Annual Report
2016
Brands
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
Kinder Haven
Committed to growing the whole chi ld
Casa Bambini
Early Education Centre
Early Learning Services
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.
2 G8 Education limited | Annual Report 2016
Contents
Chairman’s Report
Managing Director’s Report
Key Operational Information
Section One
Directors’ Report
Section Two
Financial Report
Independent Audit Report
Shareholder Information
Corporate Directory
6
7
9
11
37
103
112
114
3 G8 Education limited | Annual Report 2016
At a glance
Revenue ($m)
$778.5m
Earnings Before
Interest and Tax
($m)
$160.7m
$778.5
$706.2
$491.3
$275.2
$179.9
2012
2013
2014
2015
2016
$160.4
$160.7
$106.0
$47.4
$27.0
2012
2013
2014
2015
2016
$88.6
$80.3
Net Profit After Tax
($m)
$80.3m
$52.7
$31.1
$19.2
2012
2013
2014
2015
2016
24.3c
21.2c
16.2c
11.3c
8.9c
2012
2013
2014
2015
2016
Earnings Per Share
(CPS)
21.2c
From a financial perspective, the Group continued to
generate good level of growth for shareholders.
Revenues increased 10% to $778 million, underlying
earnings before interest and tax rose 10% to $161
million and underlying net profit after tax increased
by 7% to $93 million. The Group generated $109
million of cash from operations and returned $91
million in dividends to shareholders.
In December 2016 the Group announced a change in
executive leadership, with our CFO, Gary Carroll,
being appointed as CEO and Managing Director from
1 January 2017. Chris Scott, our Managing Director
from 2010, transferred to an Executive Director role
and will be assisting Gary in his transition to the new
role. I would like to take the opportunity to thank
Chris for the outstanding contribution that he has
made to G8 over the last 6+ years. His vision, energy,
leadership and commercial acumen have driven the
Group to be the leading player in the sector and
have laid an outstanding platform for the future.
As we look forward to 2017 we feel strongly that we
are positioned well to take advantage of any
opportunities that may arise whilst maintaining our
high
levels of service provision to Australia’s
communities.
2017 is likely to be another exciting 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 2017.
Yours sincerely,
Mark Johnson
Chairman
Chairman’s Report
Dear Shareholders,
On behalf of the Board, I am pleased to present the
G8 Education Limited 2016 Annual Report.
During 2016, the Group has maintained a balance
between growing our network and continuously
improving the quality of our existing services.
In 2016 we acquired 19 early education centres in
Australia and 2 in Singapore, bringing the total
number of centres as at 31 December 2016 to 490 in
Australia and 20 in Singapore. These centres provide
a total combined licenced capacity of 38,713 places.
in 2015, the centres were
As was the case
predominantly premium
in
metropolitan areas, all of which were subjected to
the Group’s rigorous screening and due diligence
disciplines prior to settlement.
located
centres
Our ability to integrate acquired centres in a
seamless, efficient manner has long been one of our
core competencies and I am pleased to report that
2016 was a year of real achievement in this area.
In addition, continued investment in our Support
Office systems and a focus on utilising technology
has enabled us to enhance the experience that our
families receive in our G8 centres. During the year
we rolled out an application that provides parents
their children’s experience
with updates of
throughout each day, providing significantly
enhanced information and connectivity for our
families.
With over 75,000 children attending our services in
any given week and over 10,000 employees
educating and caring for those children our
responsibilities to the families and communities from
which they come is paramount. Our vision –
Partnering with you to inspire the next generation –
reinforces this point.
Our focus on ensuring that our centre based teams
are appropriately resourced, trained and supported
is essential to us maintaining our position as
Australia’s leading for profit early education provider.
In that regard I am pleased to report that capital
investment in our centres was at record levels this
year, increasing by 19% from the prior year. We have
also continued to
in our
professional and leadership development programs
across both centre and support office teams.
invest significantly
6 G8 Education limited | Annual Report 2016
Section 01
Directors’ Report
Directors’ Report
Auditor’s Independence Declaration
11
34
10 G8 Education limited | Annual Report 2016
Managing Director’s Report
Dear Shareholders,
2016 was a year in which G8 Education solidified its
position as the leading for profit child care and early
in Australia, and built the
education provider
foundations for the sustainable growth of the Group.
With our position as the trusted provider of care and
education for more than 75,000 children each week, it
is vital that we continue to evolve our services and
engagement with families to ensure we are meeting the
needs of children and parents. 2016 saw the roll-out of
the Net Promoter Score (“NPS”) process to enable us to
clearly measure customer engagement levels and
capture valuable
improve our
relationships with families. Opportunities to improve
our operational processes to make it easier for families
to interact with centres were identified as part of NPS,
with a number being implemented during 2016 with
good results. We look forward to continuing the
journey to being a truly customer-centric organisation
in 2017 and beyond.
ideas on how to
The key to our success as an organisation is the quality,
skill and commitment of our team members. 2016 saw
the roll-out of our core values – Passion, Integrity,
Compassion, Innovation and Dedication. Embedding
these core values in all our centres and support office
will enable the formation of a single culture, combining
the strengths of the brands we have purchased over the
last 6+ years into a single, unified organisation.
As well as building on our cultural foundation, 2016 was
a year in which the Group increased its investment in
training its team, from both a professional and
leadership perspective. We are confident that building
the professional skill of our teams will improve the
quality of services offered to our families every day,
while the development of a deep pool of quality
leadership talent will assist in maintaining and building
our existing leading position in the market.
From an operational perspective, the Group acquired a
further 21 early education centres in 2016. Our
acquisition strategy continues to focus on opportunities
in and around metropolitan areas where supply and
demand dynamics combined with attractive pricing
create the right conditions for earnings accretive
acquisitions.
7 G8 Education limited | Annual Report 2016
It is pleasing to report that the acquisitions completed
in2016 are performing in line with expectations. By
year end 2016, the Group’s total portfolio comprised
510 centres with capacity of 38,713 licensed places.
challenges.
albeit not without
2016 continued to deliver good financial results for the
Group,
The
implementation of the last phase of National Quality
Framework changes to staff to children ratios occurred
at the start of 2016, adversely impacting on results for
the first half of the year. The Group managed to
implement a number of operational process
improvements during the year to improve second half
performance. The end result was that underlying net
profit after tax rose 7% to $93 million, off the back of a
10% rise in revenues to $778 million. The Group’s
ability to convert earnings before
interest, tax,
depreciation and amortisation (“EBITDA”) to cash
remained strong with 97% cash conversion in 2016,
generating operating cash flows of $109 million.
During 2016, the Group also improved its capital
structure by increasing the tenor of its borrowings via a
S$270 million bond issue that was completed in May
2016. The foreign currency exposure relating to the
bonds has been fully hedged, mitigating any impact on
the Group’s reported results.
Outlook for 2017
We continue to believe there are significant organic and
acquisition growth opportunities for the Group. Our
growth strategy contains the following key elements:
Driving occupancy in existing centres through
development of a differentiated offer focused on
the customer experience and providing value for
families. To facilitate this, the Group will be
implementing a new Customer Relationship
Management (“CRM”) platform to enhance all our
communications with existing and new families;
Continuing to grow our network of child care
centres through acquisition and greenfield
development, working with our established
providers who continue to produce quality assets at
reasonable prices;
Developing new revenue streams for existing and
new centres that deliver enhanced value to our
families and better utilise our existing assets; and
Engaging and developing our team through a series
of initiatives such as enhanced leadership training
and re-engineering our incentive framework.
To support our strategy, in February 2017 the Group
announced raising approximately $212 million from a
share placement to a subsidiary of China First Capital
Group, a Hong Kong-listed investment company. The
funding raised from the issue will enable the Group to
repay a portion of its A$ bond and bank debt facilities
as well as assisting in funding the acquisition of
additional child care centres.
With this funding in place, and a clear strategy that is
supported by a passionate and capable team, we
believe we are well placed to deliver sustainable value
to children, families and our shareholders in the years
ahead.
Yours sincerely,
Gary Carroll
CEO and Managing Director
8 G8 Education limited | Annual Report 2016
Key Operational Information
Number of owned centres at year end
Licence capacity of owned centres at year end
Total Number of employees at year end
Total number of full time equivalent employees at year end
Consolidated Group
510
38,713
10,052
7,258
Underlying Net Profit After Tax Reconciliation (Unaudited, Non IFRS)
Consolidated Year end 31 December
Revenue#
Expenses
Net Financing Cost
Net Profit Before Tax
Net Profit After Tax
Add/(Less) non-operating transactions:
Deferred consideration not paid*
Acquisition expenses
Share based payment expense *
Write off of borrowing costs on refinance*^
Profit on sale of financial assets^
Foreign currency translation loss*^
Underlying Net Profit After Tax
Underlying EPS (cents per share)^^
Earnings Before Interest and Tax
Add/(Less) non-operating transactions:
Deferred consideration not paid
Acquisition expenses
Share based payment expense
Profit on sale of financial assets
Underlying Earnings Before Interest and Tax^^^
2016
$'000
777,470
(616,779)
(46,022)
114,669
80,265
(2,500)
2,574
(105)
7,474
-
5,634
93,342
24.68
160,691
(2,500)
2,574
(105)
-
160,660
2015
$'000
704,548
(543,124)
(37,651)
123,772
88,581
(5,755)
916
344
2,010
(7,343)
8,378
87,131
23.87
161,423
(5,755)
916
344
(10,490)
146,438
Variance
10%
14%
22%
-7%
-9%
7%
3%
10%
#Adjustment for interest income of $1.0m excluded from revenue and included in financing costs (2015 $2.6m).
*Non-Cash adjustments.
^Tax adjusted
^^Underlying EPS equals Underlying NPAT divided by weighted average number of shares
^^^Underlying EBIT equals NPAT plus income tax expense plus net finance costs plus non-operating transactions
9 G8 Education limited | Annual Report 2016
Directors’ Report
The Directors present their report on the consolidated entity (referred to hereafter as the Group) consisting of G8
Education Limited and the entities it controlled at the end of, or during, the year ended 31 December 2016.
All of the following persons were Directors of G8 Education Limited during the financial year and up to the date
of this report unless otherwise stated
Mark Johnson
Mark Johnson is an experienced chairman and company director with a diverse portfolio,
including Chairman of MH Premium Farms Holdings Pty Ltd, Director of Westfield
Corporation, Director of HSBC Bank Australia Limited, Director of Coca-Cola Amatil
Limited, Director of The Hospitals Contribution Fund of Australia Limited (HCF) and
Councillor – St Aloysius’ College.
B. Comm, FCA, CPA,
FAICD
Chairman
Independent
Non-Executive
Director
since 1 January 2016
Gary Carroll
B.Comm (Hons),
B.Law (Hons), CPA
Managing
Director/CEO
since 1 January 2017
Christopher Scott
B.Econ (Hons)
Managing Director
from 25 March 2010
to 31 December
2016
Executive Director
since 1 January 2017
Prior to embarking on his Board career, Mr Johnson was the Chief Executive 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
Foundation, member of the Auditing and Assurance Board and Deputy Chair of the
Finance and Reporting Committee at the Australian Institute of Company Directors. Mr
Johnson is a Fellow of the Institute of Chartered Accountants and the Australian Institute
of Company Directors, and holds a Bachelor of Commerce from the University of NSW.
Special responsibilities: Chair of the Nomination Committee, Member of the Audit and
Risk Management Committee and People and Culture Committee
Other current listed public Company Directorships: Westfield Corporation Limited
(appointed 30 June 2014) and Westfield Holdings Limited (appointed 29 May 2013 until
30 June 2014). Coca-Cola Amatil Limited (appointed 06 December 2016)
Former listed public Company Directorships in the last three years: Nil
Gary Carroll was appointed as Managing Director and CEO on 1 January 2017, having
previously served as Chief Financial Officer for the Group from 25 July 2016. Prior to
joining G8, Gary had over 15 years’ experience in senior leadership roles across multiple
industries, including being Chief Financial Officer and Chief Supply Chain Officer at Super
Retail Group Limited. Mr Carroll holds Bachelor of Commerce (Hons) and Bachelor of Law
(Honours) degrees from the University of Queensland, and is a Fellow of CPA Australia.
Special responsibilities: Member Nomination Committee
Other current listed public Company Directorships: Nil
Former listed public Company Directorships in the last three years: Nil
Chris Scott has over 25 years experience in senior management positions. 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 operational, analytical and strategic skills are critical in the
selection of potential acquisitions and operational management.
Special responsibilities: Member Nomination Committee
Other current listed public Company Directorships: Nil
Former listed public Company Directorships in the last three years: Nil
11 G8 Education limited | Annual Report 2016
Brian Bailison
B.Com., B.Acc (Cum
Laude), ACA
Independent Non-
Executive Director
Audit Committee
Chair since 25 March
2010
Matthew Reynolds
B.Sc (Hons), LLB
(Hons), MQLS
Independent Non-
Executive Director
since
17 March 2015
Susan Forrester
BA, LLB (Hons)
EMBA, FAICD
Independent Non-
Executive Director
since
1 November 2011
Brian Bailison has over 20 years experience in finance, corporate finance and operations
from senior roles in listed and unlisted businesses in South Africa and Australia, including
senior positions 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 responsibilities: Chair Audit and Risk Management Committee and Member of the
Nomination Committee
Other current listed public Company Directorships: Nil
Former listed public Company Directorships in the last three years: Nil
Matthew is leading a partner in HWL Ebsworth Lawyers national corporate team. He
specialises in debt and equity capital markets, mergers and acquisitions and private equity
spanning over 20 years. Matthew provides tailored structuring and strategic legal advice
to businesses in Australia and throughout Asia particularly the People’s Republic of China.
Matthew has been recognised as a leading lawyer in M&A by Chambers & Partners, Legal
500 and by the Australian Financial Review as one of Australia’s best lawyers in the fields
of debt capital markets and leveraged buyouts..
Special responsibilities: Member of the Nomination Committee and People and Culture
Committee
Other current listed public Company Directorships: Bubs Australia Limited (appointed 20
December 2016) and Axsesstoday Limited (appointment date 21 December 2016)
Former listed public Company Directorships in the last three years: Nil
Susan Forrester is an experienced Chair and Company Director with a diverse portfolio
career. She has a valuable blend of commercial, legal and executive management
experience gained across public and private organisations. She is currently chair for
National Veterinary Care Ltd and Oncore Group Holdings Pty Ltd and is a non-executive
director of Over the Wire Group Ltd, Xenith IP Ltd and Uniting Care Qld. She serves as
Independent Chair of the Audit Committee of Transport and Main Roads Qld.
