Gowing Bros. Limited
Annual Report 2018

Plain-text annual report

. t n e g d e d r a e b e h t s i s i l l E n h o J d n a ) t e k c a j g n i r a e w ( t r e b o R n o t s e r P ; b r e k n o e o t h t i w ft e l , i g n w o G c a M s e l r a h C . 8 7 8 1 , e r o t s s g n w o G i Gowing Bros 150th Annual Report 31 July 2018 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) Associate Directors Mr. James Gowing Mr. Ellis Gowing Secretary Ms. Belinda Flatters Stock Exchange Listing The Australian Securities Exchange Ticker Code: GOW Registered Office Share Registry Office Auditors ABN ACN 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 Computershare Investor Services Pty Limited Level 4, 60 Carrington Street Sydney NSW 2000 Phone: 1300 855 080 Fax: 61 2 8234 5050 HLB Mann Judd (NSW Partnership) Level 19, 207 Kent Street Sydney NSW 2000 Phone: 61 2 9020 4000 68 000 010 471 000 010 471 "We are now firmly focussed on building our wealth management business. We have successfully delivered on our strategy plan to-date & we expect to continue doing so." John Gowing Iconic Gowings Ads Campaigns Through Time History and Innovation 1868 - 2018 About Gowings Our North Coast Commitment:'Steady, Constant Growth' Managing Director’s Review of Operations The Board of Directors Directors’ Report Remuneration Report ASX Listing Requirements Financial Report 2 4 6 8 10 28 32 36 39 40 2 1 150th ANNUAL REPORT 2018 I Year ended 31 July 2018150th ANNUAL REPORT 2018 I Year ended 31 July 2018INVESTING TOGETHER FOR A SECURE FUTUREGOWING BROS. LIMITED Iconic Gowings Ads Campaigns Through Time 'Gone to Gowings' 1946 - 1968 'The boys go to Gowings' 1990 - 2001 The slogan 'Gone to Gowings' has gone on to become part of the Australian vernacular, even earning a place in the Macquarie dictionary as meaning : Down on your luck, lost at the races... The Gowings' cartoons quickly gained recognition and 'Gone to Gowings' was seen scrawled on wrecked jeeps and tanks during World War II. The ads ran over many years in the local papers. Local artists were commissioned to create images for the 'Gone to Gowings' cartoons. The 'boys go to Gowings' campaign which started in May 1990 was developed by McSpeddan Carey to capitalise on the success of the earlier 'Gone to Gowings' campaign. Featuring Australian native birds and iconic Australian brands, this campaign put Gowings back on the Sydney shoppers map. Largely as a result of the 'boys go to Gowings' advertisements placed in the Sydney Morning Herald, the Market & George Street store sales increased by 35% from $8.8 million to $12 million per year. A mighty achievement. The campaign won the Caxton Newspaper Campaign of the Year award and was placed on permanent display at the Powerhouse Museum in Sydney. Innovators Evolution 1950s - 1990s 'Gone to Gowings' transforms to 'Go to Gowings' 2 3 150th ANNUAL REPORT 2018 I Year ended 31 July 2018150th ANNUAL REPORT 2018 I Year ended 31 July 2018INVESTING TOGETHER FOR A SECURE FUTUREGOWING BROS. LIMITED History and Innovation 1868 - 2018 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 ‘Boys Go To Gowings’ Campaign Market st store refurbished. Gowings Whale trust established Gowings establishes Pacific Coast Shopping Centres 1974 1991 2000 2010 1868 John Ellis Gowing opens first Gowings Store 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 Gowings sell the Market St Building Gowings Launches Coastbeat 2018 1998 2006 2017 1899-1902 1914-18 1940 1950-53 1987 1995 1999 2008-11 2017 Gowings Establishes 1868 Capital 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 Gowings Whale Trust partners with Sea Shepherd 1892 1908 1929 1941 1959-73 1968 1992 1996 2003 2016 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 Gowings acquires Surf Hardware International 4 5 150th ANNUAL REPORT 2018 I Year ended 31 July 2018150th ANNUAL REPORT 2018 I Year ended 31 July 2018INVESTING TOGETHER FOR A SECURE FUTUREGOWING BROS. LIMITEDAbout Gowings Net Assets £92,781 1928 $3.4M 1972 $216M 2018 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 2018 Gowings completed its 150th year of operations. 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. 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. Investments are made across different asset classes to take advantage of changing economic cycles. At Gowings, the Board of Directors 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 can be accessed from the Company’s website www.gowings.com or on the ASX’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. Endless Possibilities Our People Matter We’re Australian Environmentally Aware Quality & Value Our Values Community Customer First Working & Investing Together Integrity Commonsense Pioneers Everyone’s Business 6 7 150th ANNUAL REPORT 2018 I Year ended 31 July 2018150th ANNUAL REPORT 2018 I Year ended 31 July 2018INVESTING TOGETHER FOR A SECURE FUTUREGOWING BROS. LIMITED Our North Coast Commitment: 'Steady, Constant Growth' 1 2 3 4 5 3 1 Moonee Market 2 Moonee Market Moonee Vacant Land Coffs Central 4 5 Harbour Drive Solitary 30 Sawtell Commons 6 Kempsey Central 7 Port Central 6 7 Gowings has made a considerable investment in the North Coast of NSW. The area has, on an ongoing basis, been a significant beneficiary of substantial infrastructure investment by Local, State and Federal Governments. Many billions of dollars have already been invested in upgrading the Pacific Highway, the airports at Coffs Harbour and Port Macquarie, local hospitals, TAFEs and Universities, and of course connection to the NBN. Further infrastructure investments have been earmarked, including the $1.2 billion Coffs Harbour Bypass and a $156 million upgrade of Coffs Harbour Hospital. Gowings strategy is to invest alongside these infrastructure upgrades and benefit from the resultant 'steady, consistent growth' of the region. The North Coast Regional Plan 2036 is the State Government's blueprint for the development of the North Coast over the next two decades. As a result of the infrastructure spending and natural growth, it envisages a population increase of 76,200 and more than 46,000 new homes being built. Gowings' investments on the North Coast are summarised below: In Port Macquarie we have Port Central shopping centre and have lodged a development application for $15.2 million additional retail on the adjacent vacant site. We continue to be in discussion with Woolworths about opportunities for this site. In Coffs Harbour we have Coffs Central shopping centre where the $35 million development has recently been finalised. We have also lodged a development application for the 222 lot Sawtell Commons housing subdivision and are investigating mixed-use opportunities for the Solitary 30 site on Harbour Drive. In Kempsey, we have Kempsey Central shopping centre where- in conjunction with Kempsey Council and Federal Government-we are investing $7 million to build a new cinema complex on the roof of our shopping centre. In Moonee Beach, we have Moonee Market shopping centre which has recently had a multi-million dollar upgrade, and we are investigating mixed-use opportunities for the 9,000m² site that sits adjacent to the shopping centre. Gowings media initiative ‘Coastbeat’ supports our investments on the North Coast and showcases the best of local life, economy and events through print and digital media platforms. Population Growth * 2016-2036 76,200 +46,000 more homes required Tourism Impact 2016 $3.7b Regional Economy 12.2m Tourist Visits 3RD Most popular Australian tourist destination by overnight stays Regional Airport Passengers 2006-2016 250% Increase 1,064,100(2016) 304,008(2006) New Dwelling Construction 2016-2036 $11b Projected Gross Regional Product Contribution Pacific Hwy Freight Transport 2011-2031 83% Increase Coastbeat * Source: North Coast Regional Plan 2036, published in 2017 by NSW Government Planning & Environment This map of the Mid North Coast was commissioned by Gowings and illustrated by Peita Blythe in 2017 8 9 150th ANNUAL REPORT 2018 I Year ended 31 July 2018150th ANNUAL REPORT 2018 I Year ended 31 July 2018INVESTING TOGETHER FOR A SECURE FUTUREGOWING BROS. LIMITEDManaging Director’s Review of Operations Gowing Bros is now in its 150th year. This is a milestone for the company, and I feel privileged to be only the fourth managing director of our small but vibrant company. This year we have made several significant advances, yet there is still lots of work ahead of us to take full advantage of all our opportunities. Key Developments During the half we refinanced all our individual property loans with the Commonwealth Bank. We negotiated a new 5-year facility with 70% of the $86 million underlying loan hedged at a fixed rate. The facility also provides us with a $30 million rotating working capital facility. This working capital facility will allow us to undertake the proposed development works at Sawtell Commons and Harbour Drive Solitary 30 sites. Another key aspect of the new facility is that it allows us to move all our shopping centres into individual trusts and out of the existing company ownership structure. This will provide more flexibility in the future, in the event of introducing capital partners or undertaking corporate reorganisations, to potentially streamline shopping centre cash flow to shareholders. During the half, Gowings was granted a wholesale Australian Financial Services License. This License will allow Gowings to leverage our proven track record of managing investments without diluting existing investors. Neil Rogan was appointed during the half to lead this exciting new initiative. We are considering establishing several new wholesale funds, focusing in fields in which we believe we have an established advantage or an opportunity. The Pacific Coast Shopping Centres At Coffs Harbour the re-development of Coffs Central is nearing completion, Kmart has opened and is trading strongly. BCU has taken a lease over three quarters of the newly built commercial office space for its new head office, and half of the new ground floor retail space. We welcome them to Coffs Central. We are working on leasing up the balance of the new retail space with the optimal mix of new retailers. This leasing campaign which will take 18 to 24 months, should generate an additional $1.4 - $1.6 million in speciality annual retail income. At Moonee Beach the leasing campaign started 2 years ago is drawing to a close with the centre almost fully leased. Moonee is likely to be a major beneficiary of the planned Coffs Harbour bypass as it’s the only shopping centre adjacent to the proposed new highway between Sydney and Brisbane. At Kempsey, a builder (O’Donnell and Hanlon) has been contracted to build a new four screen Cinema on top of our shopping centre. This development is being supported by Gowings, Kempsey Shire Council, the Federal Government and Majestic Cinemas. On expected completion in September 2019, the cinema should provide a much-needed entertainment and cultural hub for Kempsey residents and the many tourists to the Macleay Valley and beaches. At Port Macquarie we have lodged a DA to build new shops and 150 carparks on the block of land adjoining our shopping centre. This is to satisfy one of the pre-conditions for exercising our option with Port Macquarie Council over that land. During the half, Target exercised its option to remain in the centre for a further 5 years. We continue to have constructive discussions with Woolworths about joining us in the centre. Sawtell Commons A significant amount of work has gone into progressing the planning approvals for our approved residential subdivision adjacent to Lyons Rd Sawtell, “Sawtell Commons”. We are hopeful of receiving a construction certificate for the first 8 blocks in the next few weeks. This will allow us to start building display homes to showcase the proposed 220-lot subdivision. Sawtell Commons, is the last greenfield site available for residential blocks east of the Pacific Highway on the southern side of Coffs Harbour. We are planning to start pre-sales for Sawtell Commons in the near future and have already received over 30 expressions of interest from potential buyers. Revenue from these sales, once civil works are complete, and the contracts are finalised, should provide a strong boost to underlying profit over the next 3 years. This is of course subject to regulatory risk and continuing favourable market conditions. Our investments in the Coffs Harbour region should all be beneficiaries of the $1.2 billion Coffs harbour bypass project and the $156 million upgrade of Coffs Harbour Hospital. Overview of Current Year Financial Performance and Outlook The results for the year were impacted by the development works at Coffs Central, as existing retailers were given rental abatements to compensate them for the disruption during the construction process and capital that had previously being earning income by way of interest and dividends was deployed into: the Coffs redevelopment; Lyons Rd, “Sawtell Commons”; the Harbour Drive mixed- use development site and Surf Hardware International. A material improvement in recurring earning is expected over the coming few years as these investments begin to generate positive income. Final Dividend The board has declared a fully franked final dividend of 6 cents per share. We are reintroducing the DRP to help preserve capital. There is more detail on the above and our other investments in the accompanying commentary. J. E. Gowing Director Sydney Key Highlights Profit after tax for the Year $5.5m $23.2 million in 2017 Final Fully Franked Dividends 6.0¢ 6.0 cents in 2017 Total Shareholder Return +4.7% Net asset increase per share plus dividends Total Net Assets $216.0m $214.0 million in 2017 10 11 1868150th ANNUAL REPORT 2018 I Year ended 31 July 2018150th ANNUAL REPORT 2018 I Year ended 31 July 2018INVESTING 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 2018. Financial Review Net Assets per Share $4.50 $4.00 $3.50 $3.32 $3.00 $2.50 $4.02 $3.77 Dividends per Share DPS Total Dividend $4.43 $4.52 12.5c 12.0c 12.0 12.0 12.0 $6.4m 12.0 $6.4m 12.0 $6.4m 11.5c $5.8m $5.8m 11.0c 10.5c 10.0c $7.000.000 $6.500.000 $6.000.000 $5.500.000 $5.000.000 $4.500.000 2014 2015 2016 2017 2018 2014 2015 2016 2017 2018 Net assets per share before tax on unrealised gains on equity, investment property, and freehold property increased 2.0% to $4.52 as at 31 July 2018 after the payment of 12c in dividends. Total Shareholder Return was 4.7% including the growth in net assets per share plus dividends paid to Shareholders. Net assets per share have grown steadiy over the past 5 years driven by the continued growth in our Pacific Coast Shopping Centre portfolio as well as solid returns achieved in the Equity portfolio. The Company paid a total of 12c in fully franked dividends for the 2018 year. The directors have reinstated the dividend reinvestment plan for the final declared dividend to be paid on 13 November 2018. The Company has maintained a prudent approach to dividends given the capital requirements of the Company having various development and investment opportunities currently under consideration. Net Profit After Tax ($million) 30 25 20 15 10 5 0 $22.0 $23.2 $19.1 $14.1 $5.5 2014 2015 2016 2017 2018 Key Metrics For the year ended 31 July 2018 31 July 2017 31 July 2016 31 July 2015 31 July 2014 Net Assets Net Assets per Share² -  Before tax on unrealised gains¹ -  After tax on unrealised gains¹ Net profit after tax Earnings per Share Dividends per Share Total Shareholder Return $216.0m $214.0m $198.6m $186.8m $170.2m $4.52 $4.03 $5.5m 10.15c 12.0c 4.7% $4.43 $3.99 $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% ¹Unrealised gains on equity, investment property and freehold property. ²Net assets per share as at 31 July 2015 and 31 July 2014 have been restated for comparative purposes to reflect the 1 for 10 bonuss issue during the 31 July 2016 financial year. Dividends per share have not been adjusted. Net Profit After Tax for the year ended 31 July 2018 includes underlying income from ordinary activities such as rent, interest and dividends. This year’s profit was impacted by, the rental abatements provided to retailers during the Coffs Central development, capital that had previously being earning income by way of interest and dividends was deployed into capital works, and the uplift in the current year due to revaluation of the Pacific Coast Shopping Centre Portfolio which was substantially lower than the revaluation uplift in the prior year. Shareholder Returns 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 $1,515,924 in 2018. 12 13 150th ANNUAL REPORT 2018 I Year ended 31 July 2018150th ANNUAL REPORT 2018 I Year ended 31 July 2018INVESTING TOGETHER FOR A SECURE FUTUREGOWING BROS. LIMITED                  A Strong Investment Over Time E S T 1 8 6 8 GOWING BROS.LTD “Investing Together for a Secure Future” - John Gowing - 14 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 2017, to 30 June 2018. Five, Ten, Twenty, Thirty and Forty-year returns are per annum returns to 30 June 2018. 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. 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%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 refurbished9900010203040506070809101112131415161718989900010203040506070809101112131415161718Copyright © 2018 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 isaccepted for inaccuracies. Past performance does not guarantee future returns.15%10%5%0%INFLATION RATE9US$1.25US$1.00US$0.75US$0.50USD/AUD EXCHANGE RATE20%15%10%5%0%INTEREST RATE8HOWARDRUDDGILLARDABBOTTTURNBULL$1,515,92412.7% p.a.$1,466,41512.6% p.a.$1,115,54511.9% p.a.$764,92110.9% p.a.$361,8008.9% p.a.$275,4628.2% p.a.$63,8364.5% 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 24,960,000Life expectancy at birth males 80.4 yrsfemales 84.5 yrsINVESTMENTRETURNS15 YEARS10 YEARS20 YEARS30 YEARS40 YEARSGOWINGBROS212.0%7.1%8.9%8.3%12.6%AUSTRALIANSHARES310.3%6.2%8.8%9.1%12.3%INT.SHARES414.9%9.2%4.2%7.4%10.9%USSHARES518.7%13.1%5.5%10.6%13.1%AUST.BONDS64.4%6.1%5.8%8.0%8.6%CASH72.2%3.3%4.5%6.1%8.1%CPI1.9%2.1%2.6%2.8%4.2%Investment returns assume reinvestment of all dividends and entitlements. All figures are Australian dollars.INVESTMENT OVER TIMEA STRONG150th ANNUAL REPORT 2018 I Year ended 31 July 2018150th ANNUAL REPORT 2018 I Year ended 31 July 2018INVESTING 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 31 July 2018 $’000 31 July 2017 $’000 Strategic Equity Investments Surf Hardware International (at cost) Boundary Bend Limited Carlton Investments Hydration Pharmaceuticals Murray Darling Food Company DiCE Molecules Event Hospitality Group BBBSA Finance TPI Enterprises Limited Hexima Blackfynn EFTsure Power Pollen Accelerated Ag Technologies Other listed investments Total Private Equity Funds Five V Capital OurCrowd Australia Our Innovation Fund Macquarie Wholesale Co Investment Fund Other Private Equity Funds Total Pacific Coast Shopping Centre Portfolio Sub-regional shopping centres Neighbourhood shopping centres Borrowings Total Other Direct Properties Sawtell Commons - residential subdivision Harbour Drive Solitary 30 Site Other properties Borrowings Total Cash and Other Cash Investment lending facility Tax liabilities Surf Hardware International consolidation impact¹ Fair value impact of Sawtell Commons – residential subdivision2 Other assets & liabilities Total Net assets before tax on unrealised gains on equities and investment properties Provision for tax on unrealised gains on equities, investment and direct properties Net assets after tax on unrealised gains on equities and investment properties 16,000 14,834 5,648 2,665 2,319 2,237 1,654 1,400 1,363 749 403 333 260 4,318 54,183 1,242 1,141 750 - 316 3,449 199,861 48,800 (89,745) 158,916 11,500 3,200 16,850 (1,600) 29,950 4,065 - (6,200) (991) (2,118) 1,410 (3,834) 242,664 (26,699) 215,965 16,000 13,961 5,521 2,003 2,045 1,230 1,578 - 2,801 749 - 250 - 3,831 49,969 300 1,092 750 884 275 3,301 173,280 45,300 (56,023) 162,557 9,044 3,190 16,366 (1,675) 26,925 4,435 3,000 (7,067) (1,581) - (3,621) (4,834) 237,918 (23,942) 213,976 ¹ Difference between the investment in Surf Hardware International (at cost) and net assets attributable to the group on consolidation. ² Fair value of property is based on directors’ valuation, however the property is recorded at cost in the statement of financial position as required by Australian Accounting Standards. Commentry The Company’s focus is to preserve and grow the value of its underlying financial and real assets and for Net Income from Ordinary Activities to be the principle source of income to pay ordinary dividends. Total Net Income from Ordinary Activities of $10.2 million was 12% lower than the prior corresponding period and relates mainly to the reduction in investment property income due to abatements provided during construction and redevelopment of the centres. There was also a reduction in interest and dividend income earned due to lower cash and share portfolio balances. Total Head Office Expenses of $3.7 million were 9% lower than the prior corresponding period and were largely due to a reduction in employee expenses and travel costs. Investment properties – unrealised gains of $5.6 million for the current year was substantially lower than the prior year of $23.3 million. The current year increase related to the revaluation of the Coffs Central shopping centre during the year after the successful redevelopment of the centre and a better than expected start to trading for the new full line Kmart store. Equity – unrealised impairment of $1.5 million relates to the write down of the investment in TPI Enterprises Limited. SHI – consolidation acquisition cost of sales adjustment – GBL acquired Surf Hardware International on 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, $0.5 million has been recorded as cost of sales as at 31 July 2018 compared to the $2.6 million in the prior year. The uplift amount has now been totally released through cost of sales and will not appear in future periods. Borrowings Break Costs of $1.8 million were incurred with the consolidation of the groups financing facilities into a single $116 million facility on the 18 July 2018 and relate to costs incurred in order to exit the previous interest rate swap and financing facilities. Other Consulting Costs of $0.4 million mainly due to consulting costs associated with the sales campaign for Port Central at the start of the financial year. Profit After Tax was $5.5 million, compared to $23.2m on the prior corresponding period. 16 17 For the year ended31 July 2018 $’00031 July 2017 $’000Net Income from Ordinary ActivitiesInterest income219672Investment properties8,1198,810Equities6181,173Managed Private Equities449173Surf Hardware International821802Total Net Income from Ordinary Activities10,22611,630Head Office Expenses Administration, public company and other3,6864,038Operational Profit6,5407,592Gains / (losses) on sale or revaluationInvestment properties – unrealised gains5,60023,302Investment properties – realised gains(11)-Equity – realised gains-5,696Equity – unrealised impairment(1,546)(518)Managed private equity(148)(318)Derivatives(418)367SHI Subsidiary AcquisitionAcquisition Costs(55)(473)SHI - Consolidation acquisition cost of sales adjustment(512)(2,578)OtherConsulting Costs(438)(120)Borrowings Break Costs(1,790)-Other Costs(72)-Other Income28(26)Profit Before Tax7,17832,924Income tax expense (1,725)(9,684)Profit After Tax5,45323,240150th ANNUAL REPORT 2018 I Year ended 31 July 2018150th ANNUAL REPORT 2018 I Year ended 31 July 2018INVESTING TOGETHER FOR A SECURE FUTUREGOWING BROS. LIMITEDManaging Director’s Review of Operations Pacific Coast Shopping Centre Portfolio Coffs Central Port Central During the period, Gowings neared completion on the $35 million development of Coffs Central which included the extension of the centre to the adjoining site on the corners of Harbour Drive, Gordon and Vernon Streets. The new extension includes one floor of underground parking, ground and first floor retail, second floor parking and third and fourth floor commercial office space. 75% of the new commercial office space has been leased to BCU as an anchor tenant, which also has 50% of the new ground floor retail space. The building extension also included a reconfiguration of the first floor for a new full line Kmart which commenced trading in March and an additional 20 specialty stores. Provision has been made on the new building to allow for an additional DA-approved hotel with 5 floors of rooms and rooftop dining. We continue to evaluate the economics of this development which would be a great addition for Coffs Harbour. Moonee Market Kempsey Central The multi-million dollar upgrade of Moonee Marketplace continued during the period, including an all-weather roof, establishing a food court area, installing new flooring throughout and upgrading the amenities. The upgrade has meant that Gowings has successfully attracted new tenants and the centre is now effectively leased. New centre retailers include Russell’s Prime Meats, Moonee Dental and Facial, La La Land indoor play centre, Kinetic Martial Arts, Sugarmill cafe, Lighthouse Health and Education and Moon Dragon restaurant. Improved centre occupancy has resulted in positive cashflow with an associated significant appreciation in the underlying value of the centre. The newly funded Coffs Harbour bypass means that Moonee Marketplace is well placed to capture increased trade as it will be the first shopping stop available to people travelling North, after bypassing Coffs Harbour. Gowings is also exploring development opportunities for the adjoining vacant lot of 9,000sqm including retirement living, service station and mixed-use options. Port Central continues to be a core asset that performs solidly within the Pacific Coast Shopping Centre portfolio. With the Port Macquarie Hastings region expected to grow 26% by 2036, the centre is well placed and tenanted to capitalise on this forecasted economic growth. During the period Gowings lodged a DA for a building on the adjoining block of land, currently owned by Port Macquarie Hastings Council. Gowings has a conditional purchase option over this land. One of the conditions is to submit and have a DA for a new building with 150 additional car parks approved. This DA will be considered by council and referred to the Joint Regional Planning Authority. We continue to hold constructive discussions with Woolworths about joining us at Port Central. Work has now commenced on the new cinema complex on top of Kempsey Central. The cinema project is an arrangement between Gowings, Kempsey Council and the Federal Government with Majestic Cinemas being appointed as the cinema operator. The cinema will be completed in the final quarter of 2019. The centre will continue to operate during the construction phase with as little as possible disruption to our retailers. The cinema will drive increased foot traffic and sales by attracting the local and tourist population into the centre. 