by management. • evaluating the valuation methodology applied. • testing the reliability and reasonableness of inputs to underlying contracts and supporting documentation. • testing the appropriateness of assumptions and estimates with reference to historical rates and results, available market data and other supporting documentation. • checking the mathematical accuracy of valuation calculations. • • for investment properties under development, evaluated management’s estimated costs to complete with reference to construction contracts, quantity surveyor reports and other supporting documentation. reviewing the Group’s disclosures with reference to Australian Accounting Standards. Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report of the current period. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Valuation of Unlisted Equities Note 2, 14 & 15 At 31 July 2017 the Group owned investments of $23.539 million in a number of unlisted equities which have been included in the Group’s consolidated statement of financial position. Management assess the value of these investments at least annually, using various valuation techniques, such as a recent arm’s length transaction, reference to other instruments that are of a similar nature and relying as little as possible on unobservable inputs. This is considered a key audit matter due to the significant judgment involved in assessing the valuation of these assets, as they are often traded in low volume markets. Our audit procedures to assess the valuation unlisted equities included: • assessing the valuation methodology applied by management. • • reviewing valuation inputs including evidence of recent arm’s length transactions and agreeing these transactions to external sources. reviewing the Group’s disclosures with reference to Australian Accounting Standards. 82 83 AUDITOR’S INDEPENDENCE DECLARATION As lead auditor for the audit of the consolidated financial report of Gowing Bros. Limited for the year ended 31 July 2017, I declare that, to the best of my knowledge and belief, there have been no contraventions of: (a)the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and(b)any applicable code of professional conduct in relation to the audit.This declaration is in relation to Gowing Bros. Limited and the entities it controlled during the year. Sydney, NSW S Grivas 28 September 2017 Partner INDEPENDENT AUDITOR’S REPORT To the Members of Gowing Bros. Limited REPORT ON THE AUDIT OF THE FINANCIAL REPORT Opinion We have audited the financial report of Gowing Bros. Limited (“the Company”) and its controlled entities (“the Group”), which comprises the consolidated statement of financial position as at 31 July 2017, the consolidated statement of profit or loss, the consolidated statement of other comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies, and the directors’ declaration. In our opinion, the accompanying financial report of the Group is in accordance with the Corporations Act 2001, including: (a)giving a true and fair view of the Group’s financial position as at 31 July 2017 and of its financialperformance for the year then ended; and(b)complying with Australian Accounting Standards and the Corporations Regulations 2001.Basis for Opinion We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report. We are independent of the Group in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (“the Code”) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key Audit Matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report of the current period. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. INDEPENDENT AUDITOR’S REPORT (CONTINUED) Key Audit Matter How our audit addressed the key audit matterValuation of subregional and neighbourhood shopping centre investment properties Note 17 The aggregate fair value of the Group’s subregional and neighbourhood shopping centre investment properties as at 31 July 2017 is $218.580 million, representing 68.2% of the Group’s total assets as at that date. The fair values of the Group’s investment properties were assessed either by management and /or assessed by management based on independent valuations prepared by an independent valuer. The valuation of the Group’s investment properties requires judgement and the use of subjective assumptions and estimates in determining fair value including selecting the appropriate valuation methodology, market rental rates, vacancy allowances and capitalisation rates and, for investment properties under development, an estimation of costs to complete the investment property. We have identified the valuation of the Group’s investment properties as a key audit matter because of the significance to the Group’s consolidated financial statements and level of significant judgements and assumptions applied to determine fair value. Our audit procedures to assess the valuation of investment properties included: •assessing the competence, capability,experience, independence and objectivity ofexternal valuers appointed by management.•evaluating the valuation methodologyapplied.•testing the reliability and reasonableness ofinputs to underlying contracts andsupporting documentation.•testing the appropriateness of assumptionsand estimates with reference to historicalrates and results, available market data andother supporting documentation.•checking the mathematical accuracy ofvaluation calculations.•for investment properties underdevelopment, evaluated management’sestimated costs to complete with referenceto construction contracts, quantity surveyorreports and other supportingdocumentation.