Gowing Bros. Limited
Annual Report 2020

Plain-text annual report

152nd ANNUAL REPORT | For the year ended 31 July 2020 Est. 1868 Investing together for a secure future Gowing Bros. Limited ABN 68 000 010 471 Suite 21, Jones Bay Wharf 26 – 32 Pirrama Rd, Pyrmont NSW 2009 T: 61 2 9264 6321 F: 61 2 9264 6240 www.gowings.com F I N A N C I A L R E P O R T | Y e a r e n d e d 3 1 J u l y 2 0 2 0 Managing Directors Review of Operations When I think back to the start of this year what a different world and expected outlook it was. Now as I write this six months since the last shareholder update in April we have experienced such a sea of change and degree of uncertainty caused by a pandemic, truly unprecedented in the modern era. At Gowings we have navigated this calamity to the best of our ability, always putting the safety of our customers and team members to the forefront. We were first movers in deploying hand sanitisers and safe distancing practices in our shopping centres and facilitated work from home practices to keep team members safe. All members of the team including senior management and the board of directors have taken a temporary cut in remuneration. To underpin the viability of our retail partners, with the support of our bank, CBA, we provided a blanket 3-month rental abatement for our smaller retailers for the months of April, May and June. Now we are a few months into the pandemic, how have we travelled and what does the future hold? Most of our retailers have paid rent for July, August and September. In fact, we have received approx. 80% of the scheduled rent for this period. Most of the unpaid rent pertains to listed fashion groups who are trying to use the crisis to renegotiate their legal commitments. August reported sales and foot traffic figures were at an all-time record for that month! The pandemic has caused havoc for most retail businesses in Australia, as we went through lockdown, came out of lockdown and then faced the threat of a second lockdown, with the outbreak in Victoria. Ironically our shopping centres based on the Mid North Coast of NSW have fared fairly well due to their isolated position approx. halfway between Sydney and Brisbane. We have also been the beneficiary of the increased working from home trend, which we believe will see many Australians choose to leave the big cities and relocate to well serviced regional centres like Port Macquarie, Kempsey and Coffs Harbour. COVID 19 IMPACTS AND RESPONSE During the COVID-19 outbreak, Gowings has taken a proactive approach to ensuring the health and wellbeing of all those who visit our retail venues and work within them. We were the first shopping centre owner in the mid north coast NSW region to implement hand sanitisers and hygiene signage at our venues. We have maintained vigilance throughout this period with our hygiene, social distancing practices and signage in compliance with regulations and regularly updated our customers, retailers and staff regarding the measures in place. We supported all our specialty retailers by offering them a three month rent moratorium from April to June to ensure continued trade wherever possible. This severely impacted our performance during that time and is a major reason for the decline in the net income derived from Investment Properties when compared to the prior year. We also worked closely with our fresh food and dining retailers on initiatives, including an e-commerce platform, to maximise their takeaway and delivery offer during the period that food courts were closed for eat in dining. Increased cleaning routines implemented Some of the safety measures in place:  Hand sanitizers installed throughout the centres   Signage at all entry points and throughout the centres  Weekly toolbox meetings with cleaners and security guards  Daily COVID-19 safety check at all centres  As an additional security measure, face masks are mandatory for staff, cleaners and security teams  Retailers are sent updated protocols as they come through and on a monthly ongoing basis  Retailers assisted in developing in-store COVID-19 safety plans  Social distancing floor stickers throughout centres   UV sanitisation of reticulated air implemented at Majestic Cinema in Kempsey Central  Food Courts have been reconfigured to maintain social distancing Independent contractor review of adopted protocols Gowing Bros. Limited INVESTING TOGETHER FOR A SECURE FUTURE 1 F I N A N C I A L R E P O R T | Y e a r e n d e d 3 1 J u l y 2 0 2 0 Managing Directors Review of Operations (continued) Our international surf business Surf Hardware International has been, to our greatest surprise, a significant beneficiary of the pandemic. Australian surfers and surfers all around the world had more time during lockdown and were focused on improved personal fitness. They dusted off their surfboards and stocked up on new surfing equipment. The last four months sales and profits have been the best on record. At Sawtell Commons, our residential subdivision, we have completed stage 1, almost completed stage 2A and the major creek crossing work is complete. Sawtell Commons Is located 10km south of Coffs Harbour CBD and is the only ready to go subdivision in Coffs Harbour at the moment. Sales enquiries for stage 2 have been solid. All of stage 1 has been settled and our display village is nearing completion. Sawtell Commons will also be the beneficiary of the regional relocation trend I mentioned earlier. It should also benefit from the significant major Regional State infrastructure projects in the area, including the Coffs Harbour Highway Bypass. Earlier this year, motivated by the pandemic, we decided to permanently relocate Gowings head office from Pyrmont Sydney to the new Gowings Building on the eastern end of Coffs Central. This move will free up some capital from the sale of the Pyrmont offices to be applied against debt or redeployed to other investments. The move will also ensure there are more boots on the ground at our major place of business. I anticipate that the move will generate savings and efficiencies of approx. $800K per annum. OUTLOOK Looking to the future, I hope we have seen the worst of the financial and health crisis brought on by this pandemic. However, as the past few months has shown we cannot anticipate the future particularly in this period of unprecedented uncertainty. We need to continue to work together as a company and a community to navigate our way through the crisis with the hope of emerging stronger as a group on the other side. I would like to thank all our team members and the wider Gowings community for their support during this period. J. E. Gowing Director Gowing Bros. Limited INVESTING TOGETHER FOR A SECURE FUTURE 2 F I N A N C I A L R E P O R T | Y e a r e n d e d 3 1 J u l y 2 0 2 0 Managing Directors Review of Operations (continued) On behalf of the Board of Directors, I am pleased to comment on the results for the year ended 31 July 2020. FINANCIAL REVIEW Net Assets per Share $4.43 $4.52 $4.02 $3.83 $3.64 $5.00 $4.50 $4.00 $3.50 $3.00 $2.50 $2.00 $1.50 $1.00 $0.50 $0.00 2016 2017 2018 2019 2020 Net assets per share before tax on unrealised gains on equity, investment property, and freehold property decreased (5.0%) to $3.64 as at 31 July 2020, mainly due to the change in market value of the strategic equity investment portfolio. Total shareholder return was (2.3%) including the decrease in net assets per share and the 10.0c paid to Shareholders during the year. Net Profit / (Loss) After Tax ($million) $30.0 $25.0 $20.0 $15.0 $10.0 $5.0 $0.0 -$5.0 -$10.0 -$15.0 -$20.0 -$25.0 $22.0 $23.2 $6.5 2016 2017 2018 2019 $4.7 2020 -$19.4 Net Profit/(Loss) After Tax for the year ended 31 July 2020 includes underlying income from ordinary activities such as rent, interest, dividends and revaluations of the investment portfolio. This year’s profit/(loss) includes the sale of Moonee Market shopping centre and the profit generated from the sale of stage 1 of Sawtell Commons lessoned by the negative COVID-19 impact on investment property income. Gowing Bros. Limited INVESTING TOGETHER FOR A SECURE FUTURE 3 F I N A N C I A L R E P O R T | Y e a r e n d e d 3 1 J u l y 2 0 2 0 Managing Directors Review of Operations (continued) Dividends Declared per Share $0.12 $0.12 $0.12 $0.10 $0.08 $0.14 $0.12 $0.10 $0.08 $0.06 $0.04 $0.02 $0.00 2016 2017 2018 2019 2020 The Company declared a total dividend of 8.0c in fully franked dividends for the 2020 year. The directors have suspended the dividend reinvestment plan for the final dividend declared to be paid on 29 October 2020. The Company has maintained a prudent approach to dividends given the capital requirements of the company having various development and investments opportunities currently either underway or under consideration. KEY METRICS 31 July 2020 31 July 2019 31 July 2018 31 July 2017 31 July 2016 Net Assets(1) Net Assets per Share(2) Net profit after tax Earnings per Share Dividends per Share Total Shareholder Return $195.5m $3.64 $4.7m 8.82c 10.0c (2.3%) $206.8m $3.83 ($19.4)m (36.07)c 11.0c (12.8%) $242.7m $4.52 $6.5m 12.18c 12.0c 4.7% $237.9m $4.43 $23.2m 43.29c 12.0c 13.2% $215.9m $4.02 $22.0m 40.9c 12.0c 9.8% (1) Net Assets before tax on unrealised gains on equities, investment properties, and freehold properties. (2) Net Assets per share before tax on unrealised gains on equities, investment properties, and freehold properties. The Company meets the definition of a Listed Investment Company (“LIC”) for taxation purposes. Certain shareholders of the Company, including individuals, trusts, partnerships and complying superannuation entities may benefit from the Company’s LIC status by being able to claim a tax deduction for the part of the dividend that is attributable to LIC capital gains made by the Company. The amount that shareholders can claim as a tax deduction depends on their individual situation. As an example, an individual, trust (except a trust that is a complying superannuation entity) or partnership who is an Australian resident taxpayer at the date a dividend is paid would be entitled to a tax deduction equal to 50% of the amount attributable to LIC capital gains included in the dividend. Gowing Bros. Limited INVESTING TOGETHER FOR A SECURE FUTURE 4 F I N A N C I A L R E P O R T | Y e a r e n d e d 3 1 J u l y 2 0 2 0 Managing Directors Review of Operations (continued) PROFIT AND LOSS STATEMENT For the year ended Net Income from Ordinary Activities Interest Income Investment Properties Development Properties Equities – Dividend Income Managed Private Equities Surf Hardware International Total Net Income from Ordinary Activities Head Office Expenses Administration, public company and other Borrowing Costs Operational Profit Gain/(loss) on sale or revaluation Investment properties – unrealised Investment properties – realised Managed private equity – unrealised Managed private equity - realised Derivatives (Fixed Interest Rate Hedge) - unrealised Other Consulting Costs Other Costs Other Income Profit / (loss) before tax Income tax (expense) / benefit Profit / (Loss) after tax 31 Jul 2020 $’000 31 Jul 2019 $’000 211 4,413 736 679 131 1,272 7,442 3,664 495 3,283 (959) 2,115 386 604 (290) (128) - 33 5,044 (297) 4,747 256 7,372 - 726 82 804 9,240 4,280 470 4,490 (28,454) 410 1,228 - (3,319) (154) (12) 24 (25,787) 6,384 (19,403) Net Investment Property income of $4.4 million was 40% lower than the previous year due to the impact of COVID- 19 on the Pacific Coast Shopping Centre portfolio as the Company offered speciality tenants 100% rental abatements for the months of April, May and June to secure the viability of tenants during this period in order to protect the long term value of the portfolio. Net Development Property income of $0.7 million represents the income derived during the year from the sale and settlement of the first 8 lots in the Sawtell Commons Residential sub-division development. Surf Hardware International net income of $1.3 million represented 58% increase over the prior period and mainly relates to prudent expense management and also positive impact to surfing participation rates due to changes in working habits as a result of COVID-19. Overall Total Net Income from Ordinary Activities of $7.4 million was lower 19.5% lower than the previous year. To combat this reduction in net income, head office expense were lowered by 14.4% to $3.7 million. This was mainly through a reduction in staff costs via mitigation strategies that were employed to combat COVID-19. The unrealised loss on investment properties was $1.0 million compared to the prior year of $28.5 million. For more detail on Investment properties please refer to page 13. The realised gain on investment properties of $2.1 million mainly relates to the booked profit on sale of Moonee Market shopping centre that settled on 25 November 2019. The centre was originally purchased in April 2010 and the sale price of $30.5 million represents a capital gain of $14.8 million over the life of the investment. It was also pleasing to note that the movement in the valuation of the fixed interest hedge for the year was only $0.3 million compared to the previous year movement of $3.3 million. Overall, the profit after tax was $4.7 million compared to the previous year which was a loss of $19.4 million. Gowing Bros. Limited INVESTING TOGETHER FOR A SECURE FUTURE 5 F I N A N C I A L R E P O R T | Y e a r e n d e d 3 1 J u l y 2 0 2 0 Managing Directors Review of Operations (continued) GOWINGS AT A GLANCE (At Directors Valuation) Strategic Investments Surf Hardware International (at cost) Boundary Bend Limited Carlton Investments DiCE Molecules BBBSA Finance Murray Darling Food Company NSX Limited Event Hospitality Group Phalla Pharma Limited / TPI Enterprises Limited Hydration Pharmaceuticals Hexima Blackfynn EFTsure Power Pollen Accelerated Ag Technologies Other listed investments Total Private Equity Funds Five V Capital OurCrowd Australia Our Innovation 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 Solitary 30 - Coffs Harbour development land Other properties Borrowings Total Cash and Other Cash Tax liabilities Surf Hardware International consolidation impact1 Fair value impact of Sawtell Commons – residential subdivision2 Other assets & liabilities Total 31 July 2020 $’000 31 July 2019 $’000 16,000 12,216 4,650 2,304 2,400 2,157 900 892 948 1,331 949 403 602 885 4,029 50,666 1,620 1,248 1,788 95 4,751 178,277 19,854 (80,175) 117,956 10,578 3,734 13,250 (1,350) 26,212 15,329 (12,017) (609) - (6,757) (4,054) 16,000 14,834 6,579 2,411 2,400 2,157 2,100 1,494 1,406 1,393 949 403 358 260 5,679 58,423 1,743 1,375 1,303 486 4,907 177,991 47,640 (89,745) 135,886 11,500 3,317 15,249 (1,425) 28,641 9,754 (9,859) 415 (380) (20,991) (21,061) 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 195,531 206,796 (11,456) (15,672) 184,075 191,124 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. Gowing Bros. Limited INVESTING TOGETHER FOR A SECURE FUTURE 6 F I N A N C I A L R E P O R T | Y e a r e n d e d 3 1 J u l y 2 0 2 0 Managing Directors Review of Operations (continued) INVESTMENT PORTFOLIO Strategic Investments Surf Hardware International ($16 million) During the year Surf Hardware International (SHI), like most businesses, was impacted by COVID -19. Each region globally was affected by lockdown measures and other restrictions imposed by local government authorities which had an immediate effect on our revenue during the early stages of the pandemic. While we experienced challenging conditions in our wholesale business due to store closures and other restrictions, our online business performed strongly and increased as a share of our overall revenue during the year. As restrictions started to ease and stores re-opened, we saw a strong rebound in wholesale sales while our online sales remained strong. Increasing rates of surfing participation, a change in working conditions leading to an increase in leisure time along with fiscal support from government authorities which stimulated discretionary expenditure on surfing accessories enabled us to recover from the initial impacts of the pandemic and record a net revenue result slightly up on last year of $42.7 million. A prudent approach to