Annual Report 2015 Brands Kinder Haven Committed to grow ing the whole c hi l d Early Learning Services PRIMARY FONT: Trajan Pro Bold SECONDARY FONT: Minion Regular Website Colours Primary Secondary Tertiary Alt Colour A s a f e p l a c e f o r c h i l d r e n t o g r o w Casa Bambini Early Education Centre Mission Our mission is to be Australia’s leading provider of high quality, developmental and educational child care services. We seek to achieve this through our four pillars for growth and sustainability: Quality Education & Care To nurture and develop childrens’ minds, social skills and confidence in a safe and stimulating environment. Employees To commit to employee development and a rewarding culture which will ensure an engaged and driven workforce. Community To be responsive to local families and deliver upon community expectations. Profitability To grow and derive value for shareholders through innovative services, systems and management. Contents Chairman’s Report Managing Director’s Report Key Financial Information Section One Directors’Report & Corporate Governance Statement Section Two Financial Report Independent Audit Report Shareholder Information Corporate Directory 07 08 10 12 35 95 97 99 At a glance Revenue ($m) $706.2m Earnings Before Interest and Tax ($m) $160.4m $706.2 $491.3 $275.2 $179.9 2012 2013 2014 2015 $160.4 $106.0 $47.4 $24.6 2012 2013 2014 2015 $88.6 $52.7 Net Profit After Tax ($m) $88.6m $31.1 $19.2 2012 2013 2014 2015 24.3c 16.2c Earnings Per Share (CPS) 24.3c 11.3c 8.9c 2012 2013 2014 2015 Chairman’s Report Dear Shareholders, On behalf of the Board, I am pleased to present the G8 Educa(cid:415)on Limited 2015 Annual Report. A(cid:332)er a period of tremendous growth in 2014, 2015 has been a year where our priori(cid:415)es have been more evenly spread between growth, integra(cid:415)on and service provision. In 2015 we acquired 44 early educa(cid:415)on centres. These centres were predominantly premium centres located in metropolitan areas, all of which were subjected to the Group’s rigorous screening and due diligence disciplines prior to se(cid:425)lement. As at 31 December 2015, the total number of centres owned by the Group was 489 with a combined licenced capacity of 35,221 places. Our ability to integrate acquired centres in a seamless, long been one of our core efficient manner has competencies and I am pleased to report that 2015 was a year of real achievement in this area. Con(cid:415)nued investment in our Support Office systems combined with improved efficiency and produc(cid:415)vity levels enabled us to effec(cid:415)vely integrate all new acquired services into the G8 corporate model in a manner that ensured consistency and effec(cid:415)veness of service provision. With over 75,000 children a(cid:425)ending our services in any given week and over 10,000 employees educa(cid:415)ng and caring for those children our responsibili(cid:415)es to the families and the communi(cid:415)es from which they come is greater than ever. Our focus on ensuring that our centre based teams are appropriately resourced, trained and supported is essen(cid:415)al to us maintaining our posi(cid:415)on as Australia’s leading for profit early educa(cid:415)on provider. In that regard I am pleased to report that direct capital investment in our centres increased 40% this year, our opera(cid:415)onal support team has seen a step change in its quality and calibre with a number of key new hires and our investment in professional development pla(cid:414)orms promises to revolu(cid:415)onise our ability to train and upskill our staff. From an opera(cid:415)onal perspec(cid:415)ve 2015 has been a terrific year for the Group. Financially, 2015 saw another strong year of performance. Revenues increased 44% to $706.2 million, earnings before interest and tax rose 51% to $160.4 million and net profit a(cid:332)er tax by 68% to $88.6 million. The Group generated $95.1 million of cash from opera(cid:415)ons and returned $87.9 million in dividends to shareholders. As we look forward to 2016 we feel strongly that we are posi(cid:415)oned well to take advantage of any opportuni(cid:415)es that may arise whilst maintaining our high levels of service provision to Australia’s communi(cid:415)es. 2016 is likely to be another exci(cid:415)ng year for the Group. On behalf of the Board, I would like to take this opportunity to thank all of our shareholders, employees and customers for their ongoing support in 2015. Yours sincerely, Mark Johnson Chairman G8 Educa(cid:415)on Limited | Annual Report 2015 7 Managing Director’s Report Industry leading early educa(cid:415)on posi(cid:415)on maintained Over the course of 2015, the Group cemented its posi(cid:415)on as Australia’s leading for profit early educa(cid:415)on provider. This year we saw a record of number of children a(cid:425)end our centres as families recognise the contribu(cid:415)on that a G8 centre can make to their loved ones future. Building on this posi(cid:415)ve momentum is central to the success of the G8 model and can only be effec(cid:415)ve through con(cid:415)nued investment and development. Investment in service provision a priority A key tenet of our opera(cid:415)ng model is the provision of first class support to all of our centre directors and our floor based teams. We cannot achieve this objec(cid:415)ve without a(cid:425)rac(cid:415)ng the very best talent in the sector as well as in produc(cid:415)vity, efficiency and inves(cid:415)ng curriculum based ini(cid:415)a(cid:415)ves. improvements in both underlying profits and margins and a true endorsement of the strength of the G8 Educa(cid:415)on corporate model. Por(cid:414)olio growth sustained 2015 saw the Group acquire a further 44 early educa(cid:415)on centres. These were located across Australia and secured at a(cid:425)rac(cid:415)ve terms consistent with our due diligence and pricing disciplines. to Our acquisi(cid:415)on strategy con(cid:415)nues focus on consolida(cid:415)on opportuni(cid:415)es in and around metropolitan areas where supply and demand dynamics combined with a(cid:425)rac(cid:415)ve pricing create opportuni(cid:415)es for earnings accre(cid:415)ve acquisi(cid:415)ons. By year end 2015, the Group’s total por(cid:414)olio comprised 489 centres with capacity of 35,221 licensed places. Financial results 2015 was another year of record results for the Group. of Opera(cid:415)ons The addi(cid:415)on of a new Execu(cid:415)ve Officer and General Manager our commitment to deepening the talent pool available in the senior ranks of the business and laying the founda(cid:415)ons for the next phase of our growth. emphasised has Professional development, a key strategic objec(cid:415)ve Investment in our people con(cid:415)nues to be an area that will be crucial to the maintenance of the high standard of service provision we strive to deliver. The scope for innova(cid:415)on in educa(cid:415)on delivery across our business is significant. We con(cid:415)nue to explore technological and pedagogical developments of every type to ensure that our staff receive the very best development opportuni(cid:415)es whilst part of the G8 team. Another strong year of opera(cid:415)onal performance The Group was able to build on the opera(cid:415)onal momentum created in 2014 via effec(cid:415)ve integra(cid:415)on and opera(cid:415)on of acquired centres combined with the con(cid:415)nued opera(cid:415)on of centres owned prior to 2014. Revenues rose to $706.2m, up 44% and net profit a(cid:332)er tax rose 68% to $88.6m. Opera(cid:415)ng cash flow increased to $95.1m this year from $74.7m in 2014. The Group’s tax, ability deprecia(cid:415)on and amor(cid:415)sa(cid:415)on (EBITDA) to cash remains outstanding with 99% cash conversion recorded in 2015. to convert earnings before interest, Underlying earnings per share, a key strategic measure for the Group, increased 29% to 23.87c in 2015. Outlook for 2016 The sector con(cid:415)nues to exhibit high degrees of fragmenta(cid:415)on coupled with favourable underlying fundamentals. This combined with our extensive investment in the founda(cid:415)on of our business will ensure that the Group is well posi(cid:415)oned to deliver on its commitment to its children, families and communi(cid:415)es, as well it’s shareholders, in the year ahead. We look forward to 2016. Underlying earnings before interest and tax was $145.4m for the period with an underlying earnings before interest and tax margin of 21.2%. This is the fi(cid:332)h successive year the Group has sustained year on year Christopher Sco(cid:425) Managing Director 8 G8 Educa(cid:415)on Limited | Annual Report 2015 Key Operational Information Number of owned centres at year end Consolidated Group 489 Licence capacity of owned centres at year end 35,221 per day Total number of employees at year end Total number of full (cid:415)me equivalent employees at year end 10,741 7,230 Underlying Net Profit After Tax Reconciliation Consolidated Year End 31 December Revenue# Expenses Earnings Before Interest and Tax Financing Cost# Net Profit Before Tax Net Profit A(cid:332)er Tax Less non‐opera(cid:415)ng transac(cid:415)ons: Deferred considera(cid:415)on not paid* Acquisi(cid:415)on expenses Share based payment expense * Profit on sale of financial assets^ Write off of SGD borrowing costs rela(cid:415)ng to sale of financial assets^ Write off of borrowing costs on refinance*^ Foreign currency transla(cid:415)on loss*^ Underlying Net Profit A(cid:332)er Tax Underlying EPS (cents per share) Underlying Earnings Before Interest and Tax 2015 $'000 2014 $'000 703,547 488,402 (543,124) (382,437) 160,423 (37,650) 122,773 88,581 105,965 (33,404) 72,561 52,731 Variance 44% 42% 51% 13% 69% 68% (5,755) (9,178) 916 3,354 344 107 (7,343) 2,010 ‐ ‐ ‐ 566 8,378 13,033 87,131 60,613 23.87 18.57 145,438 100,248 44% 29% 45% # Adjustment for interest income of $2.6m excluded from revenue and included in financing costs. * Non‐cash adjustments. ^ Tax adjusted. 10 G8 Educa(cid:415)on Limited | Annual Report 2015 Section 01 Directors’ Report and Corporate Governance Statement Directors’ Report Auditor’s Independence Declaration Corporate Governance Statement 12 23 25 Directors’ Report The Directors present their report on the consolidated en(cid:415)ty (referred to herea(cid:332)er as the Group) consis(cid:415)ng of G8 Educa(cid:415)on Limited and the en(cid:415)(cid:415)es it controlled at the end of, or during, the year ended 31 December 2015. All of the following persons were Directors of G8 Educa(cid:415)on Limited during the financial year and up to the date of this report unless otherwise stated. Mark Johnson B. Comm, FCA, CPA, FAICD Chairman Independent Non‐Execu(cid:415)ve Director since 1 January 2016 Mark Johnson is a experienced chairman and company director with a diverse por(cid:414)olio, including Chairman of MH Premium Farms Holdings Pty Ltd, Director of Wes(cid:414)ield Corpora(cid:415)on, Director of HSBC Bank Australia Limited, Director of The Hospitals Contribu(cid:415)on Fund of Australia Limited (HCF) and Councillor – St Aloysius’ College. Prior to embarking on his Board career, Mr Johnson was the Chief Execu(cid:415)ve Officer and Senior Partner of PricewaterhouseCoopers (PwC), one of Australia’s leading professional services firms, from July 2008 to June 2012. His former roles include Chairman of the PwC Founda(cid:415)on, member of the Audi(cid:415)ng and Assurance Board and Deputy Chair of the Finance and Repor(cid:415)ng Commi(cid:425)ee at the Australian Ins(cid:415)tute of Company Directors. Mr Johnson is a Fellow of the Ins(cid:415)tute of Chartered Accountants and the Australian Ins(cid:415)tute of Company Directors, and holds a Bachelor of Commerce from the University of NSW. Other current listed public Company Directorships: Wes(cid:414)ield Corpora(cid:415)on Limited (appointed 30 June 2014) and Wes(cid:414)ield Holdings Limited (appointed 29 May 2013 un(cid:415)l 30 June 2014). Former listed public Company Directorships in the last three years: Nil. Christopher Scott B.Econ (Hons) Managing Director Execu(cid:415)ve Director since 25 March 2010 Chris Sco(cid:425) has over 25 years experience in senior management posi(cid:415)ons. He has spent over 30 years in business in Singapore where he was involved in a number of successful businesses. Chris was also the founder and Managing Director of ASX listed S8 which was an integrated travel Company that acquired 36 businesses over a 5 year period and was capitalised at $700 million. His opera(cid:415)onal, analy(cid:415)cal and strategic skills are cri(cid:415)cal in the selec(cid:415)on of poten(cid:415)al acquisi(cid:415)ons and opera(cid:415)onal management. Other current listed public Company Directorships: Nil. Former listed public Company Directorships in the last three years: Nil. Brian Bailison B.Com., B.Acc (Cum Laude), ACA Independent Non‐Execu(cid:415)ve Director since 25 March 2010 Matthew Reynolds B.Sc (Hons), LLB (Hons), MQLS Independent Non‐Execu(cid:415)ve Director since 17 March 2015 Brian Bailison has over 20 years experience in finance, corporate finance and opera(cid:415)ons from senior roles in listed and unlisted businesses in South Africa and Australia, including senior posi(cid:415)ons at Rand‐Merchant Bank Limited (South Africa’s largest bank‐assurance business), the Ivany Investment Group (diversified investment Group) and Payce Consolidated Limited which operated 59 child care centres prior to them being acquired by the Company. Special responsibili(cid:415)es: Chair Audit and Risk Management Commi(cid:425)ee and member of the Nomina(cid:415)on and Remunera(cid:415)on Commi(cid:425)ee. Other current listed public Company Directorships: Nil. Former listed public Company Directorships in the last three years: Nil. Ma(cid:425)hew is currently a partner at HWL Ebsworth Lawyers and has experience in capital markets, ASX lis(cid:415)ng, private equity and mergers and acquisi(cid:415)ons. He specialises in providing tailored legal and strategic advice in a highly regulated and technical market and has advised on a large number of complex capital and merger and acquisi(cid:415)on projects. Special responsibili(cid:415)es: Ac(cid:415)ng Chairman from 15 October 2015 un(cid:415)l 1 January 2016. Member of the Nomina(cid:415)on and Remunera(cid:415)on Commi(cid:425)ee and Audit and Risk Management Commi(cid:425)ee. Other current listed public Company Directorships: Nil. Former listed public Company Directorships in the last three years: Nil. 12 G8 Educa(cid:415)on Limited | Annual Report 2015 Susan Forrester BA, LLB (Hons) EMBA, FAICD Independent Non‐Execu(cid:415)ve Director since 1 November 2011 Susan Forrester is an experienced Chair and Company Director with a diverse por(cid:414)olio career. She has a valuable blend of commercial, legal and execu(cid:415)ve management experience gained across public and private organisa(cid:415)ons. She is currently chair for Na(cid:415)onal Veterinary Care Ltd and Oncore Group Holdings Pty Ltd and is a non‐execu(cid:415)ve director of Over the Wire Group Ltd, Xenith IP Ltd and Uni(cid:415)ng Care Qld. She serves as Independent Chair of the Audit Commi(cid:425)ee of Transport and Main Roads Qld. Special responsibili(cid:415)es: Chair of the Nomina(cid:415)on and Remunera(cid:415)on Commi(cid:425)ee and member of the Audit and Risk Management Commi(cid:425)ee. Other current listed public Company Directorships: Over the Wire Ltd (appointed 1 November 2015), Xenith IP Ltd (appointed 1 October 2015) and Na(cid:415)onal Veterinary Care Ltd (appointed 1 February 2015). Former listed public Company Directorships in the last three years: Nil. David Foster B.App.Sci, MBA, GAICD, SFFin Independent Non‐Execu(cid:415)ve Director since 1 February 2016 Andrew Kemp B.Com., CA Independent Non‐Execu(cid:415)ve Director un(cid:415)l his resigna(cid:415)on on 17 March 2015 Jennifer Hutson B.Com., LLB, FAIM Chairperson, Independent Non‐ Execu(cid:415)ve Director un(cid:415)l her resigna(cid:415)on on 15 October 2015 David Foster enjoyed a successful career in financial services spanning over 25 years. His last execu(cid:415)ve role was as Chief Execu(cid:415)ve Officer of Suncorp Bank, Australia’s 5th largest bank. Since leaving Suncorp, Mr Foster has further developed his career as an experienced Non‐Execu(cid:415)ve Director with a por(cid:414)olio of Board roles across a diverse range of industries including financial services, retailing, local government, educa(cid:415)on and professional services. He currently serves as a Director on the Boards of the Thorn Group Limited (ASX:TGA) and Kina Securi(cid:415)es Limited (ASX:KSL) and chairs both their Audit and Risk Commi(cid:425)ees. Special responsibili(cid:415)es: Member of Audit and Risk Management Commi(cid:425)ee. Other current listed public Company Directorships: Thorn Group Limited (appointed 1 December 2014) and Kina Securi(cid:415)es Limited (appointed 1 May 2015). Former listed public Company Directorships in the last three years: Nil. Andrew Kemp is the Managing Director of Hun(cid:415)ngton Group, a Queensland based advisory firm. Andrew has structured and implemented the ASX lis(cid:415)ng of over 10 companies in addi(cid:415)on to other corporate advisory and investment ac(cid:415)vi(cid:415)es. Andrew joined AIFC, the merchant banking affiliate of the ANZ Banking Group in Sydney and then opened AIFC’s Queensland office in 1979. He established Hun(cid:415)ngton Group in 1987. Special responsibili(cid:415)es: Chair of Audit and Risk Management Commi(cid:425)ee. Other current listed public Company Directorships: PTB Group Limited (appointed August 2006) and Silver Chef Limited (appointed February 2005). Former listed public Company Directorships in the last three years: Trojan Equity Limited (appointed March 2005 and ceased March 2013). Jenny Hutson is an investment banker and fund manager. She is an experienced corporate adviser and Company Director. She has over 20 years’ experience in advising listed companies on capital raisings, mergers and acquisi(cid:415)ons, finance and governance issues. She was previously Chairperson of S8, Harvey World Travel and Travelscene American Express and a Director of the Royal Children's Hospital Founda(cid:415)on and the centenary commi(cid:425)ee for Surf Life Saving Australia. Special responsibili(cid:415)es: Chair of the Board, Member of Audit and Risk Management Commi(cid:425)ee and Nomina(cid:415)on and Remunera(cid:415)on Commi(cid:425)ee. Other current listed public Company Directorships: Nil. Former listed public Company Directorships in the last three years: Nil. G8 Educa(cid:415)on Limited | Annual Report 2015 13 Matters subsequent to the end of the financial year following material ma(cid:425)ers have taken place The subsequent to year end: Mark Johnson was appointed Chairman on 1 January 2016. (Refer to the Directors’ Report for details about his professional career). David Foster was appointed as Non‐Execu(cid:415)ve Director effec(cid:415)ve from 1 February 2016. (Refer to the Directors Report for details about his professional career). On 19 January 2016 the Group announced its inten(cid:415)on to redeem the 2016 $155m SGD senior unsecured notes early. This exercise will be completed on 29 February 2016. In accordance with the terms of the execu(cid:415)ve share plan a third of the shares issued will be cancelled by the Group as the underlying EPS growth did not exceed 40% as required by the terms of the plan. Likely developments and expected results of operations The Group will con(cid:415)nue to pursue its objec(cid:415)ves of increasing the profitability and the market share of its child care business during the next financial year. This will be achieved through organic and acquisi(cid:415)on led growth. Rounding Amounts issued by The Company is of a kind referred to in Class Order the Australian Securi(cid:415)es and 98/100, Investments Commission, rela(cid:415)ng to the “rounding off” of amounts in the financial statements. Amounts in the financial statements have been in accordance with that Class Order to the nearest thousand dollars, or in certain cases, the nearest dollar. rounded off Chief Executive Officer Jason Roberts is the Chief Execu(cid:415)ve Officer. He is responsible for managing the external and internal opera(cid:415)ons of the Group and providing consistent high level advice to the Board on opera(cid:415)ons, policy and planning. Jason has 20 years experience in finance, capital markets and execu(cid:415)ve management roles. He has worked in several interna(cid:415)onal jurisdic(cid:415)ons over the course of his career and is a qualified Chartered Financial Analyst. Company Secretary Chris Sacre is the Chief Financial and Company Secretary Officer. He is responsible for financial management including business development. forecas(cid:415)ng repor(cid:415)ng, and Chris’ formal qualifica(cid:415)ons include a Bachelor of Business and a Graduate Diploma in Applied Finance. Chris is a Chartered Accountant and a Fellow member of the Financial Services Ins(cid:415)tute of Australasia and has been involved in the child care industry for eight years. Principal activities The principal con(cid:415)nuing ac(cid:415)vi(cid:415)es of the Group during the year were: Opera(cid:415)on of early educa(cid:415)on centres owned by the Group; and Ownership of early educa(cid:415)on centre franchises. There has been no significant change to the Group’s ac(cid:415)vi(cid:415)es during the financial year ended 31 December 2015. Review of operations Informa(cid:415)on on the opera(cid:415)ons and financial posi(cid:415)on of the Group and its business strategies and prospects are set out in the Chairman and Managing Director’s Report. Significant changes in the state of affairs Significant changes in the state of affairs of the Group during the year were as follows: Acquired an addi(cid:415)onal 44 child care centres in Australia; The Group raised $155m SGD note as part of the cash offer component of the proposed acquisi(cid:415)on of Affinity Educa(cid:415)on Group, this transac(cid:415)on did not proceed and as a result the notes will be repaid on 29 February 2016. Jennifer Hutson resigned as Chairperson on 15 October 2015 and M Johnson was appointed effec(cid:415)ve from 1 January 2016. 14 G8 Educa(cid:415)on Limited | Annual Report 2015 Dividends Dividends declared or paid during the financial year were as follows: Dividend for the quarter ended 31 March 2015 of 6.0 cents per share (2014: 3.5 cents per share) paid on 10 April 2015 (2014: Paid on 10 April 2014) Dividend for the quarter ended 30 June 2015 of 6.0 cents per share (2014: 4.5 cents per share) paid on 7 July 2015 (2014: Paid on 9 July 2014) 2015 $'000 2014 $'000 21,549 10,560 21,903 14,892 Dividend for the quarter ended 30 September 2015 of 6.0 cents per share (2014: 5.0 cents per share) paid on 7 October 2015 (2014: Paid on 10 October 2014) 22,070 16,604 Dividend for the quarter ended 31 December 2015 of 6.0 cents per share (2014: 6.0 cents per share) paid on 11 January 2016 (2014: Paid 21 January 2015) 22,369 21,221 87,891 63,277 Meetings of Directors The number of mee(cid:415)ngs of the Company’s Board of Directors and of each Board Commi(cid:425)ee held during the year ended 31 December 2015, and the number of mee(cid:415)ngs a(cid:425)ended by each Director were: Full mee(cid:415)ngs of Directors Audit and Risk Management Commi(cid:425)ee Nomina(cid:415)on and Remunera(cid:415)on Commi(cid:425)ee J Hutson** C Sco(cid:425) M Reynolds B Bailison A Kemp*** S Forrester A 9 11 9 11 2 11 B 9 11 9 11 2 11 A 2 * 1 2 1 * B 2 * 1 2 1 * A 1 * 1 1 * 1 B 1 * 1 1 * 1 A = Number of mee(cid:415)ngs a(cid:425)ended B = Number of mee(cid:415)ngs held during the (cid:415)me the Director held office or was a member of the commi(cid:425)ee during the year * = Not a member of the relevant commi(cid:425)ee ** J Hutson resigned as a Director on 15 October 2015 *** A Kemp resigned as a Director on 17 March 2015 Environmental regulation The Group is subject to and complies with environmental regula(cid:415)ons under State Legisla(cid:415)on in the management of its opera(cid:415)ons. The Group does not engage in ac(cid:415)vi(cid:415)es that have par(cid:415)cular poten(cid:415)al for environmental harm. No incidents have been recorded and the Directors are not aware of any environmental issues which have had, or are likely to have, a material impact on the Group’s business. G8 Educa(cid:415)on Limited | Annual Report 2015 15 Remuneration Report (b) Remuneration governance The Directors are pleased to present the G8 Educa(cid:415)on Limited 2015 Remunera(cid:415)on Report which sets out remunera(cid:415)on informa(cid:415)on for the Group’s Non‐Execu(cid:415)ve Key Directors, Management Personnel. Execu(cid:415)ve Directors other and The report contains the following sec(cid:415)ons: Key Management Personnel disclosed in this report; Remunera(cid:415)on governance; Use of remunera(cid:415)on consultants; Execu(cid:415)ve remunera(cid:415)on policy and framework; Rela(cid:415)onship between remunera(cid:415)on and G8 Educa(cid:415)on Limited performance; Non‐Execu(cid:415)ve Director remunera(cid:415)on policy; Vo(cid:415)ng and comments made at the Company's 2014 Annual General Mee(cid:415)ng; Details of remunera(cid:415)on; Service agreements; Details of share‐based compensa(cid:415)on and bonuses; Equity instruments held by Key Management Personnel; and Loans to Key Management Personnel. (a) Key Management Personnel disclosed in this report Non‐Execu(cid:415)ve and Execu(cid:415)ve Directors (see page 12 for details about each Director) J Hutson (un(cid:415)l her resigna(cid:415)on on 15 October 2015) C Sco(cid:425) A Kemp (un(cid:415)l his resigna(cid:415)on on 17 March 2015) B Bailison S Forrester M Reynolds (from his appointment on 17 March 2015) and ac(cid:415)ng Chairman from 15 October 2015 un(cid:415)l 31 December 2015. Other Key Management Personnel Name J Roberts Chief Execu(cid:415)ve Officer Posi(cid:415)on C Sacre Chief Financial Officer and Company Secretary T King General Manager of Opera(cid:415)ons A Perriam Execu(cid:415)ve Officer 16 G8 Educa(cid:415)on Limited | Annual Report 2015 The Nomina(cid:415)on & Remunera(cid:415)on Commi(cid:425)ee is a commi(cid:425)ee of the Board. It is primarily responsible for making recommenda(cid:415)ons to the Board on: the over‐arching execu(cid:415)ve remunera(cid:415)on framework; opera(cid:415)on of the incen(cid:415)ve plans which apply to Execu(cid:415)ve Directors and Senior Execu(cid:415)ves, including indicators and performance key performance hurdles; remunera(cid:415)on levels of execu(cid:415)ves; and Non‐Execu(cid:415)ve Director fees. Their