•reviewing the Group’s disclosures withreference to Australian AccountingStandards.Valuation of Unlisted Equities Note 2, 14 & 15 At 31 July 2017 the Group owned investments of $23.539 million in a number of unlisted equities which have been included in the Group’s consolidated statement of financial position. Management assess the value of these investments at least annually, using various valuation techniques, such as a recent arm’s length transaction, reference to other instruments that are of a similar nature and relying as little as possible on unobservable inputs. This is considered a key audit matter due to the significant judgment involved in assessing the valuation of these assets, as they are often traded in low volume markets. Our audit procedures to assess the valuation unlisted equities included: •assessing the valuation methodologyapplied by management.•reviewing valuation inputs includingevidence of recent arm’s length transactionsand agreeing these transactions to externalsources.•reviewing the Group’s disclosures withreference to Australian AccountingStandards.149th ANNUAL REPORT 2017 I Year ended 31 July 2017149th ANNUAL REPORT 2017 I Year ended 31 July 2017INVESTING TOGETHER FOR A SECURE FUTUREGOWING BROS. LIMITED INDEPENDENT AUDITOR’S REPORT (CONTINUED) Key Audit Matter How our audit addressed the key audit matter Acquisition of Subsidiary Note 32 During the year, a subsidiary of the Group, Gowings SHI Pty Limited acquired 100% of SHI Holdings Pty Ltd and its controlled entities (the “acquisition”). The acquisition is accounted for on a provisional basis at 31 July 2017. Accounting for this acquisition is a complex and judgemental exercise, requiring management to determine the existence and fair value of acquired assets and liabilities, in particular determining the allocation of purchase consideration to goodwill and separately identifiable intangible assets such as brand names. The fair value of certain assets acquired on acquisition were assessed by management based on an independent valuation prepared by an external valuer. We have identified the acquisition as a key audit matter as the determination of the fair value of assets and liabilities on the date of acquisition is judgemental. Our audit procedures to assess the allocation of the acquisition purchase price and the acquisition accounting included: • • • • reading the sale and purchase agreement to understand key terms and conditions. reviewing management’s assessment of the identified assets and liabilities (including separately identifiable intangible assets) acquired including the fair value attributable to these assets and liabilities. reviewing the calculation of goodwill on acquisition. reviewing the Group’s disclosures with reference to Australian Accounting Standards. Our audit procedures in relation to the independent valuation used by management included: • assessing the competence, capability, experience, independence and objectivity of external valuer. • evaluating the valuation methodology applied. • testing the reliability and reasonableness of inputs and assumptions. • checking the mathematical accuracy of valuation calculations. Information Other than the Financial Report and Auditor’s Report Thereon The directors are responsible for the other information. The other information comprises the information included in the Group’s Directors report for the year ended 31 July 2017, but does not include the financial report and our auditor’s report thereon. Our opinion on the financial report does not cover the other information and accordingly we do not express any form of assurance conclusion thereon. In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. INDEPENDENT AUDITOR’S REPORT (CONTINUED) INDEPENDENT AUDITOR’S REPORT (CONTINUED) Responsibilities of the Directors for the Financial Report Responsibilities of the Directors for the Financial Report The directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for The directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance such internal control as the directors determine is necessary to enable the preparation of the financial with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. 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 ability of the Group to continue as a going concern, disclosing, as applicable, matters related to going concern and using the In preparing the financial report, the directors are responsible for assessing the ability of the Group to continue as a going concern, going concern basis of accounting unless the directors either intend to liquidate the Group or to cease disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either operations, or have no realistic alternative but to do so. intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so. Auditor’s Responsibilities for the Audit of the Financial Report 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, Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes assurance, but is not a guarantee that an audit conducted in accordance with Australian Auditing Standards will always detect a our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the conducted in accordance with Australian Auditing Standards will always detect a material misstatement aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this financial report. when it exists. Misstatements can arise from fraud or error and are considered material if, individually or As part of an audit in accordance with the Australian Auditing Standards, we exercise professional judgement and maintain professional in the aggregate, they could reasonably be expected to influence the economic decisions of users taken scepticism throughout the audit. We also: on the basis of this financial report. • As part of an audit in accordance with the Australian Auditing Standards, we exercise professional judgement and maintain