18 19 150th ANNUAL REPORT 2018 I Year ended 31 July 2018150th ANNUAL REPORT 2018 I Year ended 31 July 2018INVESTING TOGETHER FOR A SECURE FUTUREGOWING BROS. LIMITEDManaging Director’s Review of Operations Strategic Equity Investments Surf Hardware International ($16 million) We experienced another strong result from our European region in FY18 who continued their recent growth trajectory. Our Japanese business also grew their sales during the period and we successfully re-organised our USA business, hiring two new senior management staff, along with new sales representatives in the all-important Hawaiian and Californian territories. Following on from these changes, the USA business performed well in the last quarter of the year and is now well positioned to grow in FY19. The Australasian business saw improved results in the back half of the year and manufacturing sales to Asia were up on the prior year. FY18 saw the launch of the FCS Freedom Leash, a new product innovation which drove considerable growth in this important category and created momentum around the FCS brand. Looking ahead to FY19, an extension of the product line and additional manufacturing capacity should support further growth in the FCS leash category. Our Softech Softboard business also experienced strong growth in FY18 and the brand continues to grow supported by new products, the addition of key brand ambassadors and a shift toward soft surfboards for the beginner and intermediate surf markets. The advent of wave pools and an increasing number of surf schools targeting the growing number of consumers wanting to try surfing for the first time should support further growth in all our businesses. SHI’s portfolio expanded during the period following the acquisition of the Kanulock brand, a market leader in the premium lockable roof rack tie-down category. This acquisition is part of a broader strategy to expand the business beyond the current surf specialty channel and into the fast growing Outdoor & Adventure markets. Opportunities for future growth exist via international expansion, extension of existing product lines and further channel development. In FY19 we are planning growth across all regions with a specific focus on the USA and Australia. Key focus areas will include leveraging our new product initiatives, including the new FCS board bag, bag & packs and travel accessory categories, continuing the growth in our softboard business and managing the successful integration of the Kanulock brand into the SHI business. At 2018 year end we had upgraded our online direct-to-consumer websites to the Shopify platform. This should enhance the online customer experience and allow SHI to build meaningful online sales globally. Michael Heath, General Manger of SHI TPI Enterprises Limited ($1.4 million) Murray Darling Food Company ($2.3 million) remaining one to Packwood. This will mean that even in the dry conditions substantial amounts of fodder will still be able to be produced on the land. Also, during the second half a number of the older commercial ewes were culled to reduce the overall flock size to reduce running costs. At 30 June 2018 MDFC was running 3,290 commercial ewes, with 2,084 stud ewes, and 673 stud rams. Even given the difficult conditions in the second half of the year MDFC was still able to record a profit, a considerable effort considering the drought. The price for lamb has remained relatively strong due to the low levels of supply but this has been offset by the cost required to breed the lamb. The board of MDFC believes that the installation of the new irrigation pivots will see the company through this difficult period, allowing it to maintain stock levels to capitalise on when conditions improve and the industry returns to normal conditions. TPI Enterprises Limited uses poppy straws to manufacture narcotic raw materials (NRM) used to create drugs such as morphine, thebaine, oripavine, and codeine. TPI converts the raw material into Active Pharmaceutical Ingredients which are then processed into Finished Dosage Formula (tablets) via its recently acquired Norwegian facility. Additionally, TPI sells poppy seed for culinary purposes. TPI’s stock performance has been poor over the last half following an earnings downgrade due to limited imported Poppy Straw supply in 2H 2017, unfavourable foreign exchange rates and softer than expected sales into the UK. However, 2018 is looking to be a favourable year as TPI expects to generate $50 million in revenue and come closer to breakeven. The Norwegian acquisition of Vistin was an important strategic step for TPI as it has allowed for vertical integration through the supply chain and the immediate ability to add value to the narcotic raw material produced in Australia into a final tablet form in Norway. By expanding down the supply chain TPI has potential to significantly increase margin and broaden its customer universe from a small number of raw material customers to a wide range of end use customers. During the period Peter Robinson stepped down as chairman being replaced by Simon Moore, ex-managing director and global partner at The Carlyle Group. FY18 saw Murray Darling Food Company (MDFC) enter its first full year of operations. The year started strongly with the purchase of “Packwood” an 840-acre property in Condobolin NSW. This property complements the existing Burrawang West Station “BWS” (Ootha NSW) and Bombah (Tottenham NSW) properties. Overall MDFC now has 18,268 acres of farmland over its three properties. Packwood is a strategic acquisition as not only does it provide the ability to carry more stock, but it also comes with water licences, access to a good supply of artesian water and also a prime Lucerne growing paddock on the river. During the first part of the year the team at MDFC were busy clearing remnant vegetation land and fencing to create new grazing paddocks on BWS and Bombah. This development activity helped add $1.0 million to the carrying value of the land which was supported by external valuations. From a trading perspective the October ram sale was another success setting industry benchmark prices. However, in the second half of the year, like all central NSW farmers, MDFC was impacted by the tough drought conditions. MDFC had to resort to purchasing fodder from external sources which had not been planned at the start of the year. To combat the dry conditions the board of MDFC approved the significant investment into 4 new centre pivot irrigation systems which were installed in July 2018, three deployed to BWS and the 20 21 150th ANNUAL REPORT 2018 I Year ended 31 July 2018150th ANNUAL REPORT 2018 I Year ended 31 July 2018INVESTING TOGETHER FOR A SECURE FUTUREGOWING BROS. LIMITEDManaging Director’s Review of Operations Strategic Equity Investments continued Boundary Bend Limited ($14.8 million) Hydration Pharmaceuticals ($2.7 million) DiCE Molecules ($2.2 million) Carlton Investments ($5.6 million) and Event Hospitality Group ($1.7 million) BBBSA Finance ($1.4 million) Boundary Bend is both Australia’s and one of the world’s leading producers of premium extra virgin olive oil and Australia’s largest olive farmer. Boundary Bend produces Australia’s two top selling home grown extra virgin olive oil brands, Cobram Estate and Red Island, whose sales have grown by 27% over the last 4 years. It owns 2.3 million producing trees on over 6,575 hectares of pristine Australian farmland located in the Murray Valley region of north-west Victoria. The underlying value of this olive producing land has appreciated strongly over the last few years. In addition to growing and pressing olives and producing olive oil, Boundary Bend operates a bottling, storage and laboratory facility near Geelong. Boundary Bend has expanded into the USA with groves, an olive mill, bottling facilities, laboratory and administrative offices in Woodland, California. With a growing demand for high quality agricultural and horticultural produce from the emerging Asian middle class, Gowings believes Boundary Bend is well positioned for strong growth in Australia, Asia and the USA. Powerpollen ($0.3 million) During the period Gowings made an investment into PowerPollen, an early stage Agricultural Bio Tech company based in Iowa, USA, that is working on an advanced yield enhancement technology that enables higher productivity in seed and grain production. PowerPollen has created a paradigm shift in agriculture by revolutionizing how plants reproduce, providing unprecedented control of pollination that simplifies corn seed production while enabling hybrid production and higher profits in current low profit crops like wheat. This breakthrough may increase farmer profits and global food supplies that are necessary to feed the growing global population. Since Gowings’ recent investment, PowerPollen has negotiated an additional investment from two major partners and users of its technology. This was an up-round, resulting in a 10% increase in Gowings investment over this short period. PowerPollen won the Technology Association of Iowa AgTech company of the year award for 2018. Hexima ($0.7 million) Hexima is a biotechnology company actively engaged in the research and development of plant-derived proteins and peptides for applications in human therapeutics and for the genetic modification of crops. Hexima conducts most of its research under contract with La Trobe University and has five main areas of interest: plant fungal disease, insect resistance, human antifungal, non-melanoma skin cancer, and multi-gene expression vehicle. Hexima has been focusing on its flagship research (HXP124) which presents the most likely source of increased shareholder value in the short to medium term. HXP124, is designed to treat fungal nail infections and has secured patents across USA, Japan, China, Mexico and Europe. HXP124 kills nail fungi much better than current treatments and looks to address a market that is expected to grow to US$4.7b by 2021. During the period, Hexima has obtained Human Research Ethics Committee approval to conduct a clinical trial of HXP124 in patients with fungal nail infections. Hydralyte markets great-tasting clinical hydration products scientifically formulated to contain the correct balance of glucose and electrolytes for rapid rehydration. Hydralyte products have up to 75% less sugar and four times the electrolytes compared to leading sports drinks and are based on the World Health Organization criteria for effective rehydration. Hydralyte products fill a consumer need by providing a solution that is both appealing and clinically effective. Hydralyte’s Canadian business continues to deliver strong year on year growth but uptake in the United States of America has been slower than expected. Hydralyte anticipates that increased investment in healthcare professional education, and a rollout in the regional grocery channel, will lead to a model of success that could be extended to national retailers in the USA. In addition, Hydralyte is driving ecommerce sales in the United States and continues to evaluate other global markets Blackfynn ($0.4 million) During the period Gowing Bros made an investment in Blackfynn, a Philadelphia based early stage company that is accelerating new treatments for neurological disease. Blackfynn aims to create better therapeutics through data and treat neurological diseases like Epilepsy, Parkinson’s disease and Alzheimer’s. Their solutions cover closed loop implanted devices for personalised therapy, analysing real-time patient data to improve clinical outcomes, lower cost, and facilitating the discovery of biomarkers and targets for drug development. DiCE Molecules is a privately held US biotechnology company with a technology platform that brings the power of directed evolution to the field of synthetic chemistry. DiCE’s technology platform, which originated at Stanford University, has the potential to revolutionise small molecule drug discovery. DiCE’s business model includes the generation of milestone and royalty revenue through drug discovery collaborations, with Sanofi and Genentech. It also looks to monetise its own drug development assets, the most advanced of which is in preclinical studies. DiCE’s technology has been industrialised and is now producing valuable drug development candidates. During the period DiCE triggered its first significant collaboration milestone, and they expect to earn milestone payments in excess of $US10 million by the end of 2019. DiCE has recently completed a further financing round at a step up in valuation, led by biotech-focused venture capital investors and we expect these domain-expert investors to bring valuable knowledge and network connections to DiCE’s quickly expanding business. BBBSA Finance (BBBSA) is a specialist financial services lender offering business loans, valuations and M&A advice and execution services, specifically tailored for financial intermediaries. Clients include mortgage brokerage and financial planning firms, wealth management; insurance and finance brokers; residential real estate management and tax & accounting practices. Its advice and product offerings are broad and include a specialisation in SME and small listed companies. The Group is headquartered in Sydney, Australia. Over the past 7 years BBBSA has launched a diverse range of innovative cash flow backed finance products for the financial service and property industries, particularly for mortgage brokers. This has enabled BBBSA to grow to almost $10 billion dollars of underlying mortgages, real estate rental contracts and financial planning books that underpin its loan book security and which serve as the source of cashflows that support and service its loan book. In late FY2018, Gowing’s made a strategic investment and assumed a Board seat in BBBSA Finance Pty Ltd – bbbsa.com.au Carlton Investments Limited is an investment company listed on the ASX. Incorporated in 1928, Carlton’s principal activities are the acquisition and long term holding of shares and units in entities listed on the ASX. The Group has a significant holding in Event Hospitality & Entertainment (EVT) - a group engaged in cinema exhibition in Australia, New Zealand and Germany, hotel management and ownership (Rydges, Atura and QT), operation of the Thredbo Alpine Resort and investment property ownership. Carlton, through its interest in Event has a significant investment in the Australian and New Zealand tourism sector, a growth sector benefiting from Chinese and international tourists looking for safe destinations. EFTsure ($0.3 million) EFTsure is an Australian owned IT company incorporated to deliver electronic payment authentication services to its customers. EFTsure has developed a real-time authentication software solution which verifies payee name data with BSB and account numbers to prevent fraud and erroneous transactions by cross checking data prior to release of funds and ensuring authentic payments. We are pleased to see strong expansion of EFTsure over the period, with key updates including the signing of multiple councils (50% of NSW councils expected to sign on by end 2018) and further engagement with major Australian banks. We have also been pleased to see the further growth in customers, new product features and the corresponding expansion of all aspects of the service. 