Special responsibilities: Chair of the People and Culture Committee and Member of the
Nomination Committee
Other current listed public Company Directorships: Over the Wire Ltd (appointed 1
November 2015), Xenith IP Ltd (appointed 1 October 2015) and National 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-
Executive Director
since 1 February
2016
David Foster enjoyed a successful career in financial services spanning over 25 years. His
last executive role was as Chief Executive Officer of Suncorp Bank, Australia’s 5th largest
bank. Since leaving Suncorp, Mr Foster has further developed his career as an
experienced Non-Executive Director with a portfolio of Board roles across a diverse range
of industries including financial services, retailing, local government, education and
professional services. He currently serves as Chairman of Motor Cycle Holdings Limited
and Director of Genworth Mortgage Insurance Australia Limited and is a Director on the
Boards of the Thorn Group Limited and Kina Securities Limited and chairs both their Audit
and Risk Committees.
Special responsibilities: Member of Audit and Risk Management Committee and
Nomination Committee
Other current listed public Company Directorships: Motor Cycle Holdings Limited
(appointed 08 March 2015), Thorn Group Limited (appointed 1 December 2014), Kina
Securities Limited (appointed 1 May 2015) and Genworth Mortgage Insurance Australia
Limited (appointed 30 May 2016)
Former listed public Company Directorships in the last three years: Nil
12 G8 Education limited | Annual Report 2016
Chief Executive Officer
Gary Carroll was appointed as Managing Director and
Chief Executive Officer on 1 January 2017. He is
responsible for managing the external and internal
operations of the Group and providing consistent high
level advice to the Board on operations, policy and
planning
S$600m Multicurrency Debt Issuance Programme
established on 2 May 2014.
Matters subsequent to the end of the
financial year
The following material matters have taken place
subsequent to year end:
Gary has over 15 years’ experience in senior leadership
roles covering a number of industries.
Gary Carroll was appointed Managing Director and
Chief Executive Officer on 1 January 2017.
Sarah Zeljko was appointed Company Secretary on 16
January 2017.
Sharyn Williams was appointed Chief Financial Officer
on 6 February 2017.
To support our strategy, in February 2017 the Group
announced raising approximately $212 million from a
share placement to a subsidiary of China First Capital
Group, a Hong Kong-listed investment company
In accordance with the terms of the executive share
plan a third of the shares issued will be cancelled by
the Group as the underlying EPS growth did not
exceed 15% as required by the terms of the plan.
Accordingly this will decrease the number of shares in
the executive share plan. The Group plans to
discontinue the Executive Share Plan, which was in
place for the full year in 2016 and will implement the
new LTI scheme subject to shareholder approval.
Likely developments and expected results of
operations
The Group will continue to pursue its objectives 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 acquisition led
growth.
is of a kind referred to
Rounding Amounts
The Company
in ASIC
Corporations (Rounding in Financial/Directors’ reports)
Instrument 2016/191, relating to the “rounding off” of
amounts in the financial reports. Amounts in the
financial statements have been rounded off
in
accordance with that Instrument to the nearest
thousand dollars, or in certain cases, the nearest dollar.
Jason Roberts was Chief Executive Officer at 31
December 2016. He has been appointed as General
Manager Business Developments from 1 January 2017.
Company Secretary
Sarah Zeljko was appointed as Company Secretary and
General Counsel on 16 January 2017. She is responsible
Facilities
for
Management, Risk Management,
Insurance and
Company Secretarial functions for the Group.
Legal, Compliance,
Safety,
the
Gary Carroll was Company Secretary at 31 December
2016.
Maria Forgione was Company Secretary from 19 April
2016 to 18 October 2016.
Chris Sacre resigned as Company Secretary on 27 May
2016.
Principal activities
The principal continuing activities of the Group during
the year were:
Operation of early education centres owned by the
Group; and
Ownership of early education centre franchises.
There has been no significant change to the Group’s
activities during the financial year ended 31 December
2016.
Review of operations
Information on the operations and financial position of
the Group and its business strategies and prospects are
set out in the Chairman’s and Managing Director’s
Reports.
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 additional 19 child care centres in
Australia and 2 in Singapore.
In May 2016 the Group repaid the Series 001 S$260m
unsecured notes by raising S$270m pursuant to its
third issue of Series 003 unsecured notes under its
13 G8 Education limited | Annual Report 2016
Dividends
Dividends declared or paid during the financial year were as follows:
Dividends Declared or paid during the financial year were as follows:
Dividend for the quarter ended 31 March 2016 of 6.0 cents per share
(2015: 6.0 cents per share) paid on 8 April 2016 (2015: Paid on 10 April 2015)
Dividend for the quarter ended 30 June 2016 of 6.0 cents per share
(2015: 6.0 cents per share) paid on 8 July 2016 (2015: Paid on 7 July 2015)
2016
$'000
2015
$'000
22,481
21,549
22,616
21,903
Dividend for the quarter ended 30 September 2016 of 6.0 cents per share
(2015: 6.0 cents per share) paid on 7 October 2016 (2015: Paid on 7 October 2015)
22,772
22,070
Dividend for the quarter ended 31 December 2016 of 6.0 cents per share
(2015: 6.0 cents per share) paid on 6 January 2017 (2015: Paid 11 January 2016)
22,950
22,369
Meeting of Directors
The number of meetings of the Company’s Board of Directors and of each Board Committee held during the year
ended 31 December 2016, and the number of meetings attended by each Director were:
Full meetings of
Directors
A
11
11
11
11
10
10
B
11
11
11
11
11
11
Audit and Risk
Management
Committee
B
A
4
-
-
4
-
4
4
-
-
4
-
4
Nomination
Committee
People and Culture
Committee
A
2
2
2
2
2
2
B
2
2
2
2
2
2
A
2
-
2
-
2
-
B
2
-
2
-
2
-
M Johnson
C Scott
M Reynolds
B Bailison
S Forrester
D Foster
A = Number of meetings attended
B = Number of meetings held during the time the Director held office or was a member of the committee during
the year
Environmental regulation
The Group is subject to and complies with environmental regulations under State Legislation in the
management of its operations. The Group does not engage in activities that have particular potential 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.
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
entities. Under the terms of the policy the amount of the premium and the nature of the liability cannot be
disclosed.
The liabilities 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 entities in the Group and any other payments arising
from liabilities incurred by the Officers in connection with such proceedings.
This does not include such liabilities that arise from conduct involving willful breach of duty of the Officers or the
14 G8 Education limited | Annual Report 2016
improper use by the Officers of their position or of information to gain advantage for themselves or someone else
or to cause detriment to the Group.
It is not possible to apportion the premium between the amounts relating to the insurance against legal costs and
those relating to other liabilities. No insurance premiums or indemnities have been paid for or agreed by the
Group for the current or former auditors.
Indemnification of auditors
To the extent permitted by law, the Group has agreed to indemnify its auditors, Ernst & Young Australia, as part
of the terms of its audit agreement against claims by third parties arising from the audit (for an unspecified
amount). No payment has been made to indemnify Ernst & Young during or since the financial year. Ernst &
Young provide an annual declaration of their independence to the ARM Committee in accordance with the
requirements of the Corporations Act 2001.
15 G8 Education limited | Annual Report 2016
Remuneration Report Audited
Contents
Section Title
Description
1
2
3
4
5
6
Introduction
Describes the scope of the Remuneration Report and the individuals whose
remuneration details are disclosed together with a summary of the key
changes during the year.
Remuneration
governance
Describes the role of the Board and the People and Culture Committee, and
the use of remuneration consultants when making remuneration decisions.
Non-executive director
remuneration
Provides details regarding the fees paid to non-executive directors.
Executive remuneration Outlines the principles and strategy applied to executive remuneration
decisions and the framework used to deliver rewards including the
performance and remuneration linkages.
KMP equity interests
Provides details regarding shareholdings in G8 Education Limited of KMP.
Employment
agreements
Provides details regarding the contractual arrangements between the G8
Education and the executives whose remuneration details are disclosed.
16 G8 Education limited | Annual Report 2016
1. Introduction
G8 Education Limited (G8 Education) has a firm belief that attracting, developing, engaging and retaining
passionate, capable team members will provide the Group with a sustainable advantage over the long term.
Building and maintaining a culture and implementing people systems to support such a belief and culture are
strategic priorities for the Group.
The relevant people systems are attraction, learning and development, engagement, workplace health and safety,
talent and succession management, and remuneration and benefits. The Board’s philosophy and approach to
executive remuneration have always been to balance fair remuneration for skills and expertise with a risk and
reward framework that supports longer-term growth and sustainability of G8 Education as a geographically diverse
business.
At the end of 2015 the Board appointed PwC to assist in benchmarking Board and Senior Executive Remuneration.
The review highlighted the need to implement changes across two areas. Firstly to lift base remuneration where
necessary with immediate effect through 2016 and secondly to redesign and implement new STI and LTI programs.
In the case of the base remuneration the intent was agreed to pay at market median with upside all being delivered
through the STI and LTI programs linked to closely to challenging performance goals. This leaves the following key
initiatives to be implemented during 2017:
Introduction of a Short-term Incentive (“STI”) scheme for the CEO and other executive KMP that provides cash
rewards and equity rewards subject to deferral for the achievement of performance targets that are consistent
with the Group’s approved business plan and that are aligned to delivering sustainable value to shareholders.
Underpinning the STI scheme is the introduction of a new Key Performance Indicator (“KPI”) framework. The CEO
and other executive KMP have KPI targets that cover achievement of financial and operational performance
metrics and strategic plan implementation milestones across four areas: Team, Safety, Performance and
Customer. The level of reward available under the STI scheme is dependent on the achievement of KPI targets.
Replacement of the Executive Share Plan that was approved by shareholders on 21 May 2015 with a Long-Term
Incentive (“LTI”) scheme, subject to approval by shareholders in May 2017. The Company’s view is that the
proposed new LTI scheme, which is detailed in section 4 below, will provide a stronger linkage between long-term
performance and KMP remuneration than the previous Executive Share Plan.
The STI scheme and supporting KPI framework were finalised in February 2017, and are applicable for the years
commencing 1 January 2017. For the 2016 financial year, the Board has exercised discretion in determining the
short-term incentive payments for executive KMP based individual performance. Performance assessment related
to financial and operating areas relevant to each executive KMP.
The changes to be adopted in 2017 are under constant review. Any further material Board or executive KMP
remuneration strategy changes will be advised.
The Board believes, G8 Education’s approach to Board and executive KMP remuneration is a balanced, fair and
equitable approach designed to reward and motivate a successful and experienced executive team to deliver
ongoing business growth which is designed meets the expectations of all shareholders.
The Board will continue to welcome feedback from shareholders on our remuneration practices or on the
communication of remuneration matters in the 2016 Remuneration Report and beyond.
Scope
This Remuneration Report sets out, in accordance with the relevant Corporations Act 2001 (Corporations Act)
and accounting standard requirements, the remuneration arrangements in place for key management
personnel (KMP) during 2016.
17 G8 Education limited | Annual Report 2016
Key management personnel
KMP have authority and responsibility for planning, directing and controlling the activities of G8 Education and
comprise the non-executive directors, and executive KMP (being the executive directors and other senior
executives named in this report). Details of the KMP as at year end are set out in the table below:
Title (at year end)/Committees
Change in 2016
Non-executive directors
Mark Johnson
Chairman
No Change. Full Year
Member, Audit & Risk Management
Chairman, Nomination
Member, People & Culture
Brian Bailison
Director
No Change. Full Year
Chairman, Audit & Risk Management
Member, Nomination
Susan Forrester
Director
No Change. Full Year
Member, Nomination
Chairman, People & Culture
Matthew Reynolds
Director
No Change. Full Year
Member, Nomination
Member, People & Culture
David Foster
Director
Member, Nomination
Member, Audit & Risk Management
Executive directors
Christopher Scott
Gary Carroll
Other executive KMP
Managing Director
Member, Nomination
CEO and Managing Director
Member, Nomination
Jason Roberts
Chief Executive Officer
Gary Carroll
Chief Financial Officer
Ann Perriam
Executive officer
Christopher Sacre
Chief Financial Officer
Commenced with Group as Non-Executive
Director on 1 February 2016
No change. Full year. Resigned as Managing
Director on 1 January 2017, continues as
Executive Director
Appointed 1 January 2017
No change. Full year. Ceased CEO on 1 January
2017. Appointed GM – Development on 1
January 2017
Commenced with Group and as KMP on 25 July
2016, appointed CEO and MD on 1 January
2017
Ceased as KMP on 1 January 2017. Appointed
Commercial Manager Developments on 1
January 2017
Resigned effective 27 May 2016 and ceased as
KMP on this date
18 G8 Education limited | Annual Report 2016
2. Remuneration governance
This section of the Remuneration Report describes the role of the Board and the People and Culture Committee,
and the use of remuneration consultants when making remuneration decisions affecting KMP.
Role of the Board and the People and Culture Committee
The Board is responsible for G8 Education’s remuneration strategy and policies. Consistent with this responsibility,
the Board has established the People & Culture Committee (PCC) which comprises solely independent non-
executive directors (NEDs).
The role of the PCC is set out in its Charter, which is reviewed annually and was last revised and approved by the
Board in December 2016. In summary, the PCC’s role is to:
ensure that the appropriate procedures exist to assess the remuneration levels of the Chairman, other NEDs,
executive directors, direct reports to the CEO, Board Committees and the Board as a whole;
ensure that G8 Education meets the requirements of Australian Securities Exchange (ASX) diversity and other
relevant Guidelines;
ensure that G8 Education adopts, monitors and applies appropriate remuneration policies and procedures;
ensure that reporting disclosures related to remuneration meet the Board’s disclosure objectives and all relevant
legal requirements;
develop, maintain and monitor appropriate talent management programs including succession planning,
recruitment, development; and retention and termination policies and procedures for senior management; and
develop, maintain and monitor appropriate superannuation arrangements for G8 Education.