professional scepticism throughout the audit. We also: • Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the Identify and assess the risks of material misstatement of the financial report, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Identify and assess the risks of material misstatement of the financial report, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control. that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related material misstatement resulting from fraud is higher than for one resulting from error, as fraud may disclosures made by the directors. involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal • Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and, based on the audit evidence control. obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s Obtain an understanding of internal control relevant to the audit in order to design audit procedures ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the auditor’s report to the related disclosures in the financial report or, if such disclosures are inadequate, to modify our opinion. Our effectiveness of the Group’s internal control. conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions Evaluate the appropriateness of accounting policies used and the reasonableness of accounting may cause the Group to cease to continue as a going concern. estimates and related disclosures made by the directors. • Evaluate the overall presentation, structure and content of the financial report, including the disclosures, and whether the Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events financial report represents the underlying transactions and events in a manner that achieves fair presentation. or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. • Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s Group to express an opinion on the financial report. We are responsible for the direction, supervision and performance of the report to the related disclosures in the financial report or, if such disclosures are inadequate, to Group audit. We remain solely responsible for our audit opinion. modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern. Evaluate the overall presentation, structure and content of the financial report, including the disclosures, and whether the financial report represents the underlying transactions and events in a manner that achieves fair presentation. Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the financial report. We are responsible for the direction, supervision and performance of the Group audit. We remain solely responsible for our audit opinion. • • • • • • 84 85 INDEPENDENT AUDITOR’S REPORT (CONTINUED) Key Audit Matter How our audit addressed the key audit matterAcquisition of Subsidiary Note 32 During the year, a subsidiary of the Group, Gowings SHI Pty Limited acquired 100% of SHI Holdings Pty Ltd and its controlled entities (the “acquisition”). The acquisition is accounted for on a provisional basis at 31 July 2017. Accounting for this acquisition is a complex and judgemental exercise, requiring management to determine the existence and fair value of acquired assets and liabilities, in particular determining the allocation of purchase consideration to goodwill and separately identifiable intangible assets such as brand names. The fair value of certain assets acquired on acquisition were assessed by management based on an independent valuation prepared by an external valuer. We have identified the acquisition as a key audit matter as the determination of the fair value of assets and liabilities on the date of acquisition is judgemental. Our audit procedures to assess the allocation of the acquisition purchase price and the acquisition accounting included: •reading the sale and purchase agreementto understand key terms and conditions.•reviewing management’s assessment of theidentified assets and liabilities (includingseparately identifiable intangible assets)acquired including the fair value attributableto these assets and liabilities.•reviewing the calculation of goodwill onacquisition.•reviewing the Group’s disclosures withreference to Australian AccountingStandards.Our audit procedures in relation to the independent valuation used by management included: •assessing the competence, capability,experience, independence and objectivity ofexternal valuer.•evaluating the valuation methodologyapplied.•testing the reliability and reasonableness ofinputs and assumptions.•checking the mathematical accuracy ofvaluation calculations.Information Other than the Financial Report and Auditor’s Report Thereon The directors are responsible for the other information. The other information comprises the information included in the Group’s Directors report for the year ended 31 July 2017, but does not include the financial report and our auditor’s report thereon. Our opinion on the financial report does not cover the other information and accordingly we do not express any form of assurance conclusion thereon. In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. 