22 23 150th ANNUAL REPORT 2018 I Year ended 31 July 2018150th ANNUAL REPORT 2018 I Year ended 31 July 2018INVESTING TOGETHER FOR A SECURE FUTUREGOWING BROS. LIMITEDGrowth Rate of Strategic Equity Portfolio From 1987 To 2018 Gowings has a history of strong results within its strategic 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 “Performance Proven Over Time” - John Gowing - 1988 1991 1995 1998 1999 2000 2001 2006 2007 2008 2013 2014 2016 2017 2018 Oct 1987 - known as 'Black Monday', the global stock market crashed. Gowings took advantage of undervalued shares in the stock market and added $2M of shares to its investment portfolio. Gowings sold off its investment in Lavington Shopping Centre. The sale generated a healthy profit which was sufficient to meet Gowings' capital investment plans over the next few years. Many stock valuations were considered unsustainable. Subsequent weakness and unprecedented volatility in the Australian and world equity market led Gowings' to realise these investments. Gowings began actively reviewing its investments in the wholesale and venture capital markets. First step in this direction was a commitment at wholesale level to Macquarie Direct Investment, a subsidiary of Macquarie Bank. Gowings gained exceptional returns from its equity investment in Open Telecommunica- tions 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. Good returns mainly from revaluation of shares. Boundary Bend doubled in its market value, while the Carlton Investment more than tripled our original purchase price with a 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 the 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 since acquisition. Realisation of financial services shares provided a net gain of $3.55M (ANZ $1.25M, Westpac $1M & BT Financial Mgmt $1.3M) Gowings took the opportunity of the weak stock market to increase its holdings in resource & energy stocks, increasing its weighting in the shares portfolio to approximately 25%. Investments witch increased in market value over the last 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. Shares were realised included 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). Major movements for the year included increase to the carrying value of DiCE Molecules Holdings LLC by 47% to $2.2M; Hydralyte by 33% to $2.6M; Boundary Bend by 22% to $14.8M; and SEEK Ltd by 25% to $1.5M. These gains however were partially offset against an impairment in the carrying value of TPI Enterprises of $1.5M as the share price fell over 20% during the year. Returns 3% 13% 0% -2% 14% 7% 1% 14% 23% -12% 25% 20% 20% 8% 6% Growth of A$10,000 investment in Gowings listed equity portfolio since 1 Aug 1986, 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 2018 Gowings Listed Equity Portfolio ASX AllOrd Accum Index Bloomberg Ausbond Bank Bill Index (BAUBIL) RBA Cash Rate $250,000 $200,000 $150,000 $100,000 $50,000 0 24 GOWINGS $269,628 10.84% p.a. ASX All Ord $210,800 9.99% p.a. BAUBIL $76,999 6.59% p.a. RBA Cash Rate $63,552 5.95% p.a. 25 150th ANNUAL REPORT 2018 I Year ended 31 July 2018150th ANNUAL REPORT 2018 I Year ended 31 July 2018INVESTING 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 New Ventures - Media & Wealth Management OurCrowd Australia ($1.1 million) Our Innovation Fund ($0.8 million) Five V Capital ($1.2 million) Sawtell Commons Residential Subdivision 1868 Capital Pty Ltd Coastbeat Pty Ltd OurCrowd is one of the leading global equity crowdfunding platforms 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 reached $1 billion in funds under management with over 110 portfolio companies and funds. Gowings has made a $US0.9 million investment into OurCrowd of which $US0.68 million has been deployed across 21 companies covering healthcare, tech hardware, software, fintech, and mobility, the remaining capital being available for follow on rounds in successful companies. Our best performers to date are Zoomcar, a self- drive car rental company headquartered in Bangalore, with an unrealised return of 41%, and Wave, a financial and accounting software company, which has an unrealised return of 66% to date. Gowings takes a diversified approach with the philosophy that out of ten investments, two will fail, six will provide an acceptable return, and two will be top performers that drive the portfolio return. Our connection to OurCrowd keeps us informed as to what is happening globally in the early to mid-stage technology space. We are hoping to leverage this with our new funds management strategy and platform. Our Innovation Fund LP (“OIF”) is an early stage venture capital limited partnership (ESVCLP) fund which invests in Australian based early stage, innovative technology businesses with the potential for high growth and attractive returns. The Fund is run by a team with decades of experience investing in and building technology businesses and is capitalising on the Australian government's National Innovation and Science Agenda, seeking to stimulate the Australian innovation ecosystem with various grants and tax concessions. The Fund makes investments throughout various stages of company development (from seed through to early expansion), with 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. OIF has continued to deploy capital over the period with five new investments across the financial year, taking the total portfolio up to nine companies including investments in enterprise software, hardware/devices and financial technology businesses. Performance has been in line with expectations and we are encouraged by the progress the portfolio companies have made. OIF adds value to portfolio companies helping them to grow and succeed, and the Fund is continuing to look for solid opportunities to deploy further capital. The management of OIF has a close relationship to OurCrowd and also holds an investment in EFT Sure. Five V Capital has been set up and managed by Adrian MacKenzie and Srdjan Dangubic, experienced Australian private equity and venture capital managers with whom Gowings have enjoyed a long relationship. Gowings have committed $1 million to Five V’s Fund II (together with co-investment amounts to date of $0.6 million) which invests in businesses across Australia and New Zealand. The principals of Five V Capital have committed a substantial amount of their own capital to Fund II, driving alignment of interests between the managers and investors. Over the year Five V has made significant investments into portfolio companies including RateSetter Australia, Education Perfect and The Probe Group. Five V’s recent investment in The Probe Group saw the fund run a simultaneous acquisition and combination of two Customer Management Outsourcing businesses run by a market leading management team. The combination has created a market leading business and enabled the delivery of meaningful synergies. The portfolio is performing well, with a robust and healthy pipeline to deploy the remaining committed capital. During the period we received a return of $0.1 million as part of Fund II interest in Five V’s initial Fund I. Gowings established Coastbeat in December 2017 due to the significant stake we hold in the North Coast of NSW though the ownership of the Pacific Coast Shopping Centre portfolio and other properties such as Sawtell Commons & Harbour Drive Solitary 30 Site. We have created a digital and print media platform where the Coastbeat community can communicate, share and learn more about the region. Supporting the locals by showcasing their work, creating jobs in the area and care for our environment were also key motives behind its creation. We have successfully secured regional foundation sponsors including Destination Coffs Coast and advertising revenues have a positive outlook. Sawtell Commons, ‘between the mountains and the sea' is a DA approved residential sub- division located near Sawtell, 8km South of Coffs Harbour. Development approval has already been secured for 165 lots and a second application for 220 lots has been submitted to Council for approval. Block sizes range from 450m2 to 850m2, all with North-South or East-West orientation with access to cycleways and pathways connecting natural vegetation areas to creek reserves and parklands. First stage release and pre-sales are expected to commence in the last quarter of 2018. Due to strong market demand for residential land in Coffs Harbour, the expression of interest campaign that we ran in Coastbeat magazine has already attracted over 30 enquiries from prospective EOI purchasers that if converted would result in pre-sales of over $10 million. Harbour Drive Solitary 30 Development Site Gowings continues to hold and undertake development planning for the 3,000m² development site at the prominent Jetty Village in Coffs Harbour. The site is considered one of the best development sites in Coffs Harbour and its use is currently being evaluated subject to some potential heritage issues for residential, hotel and mixed use. Gowings, under four generations of the Gowing Family has prospered through 150 years of economic booms and busts, world wars and market crashes. Gowings has been investing for decades and as part of this focus was one of the founding investors in Woolworths. In the 1950’s, a significant reallocation 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 one. '1868 Capital' - Gowings’ Australian Financial Services Licensed business - utilises experience in investing for the long term across multiple asset classes and provides these opportunities to investors to co-invest alongside Gowings. 1868 Capital will develop a range of funds for investors based on the following principles: • The funds are aligned to the core values of Gowings • Management are experienced in the sector and have invested in the business • There are barriers to entry in the chosen market • The business operates in a market niche with defined global growth path • The operating model of the business is aligned to a number of global trends • The business is fairly priced • The Gowings network can add value to the business. Within each fund, Gowings will be a cornerstone investor and expects to be launching several funds over the next year. 26 27 150th ANNUAL REPORT 2018 I Year ended 31 July 2018150th ANNUAL REPORT 2018 I Year ended 31 July 2018INVESTING 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: 477,581 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 with chartered accounting firms, 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. 28 29 150th ANNUAL REPORT 2018 I Year ended 31 July 2018150th ANNUAL REPORT 2018 I Year ended 31 July 2018INVESTING TOGETHER FOR A SECURE FUTUREGOWING BROS. LIMITEDExecutive Management Neil Rogan Head of Wholesale Funds Management Bachelor of Arts and a Grad Dip Commerce Neil Rogan was appointed as Head of Wholesale Funds Management for Gowings (1868 Capital) on 30 April 2018. Neil will be responsible for the development and growth of 1868 Capital, Gowings Funds Management Business as well as managing key strategic projects. Neil has more than 25 years in the financial services industry having most recently been the General Manager Investment Bond Division Centuria Life, prior to this Neil held several senior roles at AMP Ltd including; Head of Marketing Campaigns, Head of Product Marketing and leading the changes for the introduction of MySuper in 2013. Throughout 2014, Neil was a NSW Council Member of the Australian Marketing Institute and has chaired several Financial Services Council (FSC) sub-committees including the judging panel for the FSC/Deloitte Future Leaders Award. Robert Ambrogio Chief Financial Officer Bachelor of Economics, CA 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 and New Zealand. Belinda Flatters General Counsel and Company Secretary Dip Law SAB, FGIA FCIS 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. 30 31 150th ANNUAL REPORT 2018 I Year ended 31 July 2018150th ANNUAL REPORT 2018 I Year ended 31 July 2018INVESTING 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 2018. 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 2018 $'000 31 July 2017 $'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 7,178 (1,725) 5,453 5,453 32,924 (9,684) 23,240 23,242 Dividends $3,217,975 $3,220,816 $3,220,816 $3,220,816 A final fully franked dividend of 6.0 cents per share is to be paid to shareholders on 13 November 2018 An interim fully franked dividend of 6.0c per share was paid to shareholders on 26 April 2018 A final fully franked LIC dividend of 6.0c per share was 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 Review of Operations The operations of the Company are reviewed in the Managing Director’s ‘Review of Operations’ on page 10. 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 10. 32 33 SharesProfessor J. West Non-Executive Chairman 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 years477,581J. 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 years20,881,150Neil Rogan General Manager Bachelor of Arts and a Grad Dip CommerceMr Rogan was appointed on 30 April 2018 as the Head of Wholesale Funds Management and has more than 25 years experience in the financial services industry. Mr Rogan's experience comes from his previous roles as General Manager Investment Bond Division Centuria Life, prior to this Neil held several senior roles at AMP Ltd._J. 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 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. _150th ANNUAL REPORT 2018 I Year ended 31 July 2018150th ANNUAL REPORT 2018 I Year ended 31 July 2018INVESTING 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: Board Meetings Audit Committee Meetings Remuneration Committee Meetings Meetings eligible to attend Attended Meetings eligible to attend Attended Meetings eligible to attend Attended Prof J. West J. E. Gowing J. G. Parker S. J. Clancy 8 8 8 8 8 7 8 8 3 - 3 3 3 - 3 3 - 1 - 1 - 1 - 1 Remuneration Report The Company’s remuneration report, which forms a part of the Directors’ Report, is on pages 36 to 38. 