expense management along with stronger margins from our growing online business enabled us to increase our net income over the period to $1.3 million. In addition to the positive trajectory of our online sales growth, an additional highlight during the period was the successful launch of a key product innovation, the FCS H4 fin. A key element of our product strategy is the development of innovative products that provide the business with a competitive advantage and higher margins from premium product. Looking ahead, we will expand our product offer in order to appeal to a broader audience and commence local production of key product categories in order to secure our supply chain. In the upcoming financial year SHI will focus on continuing to drive growth in the online business in order to capitalise on a rapid change in consumer buying patterns. SHI will extend its product offer online in order to appeal to a broader audience and look to optimise our ecommerce platforms. Developing new and recurring sources of revenue in the form of loyalty programs and subscription businesses will also be a focus. Driving a higher share of revenue from direct to consumer sales should lead to an enhanced valuation of the business. Gowing Bros. Limited INVESTING TOGETHER FOR A SECURE FUTURE 7 F I N A N C I A L R E P O R T | Y e a r e n d e d 3 1 J u l y 2 0 2 0 Managing Directors Review of Operations (continued) Boundary Bend ($12.2 million) Boundary Bend is Australia's leading producer of premium extra virgin olive oil and Australia’s largest olive farmer. Boundary Bend produces Australia’s two top selling extra virgin olive oil brands, Cobram Estate and Red Island, and owns 2.3 million producing trees on over 6,575 hectares of pristine Australian farmland located in the Murray Valley region of northwest Victoria. Additionally, Boundary Bend operates a bottling, storage and laboratory facility near Geelong and has groves, an olive mill, bottling facilities, laboratory and administrative offices in Woodland, California. Due to the “biennial bearing” nature of olive groves, the previous year was an off year with lower oil production. The crop produced 6.2 million litres of olive oil this year and 13.1 million litres last year (an ‘on-year’) and the year before 5.4 million litres (an ‘off-year’). This reflects the maturity of recently planted crops becoming producing. Boundary Bend is required to account for their crop in the year of harvest (not when it is sold), which means that the low crop will translate into a material loss for the 2020 financial year, but will likely have a strong reversion for next years ‘on- year’. Boundary Bend suffered through last financial year and early in this financial year due to the high prices of water. The inflows of water into the Murray River over the last few months have been strong and consequently the price of water has softened favouring a reduction in Boundary Bend’s operating costs. Additionally, Boundary Bend reported strong Australian olive oil sales throughout the COVID-19 pandemic with results at least 20% higher across their range. USA olive oil sales have been performing well with gross sales at USD$15.4m vs. US$4.4m last year, this has led to a significant turnaround in the financial performance of the business and they are forecasting a positive EBITDA for this unit in FY 2021. Carlton Investments ($4.7 million) and Event Hospitality Group ($0.9 million) Carlton Investments Limited is a listed investment company, incorporated in 1928 and traded on the ASX. Carlton Investments’ strategy is to invest in established, well managed Australian listed entities that are expected to provide attractive levels of franked dividends and long-term capital growth. Investments are held for the long term and are generally only disposed of through takeover, mergers or other exceptional circumstances that may arise. Carlton Investments do not act as share traders nor do they invest in speculative stocks. Carlton Investments’ primary holding is Event Hospitality and Entertainment (34%) followed by substantial positions in the big 4 Australian Banks (17%) and further positions in BHP, AGL, and Wesfarmers. During the period Carlton made significant acquisitions in Santos, Rio Tinto, Fortescue Metals Group, Link Administration, BHP Group, and Woodside Petroleum. Event Hospitality & Entertainment’s (Event) main divisions are cinema exhibition, hotel operations and ownership alongside property development. Their best-known brands include: Event, Greater Union, Rydges, QT hotels, and Thredbo Alpine Resort. Event has suffered due to COVID-19 restrictions with full year revenue down 22.3% and a net loss after tax of $11.4m. Prior to COVID-19 Event recorded revenue up 2.5% and normalised profit up 2.2%. The group has been able to achieve $140m in cost reductions during the period and Jane Hastings (CEO) believes business will rebound relatively quickly once restrictions are lifted due to pent-up demand. Event has increased their debt facilities to $750m, the majority of which matures in 2023, they have a strong balance sheet, underpinned by a solid property portfolio. Hydration Pharmaceuticals ($1.3 million) Hydralyte markets great tasting clinical hydration products that are scientifically formulated to contain the correct balance of glucose and electrolytes for rapid rehydration. Hydralyte products have up to 75% less sugar and 4 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 effective. Hydralyte continues to secure good sales results in the Canadian market but poor results in the USA. They have been experimenting with a number of different marketing and product placement strategies and have now moved Hydralyte into the baby section at pharmacies, placing them alongside Pedialyte in the hope to accelerate sales. Amazon sales have been growing rapidly, albeit from a low base, where powders have proved more successful online due to shipping constraints. Hydralyte continues to be a mediocre performer in Gowing’s portfolio, however, with improving marketing strategies we hope they can crack the USA market and, through operational efficiencies, draw a positive earnings figure. Gowing Bros. Limited INVESTING TOGETHER FOR A SECURE FUTURE 8 F I N A N C I A L R E P O R T | Y e a r e n d e d 3 1 J u l y 2 0 2 0 Managing Directors Review of Operations (continued) Murray Darling Food Company ($2.2 million) During the year Murray Darling Food Company (MDFC) sold both the Packwood and Bombah properties and consolidated activities to the main property Burrawang West Property (Burrawang) in order to combat the difficult conditions farmers in central NSW continue to face. The proceeds from the sales were used to reduce debt within the group. Burrawang was revalued during the year which saw the property value rise of $2.35 million to an overall carrying value of $12.5 million. This uplift was attributable to the 14 year prospective cashflow from the NSW Biodiversity Conservation Trust. Operationally MDFC had a strong year with overall revenue for the group at $3.77 million which was 26% increase on the prior year. The overall group profit for the year was $0.6 million compared to a loss of $2.28 million in the prior year. As conditions improve in various parts of the country the demand for Dorper stud rams and ewes is increasing and the focus over the next year is to ramp up the operation of the stud to increase stock levels in order to meet the demand. DiCE Molecules ($2.3 million) DiCE Molecules is a privately held US biotechnology company running a technology platform that began at Stanford University and has the potential to revolutionize small molecule drug discovery. Their business model includes the generation of milestone payments and royalty revenue through drug discovery collaborations, alongside the monetization of its own drug development assets. DiCE has been making great progress in 2020, despite the COVID-19 related challenges. DiCE now has an orally available drug candidate approaching clinical development, this candidate has a strong potential for an efficacious and convenient oral treatment for psoriasis. Additionally, DiCE is continuing work on their Sanofi-partnered immunology small molecule program which they are seeking to advance into preclinical studies this year. If these drug developments are executed successfully the potential payoffs are large and Gowings is excited to watch DiCE bring these products forward. BBBSA Finance ($2.4 Million) BBBSA Finance (BBBSA), trading as TrailBlazer Finance, is a specialist financial services lender. It offers business loans, valuations and M&A advice and execution services, specifically tailored for financial intermediaries. Client businesses include mortgage brokerage; 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. In late FY2018 Gowings made a strategic investment and assumed a board seat in BBBSA Finance Pty Ltd. The company has continued to grow and expand, consistent with prior periods. It has been a beneficiary of the Hayne Royal Commission which has further exacerbated the reluctance by major banks to continue to provide credit facilities to SME’s that are cashflow backed. This has enabled TrailBlazer Finance to grow to over $14.4 billion dollars of underlying mortgages, real estate rental contracts and financial planning books that underpin its loan book security. This annuity income serves as the source of cashflows that support and service its loan book. At the time of writing TrailBlazer has no loan defaults and arrears of less than 1% on a loan book of almost $24,000,000 (June 2020). National Stock Exchange of Australia Limited ($0.9 million) NSX owns and operates the National Stock Exchange of Australia; the second largest listings exchange in Australia. NSX is building an alternative exchange, creating a deeper, more liquid and a lower cost of raising capital. Gowings believes NSX has the potential to develop into a Tier 1 listings exchange, providing strong growth by initially targeting lower market capitalisation companies and providing exchange services at lower cost. NSX has had an eventful year with ISignthis investing $4.2m, John Karantzis (founder of Isignthis) stepping into an interim CEO role and the completion of a separate capital raise in May of $3m. The key challenge for NSX is to facilitate connections between brokers and their exchange which will facilitate greater liquidity on their platform and encourage further companies to list. The management team is working on a number of strategies to achieve this and Gowings hopes to see significant progress in the upcoming financial year. Gowing Bros. Limited INVESTING TOGETHER FOR A SECURE FUTURE 9 F I N A N C I A L R E P O R T | Y e a r e n d e d 3 1 J u l y 2 0 2 0 Managing Directors Review of Operations (continued) Phalla Pharma Limited / TPI Enterprises Limited ($0.9 million) Phalla Pharma is an Australian headquartered global pharmaceutical business which uses poppy straws to manufacture drugs such as Morphine, Thebaine, Oripavine, and Codeine. PAL converts the raw material into Active Pharmaceutical Ingredients (API) in Melbourne, which are then processed into Finished Dosage Formula (tablets) via its Norwegian facility and distributed globally. Additionally, PAL sells poppy seed for culinary purposes. PAL had a poor half yearly result through to the end of June 2020 with significant falls in revenue and other income statement items. This was driven by a planned early exit from a non-opiate based supply agreement, lower poppy seed sales volumes, and lower active pharmaceutical ingredients volumes sold to a UK customer who lost their operating license. The company expects modestly lower full year revenue. Longer term, PAL is looking to secure more finished dosage formula contracts which will allow it to capture the full value of its supply chain as opposed to selling active pharmaceutical ingredients which doesn’t allow for full margin capture of their vertical. Hexima ($0.9 million) Hexima is a biotechnology company actively engaged in the research and development of plant-derived proteins and peptides for applications as human therapeutics. Hexima’s lead product (HXP124) is a topical treatment for nail fungus (onychomycosis). HXP124 is an easy to apply solution that is painted onto nails, and rapidly clears fungus from the nail bed. Hexima’s clinical trial results to date indicate that HXP124 is safe and well tolerated, having an industry-leading rate of improvement of infected nails: eliminating the fungal infection in >50% of nails after 6 weeks of daily treatment which is twice as effective as the next best product in that time frame. Hexima is now conducting an Australian Phase IIb clinical trial for HXP124 which will assess the activity of HXP124 after longer dosing and follow-up to allow time for the infected nail to grow out and resolve the infection. Hexima is pleased to report that this trial was recently given Australian ethics approval to proceed and has begun screening for eligible patients. Gowings looks forward to seeing the result from these trials and the eventual move to monetising this drug candidate. Blackfynn ($0.4 Million) Blackfynn is a Philadelphia based start-up focused on helping to solve the unmet need in neurology through building the leading high-quality clinical and patient data ecosystem linked to deep domain expertise. Their objective is to become the de facto clinical partner for every pharmaceutical and biotech company developing medicines for neurodegenerative disease. Blackfynn aims to accelerate the development of new treatments and improve the probability of success of clinical studies. Blackfynn closed a funding expansion of their existing collaboration with the Michael J Fox Foundation and are focusing on three key projects: (1) building an electronic data capture system, (2) conducting analyses to predict Parkinson’s Disease progression, (3) deploying a patient-facing platform that will enable direct acquisition of patient reported outcomes data. This deal provides them substantially increased runway and ability to grow their team and supports the cost of building a high-quality patient and clinical data capture platform. EFTsure ($0.6 million) EFTSure provides Australian organisations access to correct, verified and up-to-date information on their payees through their 'Know Your Payee™’ (KYP) technology. This helps protect companies against fraud and errors made through incorrect, fraudulently changed, or maliciously altered payee information. The year for EFTSure was one of continued growth and while the second half of the year (and certainly the final quarter) was defined by the societal and economic impact of COVID-19, the year concluded having proved that the EFTSure product is highly relevant, their team is resilient and its customers sufficiently loyal to continue to grow through the complex and challenging months ahead. During the year EFTSure grew annual recurring income by 67% with major client wins in the Construction and Property, hospitality, healthcare and professional service sectors. These wins together with 89% of the customer base on yearly contracts place EFTSure in a strong position for future growth. Gowings continues to back EFTSure as the strongest provider for improving the security of electronic transactions and expect them to continue gathering market share. Gowing Bros. Limited INVESTING TOGETHER FOR A SECURE FUTURE 10 F I N A N C I A L R E P O R T | Y e a r e n d e d 3 1 J u l y 2 0 2 0 Managing Directors Review of Operations (continued) PowerPollen Accelerated Ag Technologies ($0.9 million) PowerPollen is an early-stage agricultural technology company based in Iowa, USA, that is working on advanced yield enhancement technology that enables higher yields 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 potentially enabling hybrid production and higher profits in current low profit crops like wheat. This break-through will increase farmer profits and global food supplies that are necessary to feed a population that is expected to grow to 9 billion by the year 2050. PowerPollen continues to advance both its technology and its business agreements, they are now fairly consistently delivering commercially relevant increases in yields and have secured a number of monetizable agreements. PowerPollen closed a US$13 million series B funding round which will accelerate global adoption of their pollination on-demand technology in corn seed and expand innovation to corn grain, wheat, and rice. Gowings convertible note converted during this round and the group also committed additional equity capital, we’re excited by the progress and looking forward to seeing what the team at PowerPollen can deliver in the coming years. Gowing Bros. Limited INVESTING TOGETHER FOR A SECURE FUTURE 11 F I N A N C I A L R E P O R T | Y e a r e n d e d 3 1 J u l y 2 0 2 0 Managing Directors Review of Operations (continued) Private Equity Funds Five V Capital ($1.6 million) Five V Capital was set up and is 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 which has invested in leading businesses across a range of sectors including healthcare, retail, media, consumer, technology, and financial services. The Five V focus is on businesses with an enterprise value of between $20 million and $200 million, where they can take a significant ownership position alongside their partners. 