objec(cid:415)ve is to ensure that remunera(cid:415)on policies and structures are fair and compe(cid:415)(cid:415)ve and aligned with the long‐term interests of the Company. The Corporate Governance Statement and Charter provides further informa(cid:415)on on the role of this commi(cid:425)ee. (c) Use of remuneration consultants In March 2015, the Remunera(cid:415)on and Nomina(cid:415)ons Commi(cid:425)ee engaged Hay Group to provide specialist advice on Board and Execu(cid:415)ve remunera(cid:415)on. This informa(cid:415)on specific recommenda(cid:415)ons in rela(cid:415)on to the remunera(cid:415)on or fees paid to the Board or Execu(cid:415)ves. include any not did In December 2015, the Commi(cid:425)ee appointed PWC to comprehensively review our execu(cid:415)ve remunera(cid:415)on framework with a view to establishing a compe(cid:415)(cid:415)ve remunera(cid:415)on framework that encourage sustainable business performance whilst ensuring ease of administra(cid:415)on. (d) Executive remuneration policy and framework In determining execu(cid:415)ve remunera(cid:415)on, the Board aims to ensure that remunera(cid:415)on prac(cid:415)ces are: compe(cid:415)(cid:415)ve and reasonable, enabling the Company to a(cid:425)ract and retain key talent; aligned to the Company’s strategic and business objec(cid:415)ves and the crea(cid:415)on of shareholder value; transparent and easily understood; and acceptable to shareholders. The execu(cid:415)ve components: remunera(cid:415)on framework has two base pay and benefits, including superannua(cid:415)on; and long‐term incen(cid:415)ves. Base Pay Base pay is structured as a total employment cost package which may be delivered as a combina(cid:415)on of cash and prescribed non‐financial benefits at the execu(cid:415)ve’s discre(cid:415)on. Execu(cid:415)ves are offered a base pay that comprises the fixed component of pay and rewards. Base pay for execu(cid:415)ves is reviewed annually to ensure the execu(cid:415)ves’s pay is compe(cid:415)(cid:415)ve with the market and comparable to other companies of similar opera(cid:415)onal complexity and market capitalisa(cid:415)on as G8 Educa(cid:415)on Limited. An execu(cid:415)ve’s remunera(cid:415)on is also reviewed on promo(cid:415)on. There are no guaranteed base pay increases included in any execu(cid:415)ve contracts. Benefits There were no performance bonuses paid during the year to any Execu(cid:415)ve Directors or other Key Management Personnel. Refer to note 35 for details on the shares issued to execu(cid:415)ves. (e) Relationship between remuneration and G8 Education Limited performance Key performance indicators for the Group over the last five years: Profit a(cid:425)ributable to owners of the Company 2015 $'000 88,581 2014 $'000 52,731 2013 $'000 31,072 2012 $'000 19,208 2011 $'000 17,250 Underlying profit a(cid:425)ributable to owners of the Company 87,131 60,613 32,276 19,730 13,907 Dividends paid or provided for 87,891 63,277 33,649 15,086 7,476 Revenue from con(cid:415)nuing opera(cid:415)ons 689,363 482,110 274,615 179,027 137,949 Total KMP remunera(cid:415)on as percentage of underlying profit for the year 3.41% 3.30% 4.61% 8.36% 8.94% The Group’s underlying profit from ordinary ac(cid:415)vity a(cid:332)er income tax has increased by 487% from CY11 to CY15. During the same period senior execu(cid:415)ve compensa(cid:415)on has increased by 109%. (f) Non-Executive Director remuneration policy On appointment to the Board, all Non‐Execu(cid:415)ve Directors enter into a appointment agreement with the Company. The agreement sets out remunera(cid:415)on, terms of appointment and binds the Director to the Boards policies and code of conduct. Non‐Execu(cid:415)ve Directors receive a Board fee which includes remunera(cid:415)on for chairing or par(cid:415)cipa(cid:415)ng on Board commi(cid:425)ees. The table on the following page details the Group’s fee structures in this area. Non‐Execu(cid:415)ve Directors do not receive performance‐based pay. The Chair does not receive addi(cid:415)onal fees for par(cid:415)cipa(cid:415)ng in or chairing commi(cid:425)ees. Fees are reviewed annually by the Board taking into account comparable roles and market data. The current base fees were reviewed with effect from March 2015. The maximum annual aggregate Directors’ fee pool limit is $850,000 and was approved by shareholders at the Annual General Mee(cid:415)ng in May 2015. G8 Educa(cid:415)on Limited | Annual Report 2015 17 The following fees, exclusive of superannua(cid:415)on, have applied since March 2015 for the Non‐Execu(cid:415)ve Directors and from 1 January 2016 for the current Chairman. Base Fees Chairman Non‐Execu(cid:415)ve Directors Executive Pay $225,000 per annum $95,000 per annum The execu(cid:415)ve pay currently has two components being base and benefits, including superannua(cid:415)on. (g) Voting and comments made at the Company's 2014 Annual General Meeting G8 Educa(cid:415)on Limited unanimously passed the remunera(cid:415)on report on a show of hands for the 2014 financial year. The Company did not receive any specific feedback at the Annual General Mee(cid:415)ng on its remunera(cid:415)on prac(cid:415)ces. (h) Details of remuneration The following tables show details of the remunera(cid:415)on received by the Group’s Key Management Personnel for the current and previous financial year. Post employment benefits Superannua(cid:415)on Share based payment Dividend payments on escrow shares Termina(cid:415)on payments Total 2015 Name Non‐Execu(cid:415)ve Directors J Hutson B Bailison A Kemp M Reynolds S Forrester Execu(cid:415)ve Director C Sco(cid:425) Short term employee benefits Cash salary & fees $ 140,496 83,769 12,322 72,346 85,308 $ 13,347 7,958 1,219 6,873 8,104 $ ‐ ‐ ‐ ‐ ‐ $ ‐ ‐ ‐ ‐ ‐ 739,264 6,169 105,284 120,000 Other Key Management Personnel J Roberts C Sacre T King A Perriam Total 391,273 350,000 67,308 197,077 20,145 24,606 5,740 16,933 105,284 * 120,257 ‐ 120,000 120,000 ‐ 12,865 14,664 2,139,163 111,094 343,690 374,664 18 G8 Educa(cid:415)on Limited | Annual Report 2015 $ $ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ 153,843 91,727 13,541 79,219 93,412 970,717 636,702 614,863 73,048 226,875 2,968,611 2014 Short term employee benefits Post employment benefits Share based payment Dividend payments on escrow shares Termina(cid:415)on payments Total Cash salary & fees $ Superannua(cid:415)on $ $ $ $ $ Name Non‐Execu(cid:415)ve Directors J Hutson B Bailison A Kemp S Forrester Execu(cid:415)ve Director C Sco(cid:425) 138,876 54,091 59,361 54,091 13,027 5,072 5,639 5,072 609,553 57,907 ‐ ‐ ‐ ‐ ‐ ‐ 58,000* Other Key Management Personnel J Roberts (appointed 1 April 2014) C Sacre J Fraser (resigned 29 August 2014) 230,598 350,000 173,077 18,310 29,784 17,977 48,649* Total 1,669,647 152,788 106,649 ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ 151,903 ‐ 59,163 ‐ 65,000 ‐ 59,163 ‐ 667,460 ‐ 248,908 ‐ 437,784 70,791 310,494 70,791 1,999,875 * Share based payments costs includes a fair value adjustment between value of shares as per loan agreement and the value of the shares on the date they were issued (refer to note 23 for further details). During the year no por(cid:415)on of the Directors or Key Management Personnel’s remunera(cid:415)on was con(cid:415)ngent on performance hurdles. This is consistent with 2014. Key Management Personnel remunera(cid:415)on was 100% fixed with no por(cid:415)on variable on performance. (i) Service agreements Remunera(cid:415)on and other terms of employment for the Managing Director, Chief Execu(cid:415)ve Officer, Chief Financial Officer, General Manager of Opera(cid:415)ons and Execu(cid:415)ve Officer are formalised in agreements which have a provision for bonuses and other benefits which may be granted from (cid:415)me to (cid:415)me by the Board of Directors. Contracts with Execu(cid:415)ves may be terminated by either party with up to three months’ no(cid:415)ce. C Scott, Managing Director Term of agreement ‐ ongoing, commenced March 2010, with a three month no(cid:415)ce period. Base salary, exclusive of superannua(cid:415)on, of $740,000 per annum, to be reviewed annually by the Board. J Roberts, Chief Executive Officer Term of agreement – ongoing, commenced April 2014, with a three month no(cid:415)ce period. Base salary, exclusive of superannua(cid:415)on, of $450,000 per annum, to be reviewed annually by the Board. C Sacre, Chief Financial Officer and Company Secretary Term of agreement – ongoing, commenced April 2008, with a three month no(cid:415)ce period. Base salary, exclusive of superannua(cid:415)on, of $350,000 per annum, to be reviewed annually by the Board. T King, General Manager Operations Term of agreement – ongoing, commenced September 2015, with a three month no(cid:415)ce period. Base salary, exclusive of superannua(cid:415)on, of $250,000 per annum, to be reviewed annually by the Board. A Perriam, Executive Officer Term of agreement – ongoing, commenced January 2015, with a three month no(cid:415)ce period. Base salary, exclusive of superannua(cid:415)on, of $210,000 per annum, to be reviewed annually by the Board. G8 Educa(cid:415)on Limited | Annual Report 2015 19 (j) Details of share-based compensation and bonuses Executive Share Plan (the Plan) In accordance with the terms and condi(cid:415)ons of the Plan approved by shareholders on 21 May 2015, selected KMP are granted the right to acquire shares at a nominated exercise price subject to agreed service and performance criteria (i.e ves(cid:415)ng condi(cid:415)ons). The Plan is an equity plan where shares are acquired up front through the provision of a limited recourse loan from the Company, provided for the sole purpose of acquiring shares in the Company. It operates much like a tradi(cid:415)onal op(cid:415)on plan, as the outstanding loan balance is effec(cid:415)vely the ‘exercise price’ that must be paid before any value can be realised, i.e. exercise price of $5.00 per share. The following is a summary of the key terms and condi(cid:415)ons of the Plan: The loan is repayable on termina(cid:415)on date (3 years from approval) or earlier if there is a default in which case the shares are no longer held in escrow. No interest is payable on the loan. The shares are held in escrow as security for the outstanding loan. Limited recourse – if the KMP fails to repay the outstanding loan balance in accordance with the plan, they are under no obliga(cid:415)on to repay the full amount of the outstanding loan balance and the Company must accept the net proceeds of the sale or buy‐back of the shares in escrow in full sa(cid:415)sfac(cid:415)on of the outstanding loan balance. The borrower is not able to sell, transfer or dispose of shares in escrow. However, the borrower receives the benefits associated with the shares such as dividends and vo(cid:415)ng right during the escrow period. The shares rank equally with other ordinary shares on issue with respect to dividends, distribu(cid:415)on or return of capital and other rights. If the borrower leaves the employment of G8 then all secured shares are transferred to a party nominated by the Company and the money owed reduced by number of shares transferred mul(cid:415)plied by $5 per share – excep(cid:415)on is where the borrower is unfit for work. Shares are released to the borrower in tranches – if condi(cid:415)ons are not met then the shares are transferred to a party nominated by the Company. 1 year – 1/3 shares if EPS @ 31/12/15 is 40% more than EPS at 31/12/14; 2 years – 1/3 shares if EPS @ 31/12/16 is 15% above EPS at 31/12/15; and 3 years – 1/3 shares if EPS @ 31/12/17 is 15% above EPS at 31/12/16. The table below shows the transac(cid:415)ons rela(cid:415)ng to the plan during the year: Name of Key Management Personnel Christopher Sco(cid:425) Jason Roberts Christopher Sacre Ann Perriam Plan Shares Loan Amount 1,000,000 $5,000,000 1,000,000 $5,000,000 1,000,000 $5,000,000 122,198 $610,990 Share‐based payment $105,284 $105,284 $105,284 $12,865 Under AASB 2 Share‐based Payments, the Plan gives rise to a share‐based payment expense which is measured by reference to the fair value of the Plan Shares as at the date on which the Share Plan Resolu(cid:415)ons were passed. As the Plan Shares were acquired by way of limited recourse loans, the fair value of the Plan Shares was measured using an op(cid:415)on pricing model in accordance with AASB 2. The fair value of each share issued under the share loan plan at the date of shareholder approval was $0.515 . The company has recognised an a(cid:332)er tax, non‐cash share‐based payment of $328,818 during the financial year with a corresponding credit to Shareholders’ Equity in the form of a Share Op(cid:415)on Reserve. The treatment of the Plan Shares under applicable Accoun(cid:415)ng Standards as op(cid:415)ons requires that the value of the loans and issue price of the shares are not recorded as Loans Receivables or Share Capital of the Group un(cid:415)l repayment or part repayment of the loans occurs. The Plan Shares were en(cid:415)tled to dividends of $561,995 from the dividends paid on 7 July 2015, 7 October 2015 and 11 January 2016. 20 G8 Educa(cid:415)on Limited | Annual Report 2015 (k) Equity instruments held by Key Management Personnel The numbers of shares in the Company held during the financial year by each Director of G8 Educa(cid:415)on Limited and other Key Management Personnel of the Group, including their associates, are set out below. There were no shares issued during the repor(cid:415)ng year as compensa(cid:415)on. 2015 Directors of G8 Educa(cid:415)on Limited Ordinary Shares J Hutson C Sco(cid:425) B Bailison M Reynolds A Kemp S Forrester Other Key Management Personnel of the Group Ordinary Shares J Roberts C Sacre T King A Perriam Balance at the start of the year Shares issued under limited recourse loans disclosed as share op(cid:415)ons Other changes during the year Balance at the end of the year 1,800,000 ‐ 153,778 ‐ 1,000,000 ‐ ‐ 9,500 120,660 5,423 ‐ ‐ ‐ ‐ 1,953,778 1,000,000 ‐ 24,195 223,703 5,423 1,000,000 1,000,000 ‐ 122,198 ‐ 1,000,000 248,000 1,848,000 ‐ ‐ ‐ 122,198 ‐ 14,695 103,043 ‐ ‐ 600,000 ‐ ‐ (l) Loans to Key Management Personnel Details of loans made to Directors and other Key Management Personnel, and en(cid:415)(cid:415)es nominated by them, are set out in item (j) in the Remunera(cid:415)on Report. Insurance of Officers and Auditors During the year, the Group paid a premium to insure the Directors and Officers of the Company and its controlled en(cid:415)(cid:415)es. Under the terms of the policy the amount of the premium and the nature of the liability cannot be disclosed. The liabili(cid:415)es insured are legal costs that may be incurred in defending civil or criminal proceedings that may be brought against the Officers in their capacity as Officers of en(cid:415)(cid:415)es in the Group and any other payments arising from liabili(cid:415)es incurred by the Officers in connec(cid:415)on with such proceedings. This does not include such liabili(cid:415)es that arise from conduct involving wilful breach of duty of the Officers or the improper use by the Officers of their posi(cid:415)on or of informa(cid:415)on to gain advantage for themselves or someone else or to cause detriment to the Group. It is not possible to appor(cid:415)on the premium between the amounts rela(cid:415)ng to the insurance against legal costs and those rela(cid:415)ng to other liabili(cid:415)es. No insurance premiums or indemni(cid:415)es have been paid for or agreed by the Group for the current or former auditors. Proceedings on behalf of the Group No person has applied to the Court under sec(cid:415)on 237 of the Corpora(cid:415)ons Act 2001 for leave to bring proceedings on behalf of the Company, or to intervene in any proceedings to which the Company is a party, for the purpose of taking responsibility on behalf of the Company for all or part of those proceedings. No proceedings have been brought or intervened in on behalf of the Group with leave of the Court under sec(cid:415)on 237 of the Corpora(cid:415)ons Act 2001. G8 Educa(cid:415)on Limited | Annual Report 2015 21 Non-audit services The Group may decide to employ the auditor on assignments addi(cid:415)onal to their statutory audit du(cid:415)es where the auditor’s exper(cid:415)se and experience with the Group are important. Details of the amounts paid or payable to the auditors or other members of the HLB network for non‐audit services provided during the year are $17,750 and disclosed in note 24. The Board has considered the posi(cid:415)on and is sa(cid:415)sfied that the provision of the non‐audit services is compa(cid:415)ble with the general standard of independence for auditors imposed by the Corpora(cid:415)ons Act 2001. The Directors are sa(cid:415)sfied the provision of non‐audit services by the auditor, as set out below, did not compromise the auditor independence requirements of the Corpora(cid:415)ons Act 2001 for the following reasons: all non‐audit services have been reviewed by the Board to ensure they do not impact the impar(cid:415)ality and objec(cid:415)vity of the auditor; none of the services undermine the general principles rela(cid:415)ng to auditor independence as set out in APES 110 Code of Ethics of Professional Accountants. Auditor’s independence declaration A copy of the Auditor’s independence declara(cid:415)on as required under sec(cid:415)on 307C of the Corpora(cid:415)ons Act 2001 is set out on page 23. Auditor HLB Mann Judd (SE Qld Partnership) con(cid:415)nue in office in accordance with sec(cid:415)on 327 of the Corpora(cid:415)ons Act 2001. This report is made in accordance with a resolu(cid:415)on of Directors. Christopher Sco(cid:425) Managing Director 22 February 2016 22 G8 Educa(cid:415)on Limited | Annual Report 2015 G8 Education Limited Auditor’s Independence Declaration under s.307C of the Corporations Act 2001 to the Directors of G8 Education Limited and Controlled Entities As lead auditor for the audit of the consolidated financial report of G8 Education Limited for the year ended 31 December 2015, I declare that, to the best of my knowledge and belief, there have been no contraventions of: (a) the auditor independence requirements as set out in the Corporations Act 2001 in relation to the audit; and (b) any applicable code of professional conduct in relation to the audit. HLB Mann Judd Chartered Accountants A B Narayanan Partner Brisbane, Queensland 22 February 2016 Corporate Governance Statement Under Lis(cid:415)ng Rule 4.10.3, G8 Educa(cid:415)on is required to provide a statement in its annual report disclosing the extent to which it has followed the Recommenda(cid:415)ons in the repor(cid:415)ng period. Where a Recommenda(cid:415)on has not been followed, the fact must be disclosed, together with reasons for departure from the Recommenda(cid:415)on. In addi(cid:415)on, a number of the Recommenda(cid:415)ons require the disclosure of specific in the corporate governance statement of the annual report. informa(cid:415)on G8 Educa(cid:415)on corporate governance statement is structured with reference to the Council’s Principles and Recommenda(cid:415)ons 3rd Edi(cid:415)on. The key principles are as follows: Principle 1: Lay solid foundations for management and oversight The rela(cid:415)onship between the Board and senior management is cri(cid:415)cal to the Group’s long‐term success. The Directors are responsible to the shareholders for the performance of the Group in both the short and the longer term and seek to balance some(cid:415)mes compe(cid:415)ng objec(cid:415)ves in the best interests of the Group as a whole. Their focus is to enhance the interests of shareholders and other key stakeholders and to ensure the Group is properly managed. The responsibili(cid:415)es of the Board include: providing strategic guidance to the Group including contribu(cid:415)ng to the development of and approving of the corporate strategy; reviewing and approving business plans, the annual budget and financial plans including available resources and major capital expenditure ini(cid:415)a(cid:415)ves; overseeing and monitoring organisa(cid:415)onal performance and the achievement of the Group’s strategic goals and objec(cid:415)ves; compliance with the Company’s Code of Conduct; progress in rela(cid:415)on to the Company’s diversity objec(cid:415)ves and compliance with the diversity policy; progress of major capital expenditures and other including any significant corporate projects acquisi(cid:415)ons or divestments; monitoring financial performance including approval of the annual and half year financial reports and liaising with the Group’s auditors; appointment, performance assessment and if necessary, removal of key execu(cid:415)ves; ra(cid:415)fying the appointment and/or removal and contribu(cid:415)ng to the performance assessment for the members of the senior management team including the CEO, CFO and the Company Secretary; ensuring there are effec(cid:415)ve management processes in place and approving major corporate ini(cid:415)a(cid:415)ves; enhancing and protec(cid:415)ng the reputa(cid:415)on of the organisa(cid:415)on; overseeing the opera(cid:415)on of the Group’s system for compliance and risk management repor(cid:415)ng to shareholders; and ensuring appropriate resources are available to senior management. Day to day management of the Group’s affairs and the implementa(cid:415)on of the corporate strategy and policy ini(cid:415)a(cid:415)ves are formally delegated by the Board to the Managing Director and senior execu(cid:415)ves. These delega(cid:415)ons are reviewed on an annual basis. The Group has developed a process for annual appraisal of senior management measuring performance in ten areas, including contribu(cid:415)on to the overall success of the business. The appraisal is designed to measure success in achieving objec(cid:415)ves set for the past twelve months and to set objec(cid:415)ves for the nest twelve months. Succession planning is also built into the appraisal process to encourage development of future leaders within the Group. All Execu(cid:415)ves enter into a wri(cid:425)en agreement with the Company which sets out the terms of their appointment. The Group undertook performance evalua(cid:415)ons for the management team and senior execu(cid:415)ves in November 2015. The Company Secretary is accountable directly to the board of directors through the Chair on all ma(cid:425)ers to do with the proper func(cid:415)oning of the Board. G8 Educa(cid:415)on Limited | Annual Report 2015 25 Diversity Policy The Company values diversity and recognises the benefits it can bring to the organisation’s ability to achieve its goals. Accordingly, the Company has developed a diversity policy, a copy of which can be found on the Company’s website. This policy outlines the Company’s diversity objectives in relation to gender, age, cultural background and ethnicity. It includes requirements for the Board to establish measurable objectives for achieving diversity and for the Board to assess annually both the objectives and the Company’s progress in achieving them. The table below illustrates the number of women employees and percentage of total workforce in the entire organisation, senior executive positions and on the Board. The Board set measurable objectives for achieving gender diversity during 2015. G8 Education Limited currently has one female on the Board from a total of six Directors, and four female in the management team, from a total of nine. The measurable objective set by the Board for 2016 are as follows: Number of females employees in the whole organisa(cid:415)on Number of females in senior management posi(cid:415)ons Number of females on the Board1 Execu(cid:415)ves in leadership roles will be female 2 Con(cid:415)nually grow number of female in senior management 1Calculated as a percentage of total non‐executive directors 2Defined as support office Executive Management team Actual Number 9,689 4 1 % 98 44 20 Target Actual No. N/A > 23 % > 40% N/A No. N/A 42 % 44% N/A In accordance with the requirements of the Workplace Gender Equality Act 2012, G8 Education Group workplace profile for Australia only is set out in the tale below: Workplace Profile ‐ G8 Educa(cid:415)on Male Full (cid:415)me permanent Full (cid:415)me contract Part Time permanent Part (cid:415)me contract Casual Repor(cid:415)ng level to CEO (for Managers only) CEO/Head of business in Australia Key Management Personnel (KMP) Other Execu(cid:415)ves / General Managers Senior managers Other managers Professionals Community and personal service Clerical and administra(cid:415)ve Total 0 ‐1 ‐2 ‐3 ‐4 ‐ ‐ ‐ ‐ 1 3 ‐ 2 5 4 27 10 52 ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ 1 ‐ ‐ ‐ ‐ ‐ 112 ‐ 113 ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ 2 ‐ ‐ ‐ ‐ ‐ 68 ‐ 70 26 G8 Educa(cid:415)on Limited | Annual Report 2015 Workplace Profile ‐ G8 Educa(cid:415)on Female Full (cid:415)me permanent Full (cid:415)me contract Repor(cid:415)ng level to CEO (for Managers only) Part (cid:415)me permanent Part (cid:415)me contract Casual Total Staff CEO/Head of business in Australia Key Management Personnel (KMP) Other Execu(cid:415)ves / General Managers Senior managers Other managers Professionals Community and personal service Clerical and administra(cid:415)ve Total 0 ‐1 ‐2 ‐3 ‐4 ‐ ‐ ‐ ‐ ‐ 5 5 42 350 14 1,299 45 1,760 ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ 91 3 5,286 4 5,384 ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ Female Male % % 20% 80% 63% 37% 5 8 5 1 ‐ ‐ ‐ 2 ‐ 100% 44 95% 448 99% 0% 5% 1% 21 81% 19% 2,307 9,099 98% 2% ‐ 59 83% 17% 2,310 9,689 98% 2% Principle 2: Structure the Board to add value The Board operates in accordance with the broad principles set out below: Board Composition The Board is to be comprised of both Executive and Non‐Executive Directors. On appointment to the Board, all Non‐ Executive Directors enter into a service agreement with the Company. The agreement summarises the Board policies and terms, including remuneration, relevant to the office of Director. Non‐Executive Directors bring perspective to the Board’s consideration of strategic, risk and performance matters and are best placed to exercise independent judgement and review and constructively challenge the performance of management. The Chairman is elected by the full Board and is required to meet regularly with key executives. The Board is to establish measurable Board gender diversity objectives and assess annually the objectives and progress in achieving them. The Group is to maintain a mix of Directors on the Board from different backgrounds with complementary skills and experience. The Board is required