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 79. 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. Proceedings on Behalf of the Company No person has applied for leave of court to bring proceedings on behalf of the Company or intervene in any proceedings to which the Company is a party for the purpose of taking responsibility on behalf of the Company for all or any part of those proceedings. The company was not a party to any such proceedings during the year. 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. 2018 $ 2017 $ Audit services Audit and review of financial reports and other audit work under the Corporations Act 2001 167,500 162,000 Taxation services Tax compliance services, including review of Company income tax returns 79,500 68,000 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 11 October 2018 J. E. Gowing Director Sydney 11 October 2018 34 35 150th ANNUAL REPORT 2018 I Year ended 31 July 2018150th ANNUAL REPORT 2018 I Year ended 31 July 2018INVESTING 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 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 2018 were: • Prof. J. West, Chairman of the Board • J. G. Parker • 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 2018 were: • J. E. Gowing, Managing Director • G. J. Grundy, General Manager (ceased 5 January 2018) and Company Secretary (resigned 20 July 2018) • R. Ambrogio, Chief Financial Officer • N. Rogan, Head of Wholesale Funds Management (appointed 30 April 2018) 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 2018 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: 2018 $ Short term Share based Post – employment Long term Total Cash salary and fees Consultancy Fees Cash bonus Movement in provision for annual leave Non- monetary benefits Share bonus Superannuation Movement in provision for long service leave Non-executive Directors Prof. J. West (Chairman) J. G. Parker S. J. Clancy 27,397 100,000 50,000 54,795 - - - - - 132,192 100,000 Executive Directors - - - - - - - - J. E. Gowing¹ 276,747 - 120,000 48,270 3,353 Other key management personnel G. J. Grundy² R. Ambrogio N. Rogan³ Total key management personnel compensation 318,934 219,178 74,183 147,240 350,000 (82,667) - - 10,532 5,666 - - - 1,021,234 247,240 470,000 (18,199) 3,353 - - - - - - - - - 2,603 10,000 5,205 17,808 - - - - 130,000 60,000 60,000 250,000 22,679 12,489 483,538 10,024 20,822 7,047 (73,029) 670,502 3,565 1,257 254,097 88,153 78,380 (55,718) 1,746,290 ¹J.Gowing bonus relates to his efforts towards the financial results of FY2017. ²G.Grundy resigned from his position as General Manager on 5 January 2018 and became a consultant to the business, and on 20 July 2018 resigned from his position as Company Secretary. The cash bonus paid to G.Grundy related to his efforts towards the financial results of FY2016 ($150,000) and FY2017 ($200,000). ³N.Rogan was appointed as Head of Funds Management on 30 April 2018. 2017 $ Short term Share based Post – employment Long term Total Cash salary and fees Consultancy Fees Cash bonus Movement in provision for annual leave Non- monetary benefits Share bonus Superannuation Movement in provision for long service leave Non-executive Directors Prof. J. West (Chairman) J. G. Parker S. J. Clancy R. D. Fraser¹ 27,397 100,000 55,000 56,315 21,063 - - - 159,775 100,000 Executive Directors J. E. Gowing 232,876 Other key management personnel - - - - 284,999 109,589 167,453 954,692 100,000 G. J. Grundy R. Ambrogio² J. Chorn³ Total key management personnel compensation - - - - - - - - - - - - - - - - - - - 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) 290,705 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 36 37 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 Share based compensation includes shares issued from the Deferred Employee Share Plan. 150th ANNUAL REPORT 2018 I Year ended 31 July 2018150th ANNUAL REPORT 2018 I Year ended 31 July 2018INVESTING 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 1 October 2018 Fixed Performance Range of shares No. of shareholders Executive Directors J. E. Gowing¹ Other key management personnel G. J. Grundy2 R. Ambrogio N. Rogan 2018 (%) 2017 (%) 2018 (%) 2017 (%) 75 48 100 100 100 95 100 - 25 52 - - - 5 - - ¹ Performance bonus paid to J.Gowing related to his efforts in relation to FY2017, no part of the bonus related to FY2018. ² Performance bonuses paid to G.Grundy related to his efforts in relation to FY2016 ($150,000) and FY2017 ($200,000), no part of the bonus related to FY2018. Service Agreements R. Ambrogio, Chief Financial Officer There are service agreements in place with J. Parker, S. Clancy, J. Gowing, Prof. J. West, N. Rogan 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: • No fixed term • Base salary, inclusive of superannuation, as at 31 July 2018 of $240,000, to be reviewed annually by the Remuneration Committee • No termination benefit is payable The information provided in this remuneration report has been audited as required by section 308(3C) of the Corporations Act 2001. J. E. Gowing, Managing Director Additional Information • No fixed term • Base salary, inclusive of superannuation, as at 31 July 2018 of $310,000, to be reviewed annually by the Remuneration Committee • Non-monetary benefits included motor vehicle and FBT related charges for the year ended 31 July 2018 of $3,353 • No termination benefit is payable N. Rogan, Head of Wholesale Funds Management • No fixed term • Base salary, inclusive of superannuation, as at 31 July 2018 of $320,000, 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: 2018 2017 2016 2015 2014 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 $5.5m 10.15c 12.0c 47k $135k $2.89 $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 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 300 453 185 355 48 1,341 The number of shareholdings held in less than marketable parcels is 120. 2. Voting Rights Members voting personally or by proxy have one vote for each share. 3. Substantial Shareholders at 1 October 2018 The substantial shareholders as defined by Section 9 of the Corporations Act 2001 are: John Edward Gowing Carlton Hotel Limited JP Morgan Nominees Australia Limited 20,881,150 4,701,144 3,430,880 Ordinary shares Ordinary shares Ordinary shares 4. Top 20 Equity Security Holders at 1 October 2018 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 Woodside Pty Limited HSBC Custody Nominees (Australia) Limited Josseck Pty Limited Mr John Gowing Mr Frederick Bruce Wareham Mr Ronald Langley and Mrs Rhonda Langley Enbeear Pty Limited Mr Graeme Legge Beta Gamma Pty Limited Mrs Jean Kathleen Poole-Williamson T N Phillips Investments Pty Limited Mythia Pty Limited National Nominees Limited Cadmea Pty Limited Cranley Holdings Pty. Limited Total Total issued share capital 5. Corporate Governance Practices 7,211,378 5,263,957 4,701,144 3,676,709 3,430,880 3,105,594 1,488,246 1,337,622 1,187,189 1,152,358 674,580 636,829 613,400 605,000 568,443 550,000 423,500 305,871 295,870 272,046 37,500,616 53,632,915 13.45 9.81 8.77 6.86 6.40 5.79 2.77 2.49 2.21 2.15 1.26 1.19 1.14 1.13 1.06 1.03 0.79 0.57 0.55 0.51 69.93 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/. 38 39 150th ANNUAL REPORT 2018 I Year ended 31 July 2018150th ANNUAL REPORT 2018 I Year ended 31 July 2018INVESTING TOGETHER FOR A SECURE FUTUREGOWING BROS. LIMITEDFinancial Report Consolidated Statement of Profit or Loss 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 Derivatives Other income Total other income Total revenue and other income Expenses Investment properties Notes 31 July 2018 $’000 31 July 2017 $’000 5 18 15 16 18 18 5 19 6 219 618 449 19,829 37,189 58,304 - (148) 5,589 (418) 739 5,762 64,066 8,342 37,136 1,745 5,230 603 1,776 455 55 55,342 8,724 (1,546) 7,178 (1,725) 5,453 5,453 - 5,453 672 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 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 41 42 43 44 45 46 78 79 80 The consolidated financial statements were authorised for issue by the Directors on 11 October 2018. The Directors have the power to amend and reissue the consolidated financial statements. 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 40 41 The above Consolidated Statement of Profit or Loss should be read in conjunction with the accompanying Notes. 150th ANNUAL REPORT 2018 I Year ended 31 July 2018150th ANNUAL REPORT 2018 I Year ended 31 July 2018INVESTING 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 2018 $’000 31 July 2017 $’000 As at   Notes 31 July 2018 $’000 31 July 2017 $’000 Profit from continuing operations 5,453 23,240 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 - 2,257 302 554 8,566 8,566 - 8,566 10.15c 10.15c (3,528) 1,984 (162) 345 21,879 21,881 (2) 21,879 43.29c 43.29c 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 Trade and other receivables Loans receivable 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 31 Contributed equity and reserves attributable to members of Gowing Bros. Limited Non-controlling interests Total equity 5,294 - - 6,234 7,789 1,271 20,588 567 1,400 36,783 3,449 14,145 256,678 8,749 4,302 5,070 2,025 333,168 353,756 4,711 455 708 357 1,222 7,453 248 92,009 469 37,612 130,338 137,791 215,965 12,476 106,342 97,149 215,967 (2) 215,965 42 The above Consolidated Statement of Financial Position should be read in conjunction with the accompanying Notes. 5,886 297 3,000 6,636 7,527 1,220 24,566 760 - 33,969 3,301 13,707 226,661 7,828 3,550 4,631 1,839 296,246 320,812 9,902 9,330 733 2,085 1,075 23,125 275 49,023 498 33,915 83,711 106,836 213,976 12,611 103,229 98,138 213,978 (2) 213,976 43 150th ANNUAL REPORT 2018 I Year ended 31 July 2018150th ANNUAL REPORT 2018 I Year ended 31 July 2018INVESTING TOGETHER FOR A SECURE FUTUREGOWING BROS. LIMITED                                                                                                         Consolidated Statement of Changes in Equity Consolidated Statement of Cash Flows Contributed Equity $’000 Capital Profits Reserve-Pre CGT Profits $’000 Revaluation Reserves $’000 Foreign Currency Reserve $’000 Retained Profits $’000 Non- Controlling Interests $’000 Total $’000 Balance at 31 July 2016 12,652 90,503 14,087 - 81,338 - 198,580 (1,199) (162) 23,242 (2) 21,879 Total comprehensive income for the year Transactions with owners in their capacity as owners: Share buy-back Dividends paid Balance at 31 July 2017 Total comprehensive income for the year Transactions with owners in their capacity as owners: Share buy-back Dividends paid Balance at 31 July 2018 - (41) - 12,611 - (135) - 12,476 - - - - - - - - - - - (6,442) 98,138 90,503 12,888 (162) 2,811 302 5,453 - - - - - (6,442) 97,149 90,503 15,699 140 - - (41) (6,442) (2) 213,976 - - - 8,566 (135) (6,442) (2) 215,965 The above Consolidated Statement of Changes in Equity should be read in conjunction with the accompanying Notes. For the year ended  Notes 31 July 2018 $’000 31 July 2017 $’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 repayment of loans made Proceeds from sale of properties, plant and equipment Proceeds from sale of equity investments 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 outflows from investing activities Cash flows from financing activities Payments for share buy-backs Proceeds from borrowings Repayment of borrowings Payments for derivatives Dividends paid Net cash inflows from financing activities  30 43 43 43 32 Net decrease 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 62,010 (54,079) 618 497 (3,454) (1,380) 4,212 (733) (752) (438) (29,026) (1,975) (1,400) 3,000 - 543 896 - - - (29,885) (135) 33,764 (79) (2,027) (6,442) 25,081 (592) 5,886 5,294 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. 44 45 150th ANNUAL REPORT 2018 I Year ended 31 July 2018150th ANNUAL REPORT 2018 I Year ended 31 July 2018INVESTING TOGETHER FOR A SECURE FUTUREGOWING BROS. LIMITED                                                                                                      Notes to the Consolidated Financial Statements 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 2018. 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. 1. Summary of Significant Accounting Policies (Continued) 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. 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. 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. 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. (e) Segment reporting Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker including: (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. 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 • 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 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) assets and liabilities are translated at exchange rates prevailing at the end of the reporting period; (b) (c) 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. 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. 46 47 150th ANNUAL REPORT 2018 I Year ended 31 July 2018150th ANNUAL REPORT 2018 I Year ended 31 July 2018INVESTING TOGETHER FOR A SECURE FUTUREGOWING BROS. LIMITED 1. Summary of Significant Accounting Policies (Continued) 1. Summary of Significant Accounting Policies (Continued) (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) Patents Patents 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 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 life 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. (ii) 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. (l) Revenue recognition Revenue is recognised for the major business activities as follows: (i) (ii) (iii) 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. 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 for rental income and sale of goods. Amounts are usually due between seven and ninety 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) (ii) 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. Private equities Private equities are held with the view that they are long term investments. 