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. Five V have been really pleased with the performance of their portfolio since the pandemic presented itself as a significant issue. Having a starting position of low debt and high liquidity has proven its worth during these challenging times. Their portfolio company management teams have been excellent and invaluable, each of them took swift and decisive action to batten down the hatches to ensure that their respective businesses were able to weather the storm. Five V Capital has finalised fundraising for Fund III, to continue to pursue its investment strategy, with capital commitments now in excess of $350 million. OurCrowd Australia ($1.2 million) OurCrowd is the leading global equity crowdfunding platform for accredited investors, selecting investment opportunities and bringing companies to its global investment community as an opportunity for investment. OurCrowd has reached almost 17,000 investors from over 110 countries and has $1 billion in funds under management with over 110 portfolio companies and funds. Gowings has invested $US 1.1 million into OurCrowd which has now been fully deployed across 25 companies covering healthcare, tech hardware, software, fintech, and mobility. During the period Gowings participated in follow on rounds for Celeno, a smart wi-fi semiconductor company, and enVerid, an air treatment and energy saving tool for HVAC systems. Gowings has now fully deployed their capital allocated to OurCrowd investments but continues to monitor for any further outstanding opportunities and follow-on rounds. As venture capital is typically a long-term investment, we expect returns to be realised over the next few years as our portfolio companies start moving towards trade sales or public listings. Our Innovation Fund ($1.8 million) Our Innovation Fund is an early stage venture capital 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. The fund capitalises 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, 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. The fund currently has portfolio companies across sectors including enterprise software, hardware/devices and financial technology businesses including companies such as Advanced Navigation, Enboarder, and Interclustr. The portfolio investments have had strong performance to date, no new portfolio companies have been invested in this period, and cash remains for several follow-on rounds. Gowing Bros. Limited INVESTING TOGETHER FOR A SECURE FUTURE 12 F I N A N C I A L R E P O R T | Y e a r e n d e d 3 1 J u l y 2 0 2 0 Managing Directors Review of Operations (continued) Pacific Coast Shopping Centre Portfolio Whilst the COVID 19 pandemic brought significant disruption to our shopping centres during the period, we are pleased with the current performance of our regional centres. Foot traffic levels have recovered to be in line with prior year corresponding periods and many retailers are reporting higher sales. Of course, there are retailers who continue to be impacted by the restrictions, whom we will continue to support. Prior to the Federal Government announcing the Retail Code of Conduct, Gowings moved expediently to support its long term specialty retail partners by granting them a 100% rental abatement for the April to June 2020 period. This afforded much needed certainty and support to many small businesses providing a lifeline during one of the worst retail periods in history. Gowings demonstration of its commitment to its retailers was industry leading and meant that we lost only one tenant (travel related) during the period. Importantly, our actions have fostered stronger relationships with our retailers and protected the value of our centres. The financial impact to our business during the period has been on cashflow with rental income down in line with abatements granted. Given our generosity for the quarter through to 30 June 2020, we have been invoicing our retailers 100% since 1 July 2020, of which, to date we have collected 84% of the July invoices. Notably, the retailers who are not paying their rent are some of the largest nationals who appear to have an agenda with landlords. Pleasingly, we implemented a restructure of our leasing operations in February, which has born fruit with occupancy marginally increasing during a difficult period and a large number of lease renewals having been completed. Post year end, we have secured further new retailers with the leasing momentum continuing. We continue to progress various leasing and development opportunities at each of the centres subject to the ongoing environment. Gowing Bros. Limited INVESTING TOGETHER FOR A SECURE FUTURE 13 F I N A N C I A L R E P O R T | Y e a r e n d e d 3 1 J u l y 2 0 2 0 Managing Directors Review of Operations (continued) Moonee Marketplace The centre was purchased in April 2010 and received significant capital reinvestment during the following nine years of ownership including centre refurbishment works and a complete leasing re-mix. Further to the ASX announcement dated 1 November 2019, Gowings was pleased with the sale of Moonee Market. The sale price of $30.5 million representing a passing yield of 6.4%. The sale price exceeded the current book value and delivered an overall capital gain of $14.8m for shareholders. Other Direct Properties Sawtell Commons – Residential Subdivision Sawtell Commons continues with Stage 2 release and already 23 lots have progressed to being pre-sold. Most of the display village homes from stage 1 are now open with the remaining homes due to open shortly. The open house weekend events have attracted over 100 groups through daily. Construction continues on site with stage 2a registration expected before the end of 2020 and stage 2 registration during 2021. Both sales offices onsite and at Coffs Central are operational with plenty of walk-in interest from prospective buyers. Gowing Bros. Limited INVESTING TOGETHER FOR A SECURE FUTURE 14 F I N A N C I A L R E P O R T | Y e a r e n d e d 3 1 J u l y 2 0 2 0 Managing Directors Review of Operations (continued) The Forestry – Development Site The Jetty development site located at 357 Harbour Drive has now been demolished, paving the way for an exciting new mixed-use development for Gowings. DFJ Architecture continue to work closely with stakeholders to progress plans that align with the master plan for the Jetty region. The Gowings development should form a cornerstone in the Council-planned creation of a vibrant Jetty precinct. Gowing Bros. Limited INVESTING TOGETHER FOR A SECURE FUTURE 15 F I N A N C I A L R E P O R T | Y e a r e n d e d 3 1 J u l y 2 0 2 0 Financial Report DIRECTORS’ REPORT REMUNERATION REPORT STATEMENT OF PROFIT OR LOSS STATEMENT OF OTHER COMPREHENSIVE INCOME STATEMENT OF FINANCIAL POSITION STATEMENT OF CHANGES IN EQUITY STATEMENT OF CASH FLOWS NOTES TO THE FINANCIAL STATEMENTS DIRECTORS’ DECLARATION AUDITOR’S INDEPENDENCE DECLARATION INDEPENDENT AUDITOR’S REPORT 17 21 26 27 28 29 30 31 63 64 65 The consolidated financial statements were authorised for issue by the Directors on 30 October 2020. The Directors have the power to amend and reissue the consolidated financial statements. Gowing Bros. Limited INVESTING TOGETHER FOR A SECURE FUTURE 16 F I N A N C I A L R E P O R T | Y e a r e n d e d 3 1 J u l y 2 0 2 0 Director’s Report Your Directors are pleased to present their report on the Company for the year ended 31 July 2020. Results For the year ended Operating profit / (loss) for the year before income tax Income tax (expense) / benefit Net profit / (loss) after income tax Net profit / (loss) attributable to members of Gowing Bros. Limited Dividends 31 July 2020 $'000 31 July 2019 $'000 5,044 (297) 4,747 4,747 (25,787) 6,384 (19,403) (19,403) A final fully franked LIC dividend of 3.0 cents per share was paid to shareholders on 29 October 2020. $1,609,387 An interim fully franked LIC dividend of 5.0c per share was paid to shareholders on 30 April 2020 A final fully franked dividend of 5.0 cents per share was paid to shareholders on 31 October 2019. An interim fully franked dividend of 5.0c per share was paid to shareholders on 30 April 2019 $2,690,050 $2,696,960 $2,689,559 Review of operations The operations of the Company are reviewed in the Managing Director’s ‘Review of Operations’ on page 1. 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 1. Gowing Bros. Limited INVESTING TOGETHER FOR A SECURE FUTURE 17 F I N A N C I A L R E P O R T | Y e a r e n d e d 3 1 J u l y 2 0 2 0 Director’s and Executive’s Interests The following persons were directors, executives or a company secretary of Gowing Bros. Limited either during or since the end of the year. Professor J. West Director since April 2016 and Member of the Audit Committee Non-Executive Chairman BA (Syd), PHD (Harvard) Professor 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 years Total Shares 477,581 J. E. Gowing Managing Director Executive Director, and Member of the Remuneration Committee Director since 1983 21,042,598 Bachelor of Commerce Member of Chartered Accountants Australia and New Zealand, and Member of CPA Australia No other directorships held in listed companies over the past 3 years J. G. Parker Director since 2002 and Chairman of the Audit Committee 57,306 Non-Executive Director Bachelor of Economics Mr. 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 years S. J. Clancy Non-Executive Director Director since April 2016 Chairman of the Remuneration Committee and Member of the Audit Committee 5,000 Diploma of Marketing Mr. 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. R. Ambrogio Bachelor of Economics, CA 10,000 Chief Financial Officer and joint company secretary Mr. 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. Robert’s experience comes from his past employment with Arthur Andersen, XM Holdings, Creative Activation, and MTC Australia. I.H. Morgan Joint Company Secretary Bachelor of Business, Master of Law, Grad Dip Applied Finance and Investment - Mr. Morgan was appointed company secretary on 18 April 2019 and has over 35 years experience as a Company Secretary and Chartered Accountant for businesses operating both in Australia and overseas. Gowing Bros. Limited INVESTING TOGETHER FOR A SECURE FUTURE 18 F I N A N C I A L R E P O R T | Y e a r e n d e d 3 1 J u l y 2 0 2 0 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 Meetings Eligible to attend Attended Meetings Eligible to attend Attended Remuneration Committee Meetings Meetings Eligible to attend Attended Prof J. West J. E. Gowing J. G. Parker S. J. Clancy 4 4 4 4 4 4 4 4 1 - 1 1 - - 1 1 - 2 - 2 - 2 - 2 Given the significant health concerns attributed to the COVID-19 pandemic, in addition to guidelines and restrictions issued by Australian state and federal governments, the Company considers that it is appropriate for members of the Company’s Board and its Committees to communicate electronically. When required, the Board has resolved matters by circular resolution. During the year ended 31 July 2020, meetings were held in person, by telephone and by email. Where necessary, circular resolutions were also approved. Remuneration report The Company’s remuneration report, which forms a part of the Directors’ Report, is on pages 21 to 24. 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 64. 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. Gowing Bros. Limited INVESTING TOGETHER FOR A SECURE FUTURE 19 F I N A N C I A L R E P O R T | Y e a r e n d e d 3 1 J u l y 2 0 2 0 Non-audit services The Company may decide to employ the auditor on assignments additional to their statutory audit duties where the auditor’s expertise and experience with the Company are important. The Board of Directors has considered the position in accordance with advice received from the Audit Committee and is satisfied that the provision of the non-audit services is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The Directors are satisfied that the provision of non-audit services by the auditor, as set out below, did not compromise the auditor independence requirements of the Corporations Act 2001 for the following reasons:  all non-audit services have been reviewed by the Audit Committee to ensure that they do not impact the impartiality and objectivity of the auditor;  none of the services undermine the general principles relating to auditor independence as set out in APES110 Code of Ethics for Professional Accountants, including reviewing or auditing the auditor’s own work, acting in a management or a decision-making capacity for the Company, acting as advocate for the Company or jointly sharing economic risk and rewards. Audit and non-audit services During the year the following fees were paid or payable for services provided by the auditor of the Company and its related practices. Services were provided to the company and its controlled entities. Audit services Audit and review of financial reports under the Corporations Act 2001 194,100 187,000 Taxation services Tax compliance services, including review of Company income tax returns 35,330 29,520 2020 $ 2019 $ 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, NSW 30 October 2020 . J. E. Gowing Director Sydney, NSW 30 October 2020 Gowing Bros. Limited INVESTING TOGETHER FOR A SECURE FUTURE 20 F I N A N C I A L R E P O R T | Y e a r e n d e d 3 1 J u l y 2 0 2 0 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 2020 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. Gowing Bros. Limited INVESTING TOGETHER FOR A SECURE FUTURE 21 F I N A N C I A L R E P O R T | Y e a r e n d e d 3 1 J u l y 2 0 2 0 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 2020 were:  J. E. Gowing, Managing Director  R. Ambrogio, Chief Financial Officer and joint Company Secretary 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 2020 Financial Year bonus is limited to 40% of the base package of the relevant executive, subject to the discretion of the Remuneration 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: 2020 Short term Cash salary and fee Consultancy Fees Cash bonus Non- monetary benefits Movement in provision for annual leave Non- executive Directors Prof J. West (Chairman) J. G. Parker S. J. Clancy 25,571 94,277 47,000 51,142 123,713 17,047 - 111,324 Executive Directors J. E. Gowing 243,384 Other key management personnel R. Ambrogio 198,250 - - - - - - - - - - - - - - - 39,155 836 22,831 5,100 - Total key management personnel compensation 565,347 111,324 22,831 44,255 836 Share based Share bonus Post - Employment Long term Total Superannuation Movement in provision for long service leave - - - - - - - 5,211 10,620 4,858 20,689 - - - - 125,059 74,667 56,000 255,726 18,282 4,962 306,619 21,138 3,751 251,070 60,109 8,713 813,415 Gowing Bros. Limited INVESTING TOGETHER FOR A SECURE FUTURE 22 F I N A N C I A L R E P O R T | Y e a r e n d e d 3 1 J u l y 2 0 2 0 2019 Short Term Cash salary and fee Consultancy Fees Cash bonus Non- monetary benefits Movement in provision for annual leave Share based Share bonus Post - Employment Long term Total Superannuation Movement in provision for long service leave Non- executive Directors Prof J. West (Chairman) J. G. Parker S. J. Clancy 27,397 50,000 54,795 132,192 100,000 10,654 - 110,654 Executive Directors J. E. Gowing 289,951 219,178 221,347 Other key management personnel R. Ambrogio N. Rogan 1 Total key management personnel compensation 862,668 110,654 - - - - - - - - - - - - - - - - - - - (16,728) 1,133 1,686 (5,666) - - (20,708) 1,133 - - - - - - - - 2,603 11,012 5,205 18,820 - - - - 130,000 71,666 60,000 261,666 20,049 4,948 299,353 20,822 14,693 3,741 (1,257) 245,427 229,117 74,384 7,432 1,035,563 1 N. Rogan resigned from his position as Head of Funds Management and Company Secretary on 19 April 2019. The relative proportions of remuneration that are linked to performance and those that are fixed are as follows: Executive Directors J. E. Gowing Other Key Management personnel R. Ambrogio N. Rogan (resigned 19 April 2019) Service agreements Fixed Performance 2020 (%) 2019 (%) 2020 (%) 2019 (%) 100 100 91 - 100 100 - 9 - - - - There are / were service agreements in place with J. Parker, J. Gowing, Prof. J. West, S. Clancy, and R. Ambrogio. Remuneration and other terms of employment for the Managing Director, executives and other key management personnel are approved by the Board and provide for the provision of performance-related incentives. Other major provisions relating to remuneration are set out below: J. E. Gowing, Managing Director  No fixed term.  