to undertake an annual Board performance review and consider the appropriate mix of skills required by the Board to maximise its effectiveness and its contribution to the Group. The Board seeks to ensure that: at any point in time, its membership represents an appropriate balance between Directors with experience and knowledge of the Group and Directors with an external or fresh perspective; the size of the Board is conducive to effective discussion and efficient decision‐making. G8 Educa(cid:415)on Limited | Annual Report 2015 27 Board Renewal, Succession Planning and Board Matrix The Board regularly reviews its composi(cid:415)on, skills and succession plans to ensure it aligns with the company’s Strategic Plan. The Nomina(cid:415)on and Remunera(cid:415)on Commi(cid:425)ee developed a Board skills matrix. This contains the mix of skills, experience, knowledge and diversity that the Board currently has and is looking to achieve in its composi(cid:415)on. The Nomina(cid:415)on and Remunera(cid:415)on Commi(cid:425)ee also oversees the professional development of Directors to ensure that iden(cid:415)fied skill sets are strengthened and deepened. A summary of the comprehensive skills matrix is set out below. Each of these areas is currently represented on the Board, recognising that each Director may not necessarily have experience in or fit within all of these areas. However, the Board benefits from the combina(cid:415)on of the Directors’ individual skills, experience, knowledge and diversity. Category Execu(cid:415)ve Leadership Board Experience Strategy Banking and Finance Governance and Risk Legal Industry Sector Mergers and Acquisi(cid:415)ons Informa(cid:415)on Technology Business Development People Rela(cid:415)onship Management Explana(cid:415)on General commercial/business management experience in large organisa(cid:415)ons Successful career as a senior execu(cid:415)ve or CEO Experience serving as a Director on ASX listed companies or large private en(cid:415)(cid:415)es Experience gained serving as Chair or Member of Board Commi(cid:425)ees including Audit and Risk or Remunera(cid:415)on and Nomina(cid:415)ons Graduate (progressing to Fellow) of AICD Se(cid:427)ng and reviewing organisa(cid:415)onal strategy Se(cid:427)ng corporate KPIs Assessing corporate performance Accoun(cid:415)ng and statutory financial repor(cid:415)ng, corporate finance and internal controls, including assessing quality of financial controls Retail / investment banking and Capital Markets experience Knowledge, experience and commitment to the highest standards of corporate governance Understanding of risk management principles Able to iden(cid:415)fy the key risks to the organisa(cid:415)on and monitor effec(cid:415)veness of risk management frameworks and prac(cid:415)ces Knowledge of corporate/commercial law and legal compliance Understanding of Directors’ du(cid:415)es and responsibili(cid:415)es Working knowledge of ASX Rules and Guidelines Early learning/child care or educa(cid:415)on sector knowledge and exper(cid:415)se Delivery of quality services in a highly regulated environment Experience in acquisi(cid:415)ve or companies experiencing accelerated growth Experience of financial analysis, due diligence processes associated with acquisi(cid:415)ons and post‐merger integra(cid:415)on Governance of cri(cid:415)cal informa(cid:415)on technology infrastructure Development and oversight of customer focussed business development strategies Marke(cid:415)ng of Services in large distributed network Sales and Marke(cid:415)ng in Educa(cid:415)on Sector Overseeing and assessing senior management, remunera(cid:415)on frameworks, strategic human resource management Experience of HR issues associated with acquisi(cid:415)ons Organisa(cid:415)onal change management Experience in managing external stakeholders Experience in managing internal stakeholders Strong relevant professional networks Mentoring/coaching experience 28 G8 Educa(cid:415)on Limited | Annual Report 2015 Board Members Term of Office Details of the members of the Board, their experience, expertise, qualifications, term of office and independent status are set out in the Directors’ Report. The Board consists of six Directors, five of whom are Non‐Executive and all five (M Johnson, B Bailison, M Reynolds, D Foster and S Forrester) are considered independent under the principles set out below. Directors Independence The Board has adopted specific principles in relation to Directors’ independence. These state that to be independent, a Director must be a Non‐Executive and: not be a substantial shareholder of the Group or an Officer of, or otherwise associated directly with, a substantial shareholder of the Group; last three years, not have been within the employed in an executive capacity by the Company or any other Group member, or been a such Director after ceasing employment; to hold any within the last three years not have been a principal of a material professional adviser or a material consultant to the Company or any other Group member, or an employee materially associated with the service provided; not be a material supplier or customer of the Company or any other Group member, or an Officer of or otherwise associated directly or indirectly with a material supplier or customer; must have no material contractual relationship with the Company or a controlled entity other than as a Director of the Group; and be free from any interest and any business or other relationship which could, or could reasonably be perceived to, materially interfere with the Directors ability to act in the best interests of the Company. Materiality for these purposes is determined on both a quantitative and qualitative basis. In addition, a transaction of any amount or a relationship is deemed material if knowledge of it may impact the shareholders’ understanding of the Directors’ performance. Recent thinking on corporate governance has introduced the view that a Director’s independence may be perceived to be impacted by lengthy service on the Board. To avoid any potential concerns, the Board has determined that a Director will not be deemed independent if he or she has served on the Board of the Company for more than ten years. The Company’s Constitution specifies that all Directors, other than a Managing Director, must retire from office no later than the third annual general meeting following their last election. Where eligible, a Director may stand for re‐election. Chairman and Managing Director and managing The Chairman is responsible for leading the Board, ensuring Directors are properly briefed in all matters relevant to their role and responsibilities, facilitating Board discussions the Board’s relationship with the Company’s senior executives. In accepting the position, the Chairman has acknowledged the significant time commitment that will be required and confirmed that other positions will not hinder their effective performance in the role of Chairman. The Chairman is an independent director. The Managing Director is responsible for implementing Group strategies and policies. Induction The induction provided to new Directors and senior managers enables them to actively participate in Board decision making as soon as possible. It ensures that they have a full understanding of the Company’s financial position, strategies, operations, culture, values and risk management policies. It also explains the respective rights, duties, responsibilities, interaction and roles of the Board and senior executives and the Company’s meeting arrangements. Commitment The Board held 11 Board meetings during the year. The number of meetings of the Company’s Board of Directors and of each Board committee held during the year ended 31 December 2015, and the number of meetings attended by each Director is disclosed on page 15. It has been the Company’s practice to allow executive Directors to accept appointments outside the Company with approval of the Board. There are currently no Executive Directors with outside appointments. The commitments of Non‐Executive Directors are considered by the Nomination Committee prior to the Directors’ appointment to the Board of the Company and are to be reviewed each year as part of the annual performance assessment. Prior to appointment or being submitted for re‐election, each Non‐Executive Director is required to specifically acknowledge that they have and will continue to have the time available to discharge their responsibilities to the Company. G8 Educa(cid:415)on Limited | Annual Report 2015 29 Conflict of interests There were no conflicts of interests during the year ended 31 December 2015. Independent professional advice Directors and Board committees have the right, in connection with their duties and responsibilities, to seek independent professional advice at the Company’s expense. Prior written approval of the Chairman is required, but this will not be unreasonably withheld. Nominations The Board established a Remuneration & Nomination Committee in August 2014. The committee operates under a charter approved by the Board. The Nomination Committee comprises the following members: S Forrester (Chair) B Bailison M Reynolds For details of Directors’ attendance at meetings of the Nomination Committee, please refer to page 15 of the Directors’ Report. The Terms of Reference of the Nomination Committee is publicly available on the Company’s website: www.g8education.edu.au/about‐us/corporate‐ governance The main responsibilities of the Nomination Committee include: To conduct an annual review of the membership of the Board having regard to present and future needs of the Company; To make recommendations on Board composition and appointments; To conduct an annual review of and conclude on the independence of each Director; To propose candidates for Board vacancies and complete appropriate checks before appointing a person or putting forward to security holders a candidate for election, as a director; To oversee the annual performance assessment program; To oversee Board succession, including the succession of the Chair, and reviewing whether succession plans are in place to maintain an appropriately balanced mix of skills, experience and diversity on the Board; 30 G8 Educa(cid:415)on Limited | Annual Report 2015 To manage the processes in relation to meeting Board diversity objectives; To assess the effectiveness of the induction process; Ensure security holders are provided with all information to make a decision on material whether or not to elect or re‐elect a director. Board Performance Assessment for its collective performance and The Board has developed an annual self assessment process the performance of the Chairman and its committees. A questionnaire is to be completed by each Director, evaluating his or her individual performance, that of other Board members and of the Board as a whole. The results and any action plans are to be documented together with specific performance goals which are to be agreed for the coming year. The Board performance assessment was not completed in 2015 due to the new appointment of the Chairman, M Johnson who commenced in 1 January 2016. The Board assessment will be completed in 2016 under the Company’s new Chairman. Principle 3: Promote ethical and responsible decision making Code of Conduct The Company has developed a Code of Conduct (the Code) which has been fully endorsed by the Board and applies to all Directors and employees. The Code is available at www.g8education.edu.au/about ‐us/corporate‐governance or by the registered office. contacting The Code is regularly reviewed and updated as necessary to ensure it reflects the highest standards of behaviour and professionalism and the practices necessary to maintain confidence in the Group’s integrity. In summary, the Code requires that at all times all Company personnel act with the utmost integrity, objectivity and in compliance with the letter and the spirit of the law and Company policies. Trading in Company Securities The purchase and sale of Company securities by Directors and employees is only permitted in accordance with the Company’s Securities Trading Policy. The Company’s Securities Trading Policy is available at www.g8education.edu.au/about‐us/corporate‐ governance or by contacting the registered office. The Directors are satisfied that the Directors and Employees have complied with its policies on ethical standards, including trading in securities. committee’s role and responsibilities. Principle 4: Safeguard integrity in financial reporting Audit and Risk Management Committee The Audit and Risk Management Committee (ARM Committee) consisted of the following Non‐Executive Directors: B Bailison (Chair); M Reynolds; and S Forrester In fulfilling its responsibilities, the ARM Committee: receives reports from management and the external auditors; meets with external auditors at least twice a year, or more frequently if necessary; reviews the processes the Managing Director and Chief Financial Officer have in place to support their certifications to the Board; and reviews any significant disagreements between the auditors and management, irrespective of whether they have been resolved. Details of these Director’s qualifications and attendance at audit committee meetings are set out in the Directors’ Report on pages 12 and 15 respectively. The ARM Committee has authority, within the scope of its responsibilities, to seek any information it requires from any employee or external party. All members of the ARM Committee are financially literate and have an appropriate understanding of the industry in which the Group operates. The ARM Committee operates in accordance with a charter which is available on the Company’s website. The main responsibilities of the committee are to: review, assess and approve the annual report, the half year financial report and all other financial the Company or information published by released to the market; assist the Board in reviewing the effectiveness of the organisation’s internal control environment covering: effectiveness and efficiency of operations; reliability of financial reporting; and compliance with applicable regulations. laws and versee the effective operation of the risk management framework; recommend to the Board the appointment, removal and remuneration of the external their auditors and engagement, the scope and quality of the audit and assess performance; terms of review the consider the independence and competence of the external auditor on an ongoing basis; review and approve the level of non‐audit services provided by the external auditors and ensure it does not adversely impact on auditor independence; review and monitor related party transactions and assess their propriety; and report to the Board on matters relevant to the the Before the Board approves the entity’s financial statements for a financial period it receives from its MD and CFO a declaration that, in their opinion, the financial records of the entity have been properly maintained and that the appropriate accounting standards and give a true and fair view of the financial position and performance of the entity and that the opinion has been formed on the basis of a sound system of risk management and internal control which is operating effectively. financial statements comply with External Auditors The Company policy is to appoint external auditors who clearly demonstrate quality and independence. The performance of the external auditor is reviewed annually and applications for tender of external audit services are requested as deemed appropriate, taking into consideration assessment of performance, existing value and tender costs. HLB Mann Judd was appointed as the external auditor The company completed a tender of its external auditor and agreed to appoint Ernst & Young as its external auditor, subject to ASIC’s consent and shareholders’ approval, effective from 1 January 2016. in 2010. An analysis of fees paid to the external auditors, including a break down of fees for non‐audit services, is provided in the Directors’ Report and in note 24 to the financial statements. The external auditors provide an annual declaration of their independence to the ARM Committee in accordance with the requirements of the Corporations Act 2001. The external auditor attends the annual general meeting to be available to answer shareholder questions about the conduct of the audit and the preparation and content of the audit report. G8 Educa(cid:415)on Limited | Annual Report 2015 31 Principle 5 and 6: Make timely and balanced disclosures and respect the rights of shareholders Principle 7: Recognise and manage risk Risk assessment and management Continuous disclosure and shareholder communication The Company has policies and procedures on focus on continuous that information disclosure disclosure of any information concerning the Group that a reasonable person would expect to have a material impact on the price of the Company’s securities. the These policies and procedures also in place to promote arrangements the Group has communication with shareholders and encourage effective participation at general meetings. include responsible for communications with The Company Secretary has been nominated as the person the Australian Securities Exchange (ASX). This role includes the responsibility continuous disclosure requirements in the ASX Listing Rules and overseeing and coordinating information disclosure to the ASX, analysts, brokers, shareholders, the media and the public. for ensuring compliance with All information disclosed to the ASX is posted on the Company’s website as soon as it is disclosed to the ASX. When analysts are briefed on aspects of the Group’s operations, the material used in the presentation is released to the ASX and posted on the Company’s website. Procedures have also been established for reviewing whether any price sensitive information has been inadvertently disclosed and, if so, this information is also immediately released to the market. In addi(cid:415)on, the Company seeks to provide opportuni(cid:415)es for shareholders to par(cid:415)cipate through electronic means via the Company’s website. A copy of the Company’s Cons(cid:415)tu(cid:415)on Corporate Governance documents, have been posted to a dedicated sec(cid:415)on of the Company’s website at www.g8education.edu.au. and main 32 G8 Educa(cid:415)on Limited | Annual Report 2015 The Board is responsible for satisfying itself annually, or more frequently as required, that management has developed and implemented a sound system of risk management and internal control. Detailed work on this task is delegated to the ARM Committee and reviewed by the full Board. The ARM Committee is responsible for ensuring there are adequate policies in relation to risk management, compliance and internal control systems. They monitor the Company’s risk management by overseeing management’s actions in the evaluation, management, monitoring and reporting of material operational, financial, compliance and strategic risks. In providing this oversight, the committee: reviews the framework and methodology for risk identification, the degree of risk the Company is willing to accept, the management of risk and the processes for auditing and evaluation of the Company’s risk management system; reviews Group wide objectives in the context of the above mentioned categories of corporate risk; and where approves reviews guidelines the policies identification, assessment and management of the Company’s exposure to risk; necessary, governing and reviews and approves the delegations of financial authorities and addresses any need to update these authorities on an annual basis; and reviews compliance with agreed policies. The committee recommends any actions appropriate to the Board for its consideration. it deems Responsibility for risk management and internal control is delegated to the appropriate level of management within the Group, with the Managing Director having ultimate responsibility to the Board for the risk management and internal control framework. The Group has a Risk Management policy to formally document the policies and procedures already in place to manage risk. The Company’s Risk Management policy is available at www.g8education.edu.au or by contacting the registered office. Considerable importance is placed on maintaining a strong control environment. There is an organisation structure with clearly drawn lines of accountability and delegation of authority. Adherence to the Code of Conduct is required at all times and the Board actively promotes a culture of quality and integrity. The Company’s risk management policy and the operation of the risk management and compliance system are managed by the Company’s risk management group which consists of senior executives chaired by the Chief Financial Officer. The Board receives quarterly reports from this group as to the effectiveness of the Company’s management of material risks that may impede meeting business objectives. Corporate Reporting In complying with recommendation 4.2, the Managing Director and Chief Financial Officer have made the following certifications to the Board: the Company’s financial reports are complete and present a true and fair view, in all material respects, of condition and financial operational results of the Company and Group and are in accordance with relevant accounting standards; the the above statement is founded on a system of risk management and internal compliance and control which implements the policies adopted by the Board; and internal the Group’s risk management and compliance and control framework is operating efficiently and effectively in all material respects in relation to financial reporting risks. The Company does not currently have an internal audit function. The Board has considered this and as result implemented appropriate operational audits within the Group. This ensures key internal controls and processes are operating effectively to mitigate the risks identified by the risk committee. Principle 8: Remuneration fairly and responsibly Remuneration Committee The Board established a Nomination & Remuneration Committee in August 2014 that operates under a charter approved by the Board. The Remuneration Committee comprised the following members: S Forrester (Chair) M Reynolds B Bailison For details of Directors’ attendance at meetings of the Remuneration Committee, please refer to page 15 of the Directors’ Report. the Remuneration The Terms of Reference of is publicly available on the Company’s Committee website and detailed in the Nomination Committee Terms of Reference: www.g8education.edu.au/about‐us/corporate‐ governance The Remuneration Committee advises the Board on remuneration and incentive policies and practices generally, and makes specific recommendations on remuneration packages and other terms of employment for executive Directors, other Senior Executives and Non ‐Executive Directors. Each member of the senior executive team signs a formal employment contract at the time of their appointment covering a range of matters including their duties, rights, responsibilities and any entitlements on termination. The contract includes a specific formal job description. This job description is reviewed by the Board on an annual basis and, where necessary, in consultation with the relevant employee. is revised information on Directors’ and executives’ Further remuneration, including principles used to determine remuneration, is set out in the Directors’ Report under the heading “Remuneration Report’’, which is disclosed on pages 16 to 22. Non‐Executive Directors do not receive options or bonus payments and are not provided with retirement benefits other than superannuation. appropriate responsibility implementation committee also assumes The for overseeing management succession planning, including the executive of development programmes and ensuring adequate arrangements are that appropriate in place, so candidates are recruited for later promotion to senior positions. This includes overseeing processes in relation to meeting diversity objectives for executives and staff below Board level. G8 Educa(cid:415)on Limited | Annual Report 2015 33 Section 02 Financial Report Consolidated Income Statement Consolidated Statement of Comprehensive Income Consolidated Balance Sheet Consolidated Statement of Changes in Equity Consolidated Statement of Cash Flows Notes to the Financial Statements Directors’ Declaration 36 36 37 38 39 42 94 Consolidated Income Statement For the year ended 31 December 2015 Revenue Revenue from con(cid:415)nuing opera(cid:415)ons Other income Profit on sale of financial assets Total revenue Expenses Employee benefits Occupancy Direct costs of providing services Deprecia(cid:415)on Other expenses Finance costs Total expenses Profit before income tax Income tax expense Profit for the year a(cid:425)ributable to members of the parent en(cid:415)ty Basic earnings per share Diluted earnings per share Notes Consolidated 2015 $'000 2014 $'000 5 6 7 7 8 34 34 689,363 6,311 10,490 706,164 (382,320) (77,994) (53,052) (9,372) (20,386) (40,267) 482,110 9,178 ‐ 491,288 (269,993) (56,086) (40,147) (5,076) (11,135) (36,290) (583,391) (418,727) 122,773 (34,192) 88,581 Cents 24.27 24.27 72,561 (19,830) 52,731 Cents 16.15 16.15 The above Consolidated Income Statement should be read in conjunc(cid:415)on with the accompanying notes. Consolidated Statement of Comprehensive Income For the year ended 31 December 2015 Profit for the year Other comprehensive income, net of income tax Items that are or may be reclassified to profit or loss: Exchange differences on transla(cid:415)on of foreign opera(cid:415)ons Effec(cid:415)ve por(cid:415)on of changes in fair value of cash flow hedges Transfer of effec(cid:415)ve por(cid:415)on of changes in hedge fair value from other comprehensive income to the consolidated income statement Total other comprehensive income Total comprehensive income for the year Notes Consolidated 2015 $'000 88,581 2014 $'000 52,731 21 21 21 1,514 3,559 1,225 ‐ ‐ 171 5,073 93,654 1,396 54,127 The above Consolidated Statement of Comprehensive Income should be read in conjunc(cid:415)on with the accompanying notes. 