48 49 150th ANNUAL REPORT 2018 I Year ended 31 July 2018150th ANNUAL REPORT 2018 I Year ended 31 July 2018INVESTING 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 elects to measure at fair value, requiring changes in fair value attributed to the entity’s own credit risk to be presented in other comprehensive income The Group is in the process of completing its impact assessment of AASB9 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 is in the process of completing its impact assessment of AASB15 however initial indications are that the effects of AASB15 will not be material to the group. AASB 16 Leases (applicable for annual reporting periods commencing on or after 1 January 2019) 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 Although the group anticipate the adoption of AASB16 will impact the group's future financial statements it is impracticable at this stage to provide a reasonable estimate of such impact. requirements for impairment of financial assets 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 thirty to sixty 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. 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. (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, (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. 50 51 150th ANNUAL REPORT 2018 I Year ended 31 July 2018150th ANNUAL REPORT 2018 I Year ended 31 July 2018INVESTING 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 financial 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 on financial assets at the reporting date was as follows: Currency exposure in AUD Cash Trade receivables Trade payables Equities Private equities 31st July 2018 USD $’000 448 2,400 (342) 5,565 1,141 EUR $’000 GBP $’000 391 1,796 (255) - 311 JPY $’000 247 933 (415) - - USD $’000 915 2,222 (168) 3,233 1,092 EUR $’000 352 1,784 (58) - 272 9 - - - - 31st July 2017 GBP $’000 JPY $’000 27 - - - - 137 826 - - - Based on the cash held at 31 July 2018, if the Australian dollar weakened / strengthened by 10% against the US dollar cash would have been $49,778 higher / $40,727 lower (2017: $101,667 higher / $83,182 lower). If the Australian dollar weakened / strengthened by 10% against the GBP cash would have been $1,000 higher / $818 lower (2017: $3,000 higher / $2,455 lower). If the Australian dollar weakened / strengthened by 10% against the EUR cash would have been $43,444 higher / $35,545 lower (2017: $39,111 higher / $32,000 lower). If the Australian dollar weakened / strengthened by 10% against the JPY cash would have been $27,444 higher / $22,455 lower (2017: $15,222 higher / $12,455 lower). Based on the trade receivables held at 31 July 2018, if the Australian dollar weakened / strengthened by 10% against the US dollar receivables would have been $266,667 higher / $218,182 lower (2017: $246,889 higher / $202,000 lower). If the Australian dollar weakened/strengthened by 10% against the EUR, the receivables would have been $199,556 higher/ $163,273 lower (2017: $198,222 higher/ $162,182 lower). If the Australian dollar weakened/ strengthened by 10% against the JPY, the receivables would have been $103,667 higher/ $84,818 lower (2017: $91,778 higher/ $75,091 lower). Based on the trade payables held at 31 July 2018, if the Australian dollar weakened / strengthened by 10% against the US dollar payables would have been $38,000 higher / $31,091 lower (2017: $18,667 higher / $15,273 lower). If the Australian dollar weakened/strengthened by 10% against the EUR, the payables would have been $28,333 higher/ $23,182 lower (2017: $6,444 higher/ $5,273 lower). If the Australian dollar weakened/strengthened by 10% against the JPY, the payables would have been $46,111 higher/ $37,727 lower (2017: $nil higher/ $nil lower). Based on the equities held at 31 July 2018, if the Australian dollar weakened / strengthened by 10% against the US dollar equities would have been $618,333 higher / $505,909 lower (2017: $359,222 higher / $293,909 lower). Based on the private equities held at 31 July 2018, if the Australian dollar weakened / strengthened by 10% against the US dollar private equities would have been $126,778 higher / $103,727 (2017: $121,333 higher / $99,273 lower). If the Australian dollar weakened / strengthened by 10% against the Euro private equities would have been $34,556 higher / $28,273 lower (2017: $30,222 higher / $24,727 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. 52 (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 $2,011,590 (2017: $1,863,505) and $4,023,180 (2017: $3,727,010) 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 2018 Balance $’000 Weighted average interest rate 31st July 2017 Balance $’000 Borrowings Interest rate swaps (notional principal amount) Net exposure to cash flow interest rate risk 2.15% 2.64% 92,457 (60,200) 32,257 3.09% 3.53% 58,342 (35,000) 23,342 Credit risk Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group. The Group obtains guarantees where appropriate to mitigate credit risk. The maximum exposure to credit risk at the reporting date to recognised financial assets is the carrying amount, net of any provisions for impairment of those assets, as disclosed in the consolidated statement of financial position and notes to the consolidated financial statements. The Group does not hold any collateral. 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 2018 Less than 1 year Between 1-2 years Between 2-5 years Over 5 years Total contractual cash flow Non-derivatives Non-interest bearing Fixed rate Variable rate Total non-derivatives Derivatives Fixed rate $'000 4,711 7 448 5,166 708 $'000 248 - 1,936 2,184 - $'000 $'000 $'000 - - 90,073 90,073 - - - - - - 4,959 7 92,457 97,423 708 53 150th ANNUAL REPORT 2018 I Year ended 31 July 2018150th ANNUAL REPORT 2018 I Year ended 31 July 2018INVESTING TOGETHER FOR A SECURE FUTUREGOWING BROS. LIMITED2. Financial Risk Management (Continued) Maturity of Financial Liabilities (Continued) 31 July 2017 Non-derivatives Non-interest bearing Fixed rate Variable rate Total non-derivatives Derivatives Fixed rate Fair value estimation risk Less than 1 year $’000 9,902 11 9,319 19,232 733 Between 1-2 years $’000 275 - 1,023 1,298 - Between 2-5 years $’000 - - 14,000 14,000 Over 5 years Total contractual cash flow $’000 $’000 - - 34,000 34,000 10,177 11 58,342 68,530 - - 733 2. Financial Risk Management (Continued) There were no transfers between level 1, level 2 and level 3 for recurring fair value measurements during the year. 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 18. • 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 fair value of freehold properties included in Property, Plant and equipment is determined by Directors based on comparable property market information. The fair value of financial assets and financial liabilities must be estimated for recognition and measurement or for disclosure purposes. 31 July 2018 Reconciliation of level 3 fair value movements 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. Opening balance Transfers to level 1 Transfers from development properties Purchases Sales The following tables present the Group’s assets and liabilities measured at fair value at 31 July 2018 and 31 July 2017. Amortisation and depreciation 31 July 2018 $’000 31 July 2017 $’000 256,601 - 297 28,289 (1,439) (1,293) 8,618 291,073 214,289 - 153 19,780 (2,109) (1,260) 25,748 256,601 Level 1 $’000 12,985 - - - - - 12,985 Level 1 $’000 13,731 - - - Level 2 $’000 - - - - - (708) (708) Level 2 $’000 - - - - 31 July 2018 Financial assets - available for sale 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 31 July 2017 Financial assets - available for sale 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 54 Level 3 $’000 18,234 5,564 3,449 256,678 Total $’000 31,219 5,564 3,449 256,678 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 15 - refer to note 16 - refer to note 18 3. Critical Accounting Estimates & Judgements 7,148 7,148 Managed and Direct Private Equity - 291,073 Level 3 $’000 17,004 3,234 3,301 226,661 (708) 303,350 Total $’000 30,735 3,234 3,301 226,661 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 2018 was a gain of $279,153 (2017: a loss of $318,123) 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 $5,472,142 (2017: gain of $23,301,780). - - 6,401 6,401 - 13,731 (733) (733) - 256,601 (733) 269,599 55 150th ANNUAL REPORT 2018 I Year ended 31 July 2018150th ANNUAL REPORT 2018 I Year ended 31 July 2018INVESTING 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 – realised losses on disposal/unrealised fair value gains/(losses) Investment properties – realised losses on disposal/unrealised fair value gains Other Total segment revenue and other income Segment result Cash and fixed interest Equities Private equities Investment 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 2018 $’000 31 July 2017 $’000 30,239 11,563 5,597 9,619 57,018 25,459 8,458 3,937 6,364 44,218 31 July 2018 $’000 31 July 2017 $’000 The Group only derives revenue from external customers in the Investment properties and Surf Hardware International business segments. 219 618 449 19,829 37,189 58,304 - (148) 5,589 321 5,762 64,066 219 (928) 301 11,846 308 (4,568) 7,178 (1,725) 5,453 672 1,173 173 19,672 24,546 46,236 5,696 (318) 23,302 666 29,346 75,582 672 6,351 (145) 32,112 (1,776) (4,290) 32,924 (9,684) 23,240 As at Segment assets Cash and fixed interest 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 2018 $’000 31 July 2017 $’000 5,294 36,783 3,449 256,678 14,145 15,691 21,716 353,756 91,345 4,193 42,253 137,791 324,655 8,016 398 99 5,886 33,969 3,301 226,661 14,004 14,841 22,150 320,812 57,698 3,383 45,755 106,836 290,615 5,294 216 121 333,168 296,246 56 57 150th ANNUAL REPORT 2018 I Year ended 31 July 2018150th ANNUAL REPORT 2018 I Year ended 31 July 2018INVESTING TOGETHER FOR A SECURE FUTUREGOWING BROS. LIMITED                                                                                                              4. Segment Information (Continued) 5. Operating Profit 31 July 2018 $’000 31 July 2017 $’000 For the year ended 31 July 2018 $’000 31 July 2017 $’000 For the year ended 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 - Equities - Private equities - Impairment – equities Unallocated: 29,026 438 1,975 - 5,589 - (148) (1,546) 12,653 12,244 6,198 14,293 23,302 5,696 (318) (518) - Payments for the acquisition of property, plant and equipment 733 297 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 development properties 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 and goodwill are represented as unallocated amounts. Surf Hardware International business segment Segment assets include all assets (excluding operating cash of $1.23 million (2017: $1.45 million) which is included in the cash segment) used by the Surf Hardware International business segment and consist primarily of trade and other receivables, inventories, plant and equipment and intangibles, net of related provisions. 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. Profit from continuing operations before income tax expense includes the following specific items: Gains Private equity investment distributions Expenses Interest and other borrowing cost 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% (2017: 30%) Deferred tax assets not recognised Deferred tax assets recorded not previously recognised Tax effect of amounts which are not deductible (taxable) in calculating taxable income: Non-assessable income/ Non-deductable expenses 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 449 5,230 11,166 21,926 173 2,986 7,908 16,795 31 July 2018 $’000 31 July 2017 $’000 139 1,735 (149) 1,725 1,725 1,725 7,178 2,153 - (321) 144 (102) (149) 1,725 1,204 2,421 7,658 (395) 9,684 9,684 9,684 32,924 9,877 409 - 49 (256) (395) 9,684 (503) 31 July 2018 $’000 5,294 31 July 2017 $’000 5,886 Development Properties - 297 58 59 150th ANNUAL REPORT 2018 I Year ended 31 July 2018150th ANNUAL REPORT 2018 I Year ended 31 July 2018INVESTING TOGETHER FOR A SECURE FUTUREGOWING BROS. LIMITED                     9. Current Trade and Other Receivables 16. Non-Current Private Equities As at Trade debtors Less: Provision for doubtful debts Balance at end of year 10. Other Current Assets 31 July 2018 $’000 31 July 2017 $’000 8,015 (226) 7,789 7,770 (243) 7,527 Prepayments 1,271 1,220 For the year ended 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 11. Current Inventories At cost or net realisable value Raw materials and finished goods Balance at end of year 12. Current Loan Receivable Changes in fair values of private equities at fair value through the profit or loss are recorded in other income. 17. Non-Current Development Properties 6,234 6,234 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 18. Non-Current Investment Properties Interest on loans to property developers held in the prior year were charged at commercial rates. 13. Non-Current Receivables Loans to employees Other loans Balance at end of year 14. Non-Current Loan Receivable 1 566 567 2 758 760 Balance at beginning of year Additions Disposal proceeds Net loss on disposal Transfers in/(out) Amortisation on incentives Net gain from fair value adjustment Balance at end of year Loan receivable 1,400 - 15. 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. 33,969 3,224 1,136 (1,546) - - 36,783 47,774 (2,195) 4,749 (518) (21,537) 5,696 33,969 Amounts recognised in profit of loss for investment properties Rental revenue Direct operating expenses from rental generating properties Net loss on disposal Gain on revaluation Changes in fair values of investment properties are recorded in other income. 