Base salary, inclusive of superannuation, as at 31 July 2020 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 2020 of $836.  No termination benefit is payable. R. Ambrogio, Chief Financial Officer  No fixed term.  Base salary, inclusive of superannuation, as at 31 July 2020 of $265,000, 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. Gowing Bros. Limited INVESTING TOGETHER FOR A SECURE FUTURE 23 F I N A N C I A L R E P O R T | Y e a r e n d e d 3 1 J u l y 2 0 2 0 Additional information 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: 2020 2019 2018 2017 2016 Net profit / (loss) after tax $4.7m ($19.4)m $6.5m $23.2m $22.0m Basic and diluted earnings / (loss) per share 8.82c (36.07)c 12.18c 43.29c 40.92c Dividends per share - declared Share buy back – number of shares Share buy back – value Share price at financial year end 8.0c 193k $393k $1.34 10.0c - - $2.45 12.0c 47k $135k $2.89 12.0c 12k $41k $3.23 12.0c 181k $565k $3.62 Gowing Bros. Limited INVESTING TOGETHER FOR A SECURE FUTURE 24 F I N A N C I A L R E P O R T | Y e a r e n d e d 3 1 J u l y 2 0 2 0 ASX Listing Requirements 1. Shareholders at 15 October 2020 Reconciliation of level 3 fair value movements No. of shareholders 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 339 445 171 376 55 1,386 The number of shareholdings held in less than marketable parcels is 174. 2. Voting Rights Members voting personally or by proxy have one vote for each share. 3. Substantial Shareholders at 15 October 2020 The substantial shareholders as defined by Section 9 of the Corporations Act 2001 are: John Edward Gowing Carlton Hotel Limited 21,042,598 4,701,144 Ordinary shares Ordinary shares 4. Top 20 Equity Security Holders at 15 October 2020 In accordance with Australian Securities Exchange Listing Rule 4.10, the top 20 equity security holders are: 1 Audley Investments Pty Ltd Carlton Hotel Limited 2 3 Mr John Edward Gowing 4 Mr John Gowing 5 6 Mr Frederick Bruce Wareham Ace Property Holdings Pty Ltd 7 J P Morgan Nominees Australia Pty Limited Charles and Cornelia Goode Foundation Pty Ltd 8 9 Mr Ronald Langley & Mrs Rhonda Langley 10 Enbeear Pty Limited 11 Beta Gamma Pty Ltd 12 BNP Paribas Nominees Pty Ltd 13 Mr Graeme Legge 14 Mrs Jean Kathleen Poole-Williamson 15 T N Phillips Investments Pty Ltd 16 Jamina Investments Pty Ltd 17 Cranley Holdings Pty Limited 18 Cadmea Pty Ltd 19 Capitol Securities Pty Ltd 20 Howard Hargrave Pty Limited Total Total issued share capital 5. Corporate Governance Practices No. of ordinary shares % of issued shares 29.29 15,711,151 4,701,144 3,676,709 1,187,189 1,161,759 1,152,358 1,120,000 1,100,000 674,580 636,829 630,368 610,599 598,690 568,443 550,000 441,258 283,453 277,350 276,000 230,017 35,587,897 53,646,240 8.76 6.85 2.21 2.17 2.15 2.09 2.05 1.26 1.19 1.18 1.14 1.12 1.06 1.03 0.82 0.53 0.52 0.51 0.43 66.34 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/. Gowing Bros. Limited INVESTING TOGETHER FOR A SECURE FUTURE 25 F I N A N C I A L R E P O R T | Y e a r e n d e d 3 1 J u l y 2 0 2 0 Consolidated Statement of Profit or Loss For the year ended Revenue Interest income Equities Private equities Investment properties Development properties Revenue from the sale of goods (Surf Hardware International) Total revenue Other income Gains / (losses) on disposal or revaluation of: Private equities Investment properties Derivatives Other income Total other income / (loss) Total revenue and other income Expenses Investment properties Development properties Finished goods, raw materials and other operating expenses (Surf Hardware International) Administration Borrowing costs Depreciation and amortisation Employee benefits Public company Total expenses Profit / (Loss) from continuing operations before income tax expense Income tax (expense) / benefit Profit / (Loss) from continuing operations Profit / (loss) from continuing operations is attributable to: Members of Gowing Bros. Limited Non-controlling interests Profit / (Loss) from continuing operations Notes 31 July 2020 $’000 31 July 2019 $’000 5 17 15 17 17 5 6 211 679 131 15,819 2,277 42,660 61,777 256 726 82 20,835 - 42,538 64,437 990 1,156 (290) 1,193 3,049 64,826 1,228 (28,044) (3,319) 943 (29,192) 35,245 7,490 1,541 8,859 - 40,637 41,881 1,644 4,716 1,805 1,499 450 59,782 5,044 (297) 4,747 1,323 5,211 815 2,490 453 61,032 (25,787) 6,384 (19,403) 4,747 - 4,747 (19,403) - (19,403) The above Consolidated Statement of Profit or Loss should be read in conjunction with the accompanying Notes. Gowing Bros. Limited INVESTING TOGETHER FOR A SECURE FUTURE 26 F I N A N C I A L R E P O R T | Y e a r e n d e d 3 1 J u l y 2 0 2 0 Consolidated Statement of Other Comprehensive Income For the year ended Notes 31 July 2020 $’000 31 July 2019 $’000 Profit / (loss) from continuing operations 4,747 (19,403) Other comprehensive income / (loss) Items that will be reclassified to profit or loss: Exchange rate differences on translating foreign operations, net of tax (197) 254 Items that may be reclassified to profit or loss: Changes in fair value of equity instruments held at fair value through other comprehensive income, net of tax Total comprehensive loss Total comprehensive income loss attributable to: Members of Gowing Bros. Limited Non-controlling interests Total comprehensive loss Earnings / (loss) per share Basic earnings / (loss) per share Diluted earnings / (loss) per share (5,819) (596) (1,269) (19,745) (1,269) - (1,269) (19,745) - (19,745) 41 41 8.82 8.82 (36.07)c (36.07)c The above Consolidated Statement of Other Comprehensive Income should be read in conjunction with the accompanying Notes. Gowing Bros. Limited INVESTING TOGETHER FOR A SECURE FUTURE 27 F I N A N C I A L R E P O R T | Y e a r e n d e d 3 1 J u l y 2 0 2 0 Consolidated Statement of Financial Position As at Current assets Cash and cash equivalents Loans receivable Inventories Trade and other receivables Current tax receivable Other Total current assets Non-current assets Other receivables Loans receivable Equities Private equities Development properties Investment properties Property, plant and equipment Intangibles Right of use assets Deferred tax assets Other Total non-current assets Total assets Current liabilities Trade and other payables Borrowings Lease liabilities Derivatives Current tax liabilities Provisions Total current liabilities Non-current liabilities Trade and other payables Borrowings Lease liabilities Derivatives Provisions Deferred tax liabilities Total non-current liabilities Total liabilities Net assets Equity Contributed equity Reserves Retained profits Contributed equity and reserves attributable to members of Gowings Bros. Limited Non-controlling interests Total equity Notes 31 July 2020 31 July 2019 $’000 $’000 7 8 11 9 10 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 18,599 11,314 - 5,095 7,412 - 1,166 89 6,538 8,885 84 1,750 32,272 28,660 62 2,700 32,265 4,751 16,117 202,442 8,504 4,485 2,802 3,610 1,769 279,507 311,779 5,042 1,824 1,030 1,439 5,032 1,402 480 2,400 40,021 4,907 16,164 232,016 8,778 4,536 - 3,406 1,800 314,508 343,168 7,370 2,453 - 895 - 1,330 15,769 12,048 169 84,386 1,970 2,878 482 22,050 111,935 127,704 184,075 12,895 95,151 76,031 222 107,073 - 3,132 547 29,022 139,996 152,044 191,124 13,288 100,796 77,042 184,077 191,126 (2) (2) 184,075 191,124 The above Consolidated Statement of Financial Position should be read in conjunction with the accompanying Notes. Gowing Bros. Limited INVESTING TOGETHER FOR A SECURE FUTURE 28 F I N A N C I A L R E P O R T | Y e a r e n d e d 3 1 J u l y 2 0 2 0 Consolidated Statement of Changes In Equity Capital Profits Reserve- Pre CGT Profits $’000 90,503 Contributed Equity $’000 12,476 Foreign Currency Translation Reserve $’000 140 Revaluation Reserves $’000 11,313 Retained Profits $’000 101,535 Non- Controlling Interests $’000 (2) Total $’000 215,965 - - - (596) 254 (19,403) - (19,745) - (818) - 818 - - 812 - 13,288 - - 90,503 - - 9,899 - - 394 - (5,908) 77,042 - - (2) 812 (5,908) 191,124 - (5,819) (197) 4,747 - (1,269) - 371 - (371) (393) - 12,895 - - 90,503 - - 4,451 - - 197 - (5,387) 76,031 - - (2) - (393) (5,387) 184,075 Balance at 31 July 2018 Total comprehensive income / (loss) for the year Transfer of gains on disposal of equity instruments at fair value through comprehensive income to retained earnings, net of tax Transactions with owners in their capacity as owners: Issue of ordinary shares Dividends declared Balance at 31 July 2019 Total comprehensive income / (loss) for the year Transfer of losses on disposal of equity instruments at fair value through comprehensive income to retained profits, net of tax Transactions with owners in their capacity as owners: Share buy-back Dividends declared Balance at 31 July 2020 - - The above Consolidated Statement of Changes in Equity should be read in conjunction with the accompanying Notes. Gowing Bros. Limited INVESTING TOGETHER FOR A SECURE FUTURE 29 F I N A N C I A L R E P O R T | Y e a r e n d e d 3 1 J u l y 2 0 2 0 Consolidated Statement of Cash Flows For the year ended 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 paid Income taxes received (paid) Notes 31 July 2020 $’000 31 July 2019 $’000 67,260 (56,053) 679 211 (4,716) 470 69,735 (58,982) 726 256 (5,211) (355) Net cash inflows from operating activities 43 7,851 6,169 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 development properties Proceeds from sale of equity investments Proceeds from sale of investment properties (213) (210) (1,817) (3,540) (5,086) (300) 89 10 2,277 5,675 32,452 (654) (472) (2,083) (5,398) (8,698) (1,089) - 70 - 4,378 1,831 Net cash inflows / (outflows) from investing activities 29,337 (12,115) Cash flows from financing activities Payments for share buy-backs Proceeds from borrowings Repayment of borrowings Repayments of lease liabilities Dividends paid Net cash (outflows) / inflows from financing activities 44 44 34 Net increase in cash held Cash and cash equivalents at the beginning of the financial year Cash and cash equivalents at the end of the financial year 7 (393) 6,000 (29,316) (807) (5,387) (29,903) 7,285 11,314 18,599 - 17,692 (630) - (5,096) 11,966 6,020 5,294 11,314 The above Consolidated Statement of Cash Flows should be read in conjunction with the accompanying Notes. Gowing Bros. Limited INVESTING TOGETHER FOR A SECURE FUTURE 30 F I N A N C I A L R E P O R T | Y e a r e n d e d 3 1 J u l y 2 0 2 0 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 (financial assets at fair value through other comprehensive income), 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. Comparative information Information has been reclassified where applicable to enhance comparability. New, revised or amending Accounting Standards and Interpretations adopted The Group has adopted all new, revised or amending Australian Accounting Standards and Interpretations issued by the Australian Accounting Standards Board that are mandatory for the current reporting period. Any new, revised or amending Australian Accounting Standards or Interpretations that are not yet mandatory have not been early adopted. The Group had to change its accounting policies as a result of adopting AASB 16: Leases. The impact of the adoption of this standard and the respective accounting policies are disclosed below. Adoption of AASB 16: Leases (AASB 16) The Group has adopted AASB 16 from 1 August 2019 which replaces AASB 117 Leases (“AASB 117”). AASB 16 has been applied using the modified retrospective approach and comparative information has not been restated, as permitted under the specific transition provisions in the standard. The adoption of AASB 16 has resulted in the Group recognising right of use assets and related lease liabilities in connection with all former leases except for those identified as low-value or having a remaining lease term of less than 12 months from the date of initial application. Operating lease expense is also no longer recognised for these operating leases and is now replaced by interest and depreciation expense in the statement of profit or loss. For classification within the statement of cash flows, the interest portion is disclosed in operating activities as borrowing costs paid and the principal portion of the lease payments are separately disclosed in financing activities, as repayment of lease liabilities. On adoption, lease liabilities were measured at the present value of the remaining lease payments, discounted using the Group’s incremental borrowing rate as at 1 August 2019. The weighted average incremental borrowing rate that applied to the lease liabilities on 1 August 2019 was 6%. The Group also elected to measure the right of use assets at an amount equal to the lease liability adjusted for any prepaid or accrued lease payments that existed at the date of adoption. Gowing Bros. Limited INVESTING TOGETHER FOR A SECURE FUTURE 31 F I N A N C I A L R E P O R T | Y e a r e n d e d 3 1 J u l y 2 0 2 0 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) The following practical expedients permitted by AASB 16 were applied by the Group on adoption: The Group accounted for operating leases with a remaining lease term of less than 12 months as at 1 August 2019 as short-term leases; the Group applied a single discount rate to a portfolio of leases with reasonably similar characteristics; and the Group relied on previous assessments on whether leases are onerous as an alternative to performing an impairment review. The Group has also elected not to reassess whether a contract is, or contains a lease at the date of the date of initial application. Instead, for contracts entered into before the transition date the Group has relied on its assessment made applying AASB 117 and Interpretation 4 Determining whether an Arrangement contains a Lease. (i) Measurement of lease liabilities The following is a reconciliation of total operating lease commitments at 31 July 2019 to the total lease liabilities recognised at 1 August 2019: Operating lease commitments as at 31 July 2019 Short-term leases and leases of low-value assets not recognised as a liability Other minor adjustments relating to commitment disclosures Operating lease liabilities before discounting Discounted using incremental borrowing rate Total lease liabilities recognised under AASB 16 at 1 August 2019 $’000 4,047 (307) 60 3,800 (405) 3,395 (ii) Adjustments recognised in the statement of financial position on 1 August 2019 Adjustments recognised as a result of the adoption of AASB 16 affected the following items in the statement of financial position on 1 August 2019:    Lease liabilities (current & non-current) – increase by $3,395,000 Right of use assets (non-current) – increase by $3,438,000 Prepayments (current) – decrease by $43,000 The net impact on retained profits on 1 August 2019 was $nil. Other amending Accounting Standards and Interpretations Several other amending Accounting Standards and Interpretations apply for the first time for the current reporting period commencing 1 August 2019. These other amending Accounting Standards and Interpretations did not result in any adjustments to the amounts recognised or disclosures in the financial report. New, revised or amending Accounting Standards and Interpretations issued but not yet mandatory Certain new Australian Accounting Standards and Interpretations have been recently published that are not yet mandatory for the reporting period ended 31 July 2020. The Group's assessment is that these new Australian Accounting Standards and Interpretations are not expected to have a material impact on the Group in future reporting periods. (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 2020. 