36 G8 Educa(cid:415)on Limited | Annual Report 2015 Consolidated Balance Sheet As at 31 December 2015 ASSETS Current assets Cash and cash equivalents Trade and other receivables Other current assets Total current assets Non‐current assets Property plant and equipment Deferred tax assets Goodwill Total non‐current assets Total assets LIABILITIES Current liabili(cid:415)es Trade and other payables Borrowings Employee en(cid:415)tlements Deriva(cid:415)ve financial instruments Current tax liabili(cid:415)es Total current liabili(cid:415)es Non‐current liabili(cid:415)es Borrowings Other payables Provisions Total non‐current liabili(cid:415)es Total liabili(cid:415)es Net assets EQUITY Contributed equity Reserves Retained earnings Total equity Notes Consolidated 2015 $'000 2014 $'000 9 10 11 12 13 14 15 16 17 18 16 15 19 20 21 21 193,840 22,943 9,754 226,537 120,804 14,164 13,642 148,610 41,370 21,678 944,604 1,007,652 1,234,189 29,575 15,448 809,162 854,185 1,002,795 83,054 148,891 22,824 1,184 4,400 260,353 75,567 ‐ 18,110 230 9,655 103,562 366,270 712 4,069 371,051 631,404 602,785 603,043 43,635 (43,893) 602,785 352,944 652 3,628 357,224 460,786 542,009 548,374 27,257 (33,622) 542,009 The above Consolidated Balance Sheet should be read in conjunc(cid:415)on with the accompanying notes. G8 Educa(cid:415)on Limited | Annual Report 2015 37 Consolidated Statement of Changes in Equity For the year ended 31 December 2015 Contributed Equity Hedging Reserve Transla(cid:415)on Reserve Consolidated Notes Balance 1 January 2014 Profit for the year Other comprehensive income Total comprehensive income for the year Transac(cid:415)ons with owners in their capacity as owners Contribu(cid:415)ons of equity, net of transac(cid:415)on cost Transfer of profits reserve 20 21 Dividends provided for or paid 22 Balance 31 December 2014 $'000 302,001 ‐ ‐ ‐ 246,373 ‐ ‐ 246,373 548,374 $'000 (171) ‐ 171 171 $'000 3,287 ‐ 1,225 1,225 ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ 4,512 Balance 1 January 2015 548,374 ‐ 4,512 Profit for the year ‐ ‐ ‐ Other comprehensive income ‐ 3,559 1,514 Profits Reserve Retained Earnings Total Share Based Payment Reserve $’000 $'000 $'000 $'000 ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ 15,768 (16,099) 304,786 ‐ ‐ ‐ ‐ 52,731 52,731 ‐ 1,396 52,731 54,127 ‐ 246,373 70,254 (70,254) ‐ (63,277) ‐ (63,277) 6,977 (70,254) 183,096 22,745 (33,622) 542,009 22,745 (33,622) 542,009 ‐ ‐ 88,581 88,581 ‐ 5,073 ‐ 3,559 1,514 ‐ ‐ 88,581 93,654 Total comprehensive income for the year Transac(cid:415)ons with owners in their capacity as owners Contribu(cid:415)ons of equity, net of transac(cid:415)on cost 20 54,669 Transfer of profits reserve 21 Share based payment expense 35 Dividends provided for or paid 22 ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ 54,669 98,852 (98,852) ‐ 344 ‐ ‐ 344 ‐ (87,891) ‐ (87,891) Balance 31 December 2015 603,043 3,559 6,026 344 33,706 (43,893) 602,785 54,669 ‐ ‐ 344 10,961 (98,852) (32,878) The above Consolidated Statement of Changes in Equity should be read in conjunc(cid:415)on with the accompanying notes. 38 G8 Educa(cid:415)on Limited | Annual Report 2015 Consolidated Statement of Cash Flows For the year ended 31 December 2015 Notes Consolidated 2015 $'000 2014 $'000 Cash flows from Opera(cid:415)ng Ac(cid:415)vi(cid:415)es Receipts from customers Payments to suppliers and employees Interest received Interest paid Income taxes paid Net cash inflows from opera(cid:415)ng ac(cid:415)vi(cid:415)es 33 Cash flows from Inves(cid:415)ng Ac(cid:415)vi(cid:415)es Payments for purchase of businesses (net of cash acquired) Repayment of loans by Key Management Personnel Proceeds from sale of financial assets Payments for purchase of financial assets Payments for property plant and equipment Net cash ou(cid:414)lows from inves(cid:415)ng ac(cid:415)vi(cid:415)es Cash flows from Financing Ac(cid:415)vi(cid:415)es Share issue costs Debt issue costs Dividends paid Proceeds from issue of corporate note Proceeds from issue of shares Repayment of borrowings Net cash inflows from financing ac(cid:415)vi(cid:415)es Net increase in cash and cash equivalents Cash and cash equivalents at the beginning of the financial year Effects of exchange rate changes on cash Cash and cash equivalents at the end of the financial year 9 676,870 (516,762) 2,861 (22,354) (45,563) 95,052 (128,940) ‐ 52,073 (33,182) (21,082) 494,744 (383,483) 2,919 (14,240) (25,224) 74,716 (447,751) 1,642 ‐ ‐ (16,508) (131,131) (462,617) (151) (4,282) (53,244) 153,617 12,934 ‐ 108,874 72,795 120,179 852 193,826 (7,249) (7,845) (33,273) 272,963 216,499 (46,579) 394,516 6,615 114,029 (465) 120,179 The above Consolidated Statement of Cash Flows should be read in conjunc(cid:415)on with the accompanying notes. G8 Educa(cid:415)on Limited | Annual Report 2015 39 Index to Notes to the Financial Statements SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES FINANCIAL RISK MANAGEMENT CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS SEGMENT INFORMATION REVENUE OTHER INCOME EXPENSES INCOME TAX EXPENSE CURRENT ASSETS – CASH AND CASH EQUIVALENTS CURRENT ASSETS – TRADE AND OTHER RECEIVABLES CURRENT ASSETS – OTHER NOTE 1: NOTE 2: NOTE 3: NOTE 4: NOTE 5: NOTE 6: NOTE 7: NOTE 8: NOTE 9: NOTE 10: NOTE 11: NOTE 12: NON‐CURRENT ASSETS – PROPERTY, PLANT AND EQUIPMENT NOTE 13: NON‐CURRENT ASSETS – DEFERRED TAX ASSETS NOTE 14: NON‐CURRENT ASSETS – GOODWILL CURRENT AND NON—LIABILITIES – TRADE AND OTHER PAYABLES NOTE 15: CURRENT AND NON – CURRENT LIABILITIES ‐ BORROWINGS NOTE 16: NOTE 17: EMPLOYEE ENTITLEMENTS NOTE 18: DERIVATIVE FINANCIAL INSTRUMENTS NOTE 19: NON‐CURRENT LIABILITIES – PROVISIONS NOTE 20: CONTRIBUTED EQUITY NOTE 21: RESERVES AND RETAINED EARNINGS NOTE 22: DIVIDENDS NOTE 23: NOTE 24: REMUNERATION OF AUDITORS CONTINGENCIES NOTE 25: NOTE 26: COMMITMENTS NOTE 27: RELATED PARTY TRANSACTIONS NOTE 28: BUSINESS COMBINATIONS NOTE 29: NOTE 30: NOTE 31: DEED OF CROSS GUARANTEE NOTE 32: NOTE 33: RECONCILIATION OF PROFIT AFTER INCOME TAX TO NET CASH PARENT ENTITY DISCLOSURES SUBSIDIARIES EVENTS OCCURRING AFTER THE BALANCE SHEET DATE KEY MANAGEMENT PERSONNEL DISCLOSURES NOTE 34: NOTE 35: INFLOW FROM OPERATING ACTIVITIES EARNINGS PER SHARE SHARE‐BASED PAYMENTS 42 52 58 58 59 59 59 60 61 61 62 63 65 66 67 67 70 70 71 71 73 74 75 80 80 81 82 83 84 85 86 89 89 90 90 G8 Educa(cid:415)on Limited | Annual Report 2015 41 Note 1: Summary of significant accounting policies The principal accoun(cid:415)ng policies adopted in the prepara(cid:415)on of the consolidated financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. The consolidated financial statements are for the consolidated en(cid:415)ty consis(cid:415)ng of G8 Educa(cid:415)on Limited and its subsidiaries. (a) Basis of preparation These general purpose financial statements have been prepared in accordance with Australian Accoun(cid:415)ng Standards (AASB), Australian Accoun(cid:415)ng Interpreta(cid:415)ons, other authorita(cid:415)ve pronouncements of the Australian Accoun(cid:415)ng Standards Board and the Corpora(cid:415)ons Act 2001. The Company is a listed for profit public Company, incorporated in Australia and opera(cid:415)ng in Australia and Singapore. The Company’s principal ac(cid:415)vi(cid:415)es are opera(cid:415)ng child care centres and ownership of franchised child care centres. The financial statements were authorised for issue on 22 February 2016. Compliance with IFRS Compliance with AASB ensures that the financial report of G8 Educa(cid:415)on Limited and the Group complies with Interna(cid:415)onal Financial Repor(cid:415)ng Standards (IFRS). Historical cost convention These financial statements have been prepared under the historical cost conven(cid:415)on as modified, where applicable, by the measurement at fair value of selected liabili(cid:415)es non current assets, financial assets and (including deriva(cid:415)ve instruments). (b) Principles of consolidation Subsidiaries The consolidated financial statements incorporate the assets and liabili(cid:415)es of all subsidiaries of G8 Educa(cid:415)on Limited (“Company” or “parent en(cid:415)ty”) as at 31 December 2015 and the results of all subsidiaries for the year then ended. G8 Educa(cid:415)on Limited and its subsidiaries together are referred to in this financial report as the Group or the consolidated en(cid:415)ty. Subsidiaries are en(cid:415)(cid:415)es controlled by the Group. The Group controls an en(cid:415)ty when it is exposed to, or has rights to, variable returns from its involvement with the 42 G8 Educa(cid:415)on Limited | Annual Report 2015 en(cid:415)ty and has the ability to effect those returns through its power over the en(cid:415)ty. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de‐consolidated from the date that control ceases. Inter‐Company transac(cid:415)ons, balances and unrealised gains on transac(cid:415)ons between Group companies are eliminated. Unrealised losses are also eliminated unless the transac(cid:415)on provides evidence of the impairment of the asset transferred. Accoun(cid:415)ng policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group. (c) Foreign currency translation (i) Functional and presentation currency Items included in the financial statements of each of the Group’s en(cid:415)(cid:415)es are measured using the currency of the primary economic environment in which the en(cid:415)ty operates (‘the func(cid:415)onal currency’). The consolidated financial statements are presented in Australian dollars, func(cid:415)onal and which presenta(cid:415)on currency. is G8 Educa(cid:415)on Limited’s (ii) Transactions and balances Foreign currency transac(cid:415)ons are translated into the func(cid:415)onal currency using the exchange rates prevailing at the dates of the transac(cid:415)ons. Foreign exchange gains and losses resul(cid:415)ng from the se(cid:425)lement of such transac(cid:415)ons and from the transla(cid:415)on at year end liabili(cid:415)es exchange rates of monetary assets and denominated in foreign currencies are recognised in the income statement except when they are deferred in equity as qualifying cash flow hedges and qualifying net investment in a foreign opera(cid:415)on. Foreign exchange gains and losses that relate to borrowings are presented in the income statement, within finance costs. All other foreign exchange gains and losses are presented in the income statement on a net basis within other income or other expenses. Non‐monetary items that are measured at fair value in a foreign currency and are translated using the exchange rates at the date when the fair value was determined. Transla(cid:415)on differences on assets and liabili(cid:415)es carried at fair value are reported as part of the fair value gain or loss. (iii) Group companies The results and financial posi(cid:415)on of foreign opera(cid:415)ons that have a func(cid:415)onal currency different from the presenta(cid:415)on the are presenta(cid:415)on currency as follows: translated currency into 1. assets and liabili(cid:415)es for each balance sheet presented are translated at the closing rate at the date of that balance sheet; 2. income and expenses for each income statement and statement of comprehensive income are translated at average exchange rates (unless this is not a reasonable approxima(cid:415)on of the cumula(cid:415)ve effect of the rates prevailing on the transac(cid:415)on dates, in which case income and expenses are translated at the dates of the transac(cid:415)ons); and 3. all resul(cid:415)ng exchange differences are recognised in other comprehensive income. On consolida(cid:415)on, exchange differences arising from the transla(cid:415)on of any net investment in foreign en(cid:415)(cid:415)es and instruments of borrowings and other financial investments, are designated as hedges of such recognised in other comprehensive income. Goodwill and fair value adjustments arising on the acquisi(cid:415)on of a foreign opera(cid:415)on are treated as assets and liabili(cid:415)es of the foreign opera(cid:415)on and are translated at the closing rate. (d) Revenue recognition (iv) Interest income Interest income is recognised using the effec(cid:415)ve interest method. v) Deferred consideration Deferred considera(cid:415)on not payable and recognised in accordance with note 1(g). (e) Income Tax The income tax expense or revenue for the period is the tax payable on the current period’s taxable income based on the no(cid:415)onal income tax rate for each jurisdic(cid:415)on adjusted by changes in deferred tax assets and liabili(cid:415)es a(cid:425)ributable to temporary differences and to unused tax losses. The current income tax charge is calculated on the basis of the tax laws enacted or substan(cid:415)vely enacted at the end of the repor(cid:415)ng period in the countries where the Company’s subsidiaries operate and generate taxable income. Management periodically evaluates posi(cid:415)ons taken in tax returns with respect to situa(cid:415)ons in which applicable tax regula(cid:415)on is subject to interpreta(cid:415)on. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authori(cid:415)es. is measured at the Revenue fair value of the considera(cid:415)on received or receivable. Amounts disclosed as revenue are net of discounts, refunds, rebates and amounts collected on behalf of third par(cid:415)es. Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabili(cid:415)es and their carrying amounts in the consolidated financial statements. The Group recognises revenue when the amount of revenue can be reliably measured, it is probable that the future economic benefits will flow to the en(cid:415)ty and specific criteria have been met for each of the Group’s ac(cid:415)vi(cid:415)es as described below. Revenue is recognised for the major business ac(cid:415)vi(cid:415)es as follows: (i) Child care fees Fees paid by families and/or the Australian Government (Child Care Benefit and Child Care Tax Rebate) are recognised as and when a child a(cid:425)ends a child care service. (ii) Royalty Income Royalty fees paid by franchisees are recognised in accordance with the franchise agreement and once the opera(cid:415)onal support service has been performed. (iii) Government Funding/Grants Training incen(cid:415)ves and addi(cid:415)onal funding receipts are recognised when there is reasonable assurance that the incen(cid:415)ve/receipt will be received and when the relevant condi(cid:415)ons have been met. However, the deferred income tax is not accounted for if it arises from ini(cid:415)al recogni(cid:415)on of an asset or liability in a transac(cid:415)on other than a business combina(cid:415)on that at the (cid:415)me of the transac(cid:415)on affects neither accoun(cid:415)ng nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substan(cid:415)ally enacted by the end of the repor(cid:415)ng period and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is se(cid:425)led. Deferred tax assets are recognised for deduc(cid:415)ble temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to u(cid:415)lise those temporary differences and losses. implemented G8 Educa(cid:415)on and its wholly‐owned Australian controlled en(cid:415)(cid:415)es have tax consolida(cid:415)on legisla(cid:415)on. As a consequence, these en(cid:415)(cid:415)es are taxed as a single en(cid:415)ty and the deferred tax assets and liabili(cid:415)es of these en(cid:415)(cid:415)es are set off in the consolidated financial statements. the Current and deferred tax is recognised in profit and loss, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case, in other is also comprehensive income or directly in equity, respec(cid:415)vely. recognised the tax G8 Educa(cid:415)on Limited | Annual Report 2015 43 (f) Leases Leases of property, plant and equipment where the Group, as lessee, has substan(cid:415)ally all the risks and rewards of ownership are classified as finance leases. Finance leases are capitalised at the lease’s incep(cid:415)on at the fair value of the leased property or, if lower, the present value of the minimum lease payments. The corresponding rental obliga(cid:415)ons, net of finance charges, are included in other short‐term and long‐term payables. Each lease payment is allocated between the liability and finance cost. The finance cost is charged to the income statement over the lease year so as to produce a constant periodic rate of interest on the remaining balance of the liability for each year. The property, plant and equipment acquired under finance is depreciated over the shorter of the asset’s useful life and the lease term. leases Leases in which a significant por(cid:415)on of the risks and rewards of ownership are not transferred to the Group as lessee are classified as opera(cid:415)ng leases. Payments made under opera(cid:415)ng leases (net of any incen(cid:415)ves received from the lessor) are charged to the income statement on a straight‐line basis over the year of the lease. (g) Business combinations The acquisi(cid:415)on method of accoun(cid:415)ng is used to account for all business combina(cid:415)ons. Cost is measured as the fair value of the assets given, equity instruments issued or incurred or assumed at the date of exchange. Where equity instruments are issued in an acquisi(cid:415)on, the fair value of the instruments is their published market price as at the date of exchange. liabili(cid:415)es Acquisi(cid:415)on costs paid by the Company are expensed. Iden(cid:415)fiable assets acquired and liabili(cid:415)es and con(cid:415)ngent liabili(cid:415)es assumed in a business combina(cid:415)on are measured ini(cid:415)ally at their fair values at the acquisi(cid:415)on date, irrespec(cid:415)ve of the extent of any non‐controlling interest. The excess of the cost of acquisi(cid:415)on over the fair value of the Group’s share of the iden(cid:415)fiable net assets acquired is recorded as goodwill. Where se(cid:425)lement of any part of cash considera(cid:415)on is deferred, the amounts payable in the future are discounted to their present value as at the date of exchange. is the en(cid:415)ty’s incremental borrowing rate, being the rate at which a similar borrowing could be obtained from an independent financier under comparable terms and condi(cid:415)ons. The discount rate used 44 G8 Educa(cid:415)on Limited | Annual Report 2015 Con(cid:415)ngent considera(cid:415)on is classified either as equity or a financial liability. Amounts classified as a financial liability that are subsequently not required to be paid at the end of the earn out period are recognised as other income. (h) Impairment of assets Goodwill is not subject to amor(cid:415)sa(cid:415)on and is tested annually for impairment or more frequently if events or changes in circumstances indicate that they might be impaired. Other 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. The value in use is calculated based on the discounted cash flows of the child care centres over the lease period including a terminal value calcula(cid:415)on, which is assessed on a segment level. (i) Cash and cash equivalents For statement of cash flows presenta(cid:415)on purposes, cash and cash equivalents includes cash on hand, deposits held at call with financial ins(cid:415)tu(cid:415)ons, other short‐term, highly liquid investments with original maturi(cid:415)es of three months or less that are readily conver(cid:415)ble to known amounts of cash and which are subject to an insignificant risk of changes in value. (j) Trade receivables Trade receivables are recognised ini(cid:415)ally at fair value and subsequently measured at amor(cid:415)sed cost using the effec(cid:415)ve interest method, less provision for impairment. Trade receivables represent child care fees receivable from families and/or the Australian Government. Under the Child Care Management System (CCMS), implemented in July 2008, Child Care Benefit is generally paid weekly in arrears by the Australian Government based on the actual a(cid:425)endance and en(cid:415)tlement of each child a(cid:425)ending the child care centre. Parent fees are required to be paid one week in advance. Therefore, the parent fees receivable relate to amounts past due. Collectability of trade receivables is reviewed on an ongoing basis. Debts which are known to be uncollectable are wri(cid:425)en off. A provision for impairment of trade receivables is objec(cid:415)ve evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables. Significant financial difficul(cid:415)es of the debtor, probability that the debtor will enter bankruptcy is established when there or financial reorganisa(cid:415)on, and default or delinquency in payments (more than 30 days overdue) are considered indicators that the trade receivable is impaired. The amount of the provision is the difference between the asset’s carrying amount and the present value of es(cid:415)mated future cash flows, discounted at the original effec(cid:415)ve interest rate. Cash flows rela(cid:415)ng to short‐term receivables are not discounted the effect of discoun(cid:415)ng is immaterial. The amount of the provision is recognised in the income statement in other expenses. if The carrying amount of the asset is reduced through the use of an allowance account and the amount of the loss is recognised in the statements of comprehensive income within other expenses. When a trade receivable is uncollectable, it is wri(cid:425)en off against the allowance for trade receivables. Subsequent recoveries of amounts previously wri(cid:425)en off are credited against other expenses in the income statement. (k) Non-current assets (or disposal Groups) held for sale Non‐current assets (or disposal groups) are classified as held for sale and stated at the lower of their carrying amount and fair value less costs to sell if their carrying amount will be recovered principally through a sale transac(cid:415)on rather than through con(cid:415)nuing use. An ini(cid:415)al or impairment subsequent write down of the asset (or disposal Group) to fair value less costs to sell. is recognised for any loss Non‐current assets (including those that are part of a disposal Group) are not depreciated or amor(cid:415)sed while they are classified as held for sale. Interest and other expenses a(cid:425)ributable to the liabili(cid:415)es of a disposal Group classified as held for sale con(cid:415)nue to be recognised. Non‐current assets classified as held for sale and the assets of a disposal Group classified as held for sale are presented separately from the other assets in the balance sheet. The liabili(cid:415)es of a disposal Group classified as held for sale are presented separately from other liabili(cid:415)es in the balance sheet. (l) Investments and other financial assets Classification The Group classifies its financial assets as loans and receivables. Loans and receivables Loans and receivables are non‐deriva(cid:415)ve financial assets with fixed or determinable payments that are not quoted in an ac(cid:415)ve market. They are included in current assets, except for those with se(cid:425)lements greater than 12 months a(cid:332)er the repor(cid:415)ng period which are classified as non‐current assets. Loans and receivables are included in trade and other receivables (note 10) in the balance sheet. Recognition and de-recognition Regular purchases and sales of financial assets are recognised on trade date – the date on which the Group commits to purchase or sell the asset. Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or have been transferred and the Group has transferred substan(cid:415)ally all the risks and rewards of ownership. Measurement At ini(cid:415)al recogni(cid:415)on, the Group measures a financial asset at its fair value Transac(cid:415)on costs of financial assets carried at fair value through the profit or loss are expensed in the profit or loss. Loans and receivables are carried at amor(cid:415)sed cost using the effec(cid:415)ve interest method. (m) Derivatives and hedging activities is entered Deriva(cid:415)ves are ini(cid:415)ally recognised at fair value on the date a deriva(cid:415)ve contract into and subsequently remeasured to their fair value at the end of each repor(cid:415)ng period. The accoun(cid:415)ng for subsequent changes in fair value depend on whether the deriva(cid:415)ve is designated as a hedging instrument, and if so, the nature of the item being hedged. The Group designates certain deriva(cid:415)ves as either: (i) Hedges of a par(cid:415)cular risk associated with the cash flows of recognised assets and liabili(cid:415)es and highly probable forecast transac(cid:415)ons (cash flow hedge); or (ii) Hedges of a net investment in a foreign opera(cid:415)on (net investment hedge). the between The Group documents at the incep(cid:415)on of the hedging transac(cid:415)on hedging rela(cid:415)onship instruments and hedged items, as well as its risk management objec(cid:415)ve and strategy for undertaking various hedge transac(cid:415)ons. The Group also documents its assessment, both at hedge incep(cid:415)on and on an ongoing basis, of whether the deriva(cid:415)ves that are used in hedging transac(cid:415)ons have been and will con(cid:415)nue to be highly effec(cid:415)ve in offse(cid:427)ng changes in fair values or cash flows of hedged items. The fair values of deriva(cid:415)ve financial instruments used for hedging purposes are disclosed in note 18. Movements in the hedging reserve in shareholders’ equity are shown in note 21. The full fair value of a hedging deriva(cid:415)ve is classified as a non‐current asset or liability when the remaining maturity of the hedged item is more than 12 months; it is classified as a current asset or liability when the remaining maturity of the hedged item is less than 12 months. G8 Educa(cid:415)on Limited | Annual Report 2015 45 (i) Cash flow hedge The effec(cid:415)ve por(cid:415)on of changes in the fair value of deriva(cid:415)ves that are designated and qualify as cash flow hedges is recognised in other comprehensive income and accumulated in reserves in equity. The gain or loss rela(cid:415)ng recognised immediately in profit or loss within other income or other expense. ineffec(cid:415)ve por(cid:415)on the to is Amounts accumulated in equity are reclassified to profit or loss in the periods when the hedged item affects profit or loss (for instance when the forecast sale that is hedged takes place). The gain or loss rela(cid:415)ng to the effec(cid:415)ve por(cid:415)on of interest rate swaps hedging variable rate borrowings is recognised in profit or loss within ‘finance costs’. instrument expires or is sold or When a hedging terminated, or when a hedge no longer meets the criteria for hedge accoun(cid:415)ng, any cumula(cid:415)ve gain or loss exis(cid:415)ng in equity at that (cid:415)me remains in equity and is recognised when the forecast transac(cid:415)on is ul(cid:415)mately recognised in profit or loss. When a forecast transac(cid:415)on is no longer expected to occur, the cumula(cid:415)ve gain or loss that was reported immediately reclassified to profit or loss. in equity is (n) Property, plant and equipment less deprecia(cid:415)on. Historical Property, plant and equipment are stated at historical includes cost expenditure the to acquisi(cid:415)on of the items. cost is directly a(cid:425)ributable that Subsequent costs are included in the asset’s carrying recognised as a separate asset, as amount or is probable the future appropriate, only when it economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognised. All other repairs and maintenance are charged to the Income Statement during the repor(cid:415)ng year in which they are incurred. for vehicles Deprecia(cid:415)on is calculated using the diminishing value method and on other assets calculated using the straight‐line method to allocate their cost net of their residual values, over their es(cid:415)mated lives, as follows: Buildings: 40 years Vehicles: 3 ‐ 12 years Furniture, fi(cid:427)ngs and equipment: 2 ‐ 15 years The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each repor(cid:415)ng period. 