The PCC’s role and interaction with Board, internal and external advisors, are further illustrated below:
The Board
Reviews, applies judgment and, as appropriate, approves the PCC’s recommendations
The People & Culture(“PCC”)
The PCC operates under the delegated authority of the Board.
The PCC is empowered to source any internal resources and obtain external independent professional advice it
considers necessary to enable it to make recommendations to the Board on the following:
Remuneration policy,
composition and quantum
of remuneration
components for executive
KMP, and performance
targets
Remuneration policy
in respect of NEDs
Talent management
policies and practices
including
superannuation
arrangements
Design features of
employee and
executive STI and LTI
plan awards, including
setting of performance
and other vesting
conditions
External consultants
Internal resources
Further information on the PCC’s role, responsibilities and membership is contained in the Corporate Governance
Report of this Annual Report. The PCC terms of reference can also be viewed in the Investor Centre, Corporate
Governance section of the G8 Education website.
19 G8 Education limited | Annual Report 2016
Use of remuneration consultants
All proposed remuneration consultancy contracts (within the meaning of section 206K of the Corporations Act) are
subject to prior approval by the Board or the PCC in accordance with the Corporations Act.
During the 2016 financial year, G8 Education used the following remuneration consultants:
1. PwC, who were appointed by the PCC in December 2015 to undertake a comprehensive review of the Group’s
executive remuneration framework with a view to establishing a competitive remuneration framework that
encourages sustainable business performance and alignment between KMP remuneration and shareholder
returns.
2. Crichton & Associates Pty Limited, who were appointed by the PCC in October 2016 to assist in documenting the
proposed STI and LTI schemes that flowed from the PwC review, including benchmarking the schemes against
comparable companies and reviewing remuneration report disclosures.
The remuneration advice was general in nature and not considered to be remuneration advice in accordance with
the Corporations Act.
3. Non-executive director “NED” remuneration
NED remuneration
Principle
Comment
Fees are set by reference
to key considerations
Remuneration is
structured to preserve
independence whilst
creating alignment
Aggregate Board and
committee fees are
approved by
shareholders
Fees for NEDs are based on the nature of the NEDs’ work and their responsibilities. The
remuneration rates reflect the complexity of G8 Education’s business and the extent of the
number of geographical locations in which G8 Education operates. In determining the level
of fees, survey data on comparable companies is considered. NEDs’ fees are recommended
by the PCC and determined by the Board. Shareholders approve the aggregate amount
available for the remuneration of NEDs.
To preserve independence and impartiality, NEDs are not entitled to any form of incentive
payments including options and the level of their fees is not set with reference to any measure
of G8 Education performance.
However, to create alignment between directors and shareholders, the Board has adopted
guidelines that request NEDs to hold (or have a benefit in) shares in G8 Education
equivalent in value to at least one year’s base fees. G8 Education does not offer loans to
NEDs to fund share ownership.
The total amount of fees paid to NEDs in 2016 is within the aggregate amount approved by
shareholders at the AGM in 25 May 2015 of $850,000 per annum including superannuation.
20 G8 Education limited | Annual Report 2016
NED fees and other benefits explained
Elements
Details
Board fee per annum
Committee fees 2016
Board Chairman Fee
Board NED Base fee
Committee Fees
Audit
Nomination
People and Culture
Post-employment benefits
2016
2015
225,000
110,000
225,000
95,000
Committee Chair
25,000
No Fee
17,000
Committee member
10,000
No Fee
9,000
Superannuation contributions have been made at a rate of 9.5% of the board fee (but only
up to the Australian Government’s prescribed maximum contributions limit) which satisfies
the Company’s statutory superannuation contributions. The contribution rate will increase in
future years in line with mandated legislative increases. Contributions are not included in
the base fee.
There are no retirement schemes in place for NED other than Statutory Superannuation.
Superannuation
Retirement
schemes
Other benefits
Equity instruments NEDs do not receive any performance related remuneration, options, performance rights
or shares.
Other fees/benefits NEDs receive reimbursement for costs directly related to G8 Education business.
No payments were made to NEDs during 2016 for travel allowances, extra services or
special exertions.
NED total remuneration paid
M Johnson
B Bailison
M Reynolds
S Forrester
D Foster
J Hutson (resigned 15 October 2015)
A Kemp (resigned 17 March 2015)
Total
Total
Year
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
21 G8 Education limited | Annual Report 2016
Short-term
benefits
Post-employment
benefits
Fees Termination
benefits
-
225,865
-
121,923
83,769
111,153
72,346
116,539
85,308
104,519
-
-
138,876
-
59,361
679,999
439,660
Superannuation
benefits
21,457
-
11,583
7,958
10,560
6,873
11,071
8,104
9,929
-
-
13,027
-
5,639
64,600
41,601
Total
247,322
-
133,506
91,727
121,713
79,219
127,610
93,412
114,448
-
-
151,903
-
65,000
744,599
481,261
-
-
-
-
-
-
-
-
-
-
-
-
-
Minimum shareholding guidelines
The Board has approved minimum shareholding guidelines for NEDs, the CEO and those executives who report
directly to the CEO. Under these guidelines, all NEDs are requested to accumulate a minimum shareholding in G8
Education shares equivalent in value to one year’s base fees and all executive KMP are requested to accumulate a
minimum shareholding in G8 Education shares equivalent to one year’s fixed remuneration.
The guidelines were implemented in January 2017, with NEDs and executive KMP required to accumulate the
required holding over the next 5 years or from appointment.
4. Executive remuneration
Executive KMP remuneration
The Group has undertaken a comprehensive review of executive KMP remuneration policies during 2016, for
implementation from 2017 onwards. G8 Education’s executive remuneration policies are designed to attract,
motivate and retain a qualified and experienced group of executives with complimentary skills. Fixed remuneration
components are determined having regard to the specific skills and competencies of the executive KMP with
reference to both internal and external relativities, particularly local market and industry conditions. The ‘at risk’
components of remuneration are strategically directed to encourage management to strive for superior (risk
balanced) performance by rewarding the achievement of targets that are challenging, clearly defined, understood
and communicated within the ambit of accountability of the relevant executive KMP.
22 G8 Education limited | Annual Report 2016
Executive KMP remuneration objectives are exemplified through three categories of remuneration, as illustrated
below:
Executive KMP remuneration objectives
Attract, motivate and
retain executive
talent across diverse
geographies
The creation of reward
differentiation to drive
performance values and
behaviours.
An appropriate
balance of ‘fixed’ and
‘at risk’ components
Shareholder value
creation through
equity components
Total target remuneration (TTR) is set by reference to the relevant geographic market
Fixed
At risk
Total fixed remuneration (TFR)
Short-term incentives (STI)
Long-term incentives (LTI)
TFR is set based on relevant
market relativities, reflecting
responsibilities, performance,
qualifications, experience and
geographic location
STI performance criteria are
set by reference to G8
Education group earnings and
individual performance targets
relevant to the specific KMP
LTI targets are linked to G8
Education group EPS growth
Remuneration will be delivered as:
Base salary plus any fixed
elements related to local
markets, including
superannuation or equivalents
Part cash and part equity
(performance rights). The
equity component will be
subject to service and
deferred for 1 year.
Equity in performance rights. All
equity is held subject to service and
performance for 3 years from grant
date. The equity is at risk until
vesting. Performance is tested once at
the vesting date
Strategic intent and market positioning
TFR will generally be
positioned at the median
compared to relevant market
based data considering
expertise and performance in
the role
Performance incentive is
directed to achieving Board
approved targets, reflective of
market circumstances. TFR +
STI is intended to be
positioned in the 3rd quartile of
the relevant benchmark
comparisons
LTI is intended to reward
executives KMP for sustainable
long-term growth aligned to
shareholders’ interests. LTI
allocation values are intended
to be positioned in the 3rd
quartile of the relevant
benchmark comparisons
Total targeted remuneration (TTR)
TTR is intended to be positioned in the 3rd quartile compared to relevant market benchmark comparisons. 4th
quartile TTR may result if outperformance is achieved. The remuneration structure is designed to ensure top
quartile executive KMP remuneration is only achieved if G8 Education outperforms.
23 G8 Education limited | Annual Report 2016
Remuneration composition mix and timing of receipt
G8 Education endeavours to provide an appropriate and competitive mix of remuneration components balanced
between fixed and at risk and paid in both cash and deferred equity. The broad remuneration composition mix for
executive KMP can be illustrated as follows:
Remuneration mix 2016
The remuneration mix for the Managing Director and other executive KMP in 2016 consisted of TFR, dividends paid
under the Executive Share Plan and a cash bonus. This resulted in the following remuneration mix:
Position
CEO
Executive KMP
TFR
Dividend payments on
escrow shares
STI
66%
At least 83%
21% of TTR
Up to 7% of TTR
13% of TTR
Up to 10% of TTR
The 2016 STI entitlement was based on achievement of Group financial targets (80% of STI) and individual KPIs
(20% of STI). The Group’s financial targets were not achieved, however the Board exercised discretion relating to
individual performance being achieved. Accordingly, 20% of the STI opportunity was achieved in 2016.
Remuneration mix F17 proposed
The mix of remuneration for the CEO and executive KMP for 2017 will change significantly. The proposed ‘new’
remuneration mix effective from 1 January 2017, will be as follows:
Position
CEO
Executive KMP
TFR
40%
At least 50 %
STI
30% of TTR
Up to 25% of TTR
LTI
30% of TTR
Up to 25% of TTR
Total fixed remuneration (TFR)
G8 Education’s approach to TFR settings has been reevaluated. It is now the aim of G8 Education to position all
executives at between the median and 62.5th percentile of the market, but at the lower end of this range where
possible to control fixed costs. This positioning has been determined by our recent independent remuneration
benchmark assessments conducted by PwC.
A description of the 2017 short-term and long-term incentive schemes, including changes when compared to the
2016 schemes, are set out below.
Total target remuneration
TTR under the remuneration mix adopted will, in the opinion of the Board, deliver an overall risk adjusted reward
opportunity which is fair and market competitive.
24 G8 Education limited | Annual Report 2016
Remuneration – timing of receipt of the benefit for 2017 onwards
The three complementary components of executive KMP remuneration are ‘earned’ over multiple time ranges. This
is illustrated in the following chart:
As illustrated, executive KMP remuneration is delivered on a cascading basis, with a material component deferred
for one (STI) and three (LTI) years and awarded as equity. This remuneration mix is designed to ensure executive
KMP are focused on delivering results over the short, medium and long term if they are to maximise their
remuneration opportunity. The Board believes this approach will align executive KMP remuneration to shareholder
interests and expectations.
Total fixed remuneration explained
Total fixed remuneration (TFR) includes all remuneration and benefits paid to an executive KMP calculated on a
total employment cost basis. In addition to base salary, superannuation and other allowances are included.
Executive KMP TFR is tested regularly for market competiveness by reference to appropriate independent and
externally sourced comparable benchmark information, including for comparable ASX listed companies, and based
on a range of size criteria including market capitalisation, taking into account an executive’s responsibilities,
performance, qualifications, experience and location.
TFR adjustments, if any, are made with reference to individual performance, an increase in job role or responsibility,
changing market circumstances as reflected through independent benchmark assessments or through promotion.
Any adjustments to executive KMP remuneration are approved by the Board, based on PCC and CEO
recommendations.
Variable (at risk) remuneration explained
Variable remuneration is intended to form a significant portion of the CEO and other executive KMP remuneration
opportunity. Apart from being market competitive, the purpose of variable remuneration is to direct executives’
behaviours towards maximising G8 Education’s short, medium and long-term performance.
The key aspects are summarised below:
25 G8 Education limited | Annual Report 2016
Year 1 Year 3 Year 4 Year 5 Year 2 LTI STI equity deferral STI cash opportunity TFR F17 LTI STI equity deferral STI cash opportunity TFR F18 LTI STI equity deferral STI cash opportunity TFR F19
Short-term incentives (STI)
Purpose
The STI arrangements at G8 Education are designed to reward executives for the achievement
against annual performance targets set by the Board at the beginning of the performance period.
The STI program is reviewed annually by the PCC and approved by the Board.
Any STI award in excess of the 100% budget opportunity is individually approved by the PCC. All
STI awards to the CEO and other executive KMP are approved by the PCC and Board.
Performance
targets
The key performance objectives of G8 Education are currently directed to achieving Board
approved earnings targets, and by the achievement of individual performance KPIs. There are ten
individual KPIs that are split into four areas – Team (2), Safety (2), Performance (4) and Customer
(2). These KPIs are yet to be finalised for 2017
The targets for the 2017 include achievement of individual KPIs and Group financial performance
as follows:
Underlying net profit after tax growth
Performance
< 8%
8% to 10%
> 10%
% of performance-related STI
0%
50% to 100% pro-rata
100%
Achievement of at least 80% of individual KPIs (10 KPIs) yet to be finalised with individual KMP.
Any anomalies or discretionary elements are approved and validated by the Board.
No more than 10% of an Individual’s STI will be awarded if the Group target is not met.
Rewarding
performance
The STI performance ratings are determined under a predetermined matrix with the Board
determination final.
Mandatory
deferral of STI
Effective from 1 January 2017 a mandatory deferral of a portion of STI was introduced to
reinforce alignment with shareholder interests. Grants will be determined at the end of each year
and then held for one year until vesting. This achieves additional retention and alignment of
executives with shareholder interests.
The deferred STI component for 2017 will be calculated based on up to 50% of the STI amount,
above a minimum threshold, depending on the position.
The equity component will be independently determined based on the gross contract value using
G8 Education’s five day volume weighted average price (VWAP) following the announcement of
year end results in February 2018. That is, based on a Black-Scholes-Merton pricing model
without discounting for service or performance hurdles. The deferred component taken form of
equity rights.
Once the STI awarded as service rights has been granted, there are no further performance
measures attached to the performance rights other than continued tenure for the vesting period
(one year).
26 G8 Education limited | Annual Report 2016
Long-term incentives (LTI)
The LTI provides an annual opportunity for executive KMP and other selected executives (based on their ability to
influence and execute strategy) to receive an equity award deferred for three years, that is intended to align a
significant portion of executives’ overall remuneration to shareholder value over the longer term. All LTI awards
remain at risk and subject to ‘claw back’ (forfeiture or lapse) until vesting and must meet or exceed EPS growth
rates over the vesting period.
Purpose
Types of
equity
awarded
To align executive KMP remuneration opportunity with shareholder value and provide retention
stimulus.