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 38. 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 interests are shown separately within the equity section of the consolidated statement of financial position and consolidated statement of comprehensive income. Gowing Bros. Limited INVESTING TOGETHER FOR A SECURE FUTURE 32 F I N A N C I A L R E P O R T | Y e a r e n d e d 3 1 J u l y 2 0 2 0 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (c) Business combinations Business combinations occur where the Group acquires control over one or more businesses. A business combination is accounted for by applying the acquisition method, unless it is a combination involving entities or businesses under common control. The business combination will be accounted for from the date that control is attained, whereby the fair value of the identifiable assets acquired and liabilities (including contingent liabilities) assumed is recognised (subject to certain limited exceptions). When measuring the consideration transferred in the business combination, any asset or liability resulting from a contingent consideration arrangement is also included. Subsequent to initial recognition, contingent consideration classified as equity is not remeasured and its subsequent settlement is accounted for within equity. Contingent consideration classified as an asset or liability is remeasured in each reporting period to fair value, recognising any change to fair value in profit or loss, unless the change in value can be identified as existing at acquisition date. Where settlement of any part of cash consideration is deferred, the amounts payable in the future are discounted to their present value as at the date of exchange. The discount rate used is the entity’s incremental borrowing rate, being the rate at which a similar borrowing could be obtained from an independent financier under comparable terms and conditions. All transaction costs incurred in relation to business combinations are recognised as expenses in profit and loss when incurred. The acquisition of a business may result in the recognition of goodwill or a gain from a bargain purchase. (d) Goodwill Goodwill is carried at cost less any accumulated impairment losses. Goodwill is carried as the excess of the sum of: (i) (ii) (iii) the consideration transferred; any non-controlling interest (determined under either the full goodwill or proportionate interest method); and the acquisition date fair value of any previously held equity interest; over the acquisition date fair value of net identifiable net assets acquired. The acquisition date fair value of the consideration transferred for a business combination plus the acquisition date fair value of any previously held equity interest form the cost of the investment. Fair value re-measurements in any pre-existing equity holdings are recognised in profit or loss in the period in which they arise. Where changes in the value of such equity holdings had previously been recognised in other comprehensive income, such amounts are recycled to profit or loss. The amount of goodwill recognised on acquisition of each subsidiary in which the Group holds a less than 100% interest will depend on the method adopted in measuring the non-controlling interest. The Group can elect in most circumstances to measure the non-controlling interest in the acquiree either at fair value (“full goodwill method”) or at the non-controlling interest’s proportionate share of the subsidiary’s identifiable net assets (“proportionate interest method”). In such circumstances, the Group determines which method to adopt for each acquisition and this is stated in the respective notes to these financial statements disclosing the business combination. Under the full goodwill method, the fair value of the non-controlling interests is determined using valuation techniques which make the maximum use of market information where available. Under this method, goodwill attributable to the non-controlling interest is recognised in the consolidated financial statements. Goodwill on acquisitions of subsidiaries is included in intangible assets. Goodwill is tested for impairment annually and is allocated to the Group’s cash-generating units or groups of cash- generating units, which represents the lowest level at which goodwill is monitored but where such level is not larger than an operating segment. Gains and losses on the disposal of an entity include the carrying amount of goodwill related to the entity sold. 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. Gowing Bros. Limited INVESTING TOGETHER FOR A SECURE FUTURE 33 F I N A N C I A L R E P O R T | Y e a r e n d e d 3 1 J u l y 2 0 2 0 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (e) Segment reporting Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker including:        Cash and fixed interest Equities Private equities Investment properties Development properties Surf Hardware International business Other (f) Foreign currency translation (i) 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. (ii) 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 held at fair value through profit or loss are recognised in profit or loss as part of the fair value gain or loss. Translation differences on equities are recognised in equity. (iii) Foreign Operations The financial results and position of foreign operations, whose functional currency is different from the Group’s presentation currency, are translated as follows: (a) 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. Income tax (g) 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. Impairment of non-financial assets (h) 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. Gowing Bros. Limited INVESTING TOGETHER FOR A SECURE FUTURE 34 F I N A N C I A L R E P O R T | Y e a r e n d e d 3 1 J u l y 2 0 2 0 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (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 3 to 10 years Motor vehicles Buildings 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) Right of use assets A right of use asset is recognised at the commencement date of a lease. The right of use asset is measured at cost, which comprises the initial amount of the lease liability, adjusted for, as applicable, any lease payments made at or before the commencement date net of any lease incentives received, any initial direct costs incurred, and, except where included in the cost of inventories, an estimate of costs expected to be incurred for dismantling and removing the underlying asset, and restoring the site or asset. Right of use assets are depreciated on a straight-line basis over the unexpired period of the lease or the estimated useful life of the asset, whichever is the shorter. Where the Group expects to obtain ownership of the leased asset at the end of the lease term, the depreciation is over its estimated useful life. Right of use assets are subject to impairment or adjusted for any remeasurement of lease liabilities. The Group has elected not to recognise a right of use asset and corresponding lease liability for short-term leases with terms of 12 months or less and leases of low-value assets. Lease payments on these assets are expensed to profit or loss as incurred. Inventories (k) 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. Intangibles Other than Goodwill (l) 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. (ii) Brand names Brand names are initially recognised at fair value when acquired in a business combination. Brand names are assessed to have an indefinite useful and are carried at cost less accumulated impairment. An indefinite useful life is considered appropriate when there is no foreseeable limit to the period over which the brand name is expect to generate cash flows. (m) Revenue recognition Revenue is recognised for the major business activities as follows: (i) Equities Dividend income is recognised when received. Revenue from the sale of investments is recognised at trade date. (ii) Property rental Rental income is recognised in accordance with the underlying rental agreements. (iii) Land development and sale Revenue is recognised on settlement. Gowing Bros. Limited INVESTING TOGETHER FOR A SECURE FUTURE 35 F I N A N C I A L R E P O R T | Y e a r e n d e d 3 1 J u l y 2 0 2 0 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (iv) Sales of goods Revenue from the sale of goods is recognised at the point in time when the customer obtains control of the goods, which is generally at the time of delivery. (v) Other investment revenue Trust income and option income is recognised when earned. (vi) Other property revenue Other property revenue is recognised in accordance with underlying agreements or when the right to receive payment is established. (vii) Interest revenue Interest revenue is recognised as interest accrues using the effective interest method. This is a method of calculating the amortised cost of a financial asset and allocating the interest income over the relevant period using the effective interest rate, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to the net carrying amount of the financial asset. (n) Trade and other receivables Receivables consists mainly of amounts due for rental income and sale of goods. Receivables are initially recognised at fair value and subsequently measured at amortised cost using the effective interest method, less any allowance for expected credit losses. 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. Investments and other financial assets (o) Investments and other financial assets are initially measured at fair value. Transaction costs are included as part of the initial measurement, except for financial assets at fair value through profit or loss. Such assets are subsequently measured at either amortised cost or fair value depending on their classification. Classification is determined based on both the business model within which such assets are held and the contractual cash flow characteristics of the financial asset unless, an accounting mismatch is being avoided. Financial assets are derecognised when the rights to receive cash flows have expired or have been transferred and the Group has transferred substantially all the risks and rewards of ownership. When there is no reasonable expectation of recovering part or all of a financial asset, it's carrying value is written off. (i) Financial assets at fair value through profit of loss Financial assets not measured at amortised cost or at fair value through other comprehensive income are classified as financial assets at fair value through profit or loss. Typically, such financial assets will be either: (i) held for trading, where they are acquired for the purpose of selling with an intention of making a profit, or a derivative; or (ii) designated as such upon initial recognition where permitted. Fair value movements are recognised in profit or loss. (ii) Financial assets at fair value through other comprehensive income Financial assets at fair value through other comprehensive income include equity investments which the Group intends to hold for the foreseeable future and has irrevocably elected to classify them as such upon initial recognition. 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 unobservable inputs and maximising the use of relevant observable inputs. (iii) Impairment of financial assets The Group recognises a loss allowance for expected credit losses on financial assets which are either measured at amortised cost or fair value through other comprehensive income. The measurement of the loss allowance depends upon the Group's assessment at the end of each reporting period as to whether the financial instrument's credit risk has increased significantly since initial recognition, based on reasonable and supportable information that is available, without undue cost or effort to obtain. Where there has not been a significant increase in exposure to credit risk since initial recognition, a 12-month expected credit loss allowance is estimated. This represents a portion of the asset's lifetime expected credit losses that is attributable to a default event that is possible within the next 12 months. Where a financial asset has become credit impaired or where it is determined that credit risk has increased significantly, the loss allowance is based on the asset's lifetime expected credit losses. The amount of expected credit loss recognised is measured on the basis of the probability weighted present value of anticipated cash shortfalls over the life of the instrument discounted at the original effective interest rate. For financial assets measured at fair value through other comprehensive income, the loss allowance is recognised within other comprehensive income. In all other cases, the loss allowance is recognised in profit or loss. Gowing Bros. Limited INVESTING TOGETHER FOR A SECURE FUTURE 36 F I N A N C I A L R E P O R T | Y e a r e n d e d 3 1 J u l y 2 0 2 0 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Investment properties (p) Investment properties, principally comprising freehold commercial and retail buildings, are held for long-term rental yields and are not occupied by the Group. Investment properties are initially recognised at cost, including transaction costs, and are subsequently remeasured at fair value. Movements in fair value are recognised directly to profit or loss. Investment properties are derecognised when disposed of or when there is no future economic benefit expected. (q) 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 39. (r) 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. (s) Borrowings Borrowings are initially recognised at the fair value of the consideration received, net of transaction costs. They are subsequently measured at amortised cost using the effective interest method. 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. (t) 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. (u) Employee entitlements (i) Wages, salaries and annual leave Liabilities for wages, salaries and annual leave 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. (ii) 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. (v) 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. (w) 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. (x) Lease liabilities A lease liability is recognised at the commencement date of a lease. The lease liability is initially recognised at the present value of the lease payments to be made over the term of the lease, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Group's incremental borrowing rate. Lease payments comprise of fixed payments less any lease incentives receivable, variable lease payments that depend on an index or a rate, amounts expected to be paid under residual value guarantees, exercise price of a purchase option when the exercise of the option is reasonably certain to occur, and any anticipated termination penalties. The variable lease payments that do not depend on an index or a rate are expensed in the period in which they are incurred. Lease liabilities are measured at amortised cost using the effective interest method. The carrying amounts are remeasured if there is a change in the following: future lease payments arising from a change in an index or a rate used; residual guarantee; lease term; certainty of a purchase option and termination penalties. When a lease liability is remeasured, an adjustment is made to the corresponding right-of use asset, or to profit or loss if the carrying amount of the right of use asset is fully written down. Gowing Bros. Limited INVESTING TOGETHER FOR A SECURE FUTURE 37 F I N A N C I A L R E P O R T | Y e a r e n d e d 3 1 J u l y 2 0 2 0 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (y) 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. (z) 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. 