46 G8 Educa(cid:415)on Limited | Annual Report 2015 Gains and losses on disposals are determined by comparing proceeds with the carrying amount. These are included in the Income Statement. (o) Trade and other payables These amounts represent liabili(cid:415)es for goods and services provided to the Group prior to the end of the year which are unpaid. The amounts are unsecured and are usually paid within 30 days of recogni(cid:415)on. Trade and other payables are presented as current liabili(cid:415)es unless payment is not due within 12 months from the repor(cid:415)ng date. (p) Borrowings and borrowing costs Borrowings are ini(cid:415)ally recognised at fair value, net of transac(cid:415)on cost incurred. Borrowings are subsequently measured at amor(cid:415)sed cost. Any difference between the proceeds (net of transac(cid:415)on costs) and the redemp(cid:415)on amount is recognised in the income statement over the year of the borrowings using the effec(cid:415)ve interest method. Fees paid on the establishment of loan facili(cid:415)es, which are not an incremental cost rela(cid:415)ng to the actual draw‐ down of the facility, are capitalised to the loan and expensed on a straight‐line basis over the term of the facility. Borrowings are removed from the balance sheet when the obliga(cid:415)on specified in the contract is discharged, cancelled or expired. The difference between the carrying amount of a financial liability that has been ex(cid:415)nguished or transferred to another party and the including any non‐cash assets considera(cid:415)on paid, transferred or liabili(cid:415)es assumed, is recognised in profit or loss as other income or finance costs. Borrowings are classified as current liabili(cid:415)es unless the Group has an uncondi(cid:415)onal right to defer se(cid:425)lement of the liability for at least 12 months a(cid:332)er the balance date. (q) Employee benefits (i) Short term obligations for wages and salaries, Liabili(cid:415)es including non‐ monetary benefits and annual leave expected to be se(cid:425)led wholly within 12 months of the repor(cid:415)ng date are recognised in respect of in other payables employees’ services up to the repor(cid:415)ng date and are measured at the amounts expected to be paid when the liabili(cid:415)es are se(cid:425)led. The liability for annual leave is recognised in the provision for employee benefits. All other short‐term employee benefit obliga(cid:415)ons are presented as payables. (ii) Other long-term employee benefit obligations The liability for long service leave and in par(cid:415)cular cases, annual leave, is recognised in the provision for employee benefits and measured as the present value of expected future payments to be made in respect of services provided by employees up to the repor(cid:415)ng date using the projected unit credit method. Considera(cid:415)on is given to expected future wage and salary levels, experience of employee departures and years of service. Expected future payments are discounted using market yields at the repor(cid:415)ng date on corporate bonds with terms to maturity and currency that match, as closely as possible, the es(cid:415)mated future cash ou(cid:414)lows. (iii) Share-based payments Share‐based payments made to employees and others providing similar services, that grant rights over the shares of the parent en(cid:415)ty, G8 Limited, are accounted for as equity‐se(cid:425)led share‐based payment transac(cid:415)ons when the rights over the shares are granted by G8. Equity‐se(cid:425)led share based‐payments with employees and others providing similar services are measured at the fair value of the equity instrument at the grant date. Fair value is measured using the Black‐Scholes op(cid:415)on pricing model. The expected life used in the model has been adjusted, based on directors’ best es(cid:415)mates, for the effects of non‐transferability, exercise restric(cid:415)ons, and behavioural considera(cid:415)ons. fair value determined at the grant date of the equity‐se(cid:425)led share‐ based payments is expensed on a straight‐line basis over the ves(cid:415)ng period, based on the Company’s es(cid:415)mate of shares that will eventually vest. At each repor(cid:415)ng date, the Group revises its es(cid:415)mate of the number of equity instruments expected to vest. The impact of the revision of the original es(cid:415)mates, if any, is recognised in profit or ves(cid:415)ng period, with loss over the equity‐se(cid:425)led to corresponding employee benefits reserve. adjustment remaining The the (r) Contributed equity Ordinary shares are classified as equity. Incremental costs directly a(cid:425)ributable to the issue of new shares or op(cid:415)ons are shown in equity as a deduc(cid:415)on, net of tax, from the proceeds. (s) Dividends Provision is made for the amount of any dividend declared, being appropriately authorised and no longer at the discre(cid:415)on of the en(cid:415)ty, on or before the end of the financial year but not distributed at repor(cid:415)ng date. (t) Earnings Per Share (i) Basic Earnings Per Share Basic Earnings Per Share is calculated by dividing: the profit a(cid:425)ributable to owners of the Company, 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 determina(cid:415)on of Basic Earnings Per Share to take into account: the a(cid:332)er income tax effect of interest and other financing costs associated with dilu(cid:415)ve poten(cid:415)al ordinary shares; and the weighted average number of addi(cid:415)onal ordinary shares that would have been outstanding assuming the conversion of all dilu(cid:415)ve poten(cid:415)al ordinary shares. (u) Goods and Services Tax (GST) Revenues, expenses and assets are recognised net of the amount of associated GST, unless the GST incurred is not recoverable from the taxa(cid:415)on authority. In this case it is recognised as part of the cost of acquisi(cid:415)on of the asset or as part of the expense. Receivables and payables are stated inclusive of the amount of GST receivable or payable. The net amount of GST recoverable from, or payable to, the taxa(cid:415)on authority is included with other receivables or payables in the balance sheet. Cash flows are presented on a gross basis. The GST components of cash flows arising from inves(cid:415)ng or financing ac(cid:415)vi(cid:415)es which are recoverable from, or payable to the taxa(cid:415)on authority, are presented as opera(cid:415)ng cash flows. (v) Rounding Amounts issued by The Company is of a kind referred to in Class Order 98/100, the Australian Securi(cid:415)es and Investments Commission, rela(cid:415)ng to the “rounding off” of amounts in the financial statements. Amounts in the in financial statements have been accordance with that Class Order to the nearest thousand dollars, or in certain cases, the nearest dollar. rounded off (w) Parent entity financial information The financial informa(cid:415)on for the parent en(cid:415)ty, G8 Educa(cid:415)on Limited, disclosed in note 29 has been prepared on the same basis as the consolidated financial statements, except as set out below. G8 Educa(cid:415)on Limited | Annual Report 2015 47 (i) Investments in subsidiaries (x) Going concern The Group has recognised a net profit a(cid:332)er tax of $88.6 million for the year ended 31 December 2015 and as at that date, current liabili(cid:415)es exceed current assets by $33.8 million. Management expect the working capital shor(cid:414)all will be met out of opera(cid:415)ng cash flows or from finance facili(cid:415)es. The Directors have concluded that there are reasonable grounds to believe that the going concern basis is appropriate, and that assets are likely to be realised, and liabili(cid:415)es are likely to be discharged, at the amounts recognised in the financial statements in the ordinary course of business. Investments in subsidiaries are accounted for at cost in the financial statements of G8 Educa(cid:415)on Limited. (ii) Tax consolidation legislation G8 Educa(cid:415)on Limited and its wholly‐owned Australian controlled en(cid:415)(cid:415)es have tax consolida(cid:415)on legisla(cid:415)on. implemented the The head en(cid:415)ty, G8 Educa(cid:415)on Limited and the controlled en(cid:415)(cid:415)es in the tax consolidated Group account for their own current and deferred tax amounts. These tax amounts are measured as if each en(cid:415)ty in the tax consolidated Group con(cid:415)nues to be a stand alone taxpayer in its own right. In addi(cid:415)on to its own current and deferred tax amounts, G8 Educa(cid:415)on Limited also recognises the current tax liabili(cid:415)es (or assets) and the deferred tax assets arising from unused tax losses and unused tax credits assumed from controlled en(cid:415)(cid:415)es in the tax consolidated Group. The en(cid:415)(cid:415)es have also entered into a tax funding agreement under which the wholly‐owned en(cid:415)(cid:415)es fully compensate G8 Educa(cid:415)on Limited for any current tax payable assumed and are compensated by G8 Educa(cid:415)on Limited for any current tax receivable and deferred tax assets rela(cid:415)ng to unused tax losses or unused tax credits that are transferred to G8 Educa(cid:415)on Limited under the tax consolida(cid:415)on legisla(cid:415)on. The funding amounts are determined by reference to the amounts recognised in the wholly‐owned en(cid:415)(cid:415)es’ financial statements. The amounts receivable/payable under the tax funding agreement are due upon receipt of the funding advice from the head en(cid:415)ty, which is issued as soon as prac(cid:415)cable a(cid:332)er the end of each financial year. The head en(cid:415)ty may also require payment of interim funding its obliga(cid:415)ons to pay tax amounts to assist with instalments. Assets or liabili(cid:415)es arising under tax funding agreements with the tax consolidated en(cid:415)(cid:415)es are recognised as current amounts receivable from or payable to other en(cid:415)(cid:415)es in the Group. Any difference between the amounts assumed and amounts receivable or payable under the tax funding agreement are recognised as a contribu(cid:415)on to (or tax consolidated distribu(cid:415)on en(cid:415)(cid:415)es. from) wholly‐owned 48 G8 Educa(cid:415)on Limited | Annual Report 2015 (y) New accounting standards and interpretations for application in future periods PRONOUNCEMENTS NATURE OF THE CHANGE IN ACCOUNTING POLICY AASB 9 Financial Instruments. AASB 2010‐7 Amendments to Australian Accoun(cid:415)ng Standards arising from AASB 9 (December 2009). AASB 2012‐6 Amendments to Australian Accoun(cid:415)ng Standards – Mandatory Effec(cid:415)ve Date of AASB 9 and Transi(cid:415)onal Disclosures. AASB 2013‐9 Amendments to Australian Accoun(cid:415)ng Standards – Conceptual Framework, Materiality and Financial Instruments. AASB 2014‐1 Amendments to Australian Accoun(cid:415)ng Standards. Significant revisions to the classifica(cid:415)on and measurement of financial assets, reducing the number of categories and simplifying the measurement choices, including the removal of impairment tes(cid:415)ng of assets measured at fair value. The amor(cid:415)sed cost model is available for debt assets mee(cid:415)ng both business model and cash flow characteris(cid:415)cs tests. All investments in equity instruments using AASB 9 are to be measured at fair value. Amends measurement rules for financial liabili(cid:415)es that the en(cid:415)ty elects to measure at fair value through profit and loss. Changes in fair value a(cid:425)ributable to changes in the en(cid:415)ty’s own credit risk are presented in other comprehensive income. Chapter 6 Hedge Accoun(cid:415)ng supersedes the general hedge accoun(cid:415)ng requirements in AASB 139 Financial Instruments: Recogni(cid:415)on and Measurement, which many consider to be too rules‐based and arbitrary. Chapter 6 requirements include a new approach to hedge accoun(cid:415)ng that is intended to more closely align hedge accoun(cid:415)ng with risk management ac(cid:415)vi(cid:415)es undertaken by en(cid:415)(cid:415)es when hedging financial and non‐financial risks. Some of the key changes from AASB 139 are as follows: to allow hedge accoun(cid:415)ng of risk components of non‐financial items that are iden(cid:415)fiable and measurable (many of which were prohibited from being designated as hedged items under AASB 139); changes in the accoun(cid:415)ng for the (cid:415)me value of op(cid:415)ons, the forward element of a foreign‐currency basis spreads designated as hedging forward contract and instruments; and modifica(cid:415)on of the requirements for effec(cid:415)veness tes(cid:415)ng (including removal of the ‘bright‐ line’ effec(cid:415)veness test that offset for hedging must be in the range 80‐125%). Revised disclosures about an en(cid:415)ty’s hedge accoun(cid:415)ng have also been added to AASB 7 Financial Instruments: Disclosures. Impairment of assets is now based on expected losses in AASB 9 which requires en(cid:415)(cid:415)es to measure: the 12‐month expected credit losses (expected credit losses that result from those default events on the financial instrument that are possible within 12 months a(cid:332)er the repor(cid:415)ng date); or full life(cid:415)me expected credit losses (expected credit losses that result from all possible default events over the life of the financial instrument. EFFECTIVE DATE Annual repor(cid:415)ng periods beginning on or a(cid:332)er 1 January 2018. G8 Educa(cid:415)on Limited | Annual Report 2015 49 EXPECTED IMPACT ON THE FINANCIAL STATEMENTS The Group has not yet assessed how its own hedging arrangement would be affected by the new rules, and it has not yet decided whether to early adopt AASB 9. In order to apply the new hedging rules, the Group would have to adopt AASB 9 and the consequen(cid:415)al amendments to AASB 7 and AASB 139 in their en(cid:415)rety. PRONOUNCEMENTS AASB 15 Revenue from contracts with customers NATURE OF THE CHANGE IN ACCOUNTING POLICY EFFECTIVE DATE EXPECTED IMPACT ON THE FINANCIAL STATEMENTS AASB 15 introduces a five step process for revenue recogni(cid:415)on with the core principle of the new Standard being for en(cid:415)(cid:415)es to recognise revenue to depict the transfer of goods or services to customers in amounts that reflect the considera(cid:415)on (that is, payment) to which the en(cid:415)ty expects to be en(cid:415)tled in exchange for those goods or services. Accoun(cid:415)ng policy changes will arise in (cid:415)ming of revenue recogni(cid:415)on, treatment of contracts costs and contracts which contain a financing element. AASB 15 will also result in enhanced disclosures about revenue, provide guidance for transac(cid:415)ons that were not previously addressed comprehensively (for example, service revenue and contract modifica(cid:415)ons) and for mul(cid:415)ple‐element arrangements. improve guidance Annual repor(cid:415)ng periods beginning on or a(cid:332)er 1 January 2018 The Group has not yet assessed what impact, if any, this standard will have on the Group’s financial statements PRONOUNCEMENTS IFRS 16 Leases NATURE OF THE CHANGE IN ACCOUNTING POLICY IFRS 16 will cause the majority of leases of an en(cid:415)ty to be brought onto the Balance Sheet. There are limited excep(cid:415)ons rela(cid:415)ng to short‐term leases and low value assets which may remain off‐balance sheet. The calcula(cid:415)on of the lease liability will take into account appropriate discount rates, assumptions about lease term and increases in lease payments. A corresponding right to use asset will be recognised which will be amor(cid:415)sed over the term of the lease. Rent expense will no longer be shown, the profit and loss impact of the leases will be through amor(cid:415)sa(cid:415)on and interest charges. EFFECTIVE DATE Annual repor(cid:415)ng period beginning on or a(cid:332)er 1 January 2019. EXPECTED IMPACT ON THE FINANCIAL STATEMENTS The Group has not yet assessed what impact this standard will have on the Group’s financial statements. However, it is an(cid:415)cipated that the Group’s interest and amor(cid:415)sa(cid:415)on expense will increase and rental expense will decrease. 50 G8 Educa(cid:415)on Limited | Annual Report 2015 Note 2: Financial Risk Management The Group’s ac(cid:415)vi(cid:415)es expose it to a variety of financial risks: interest rate risk, credit risk, foreign exchange risk and liquidity risk. The Group’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimise poten(cid:415)al adverse effects on the financial performance of the Group. The Group uses deriva(cid:415)ve financial instruments to hedge certain risk exposures. Deriva(cid:415)ves are exclusively used for hedging purposes, ie not as trading or other specula(cid:415)ve instruments. The Group uses different methods to measure different types of risk to which it is exposed. These methods include sensi(cid:415)vity analysis in the case of interest rate, and other risks, and ageing analysis for credit risk. The risk management of the Group is conducted in a manner consistent with policies approved by the Board. The Board provides principles for overall risk management, as well as policies covering specific areas, such as, interest rate risk, credit risk, foreign exchange risk and investment of excess liquidity. The Group holds the following financial instruments: 2015 Financial Assets Cash and cash equivalents Trade and other receivables 2014 Financial Assets Cash and cash equivalents Trade and other receivables 2015 Financial Liabili(cid:415)es Trade and other payables Borrowings Deriva(cid:415)ve financial instruments 2014 Financial Liabili(cid:415)es Trade and other payables Borrowings Deriva(cid:415)ve financial instruments Financial assets at amor(cid:415)sed cost $’000 Total $'000 193,840 20,152 213,992 193,840 20,152 213,992 120,804 13,784 134,588 Deriva(cid:415)ves used for Hedging $’000 Liabili(cid:415)es at amor(cid:415)sed cost $'000 ‐ ‐ 1,184 1,184 ‐ ‐ 230 230 63,571 515,161 ‐ 578,732 63,496 352,944 ‐ 416,440 120,804 13,784 134,588 Total $'000 63,571 515,161 1,184 579,916 63,496 352,944 230 416,670 52 G8 Educa(cid:415)on Limited | Annual Report 2015 (a) Foreign exchange risk The Group has opera(cid:415)ons and borrowings in Singapore and is exposed to foreign exchange risk associated with the Singapore dollar. Foreign exchange risk arises from future commercial transac(cid:415)ons and from recognised assets and liabili(cid:415)es denominated in a currency that is not the en(cid:415)ty’s func(cid:415)onal currency. The foreign exchange risk associated with the Singapore opera(cid:415)ons is managed through a natural hedge as the cash flows from the Singapore opera(cid:415)ons are denominated in Singapore dollars. The non‐current Singapore dollar denominated corporate notes are expected to be refinanced with new Singapore dollar corporate notes and the Company’s analysis supports the posi(cid:415)on that over (cid:415)me the cost of the Australian dollars movement against the Singapore dollar will be acceptable. The foreign currency exposure of these corporate notes has therefore not been hedged. The Group also has current Singapore dollar denominated corporate notes outstanding with a total value of SGD $155,000,000. The foreign exchange risk associated with these notes has been fully hedged with a forward foreign exchange contract. There was no ineffec(cid:415)veness to be recorded from the hedge accoun(cid:415)ng related to the forward foreign exchange contracts. The Board decided to fully hedge the SGD $155,000,000 notes to mi(cid:415)gate nega(cid:415)ve cashflow effects arising from the foreign exchange risk. The Group’s exposure to foreign currency risk at the end of the repor(cid:415)ng period, expressed in Singapore dollars, was as follows: Cash and cash equivalents Trade receivables Borrowings Trade payables 2015 SGD $'000 2,630 236 (410,814) (118) (408,066) 2014 SGD $'000 3,579 253 (254,773) (149) (251,090) The SGD to AUD exchange rate at 31 December 2015 was 0.9680. Amounts recognised in profit or loss and other comprehensive income. During the year, the following foreign‐exchange related amounts were recognised in profit or loss and other comprehensive income: Amounts recognised in profit or loss Exchange losses on foreign currency borrowing included in finance costs Net gains recognised in other comprehensive income Transla(cid:415)on of foreign opera(cid:415)ons Net Revalua(cid:415)on of the SGD $155m note and foreign exchange contract 2015 $'000 11,968 2014 $'000 18,619 2015 $'000 1,514 3,559 2014 $'000 1,225 ‐ G8 Educa(cid:415)on Limited | Annual Report 2015 53 Sensitivity As shown in the table above, the Group's only foreign exchange risk relates to changes in SGD/AUD exchange rates. The sensi(cid:415)vity of profit or loss to changes in the exchange rates arises mainly from SGD‐dollar denominated borrowings. The Group also has opera(cid:415)ons in Singapore which are treated as a net investment in a foreign opera(cid:415)on. As a result any exchange differences shall be recognised ini(cid:415)ally in other comprehensive income and reclassified from equity to profit or loss on disposal of the net investment. Profit is more sensi(cid:415)ve to movements in the SGD/AUD exchange rates in 2015 than 2014 because of the increase in SGD denominated borrowings. Impact on post tax profit Impact on other components of equity SGD/AUD exchange rate ‐ increase 5% 8,809 8,427 76 SGD/AUD exchange rate ‐ decrease 5% 8,809 8,427 76 2015 $'000 2014 $'000 2015 $'000 2014 $'000 32 32 (b) Interest Rate Risk Cash flow and fair value interest rate risk The Group’s main interest rate risk arises from long term borrowings. 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 if the borrowings are carried at fair value. Group policy is to maintain between 50% ‐ 80% of its borrowings at fixed rate using interest rate swaps to achieve this when necessary. During 2015 and 2014, the Group’s borrowings at variable rates were denominated in Australian dollars only. The Group’s fixed rate borrowings and receivables are carried at amor(cid:415)sed cost. They are therefore not subject to interest rate risk as defined in AASB 7, since neither the carrying amount nor the future cash flows will fluctuate because of a change in market interest rates. The corporate notes denominated in Singapore dollars are all fixed rate notes. The Group manages its cash flow interest rate risk by using floa(cid:415)ng‐to‐fixed interest rate swaps. Under these swaps, the group agrees with other par(cid:415)es to exchange, at specified intervals (mainly quarterly), the difference between fixed contract rates and floa(cid:415)ng rate interest amounts calculated by reference to the agreed no(cid:415)onal principal amounts. Instruments used by the Group No Swaps were currently in place at year end as 87% of the borrowing outstanding at year end were fixed rate borrowings. The fixed interest rates range between 3.75% and 7.65% per annum (2014 – between 4.75% and 7.65% per annum) and the variable rates are 3.90% per annum above the 90 day bank bill rate which at the end of the repor(cid:415)ng period was 2.375% per annum (2014 – 2.82% per annum). 