LTI is provided under the G8 Education Employee Incentive Plan. See section 5 for further details.
Under the G8 Education Employee Incentive Plan, selected senior executives are offered
performance rights (being a nil exercise price right to fully paid ordinary shares of G8 Education
Limited), subject to satisfying the relevant requirements.
Time of
grant
All equity grants will be made after the AGM each year but based on values determined in
February.
Time
restrictions
Equity grants awarded to the CEO and other executive KMP are tested against the performance
hurdles set, at the end of three years. If the performance hurdles are not met at the vesting date,
performance rights lapse.
Equity grants to the CEO and other executive KMP are subject to one performance condition, as
follows:
Performance
hurdles and
vesting
schedule
Compound annual growth in Underlying EPS (3 years)
Performance
< 10%
10% to 15%
> 15%
% of equity to vest
0%
50% to 100% pro-rata
100%
Performance rights vest if the time restrictions and relevant performance hurdles are met. The
Board must approve any special provisions, in accordance with Company policies, in the event of
termination of employment or a change of control.
Dividends
No dividends are attached to performance rights.
Voting rights
There are no voting rights attached to performance rights.
Retesting
There is no retesting of performance hurdles under G8 Education LTI.
LTI allocation The size of individual LTI grants for the CEO and other executive KMP is determined in accordance
with the Board approved remuneration strategy mix.
The allocation methodology for performance rights is to determine the target LTI dollar value for
each executive and divide it by the gross contract value based on a Black-Scholes-Merton pricing
model without discounting for service or performance hurdles.
27 G8 Education limited | Annual Report 2016
Executive Share Plan
In accordance with the terms and conditions 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. vesting conditions).
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 traditional
option plan, as the outstanding loan balance is effectively the ‘exercise price’ that must be paid before any value
can be realised.
The following is a summary of the key terms and conditions of the Plan:
The loan is repayable on termination 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 obligation 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 satisfaction 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 voting rights during the escrow period.
The shares rank equally with other ordinary shares on issue with respect to dividends, distribution 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 multiplied by $5 per share – exception is where the
borrower is unfit for work.
Shares are released to borrower in tranches – if conditions 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.
During 2016 1/3 of the shares were cancelled due to conditions of performance criteria not being met. Due to the
vesting conditions not being met in 2016 1/3 of the shares held in escrow were not issued. The Group will
discontinue the Executive Share Plan, which was in place for the full year in 2016 and will implement the new LTI
scheme subject to shareholder approval as outlined above.
28 G8 Education limited | Annual Report 2016
Other remuneration elements and disclosures relevant to executive KMP
Claw back
The Board has discretion to claw back incentive payments where material misconduct is evident.
Hedging and margin lending prohibition
Under the G8 Education Securities Trading Policy and in accordance with the Corporations Act, equity granted
under G8 Education equity incentive schemes must remain at risk until vested, or until exercised if performance
rights. It is a specific condition of grant that no schemes are entered into, by an individual or their associates that
specifically protect the unvested value of performance rights allocated.
G8 Education also prohibits the CEO or other ‘Designated Persons’ (including executive KMP) providing G8
Education securities in connection with any margin loan or similar financing arrangement unless that person has
received a specific notice of no objection in compliance with the policy from the Board.
G8 Education, in line with good corporate governance, has a formal policy setting down how and when employees
of G8 Education may deal in G8 Education securities.
G8 Education’s Securities Trading Policy is available on the G8 Education website under Investor Centre, Corporate
Governance.
Relationship between G8 Education performance and executive KMP remuneration
The performance of the Group and remuneration paid to KMP over the last 5 years is summarised in the table
below.
Total revenue
EBIT
Net Profit After Tax
Underlying EBIT (unaudited, Non IFRS)^
Underlying NPAT (unaudited, Non IFRS)^^
Underlying EPS (cents)
Average quarterly dividend per share (cents)
Share price as at 31 December ($)
2012
$'000
179,991
27,039
19,209
30,012
19,730
9.2
1.75
1.63
2013
$'000
275,165
47,350
31,072
50,593
32,276
11.72
3.0
3.16
2014
$'000
491,288
105,965
52,731
100,248
60,613
18.57
4.75
4.17
2015
$'000
706,164
160,423
88,581
145,438
87,131
23.87
6.0
3.57
2016
$'000
778,513
160,691
80,265
160,660
93,342
24.68
6.0
3.59
^Underlying EBIT equals NPBT plus finance costs plus non-operating costs as per page 9
^^ Underlying NPAT equals NPAT plus non-operating costs as per page 9
29 G8 Education limited | Annual Report 2016
Total Fixed Remuneration
G Carroll
C Scott
J Roberts
T King
A Perriam
C Sacre (resigned 27 May 2016)
J Fraser (resigned 29 August 2014)
K Lacey (resigned 16 January 2013)
D Peters (resigned 27 September 2012)
Executive Share Plan
C Scott
J Roberts
Ann Perriam
C Sacre (resigned 27 May 2016)
J Fraser
K Lacey (resigned 16 January 2013)
Total
2012
2013
2014
2015
2016
-
420,411
-
-
271,043
196,314
50,271
128,667
-
444,490
-
-
285,531
200,555
16,781
-
-
667,460
248,908
-
379,784
191,054
-
-
-
745,433
412,418
73,048
214,010
374,606
-
-
-
210,562
896,783
566,698
310,066
263,569
154,690
-
-
-
-
-
-
114,562
76,375
59,237
1,316,880
-
-
-
133,893
89,262
-
1,170,512
-
-
-
58,000
48,649
-
1,593,855
105,284
105,284
12,865
120,257
-
-
2,163,205
-
-
-
(105,284)
-
-
2,297,084
Since 2012 underlying EPS has increased by 169%, dividends per share have increased by 243% and the share price
has increased by 120% demonstrating a balance between strategic growth and shareholder value.
During the same period, total remuneration paid to KMP has increased by 87%. Total remuneration paid to KMP as
a proportion of underlying Net profit After Tax was 5.3% in 2012 and has decreased to 2.1% in 2016.
Executive remuneration table – audited statutory disclosure
*Share based payments for the year 2016 is nil due to reversal of share based payment from non-vesting shares
from 2015 offsetting 2016 share based payment.
^G Carroll appointed 25 July 2016
**C Sacre resigned 27 May 2016
30 G8 Education limited | Annual Report 2016
YearPost employment Executive Share PlanTotalPerformance relatedShare Plan relatedAmount $SalarySTIDividends from Share PlanSuperannuation benefitsTermination paymentTotalShare based payment*%%G Carroll^2016199,11050,000-11,452-260,562-260,56219%0%2015----------C Scott2016889,218168,75090,0007,564-1,155,532-1,155,53215%8%2015739,264-120,0006,169-865,433105,284970,717-0J Roberts2016546,834108,75090,00019,864-765,448-765,44814%12%2015391,273-120,00020,145-531,418105,284636,702-0T King2016290,38570,000-19,681-380,066-380,06618%-201567,308--5,740-73,048-73,048--A Perriam2016243,92330,62510,99819,646-305,192-305,19210%4%2015197077-14,66416933-228,67412,865241,539-0C Sacre**2016141,814-100,00012,87614,870269,560(105,284)164,276-37%2015350,000-120,00024,606-494,606120,257614,863-0Total 20162,311,284428,125290,99891,08314,8703,136,359(105,284)3,031,075Total20151,744,922-374,66473,593-2,193,179343,6902,536,869Proportion of total Fixed RemunerationShort-term
5. KMP equity interests
The tables below set out the equity interests held by Non-executive Directors (“NEDs”) and executive KMP.
Shares
Directors of G8 Education Limited
Balance at
the start of
the year
Shares
cancelled
under limited
recourse loans
disclosed as
share options
Other
changes
during the
year
Balance at
the end of
the year
Ordinary Shares
M Johnson
C Scott
B Bailison
M Reynolds
S Forrester
D Foster
KMP of G8 Education
Limited
Ordinary Shares
Directly
Beneficially*
Directly
Directly
Directly
Directly
-
1,000,000
-
24,195
5,423
-
-
(333,333)
-
-
-
-
25,000
-
-
-
10,000
14,587
25,000
666,667
-
24,195
15,423
14,587
G Carroll
J Roberts
C Sacre
A Perriam
T King
-
-
-
631,329
*Shares are issued as part the Executive Share Plan that have not vested and are not exercisable.
Beneficially*
Beneficially*
Beneficially*
Indirectly
(333,333)
(1,000,000)
(40,733)
-
666,667
-
81,465
631,329
-
1,000,000
1,000,000
122,198
-
31 G8 Education limited | Annual Report 2016
2016NameBalance at the start of the yearLimited recourse loans cancelled due to vesting condition not being metLimited recourse loans to be cancelled due to vesting condition not being metForfeiture due to resignationBalance at the end of the yearHighest Indebtedness during the year$$$$$$C Scott5,000,000(1,666,667)(1,666,667)-1,666,6673,333,333J Roberts5,000,000(1,666,667)(1,666,667)-1,666,6673,333,333C Sacre5,000,000(1,666,667)-(3,333,333)-3,333,333A Perriam610,990(203,663)(203,663)-203,663407,327
6. Employment Agreements (audited)
The CEO and other executive KMP operate under employment agreements.
The following sets out details of the employment agreements relating to the CEO and other executive KMP. The
terms for the CEO and all other executive KMP are similar but do, on occasion, vary to suit different needs.
Length of contract The CEO and other executive KMP are on permanent contracts, which is an ongoing
employment contract until notice is given by either party.
Notice periods
In order to terminate the employment arrangements, the CEO is required to provide G8
Education with six months’ written notice. Other executive KMP are required to provide
G8 Education with between 3 months’ and six months’ written notice.
Resignation
On resignation, unless the Board determines otherwise:
All unvested STI or LTI benefits are forfeited.
Termination on
notice by G8
Education
G8 Education may terminate employment of the CEO by providing six months’ written
notice. For other executive KMP, the notice period varies from three to six months’
written notice. The Company may make payment in lieu of the notice period based on
TFR. On termination on notice by G8 Education, unless the Board determines otherwise:
Unvested STI or LTI benefits may be exercised or paid within 30 days of notice being given.
Death or total and
permanent
disability
On death or total and permanent disability, the Board has discretion to allow all unvested
STI and LTI benefits to vest.
Termination for
serious
misconduct
G8 Education may immediately terminate employment at any time in the case of serious
misconduct, and other executive KMP will only be entitled to payment of TFR up to the
date of termination.
On termination without notice by G8 Education in the event of serious misconduct:
all unvested STI or LTI benefits will be forfeited; and
any ESS instruments provided to the employee on vesting of STI or LTI awards that are
held in trust, will be forfeited.
Statutory
entitlements
Payment of statutory entitlements of long service leave and annual leave applies in all
events of separation.
Post-employment
restraints
The CEO is subject to post-employment restraints of up to 24 months. All other executive
KMP are subject to post-employment restraints for up to 12 months.
32 G8 Education limited | Annual Report 2016
Corporate Governance
G8 Education Limited is strongly committed to good corporate governance practices and substantially complies
with the ASX Corporate Governance Council’s (CGC) Corporate Governance Principles and Recommendations
(Third Edition). The board of directors guides and monitors the business and affairs of G8 Education Limited on
behalf of the shareholders by whom they are elected and to whom they are accountable. G8 Educations
Limited compliance with the Principles are found in the corporate governance section of our website:
www.g8education.edu.au/investor-information/corporate-governance
Non-audit services
The Group may decide to employ the auditor on assignments additional to their statutory audit duties where the
auditor’s expertise and experience with the Group are important.
During 2016, G8 Education engaged Ernst & Young to perform non-audit services relating to other audit advice. The
Board has considered the position and is satisfied that the provision of the non-audit services is compatible with
the general standard of independence for auditors imposed by the Corporations Act 2001. The Directors are
satisfied the provision of non-audit services by the auditor, as set out below, did not compromise the auditor
independence requirements of the Corporations Act 2001 for the following reasons:
all non-audit services have been reviewed by the Board to ensure they do not impact the impartiality and
objectivity of the auditor;
none of the services undermine the general principles relating to auditor independence as set out in APES 110
Code of Ethics of Professional Accountants.
Auditor’s independence declaration
A copy of the Auditor’s independence declaration as required under section 307C of the Corporations Act 2001 is
set out on page 35.
Auditor
Ernst & Young were appointed as auditor on 25 May 2016 and continue in office in accordance with section 237 of
the Corporations Act 2001.
This report is made in accordance with a resolution of Directors.
Gary Carroll
Managing Director
20 February 2017
33 G8 Education limited | Annual Report 2016
Ernst & Young
111 Eagle Street
Brisbane QLD 4000 Australia
GPO Box 7878 Brisbane QLD 4001
Tel: +61 7 3011 3333
Fax: +61 7 3011 3100
ey.com/au
Auditor’s Independence Declaration to the Directors of G8 Education
Limited
As lead auditor for the audit of G8 Education Limited for the financial year ended 31 December 2016, I
declare to the best of my knowledge and belief, there have been:
a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in
relation to the audit; and
b) no contraventions of any applicable code of professional conduct in relation to the audit.
Ernst & Young
Ric Roach
Partner
20 February 2017
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
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
37
37
38
39
40
43
Directors’ Declaration
102
36 G8 Education limited | Annual Report 2016
Consolidated Income Statement
For the Year ended 31 December 2016
Revenue
Revenue from continuing operations
Other income
Profit on sale of financial assets
Total revenue
Expenses
Employee benefits
Occupancy
Direct costs of providing services
Depreciation
Other expenses
Finance costs
Total expenses
Profit before income tax
Income tax expense
Profit for the year attributable to members of the parent entity
Basic earnings per share
Diluted earnings per share
Consolidated
2016
$'000
2015
$'000
774,970
3,543
-
778,513
686,747
8,927
10,490
706,164
(432,126)
(88,396)
(59,348)
(11,707)
(25,202)
(47,065)
(663,844)
114,669
(34,404)
80,265
Cents
21.22
21.22
(382,320)
(77,994)
(53,052)
(9,372)
(20,386)
(40,267)
(583,391)
122,773
(34,192)
88,581
Cents
24.27
24.27
Notes
2
3
4
4
5
6
6
The above Consolidated Income Statement should be read in conjunction with the accompanying notes.