2. FINANCIAL RISK MANAGEMENT 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 and liabilities at the reporting date was as follows: Currency exposure in AUD Cash and cash equivalents Trade and other receivables Trade and other payables Borrowings Lease liabilities Equities Private equities 31 July 2020 31 July 2019 USD $’000 1,519 2,685 (506) - (1,659) 4,923 1,248 EUR $’000 432 2,199 (331) - (240) - 50 GBP $’000 19 - (16) - (28) - - JPY $’000 355 1,330 (627) (76) (411) - - USD $’000 612 2,862 (498) - - 4,467 1,375 EUR $’000 424 2,233 (312) - - - 459 GBP $’000 13 - (24) - - - - JPY $’000 388 983 (486) - - - - Based on the cash held at 31 July 2020, if the Australian dollar weakened / strengthened by 10% against the US dollar, cash would have been $170,000 higher / $139,000 lower (2019: $68,000 higher / $55,636 lower). If the Australian dollar weakened / strengthened by 10% against the GBP, cash would have been $2,000 higher / $2,000 lower (2019: $1,444 higher / $1,182 lower). If the Australian dollar weakened / strengthened by 10% against the EUR, cash would have been $48,000 higher / $39,000 lower (2019: $47,111 higher / $38,545 lower). If the Australian dollar weakened / strengthened by 10% against the JPY, cash would have been $39,000 higher / $32,000 lower (2019: $43,111 higher / $35,273 lower). Based on the trade receivables held at 31 July 2020, if the Australian dollar weakened / strengthened by 10% against the US dollar, receivables would have been $298,000 higher / $244,000 lower (2019: $318,000 higher / $260,182 lower). If the Australian dollar weakened/strengthened by 10% against the EUR, receivables would have been $244,000 higher the Australian dollar weakened/strengthened by 10% against the JPY, receivables would have been $148,000 higher / $121,000 lower (2019: $109,222 higher/ $89,364 lower). lower (2019: $248,111 higher/ $203,000 / $200,000 lower). If Gowing Bros. Limited INVESTING TOGETHER FOR A SECURE FUTURE 38 F I N A N C I A L R E P O R T | Y e a r e n d e d 3 1 J u l y 2 0 2 0 2. FINANCIAL RISK MANAGEMENT (CONTINUED) Based on the trade payables held at 31 July 2020, if the Australian dollar weakened / strengthened by 10% against the US dollar, payables would have been $56,000 higher / $46,000 lower (2019: $55,384 higher / $45,315 lower). If the Australian dollar weakened/strengthened by 10% against the EUR, payables would have been $37,000 higher/ $30,000 lower (2019: $34,624 higher/ $28,329 lower). If the Australian dollar weakened/strengthened by 10% against the GBP, payables would have been $2,000 higher/ $1,000 lower (2019: $2,621 higher/ $2,144 lower). If the Australian dollar weakened/strengthened by 10% against the JPY, payables would have been $70,000 higher/ $57,000 lower (2019: $53,996 higher/ $44,179 lower). Based on the borrowings held at 31 July 2020, if the Australian dollar weakened / strengthened by 10% against the JPY, borrowings would have been $8,000 higher / $7,000 lower. Based on the lease liabilities held at 31 July 2020, if the Australian dollar weakened / strengthened by 10% against the US dollar, lease liabilities would have been $184,000 higher / $151,000 lower. If the Australian dollar weakened/strengthened by 10% against the EUR, lease liabilities would have been $27,000 higher/ $22,000 lower. If the Australian dollar weakened/strengthened by 10% against the GBP, lease liabilities would have been $3,000 higher/ $3,000 lower. If the Australian dollar weakened/strengthened by 10% against the JPY, lease liabilities would have been $46,000 higher/ $37,000 lower. Based on the equities held at 31 July 2020, if the Australian dollar weakened / strengthened by 10% against the US dollar, equities would have been $547,000 higher / $448,000 lower (2019: $496,299 higher / $406,063 lower). Based on the private equities held at 31 July 2020, if the Australian dollar weakened / strengthened by 10% against the US dollar, private equities would have been $139,000 higher / $113,000 lower (2019: $152,802 higher / $125,020 lower). If the Australian dollar weakened / strengthened by 10% against the Euro, private equities would have been $6,000 higher / $5,000 lower (2019: $50,954 higher / $41,689 lower). The percentage change is the expected overall volatility of the significant currencies, which is based on management’s assessment of reasonable possible fluctuations taking into consideration movements over the last 6 months each year and the spot rate at each reporting date. (ii) Price risk The Group is exposed to asset price risk. This arises from equities and private equities held by the Group. A price reduction at 5% and 10% spread equally over the investment portfolio would reduce its value by $1,850,811 (2019: $2,246,410) and $3,701,622 (2019: $4,492,820) 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. Interest rate risk (iii) 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: Borrowings Interest rate swaps (notional principal amount) Net exposure to cash flow interest rate risk 31 July 2020 31 July 2019 Weighted average interest rate 0.87% 2.64% Weighted average interest rate 1.38% 2.64% Balance $’000 86,210 (60,200) 26,010 Balance $’000 109,526 (60,200) 49,326 Gowing Bros. Limited INVESTING TOGETHER FOR A SECURE FUTURE 39 F I N A N C I A L R E P O R T | Y e a r e n d e d 3 1 J u l y 2 0 2 0 2. FINANCIAL RISK MANAGEMENT (CONTINUED) 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 has a strict code of credit, including obtaining agency credit information, confirming references and setting appropriate credit limits. 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 2020 Non-derivatives Non-interest bearing Fixed rate Variable rate Total non-derivatives Derivatives Fixed rate 31 July 2019 Non-derivatives Non-interest bearing Variable rate Total non-derivatives Derivatives Fixed rate Less than 1 year Between 1-2 years Between 2-5 years Over 5 years $’000 $’000 $’000 $’000 Total contractual cash flow $’000 5,042 1,030 1,825 7,897 168 1,053 76 1,297 - 917 84,309 85,226 1,439 1,439 1,439 - - - - - 5,210 3,000 86,210 94,420 4,317 Less than 1 year Between 1-2 years Between 2-5 years Over 5 years $’000 $’000 $’000 $’000 Total contractual cash flow $’000 7,370 2,453 9,823 222 328 550 - 106,745 106,745 895 895 2,237 - - - - 7,592 109,526 117,118 4,027 Fair value estimation risk The fair value of financial assets and financial liabilities must be estimated for recognition and measurement or for disclosure purposes. Fair value hierarchy The Group measures fair value using the following fair value hierarchy that reflects the significance of the inputs used in making the measurements. Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities that the Group can access at the measurement date. Level 2: inputs other than 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. Gowing Bros. Limited INVESTING TOGETHER FOR A SECURE FUTURE 40 F I N A N C I A L R E P O R T | Y e a r e n d e d 3 1 J u l y 2 0 2 0 2. FINANCIAL RISK MANAGEMENT (CONTINUED) Fair value hierarchy (continued) The following tables present the Group’s assets and liabilities measured at fair value at 31 July 2020 and 31 July 2019. 31 July 2020 Level 1 Level 2 Level 3 $’000 $’000 $’000 Total $’000 Financial assets – designated at fair value through other comprehensive income Investments – Australian equities Investments – Global equities 11,419 Financial assets – designated at fair values through profit or loss Investments – Private equities Investments – Investment properties Other assets – designated at fair value Freehold – Properties Financial liabilities – designated at fair value through profit or loss Derivatives Total 31 July 2019 Financial assets – designated at fair value through other comprehensive income Investments – Australian equities Investments – Global equities 17,257 Financial assets – designated at fair values through profit or loss Investments – Private equities Investments – Investment properties Other assets – designated at fair value Freehold – Properties - - - - - - - - - - - - - 15,923 4,923 27,342 4,923 4,751 4,751 202,442 202,442 7,061 7,061 - 11,419 (4,317) (4,317) - (4,317) 235,100 242,202 Level 1 Level 2 Level 3 $’000 $’000 $’000 Total $’000 - - - - - 18,297 4,467 35,554 4,467 4,907 4,907 232,016 232,016 7,105 7,105 Financial liabilities – designated at fair value through profit or loss Derivatives Total - 17,257 (4,027) (4,027) - (4,027) 266,792 280,022 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 17. Investments in private equities primarily consist of investments in managed private equity funds, each of which consists of a number of investments in individual companies, none of which are material. Fair value of managed private equity investments has been determined using fund manager valuations, which are prepared in accordance with AVCAL Guidelines. Directors have reviewed those valuations.  The fair value of freehold properties included in Property, Plant and equipment is determined by Directors based on comparable property market information. Gowing Bros. Limited INVESTING TOGETHER FOR A SECURE FUTURE 41 F I N A N C I A L R E P O R T | Y e a r e n d e d 3 1 J u l y 2 0 2 0 2. FINANCIAL RISK MANAGEMENT (CONTINUED) Reconciliation of level 3 fair value movements Opening balance Transfers to level 1 Transfers from development properties Purchases Sales Amortisation and depreciation Gain recognised in profit or loss or other comprehensive income Closing balance Refer to the following notes for reconciliation for individual class of assets: - refer to note 14  Equities - refer to note 15  Private equities Investment properties - refer to note 17  3. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS Managed and Direct Private Equity 31 July 2020 31 July 2019 $’000 266,792 $’000 291,073 - - 3,516 (33,871) (769) (568) 235,100 - 64 7,503 (2,162) (1,386) (28,300) 266,792 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 2020 was a gain of $386,388 (2019: a gain of $1,228,471) 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 loss of $959,257 (2019: loss of $28,453,509). Gowing Bros. Limited INVESTING TOGETHER FOR A SECURE FUTURE 42 F I N A N C I A L R E P O R T | Y e a r e n d e d 3 1 J u l y 2 0 2 0 4. SEGMENT INFORMATION The Group comprises of the following business segments, based on the group's management reporting systems:  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 received Private equities – distributions received Investment properties – rent received Development properties – realised gains on disposal Surf Hardware International business – sale of goods Segment other income Private equities – realised and unrealised gains / (losses) Investment properties – realised and unrealised gains / (losses) Other Total segment revenue and other income For the year ended Segment result Cash and fixed interest Equities Private equities Investment properties Development properties Surf Hardware International business Other Total segment result Income tax benefit / (expense) Net profit / (loss) after tax For the year ended Revenue from external customers by geographical region Australia United States of America Japan Europe Total revenue from external customers 31 July 2020 $'000 31 July 2019 $'000 211 679 131 15,819 2,277 42,660 61,777 990 1,156 903 3,049 64,826 256 726 82 20,835 - 42,538 64,437 1,228 (28,044) (2,376) (29,192) 35,245 31 July 2020 $'000 31 July 2019 $'000 211 679 1,121 5,569 736 1,272 (4,544) 5,044 (297) 4,747 31 July 2020 $'000 29,157 14,498 7,123 9,978 60,756 256 726 1,310 (20,690) - 804 (8,193) (25,787) 6,384 (19,403) 31 July 2019 $'000 31,880 13,386 7,206 10,901 63,373 The Group only derives revenue from external customers in the Investment properties, development properties and Surf Hardware International business segments. Gowing Bros. Limited INVESTING TOGETHER FOR A SECURE FUTURE 43 F I N A N C I A L R E P O R T | Y e a r e n d e d 3 1 J u l y 2 0 2 0 4. SEGMENT INFORMATION (CONTINUED) 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 As at Non-current assets by geographical region Australia United States of America Japan Europe Total non-current assets For the year ended Payments for the acquisition of: - Investment properties - Development properties - Equities Gains / (losses) on disposal or revaluation of: - - Private equities Investment properties Unallocated: - Payments for the acquisition of property, plant and equipment - Payments for the acquisition of intangibles Accounting policies 31 July 2020 $'000 31 July 2019 $'000 18,599 32,265 4,751 202,442 16,117 18,814 18,791 311,779 81,525 7,959 38,220 127,704 11,314 40,021 4,907 232,016 16,164 17,944 20,802 343,168 91,170 5,471 55,403 152,044 31 July 2020 $'000 31 July 2019 $'000 269,328 8,951 829 399 279,507 307,015 7,116 202 175 314,508 31 July 2020 $'000 31 July 2019 $'000 3,540 1,817 5,086 5,398 2,083 8,698 1,156 990 (28,044) 1,228 213 210 654 472 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, development properties and plant and equipment, net of related provisions. While most of these assets can be directly attributable to individual segments, the carrying amounts of certain assets used jointly by segments are allocated based on reasonable estimates of usage. Segment liabilities consist of borrowings. Segment assets and liabilities do not include income taxes. Tax assets and liabilities, trade and other creditors and employee entitlements and goodwill are represented as unallocated amounts. Gowing Bros. Limited INVESTING TOGETHER FOR A SECURE FUTURE 44 F I N A N C I A L R E P O R T | Y e a r e n d e d 3 1 J u l y 2 0 2 0 4. SEGMENT INFORMATION (CONTINUED) Accounting policies (continued) Surf Hardware International business segment Segment assets include all assets (excluding operating cash of $3.27 million (2019: $1.56 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, right of use assets and intangibles, net of related provisions. Segment liabilities consist of borrowings, trade and other payables, lease liabilities and employee entitlements. Segment assets and liabilities do not include income taxes. Tax assets and liabilities are represented as unallocated amounts. Segment cash flows Segment information is not prepared for cash flows as management consider it not relevant to users in understanding the financial position and liquidity of the Group. 5. OPERATING PROFIT For the year ended Profit / (loss) from continuing operations before income tax expense includes the following specific items: Gains Private equity investment distributions Expenses Interest and other borrowing costs Employee benefits Cost of sales (Surf Hardware International) Cost of sales (Development properties) 6. INCOME TAX EXPENSE For the year ended Current tax Deferred tax (Over) / under provided in prior years Income / (loss) tax attributable to: Profit / (loss) from continuing operations Aggregate income tax expense / (benefit) on profit / (loss) Reconciliation of income tax expense / (benefit) to prima facie tax on profit/ (loss) Profit / (loss) from continuing operations before income tax (benefit) / expense Tax at the Australian tax rate of 30% (2019: 30%) Tax effect of amounts which are not deductible (taxable) in calculating taxable income: Non-assessable income/ Non-deductible expenses Franked dividends (Over) / under provision in prior year Deferred tax assets recorded not recognised and effect of tax rates in foreign jurisdictions Income tax expense / (benefit) 31 July 2020 $'000 31 July 2019 $'000 131 82 4,716 10,907 25,597 1,541 5,211 12,735 25,290 - 31 July 2020 $'000 5,038 (3,722) (1,019) 297 31 July 2019 $'000 286 (7,573) 903 (6,384) 297 297 (6,384) (6,384) 5,044 1,513 (25,787) (7,736) 347 (194) (1,019) (350) 297 502 (127) 903 74 (6,384) 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 (2,494) (256) Gowing Bros. Limited INVESTING TOGETHER FOR A SECURE FUTURE 45 F I N A N C I A L R E P O R T | Y e a r e n d e d 3 1 J u l y 2 0 2 0 7. CASH AND CASH EQUIVALENTS As at Cash at bank and on hand 8. CURRENT LOANS RECEIVABLE 31 July 2020 $'000 18,599 31 July 2019 $'000 11,314 Loans receivable - 89 9. CURRENT TRADE AND OTHER RECEIVABLES Trade debtors Less: expected credit losses Balance at end of year 10. OTHER CURRENT ASSETS 7,555 (143) 7,412 8,924 (39) 8,885 Prepayments 1,166 1,750 11. CURRENT INVENTORIES At cost or net realisable value Raw materials and finished goods Balance at end of year 12. NON-CURRENT OTHER RECEIVABLES Loans to employees Other receivables Balance at end of year 13. NON-CURRENT LOAN RECEIVABLES 5,095 5,095 6,538 6,538 - 62 62 1 479 480 Loan receivables 2,700 2,400 Interest on loans are charged at commercial interest rates. 