54 G8 Educa(cid:415)on Limited | Annual Report 2015 As at the repor(cid:415)ng date, the Group had the following variable rate borrowings and interest rate swap contracts outstanding: 31 December 2015 Balance Weighted avg interest rate % $’000 Corporate Note Interest rate swaps (no(cid:415)onal principal) Net exposure to cash flow interest rate risk 6.12% 50,000 ‐ ‐ ‐ 50,000 An analysis by maturi(cid:415)es is provided in note 2 (d) following. Amounts recognised in profit or loss and other comprehensive income 31 December 2014 Balance Weighted avg interest rate % % of Total loans $’000 6.58% 50,000 14% 5.70% (30,000) ‐ 20,000 ‐ 6% % of Total loans 9% ‐ 9% During the year, the following gains/(losses) were recognised in profit or loss and other comprehensive income in rela(cid:415)on to interest rate swaps. Amounts recognised in profit or loss (Gains)/loss reclassified from other comprehensive income ‐ to profit and loss 2015 $'000 ‐ 2014 $'000 171 Group sensitivity At 31 December 2015, if interest rates had changed by ‐0.25%/+ 0.25% absolute from the year end rates with all other variables held constant, post‐tax profit for the year would have been $87,740 higher or $87,740 lower respec(cid:415)vely (net profit for 2014: $201,317 higher or $240,262 lower respec(cid:415)vely). Other components of equity would not have changed due to the Interest rate swap being ineffec(cid:415)ve (2014: $nil). (c) Credit risk Credit risk is managed on a Group basis. Credit risk arises from cash and cash equivalents, favourable deriva(cid:415)ve financial instruments and deposits with banks and financial ins(cid:415)tu(cid:415)ons, as well as credit exposures to trade and other debtors. For banks and financial ins(cid:415)tu(cid:415)ons, only independently rated par(cid:415)es with a minimum ra(cid:415)ng of ‘A’ are accepted . The maximum exposure to credit risk at the repor(cid:415)ng date is the carrying amount of the financial assets as summarised below. Trade debtor credit risk is managed by requiring child care fees to be paid in advance. Outstanding debtor balances are reviewed weekly and followed up in accordance with the Group’s debt collec(cid:415)on policy. Credit risk is also minimised by federal government funding in the form of child care benefits, as they are considered to be a high quality debtor. Analysis of the ageing of receivables is performed in note 10. Trade receivables Counterpar(cid:415)es with external credit ra(cid:415)ng AAA Counterpar(cid:415)es without external credit ra(cid:415)ng Receivables (current and non‐current) Total receivables Cash at bank and short term deposits Counterpar(cid:415)es with external credit ra(cid:415)ng ‐ AA Consolidated 2015 $'000 2014 $'000 12,405 7,031 10,539 22,944 7,133 14,164 193,840 120,804 G8 Educa(cid:415)on Limited | Annual Report 2015 55 (d) Liquidity risk Prudent liquidity risk management implies maintaining sufficient cash and marketable securi(cid:415)es and the availability of funding through an adequate amount of commi(cid:425)ed credit facili(cid:415)es. The Group manages liquidity risk by con(cid:415)nuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabili(cid:415)es. Financing arrangements Details of financing arrangements are disclosed in note 16. Maturities of financial liabilities The table below analyses the Group’s financial liabili(cid:415)es into relevant maturity groupings based on the remaining term at the repor(cid:415)ng date to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows. Balances due within 12 months equal their carrying balances as the impact of discoun(cid:415)ng is not significant. For interest rate swaps the cash flows have been es(cid:415)mated using forward interest rates applicable at the end of the repor(cid:415)ng period. Contractual maturi(cid:415)es of financial liabili(cid:415)es Non Deriva(cid:415)ve Corporate Note Deferred centre acquisi(cid:415)on Trade and other payables Deriva(cid:415)ves Net se(cid:425)led (FX hedge) Contractual maturi(cid:415)es of financial liabili(cid:415)es Non Deriva(cid:415)ve Corporate Note Deferred centre acquisi(cid:415)on Trade and other payables Deriva(cid:415)ves Net se(cid:425)led (FX hedge) 0 to 6 months 6 ‐ 12 months Between 1 and 2 years Consolidated 2015 $'000 Between 2 and 5 years >5 years Total contractual cash flows Carrying amount 162,413 400 63,571 10,810 3,180 ‐ 279,975 71 ‐ 155,910 195 ‐ ‐ 521 ‐ 609,108 4,367 63,571 521,720 4,367 63,571 1,184 ‐ ‐ ‐ ‐ 1,184 1,184 0 to 6 months 6 ‐ 12 months Between 1 and 2 years Consolidated 2014 $'000 Between 2 and 5 years >5 years Total contractual cash flows Carrying amount 10,334 5,501 63,496 10,618 1,311 ‐ 22,120 3,041 ‐ 436,635 191 ‐ ‐ 482 ‐ 479,707 10,526 63,496 360,786 10,432 63,496 ‐ ‐ 230 ‐ ‐ 230 230 56 G8 Educa(cid:415)on Limited | Annual Report 2015 (e) Fair value measurements The fair value of financial assets and financial liabili(cid:415)es must be es(cid:415)mated for recogni(cid:415)on and measurement or for disclosure purposes. AASB 13 Fair Value Measurement requires disclosure of fair value measurements by level of the following fair value measurement hierarchy: a) b) quoted prices (unadjusted) in ac(cid:415)ve markets for iden(cid:415)cal assets or liabili(cid:415)es (level 1); inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (as prices) or indirectly (derived from prices) (level 2); and c) inputs for the asset or liability that are not based on observable market data (unobservable inputs) (level 3). The following table presents the Group’s assets and liabili(cid:415)es measured and recognised at fair value: At 31 December 2015 $'000 Liabili(cid:415)es Deriva(cid:415)ves used for hedging At 31 December 2014 $'000 Liabili(cid:415)es Deriva(cid:415)ves used for hedging Level 1 Level 2 Level 3 ‐ 1,184 ‐ Level 1 Level 2 Level 3 ‐ 283 ‐ Total 1,184 Total 283 The fair value of financial instruments that are not traded in an ac(cid:415)ve market (for example, over‐the‐counter deriva(cid:415)ves) is determined using valua(cid:415)on techniques. These valua(cid:415)on techniques maximise the use of observable market data where it is available and rely as li(cid:425)le as possible on en(cid:415)ty specific es(cid:415)mates. If all significant inputs required to fair value an instrument are observable, the instrument is included in level 2. Specific valua(cid:415)on techniques used to value financial instruments include: The use of quoted market prices or dealer quotes for similar instruments; The fair value of interest rate swaps is calculated as the present value of the es(cid:415)mated future cash flows based on observable yield curves; and Other techniques, such as discounted cash flow analysis, are used to determine fair value for the remaining financial instruments. G8 Educa(cid:415)on Limited | Annual Report 2015 57 Note 3: Critical Accounting Estimates and Judgements Es(cid:415)mates and judgements are con(cid:415)nually evaluated and are based on historical experience and other factors, including expecta(cid:415)ons of future events that may have a financial impact on the en(cid:415)ty and that are believed to be reasonable under the circumstances. The Group makes es(cid:415)mates and assump(cid:415)ons concerning the future. The resul(cid:415)ng es(cid:415)mates will, by defini(cid:415)on, seldom equal the related actual results. The es(cid:415)mates and assump(cid:415)ons that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabili(cid:415)es within the next financial year are discussed below. (i) Estimated impairment of goodwill The Group tests annually whether goodwill has suffered any impairment, in accordance with the accoun(cid:415)ng policy stated in note 1(h). The recoverable amounts of goodwill have been determined based on value‐in‐use calcula(cid:415)ons. These calcula(cid:415)ons require the use of assump(cid:415)ons. Refer to note 14 for details of these assump(cid:415)ons and the poten(cid:415)al impact of changes to these assump(cid:415)ons. (ii) Deferred contingent consideration on acquisition of businesses The Group includes the fair value of deferred con(cid:415)ngent considera(cid:415)on as a liability for the acquisi(cid:415)on of a business where it expects the earn‐out target to be met during the measurement period. This judgement is based on opera(cid:415)onal due diligence and knowledge of the business trading condi(cid:415)ons including loca(cid:415)on, occupancy and profitability at the (cid:415)me of se(cid:425)lement. If the earn out target is not met then the amount not paid of the deferred con(cid:415)ngent considera(cid:415)on is taken to the income statement as a credit and the corresponding entry against the liability. The value of the deferred considera(cid:415)on is reviewed at each repor(cid:415)ng date. Note 4: Segment Information (a) Description of segments Management has determined the opera(cid:415)ng segments based on the reports reviewed by the Board that are used to make strategic decisions. The Board of Directors has been iden(cid:415)fied as the Chief Opera(cid:415)ng Decision Maker that makes strategic decisions. The Board considers the business as one Group of centres and has therefore iden(cid:415)fied one opera(cid:415)ng segment, being management of child care centres. The Board believes that whilst the Singapore opera(cid:415)ons do not cons(cid:415)tute a separate opera(cid:415)ng segment, applying the quan(cid:415)ta(cid:415)ve thresholds to the results and assets of Singapore further supports that the Singapore opera(cid:415)ons are not material. The following informa(cid:415)on is in respect of the single opera(cid:415)ng segment. All revenue in this report was derived from external customers and relates to the single opera(cid:415)ng segment; and The total profit represents the segment profit and all balance sheet items relate to the single opera(cid:415)ng segment. The segment disclosure has not altered from the last Annual Report. 2015 Revenue from external customers Non‐current assets 2014 Revenue from external customers Non‐current assets Australia $'000 Singapore $'000 693,077 955,899 479,435 810,945 13,087 30,075 11,853 27,792 Total $'000 706,164 985,974 491,288 838,737 58 G8 Educa(cid:415)on Limited | Annual Report 2015 Note 5: Revenue From con(cid:415)nuing opera(cid:415)ons Sales revenue Revenue from child care centres Funding related to childcare opera(cid:415)ons Other revenue Royal(cid:415)es Interest Total revenue from opera(cid:415)ons Note 6: Other Income Consolidated 2015 $'000 2014 $'000 662,717 21,962 684,679 2,068 2,616 689,363 470,145 6,789 476,934 2,290 2,886 482,110 The deferred considera(cid:415)on is not payable due to certain centres not achieving some, or all of the earn‐out hurdle for the earn‐out period. As a result, in accordance with AASB 3 Business Combina(cid:415)ons, the earn‐out amounts not payable which were previously disclosed as a liability in deferred considera(cid:415)on has been wri(cid:425)en back to the Consolidated Income Statement. Net gain on disposal of Fixed Assets Deferred considera(cid:415)on not payable Note 7: Expenses Consolidated 2015 $'000 556 5,755 6,311 2014 $'000 ‐ 9,178 9,178 Consolidated 2015 $'000 2014 $'000 Profit before income tax includes the following specific expenses: Deprecia(cid:415)on 9,372 5,076 Finance Costs Interest and finance charges paid/payable Foreign currency transla(cid:415)on loss Rental expenses rela(cid:415)ng to opera(cid:415)ng leases Minimum lease payments Bad & doub(cid:414)ul debts 28,299 11,968 40,267 17,671 18,619 36,290 70,500 50,844 480 421 G8 Educa(cid:415)on Limited | Annual Report 2015 59 Note 8: Income Tax Expense (a) Income tax expense Current tax Deferred tax Income tax expense Income tax expense is a(cid:425)ributable to: Profit from con(cid:415)nuing opera(cid:415)ons Consolidated 2015 $'000 40,427 (6,235) 34,192 2014 $'000 25,783 (5,953) 19,830 34,192 34,192 19,830 19,830 Deferred income tax expense included in income tax expense comprises: Increase in deferred tax assets (refer note 13) (6,210) (5,952) (b) Numerical reconcilia(cid:415)on of income tax expense to prima facie tax payable Profit from con(cid:415)nuing opera(cid:415)ons before income tax expense Tax on opera(cid:415)ons at the Australian tax rate of 30% (2014:30%) Tax effect of amounts which are not deduc(cid:415)ble (taxable) in calcula(cid:415)ng taxable income: Adjustments in respect of current income tax for previous years Entertainment Net gain on disposals Deferred considera(cid:415)on not payable Business acquisi(cid:415)on costs Share based payments Other non‐allowable items Difference in overseas tax rates Income tax expense Weighted average tax rate^ (c) Amounts recognised directly in equity Aggregate current and deferred tax arising in the repor(cid:415)ng year and not recognised in net profit or loss but directly debited or credited to equity Net deferred tax – debited (credited) directly to equity (d) Tax expense (income) rela(cid:415)ng to items of other comprehensive income Cash flow hedges 122,773 36,832 72,561 21,768 (633) 175 (620) ‐ 85 ‐ (1,726) (2,753) 157 103 1 (97) 34,192 28% 743 32 67 (112) 19,830 27% 20 2,176 69 15 ^ The weighted average tax rate is less than the Group's corporate tax rate of 30% due to the permanent difference associated with the write back of deferred considera(cid:415)on in other income. 60 G8 Educa(cid:415)on Limited | Annual Report 2015 Note 9: Current Assets - Cash and Cash Equivalents Cash at bank and in hand Deposits at call* Consolidated 2015 $'000 175,978 17,862 193,840 2014 $'000 35,179 85,625 120,804 *The effec(cid:415)ve average interest rate for the deposits at call was 2.33%. Included above is $14,203 used as security against the Company’s bank guarantee facility (2014: $625,133) and $16,500,000 used as security for the foreign exchange hedge (2014: $NIL), as such this cash balance cannot currently be used for opera(cid:415)ng ac(cid:415)vi(cid:415)es. (a) Reconciliation to cash at the end of the year The above figures are reconciled to cash at the end of the financial year as shown in the statement of cash flows as follows: Balance as per note 9 Term deposits held as security against bank guarantees and foreign exchange hedge Balance as per Statement of Cash Flows Note 10: Current Assets - Trade and Other Receivables (a) Impaired trade receivables Trade and other receivables Trade receivables Allowance for impairment of receivables (note (a) below) GST receivable Other debtors Total trade and other receivables Consolidated 2015 $'000 193,840 (14) 193,826 2014 $'000 120,804 (625) 120,179 Consolidated 2015 $'000 17,646 (618) 17,028 2,791 3,124 22,943 2014 $'000 11,891 (423) 11,468 380 2,316 14,164 As at 31 December 2015 current trade receivables of the Group with a nominal value of $1,235,326 (2014: $846,104) were assessed as impaired. The amount of the allowance for impairment was $617,663 (2014: $423,052). The ageing of these receivables is as follows: Up to 3 months Consolidated 2015 $'000 1,235 2014 $'000 846 G8 Educa(cid:415)on Limited | Annual Report 2015 61 Movements in the allowance for impairment of receivables are as follows: Opening balance Allowance for impairment recognised during the year Receivables wri(cid:425)en off during the year as uncollectable Exchange differences Closing balance Consolidated 2015 $'000 423 480 (287) 2 618 2014 $'000 258 403 (238) ‐ 423 The crea(cid:415)on and release of the provision for impaired receivables has been included in ‘other expenses’ in the income statement. Amounts charged to the allowance account are generally wri(cid:425)en off when there is no expecta(cid:415)on of recovering the cash. (b) Past due but not impaired As at 31 December 2015, trade receivables of $6,797,000 (2014: $5,239,113) were past due but not impaired. These relate to a number of customers for whom there is no recent history of default and for which full payment is expected. The ageing analysis of these trade receivables is as follows: Up to 3 months 3 to 6 months Over 6 months Consolidated 2015 $'000 6,689 23 85 6,797 2014 $'000 5,127 9 103 5,239 The amount past due but not impaired in 2015 is greater than that of 2014 due to the increased number of centres in the Group at year end compared to the prior year. (c) Fair value and credit risk Due to the short‐term nature of these receivables, their carrying amount is considered to approximate their fair value. Informa(cid:415)on concerning the credit risk of receivables is set out in note 2. Note 11: Current Assets - Other Consolidated 2015 $'000 4,721 3,442 1,591 9,754 2014 $'000 3,481 1,362 8,799 13,642 Prepayments Deposits Deposits on acquisi(cid:415)ons Total other current assets 62 G8 Educa(cid:415)on Limited | Annual Report 2015 Note 12: Non-Current Assets — Property, Plant and Equipment Buildings Vehicles $'000 $'000 Furniture, fi(cid:427)ngs and equipment $'000 Consolidated Year ended 31 December 2015 Opening net book amount Addi(cid:415)ons through business combina(cid:415)ons Addi(cid:415)ons ‐ other Disposals Deprecia(cid:415)on charge Exchange differences Closing net book amount At 31 December 2015 Cost Accumulated deprecia(cid:415)on Net book amount 4,602 ‐ ‐ ‐ (152) ‐ 4,450 5,046 (596) 4,450 Total $'000 29,575 2,417 19,150 (460) (9,373) 61 951 97 50 (395) (122) ‐ 581 24,022 2,320 19,100 (65) (9,099) 61 36,339 41,370 1,386 (805) 581 58,483 64,915 (22,144) (23,545) 36,339 41,370 Consolidated Year ended 31 December 2014 Opening net book amount Addi(cid:415)ons through business combina(cid:415)ons Addi(cid:415)ons ‐ other Assets included in a disposal group classified as held for sale Deprecia(cid:415)on charge Exchange differences Closing net book amount At 31 December 2014 Cost Accumulated deprecia(cid:415)on Net book amount Buildings Vehicles $'000 $'000 Furniture, fi(cid:427)ngs and equipment $'000 Total $'000 4,717 ‐ ‐ ‐ 968 906 583 (1,335) 12,384 990 15,445 (31) (115) (171) (4,790) 18,069 1,896 16,028 (1,366) (5,076) 24 ‐ 951 24 24,022 29,575 1,634 (683) 951 37,067 (13,045) 24,022 43,747 (14,172) 29,575 ‐ 4,602 5,046 (444) 4,602 G8 Educa(cid:415)on Limited | Annual Report 2015 63 (a) Leasehold Improvements Furniture, fi(cid:427)ngs and equipment includes the following amounts that are leasehold improvements: Cost Accumulated deprecia(cid:415)on Net book amount Consolidated 2015 $'000 31,449 (9,328) 22,121 2014 $'000 17,621 (5,111) 12,510 (b) Non-current assets pledged as security Refer to note 16 for informa(cid:415)on on the non current assets pledged as security by the Company and its controlled en(cid:415)(cid:415)es. 64 G8 Educa(cid:415)on Limited | Annual Report 2015 Note 13: Non-Current Assets — Deferred Tax Assets Deferred tax asset The balance comprises temporary differences a(cid:425)ributable to: Employee benefits Cash flow hedging Share issue transac(cid:415)on costs Other Foreign exchange loss Doub(cid:414)ul debts Accrued expenses Sub total other Total deferred tax assets Deferred tax liability Prepayments Total deferred tax liability Net deferred tax asset Consolidated 2015 $'000 2014 $'000 7,143 ‐ 2,132 9,275 8,962 170 3,628 12,760 22,035 6,502 105 2,967 9,574 5,386 114 910 6,410 15,984 (357) (357) 21,678 (536) (536) 15,448 At 1 January 2014 Charged to the Consolidated Income Statement Charged directly to equity At 31 December 2014 Charged to the Consolidated Income Statement Charged directly to equity At 31 December 2015 Employee benefits $'000 3,934 2,569 ‐ 6,503 640 ‐ 7,143 Share issue transac(cid:415)on costs $'000 1,718 (927) 2,176 2,967 (910) 77 2,134 Consolidated Foreign Exchange Other Total $'000 ‐ 5,386 ‐ 5,386 3,533 ‐ 8,919 $'000 1,668 (1,076) ‐ 592 2,947 (57) 3,482 $'000 7,320 5,952 2,176 15,448 6,210 20 21,678 G8 Educa(cid:415)on Limited | Annual Report 2015 65 Note 14: Non-Current Assets - Goodwill Goodwill Year ended 31 December Opening net book amount Addi(cid:415)ons Measurement period adjustment Disposals Exchange differences Closing net book amount At 31 December Cost Accumulated impairment Net book amount Consolidated 2015 $'000 2014 $'000 809,162 140,263 (6,017) ‐ 1,196 944,604 326,857 482,771 (652) (843) 1029 809,162 955,656 (11,052) 944,604 820,214 (11,052) 809,162 (a) Impairment tests for goodwill Goodwill is tested for impairment on an opera(cid:415)ng segment level as outlined in note 1(h). The recoverable amount of the child care centre assets is determined based on value‐in‐use calcula(cid:415)ons. These calcula(cid:415)ons use cash flow projec(cid:415)ons based on budgets for 2016 and then extrapolated using es(cid:415)mated growth rates. The growth rate does not exceed the long‐term average growth rate for the business. For the purposes of goodwill impairment tes(cid:415)ng, the recoverable amount is compared to the carrying amount of the assets of the Group, which aside from goodwill, also includes the fixed assets of the child care centres. (b) Key assumptions used for value-in-use calculation The value‐in‐use calcula(cid:415)on is based on forecast EBITDA which is a func(cid:415)on of occupancy, child care fees and centre expenses. Occupancy and child care fees are based on the current market condi(cid:415)ons plus an(cid:415)cipated annual increases. Centre expenses include the following key items: Centre wages – based on industry award standards and forecast to increase by a 3% index annually; Centre occupancy expenses – based on current opera(cid:415)ng leases and increased by a 4% index annually; and Other child care expenses – driven by historical expenditure and future occupancy growth. The an(cid:415)cipated occupancy reflects seasonal factors and underlying growth in occupancy achieved from the implementa(cid:415)on of the Group’s strategies. Economic occupancy levels represent the key to financial success for the Group given the largely fixed cost‐base of child care centres. The impairment model has the following key a(cid:425)ributes: Pre‐tax discount rate of 13%; Full head office costs alloca(cid:415)on; and Forecast period of 5 years plus a terminal growth calcula(cid:415)on with a growth rate of 0%. (c) Impairment charge As a result of the value in use calcula(cid:415)ons described above it was determined that no impairment was required to be recognised. The Group has completed a sensi(cid:415)vity analysis on its impairment model and no reasonably possible movement in the key assump(cid:415)ons would give rise to an impairment loss. 66 G8 Educa(cid:415)on Limited | Annual Report 2015 Note 15: Current and Non-Current Liabilities - Trade and Other Payables Trade payables Deferred centre acquisi(cid:415)ons Dividends payable Centre enrolment advances Other payables and accruals Income received in advance Total Current Other payables Total Non‐ Current Consolidated 2015 $'000 7,587 3,655 22,369 8,754 29,388 11,301 83,054 712 712 2014 $'000 6,971 9,781 21,221 8,002 20,317 9,275 75,567 652 652 Trade payables are non‐interest bearing and are normally se(cid:425)led on 30‐day terms. Note16: Current and Non-Current Liabilities - Borrowings Current $'000 2015 Non‐current $'000 2014 Total $'000 Current $'000 Non‐current $'000 Total $'000 Unsecured Corporate Notes (a) 148,891 366,270 515,161 ‐ 352,944 352,944 Total unsecured borrowings 148,891 366,270 515,161 ‐ 352,944 352,944 Total Borrowings 148,891 366,270 515,161 ‐ 352,944 352,944 There are no drawn secured bank loans as at 31 December 2015. The Group has a bank guarantee facility which is secured and details are shown in Note 16(e). (a) Corporate Notes G8 Educa(cid:415)on Limited has the following Corporate Notes outstanding at year end: Issue Currency Interest Rate Floa(cid:415)ng or Fixed Repayment Date Issue Date Face Value in Issue Currency $’000 7 August 2013 70,000 3 March 2014 50,000 12 May 2014 175,000 25 August 2014 85,000 AUD AUD SGD SGD 7 August 2019 3 March 2018 19 May 2017 19 May 2017 31 July 2015 155,000 SGD 29 February 2016 % 7.65% 390 bps + 90 Day Bank Bill rate 4.75% 4.75% 3.50% Fixed Variable Fixed Fixed Fixed G8 Educa(cid:415)on Limited has complied with the financial covenants rela(cid:415)ng to the Corporate Notes during 2014 and 2015 repor(cid:415)ng periods. G8 Educa(cid:415)on Limited | Annual Report 2015 67 (b) Interest rate risk exposures Details of the Group’s exposure to interest rate changes on debt are set out in note 2(b). (c) Fair value disclosures The carrying amounts and fair values of the corporate notes at balance dates are as reflected in the Balance Sheet. (d) Assets pledged as security The facility is secured by: First ranking registered mortgages over all leasehold assets owned by the Group; An unlimited guarantee in favour of the Company from its subsidiaries; and A right of entry in rela(cid:415)on to certain leased premises. The carrying amounts of assets pledged as security for current and non‐current borrowings are: Current Floa(cid:415)ng charge Cash and cash equivalents Trade and other receivables Other current assets Total current assets pledged as security Non‐current First mortgage Buildings Floa(cid:415)ng charge Vehicles, plant and equipment Total non‐current assets pledged as security Total assets pledged as security Notes 9 10 11 12 12 Consolidated 2015 $'000 2014 $'000 193,840 120,804 22,943 14,164 9,754 13,642 226,537 148,610 4,450 4,602 36,920 24,973 41,370 29,575 267,907 178,185 68 G8 Educa(cid:415)on Limited | Annual Report 2015 (e) Financing arrangements As at 31 December 2015 the following lines of credit were in place: Credit standby arrangements Total facili(cid:415)es Credit cards Used at balance date Unused at balance date Bank loan facili(cid:415)es Total facili(cid:415)es Used at balance date Unused at balance date Bank Guarantee facili(cid:415)es Total Facili(cid:415)es Used at balance date Unused at balance date Corporate Note Total facili(cid:415)es Used at balance date Unused at balance date Consolidated 2015 $'000 2014 $'000 500 137 363 500 145 355 50,000 ‐ ‐ ‐ 50,000 ‐ 30,000 (26,717) 3,283 25,000 (22,082) 2,918 515,161 (515,161) ‐ 360,786 (360,786) ‐ On 24 June 2014, the Group fully repaid its secured finance facility with Bank of Western Australia, it con(cid:415)nues to maintain a secured facility for the provision of bank guarantees to landlords of premises leased by the Group and undrawn senior debt. (f) Fair value The carrying amounts and fair values of borrowings at balance dates are as reflected in the Balance Sheet. G8 Educa(cid:415)on Limited | Annual Report 2015 69 Note 17: Employee Entitlements Employee benefits Consolidated 2015 $'000 22,824 22,824 2014 $'000 18,110 18,110 (a) Amounts not expected to be settled within the next 12 months The current provision for employee benefits includes accrued annual leave and long service leave. For long service leave, it covers all uncondi(cid:415)onal en(cid:415)tlements where employees have completed the required period of service and also those where employees are en(cid:415)tled to pro‐rata payments in certain circumstances. The en(cid:415)re amount of the annual leave provision is presented as current since the Group does not have an uncondi(cid:415)onal right to defer se(cid:425)lement for any of these obliga(cid:415)ons. However, based on past experience, the Group does not expect all employees to take the full amount of accrued leave or require payment within the next 12 months. The following amounts reflect leave that is not expected to be taken or paid within the next 12 months. Leave obliga(cid:415)on expected to be se(cid:425)led a(cid:332)er 12 months Note 18: Derivative Financial Instruments Non‐Current Liability Interest rate swap contracts ‐ cash flow hedges Forward foreign exchange contracts—cash flow hedges Total non‐current deriva(cid:415)ve financial instrument liability (a) Instruments used by the Group Consolidated 2015 $'000 2,231 2,231 Consolidated 2015 $'000 ‐ 1,184 1,184 2014 $'000 1,122 1,122 2014 $'000 230 ‐ 230 The Group is party to deriva(cid:415)ve financial instruments in the normal course of business in order to hedge exposure to fluctua(cid:415)ons in interest rates and foreign exchange rates in accordance with the Group’s financial risk management policies (refer to note 2). Interest Rate Swap Contracts — cash flow hedge In October 2012 the Group entered into an interest rate swap contract under which it is obligated to receive interest at variable rates and to pay interest at fixed rates. The interest rate swap was entered into to protect the Group against unfavourable interest rate movements and hedge the impact against the variable secured loan with Bank of Western Australia. The Group repaid the secured variable bank debt on 24 June 2014 and the interest rate swap expired in October 2015. Forward Foreign Exchange Contract–cash flow hedge On 13 August 2015 the Group entered into a forward foreign exchange contract where by the company was contracted to deliver $153,617,000 AUD in exchange for $156,978,318 SGD. This forward foreign exchange contract was entered into to hedge the foreign currency risk associated with the $155,000,000 SGD note which was drawn down in July 2015. The redemp(cid:415)on no(cid:415)ce has been confirmed with a repayment date of 29 February 2016. 