Consolidated Statement of Comprehensive Income
For the year ended 31 December 2016
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 translation of foreign operations
Recycle to income statement for amount reversed in current period
Effective portion of changes in fair value of cash flow hedges
Total other comprehensive income
Total comprehensive income for the year
Notes
22
22
22
Consolidated
2016
$'000
80,265
2015
$'000
88,581
(455)
(3,559)
(1,042)
(5,056)
75,209
1,514
-
3,559
5,073
93,654
The above Consolidated Statement of Comprehensive Income should be read in conjunction with the
accompanying notes.
37 G8 Education limited | Annual Report 2016
Consolidated Balance Sheet
As at 31 December 2016
ASSETS
Current assets
Cash and cash equivalents
Trade and other receivables
Other current assets
Current tax asset
Total current assets
Non-current assets
Property plant and equipment
Deferred tax assets
Goodwill
Other non-current assets
Derivative Financial Instruments
Total non-current assets
Total assets
LIABILITIES
Current liabilities
Trade and other payables
Borrowings
Provisions
Derivative financial instruments
Current tax liabilities
Total current liabilities
Non-current liabilities
Borrowings
Other payables
Provisions
Derivative financial instruments
Total non-current liabilities
Total liabilities
Net assets
EQUITY
Contributed equity
Reserves
Retained earnings
Total equity
Notes
Consolidated
2016
$'000
2015
$'000
18
7
8
9
10
16
8
20
11
19
30
20
19
11
12
20
21
22
22
26,467
22,948
9,234
2,923
61,572
54,845
15,415
1,015,002
23,022
3,359
1,111,643
1,173,215
88,847
-
25,956
-
-
114,803
410,649
754
4,783
16,351
432,537
547,340
625,875
641,848
35,649
(51,622)
625,875
193,840
22,943
9,754
-
226,537
41,370
21,678
944,604
-
-
1,007,652
1,234,189
83,054
148,891
22,824
1,184
4,400
260,353
366,270
712
4,069
-
371,051
631,404
602,785
603,043
43,635
(43,893)
602,785
The above Consolidated Balance Sheet should be read in conjunction with the accompanying notes.
38 G8 Education limited | Annual Report 2016
Consolidated Statement of Changes in Equity
For the year ended 31 December 2016
Contributed
Equity
Hedging
Reserve
Translation
Reserve
Profits
Reserve
Retained
Earnings
Total
Share
Based
Payment
Reserve
Consolidated
Notes
$’000
$’000
$’000
$’000
$’000
$’000
$’000
Balance 1 January 2015
Profit for the year
Other comprehensive
income
Total comprehensive income
for the year
Transactions with owners in
their capacity as owners
Contributions of equity, net
of transaction cost
Transfer of profits reserve
Share based payment
expense
Dividends provided for or
paid
Balance 31 December 2015
Balance 1 January 2016
Profit for the year
Other comprehensive
income
Total comprehensive income
for the year
Transactions with owners in
their capacity as owners
Contributions of equity, net
of transaction cost
Transfer of profits reserve
Share based payment
expense
Dividends provided for or
paid
Balance 31 December 2016
21
22
32
23
21
22
32
23
548,374
-
-
-
4,512
-
-
-
22,745
-
(33,622)
88,581
542,009
88,581
-
3,559
1,514
-
-
-
5,073
-
3,559
1,514
-
-
88,581
93,654
54,669
-
-
-
-
-
-
-
-
98,852
-
(98,852)
54,669
-
-
-
-
344
-
-
344
-
54,669
603,043
-
-
3,559
-
-
6,026
-
344
344
(87,891)
10,961
33,706
- (87,891)
(32,878)
(98,852)
602,785
(43,893)
603,043
3,559
6,026
344
33,706
(43,893)
602,785
-
-
-
-
- 80,265
80,265
-
(4,601)
(455)
-
-
-
(5,056)
-
(4,601)
(455)
-
-
80,265
75,209
38,805
-
-
-
-
-
38,805
-
-
-
-
87,994
(87,994)
-
-
-
-
(105)
-
-
(105)
-
38,805
641,848
-
-
(1,042)
-
-
5,571
-
(105)
239
(90,819)
(2,825)
30,881
- (90,819)
(52,119)
(87,994)
625,875
(51,622)
The above Consolidated Statement of Changes in Equity should be read in conjunction with the accompany notes.
39 G8 Education limited | Annual Report 2016
Consolidated Statement of Cash Flows
For the year ended 31 December 2016
Cash flows from Operating Activities
Receipts from customers (net of GST)
Payments to suppliers and employees (net of GST)
Interest received
Interest paid
Income taxes paid
Net cash inflows from operating activities
Cash flows from Investing Activities
Payments for purchase of businesses (net of cash acquired)
Payments for deposits on purchase of businesses
Proceeds from sale of financial assets
Payments for purchase of financial assets
Payments for property plant and equipment
Net cash outflows from investing activities
Cash flows from Financing Activities
Share issue costs
Debt issue costs
Dividends paid
Proceeds from issue of corporate note
Repayment of corporate note
Proceeds from issue of shares
Inflows from borrowings
Premium paid on FX option
Proceeds from sale of FX option
Net cash inflows (cash outflows) from financing activities
Notes
Consolidated
2016
$'000
2015
$'000
13
769,277
(601,491)
1,198
(25,431)
(34,970)
108,583
(66,667)
(15,473)
-
-
(25,009)
(107,149)
(57)
(12,747)
(57,964)
269,281
(411,208)
6,537
40,000
(11,028)
8,281
(168,905)
(167,471)
193,826
98
26,453
676,870
(516,762)
2,861
(22,354)
(45,563)
95,052
(128,940)
-
52,073
(33,182)
(21,082)
(131,131)
(151)
(4,282)
(53,244)
153,617
-
12,934
-
-
-
108,874
72,795
120,179
852
193,826
Net (decrease) / 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
18
The above Consolidated Statement of Cash Flows should be read in conjunction with the accompany notes.
40 G8 Education limited | Annual Report 2016
Index to Notes to the Financial Statements
1. Financial Overview
NOTE 1: SEGMENT INFORMATION
NOTE 2: REVENUE
NOTE 3: OTHER INCOME
NOTE 4: EXPENSES
NOTE 5: INCOME TAX EXPENSE
NOTE 6: EARNINGS PER SHARE
NOTE 7: CURRENT ASSETS – TRADE AND OTHER RECEIVABLES
NOTE 8: CURRENT AND NON – CURRENT ASSETS – OTHER
NOTE 9: NON-CURRENT ASSETS – PROPERTY, PLANT AND EQUIPMENT
NOTE 10: NON-CURRENT ASSETS – DEFERRED TAX ASSETS
NOTE 11: CURRENT AND NON-CURRENT LIABILITIES – TRADE AND OTHER PAYABLES
NOTE 12: NON-CURRENT LIABILITIES – PROVISIONS
NOTE 13: RECONCILIATION OF PROFIT AFTER INCOME TAX TO NET
CASH INFLOW FROM OPERATING ACTIVITIES
2. Business Combinations, Goodwill & Impairment
NOTE 14: CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS
NOTE 15: BUSINESS COMBINATIONS
NOTE 16: NON-CURRENT ASSETS – GOODWILL
3. Capital Structure & Financial Risk Management
NOTE 17: FINANCIAL RISK MANAGEMENT
NOTE 18: CURRENT ASSETS – CASH AND CASH EQUIVALENTS
NOTE 19: CURRENT AND NON – CURRENT LIABILITIES - BORROWINGS
NOTE 20: DERIVATIVE FINANCIAL INSTRUMENTS
NOTE 21: CONTRIBUTED EQUITY
NOTE 22: RESERVES AND RETAINED EARNINGS
NOTE 23: DIVIDENDS
4. Group Structure
NOTE 24: SUBSIDIARIES
NOTE 25: PARENT ENTITY DISCLOSURES
NOTE 26: DEED OF CROSS GUARANTEE
5. Unrecognised Items
NOTE 27: COMMITMENTS
NOTE 28: CONTINGENCIES
NOTE 29: EVENTS OCCURRING AFTER THE BALANCE SHEET DATE
6. Other
NOTE 30: EMPLOYEE ENTITLEMENTS
NOTE 31: KEY MANAGEMENT PERSONNEL DISCLOSURES
NOTE 32: SHARE-BASED PAYMENTS
NOTE 33: REMUNERATION OF AUDITORS
NOTE 34: RELATED PARTY TRANSACTIONS
NOTE 35: OTHER SIGNIFICANT ACCOUNTING POLICIES
42 G8 Education limited | Annual Report 2016
44
45
46
46
47
50
51
53
54
56
57
57
58
59
60
62
64
71
72
75
76
78
79
80
82
84
86
87
87
88
89
95
98
99
99
1. Financial Overview
Note 1: Segment Information
(a) Description of segments
Management has determined the operating segments based on the reports reviewed by the Executive Team that
are used to make strategic decisions. The Executive Team has been identified as the Chief Operating Decision Maker
that makes strategic decisions.
Prior to 2016, the function that allocated resources and assessed the operating performance was the Board. During
2016 there have been a number of changes at Board and senior executive level at the Group, both in terms of
personnel and processes. The key changes can be summarised as follows:
Formation of an executive leadership group, comprising the MD, CEO, CFO and GM Operations (the “Executive
Team”);
The Executive Team meeting regularly (weekly) to review performance and allocate resources to drive
operating results, with decisions being made as a team;
Responsibility for the formation of the Group’s strategy being handed from the Board to the Executive Team,
with the Board’s role evolving to reviewing and endorsing the strategy;
Amending the delegations of authority to provide increased authority to the Executive Team, with key
expenses/contracts requiring joint approval/signature by the Executive Team.
As a result of the above changes it was considered that the chief operating decision maker of the Group is now the
Executive Team, not the Board.
The Executive Team considers the business as one Group of centres and has therefore identified one operating
segment, being the management of child care centres. All revenue in this report was derived from external
customers and relates to the single operating segment and the segment disclosure has not altered from the last
Annual Report.
2016
Revenue from external customers
Non-current assets
2015
Revenue from external customers
Non-current assets
Australia
$'000
Foreign Country
$'000
760,203
1,061,052
673,660
955,899
14,767
31,817
13,087
30,075
Total
$'000
774,970
1,092,869
686,747
985,974
43 G8 Education limited | Annual Report 2016
Note 2: Revenue
From continuing operations
Sales revenue
Revenue from child care centres
Funding relating to child care operations
Other revenue
Management fee Income
Total revenue continuing operations
Consolidated
2016
$'000
2015
$'000
754,757
18,203
772,960
2,010
774,970
662,717
21,962
684,679
2,068
686,747
Accounting Policy
Revenue is measured at the fair value of the consideration received or receivable. Amounts disclosed as revenue
are net of discounts, refunds, rebates and amounts collected on behalf of third parties.
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 entity and specific criteria have been met for each of the Group’s activities as
described below.
Revenue is recognised for the major business activities 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 attends a child care service.
Revenue received in advance from parents and guardians and government is recognised as deferred
income and classified as a current liability. (See note 11)
(ii) Government Funding/Grants
Training incentives and additional funding receipts are recognised when there is reasonable assurance that the
incentive/receipt will be received and when the relevant conditions have been met.
44 G8 Education limited | Annual Report 2016
Note 3: Other Income
Net gain on disposal of assets
Deferred consideration not payable
Interest
Accounting Policy
(i) Deferred consideration
Consolidated
2016
$'000
-
2,500
1,043
3,543
2015
$'000
556
5,755
2,616
8,927
Deferred consideration not payable and recognised in accordance with note 15.
The deferred consideration 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 Combinations, the earn-out amounts not
payable which were previously disclosed as a liability in deferred consideration has been written back to the
Consolidated Income Statement.
(ii) Interest income
Interest income is recognised using the effective interest method.
Note 4: Expenses
Profit before income tax includes the following specific expenses:
Depreciation
Finance Costs
Interest and finance charges paid/payable
Foreign Exchange Loss (refer note 17)
Rental expenses relating to operating leases
Minimum lease payments
Consolidated
2016
$'000
2015
$'000
11,707
9,372
39,017
8,048
47,065
28,299
11,968
40,267
79,876
70,500
Bad & doubtful debts
671
480
45 G8 Education limited | Annual Report 2016
Note 5: Income Tax Expense
(a) Income tax expense
Current Tax
Deferred Tax
Income tax expense
Income tax expense is attributable to:
Profit from continuing operations
Deferred income tax expense included in income tax expense comprises:
Decrease / (increase) in deferred tax assets (refer note 10)
(b) Numerical reconciliation of income tax expense to prima facie tax payable
Profit from continuing operations before income tax expense
Tax on operations at the Australian tax rate of 30% (2015: 30%)
Tax effect of amounts which are not deductible (taxable) in calculating taxable
income
Adjustment relating to prior year
Entertainment
Deferred consideration not payable
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 reporting 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) relating to items of other comprehensive income
Cash flow hedges
Consolidated
2016
$'000
2015
$'000
27,564
6,840
34,404
40,427
(6,235)
34,192
34,404
34,404
34,192
34,192
6,840
(6,210)
114,669
34,401
122,773
36,832
215
139
(750)
659
(260)
34,404
30%
(633)
175
(1,726)
(359)
(97)
34,192
28%
577
-
20
69
46 G8 Education limited | Annual Report 2016
Tax consolidation
(i) Members of the tax consolidated group and the tax sharing agreement
G8 Education Limited and its 100% owned Australian resident subsidiaries formed a tax consolidated group with
effect from 3 December 2007. G8 Education Limited is the head entity of the tax consolidated group. Members of
the tax consolidated group have entered into a tax sharing agreement that provides for the allocation of income tax
liabilities between the entities should the head entity default on its tax payment obligations. No amounts have
been recognised in the financial statements in respect of this agreement on the basis that the possibility of default
is remote.
(ii) Tax effect accounting by members of the tax consolidated group
Measurement method adopted under AASB Interpretation 1052 Tax Consolidation Accounting
The head entity and the controlled entities in the tax consolidated group continue to account for their own current
and deferred tax amounts. The Group has applied the group allocation approach in determining the appropriate
amount of current taxes and deferred taxes to allocate to members of the tax consolidated group. The current and
deferred tax amounts are measured in a systematic manner that is consistent with the broad principles in AASB 112
Income Taxes. The nature of the tax funding agreement is discussed further below.