14. NON-CURRENT EQUITIES At fair value through other comprehensive income Balance at beginning of year Revaluation to fair value Additions Disposal proceeds Balance at end of year Changes in fair value of equities are recorded in equity. 40,021 (8,313) 4,814 (4,257) 32,265 36,783 (852) 8,137 (4,047) 40,021 Gowing Bros. Limited INVESTING TOGETHER FOR A SECURE FUTURE 46 F I N A N C I A L R E P O R T | Y e a r e n d e d 3 1 J u l y 2 0 2 0 15. NON-CURRENT PRIVATE EQUITIES As at 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 31 July 2020 $'000 4,907 386 272 (1,418) 604 4,751 31 July 2019 $'000 3,449 1,228 561 (331) - 4,907 Changes in fair values of private equities at fair value through the profit or loss are recorded in other income. 16. NON-CURRENT DEVELOPMENT PROPERTIES For the year ended At cost or net realisable value Balance at beginning of year Additions Disposal proceeds Net gain on disposal Transfers out Balance at end of year 17. NON-CURRENT INVESTMENT PROPERTIES For the year ended At fair value Balance at beginning of year Additions Disposal proceeds Net gain on disposal Transfers in Amortisation on incentives Net loss from fair value adjustment Balance at end of year Amounts recognised in profit of loss for investment properties Rental revenue Direct operating expenses from rental generating properties Net gain on disposal Net loss on revaluation Changes in fair values of investment properties are recorded in other income. 31 July 2020 $'000 16,164 1,494 (2,277) 736 - 16,117 31 July 2020 $'000 232,016 2,447 (32,452) 2,115 - (725) (959) 202,442 15,819 (7,490) 2,115 (959) 9,485 31 July 2019 $'000 14,145 2,083 - - (64) 16,164 31 July 2019 $'000 256,678 6,491 (1,831) 410 64 (1,342) (28,454) 232,016 20,835 (8,859) 410 (28,454) (16,068) Gowing Bros. Limited INVESTING TOGETHER FOR A SECURE FUTURE 47 F I N A N C I A L R E P O R T | Y e a r e n d e d 3 1 J u l y 2 0 2 0 17. NON-CURRENT INVESTMENT PROPERTIES (CONTINUED) Sub-regional shopping centres (Coffs Central & Port Central) Neighbourhood shopping centres (2020: Kempsey Central) (2019: Kempsey Central & Moonee Marketplace) Other properties Valuation Method Weighted average cap rate 2020 Weighted average cap rate 2019 31 July 2020 $'000 31 July 2019 $'000 (a) 6.75% 6.75% 178,277 177,991 (a) (b) 8.00% 7.71% 19,854 47,640 n/a 4,311 6,385 202,442 232,016 (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 property. The higher the capitalisation rate, the lower the fair value. Capitalisation rates used and the fair value adopted for each property at 31 July 2020 were based on internal valuations prepared with the assistance of external property valuers or internal valuations prepared with reference to the property’s latest independent valuation prepared by external property valuers adjusted for any changes in assumptions, estimates or source data with reference to the properties current and forecasted performance, vacancy levels, tenancy profile and recent market data. At 31 July 2020, there is increased valuation uncertainty due to limited market transaction activity as a result of the COVID-19 pandemic. The Group has estimated the fair value of the properties using available market data and assumptions that take into account current market conditions. Given the increased valuation uncertainty in fair value estimation at 31 July 2020, the fair value of the properties may change significantly or in a short period of time given the higher degree of uncertainty associated with fair value estimation in the current climate. (b) Current prices in an active market for properties of similar nature or recent prices of different nature in less active markets. Sensitivity analysis of sub-regional and neighbourhood shopping centre investment properties held at fair value At 31 July 2020, a reduction of 0.5% in the capitalisation rate applied to each property would result in an additional gain of $15.9 million in the consolidated statement of profit or loss and consolidated statement of other comprehensive income. Similarly, an increase of 0.5% in the capitalisation rate of each property would result in an additional loss of $13.8 million in the consolidated statement of profit or loss and consolidated statement of other comprehensive income. Gowing Bros. Limited INVESTING TOGETHER FOR A SECURE FUTURE 48 F I N A N C I A L R E P O R T | Y e a r e n d e d 3 1 J u l y 2 0 2 0 18. NON-CURRENT PROPERTY, PLANT AND EQUIPMENT Year ended 31 July 2020 Opening net book amount Additions Disposals Depreciation charge Closing net book amount At 31 July 2020 Cost or fair value Accumulated depreciation Net book amount Year ended 31 July 2019 Opening net book amount Additions Disposals Depreciation charge Closing net book amount At 31 July 2019 Cost or fair value Accumulated depreciation Net book amount Freehold Properties Motor vehicles $'000 $'000 Furniture, fittings & equipment $'000 7,105 - - (44) 7,061 7,566 (505) 7,061 7,148 1 - (44) 7,105 7,566 (461) 7,105 96 - (10) (28) 58 394 (336) 58 186 2 (43) (49) 96 414 (318) 96 1,577 213 - (405) 1,385 7,991 (6,606) 1,385 1,415 651 (5) (484) 1,577 7,877 (6,300) 1,577 Total $'000 8,778 213 (10) (477) 8,504 15,951 (7,447) 8,504 8,749 654 (48) (577) 8,778 15,857 (7,079) 8,778 Revaluation to fair value uplifts on property, plant and equipment are recorded in equity. 19. NON-CURRENT INTANGIBLES As at Goodwill Brand names Software Patents Balance at end of year 31 July 2020 $'000 2,383 1,050 427 625 4,485 31 July 2020 $'000 2,383 1,050 256 847 4,536 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 either value-in-use calculations or the estimated fair value less costs to sell. Gowing Bros. Limited INVESTING TOGETHER FOR A SECURE FUTURE 49 F I N A N C I A L R E P O R T | Y e a r e n d e d 3 1 J u l y 2 0 2 0 19. NON-CURRENT INTANGIBLES (CONTINUED) Goodwill The recoverable amount of goodwill is determined based on value-in-use of the Surf Hardware International business segment which 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 $8.5m. Key assumptions include: (a) 12.5% discount rate; (b) 4.8% 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. Brand Names The recoverable amount of brand names is determined based on their estimated fair value less costs to sell determined by applying the relief from royalty methodology. Key assumptions include: (a) a royalty rate of 1% - 4%; (b) 12.5% discount rate; (c) 3% per annum projected net revenue growth rate; (d) 3% per annum increase in brand maintenance expenses; and (e) 3% terminal growth rate. Based on these assumptions the Directors have determined that no impairment charge shall be recognised during the current reporting period. 20. NON-CURRENT RIGHT OF USE ASSETS Year ended 31 July 2020 Right of use assets recognised on adoption of AASB 16 (Note 1(a)) Additions Lease modifications Foreign exchange movements Depreciation charge Closing net book amount At 31 July 2020 Cost Accumulated depreciation Net book amount Land and buildings Motor vehicles $'000 $'000 Equipment $'000 Total $'000 3,438 118 279 (80) (1,029) 2,726 3,737 (1,011) 2,726 - 80 - - (31) 49 80 (31) 49 - 34 - - (7) 27 34 (7) 27 3,438 232 279 (80) (1,067) 2,802 3,851 (1,049) 2,802 AASB 16 was adopted using the modified retrospective approach and comparatives for right of use assets have not been provided. Refer to Note 1(a). Additional information regarding leases The Group leases land and buildings for its offices and retail operations which have lease terms of between one and five years with, in some cases, options to extend. On renewal, the terms of the leases are renegotiated. The Group also leases motor vehicles and equipment under agreements of between one to five years. Each lease generally imposes a restriction that, unless there is a contractual right for the Group to sublet the asset to another party, the right of use asset can only be used by the Group. The Group’s leases include extension and termination options which are exercisable by the Group. These clauses provide the Group opportunities to manage leases in order to align with its strategies. The extension and termination options which were reasonably certain to be exercised are included in the calculation of the right-to-use asset. As at 31 July 2020, potential future cash outflows of $3.1 million (undiscounted) have not been included in the lease liability because it is not reasonably certain that the leases will be extended (or not terminated). Interest expense recognised in profit or loss was $0.4 million and principal payments made to lessors in respect to lease liabilities was $0.8 million for the year. Gowing Bros. Limited INVESTING TOGETHER FOR A SECURE FUTURE 50 F I N A N C I A L R E P O R T | Y e a r e n d e d 3 1 J u l y 2 0 2 0 21. DEFERRED TAX ASSETS As at The balance comprises temporary differences attributable to: Employee benefits Accruals Equities Derivatives Tax Losses Other Net deferred tax assets Movements: Opening balance at 1 August (Debited) / credited to profit or loss Closing balance at 31 July Deferred tax assets to be recovered within 12 months Deferred tax assets to be recovered after 12 months 31 July 2020 $'000 31 July 2019 $'000 448 485 6 1,295 371 1,005 3,610 3,406 204 3,610 1,246 2,364 3,610 383 545 - 1,208 1,034 236 3,406 5,070 (1,664) 3,406 741 2,665 3,406 22. OTHER NON-CURRENT ASSETS Other assets 1,769 1,800 23. CURRENT TRADE AND OTHER PAYABLES Trade creditors Other creditors and accruals Balance at end of year 24. CURRENT BORROWINGS As at Bills payable – secured Market rate loan facility – secured Commercial advance facility - secured Other Balance at end of year Risk 1,874 3,168 5,042 4,334 3,036 7,370 31 July 2020 $’000 1,350 336 127 11 1,824 31 July 2019 $’000 1,425 336 692 - 2,453 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 28. Gowing Bros. Limited INVESTING TOGETHER FOR A SECURE FUTURE 51 F I N A N C I A L R E P O R T | Y e a r e n d e d 3 1 J u l y 2 0 2 0 25. CURRENT LEASE LIABILTIES As at Lease liabilities 31 July 2020 $’000 1,030 31 July 2019 $’000 - AASB 16 was adopted using the modified retrospective approach and comparatives for lease liabilities have not been provided. Refer to Note 1(a). 26. CURRENT TAX LIABILITIES Income tax payable 27. CURRENT PROVISIONS 5,032 - Employee entitlements 1,402 1,330 28. NON-CURRENT BORROWINGS As at Bills payable - secured Market rate loan facility - secured Balance at the end of the year Risk 31 July 2020 $’000 84,310 76 84,386 31 July 2019 $’000 106,745 328 107,073 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. Total secured liabilities The total secured liabilities (current and non-current) are as follows: Bills payable – secured1 Market rate loan facility – secured2 Commercial advance facility - secured3 Other 85,660 412 127 11 86,210 108,170 664 692 - 109,526 1$1.350m bill is secured against 328-332 Bong St, Bowral. Interest is charged at BBSY plus 1.530% p.a. 1$84.310 million bill is secured against Port Central Shopping Centre, Coffs Central Shopping Centre, and Kempsey Central Shopping Centre (the “SC properties”). The facility consists of two tranches, the first tranche is a non-revolving facility, has a facility limit of $76 million (fully drawn at 31 July 2020). The second tranche is a revolving facility, has a facility limit of $30 million. Interest on the outstanding principal of both tranches is charged at BBSY plus 0.70% p.a. and a line fee is charged at a fixed rate of 1.62% p.a. At 31 July 2020 the current interest rate that applies to amounts advanced is 0.8549% p.a. The lender requires the Group and SC properties to meet certain financial ratios: at 31 July 2020 the combined facility limit of the first and second tranches must not to exceed 55% of the aggregate market value of the SC properties (based on the last borrower approval valuation of the SC properties) and the Group’s gearing ratio must not exceed 50%. 2 $0.412 million market rate loan 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, Surf Hardware International Pty Ltd, Surfing Hardware International Holdings Pty Ltd and Surf Hardware International Asia Pty Ltd. Interest is charged at BBSY. At 31 July 2020 the current interest rate that applies to amounts advanced is 0.2785%. 3 $0.127 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, Surf Hardware International Pty Ltd, Surfing Hardware International Holdings Pty Ltd and Surf Hardware International Asia Pty Ltd. The facility has a total facility limit of $2 million. At 31 July 2020 the current interest rate that applies to amounts advanced is 7.02%. Gowing Bros. Limited INVESTING TOGETHER FOR A SECURE FUTURE 52 F I N A N C I A L R E P O R T | Y e a r e n d e d 3 1 J u l y 2 0 2 0 28. NON-CURRENT BORROWINGS (CONTINUED) As at Financing arrangements Unrestricted access was available at balance date to the following lines of credit: Total facilities Secured bill facilities Secured commercial advance facility Secured market rate loan facility Other Used at balance date Secured bill facilities Secured commercial advance facility Secured market rate loan facility Other Unused at balance date Secured bill facilities Secured commercial advance facility1 Secured market rate loan facility Other 31 July 2020 $’000 31 July 2019 $’000 107,400 2,000 412 11 109,823 85,660 127 412 11 86,210 21,740 1,873 - - 23,613 117,650 2,000 664 - 120,314 108,170 692 664 - 109,526 9,480 1,308 - - 10,788 1Of the $1.87 million (2019: $1.31 million) remaining commercial advance facility (2019: commercial advance facility), $nil million (2019: $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 to above. 29. NON-CURRENT LEASE LIABILITIES As at Lease liabilities 31 July 2020 $’000 1,970 31 July 2019 $’000 - AASB 16 was adopted using the modified retrospective approach and comparatives for lease liabilities have not been provided. Refer to Note 1(a). 30. NON-CURRENT PROVISIONS Employee entitlements 482 547 Gowing Bros. Limited INVESTING TOGETHER FOR A SECURE FUTURE 53 F I N A N C I A L R E P O R T | Y e a r e n d e d 3 1 J u l y 2 0 2 0 31. DEFERRED TAX LIABILITIES As at The balance comprises temporary differences attributable to: Prepayments Intangibles Investment properties Equities Other Net deferred tax liabilities Movements: Opening balance at 1 August 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 2020 $’000 31 July 2019 $’000 100 315 18,326 1,691 1,618 22,050 29,022 (4,478) (2,494) 22,050 128 21,922 22,050 278 315 23,657 4,068 704 29,022 37,612 (8,334) (256) 29,022 278 28,744 29,022 32. CONTRIBUTED EQUITY Share capital Ordinary shares fully paid Movements in ordinary share capital Date 31/07/2019 23/10/2019 25/11/2019 28/11/2019 2/03/2020 25/06/2020 Details Balance Share buy back Share buy back Share buy back Share buy back Share buy back Number of shares 2020 Number of shares 2019 2020 $’000 2019 $’000 53,746,240 53,939,195 12,895 13,288 Number of shares 53,939,195 (73,200) (10,000) (20,000) (35,000) (54,755) 53,746,240 Issue price per share 2.25 2.28 2.25 2.20 1.50 $’000 13,288 (165) (23) (45) (77) (83) 12,895 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 suspended for the final dividend declared on 30 September 2020. 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 192,955 shares were bought back during the year (2019: Nil). 