70 G8 Educa(cid:415)on Limited | Annual Report 2015 Note 19: Non-Current Liabilities - Provisions Employee benefits Note 20: Contributed Equity (a) Share capital Consolidated 2015 $'000 4,069 4,069 2014 $'000 3,628 3,628 Ordinary shares fully paid 372,820,198 353,691,630 603,043 548,374 Consolidated Consolidated 2015 Shares 2014 Shares 2015 $’000 2014 $'000 (b) Movements in ordinary share capital Details 31 December 2013 Balance Number of shares 300,302,719 Share placement to ins(cid:415)tu(cid:415)ons and professional investors Shares issued to vendors during the year Fair value adjustment on shares issued to Key Management Personnel Share Purchase Plan to retail investors Dividend reinvestment plan Transac(cid:415)on costs of shares issued Deferred tax credit recognised directly in equity 31 December 2014 Balance 31 December 2014 Balance Share placement from script offer for Affinity Educa(cid:415)on Group Limited Shares issued to Key Management Personnel * Shares held in escrow Issuance of shares net of transac(cid:415)on costs Dividend reinvestment plan Transac(cid:415)on costs of shares issued Deferred tax credit recognised directly in equity 31 December 2015 Balance (c) Shares held in escrow under the executive share plan 42,105,685 3,066,206 ‐ 3,586,818 4,630,202 ‐ ‐ 353,691,630 353,691,630 2,535,316 3,122,198 (3,122,198) 3,287,967 10,183,087 ‐ ‐ 369,698,000 $'000 302,001 200,000 15,546 107 16,499 19,294 (7,249) 2,176 548,374 548,374 8,402 11,302 (11,302) 12,889 33,500 (150) 28 603,043 Balance at the beginning of the financial year Shares transferred under the plan Total outstanding at the end of the financial year Consolidated 2015 Number of shares ‐ 3,122,198 3,122,198 2014 Number of shares ‐ ‐ ‐ G8 Educa(cid:415)on Limited | Annual Report 2015 71 (d) Ordinary shares Ordinary shares en(cid:415)tle the holder to par(cid:415)cipate in dividends and the proceeds on winding up of the Company in propor(cid:415)on to the number of and amounts paid on shares held. On a show of hands every holder of ordinary shares present at a mee(cid:415)ng in person or by proxy, is en(cid:415)tled to one vote, and upon a poll each share is en(cid:415)tled to one vote. Ordinary shares have no par value and the Company does not have a limited amount of authorised capital. (e) Dividend reinvestment plan The Company has established a dividend reinvestment plan under which holders of ordinary shares may elect to have all or part of their dividend en(cid:415)tlements sa(cid:415)sfied by the issue of new ordinary shares. Shares are issued under the plan. The Company advises the market at the (cid:415)me of announcing the dividend if there will be a discount applied to the market price. (f) Capital risk management The Group’s objec(cid:415)ves when managing capital are to safeguard the Group’s ability to con(cid:415)nue as a going concern, so that they can con(cid:415)nue to provide returns for shareholders and benefits for other stakeholders and to maintain an op(cid:415)mal capital structure to reduce the cost of capital. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt. Consistent with others in the industry, the Group monitors capital on the basis of the gearing ra(cid:415)o. This ra(cid:415)o is calculated as net debt divided by total capital. Net debt is calculated as total borrowings (including ‘borrowings’ and ‘trade and other payables’ as shown in the balance sheet) less cash and cash equivalents. Total capital is calculated as ‘equity’ as shown in the balance sheet plus net debt. The gearing ra(cid:415)os at 31 December were as follows: Borrowings Trade and other payables Less: cash and cash equivalents Net debt Total equity Total capital Gearing ra(cid:415)o* Notes 16 15 9 Consolidated 2015 $'000 2014 $'000 515,161 352,944 83,054 75,567 (193,840) (120,804) 404,375 602,785 1,007,160 307,707 542,009 849,716 40% 36% *The Directors assess an appropriate level of gearing based on a leverage rate of less than 45%. Gearing ra(cid:415)o is calculated as net debt divided by total capital. Total capital is net debt plus total equity. 72 G8 Educa(cid:415)on Limited | Annual Report 2015 Note 21: Reserves and Retained Earnings Movements Transla(cid:415)on reserve Opening balance Currency transla(cid:415)on differences arising during the year Closing balance Profit reserve Opening Balance Transfer from retained earnings Dividends Closing Balance Share based payment reserve Opening Balance Share based payment expense Closing Balance Hedging reserve Opening balance Revalua(cid:415)on ‐ gross Closing balance Total Reserves Retained earnings movements Opening balance Profit for the year Transfer to profits reserve Closing balance Consolidated 2015 $'000 2014 $'000 4,512 1,514 6,026 3,287 1,225 4,512 22,745 98,852 (87,891) 33,706 15,768 70,254 (63,277) 22,745 ‐ 344 344 ‐ ‐ ‐ ‐ 3,559 3,559 43,635 (171) 171 ‐ 27,257 Consolidated 2015 $'000 (33,622) 88,581 (98,852) (43,893) 2014 $'000 (16,099) 52,731 (70,254) (33,622) G8 Educa(cid:415)on Limited | Annual Report 2015 73 (a) Nature and purpose of reserves (i) Share-based payments The share‐based payments reserve is used to recognise the expensing of the grant date fair value of op(cid:415)ons issued to employees but not exercised. (ii) Translation Exchange differences arising on transla(cid:415)on of the foreign controlled en(cid:415)ty are recognised in other comprehensive income as described in note 1(c) and accumulated in a separate reserve within equity. The cumula(cid:415)ve amount is reclassified to profit or loss when the net investment is disposed of. (iii) Hedging The hedging reserve is used to record gains or losses on hedging instruments in cash flow hedges that are recognised in other comprehensive income, as described in note 1(m). Amounts are reclassified to profit or loss when the associated hedge transac(cid:415)on affects profit or loss. (iv) Profits The profits reserve comprises the transfer of net profit for the current and previous years and characterises profits available for distribu(cid:415)on as dividends in future years. Dividends amoun(cid:415)ng to $87.9 million (2014: $63.3 million) were distributed from the profits reserve during the year. Note 22: Dividends (a) Ordinary Shares Dividend for the quarter ended 31 March 2015 of 6.0 cents per share (2014: 3.5 cents per share) paid on 10 April 2015 (2014: Paid on 10 April 2014). Dividend for the quarter ended 30 June 2015 of 6.0 cents per share (2014: 4.5 cents per share) paid on 7 July 2015 (2014: Paid on 9 July 2014). 2015 $'000 2014 $'000 21,549 10,560 21,903 14,892 Dividend for the quarter ended 30 September 2015 of 6.0 cents per share (2014: 5.0 cents per share) paid on 7 October 2015 (2014: Paid on 10 October 2014). 22,070 16,604 Dividend for the quarter ended 31 December 2015 of 6.0 cents per share (2014: 6.0 cents per share) paid on 11 January 2016 (2014: Paid 21 January 2015). Dividends paid in cash or sa(cid:415)sfied by the issue of shares under the dividend reinvestment plan during the years ended 31 December were as follows: Paid in cash Sa(cid:415)sfied by issue of shares 22,369 21,221 87,891 63,277 2015 $'000 2014 $'000 56,824 31,067 87,891 39,764 23,513 63,277 74 G8 Educa(cid:415)on Limited | Annual Report 2015 (b) Franked credits The franked por(cid:415)ons of the December 2015 quarterly dividend will be franked out of exis(cid:415)ng franking credits. Franking credits available for subsequent financial years based on a tax rate of 30% (2014: 30%) Consolidated Parent En(cid:415)ty 2015 $'000 2014 $'000 2015 $'000 14,868 7,327 14,868 2014 $'000 7,327 The above amounts represent the balance of the franking account as at the end of the repor(cid:415)ng period, adjusted for: a) b) c) Franking credits that will arise from the payment of the amount of the provision for income tax; Franking debits that will arise from the payment of dividends recognised as a liability at the repor(cid:415)ng date; and Franking credits that will arise from the receipt of dividends recognised as receivables at the repor(cid:415)ng date. The consolidated amounts include franking credits that would be available to the parent en(cid:415)ty if the distributable profits of subsidiaries were paid as dividends. Note 23: Key Management Personnel Disclosures (a) Directors The following persons were directors of G8 Educa(cid:415)on Limited during the financial year: (i) Chairperson —Independent Non-Executive J Hutson—un(cid:415)l her resigna(cid:415)on on 15 October 2015 (ii) Executive Directors C Sco(cid:425) (iii) Non-Executive Directors B Bailison A Kemp un(cid:415)l his resigna(cid:415)on on 17 March 2015 S Forrester M Reynolds from his appointment 17 March 2015. M Reynolds was ac(cid:415)ng Chairman from 15 October 2015 un(cid:415)l 1 January 2016. (b) Other Key Management Personnel The following persons also had authority and responsibility for planning, direc(cid:415)ng and controlling the ac(cid:415)vi(cid:415)es of the Group, directly or indirectly, during the financial year: Name Posi(cid:415)on J Roberts Chief Execu(cid:415)ve Officer C Sacre Chief Financial Officer & Company Secretary T King General Manager Opera(cid:415)ons A Perriam Execu(cid:415)ve Officer G8 Educa(cid:415)on Limited | Annual Report 2015 75 (c) Key Management Personnel compensation Short term employee benefits Post employment benefits Share based payments Dividend payments on escrow shares Termina(cid:415)on payments Consolidated 2015 $ 2,139,163 111,094 343,690 374,664 ‐ 2,968,611 2014 $ 1,669,647 152,788 106,649 ‐ 70,791 1,999,875 The relevant informa(cid:415)on on detailed remunera(cid:415)on disclosures can be found in the Remunera(cid:415)on Report on pages 16 to 21. (d) Equity instrument disclosures relating to Key Management Personnel (i) Options provided as remuneration and shares issued on exercise of such options Refer to note 35(a) for details of op(cid:415)ons issued to Key Management Personnel. (ii) Option holdings Refer to note 35(a) for details of op(cid:415)ons issued to Key Management Personnel. (iii) Share holdings The numbers of shares in the Company held during the financial year by each Director of G8 Educa(cid:415)on Limited and other Key Management Personnel of the Group, including their associates, are set out below. There were no shares issued during the repor(cid:415)ng year as compensa(cid:415)on. 2015 Balance at the start of the year Shares issued under limited recourse loans disclosed as share op(cid:415)ons Other changes during the year Balance at the end of the year ‐ 1,000,000 ‐ ‐ ‐ ‐ 1,000,000 1,000,000 ‐ 122,198 153,778 ‐ 120,660 ‐ 9,500 5,423 ‐ 248,000 ‐ ‐ 1,953,778 1,000,000 223,703 ‐ 24,195 5,423 1,000,000 1,848,000 ‐ 122,198 Directors of G8 Educa(cid:415)on Limited Ordinary Shares J Hutson* C Sco(cid:425) A Kemp** B Bailison M Reynolds*** S Forrester Other Key Management Personnel of the Group Ordinary Shares J Roberts C Sacre T King A Perriam 1,800,000 ‐ 103,043 ‐ 14,695 ‐ ‐ 600,000 ‐ ‐ *J Hutson resigned as Director on 15 October 2015 ** A Kemp resigned as a Director on 17 March 2015 *** M Reynolds commenced as a Director on 17 March 2015 76 G8 Educa(cid:415)on Limited | Annual Report 2015 2014 Balance at the start of the year Shares issued under limited recourse loans disclosed as share op(cid:415)ons Other changes during the year Balance at the end of the year Directors of G8 Educa(cid:415)on Limited Ordinary Shares J Hutson C Sco(cid:425) B Bailison A Kemp S Forrester Other Key Management Personnel of the Group Ordinary Shares C Sacre 1,650,000 ‐ ‐ 103,043 ‐ 1,285,714 J Fraser (resigned 29 August 2014 ) 860,488 (e) Loans to Key Management Personnel ‐ ‐ ‐ ‐ ‐ ‐ ‐ 150,000 ‐ ‐ ‐ ‐ (685,714) (584,345) 1,800,000 ‐ ‐ 103,043 ‐ 600,000 276,143 Details of loans made to directors of G8 Educa(cid:415)on Limited and other Key Management Personnel of the Group, including their associates, are set out below. (i) Aggregates for Key Management Personnel Group 2015 2014 Balance at the start of the year $ ‐ 1,640,000 Interest paid and payable for the year $ ‐ 19,405 Interest not charged Balance at the end of the year Number in Group at the end of the year $ ‐ ‐ $ 15,610,990 ‐ 4 ‐ (ii) Individuals with loans above $100,000 during the financial year Refer to note 23(f) 2015 Name C Sco(cid:425) J Roberts C Sacre A Perriam Balance at the start of the year $ ‐ ‐ ‐ ‐ Interest paid and payable for the year $ ‐ ‐ ‐ ‐ Interest not charged Balance at the end of the year $ ‐ ‐ ‐ ‐ $ 5,000,000 5,000,000 5,000,000 610,990 Highest Indebtedness during the year $ 5,000,000 5,000,000 5,000,000 610,990 The Execu(cid:415)ve Share Plan includes an Employee Loan Scheme that permits G8 to grant financial assistance to employees by way of interest free limited recourse loans to enable them to purchase shares which are held in escrow un(cid:415)l the loan is repaid. The shares are not able to be traded whilst the loan remains outstanding. The Accoun(cid:415)ng Standards require that shares issued under employee incen(cid:415)ve share plans in conjunc(cid:415)on with limited‐ recourse loans are to be accounted for as op(cid:415)ons. As a result, the amounts receivable from employees in rela(cid:415)on to these loans have not been recognised in the financial statements un(cid:415)l repayment or part repayment of the loans occur. The balance of limited recourse loans outstanding at 31 December 2015 is $15,610,990. Refer to note 35 for the share based payments disclosure to Key Management Personnel. G8 Educa(cid:415)on Limited | Annual Report 2015 77 2014 Name J Sco(cid:425)* C Sacre J Fraser (resigned 29 August 2014) Balance at the start of the year $ 140,000 900,000 600,000 Interest paid and payable for the year $ 1,799 8,729 8,877 Interest not charged Balance at the end of the year $ ‐ ‐ ‐ $ ‐ ‐ ‐ Highest Indebtedness during the year $ 140,000 908,729 608,877 *C Sco(cid:425) guaranteed the repayment of this loan made by the Company to J Sco(cid:425). (f) Other transactions with Key Management Personnel Details of material transac(cid:415)ons and their impact on the financial statements exclusive of GST at year end that Key Management Personnel and their related en(cid:415)(cid:415)es had with the Group during the year are as follows: Mr C Sco(cid:425) (Managing Director) who had the following transac(cid:415)ons: 2015 $ 2014 $ a) Interest charged on share loan agreement Revenue interest income ‐ 1,799 b) Loan granted to nominee of Mr C Sco(cid:425) to Employment Expenses 105,284 ‐ purchase 1,000,000 shares G8 Educa(cid:415)on Limited for a total amount of $5,000,000 Mr C Sacre (Company Secretary and Chief Financial Officer) who had the following transac(cid:415)ons: 2015 $ 2014 $ a) Interest charged on share loan agreement Revenue interest income ‐ 8,729 b) Loan granted to nominee of Mr C P Sacre to Employment expenses 105,284 ‐ purchase 1,000,000 shares G8 Educa(cid:415)on Limited for a total amount of $5,000,000 c) Share based payment expense for the difference in market price of the shares issued compared to loan value Employment expenses and equity 14,973 58,000 Mr J Roberts (Chief Execu(cid:415)ve Officer) who had the following transac(cid:415)ons: 2015 $ 2014 $ a) Loan granted to nominee of Mr J Roberts to Employment Expenses 105,284 ‐ purchase 1,000,000 shares G8 Educa(cid:415)on Limited for a total amount of $5,000,000 Ms A Perriam (Junior Execu(cid:415)ve) who had the following transac(cid:415)ons: 2015 $ 2014 $ a) Loan granted to nominee of Ms A Perriam to Employment Expenses 12,865 ‐ purchase 122,198 shares G8 Educa(cid:415)on Limited for a total amount of $610,990 78 G8 Educa(cid:415)on Limited | Annual Report 2015 On 21 May 2015 the Company obtained shareholders’ approval to offer: The nominee of Chris Sco(cid:425), Managing Director the right to acquire 1,000,000 Shares at $5.00 per Share with a total value of $5,000,000; The nominee of Jason Roberts, Chief Execu(cid:415)ve Officer the right to acquire 1,000,000 Shares at $5.00 per Share with a total value of $5,000,000; The nominee of Chris Sacre, Chief Financial Officer the right to acquire 1,000,000 Shares at $5.00 per Share with a total value of $5,000,000; The nominee of Ann Perriam, Junior Execu(cid:415)ve, the right to acquire 122,198 Shares at $5.00 per Share with a total value of $610,990. The Company has granted a limited recourse, interest free loan to each of the nominees of the above members of the Company’s senior management team to subscribe for the Shares. The Shares have been issued to the nominees of the Company’s senior management team to provide further incen(cid:415)ve to perform and to secure the ongoing commitment of each of them to the con(cid:415)nued growth of the Company. The shares were issued on 16 June 2015 (refer to note 20). (g) The aggregate value of transactions with Key Management Personnel: Revenue Interest income Expenses Employment expense Consolidated 2015 $ 2014 $ ‐ 19,405 343,690 106,649 G8 Educa(cid:415)on Limited | Annual Report 2015 79 Note 24: Remuneration of Auditors During the year the following fees were paid or payable for services provided by the auditor of the Group: 1. Audit services HLB Mann Judd Audit and review of financial reports – half year Audit and review of financial reports – year end Total remunera(cid:415)on for audit services 2. Non‐audit services HLB Mann Judd Other assurance services Taxa(cid:415)on services Total remunera(cid:415)on for non‐audit services Consolidated 2015 $ 2014 $ 75,000 140,000 215,000 70,000 120,000 190,000 Consolidated 2015 $ 2014 $ 17,750 ‐ 17,750 41,000 7,495 48,495 It is the Group’s prac(cid:415)ce to employ HLB Mann Judd on assignments addi(cid:415)onal to their statutory audit du(cid:415)es where HLB Mann Judd’s exper(cid:415)se and experience with the Group are important. These assignments are principally assurance type engagements or where HLB Mann Judd is awarded assignments on a compe(cid:415)(cid:415)ve basis. It is the Group’s policy to seek compe(cid:415)(cid:415)ve tenders for all major consul(cid:415)ng projects. Note 25: Contingencies (a) Contingent liabilities The Group had no con(cid:415)ngent liabili(cid:415)es as at 31 December 2015 (2014:Nil). 80 G8 Educa(cid:415)on Limited | Annual Report 2015 Note 26: Commitments (a) Capital commitments There is no capital expenditure contracted for at the repor(cid:415)ng date but not recognised as a liability. (b) Lease commitments: Group as lessee (i) Non-cancellable operating leases for premises and vehicles The Group leases various child care facili(cid:415)es under non‐cancellable opera(cid:415)ng leases. The leases have varying terms, escala(cid:415)on clauses and renewal rights. On renewal, the terms of the leases are re‐nego(cid:415)ated. Commitments in rela(cid:415)on to leases contracted for at the repor(cid:415)ng date but not recognised as liabili(cid:415)es: Payable: Within one year Later than one year but no later than five years Later than five years Represen(cid:415)ng: Non‐cancellable opera(cid:415)ng leases (ii) Finance Leases The Group had no finance leases during 2015 or 2014. Consolidated 2015 $'000 2014 $'000 81,191 233,038 172,484 486,713 66,229 213,865 191,428 471,522 486,713 471,522 G8 Educa(cid:415)on Limited | Annual Report 2015 81 Note 27: Related Party Transactions (a) Parent entity The parent en(cid:415)ty within the Group is G8 Educa(cid:415)on Limited. (b) Subsidiaries Interests in subsidiaries are set out in note 30. (c) Key Management Personnel For details of transac(cid:415)ons that Key Management Personnel and their related en(cid:415)(cid:415)es had with the Group during the year refer note 23. (d) Outstanding balance arising from transactions with related parties The following balances are outstanding at the repor(cid:415)ng date in rela(cid:415)on to transac(cid:415)ons with related par(cid:415)es: Current payables (purchase of goods and services) Key Management Personnel Consolidated 2015 $'000 2014 $'000 ‐ ‐ No allowance for doub(cid:414)ul debts was raised in rela(cid:415)on to any outstanding balances, and no expenses were recognised in respect of bad or doub(cid:414)ul debts due from related par(cid:415)es. All transac(cid:415)ons with related par(cid:415)es during the year were made on normal commercial terms and condi(cid:415)ons. Outstanding balances were secured and are repayable in cash. 82 G8 Educa(cid:415)on Limited | Annual Report 2015 Note 28: Business Combinations The acquisi(cid:415)ons below have increased the Group’s market share and are expected to reduce costs per centre through economies of scale. The goodwill is a(cid:425)ributable to the future profitability of the acquired businesses. State Number of Centres Purchase Considera(cid:415)on Cash considera(cid:415)on Con(cid:415)ngent considera(cid:415)on Purchase price adjustments Total Purchase Considera(cid:415)on Assets & Liabili(cid:415)es acquired at fair value Property, Plant & Equipment Payables Employee benefit liabili(cid:415)es Net iden(cid:415)fiable assets / (liabili(cid:415)es) acquired Goodwill Revenue & profit contribu(cid:415)on Revenue Profit Before Tax NSW/VIC/QLD/ WA/SA 30 $’000 VIC 3 $’000 NSW 11 $’000 TOTAL 44 $'000 56,080 8,826 72,264 137,170 3,080 ‐ ‐ 3,080 (1,710) (129) 2,120 281 57,450 8,697 74,384 140,531 319 39 2,059 2,417 (492) (1,458) (1,631) (23) (176) (160) ‐ ‐ 2,059 (515) (1,634) 268 59,081 8,857 72,325 140,263 57,450 8,697 74,384 140,531 29,126 3,327 1,232 33,685 5,759 723 415 6,897 Acquisi(cid:415)on costs of $916,000 (2014: $3,354,000) are included in other expenses in the consolidated income statement. Contingent Consideration Where the Group has a con(cid:415)ngent considera(cid:415)on in the table above the Group has a contractual liability to pay the former owner of the centre a deferred cash payment in the event that the centre based EBIT exceeds the contractual threshold for the 12 months post se(cid:425)lement refer to note 15. G8 Educa(cid:415)on Limited | Annual Report 2015 83 Note 29: Parent Entity Disclosures As at, and throughout the financial year ended 31 December 2015 the parent en(cid:415)ty of the Group was G8 Educa(cid:415)on Limited. Result of parent en(cid:415)ty Profit for the year a(cid:332)er tax Other comprehensive income Total comprehensive income for the year Financial posi(cid:415)on of parent en(cid:415)ty at year end Current assets Non‐current assets Total assets Current liabili(cid:415)es Non‐current liabili(cid:415)es Total liabili(cid:415)es Total equity of parent en(cid:415)ty comprising of: Contributed equity Reserves Accumulated losses Total equity Parent entity contingencies Refer to note 25 for parent en(cid:415)ty con(cid:415)ngent liabili(cid:415)es . Consolidated 2015 $'000 90,519 3,559 94,078 233,993 994,220 1,228,213 251,487 371,051 622,538 2014 $'000 60,434 171 60,605 129,941 855,261 985,202 90,282 357,224 447,506 603,043 31,445 (28,813) 605,675 548,374 18,135 (28,813) 537,696 Parent entity guarantees in respect of the debts of its subsidiaries The parent en(cid:415)ty has entered into a Deed of Cross Guarantee with the effect that the Company guarantees debts in respect of its subsidiaries. Further details of the Deed of Cross Guarantee and the subsidiaries subject to the deed are disclosed in note 31. 