In addition to its own current and deferred tax amounts, the head entity also recognises current tax liabilities (or
assets) and the deferred tax assets arising from unused tax losses and unused tax credits assumed from controlled
entities in the tax consolidated group.
Nature of the tax funding agreement
Members of the tax consolidated group have entered into a tax funding agreement. Under the funding agreement,
the funding of tax within the Group is based on an acceptable method of allocation under AASB Interpretation
1052. The tax funding agreement requires payments to/from the head entity to be recognised via an inter-entity
receivable (payable) which is at call. To the extent that there is a difference between the amount charged under
the tax funding agreement and the allocation under AASB Interpretation 1052, the head entity accounts for these
as equity transactions with the subsidiaries.
The amounts receivable or payable under the tax funding agreement are due upon receipt of the funding advice
from the head entity, which is issued as soon as practicable after the end of each financial year. The head entity
may also require payment of interim funding amounts to assist with its obligations to pay tax instalments.
(iii) Tax related contingencies
At 31 December 2016 there are no tax related contingencies.
Accounting Policy
The income tax expense or revenue for the period is the tax payable on the current period’s taxable income based
on the notional income tax rate for each jurisdiction adjusted by changes in deferred tax assets and liabilities
attributable to temporary differences and to unused tax losses.
The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the end
of the reporting period in the countries where the Company’s subsidiaries operate and generate taxable income.
Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax
regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts
expected to be paid to the tax authorities.
Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax
bases of assets and liabilities and their carrying amounts in the consolidated financial statements.
However, the deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a
transaction other than a business combination that at the time of the transaction affects neither accounting nor
taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or
substantially enacted by the end of the reporting period and are expected to apply when the related deferred
income tax asset is realised or the deferred income tax liability is settled.
47 G8 Education limited | Annual Report 2016
Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable
that future taxable amounts will be available to utilise those temporary differences and losses.
G8 Education and its wholly-owned Australian controlled entities have implemented the tax consolidation
legislation. As a consequence, these entities are taxed as a single entity and the deferred tax assets and liabilities of
these entities are set off in the consolidated financial statements.
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, the tax is also recognised in other comprehensive
income or directly in equity, respectively.
48 G8 Education limited | Annual Report 2016
Note 6: Earnings per Share
(a) Basic earnings per share
Profit attributable to the ordinary equity holders of the company
(b) Diluted earnings per share
Profit from continuing operation attributable to the ordinary equity holders of
the Company
(c) Reconciliation of earnings used in calculating earnings per share
Basic earnings per share
Profit attributable to the ordinary equity holders of the Company used in
calculating basic earnings per share
Diluted earnings per share
Profit attributable to the ordinary equity holders of the Company used in
calculating diluted earnings per share
Consolidated
2016
CPS
2015
CPS
21.22
24.27
21.22
24.27
$'000
$'000
80,265
88,581
80,265
88,581
Number
Number
(d) Weighted average number of shares used as the denominator
Weighted average number of ordinary shares used as the denominator in
calculating basic earnings per share*
378,206,976 364,999,576
Adjustments for calculation of diluted earnings per share:
Options
Weighted average number of ordinary shares and potential ordinary shares
used as the denominator in calculating diluted earnings per share
-
-
378,206,976 364,999,576
Accounting Policy
(i) Basic Earnings Per Share
Basic Earnings Per Share is calculated by dividing:
the profit attributable 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 determination of Basic Earnings Per Share to take into
account:
the after income tax effect of interest and other financing costs associated with dilutive potential ordinary shares;
and
the weighted average number of additional ordinary shares that would have been outstanding assuming the
conversion of all dilutive potential ordinary shares.
49 G8 Education limited | Annual Report 2016
Note 7: Current Assets - Trade and Other Receivables
Trade receivables
Allowance for impairment of receivables (note (a) below)
GST receivable
Other debtors
Total trade and other receivables
(a) Impaired trade receivables
Consolidated
2016
$'000
20,113
(718)
19,395
1,237
2,316
22,948
2015
$'000
17,646
(618)
17,028
2,791
3,124
22,943
As at 31 December 2016 current trade receivables of the Group with a nominal value of $1,435,288 (2015:
$1,235,326) were assessed for impairment. The amount of the allowance for impairment was $718,486 (2015:
$617,663).
The ageing of these receivables is as follows:
31-60 days
61+ days
Movements in the allowance for impairment of receivables are as follows:
Opening balance
Allowance for impairment recognised during the year
Receivables written off during the year as uncollectable
Exchange differences
Closing balance
Consolidated
2016
$'000
247
1,189
2015
$'000
-
1,235
Consolidated
2016
$'000
618
671
(571)
-
718
2015
$'000
423
480
(287)
2
618
The creation 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 written off when there is no
expectation of recovery.
50 G8 Education limited | Annual Report 2016
(b) Past due but not impaired
As at 31 December 2016, trade receivables of $6,294,399 (2015: $6,797,000) 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
2016
$'000
5,827
47
420
6,294
2015
$'000
6,689
23
85
6,797
(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.
Information concerning the credit risk of receivables is set out in note 17.
Accounting Policy
Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the
effective 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 attendance and entitlement of each child
attending the child care centre.
Parent fees are required to be paid one week in advance. The parent fees receivable relate to parent fees where
amounts are past due and not paid in advance.
Collectability of trade receivables is reviewed on an ongoing basis. Debts which are known to be uncollectable are
written off. A provision for impairment of trade receivables is established when there is objective evidence that the
Group will not be able to collect all amounts due according to the original terms of the receivables. Significant
financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation, 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 estimated future cash flows, discounted at the original effective interest rate. Cash flows relating
to short-term receivables are not discounted if the effect of discounting is immaterial. The amount of the provision
is recognised in the income statement in other expenses.
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 written off against the allowance for trade receivables. Subsequent recoveries of amounts
previously written off are credited against other expenses in the income statement.
51 G8 Education limited | Annual Report 2016
Note 8: Current and Non-Current Assets - Other
Current
Prepayments
Deposits
Total other current assets
Non- Current
Deposits on acquisitions
Total other current and non-current assets
Consolidated
2016
$'000
5,481
3,753
9,234
2015
$'000
4,721
5,033
9,754
23,022
32,256
-
9,754
Accounting Policy
Deposits on acquisitions relate to deposits made for the potential purchase of centres. Once settled the amount is
transferred forms part of the business combination accounting.
52 G8 Education limited | Annual Report 2016
Note 9: Non-Current Assets – Property, Plant and Equipment
Consolidated
Year ended 31 December 2016
Opening net book amount
Additions through business combinations
(refer note 15)
Additions - other
Disposals
Depreciation charge
Effect of foreign exchange on depreciation
Closing net book amount
At 31 December 2016
Cost
Accumulated depreciation
Net Book amount
Consolidated
Year ended 31 December 2015
Opening net book amount
Additions through business combinations
(refer note 15)
Additions - other
Disposals
Depreciation charge
Effect of foreign exchange on depreciation
Closing net book amount
At 31 December 2015
Cost
Accumulated depreciation
Net Book amount
Buildings
Vehicles
Furniture,
fittings and
equipment
Total
$'000
$'000
$'000
$'000
4,450
581
36,339
41,370
-
-
-
(152)
-
4,298
5,046
(748)
4,298
-
-
(202)
(67)
-
312
270
25,141
(13)
(11,488)
(14)
50,235
270
25,141
(215)
(11,707)
(14)
54,845
1,184
(872)
312
83,867
(33,632)
50,235
90,097
(35,252)
54,845
Buildings
Vehicles
Furniture,
fittings and
equipment
Total
$'000
$'000
$'000
$'000
4,602
951
24,022
29,575
-
-
-
(152)
-
4,450
5,046
(596)
4,450
97
50
(395)
(122)
-
581
2,320
19,100
(65)
(9,099)
61
36,339
2,417
19,150
(460)
(9,373)
61
41,370
1,386
(805)
581
58,483
(22,144)
36,339
64,915
(23,545)
41,370
53 G8 Education limited | Annual Report 2016
(a) Leasehold Improvements
Furniture, fittings and equipment includes the following amounts that are leasehold improvements:
Cost
Accumulated depreciation
Net book amount
Consolidated
2016
$'000
50,676
(14,361)
36,315
2015
$'000
31,449
(9,328)
22,121
(b) Non-current assets pledged as security
Refer to note 19 for information on the non-current assets pledged as security by the Company and its controlled
entities.
Accounting Policy
Property, plant and equipment are stated at historical cost less depreciation. Historical cost includes expenditure
that is directly attributable to the acquisition of the items.
Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only
when it is probable the future 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 reporting year in which they are incurred.
Depreciation for vehicles 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 estimated lives, as follows:
Buildings: 40 years
Vehicles: 3 - 12 years
Furniture, fittings and equipment: 2 - 15 years
The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting
period.
Gains and losses on disposals are determined by comparing proceeds with the carrying amount. These are
included in the Income Statement.
54 G8 Education limited | Annual Report 2016
Consolidated
2016
$'000
2015
$'000
8,510
1,295
9,805
7,143
2,132
9,275
402
185
2,396
2,050
1,199
6,232
16,037
(216)
(406)
(623)
15,415
-
170
3,628
8,962
-
12,760
22,035
-
(357)
(357)
21,678
Other
Total
Consolidated
Foreign
Exchange
Share Issue
Transaction
Costs
$'000
2,967
(910)
77
2,132
$'000
5,386
3,533
-
8,919
$'000
592
2,949
(57)
3,484
$'000
15,448
6,210
20
21,678
(857)
18
1,293
(6,869)
-
2,050
(483)
559
3,560
(6,840)
577
15,415
Note 10: Non-Current Assets – Deferred Tax Assets
Deferred tax asset
The balance comprises temporary differences attributable to:
Employee benefits
Share issue transaction costs
Other
s40-880 Deductions
Doubtful debts
Accrued expenses
Foreign Exchange Loss (derivatives)
Provision
Sub total other
Total deferred tax assets
Deferred Tax Liability
Buildings
Prepayments
Total deferred tax liability
Net deferred tax asset
At 1 January 2015
Charged to the consolidated income
statement
Charged directly to equity
At 31 December 2015
Charged to the consolidated income
statement
Charged directly to equity
At 31 December 2016
Employee
Benefits
$'000
6,503
640
-
7,143
1,367
-
8,510
55 G8 Education limited | Annual Report 2016
Note 11: Current and Non-Current Liabilities - Trade and Other Payables
Trade payables
Deferred centre acquisitions
Dividends payable
Centre enrolment advances
Other payables and accruals
Deferred income
Total Current
Other payables
Total Non-Current
Notes
15
23
15
Consolidated
2016
$'000
7,534
3,998
22,951
8,260
35,872
10,232
88,847
754
754
2015
$'000
7,587
3,655
22,369
8,754
29,388
11,301
83,054
712
712
Trade payables are non-interest bearing and are normally settled on 30-day terms.
Accounting Policy
These amounts represent liabilities 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 recognition. Trade and other
payables are presented as current liabilities unless payment is not due within 12 months from the reporting date.
Note 12: Non-Current Liabilities - Provisions
Employee benefits
Consolidated
2016
$'000
4,783
4,783
2015
$'000
4,069
4,069
56 G8 Education limited | Annual Report 2016
Note 13: Reconciliation of Profit After Tax to Net Cash Flows from Operating
Activities
Profit for the year
Depreciation/(gain)
Foreign exchange loss on Singapore corporate notes
Fair value adjustment to derivatives
Net gain on sale of shares
Net loss on sale of assets
Write back of deferred consideration not payable
Increase in borrowings cost prepayments
(Increase)/Decrease in deferred tax asset
(Increase) in trade and other debtors
Increase in trade and other creditors
Increase in other provisions
Non - cash employee benefits expense - share based payments
Increase/(Decrease) in provision for income taxes payable
Acquisition expenses
Net exchange differences
Net cash inflows from operating activities
Consolidated
2016
$'000
80,265
11,707
(10,080)
18,128
-
244
(2,500)
11,940
6,263
(8,464)
4,868
3,846
(105)
(7,323)
-
(206)
108,583
2015
$'000
88,581
9,372
8,378
-
(7,343)
-
(5,754)
1,574
(6,210)
(10,020)
16,098
3,520
344
(5,255)
915
852
95,052
57 G8 Education limited | Annual Report 2016
2. Business Combinations, Goodwill & Impairment
Note 14: Critical Accounting Estimates and Judgements
Estimates and judgements are continually evaluated and are based on historical experience and other factors,
including expectations of future events that may have a financial impact on the entity and that are believed to be
reasonable under the circumstances.
The Group makes estimates and assumptions concerning the future. The resulting estimates will, by definition,
seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a
material adjustment to the carrying amounts of assets and liabilities 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 accounting policy
stated in note 16. The recoverable amounts of goodwill have been determined based on value-in-use calculations.
These calculations require the use of assumptions. Refer to note 16 for details of these assumptions and the
potential impact of changes to these assumptions.
(ii) Deferred contingent consideration on acquisition of businesses
The Group includes the fair value of deferred contingent consideration as a liability for the acquisition of a business
where it expects the earn-out target to be met. This judgement is based on operational due diligence and
knowledge of the business trading conditions including location, occupancy and profitability at the time of
settlement. If the earn out target is not met then the amount not paid of the deferred contingent consideration is
taken to the income statement as a credit and the corresponding entry against the liability. The value of the
deferred consideration is reviewed at each reporting date.
58 G8 Education limited | Annual Report 2016
Note 15: Business Combinations
The acquisitions below have increased the Group’s market share and are expected to reduce costs per centre
through economies of scale. The goodwill is attributable to the future profitability of the acquired businesses.
During the year the Group purchased 21 centres from various vendors as outlined below:
Acquisition costs of $2,574,323 (2015: $916,000) are included in other expenses in the consolidated income
statement.
As at 31 December 2016 accounting for the 2016 acquisitions are provisional in nature due to final completion
statements not being received at year end.
During the year accounting adjustments were made to provisional amounts recognised in 2015 as outlined below:
The above amounts relate to accounting adjustments for assets and liabilities taken on at acquisition date but not
finalised at 31 December 2015.