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. Gowing Bros. Limited INVESTING TOGETHER FOR A SECURE FUTURE 54 F I N A N C I A L R E P O R T | Y e a r e n d e d 3 1 J u l y 2 0 2 0 33. RESERVES Capital profits reserve1 Opening balance Transfer from retained profits Closing balance Long term investment revaluation reserve2 Opening balance Fair value adjustments on equities Equities - - Deferred tax applicable to fair value adjustments - Transfer of losses / (gains) on sale of equity instruments at fair value through comprehensive income to retained earnings, net of tax 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 2020 $’000 31 July 2019 $’000 90,503 - 90,503 90,503 - 90,503 8,308 9,722 (8,313) 2,494 371 2,860 (852) 256 (818) 8,308 1,591 1,591 - - 1,591 394 (197) 197 95,151 - - 1,591 140 254 394 100,796 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 held at fair value through other comprehensive income. 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. Gowing Bros. Limited INVESTING TOGETHER FOR A SECURE FUTURE 55 F I N A N C I A L R E P O R T | Y e a r e n d e d 3 1 J u l y 2 0 2 0 34. DIVIDENDS Ordinary shares 2019 final dividend of 5.0 cents (2018: 6.0 cents interim) per share 2020 interim dividend of 5.0 cents (2019: 5.0 cents interim) per share Total dividends declared Dividends paid in cash Dividends paid via Dividend Reinvestment Plan 31 July 2020 $’000 31 July 2019 $’000 2,697 2,690 5,387 5,387 - 5,387 3,218 2,690 5,908 5,096 812 5,908 Franked dividends declared and paid during the year were fully franked at the tax rate of 30% (2019: 30%). Dividends declared after year end Subsequent to year end the Directors have declared the payment of a final dividend of 3.0 cents per ordinary share fully franked based on tax paid at 30%. The dividend paid on 29 October 2020 out of retained profits at 31 July 2020 was $1,609,387. 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 2020 and will be recognised in subsequent financial reports. Franked dividends The franked portions of the final dividends declared after 31 July 2020 will be franked out of existing franking credits or out of franking credits arising from the payment of income tax in the year ended 31 July 2020. Franking credits available for subsequent financial years (tax paid basis) 7,315 4,540 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 payable; (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. 35. REMUNERATION OF AUDITORS Audit and review – parent entity Audit and review – subsidiary companies Tax services 36. COMMITMENTS FOR EXPENDITURE Capital commitments – Private equities 31 July 2020 $ 116,700 77,400 35,330 229,430 31 July 2019 $ 113,300 73,700 29,520 216,520 The Group has uncalled capital commitments of up to $947,654 (2019: $1,070,346) in relation to private equity and property fund investments held at year end. Capital commitments – Investment properties The Group has capital commitments of $Nil (2019: $2,123,474) in relation to construction works on investment properties at year end. Capital commitments – Development properties The Group has capital commitments of $348,286 (2019: $nil) in relation to construction works on development properties at year end. Gowing Bros. Limited INVESTING TOGETHER FOR A SECURE FUTURE 56 F I N A N C I A L R E P O R T | Y e a r e n d e d 3 1 J u l y 2 0 2 0 37. RELATED PARTIES 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 2019. 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 Post-employment benefits Long-term benefits 31 July 2020 $ 744,593 60,109 8,713 813,415 31 July 2019 $ 953,747 74,384 7,432 1,035,563 Detailed remuneration disclosures can be found in the remuneration report on pages 21 to 24. Movement in shares Key management person J. E. Gowing J. G. Parker Prof. J. West S. J. Clancy R. Ambrogio *Directly and indirectly Shares held* at 31-Jul-18 No. 20,888,150 55,000 477,581 5,000 - Shares acquired/ (disposed) during the year No. 154,448 2,306 - - - Shares held* at 31- Jul-19 No. 21,042,598 57,306 477,581 5,000 - Shares acquired/ (disposed) during the year No. - - - - 10,000 Shares held* at 31- Jul-20 No. 21,042,598 57,306 477,581 5,000 10,000 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 (2019: $nil). Transactions with Key Management Personnel and Directors Key management person J. E. Gowing J. E. Gowing Transaction type Marketing services Associate director services 2020 $ 62,436 10,950 2019 $ 96,443 10,950 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 $3,800 for the year (2019: $41,994). The sons of Mr J E Gowing provided marketing services during the year on an employment basis totalling $58,636 (2019: $54,449), and associate director services totalling $10,950 (2019: $10,950). There were no other transactions with Directors and Director related entities and Executives. Gowing Bros. Limited INVESTING TOGETHER FOR A SECURE FUTURE 57 F I N A N C I A L R E P O R T | Y e a r e n d e d 3 1 J u l y 2 0 2 0 38. INTERESTS IN OTHER ENTITIES (EXCLUDING 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. Country of Incorporation Ownership Interest % 2020 Ownership Interest % 2019 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 Australia Australia Australia Australia Australia Australia Australia Australia Australia France England Australia Australia United States of America United States of America United States of America Japan Australia Surf Hardware International New Zealand Pty Ltd New Zealand Gowings Master Trust 1868 High Yield Trust Gowings Life Sciences Trust Gowing Bros Management Services Pty Ltd Coastbeat Pty Ltd 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 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 99.9 100 100 100 100 100 No other interests in subsidiaries or other entities (excluding joint ventures) were held by the Group in the 31 July 2020 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 detailed in note 28, there are no significant restrictions over the Group’s ability to access or use assets, and settle liabilities, of the Group. Gowing Bros. Limited INVESTING TOGETHER FOR A SECURE FUTURE 58 F I N A N C I A L R E P O R T | Y e a r e n d e d 3 1 J u l y 2 0 2 0 39. INTERESTS IN JOINT VENTURES The Group has entered into a joint venture operation known as Regional Retail Properties, a long term investment in a small regional retail centre. The Group has a 50% participating interest in this joint venture and is entitled to 50% of its output. 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(q), under the following classifications: Current assets Cash and cash equivalents 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 2020 $’000 31 July 2019 $’000 74 18 92 3,000 3,000 3,092 18 1,350 1,368 - - 1,368 1,724 24 21 45 3,000 3,000 3,045 27 1,425 1,452 - - 1,452 1,593 $1.350 million of borrowings is secured against investment properties of Regional Retail Properties (note 28). 40. 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 (2019: Nil). 41. EARNINGS / (LOSS) PER SHARE Basic earnings / (loss) per share (cents) Diluted earnings / (loss) per share (cents) Weight average number of ordinary shares on issue Net profit / (loss) after tax 31 July 31 July 2019 2020 (36.07)c 8.82c (36.07)c 8.82c 53,842,723 53,782,955 $4,747,000 $(19,403,000) Gowing Bros. Limited INVESTING TOGETHER FOR A SECURE FUTURE 59 F I N A N C I A L R E P O R T | Y e a r e n d e d 3 1 J u l y 2 0 2 0 42. PARENT ENTITY INFORMATION 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 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 profits Total equity Statement of Profit or Loss and other Comprehensive Income Net profit / (loss) after income tax Total comprehensive income / (loss) Parent entity contractual commitments 31 July 2020 $’000 15,647 287,258 302,905 10,267 108,284 118,551 184,354 12,895 90,503 2,860 1,591 76,505 184,354 31 July 2019 $’000 13,479 326,383 339,862 7,007 138,818 145,825 194,037 13,288 90,503 8,308 1,591 80,347 194,037 1,916 (5,819) (18,873) (19,470) The Company has no contractual commitments other than uncalled capital commitments for private equities and development properties as noted in note 36 (2019: Uncalled capital commitments for private equities and construction works on investment properties as noted in note 36). Parent entity contingent liabilities The Company has no contingent liabilities at year end (2019: nil). 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 (2019: nil). Gowing Bros. Limited INVESTING TOGETHER FOR A SECURE FUTURE 60 F I N A N C I A L R E P O R T | Y e a r e n d e d 3 1 J u l y 2 0 2 0 43. RECONCILIATION OF NET PROFIT / (LOSS) TO NET CASH INFLOW FROM OPERATING ACTIVITIES Profit /(loss) from ordinary activities after income tax Amortisation of lease incentives Depreciation and amortisation Net gain on sale of private equities Net gain on sale of property, plant and equipment Net gain on the sale of investment properties Net gain on the sale of development properties Revaluation of investment properties to fair value Revaluation of equities and private equities to fair value Revaluation of derivatives to fair value 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 2020 $’000 4,747 725 1,805 (604) - (2,115) (736) 959 (386) 290 1,891 615 1,443 434 7 (1,224) 7,851 31 July 2019 $’000 (19,403) 1,342 815 - (22) (410) - 28,454 (1,228) 3,319 (1,009) (254) (304) (7,112) 186 1,795 6,169 44. CHANGES IN LIABILITIES ARISING FROM FINANCING ACTIVITIES Liabilities from financing activates Derivatives1 Borrowings2 Opening balance – 31 July 2019 4,027 109,526 Cash flows from financing activities - (23,316) (Gains)/ loss on disposal or revaluation (non-cash) 290 - Closing balance – 31July 2020 4,317 86,210 1 Relates to current and non-current derivatives. 2 Relates to current and non-current borrowings. 3 Relates to the following cash flows from financing activities for the year ended 31 July 2020: - Proceeds from borrowings - Repayment of borrowings 45. SUBSEQUENT EVENTS 6,000 (29,316) (23,316) The COVID-19 pandemic has had a significant impact on domestic and global markets and economies and there remains significant uncertainty. The Directors are continuing to manage and monitor the Group’s operations and investments closely in response to the COVID-19 pandemic. COVID-19 pandemic impacts may affect the Group’s financial performance and position in future periods however a definitive assessment of the extent of such impacts cannot be practically made given the degree of uncertainty in the current climate. No other matter or circumstance has arisen since the end of the financial year, other than the dividend declared (refer note 34) 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. Gowing Bros. Limited INVESTING TOGETHER FOR A SECURE FUTURE 61 F I N A N C I A L R E P O R T | Y e a r e n d e d 3 1 J u l y 2 0 2 0 46. 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. Gowing Bros. Limited INVESTING TOGETHER FOR A SECURE FUTURE 62 F I N A N C I A L R E P O R T | Y e a r e n d e d 3 1 J u l y 2 0 2 0 Directors’ Declaration 1. In the directors’ opinion: (a) the consolidated financial statements and notes set out on pages 26 to 62 are in accordance with the Corporations Act 2001, including: (i) (ii) complying with Accounting Standards and the Corporations Regulations 2001 and other mandatory professional reporting requirements; and giving a true and fair view of the Group’s financial position as at 31 July 2020 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. 3. The notes to the consolidated financial statements include a statement of compliance with International Financial Reporting Standards. The directors have been given the declarations by the chief executive officer and chief financial officer for the year ended 31 July 2020 required by section 295A of the Corporations Act 2001. This declaration is made in accordance with a resolution of the directors. Professor J. West Director Sydney, NSW 30 October 2020 J. E. Gowing Director Sydney, NSW 30 October 2020 Gowing Bros. Limited INVESTING TOGETHER FOR A SECURE FUTURE 63 F I N A N C I A L R E P O R T | Y e a r e n d e d 3 1 J u l y 2 0 2 0 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 2020, 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 30 October 2020 A G Smith Partner Gowing Bros. Limited INVESTING TOGETHER FOR A SECURE FUTURE 64 F I N A N C I A L R E P O R T | Y e a r e n d e d 3 1 J u l y 2 0 2 0 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 2020, 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 2020 and of its financial performance for the year then ended; and (b) complying with Australian Accounting Standards and the Corporations Regulations 2001. Basis for Opinion We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report. We are independent of the Group in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (“the Code”) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. We confirm that the independence declaration required by the Corporations Act 2001, which has been given to the directors of the Company, would be in the same terms if given to the directors as at the time of this auditor’s report. 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. Gowing Bros. Limited INVESTING TOGETHER FOR A SECURE FUTURE 65 F I N A N C I A L R E P O R T | Y e a r e n d e d 3 1 J u l y 2 0 2 0 Key Audit Matter How our audit addressed the key audit matter Valuation of sub-regional and neighbourhood shopping centre investment properties Note 17 The aggregate fair value of the Group’s sub- regional and neighbourhood shopping centre investment properties as at 31 July 2020 is $198.131 million, representing 63.54% of the Group’s total assets as at that date. The valuation of the Group’s investment properties requires significant 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. 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. Valuation of Unlisted Equities Notes 2, 14 & 15 At 31 July 2020 the Group owned investments of $25.60 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 other market evidence. 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 investment properties included:  assessing the competence, capability, experience, independence and objectivity of external valuers appointed by management. evaluating the valuation methodology applied. testing the reliability and reasonableness of inputs to underlying contracts and supporting documentation. testing the appropriateness of assumptions and estimates with reference to historical rates and results, available market data, market conditions and other supporting documentation. checking the mathematical accuracy of valuation calculations. reviewing the Group’s disclosures with reference to Australian Accounting Standards.      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 market data and other financial information. reviewing the Group’s disclosures with reference to Australian Accounting Standards.    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 2020, 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. Gowing Bros. Limited INVESTING TOGETHER FOR A SECURE FUTURE 66 F I N A N C I A L R E P O R T | Y e a r e n d e d 3 1 J u l y 2 0 2 0 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 Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with 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. 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:       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 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 estimates and related disclosures made by the directors. 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 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. 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. 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. Gowing Bros. Limited INVESTING TOGETHER FOR A SECURE FUTURE 67 F I N A N C I A L R E P O R T | Y e a r e n d e d 3 1 J u l y 2 0 2 0 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 21 to 24 of the directors’ report for the year ended 31 July 2020. In our opinion, the Remuneration Report of Gowing Bros. Limited for the year ended 31 July 2020 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 30 October 2020 A G Smith Partner Gowing Bros. Limited INVESTING TOGETHER FOR A SECURE FUTURE 68 

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