149th ANNUAL REPORT 2017 I Year ended 31 July 2017149th ANNUAL REPORT 2017 I Year ended 31 July 2017INVESTING TOGETHER FOR A SECURE FUTUREGOWING BROS. LIMITEDINDEPENDENT AUDITOR’S REPORT (CONTINUED) We communicate with the directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide the directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with the directors, we determine those matters that were of most significance in the audit of the financial report of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. REPORT ON THE REMUNERATION REPORT Opinion on the Remuneration Report We have audited the Remuneration Report included in pages 38 to 40 of the directors’ report for the year ended 31 July 2017. In our opinion, the Remuneration Report of Gowing Bros. Limited for the year ended 31 July 2017 complies with section 300A of the Corporations Act 2001. Responsibilities The directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. HLB Mann Judd Chartered Accountants Sydney, NSW 28 September 2017 S Grivas Partner 86 Issues to Shareholders Since 19 September 1985 Date 31/10/1985 30/04/1986 31/10/1986 16/03/1987 30/04/1987 30/04/1988 31/10/1988 30/04/1989 30/04/1989 16/11/1989 31/10/1990 31/10/1991 30/04/1992 31/10/1992 29/10/1993 29/04/1994 28/04/1995 28/04/1995 03/10/1995 31/10/1995 31/10/1995 26/04/1996 26/04/1996 30/10/1996 30/10/1996 25/04/1997 25/04/1997 15/05/1997 31/10/1997 31/10/1997 30/04/1998 30/04/1998 03/11/1998 03/11/1998 28/04/1999 28/04/1999 18/11/1999 18/11/1999 28/04/2000 28/04/2000 27/10/2000 27/04/2001 19/10/2001 18/12/2001 22/04/2002 25/10/2002 18/12/2002 24/04/2003 24/10/2003 24/10/2003 23/04/2004 23/04/2004 25/10/2004 22/04/2005 22/04/2005 17/07/2009 05/11/2010 17/12/2010 05/11/2015 Particulars Bonus issue in lieu Bonus issue in lieu Bonus issue in lieu 1 for 2 Bonus issue Bonus issue in lieu Dividend Re-investment Dividend Re-investment Dividend Re-investment Special Scrip dividend Dividend Re-investment 1 for 10 Bonus issue 1 for 20 Bonus issue Dividend Re-investment Dividend Re-investment Dividend Re-investment Dividend Re-investment Dividend Re-investment Bonus in Lieu Share Plan 1 for 10 Bonus issue Dividend Re-investment Bonus in Lieu Share Plan Dividend Re-investment Bonus in Lieu Share Plan Dividend Re-investment Bonus in Lieu Share Plan Dividend Re-investment Bonus in Lieu Share Plan 2 for 1 Share Split Dividend Re-investment Bonus in Lieu Share Plan Dividend Re-investment Bonus in Lieu Share Plan Dividend Re-investment Bonus in Lieu Share Plan Dividend Re-investment Bonus in Lieu Share Plan Dividend Re-investment Bonus in Lieu Share Plan Dividend Re-investment Bonus in Lieu Share Plan Dividend Re-investment Dividend Re-investment Dividend Re-investment In Specie Distribution Dividend Re-investment Dividend Re-investment Dividend Re-investment Dividend Re-investment Dividend Re-investment Bonus in Lieu Share Plan Dividend Re-investment Bonus in Lieu Share Plan Dividend Re-investment Dividend Re-investment Bonus in Lieu Share Plan Dividend Re-investment Dividend Re-investment 1 for 8 Rights issue 1 for 10 Bonus issue Issued From Asset Revaluation reserve Asset Revaluation reserve Asset Revaluation reserve Asset Revaluation reserve Asset Revaluation reserve Accumulated profits Accumulated profits Accumulated profits Accumulated profits Accumulated profits Share Premium – Special Dividend Reserve Share Premium Reserve Accumulated profits Accumulated profits Accumulated profits Accumulated profits Accumulated profits Share Premium Reserve Share Premium Reserve Accumulated profits Share Premium Reserve Accumulated profits Share Premium Reserve Accumulated profits Share Premium Reserve Accumulated profits Share Premium Reserve Accumulated profits Share Premium Reserve Accumulated profits Share Premium Reserve Accumulated profits Accumulated profits Accumulated profits Accumulated profits Accumulated profits Accumulated profits Accumulated profits G Retail Ltd shares issued on listing Accumulated profits Accumulated profits Accumulated profits Accumulated profits Accumulated profits Accumulated profits Accumulated profits Accumulated profits Accumulated profits Accumulated profits Share capital Share capital Issue Price $ 2.50 3.70 3.75 4.35 3.75 3.80 3.60 3.50 2.60 3.00 2.90 3.10 4.50 2.60 2.35 2.10 1.90 1.95 1.95 1.80 2.36 1.95 1.90 1.80 1.95 1.90 2.40 2.40 2.55 2.70 2.87 2.42 2.20 87 INDEPENDENT AUDITOR’S REPORT (CONTINUED) We communicate with the directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide the directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with the directors, we determine those matters that were of most significance in the audit of the financial report of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. REPORT ON THE REMUNERATION REPORT Opinion on the Remuneration Report We have audited the Remuneration Report included in pages 20 to 23 the directors’ report for the year ended 31 July 2017. In our opinion, the Remuneration Report of Gowing Bros. Limited for the year ended 31 July 2017 complies with section 300A of the Corporations Act 2001. Responsibilities The directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. HLB Mann Judd S Grivas Chartered Accountants Partner Sydney, NSW 28 September 2017 INDEPENDENT AUDITOR’S REPORT (CONTINUED) We communicate with the directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide the directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with the directors, we determine those matters that were of most significance in the audit of the financial report of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. REPORT ON THE REMUNERATION REPORT Opinion on the Remuneration Report We have audited the Remuneration Report included in pages 20 to 23 the directors’ report for the year ended 31 July 2017. In our opinion, the Remuneration Report of Gowing Bros. Limited for the year ended 31 July 2017 complies with section 300A of the Corporations Act 2001. Responsibilities The directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. HLB Mann Judd S Grivas Chartered Accountants Partner Sydney, NSW 28 September 2017 149th ANNUAL REPORT 2017 I Year ended 31 July 2017149th ANNUAL REPORT 2017 I Year ended 31 July 2017INVESTING TOGETHER FOR A SECURE FUTUREGOWING BROS. LIMITED  “Investing Together for a Secure Future” - John Gowing - E S T 1 8 6 8 G O W I N G B R O S . L T D 

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