59 G8 Education limited | Annual Report 2016
Number of centres61124411121StateNSW/VIC/ SingaporeNSWVICVICNSWWANSWQLDVICTOTAL$'000$'000$'000$'000$'000$'000$'000$'000$'000$'000Purchase ConsiderationCash consideration6,0892,8674,6485,03311,71910,0125,7609,0007,74662,874Contingent consideration1,683---2,315----3,998Purchase price adjustments(100)(41)(73)(23)(63)(216)(83)(149)-(748)Total purchase consideration7,6722,8264,5755,01013,9719,7965,6778,8517,74666,124Assets & Liabilities acquired at fair valueProperty, Plant & equipment155311119018---270Payables(3)(9)---12(57)(90)-(147)Employee benefit liabilities(86)(18)---(130)(44)(98)-(376)Net identifiable assets/(liabilities) acquired(74)(22)3111190(100)(101)(188)-(253)Goodwill7,7462,8484,5444,99913,7819,8965,7789,0397,74666,3777,6722,8264,5755,01013,9719,7965,6778,8517,74666,124Revenue & profit contribution from the date of acquisition to period end 31 December 2016Revenue 4,9081,0441,3053,0321,2912,0466751,070-15,371Profit before tax44736014967947507239322(10)2,740Revenue & profit contribution for full year 2016Revenue 6,9751,7563,8066,1927,1418,0632,4423,9682,42942,772Profit before tax1,0965106691,6431,1102,1847651,1907069,8732015 Provisional2016 AdjustmentsFinalStateVIC/NSW/ QLD/SA/WAVIC/NSW/ QLD/SA/WAVIC/NSW/ QLD/SA/WA$'000$'000$'000Purchase ConsiderationCash consideration137,1703,792140,962Contingent consideration3,080423,122Purchase price adjustments281507788Total purchase consideration140,5314,341144,872Assets & Liabilities acquired at fair valueProperty, Plant & equipment2,417302,447Payables(515)0(515)Employee benefit liabilities(1,634)0(1,634)Net identifiable assets/(liabilities) acquired26830298Goodwill140,2634,311144,574140,5314,341144,872
Contingent Consideration
As part of the purchase agreement with previous owners a portion of the consideration was determined to be
contingent, based on the performance of the acquired business.
The following table outlines the additional cash payments to the previous owners upon meeting specified
performance conditions:
At 31 December 2016
Acquisition of 1 Centre*
Acquisition of 3 Centres*
Acquisition of 1 centre
Total
Total potential
contingent
consideration
payable
$’000
1,683
2,315
1,200
5,198
Carrying
value
Conditions
$’000
1,683 24 month performance hurdle based on EBIT
24 month performance hurdle based on EBIT
2,315
754 19 years occupancy hurdle based on licence capacity
4,752
*The Group has assessed these hurdles will be reached within 12 months and accordingly have recorded these
amounts as current.
A reconciliation of the fair value of the contingent consideration liability is provided below:
Movement in Contingent consideration 2015
Initial fair value of the contingent consideration at acquisition date
Financial liability for contingent consideration as at 31 December 2014
Write back of contingent consideration to P&L performance condition not met - other income
Write back of contingent consideration to Goodwill performance condition not met
Paid contingent consideration performance condition met
Contingent consideration for new acquisitions
Total consideration payable as at 31 December 2015
Movement in Contingent consideration 2016
Initial fair value of the contingent consideration at acquisition date
Financial liability for contingent consideration as at 31 December 2015
Write back of contingent consideration performance condition not met - other income
Paid contingent consideration performance condition met
Contingent consideration for new acquisitions - Goodwill
Total consideration payable as at 31 December 2016
10,432
10,432
(5,755)
(2,938)
(1,622)
4,250
4,367
4,367
4,367
(2,500)
(1,112)
3,998
4,752
Adjustments to the contingent consideration from acquisition to 31 December 2016 were recognised in the
statement of profit and loss. The fair value is determined using the discount cash flow method on contingent
consideration payable over 12 months as such the carrying value is equal to the fair value.
Accounting Policy
The acquisition method of accounting is used to account for all business combinations. Cost is measured as the fair
value of the assets given, equity instruments issued or liabilities incurred or assumed at the date of exchange.
Where equity instruments are issued in an acquisition, the fair value of the instruments is their published market
price as at the date of exchange.
Acquisition costs paid by the Company are expensed.
60 G8 Education limited | Annual Report 2016
Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are
measured initially at their fair values at the acquisition date, irrespective of the extent of any non-controlling
interest. The excess of the cost of acquisition over the fair value of the Group’s share of the identifiable net assets
acquired is recorded as goodwill.
Where settlement of any part of cash consideration is deferred, the amounts payable in the future are discounted
to their present value as at the date of exchange. The discount rate used is the entity’s incremental borrowing rate,
being the rate at which a similar borrowing could be obtained from an independent financier under comparable
terms and conditions.
Contingent consideration 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.
Note 16: Non-Current Assets - Goodwill
Goodwill
Year ended 31 December
Opening net book amount
Additions
Adjustments in respect of prior year acquisitions
Exchange differences
Closing net book amount
At 31 December
Cost
Accumulated impairment
Net book amount
Consolidated
2016
$'000
2015
$'000
944,604
66,377
4,311
(290)
1,015,002
809,162
140,263
(6,017)
1,196
944,604
1,026,054
(11,052)
1,015,002
955,656
(11,052)
944,604
(a) Impairment tests for goodwill
Goodwill is monitored and tested for impairment on an operating segment level as outlined in the accounting
policy below. The recoverable amount of the child care centre assets is determined based on value-in-use
calculations. These calculations use cash flow projections based on budgets for 2017 and then extrapolated using
estimated growth rates. The growth rate does not exceed the long-term average growth rate for the business. For
the purposes of goodwill impairment testing, 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 calculation is based on forecast EBITDA which is a function of occupancy, child care fees and
centre expenses. Occupancy and child care fees are based on the current market conditions plus anticipated 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 operating leases and increased by a 4% index annually; and
Other child care expenses – driven by historical expenditure and future occupancy growth.
The anticipated occupancy reflects seasonal factors and underlying growth in occupancy achieved from the
implementation 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 attributes:
Revenue growth of 6%;
Pre-tax discount rate of 13%;
61 G8 Education limited | Annual Report 2016
Full head office costs allocation; and
Forecast period of 5 years plus a terminal growth calculation with a growth rate of 0%.
Key assumptions have not changed from prior year.
(c) Impairment charge
As a result of the value in use calculations described above it was determined that no impairment was required to
be recognised.
The Group has completed a sensitivity analysis on its impairment model and no reasonably possible movement in
the key assumptions would give rise to an impairment loss.
Accounting Policy
Goodwill is not subject to amortisation 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 calculation, which is assessed on a segment level.
62 G8 Education limited | Annual Report 2016
3. Capital Structure & Financial Risk Management
Note 17: Financial Risk Management
The Group’s activities 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 potential adverse effects on the financial performance of the Group. The Group uses derivative financial
instruments to hedge certain risk exposures.
Derivatives are exclusively used for hedging purposes, i.e. not as trading or other speculative instruments. The
Group uses different methods to measure different types of risk to which it is exposed. These methods include
sensitivity 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:
2016
Financial Assets
Cash and Cash equivalents
Trade and other receivables
Deposits on acquisitions
Derivative Financial Instruments
2015
Financial Assets
Cash and Cash equivalents
Trade and other receivables
Financial
assets at fair
value
$'000
Financial
assets at
amortised cost
$'000
-
-
-
3,359
3,359
26,467
21,711
23,022
-
71,200
Total
$'000
26,467
21,711
23,022
3,359
74,559
-
-
-
193,840
20,152
213,992
193,840
20,152
213,992
63 G8 Education limited | Annual Report 2016
2016
Financial Liabilities
Trade and other payables
Borrowings
Derivative financial instrument
2015
Financial Liabilities
Trade and other payables
Borrowings
Derivative financial instrument
Derivatives
used for Cash
Flow Hedges
$'000
Derivatives
used for Fair
Value Hedges
$'000
Liabilities at
amortised cost
Total
$'000
$'000
-
-
1,042
1,042
-
-
1,184
1,184
-
-
15,309
15,309
-
-
-
-
73,628
410,649
-
484,277
63,571
515,161
-
578,732
73,628
410,649
16,351
500,628
63,571
515,161
1,184
579,916
(a) Foreign exchange risk
The Group has operations and borrowings in Singapore and is exposed to foreign exchange risk associated with the
Singapore dollar.
Foreign exchange risk arises from future commercial transactions and from recognised assets and liabilities
denominated in a currency that is not the entity’s functional currency.
The foreign exchange risk associated with the Singapore operations is managed through a natural hedge as the cash
flows from the Singapore operations are denominated in Singapore dollars.
The Group also has current Singapore dollar denominated corporate notes outstanding with a total value of
S$270m. On 18 May 2016 the Group entered into a cross currency swap agreement to hedge against 1) changes to
the AUD/SGD forward rate at inception to mitigate the foreign exchange exposure on the highly probable
repayment of SGD denominated borrowings (Senior Unsecured Notes issued under G8’s SGD 600million
Multicurrency Issuance Program); and 2) the foreign exchange exposure on the coupon payments associated with
the S$270m corporate notes where the group pays 6.54% on AUD 269,892,043 and receives 5.50% on SGD $270m.
The Group’s exposure to foreign currency risk at the end of the reporting period, expressed in Singapore dollars,
was as follows:
Cash and Cash equivalents
Trade receivables
Borrowings*
Trade payables
2016
SGD $'000
2015
SGD $'000
3,565
319
(262,977)
(240)
(259,333)
2,630
236
(410,814)
(118)
(408,066)
*The Group entered into a cross currency swap to hedge against foreign exchange exposure on SGD borrowings
whereby foreign exchange risk is mitigated by fair value movements being fully hedged.
The SGD to AUD exchange rate at 31 December 2016 was 0.9584.
64 G8 Education limited | Annual Report 2016
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 revaluation of cross currency swap included in finance costs - SGD borrowings
Net revaluation of the AUD/SGD call option included in finance costs
Net gains recognised in other comprehensive income
Translation of foreign operations
Net Revaluation of foreign exchange contract from prior period and recognition in
income statement
Net revaluation of the cross currency swap - SGD borrowings
2016
$'000
(10,080)
15,309
2,819
2016
$'000
(455)
(3,559)
1,042
2015
$'000
11,968
-
-
2015
$'000
1,514
3,559
-
Sensitivity
As shown in the table above, the Group's only foreign exchange risk relates to changes in AUD/SGD exchange rates.
The sensitivity of profit or loss to changes in the exchange rates arises mainly from SGD-dollar denominated
borrowings.
The group entered into a cross currency swap during the year to fully hedge against foreign currency exposure on
SGD borrowings. Due to the effective nature of the hedge arrangement there is no material impact on post tax
profits.
Accounting Policy
(i) Functional and presentation currency
Items included in the financial statements of each of the Group’s entities are measured using the currency of the
primary economic environment in which the entity operates (‘the functional currency’). The consolidated financial
statements are presented in Australian dollars, which is G8 Education Limited’s functional and presentation
currency.
(ii) Transactions and balances
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the
dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and
from the translation at year end exchange rates of monetary assets and liabilities 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 operation.
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. Translation differences on assets and liabilities carried at fair
value are reported as part of the fair value gain or loss.
65 G8 Education limited | Annual Report 2016
(iii) Group companies
The results and financial position of foreign operations that have a functional currency different from the
presentation currency are translated into the presentation currency as follows:
1. assets and liabilities 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 approximation of the cumulative effect of the rates
prevailing on the transaction dates, in which case income and expenses are translated at the dates of the
transactions); and
3. all resulting exchange differences are recognised in other comprehensive income.
On consolidation, exchange differences arising from the translation of any net investment in foreign entities and of
borrowings and other financial instruments designated as hedges of such investments, are recognised in other
comprehensive income.
Goodwill and fair value adjustments arising on the acquisition of a foreign operation are treated as assets and
liabilities of the foreign operation and are translated at the closing rate.
(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 2016 and 2015, the Group’s
borrowings at variable rates were denominated in Australian dollars only.
The Group’s fixed rate borrowings and receivables are carried at amortised 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.
Instruments used by the Group
At 2016 year end 76% of the borrowings outstanding at year end were fixed rate borrowings. The fixed interest
rates range between 6.54% and 7.65% per annum (2015 – between 3.75% 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 reporting period was 1.78% per
annum (2015 – 2.375% per annum). During the year the group entered into a cross currency swap. The swap
transaction was to hedge the 5.5% on SGD amount for 6.54% on AUD amount. The Bankwest facility variable rate
in the year ranged between 2% and 4%.
66 G8 Education limited | Annual Report 2016
As at the reporting date, the Group had the following variable rate borrowings outstanding:
Corporate Note
Bank facility
Net exposure to cash flow interest rate risk
31 December 2016
31 December 2015
Weighted
avg interest
rate
%
5.98%
2.44%
-
Balance
% of
Total
Loans
Weighted
avg interest
rate
Balance % of
Total
Loans
$'000
50,000
40,000
90,000
6.12%
$'000
50,000
-
-
- 50,000
9%
-
9%
12%
12%
12%
An analysis by maturities is provided in (d) following.
Amounts recognised in profit or loss and other comprehensive income
During the year the cross currency swap was partially redesignated as a cash flow hedge, the following gains/
(losses) were recognised in profit or loss and other comprehensive income in relation to cross currency swap.
Amounts recognised in other comprehensive income
Gains recognised as a result of cross currency swap designated as cash flow hedge
2016
$'000
1,042
2015
$'000
-
Group sensitivity
At 31 December 2016, 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 $88,291 higher or $88,291 lower
respectively (net profit for 2015: $87,740 higher or $87,740 lower respectively).
(c) Credit risk
Credit risk is managed on a Group basis. Credit risk arises from cash and cash equivalents, favourable derivative
financial instruments and deposits with banks and financial institutions, as well as credit exposures to trade and
other debtors. For banks and financial institutions, only independently rated parties with a minimum rating of ‘A’
are accepted .
The maximum exposure to credit risk at the reporting 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 collection 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 7.
67 G8 Education limited | Annual Report 2016
Trade receivables
Counterparties with external credit rating
AAA
Counterparties without external credit rating
Receivables (current and non-current)
Total receivables
Cash at bank and short term deposits
Counterparties with external credit rating - AA
2016
$'000
2015
$'000
13,620
12,405
9,328
22,948
10,539
22,944
26,467
193,840
(d) Liquidity risk
Prudent liquidity risk management implies maintaining sufficient cash and marketable securities and the availability
of funding through an adequate amount of committed credit facilities. The Group manages liquidity risk by
continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and
liabilities.