31 July 2018 $’000 31 July 2017 $’000 3,301 279 839 (543) (427) 3,449 13,707 438 14,145 226,661 26,276 (896) (11) 297 (1,249) 5,600 256,678 19,829 (8,342) (11) 5,600 17,076 2,679 (318) 1,449 (509) - 3,301 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 60 61 150th ANNUAL REPORT 2018 I Year ended 31 July 2018150th ANNUAL REPORT 2018 I Year ended 31 July 2018INVESTING TOGETHER FOR A SECURE FUTUREGOWING BROS. LIMITED       18. Non-Current Investment Properties (Continued) 19. Non-Current Property, Plant and Equipment Valuation Method Weighted average cap rate 2018 Weighted average cap rate 2017 31 July 2018 $’000 31 July 2017 $’000 Sub-regional shopping centres (Coffs Central & Port Central) Neighbourhood shopping centres (Kempsey Central and Moonee Marketplace) Other properties (a) (a) (b) 6.25% 7.25% n/a 6.47% 199,861 173,280 7.38% n/a 48,800 8,017 256,678 45,300 8,081 226,661 (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 2018 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 2018 Opening net book amount Acquired on business combination (note 33) Additions Disposals Transfers in/(out) Revaluation to fair value Depreciation charge Closing net book amount At 31 July 2018 Cost or fair value Accumulated depreciation Net book amount Year ended 31 July 2017 Opening net book amount Acquired on business combination (note 33) 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 Freehold Property $’000 Motor vehicles $’000 Furniture, fittings & equipment $’000 6,401 247 - - - - 791 (44) 7,148 7,565 (417) 7,148 - 6 - - - (67) 186 505 (319) 186 1,180 - 727 - - - (492) 1,415 7,304 (5,889) 1,415 Freehold Property $’000 Motor vehicles $’000 Furniture, fittings & equipment $’000 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  Total $’000 7,828 - 733 - - 791 (603) 8,749 15,374 (6,625) 8,749  Total $’000 4,890 887 297 (5) 1,735 493 (469) 7,828 13,850 (6,022) 7,828 Revaluation to fair value uplifts on property, plant and equipment are recorded in equity. 62 63 150th ANNUAL REPORT 2018 I Year ended 31 July 2018150th ANNUAL REPORT 2018 I Year ended 31 July 2018INVESTING TOGETHER FOR A SECURE FUTUREGOWING BROS. LIMITED                                                    20. Non-Current Intangibles 22. Other Non-Current Assets As at Goodwill Brand names Patents Balance at end of year 31 July 2018 $’000 31 July 2017 $’000 2,383 1,719 200 4,302 2,383 1,050 117 3,550 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 and brand names have 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 $6.0 million. Key assumptions include: (a) 12.5% discount rate; (b) 5% per annum projected net revenue 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. As at Other assets 23. Current Trade and Other Payables Trade creditors Other creditors and accruals Balance at end of year 24. Current Borrowings Bill payable – secured Commercial advance facility - secured Trade facility – secured Finance lease – secured Balance at end of year 31 July 2018 $’000 2,025 31 July 2017 $’000 1,839 2,140 2,571 4,711 - 336 112 7 455 5,507 4,395 9,902 8,675 - 644 11 9,330 21. Deferred Tax Assets As at The balance comprises temporary differences attributable to: Employee benefits Accruals Equities Private equities Derivatives Tax losses Other Net deferred tax assets Movements: Opening balance at 1 August Acquired on business combination (note 33) (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 2018 $’000 31 July 2017 $’000 361 336 - 2,124 212 1,725 312 5,070 4,631 - 439 5,070 841 4,229 5,070 329 915 1,229 1,655 220 - 283 4,631 4,191 258 182 4,631 1,534 3,097 4,631 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 27. 25. Current Tax Liabilities As at Income tax 26. Current Provisions Employee Entitlements 27. Non-Current Borrowings Bill payable - secured Commercial advance facility - secured Balance at end of year 31 July 2018 $’000 357 31 July 2017 $’000 2,085 1,222 1,075 91,345 664 92,009 49,023 - 49,023 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. 64 65 150th ANNUAL REPORT 2018 I Year ended 31 July 2018150th ANNUAL REPORT 2018 I Year ended 31 July 2018INVESTING TOGETHER FOR A SECURE FUTUREGOWING BROS. LIMITED                                       27. Non-Current Borrowings (Continued) 27. Non-Current Borrowings (Continued) Total secured liabilities The total secured liabilities (current and non-current) are as follows: Bills payable¹ Trade facility – secured² Commercial advance facility – secured³ Finance lease – secured Assets pledged as security 31 July 2018 $’000  31 July 2017 $’000  91,345 112 1,000 7 92,464 57,698 644 - 11 58,353 1$1.6 million bill is secured against 328-332 Bong Bong St, Bowral. The facility has a total facility limit of $1.65 million and interest is charged at BBSY plus 1.90%. ¹$89.745 million bill is secured against Port Central Shopping Centre, Coffs Central Shopping Centre, Mooney Marketplace Shopping Centre and Kempsey Central Shopping Centre (the “SC properties”). The facility entered into during the year consists of two tranches, the first tranche is a non-revolving facility, has a facility limit of $86 million (fully drawn at 31 July 2018), interest on the outstanding principal is charged at the BBSY rate p.a. and a line fee is charged at a fixed rate of 2.35% p.a. on the first tranche facility limit. The second tranche is a revolving facility, has a facility limit of $30 million, interest on the outstanding principal is charged at BBSY plus 0.70% p.a. and a line fee is charged at a fixed rate of 1.65% p.a. on the second tranche facility limit. At 31 July 2018 the current interest rate that applies to amounts advanced is 2.05% p.a. for the first tranche and 2.75% p.a. for the second tranche. The lender requires the Group and SC properties to meet certain financial ratios: the SC properties must have a minimum interest coverage ratio of 1.75 times; the Group must have a minimum interest coverage ratio of 1.5 times; the combined facility limit of the first and second tranches must not to exceed 55% of the aggregate market value of the SC properties; and the Group’s gearing ratio must not exceed 50%. ²$0.112 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, and Surf Hardware International Asia Pty Ltd. The facility was revised during the year and has a total facility limit of $2 million, interest is charged at the trade interest rate determined by the lender at the date of drawn down plus 2.5%. At 31 July 2018 the current interest rate that applies to amounts advanced is 4.90%. ³$1 million commercial advance 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, and Surf Hardware International Asia Pty Ltd. The facility entered into during the year has a total facility limit of $1 million (fully drawn at 31 July 2018), interest is charged at BBSY plus 3.0%. At 31 July 2018 the current interest rate that applies to amounts advanced is 5.09%. As at Financing Arrangements Unrestricted access was available at balance date to the following lines of credit: 31 July 2018 $’000 31 July 2017 $’000 ¹Of the $1.89 million (2017: $1.36 million) remaining trade facility, $0.15 million (2017: $0.15 million) has been used for bank guarantees. Off-balance sheet There are no off-balance sheet borrowings or related contingencies other than the amount secured for bank guarantees referred above. 28. Non-Current Provisions As at Employee entitlements 29. 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 33) 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 31 July 2018 $’000 469 31 July 2017 $’000 498 291 315 30,139 6,179 688 37,612 33,915 - 2,493 1,204 37,612 291 37,321 37,612 303 315 27,699 5,047 551 33,915 25,861 729 7,828 (503) 33,915 398 33,517 33,915 Total facilities Secured bank overdrafts Secured bill facilities Secured trade facility Secured commercial advance facility Used at balance date Secured bill facilities Secured trade facility Secured commercial advance facility Unused at balance date Secured bank overdrafts Secured bill facilities Secured trade facility¹ Secured commercial advance facility - 117,650 2,000 1,000 120,650 91,345 112 1,000 92,457 - 26,305 1,888 - 28,193 1,000 82,240 2,000 - 85,240 57,698 644 - 58,342 1,000 24,542 1,356 - 26,898 66 67 150th ANNUAL REPORT 2018 I Year ended 31 July 2018150th ANNUAL REPORT 2018 I Year ended 31 July 2018INVESTING TOGETHER FOR A SECURE FUTUREGOWING BROS. LIMITED               30. Contributed Equity Share capital Ordinary shares fully paid Movements in ordinary share capital Date Details 31/07/2017 Balance 27/06/2018 Share buy back 31/07/2018 Balance Number of shares 2018 Number of shares 2017 2018 $’000 2017 $’000 53,632,915 53,680,259 12,476 12,611 Number of shares 53,680,259 (47,344) 53,632,915 Issue price per share 2.84 $’000 12,611 (135) 12,476 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 is in place for the final dividend declared on 14 September 2018. The last date for the receipt of an election for participation in the Dividend Reinvestment Plan is 2 November 2018. 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 47,344 shares were bought back during the year (2017: 11,940). 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. 31. 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 2018 $’000 31 July 2017 $’000 90,503 - 90,503 11,851 3,224 (967) 14,108 1,037 791 (237) 1,591 (162) 302 140 106,342 90,503 - 90,503 13,395 (2,195) 651 11,851 692 493 (148) 1,037 - (162) (162) 103,229 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. 68 69 150th ANNUAL REPORT 2018 I Year ended 31 July 2018150th ANNUAL REPORT 2018 I Year ended 31 July 2018INVESTING TOGETHER FOR A SECURE FUTUREGOWING BROS. LIMITED          32. Dividends As at Ordinary shares 2017 final dividend of 6.0 cents (2016: 6.0 cents final) per share 2018 interim dividend of 6.0 cents (2017: 6.0 cents interim) per share Total dividends declared Dividends paid in cash 31 July 2018 $’000 31 July 2017 $’000 3,221 3,221 6,442 6,442 3,221 3,221 6,442 6,442 Franked dividends declared and paid during the year were fully franked at the tax rate of 30% (2017: 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 13 November 2018 out of retained profits at 31 July 2018 is $3,217,975. 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 2018 and will be recognised in subsequent financial reports. Franked dividends The franked portions of the final dividends declared after 31 July 2018 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 2019. Franking credits available for subsequent financial years (tax paid basis) 6,678 9,762 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. 33. 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: 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 33. 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 2018 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 liabilities acquired $’000 1,707 4,655 10,392 324 887 1,050 258 19,273 $’000 1,726 989 334 17 729 1,861 5,656 The fair value of assets and liabilities acquired were previously recorded on a provisional basis. The Group has retrospectively adjusted the fair value of certain identifiable assets and liabilities recorded in prior period based on new information obtained since the data of acquisition about the facts and circumstances that existed at the date of acquisition. The fair value of identifiable assets and liabilities acquired are no longer recorded on a provisional basis. Goodwill The Group has measured the fair value of identifiable assets and liabilities acquired at acquisition date 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 (13,617) 2,383 The goodwill is attributed to Surf Hardware International's strong position in the global surf related hardware market & future growth potential. Goodwill is not deductible for tax purposes. Revenue and profit contribution During the year ended 31 July 2018, Surf Hardware International contributed sales revenue of $37,188,969 (2017: $24,546,236 for the period from acquisition to 31 July 2017) and a loss before tax of $253,137 (2017:$2,080,601) to the Group’s results. This loss includes an amount of $512,347 (2017: $2,577,653) relating to fair value adjustments made to Surf Hardware International’s inventory on acquisition. 70 71 150th ANNUAL REPORT 2018 I Year ended 31 July 2018150th ANNUAL REPORT 2018 I Year ended 31 July 2018INVESTING TOGETHER FOR A SECURE FUTUREGOWING BROS. LIMITED     33. Business Combination (Continued) 36. Related Parties (Continued) Acquisition costs Acquisition costs of $nil (2017: $473,143) were expensed in the consolidated statement of profit or loss in relation to the acquisition of Surf Hardware International. Acquired receivables On acquisition the gross contractual amount for trade receivables due was $4,729,720, of which $74,601 was expected to be uncollectible. 34. Remuneration of Auditors Audit and review – parent entity Audit and review – subsidiary companies Tax services 35. Commitments for Expenditure 31 July 2018 $ 31 July 2017 $ 105,000 62,500 79,500 247,000 102,000 60,000 68,000 230,000 Capital commitments – Private equities The Group has uncalled capital commitments of up to $1,132,923 (2017: $1,528,000) in relation to private equity investments held at year end. Capital commitments – Investment properties The Group has capital commitments of $1,342,517 (2017: $18,939,143) in relation to construction works on investment properties at year end. Operating lease commitments The Group has entered into leases for commercial premises, motor vehicles, and office equipment. Commitments for minimum lease payments in relation to non-cancellable operating leases are payable as follows: 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 36 to 38. 31 July 2018 $ 31 July 2017 $ 1,723,628 - 78,380 (55,718) 1,746,290 1,104,593 17,250 91,803 (321) 1,213,325 Movement in shares Key management person J. E. Gowing J. G. Parker Prof. J. West S. J. Clancy 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-16 No. 20,881,150 55,000 397,581 5,000 344,707 the year No. - - - - 5,000 31-Jul-17 No. 20,881,150 55,000 397,581 5,000 349,707 the year No. - - 80,000 - - 31-Jul-18 No. 20,881,150 55,000 477,581 5,000 349,707 Within one year Later than one year but not later than five years Later than five years 36. Related Parties 922 909 30 1,861 1,193 1,539 168 2,900 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 (2017: $nil). Transactions with key Management Personnel & Directors 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, Prof. J. West and S. J. Clancy. Those persons that were also Directors during the year ended 31 July 2017 were Messrs J. E. Gowing, J. G. Parker, R. D. Fraser, Prof. J. West and S. J. Clancy. Key management person Transaction type J. E. Gowing J. E. Gowing Marketing services Associate director services 31 July 2018 $ 82,250 10,950 31 July 2017 $ 44,640 3,650 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 $36,150 for the year (2017 $34,094). Dealings were at commercial rates. The sons of Mr J E Gowing provided marketing and accounting services at market rates during the year on a casual basis, $46,100 (2017: $10,546) and associate director services $10,950 (2017: $3,650). There were no other transactions with Directors and Director related entities and Executives. 