84 G8 Educa(cid:415)on Limited | Annual Report 2015 Note 30: Subsidiaries The consolidated financial statements incorporate the assets, liabili(cid:415)es and results of the following subsidiaries in accordance with the accoun(cid:415)ng policy described in note 1(b). Name of En(cid:415)ty Country of incorpora(cid:415)on Class of Shares/ Subsidiaries of Company Grasshoppers Early Learning Centre Pty Ltd Togalog Pty Ltd RBWOL Holding Pty Ltd** Ramsay Bourne Holdings Pty Ltd** Bourne Learning Pty Ltd Ramsay Bourne Acquisi(cid:415)ons (No.1) Pty Ltd Ramsay Bourne Acquisi(cid:415)ons (No.2) Pty Ltd** RBL No. 1 Pty Ltd Ramsay Bourne Licences Pty Ltd Sydney Cove Children’s Centre Pty Ltd Sydney Cove Children’s Centre B Pty Ltd Sydney Cove Children’s Centre C Pty Ltd Sydney Cove Property Holdings Pty Ltd World Of Learning Pty Ltd** World Of Learning Acquisi(cid:415)ons (No.1) Pty Ltd World Of Learning Acquisi(cid:415)ons Pty Ltd World Of Learning Licences Pty Ltd G8 KP Pty Ltd** Sterling Early Educa(cid:415)on Finance Pty Ltd Sterling Early Educa(cid:415)on Holdings Pty Ltd** Woodland Educa(cid:415)on Opera(cid:415)ons Pty Ltd Kindy Kids Opera(cid:415)ons Pty Ltd CG Opera(cid:415)ons Pty Ltd ** Kool Kids Opera(cid:415)ons Pty Ltd ** North Shore Childcare Pty Ltd** Ooorama Opera(cid:415)ons Pty Ltd** Jacaranda Opera(cid:415)ons Pty Ltd** Huggy Bear Opera(cid:415)ons Pty Ltd** Jellybeans Opera(cid:415)ons Pty Ltd** Janes Place Opera(cid:415)ons Pty Ltd Jolimont Private Educa(cid:415)on Pty Ltd WTTS Opera(cid:415)ons Pty Ltd BUI Investments Pty Ltd Derafi Pty Ltd Alfoom Investments Pty Ltd Shemlex Pty Ltd** Kindy Kids Village Pty Ltd Kindy Kids Long Day Care and Preschool Pty Ltd Three Li(cid:425)le Pigs Pty Ltd A.C.N 078 042 378 Pty Ltd ES5 Pty Ltd Kindy Patch Unit Trust Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Units Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Equity Holding 2015 % 2014 % 52 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 52 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 G8 Educa(cid:415)on Limited | Annual Report 2015 85 Name of En(cid:415)ty Country of incorpora(cid:415)on Class of Shares/ Subsidiaries of Company Sydney Cove Children's Centre Trust Sydney Cove Children's Centre B Trust Shemlex Investment Unit Trust ** Shemlex Investments Freehold Trust No 1** Morley Perth Unit Trust Kindy Kids Village Trust Kindy Kids Long Day Care and Preschool Trust Adelaide Montessori Pty Ltd GW Concord Pty Ltd GW Macquarie Park Pty Ltd GW Brookvale Pty Ltd GW Bronte Pty Ltd GW Katoomba Pty Ltd GW Gladesville Pty Ltd Greenwood Prep 10 Pty Ltd Greenwood Prep Holdings Pty Ltd** G8 Singapore Pte Ltd Cherie Hearts Corporate Pte Ltd Cherie Hearts Holdings Pte Ltd Cherie Hearts @ KK Pte Ltd Cherie Hearts @ SK Pte Ltd Cherie Hearts @ Gombak Pte Ltd Bright Juniors @ YS Pte Ltd Bright Juniors @ TM Pte Ltd Bright Juniors @ PGL Pte Ltd Bright Juniors @ SC Pte Ltd Bright Juniors Pte Ltd Our Juniors Schoolhouse Pte Ltd Subsidiaries of Togalog Pty Ltd Grasshoppers Early Learning Centre Pty Ltd Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Singapore Singapore Singapore Singapore Singapore Singapore Singapore Singapore Singapore Singapore Singapore Singapore Units Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Australia Ordinary Equity Holding 2015 % 2014 % 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 48 100 100 100 100 100 100 100 ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ 100 100 100 100 100 100 100 100 100 100 100 100 48 * The propor(cid:415)on of ownership interest is equal to the propor(cid:415)on of vo(cid:415)ng power held. ** These subsidiaries have been granted relief from the necessity to prepare financial reports in accordance with Class Order 98/1418 issued by the Australian Securi(cid:415)es and Investment Commission. For further informa(cid:415)on please refer to note 31. Note 31: Deed of Cross Guarantee G8 Educa(cid:415)on Limited, Grasshoppers Early Learning Centre Pty Ltd, Togalog Pty Ltd, RBWOL Holding Pty Ltd (Formerly Payce Child Care Pty Ltd), Ramsay Bourne Holdings Pty Ltd, Bourne Learning Pty Ltd (Formerly Ramsay & Bourne Pty Ltd), Ramsay Bourne Acquisi(cid:415)ons (No.1) Pty Ltd, Ramsay Bourne Acquisi(cid:415)ons (No.2) Pty Ltd, Rbl (No. 1) Pty Ltd, Ramsay Bourne Licences Pty Ltd, World Of Learning Pty Ltd, World Of Learning Acquisi(cid:415)ons (No.1) Pty Ltd, World Of Learning Acquisi(cid:415)ons Pty Ltd, World Of Learning Licences Pty Ltd, G8 KP Pty Ltd, Sydney Cove Children's Centre Pty Ltd, Sydney Cove Children's Centre B Pty Ltd, Sydney Cove Children's Centre C Pty Ltd, Sydney Cove Property Holdings Pty Ltd, Cg Opera(cid:415)ons Pty Ltd, Huggy Bear Opera(cid:415)ons Pty Ltd, Jacaranda Opera(cid:415)ons Pty Ltd, Jellybeans Opera(cid:415)ons Pty Ltd, Jellybeans A(cid:425)adale Pty Ltd Kindy Kids Opera(cid:415)ons Pty Ltd, Kindy Kids Village Pty Ltd, Kindy Kids Long Day Care and Preschool Pty Ltd, Kool Kids Opera(cid:415)ons Pty Ltd, North Shore Childcare Pty Ltd, Oorama Opera(cid:415)ons Pty Ltd, Jane's Place Pty Ltd, Sterling Early Educa(cid:415)on Finance Pty Ltd, Sterling Early Educa(cid:415)on Holdings Pty Ltd, Derafi Pty Ltd, WTTS Opera(cid:415)ons Pty Ltd, Jolimont Private Educa(cid:415)on Pty Ltd, Bui Investments Pty Ltd, Three Li(cid:425)le Pigs Pty Ltd, Alfoom Investments Pty Ltd, Shemlex Pty Ltd, ES5 Pty Ltd, A.C.N 078 042 378 Pty Ltd, Adelaide Montessori Pty Ltd, GW Concord 86 G8 Educa(cid:415)on Limited | Annual Report 2015 Pty Ltd, GW Macquarie Park Pty Ltd, GW Brookvale Pty Ltd, GW Bronte Pty Ltd, GW Katoomba Pty Ltd, GW Gladesville Pty Ltd, Greenwood Prep 10 Pty Ltd and Greenwood Prep Holdings Pty Ltd are par(cid:415)es to a Deed of Cross Guarantee under which each company guarantees the debts of the others. By entering into the Deed RBWOL Holding Pty Ltd, World of Learning Pty Ltd, G8 KP Pty Ltd, Ramsay Bourne Holding Pty Ltd, Ramsay Bourne Acquisi(cid:415)ons (No 2) Pty Ltd, Shemlex Pty Ltd, Shemlex Investments Unit Trust, Shemlex Investments Freehold Trust No1, Sterling Early Educa(cid:415)on Holdings Pty Ltd, CG Opera(cid:415)ons Pty Ltd, Kool Kids Opera(cid:415)ons Pty Ltd, North Shore Childcare Pty Ltd, Oorama Opera(cid:415)ons Pty Ltd, Jacaranda Opera(cid:415)ons Pty Ltd, Huggy Bear Opera(cid:415)ons Pty Ltd, Jellybeans Opera(cid:415)ons Pty Ltd and Greenwood Prep Holdings Pty Ltd have been relieved from the requirement to prepare a Financial Report And Directors’ Report Under Class Order 98/1418 (As Amended) issued by the Australian Securi(cid:415)es and Investments Commission. G8 Educa(cid:415)on Limited, RBWOL Holding Pty Ltd, World of Learning Pty Ltd, G8 KP Pty Ltd, Ramsay Bourne Holding Pty Ltd, Ramsay Bourne Acquisi(cid:415)ons (No 2) Pty Ltd, Shemlex Pty Ltd, Shemlex Investments Unit Trust, Shelmex Investments Freehold Trust No1, Sterling Early Educa(cid:415)on Holdings Pty Ltd, CG Opera(cid:415)ons Pty Ltd, Kool Kids Opera(cid:415)ons Pty Ltd, North Shore Childcare Pty Ltd, Oorama Opera(cid:415)ons Pty Ltd, Jacaranda Opera(cid:415)ons Pty Ltd, Huggy Bear Opera(cid:415)ons Pty Ltd, Jellybeans Opera(cid:415)ons Pty Ltd and Greenwood Prep Holdings Pty Ltd represent a ‘closed group’ for the purposes of the Class Order. The other par(cid:415)es to the deed of cross guarantee listed above do not require relief from Class Order 98/1418 as they do not meet the threshold to prepare a financial report and Directors’ Report. All par(cid:415)es to the deed of cross guarantee (as listed above) are wholly owned subsidiaries of G8 Educa(cid:415)on Limited and the en(cid:415)re Group represent the ‘extended closed group’. Below is a consolidated statement of comprehensive income for the year ended 31 December 2015 of the closed Group. (a) Consolidated statements of comprehensive income Revenue from con(cid:415)nuing opera(cid:415)ons Other income Profit on sale of financial assets Expenses Employee benefits expense Occupancy Direct costs of providing services Deprecia(cid:415)on Other expenses Finance costs Total expenses Profit before income tax Income tax (expense) Profit for the year Other comprehensive income for the year, net of tax Total Comprehensive income for the year 2015 $'000 631,178 6,214 10,490 (345,140) (68,493) (47,366) (10,750) (18,368) (26,677) (516,794) 131,088 (34,064) 97,024 3,559 100,583 2014 $'000 449,453 9,186 ‐ (249,190) (50,448) (36,034) (6,098) (10,603) (34,640) (387,013) 71,626 (19,684) 51,942 171 52,113 G8 Educa(cid:415)on Limited | Annual Report 2015 87 (b) Balance Sheets Set out below is a consolidated balance sheet as at 31 December of the closed Group. Current assets Cash and cash equivalents Trade and other receivables Other current assets Total current assets Non‐current assets Investments in extended Group Property, plant and equipment Deferred tax assets Intangible assets Total non‐current assets Total assets Current liabili(cid:415)es Trade and other payables Borrowings Provisions Deriva(cid:415)ve liability Current tax liabili(cid:415)es Total current liabili(cid:415)es Non‐current liabili(cid:415)es Borrowings Other payables Borrowings from extended Group Provisions Total non‐current liabili(cid:415)es Total liabili(cid:415)es Net assets Equity Contributed equity Reserves Accumulated losses Total equity 88 G8 Educa(cid:415)on Limited | Annual Report 2015 2015 $'000 2014 $'000 188,898 21,105 28,334 238,337 144,602 33,683 21,678 805,302 117,193 14,281 32,097 163,571 114,832 24,632 15,447 687,301 1,005,265 1,243,602 842,212 1,005,783 82,257 148,891 19,591 1,184 4,297 256,220 366,270 712 ‐ 4,069 371,051 627,271 72,164 ‐ 18,047 230 9,525 99,966 352,944 1,307 4,115 3,628 361,994 461,960 616,331 543,823 603,043 36,274 (22,986) 616,331 548,374 18,436 (22,987) 543,823 Note 32: Events occurring after the balance sheet date The following material ma(cid:425)ers have taken place subsequent to year end: Mark Johnson was formally appointed Chairman on 1 January 2016. (Refer to the directors report for details about Mark Johnson’s professional career). David Foster was appointed as Non‐Execu(cid:415)ve Director effec(cid:415)ve from 1 February 2016. (Refer to the directors report for details about David Foster’s professional career). On 19 January 2016 the Group announced its inten(cid:415)on to redeem its 2016 $155m SGD senior unsecured notes early. This exercise will be completed on 29 February 2016. In accordance with the terms of the execu(cid:415)ve share plan a third of the shares issued will be cancelled by the group as the underlying EPS growth did not exceed 40% as required by the terms of the plan. Note 33: Reconciliation of profit after tax to net cash inflow from operating activities Profit for the year Deprecia(cid:415)on Foreign exchange loss on Singapore corporate notes Fair value adjustment to deriva(cid:415)ves Net gain on sale of shares Write back of deferred considera(cid:415)on not payable Increase in borrowing cost prepayments Tax benefit on equity – non cash (Increase) in trade and other debtors (Increase) in deferred tax asset Increase in trade and other payables Increase in other provisions Non‐cash employee benefits expense ‐ share based payments Increase/(Decrease) in provision for income taxes payable Acquisi(cid:415)on expenses Net exchange differences Net cash inflows from opera(cid:415)ng ac(cid:415)vi(cid:415)es Consolidated 2015 $'000 88,581 9,372 8,378 ‐ (7,343) (5,754) 1,574 20 (10,020) (6,230) 16,098 3,520 344 (5,255) 915 852 95,052 2014 $'000 52,731 6,726 13,033 118 ‐ (9,178) (566) 2,176 (5,026) (8,128) 16,699 2,390 107 745 3,354 (465) 74,716 G8 Educa(cid:415)on Limited | Annual Report 2015 89 Note 34: Earnings per share Consolidated 2015 Cents 2014 Cents (a) Basic earnings per share Profit a(cid:425)ributable to the ordinary equity holders of the Company 24.27 16.15 (b) Diluted earnings per share Profit from con(cid:415)nuing opera(cid:415)on a(cid:425)ributable to the ordinary equity holders of the Company 24.27 16,15 (c) Reconcilia(cid:415)on of earnings used in calcula(cid:415)ng earnings per share Basic earnings per share Profit a(cid:425)ributable to the ordinary equity holders of the Company used in calcula(cid:415)ng basic earnings per share Diluted earnings per share $'000 $'000 88,581 52,731 Profit a(cid:425)ributable to the ordinary equity holders of the Company used in calcula(cid:415)ng diluted earnings per share 88,581 52,731 d) Weighted average number of shares used as the denominator Weighted average number of ordinary shares used as the denominator in calcula(cid:415)ng basic earnings per share* Number Number 364,999,576 326,448,869 Adjustments for calcula(cid:415)on of diluted earnings per share: Op(cid:415)ons Weighted average number of ordinary shares and poten(cid:415)al ordinary shares used as the denominator in calcula(cid:415)ng diluted earnings per share ‐ ‐ 364,999,576 326,448,869 *Includes share issued but held in escrow Note 35: Share—based payments Details of op(cid:415)ons over ordinary shares in G8 Educa(cid:415)on Limited provided as an incen(cid:415)ve to Key Management Personnel of the Group are set out below. The value of op(cid:415)ons at grant date is set out below. When exercisable, each op(cid:415)on is conver(cid:415)ble into one ordinary share of G8 Educa(cid:415)on Limited. (a) Fair value of options granted Executive Share Plan “the Plan” In accordance with the terms and condi(cid:415)ons of the Plan approved by shareholders on 21 May 2015, selected KMP are granted the right to acquire shares at a nominated exercise price subject to agreed service and performance criteria (i.e ves(cid:415)ng condi(cid:415)ons). The Plan is an equity plan where shares are acquired up front through the provision of a limited recourse loan from the Company, provided for the sole purpose of acquiring shares in the Company. It operates much like a tradi(cid:415)onal op(cid:415)on plan, as the outstanding loan balance is effec(cid:415)vely the ‘exercise price’ that must be paid before any value can be realised. The following is a summary of the key terms and condi(cid:415)ons of the Plan: The loan is repayable on termina(cid:415)on date (3 years from approval) or earlier if there is a default in which case the shares are no longer held in escrow. 90 G8 Educa(cid:415)on Limited | Annual Report 2015 No interest is payable on the loan. The shares are held in escrow as security for the outstanding loan. Limited recourse – if the KMP fails to repay the outstanding loan balance in accordance with the plan, they are under no obliga(cid:415)on to repay the full amount of the outstanding loan balance and the Group must accept the net proceeds of the sale or buy‐back of the shares in escrow in full sa(cid:415)sfac(cid:415)on of the outstanding loan balance. Borrower is not able to sell, transfer or dispose of shares in escrow. However, the Borrower receives the benefits associated with the shares such as dividends and vo(cid:415)ng rights during the escrow period. The shares rank equally with other ordinary shares on issue with respect to dividends, distribu(cid:415)on or return of capital and other rights. If borrower leaves the employment of G8 then all secured shares are transferred to a party nominated by G8 and the money owed reduced by number of shares transferred mul(cid:415)plied by $5 per share – excep(cid:415)on is where the borrower is unfit for work. Shares are released to borrower in tranches – if condi(cid:415)ons are not met then the shares are transferred to a party nominated by G8. 1 year – 1/3 shares if EPS @ 31/12/15 is 40% more than EPS at 31/12/14 2 years – 1/3 shares if EPS @ 31/12/16 is 15% above EPS at 31/12/15. 3 years – 1/3 shares if EPS @ 31/12/17 is 15% above EPS at 31/12/16. The table below shows the transac(cid:415)ons rela(cid:415)ng to the plan during the year: Name of Key Management Personnel Christopher Sco(cid:425) Jason Roberts Christopher Sacre Ann Perriam Plan Shares Loan Amount 1,000,000 $5,000,000 1,000,000 $5,000,000 1,000,000 $5,000,000 122,198 $610,990 Share‐based payment $105,284 $105,284 $105,284 $12,865 Under AASB 2 Share‐based Payments, the Plan gives rise to a share‐based payment expense which is measured by reference to the fair value of the Plan Shares as at the date on which the Share Plan Resolu(cid:415)ons were passed. As the Plan Shares were acquired by way of limited recourse loans, the fair value of the Plan Shares was measured using an op(cid:415)on pricing model in accordance with AASB 2. The fair value of each share issued under the share loan plan at the date of shareholder approval was $0.515 . The company has recognised an a(cid:332)er tax, non‐cash share‐based payment of $328,818 during the financial year with a corresponding credit to Shareholders’ Equity in the form of a Share Op(cid:415)on Reserve. The treatment of the Plan Shares under applicable Accoun(cid:415)ng Standards as op(cid:415)ons requires that the value of the loans and issue price of the shares are not recorded as Loans Receivables or Share Capital of the Group un(cid:415)l repayment or part repayment of the loans occurs. The Plan Shares were en(cid:415)tled to dividends of $561,995 from the dividends paid on 7 July 2015, 7 October 2015 and 11 January 2016. Valuation of instruments issued Value of the financial Benefit The financial benefit has been valued for accoun(cid:415)ng purposes by the Directors using the Black‐Scholes modes (and for comparison purposes, a single step binomial model) to determine the fair value of the financial benefit on the basis that taken as a whole, the arrangements are similar to an op(cid:415)on. The op(cid:415)on component has been valued using the Black‐Scholes Model and the dividends separately valued using a dividend discount model. The value of the interest free component of the loan has been included in the op(cid:415)on value. In arriving at the above valua(cid:415)ons, the Directors adopted the following assump(cid:415)ons: The market price of shares of $3.64 (being the volume weighted average closing price for the month ended 2 April 2015); The risk free interest rate applicable to three year Commonwealth Bonds of 1.80% (being the monthly average for the month ended 7 April 2015); G8 Educa(cid:415)on Limited | Annual Report 2015 91 A dividend payment rate of 24 cents per share per annum (paid as to 6 cents per share for each of the March, June, September and December quarters); Vola(cid:415)lity of the share price over the expected life of the instrument of 32.809% (being the vola(cid:415)lity for the preceding 3 years as a proxy for expected future vola(cid:415)lity over the life of the shares); Vola(cid:415)lity of earnings per share (EPS) growth for the years ending 31 December 2016 and 2017 of 59.33% (being the vola(cid:415)lity for the years 2008 – 2014); Average assumed EPS growth for the years ending 31 December 2016 and 2017 of 16.56% (being the average EPS growth for the years 2008 – 2014); and EPS exhibits similar behavior to share price movements. In other words, EPS follows a lognormal distribu(cid:415)on and EPS growth follows a normal distribu(cid:415)on. Valuation inputs The valua(cid:415)on methodology is a func(cid:415)on of the rela(cid:415)onship between a number of valua(cid:415)ons, including the share price, the strike price, the (cid:415)me of ves(cid:415)ng and the vola(cid:415)lity of the share price. The applica(cid:415)on of the methodology therefore requires a number of inputs, some of which must be assumed. The key inputs used in the valua(cid:415)on methodology are summarised below: Share price: the volume weighted average share price for the month to 2 April has been adopted; Issue date: the date of the AGM has been adopted as the effec(cid:415)ve date; Time to expiry: The tranches expire on 31 December 2015, 31 December 2016 and 31 December 2017 respec(cid:415)vely, if the ves(cid:415)ng condi(cid:415)ons have not been met for that period; Strike price: $5.00; Risk free rate of government bonds with the same maturity as the Shares: the average for the previous month on 3 year Australian government bonds has been adopted; Vola(cid:415)lity of share price: this has been calculated for the preceding three years as a proxy for expected future vola(cid:415)lity over the life of the Shares. The valua(cid:415)on methodology also took into considera(cid:415)on: That the shares are to be issued at an effec(cid:415)ve exercise price of $5.00 which is a premium to the current volume weighted average of $3.64 for the last month. Accordingly, no financial benefit will accrue to the recipient upon issue of the shares as the shares are secured by a limited recourse loan and restricted pending performance targets being met. The EPS growth hurdle which is required to be met prior to each tranche of the shares ves(cid:415)ng which requires assump(cid:415)ons as to the probability that the performance targets will be met; in respect of the performance targets for 31 December 2015, the probability of mee(cid:415)ng the target was assumed to be 60%, for 31 December 2016, and 31 December 2017, the es(cid:415)mate a probability of the EPS growth target being met was assumed to be 51.05%. The basis for these assump(cid:415)ons is that EPS growth follows a normal distribu(cid:415)on and in other words, EPS follows a lognormal distribu(cid:415)on. This method is a proxy which is consistent with various share and op(cid:415)on pricing models on share price movements. The Black‐Scholes value is then adjusted to arrive at the expected present value of the op(cid:415)on component. As dividends will flow from the shares, it is necessary to value the present value of the dividend stream which flows from the shares. The expected future dividends from the shares, adjusted for the probability of mee(cid:415)ng the EPS hurdles. Once the shares vest in the recipient, the dividends are excluded as the future value has been accounted for in the op(cid:415)ons’ payoff at that point. 92 G8 Educa(cid:415)on Limited | Annual Report 2015 Movement in options / share s subject to limited recourse loan Balance at the beginning of the financial year Granted during the year Forfeited during the year Exercised during the year Number of Shares Loan Balance ($) ‐ ‐ 3,122,198 15,610,990 ‐ ‐ ‐ ‐ Balance at the end of the financial year—exercisable 3,122,198 15,610,990 * Shares have been issued and are subject to payment of loans (b) Expenses arising from share-based transactions Expenses arising from share‐based payment transac(cid:415)ons recognised during the year as part of employee benefit expenses were as follows: Share‐based payment expense on shares issued to KMP Consolidated 2015 $'000 (344) (344) 2014 $'000 (107) (107) Directors’ Declaration In the Directors’ opinion: (a) the financial statements and notes set out on pages 36 to 93 are in accordance with the Corpora(cid:415)ons Act 2001, including: (i) complying with Accoun(cid:415)ng Standards, the Corpora(cid:415)ons Regula(cid:415)ons 2001 and other mandatory professional repor(cid:415)ng requirements; and (ii) giving a true and fair view of the consolidated en(cid:415)ty’s financial posi(cid:415)on as at 31 December 2015 and of its performance for the financial year ended on that date; there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable; and at the date of this declara(cid:415)on, there are reasonable grounds to believe that the members of the extended closed Group iden(cid:415)fied in note 31 will be able to meet any obliga(cid:415)ons or liabili(cid:415)es to which they are, or may become, subject by virtue of the deed of cross guarantee described in note 31. (b) (c) Note 1(a) confirms that the financial statements also comply with Interna(cid:415)onal Financial Repor(cid:415)ng Standards as issued by the Interna(cid:415)onal Accoun(cid:415)ng Standards Board. The Directors have been given the declara(cid:415)ons by the Managing Director and Chief Financial Officer required by sec(cid:415)on 295A of the Corpora(cid:415)ons Act 2001. This declara(cid:415)on is made in accordance with a resolu(cid:415)on of the Directors. Christopher Sco(cid:425) Director 22 February 2016 94 G8 Educa(cid:415)on Limited | Annual Report 2015 G8 Education Limited ACN 95 123 828 553 INDEPENDENT AUDITOR’S REPORT To the members of G8 Education Limited Report on the Financial Report We have audited the accompanying financial report of G8 Education Limited (“the company”), which comprises the consolidated balance sheet as at 31 December 2015, the consolidated income statement, consolidated statement of comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, notes comprising a summary of significant accounting policies and other explanatory information, and the directors’ declaration, for the consolidated entity. The consolidated entity comprises the company and the entities it controlled at the year’s end or from time to time during the financial year. Directors’ Responsibility 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 Note 1(a), the directors also state, in accordance with Accounting Standard AASB 101: Presentation of Financial Statements, that the consolidated financial report complies with International Financial Reporting Standards. Auditor’s Responsibility Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with Australian Auditing Standards. Those standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance about whether the financial report is free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the company’s preparation of the financial report that gives a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the An audit also includes effectiveness of the company’s and its controlled entities’ internal control. evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial report. Our audit did not involve an analysis of the prudence of business decisions made by directors or management. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Independence In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001. Opinion In our opinion: (a) the financial report of G8 Education Limited is in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the consolidated entity’s financial position as at 31 December 2015 and its performance for the year ended on that date; and (ii) complying with Australian Accounting Standards and the Corporations Regulations 2001; and (b) the financial report also complies with International Financial Reporting Standards as disclosed in Note 1(a). Report on the Remuneration Report We have audited the Remuneration Report included in pages 16 to 21 of the directors’ report for the year ended 31 December 2015. 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. Opinion In our opinion, the Remuneration Report of G8 Education Limited for the year ended 31 December 2015 complies with section 300A of the Corporations Act 2001. HLB Mann Judd Chartered Accountants Brisbane, Queensland 22 February 2016 A B Narayanan Partner Shareholder Information The total issued capital of the Company as at 31 December 2015 was 372,820,198. On 11 January 2016, 1,855,589 shares were issued pursuant to the dividend reinvestment plan. The total issued capital of the Company as at the date of this annual report is 374,675,787 The Shareholder informa(cid:415)on set out below was applicable as at 4 February 2016. (a) Distribution of equity securities Analysis of number of equity security holders by size of holding is listed below. 100,001 and Over 10,001 – 100,000 5,001 ‐ 10,000 1,001 ‐ 5,000 1 ‐ 1,000 Class of equity security Shares Holders Op(cid:415)ons 283,918,341 43,420,562 20,155,545 23,924,493 3,256,846 117 1,901 2,714 9,251 6,182 374,675,787 20,165 ‐ ‐ ‐ ‐ ‐ ‐ There were 734 holders of less than a marketable parcel of ordinary shares. (b) Quoted equity security holders Twenty largest quoted equity security holders. Name HSBC Custody Nominees J P Morgan Nominees Australia Limited Na(cid:415)onal Nominees Limites Ci(cid:415)corp Nominess Pty Ltd BNP Paribas Noms Pty Ltd Geosine Pty Ltd Mrs Juwarseh Sco(cid:425) UBS Nominees Pty Ltd Ms Kim Yin Brazil Farming Pty Ltd Geosine Pty Ltd RBC Investor Services Australia Nominees Pty Ltd Mr Christopher Douglas Passfield & Mrs Rhonda Passfield Ci(cid:415)corp Nominees Pty Ltd Mr Craig Graeme Chapman Viss Holdings Pty Ltd Mr Duncan Fraser Forrest & Mrs Judy Marie Forrest Gwynvill Trading Pty Ltd Mr Garry Ronald Klye & Mrs Robyn Elizabeth Klye Forsyth Barr Custodians Ltd Quoted ordinary shares held Percentage of issued shares 74,485,771 66,165,686 37,090,094 19,823,819 14,554,314 6,003,260 5,610,919 4,328,917 4,003,260 3,714,910 3,174,999 2,957,316 2,800,000 2,623,026 2,300,000 2,040,683 2,000,200 1,737,730 1,540,000 1,494,617 258,449,521 19.88 17.66 9.90 5.29 3.88 1.60 1.50 1.16 1.07 0.99 0.85 0.79 0.75 0.70 0.61 0.55 0.53 0.46 0.41 0.40 68.98 G8 Educa(cid:415)on Limited | Annual Report 2015 97 (c) Substantial holders Substan(cid:415)al holders as at 4 February 2016 in the Company are set out below: Ordinary Shares Challenger Limited UBS Group AG (d) Voting rights Number held 26.3 million 22.4 million Percentage 7.02% 6.00% The vo(cid:415)ng rights a(cid:425)ached to each class of equity securi(cid:415)es are set out below. (i) Ordinary shares On a show of hands every member present at a mee(cid:415)ng in person or by proxy shall have one vote and upon a poll each share will have one vote. (ii) Options There are no vo(cid:415)ng rights a(cid:425)ached to the op(cid:415)ons. (iii) Unquoted securities There are no unquoted securi(cid:415)es on issue. 98 G8 Educa(cid:415)on Limited | Annual Report 2015 Corporate Directory Directors M Johnson, Chairman C Sco(cid:425), Managing Director B Bailison, Non‐Execu(cid:415)ve Director M Reynolds, Non‐Execu(cid:415)ve Director S Forrester, Non‐Execu(cid:415)ve Director D Foster, Non‐Execu(cid:415)ve Director Company Secretary C Sacre Share registry: Advanced Share Registry Limited 150 S(cid:415)rling Hwy Nedlands, WA 6009 Auditor: HLB Mann Judd Level 15, 66 Eagle Street Brisbane, QLD 4000 Lawyers: Minter Ellison Gold Coast 165 Varsity Parade Varsity Lakes QLD 4217 Principal registered business office in Australia G8 Educa(cid:415)on Limited is a Company limited by shares, incorporated, and domiciled in Australia. It’s registered office and principal place of business is: Securities exchange listing: G8 Educa(cid:415)on Limited shares are listed on the Australian Securi(cid:415)es Exchange under the (cid:415)cker code GEM. 159 Varsity Parade, Varsity Lakes Telephone: 07 5581 5300 Facsimile: 07 5581 5311 www.g8educa(cid:415)on.edu.au G8 Educa(cid:415)on Limited | Annual Report 2015 99 www.g8education.edu.au