72 73 150th ANNUAL REPORT 2018 I Year ended 31 July 2018150th ANNUAL REPORT 2018 I Year ended 31 July 2018INVESTING TOGETHER FOR A SECURE FUTUREGOWING BROS. LIMITED37. Interests in Other Entities (Excluding Joint Ventures) 38. Interests in Joint Ventures The Group’s principal subsidiaries and other interests are set out below: 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. 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. 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 Pacific Coast Developments 357 Pty Ltd Pacific Coast Developments 357 Fund 1868 Capital Pty 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 Ltd* 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* Gowings Master Trust 1868 High Yield Trust Gowings Life Sciences Trust Gowing Bros Management Services Pty Ltd Coastbeat Pty Ltd Country of Incorporation Ownership Interest % 2018 Ownership Interest % 2017 Australia Australia Australia Australia Australia Australia Australia Australia Australia France England and Wales Australia Australia United States of America United States of America United States of America Japan Australia Brazil Australia Australia Australia Australia Australia 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 - 100 100 100 100 100 100 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 - - - - - *SHI Holdings Pty Limited and controlled entities acquired by Gowings SHI Pty Ltd during the prior year (note 33). No other interests in subsidiaries or other entities (excluding joint ventures) were held by the Group in the 31 July 2018 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 detailed in note 27, 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 Investment 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 2018 $’000 31 July 2017 $’000 70 8 78 3,000 3,000 3,078 17 - 17 1,600 1,600 1,617 1,461 35 40 75 3,000 3,000 3,075 5 1,675 1,680 - - 1,680 1,395 $1.6 million of borrowings is secured against investment properties of Regional Retail Properties (note 27). 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 (2017: 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 2018 31 July 2017 10.15c 10.15c 53,675,837 $5,453,000 43.29c 43.29c 53,683,040 $23,240,000 74 75 150th ANNUAL REPORT 2018 I Year ended 31 July 2018150th ANNUAL REPORT 2018 I Year ended 31 July 2018INVESTING 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 2018 $’000 31 July 2017 $’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 Statement of Profit or Loss and other Comprehensive Income Net profit after income tax Total comprehensive income 7,318 344,069 351,387 3,922 128,863 132,785 218,602 12,476 90,503 14,108 1,591 99,924 218,602 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 31 July 2018 $’000 31 July 2017 $’000 6,112 8,923 25,358 24,159 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 35 (2017: Uncalled capital commitments for private equities as noted in note 35). Parent entity contingent liabilities The Company has no contingent liabilities at year end (2017: None). 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 (2017: None). 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 property, plant and equipment Net loss on sale of investment properties Revaluation of investment properties to market value Revaluation of equities and private equities to market value Revaluation of derivative to market value Borrowing costs relating to financing activities (derivatives) Borrowing costs relating to financing activities (borrowings) 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 31 July 2018 $’000 31 July 2017 $’000 5,453 1,429 603 1,546 427 - 11 (5,600) (279) 418 1,584 192 - (867) (184) 402 327 118 (1,368) 4,212 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 43. Changes in Liabilities Arising from Financing Activities Liabilities from financing activities Opening balance – 31 July 2017 Cash flows from financing activities (Gains)/ loss on disposal or revaluation (non-cash) Borrowing costs expense (non-cash) Borrowing costs capitalised (non-cash) Derivatives¹ Borrowings² 733 58,353 (2,027) 33,685 31,658⁶ 418 - 418 1,584³ 192⁴ 1,776 - 234⁵ 234 Closing balance – 31 July 2018 708 92,464 ¹ Relates to current derivatives. ² Relates to current and non-current borrowings. Refer to note 24 and note 27. ³ Relates to termination costs of embedded derivatives recorded as borrowing costs expense. ⁴ Relates to non-cash interest expense recorded as borrowing costs expense. ⁵ Relates to non-cash loan establishment fees. ⁶ Relates to the following cash flows from financing activities for the year ended 31 July 2018: -Proceeds from borrowings -Repayments from borrowings -Payments for derivatives 44. Subsequent Events 33,764 (79) (2,027) 31,658 No matter or circumstance has arisen since the end of the financial year other than the dividend declared (refer note 32), 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. 45. Other Information 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: Facsimile: Email: Website: 61 2 9264 6321 61 2 9264 6240 info@gowings.com www.gowings.com Gowing Bros. Limited shares are listed on the Australian Securities Exchange. 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. 76 77 150th ANNUAL REPORT 2018 I Year ended 31 July 2018150th ANNUAL REPORT 2018 I Year ended 31 July 2018INVESTING 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 40 to 77 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 2018 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 2018 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 2018, I declare that, to the best of my knowledge and belief, there have been no contraventions of: (a) (b) the auditor independence requirements as set out in the Corporations Act 2001 in relation to the audit; and any applicable code of professional conduct in relation to the audit. This declaration is in relation to the Gowing Bros. Limited and the entities it controlled during the year. Professor J. West Director Sydney 11 October 2018 J. E. Gowing Director Sydney 11 October 2018 Sydney, NSW 11 October 2018 S Grivas Partner 78 79 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 150th ANNUAL REPORT 2018 I Year ended 31 July 2018150th ANNUAL REPORT 2018 I Year ended 31 July 2018INVESTING TOGETHER FOR A SECURE FUTUREGOWING BROS. LIMITED INDEPENDENT AUDITOR’S REPORT INDEPENDENT AUDITOR’S REPORT (CONTINUED) 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 2018, 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) (b) giving a true and fair view of the Group’s financial position as at 31 July 2018 and of its financial performance for the year then ended; and complying with Australian Accounting Standards and the Corporations Regulations 2001. Basis for Opinion We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report. We are independent of the Group in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (“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. Key Audit Matter How our audit addressed the key audit matter Valuation of subregional and neighbourhood shopping centre investment properties and investment properties under development Note 18 The aggregate fair value of the Group’s subregional and neighbourhood shopping centre investment properties and investment properties under development as at 31 July 2018 is $248.661 million, representing 70.3% of the Group’s total assets as at that date. The fair values of the Group’s investment properties and investment properties under development 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 and investment properties under development 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 and investment properties under development 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 and investment properties under development 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. Valuation of Unlisted Equities Note 2, 15 & 16 At 31 July 2018 the Group owned investments of $27.247 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 of 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. 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 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.150th ANNUAL REPORT 2018 I Year ended 31 July 2018150th ANNUAL REPORT 2018 I Year ended 31 July 2018INVESTING TOGETHER FOR A SECURE FUTUREGOWING BROS. LIMITED INDEPENDENT AUDITOR’S REPORT (CONTINUED) INDEPENDENT AUDITOR’S REPORT (CONTINUED) INDEPENDENT AUDITOR’S REPORT (CONTINUED) Responsibilities of the Directors for the Financial Report 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 annual report for the year ended 31 July 2018, 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. 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 such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. In preparing the financial report, the directors are responsible for assessing the ability of the Group to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so. • Auditor’s Responsibilities for the Audit of 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 Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether such internal control as the directors determine is necessary to enable the preparation of the financial due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. guarantee that an audit conducted in accordance with Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected In preparing the financial report, the directors are responsible for assessing the ability of the Group to to influence the economic decisions of users taken on the basis of this financial report. continue as a going concern, disclosing, as applicable, matters related to going concern and using the As part of an audit in accordance with the Australian Auditing Standards, we exercise professional judgement and maintain professional going concern basis of accounting unless the directors either intend to liquidate the Group or to cease scepticism throughout the audit. We also: operations, or have no realistic alternative but to do so. • by the directors. Auditor’s Responsibilities for the Audit of the Financial Report 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. • Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control. conducted in accordance with Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this financial report. • Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and, based on the audit evidence • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made 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: • 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. obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial report or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern. Identify and assess the risks of material misstatement of the financial report, whether due to fraud • Evaluate the overall presentation, structure and content of the financial report, including the disclosures, and whether the financial or error, design and perform audit procedures responsive to those risks, and obtain audit evidence report represents the underlying transactions and events in a manner that achieves fair presentation. that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a • Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group 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 to express an opinion on the financial report. We are responsible for the direction, supervision and performance of the Group audit. We control. remain solely responsible for our audit opinion. Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control. • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting We also provide the directors with a statement that we have complied with relevant ethical requirements regarding independence, and estimates and related disclosures made by the directors. to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. • 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 From the matters communicated with the directors, we determine those matters that were of most significance in the audit of the financial or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. report of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be report to the related disclosures in the financial report or, if such disclosures are inadequate, to communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of benefits of such communication. 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. • • 82 83 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. 150th ANNUAL REPORT 2018 I Year ended 31 July 2018150th ANNUAL REPORT 2018 I Year ended 31 July 2018INVESTING TOGETHER FOR A SECURE FUTUREGOWING BROS. LIMITED INDEPENDENT AUDITOR’S REPORT (CONTINUED) REPORT ON THE REMUNERATION REPORT Opinion on the Remuneration Report We have audited the Remuneration Report included in pages 36 to 38 of the directors’ report for the year ended 31 July 2018. In our opinion, the Remuneration Report of Gowing Bros. Limited for the year ended 31 July 2018 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 11 October 2018 S Grivas Partner 84 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 85 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 150th ANNUAL REPORT 2018 I Year ended 31 July 2018150th ANNUAL REPORT 2018 I Year ended 31 July 2018INVESTING TOGETHER FOR A SECURE FUTUREGOWING BROS. LIMITED  

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