Financing arrangements
Details of financing arrangements are disclosed in note 19.
Maturities of financial liabilities
The table below analyses the Group’s financial liabilities into relevant maturity groupings based on the remaining
term at the reporting date to the contractual maturity date. The amounts disclosed in the table are the contractual
undiscounted cash flows. Balances due within 24 months equal their carrying balances as the impact of
discounting is not significant. For interest rate swaps the cash flows have been estimated using forward interest
rates applicable at the end of the reporting period.
0 to 6
months
6 to 12
months
Consolidated 2016
$'000
Between
2 and 5
years
>5years
Between
1 and 2
years
Total
contractual
cash flows
Carrying
Amount
Non Derivative
Corporate Note
Bank facility
Deferred centre
acquisition
Trade and other payables
Derivatives
11,537
11,895
107,092
378,704
623
623
623
40,623
-
-
509,228
378,021
42,491
40,000
-
73,628
4,073
-
75
-
225
-
825
-
5,198
73,628
4,752
73,628
Net settled (FX hedge)
1,783
1,839
7,943
8,342
-
19,907
16,351
68 G8 Education limited | Annual Report 2016
0 to 6
months
6 to 12
months
Consolidated 2015
$'000
Between
2 and 5
years
>5years
Between
1 and 2
years
Total
contractual
cash flows
Carrying
Amount
162,413
10,810
279,975
155,910
-
609,108
521,720
400
63,571
3,180
-
71
-
195
-
521
-
4,367
63,571
4,367
63,571
1,184
-
-
-
-
1,184
1,184
Non Derivative
Corporate Note
Deferred centre
acquisition
Trade and other payables
Derivatives
Net settled (FX hedge)
(e) Fair value measurements
The fair value of financial assets and financial liabilities must be estimated for recognition 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) quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1);
b) 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 present the Group’s assets and liabilities measured and recognised at fair value on a recurring
basis at 31 December 2015 and 31 December 2016:
At 31 December 2015
$000
Liabilities
Derivatives used for hedging
Contingent consideration (refer note 15)
At 31 December 2016
$000
Asset
Derivative financial asset
Liabilities
Derivatives used for hedging
Contingent consideration (refer note 15)
Level 1
Level 2
Level 3
Total
-
-
1,184
-
-
4,367
1,184
4,367
Level 1
Level 2
Level 3
Total
-
-
-
3,359
16,351
-
-
3,359
-
4,752
16,351
4,752
69 G8 Education limited | Annual Report 2016
The fair value of financial instruments that are not traded in an active market (for example, over-the-counter
derivatives) is determined using valuation techniques. These valuation techniques maximise the use of observable
market data where it is available and rely as little as possible on entity specific estimates. If all significant inputs
required to fair value an instrument are observable, the instrument is included in level 2. The fair value of the
financial instrument equals the carrying value.
Specific valuation 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 estimated 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.
On 18 May 2016 the Group entered into a cross currency swap agreement to hedge against 1) changes to the
AUD/SGD forward rate at inception to mitigate the foreign exchange exposure on the highly probable repayment of
SGD denominated borrowings (Senior Unsecured Notes issued under G8’s SGD 600million Multicurrency Issuance
Program); and 2) the foreign exchange exposure on the coupon payments associated with the S$270m corporate
notes where the group pays 6.54% on AUD 269,892,043 and receives 5.50% on SGD $270m.
The fair value movement on the principal repayment is being treated as a fair value hedge with all movements
being recorded through finance costs. The coupon payments associated with the corporate notes have been
designated as a cash flow hedge with all movements being recorded in other comprehensive income.
In February 2016 the Group closed out an AUD/SGD put option that was purchased to hedge against the currency
risk of the S$260m unsecured May 2017 notes. The gain on this instrument has been reflected though the profit
and loss.
On the 18th May 2016 purchased an AUD/SGD call option with a notional value of S$270,000,000, strike price of
$1.175 and maturity date of 18 May 2019. This instrument is not designated as a hedge instrument and was
purchased as an additional layer of counterparty security that ultimately eliminated collateral posting
requirements. The movement in the value of this option is recognised through the income statement.
Note 18: Current Assets - Cash and Cash Equivalents
Cash at bank and in hand
Deposits at call*
Total Cash and Cash Equivalents
Consolidated
2016
$'000
2015
$'000
26,448
19
26,467
175,978
17,862
193,840
*The effective average interest rate for the deposits at call was 1.3% (2015: 2.33%). Included above is $14,347 used
as security against the Company’s bank guarantee facility (2015: $14,203).
70 G8 Education limited | Annual Report 2016
(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 above
Term Deposits held as security against bank guarantees and foreign
exchange hedge
Balance as per Statement of Cash Flows
Consolidated
2016
$'000
26,467
(14)
26,453
2015
$'000
193,840
(14)
193,826
Accounting Policy
For statement of cash flows presentation purposes, cash and cash equivalents includes cash on hand, deposits held
at call with financial institutions, other short-term, highly liquid investments with original maturities of three
months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk
of changes in value.
Note19: Current and Non-Current Liabilities - Borrowings
Unsecured
Corporate Notes (a)
Total Unsecured Borrowings
Secured
Bankwest Facility
Total Secured Borrowings
Total Borrowings
Current
$'000
2016
Non-current
$'000
Total
$'000
Current
$'000
2015
Non-current
$'000
Total
$'000
-
-
-
-
370,649
370,649
370,649 148,891
370,649 148,891
366,270 515,161
366,270 515,161
40,000
40,000
410,649
40,000
40,000
-
-
410,649 148,891
-
-
-
-
366,270 515,161
As at 31 December 2016 the Group had $40m drawn from the $50m Bankwest facility. The facility termination date
is 31 December 2018.
(a) Corporate Notes
G8 Education Limited has the following Corporate Notes outstanding at year end:
Issue Date
Face Value in
Issue Currency
$000
Issue
Currency
Repayment
Date
Interest Rate %
Floating or
Fixed
7 August 2013
3 March 2014
18 May 2016
70,000
50,000
258,021
AUD
AUD
SGD
7 August 2019
3 March 2018
18 May 2019
7.65%
390bps + 90 day Bank Bill Rate Variable
5.50%
Fixed
Fixed
G8 Education Limited has complied with the financial covenants relating to the AUD and SGD Corporate Notes and
Bankwest Facility during 2016 and 2015 reporting periods.
On 18 May 2016 the Group entered into an AUDSGD cross currency swap whereby the Group pays 6.54% on AUD
$269,892,043 and receives 5.50% on S$270,000,000. The spot rate at inception was 0.9996. The objective of this
transaction is to hedge the highly probable repayment of SGD denominated borrowings (Senior Unsecured Notes
issued under G8’s S$600 million Multicurrency Issuance Program) by G8 Education against changes in the AUD/SGD
forward rate from that at the inception of this hedging relationship. The swap has been designated as a fair value
hedge of the highly probable repayment of S$270,000,000 Series 003 5.50% unsecured notes relating to the
71 G8 Education limited | Annual Report 2016
principal repayment of SGD denominated borrowings (senior unsecured notes under G8’s S$600,000,000 multi-
currency issuance program) and as a cash flow hedge from 1 July 2016 for the coupon payments associated with
the Series 003 notes. The movements of the foreign exchange on the fair value of the swap are recognised in
finance costs offset by similar movements on the borrowings and the movement of the fair value of the swap
associated with fixing the coupon payment has been recognised in equity.
Furthermore on the 18th May 2016 purchased an AUDSGD call option with a notional value of S$270,000,000, strike
price of $1.175 and maturity date of 18 May 2019. This instrument is not designated as a hedge instrument and
was purchased as an additional layer of counterparty security that ultimately eliminated collateral posting
requirements. The movement in the value of this option is recognised through the income statement.In February
2016 the Group closed out an AUD/SGD call option that was purchased to hedge against the currency risk of the
S$260m unsecured May 2017 notes. The gain on this instrument has been reflected though the profit and loss.
(b) Interest rate risk exposures
Details of the Group’s exposure to interest rate changes on debt are set out in note 17(b).
(c) 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 relation to certain leased premises.
The carrying amounts of assets pledged as security for current and non-current borrowings are:
Current
Floating charge
Cash and cash equivalents
Trade and other receivables
Other current assets
Total current assets pledged as security
Non-current
First mortgage
Buildings
Floating charge
Vehicles, plant and equipment
Total non-current assets pledged as security
Total assets pledged as security
Notes
18
7
8
9
9
Consolidated
2016
$'000
2015
$'000
26,467
22,948
9,234
58,649
193,840
22,943
9,754
226,537
4,298
4,450
50,547
54,845
113,494
36,920
41,370
267,907
72 G8 Education limited | Annual Report 2016
(d) Financing arrangements
As at 31 December 2016 the following lines of credit were in place:
Credit standby arrangements
Total facilities
Credit cards
Used at balance date
Unused at balance date
Bank loan facilities
Total facilities
Used at balance date
Unused at balance date
Bank Guarantee facilities
Total Facilities
Used at balance date
Unused at balance date
Corporate Notes
Total facilities
Used at balance date
Unused at balance date
Consolidated
2016
$'000
500
(25)
475
50,000
(40,000)
10,000
35,000
(33,557)
1,443
2015
$'000
500
(137)
363
50,000
-
50,000
30,000
(26,717)
3,283
410,649
(410,649)
-
515,161
(515,161)
-
The group maintains a secured facility for the provision of bank guarantees to landlords of premises leased by the
Group and senior debt.
(e) Fair value
The carrying amounts and fair values of borrowings at balance dates are as reflected in the Balance Sheet. The
SGD bond carrying amount is A$258m and the fair value is A$264.9m.
Accounting Policy
Measurement
Borrowings are initially recognised at fair value, net of transaction cost incurred. Borrowings are subsequently
measured at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption
amount is recognised in the income statement over the year of the borrowings using the effective interest method.
Fees paid on the establishment of loan facilities, which are not an incremental cost relating 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 obligation specified in the contract is discharged,
cancelled or expired. The difference between the carrying amount of a financial liability that has been extinguished
or transferred to another party and the consideration paid, including any non-cash assets transferred or liabilities
assumed, is recognised in profit or loss as other income or finance costs.
Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the
liability for at least 12 months after the balance date.
73 G8 Education limited | Annual Report 2016
Note 20: Derivative Financial Instruments
Non-Current Asset
Foreign exchange option
Total non-current derivative financial instrument asset
Current Liability
Interest rate swap
Non-Current Liability
Cross currency swap contracts - cash flow hedges
Cross currency swap contracts - fair value hedge
Total non-current derivative financial instrument liability
Consolidated
2016
$'000
2015
$'000
3,359
3,359
-
-
-
(1,184)
1,042
15,309
16,351
-
-
-
The Group is party to derivative financial instruments in the normal course of business in order to hedge exposure
to fluctuations in interest rates and foreign exchange rates in accordance with the Group’s financial risk
management policies (refer to note 17).
Accounting Policy
Derivatives are initially recognised at fair value on the date a derivative contract is entered into and subsequently
remeasured to their fair value at the end of each reporting period. The accounting for subsequent changes in fair
value depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item
being hedged. The Group designates certain derivatives as either:
(i) Hedges of a particular risk associated with the cash flows of recognised assets and liabilities and highly probable
forecast transactions (cash flow hedge); or
(ii) Hedges of a particular risk associated with the fair value of recognised assets and liabilities and highly probable
forecast transactions (fair value hedge)
The Group documents at the inception of the hedging transaction the relationship between hedging instruments
and hedged items, as well as its risk management objective and strategy for undertaking various hedge
transactions. The Group also documents its assessment, both at hedge inception and on an ongoing basis, of
whether the derivatives that are used in hedging transactions have been and will continue to be highly effective in
offsetting changes in fair values or cash flows of hedged items.
The fair values of derivative financial instruments used for hedging purposes are disclosed in note 20. Movements
in the hedging reserve in shareholders’ equity are shown in note 22. The full fair value of a hedging derivative 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.
Fair Value Hedge
The effective portion of changes in the fair value of derivatives that are designated and qualify as fair value hedges
is recognised in finance costs and offset with a similar gain or loss on the associated borrowings. There is no
ineffectiveness in the year 2016.
Cash flow hedge
The effective portion of changes in the fair value of derivatives 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 relating to the
ineffective portion is recognised immediately in profit or loss within other income or other expense.
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 relating to the effective
portion of interest rate swaps hedging variable rate borrowings is recognised in within finance costs.
When a hedging instrument expires or is sold or terminated, or when a hedge no longer meets the criteria for
hedge accounting, any cumulative gain or loss existing in equity at that time remains in equity and is recognised
when the forecast transaction is ultimately recognised in profit or loss. When a forecast transaction is no longer
expected to occur, the cumulative gain or loss that was reported in equity is immediately reclassified to profit or
loss.
74 G8 Education limited | Annual Report 2016
Consolidated
Consolidated
2016
Shares
2015
Shares
382,511,733 372,820,198
2016
$'000
641,848
2015
$'000
603,043
Note 21: Contributed Equity
(a) Share capital
Ordinary shares fully paid
(b) Movements in ordinary share capital
Details
31 December 2014 Balance
Share placement from script offer for Affinity Education Group Limited
Shares issued to Key Management Personnel
Shares held in escrow
Issuance of shares
Dividend reinvestment plan
Transaction costs of shares issued
Deferred tax credit recognised directly in equity
31 December 2015 Balance
31 December 2015 Balance
Dividend reinvestment plan
Issuance of shares
Transaction costs of shares issued
Deferred tax credit recognised directly in equity
31 December 2016 Balance
(c) Shares held in escrow under the executive share plan
Balance at the beginning of the financial year
Shares transferred under the plan
Total outstanding at the end of the financial year
Number of
Shares '000
$'000
353,692
2,535
3,122
(3,122)
3,288
10,183
-
-
369,698
369,698
9,692
1,707
-
-
381,097
548,374
8,402
11,302
(11,302)
12,889
33,500
(150)
28
603,043
603,043
32,272
6,537
(22)
18
641,848
Consolidated
2016
Shares '000
3,122
(1,707)
1,415
2015
Shares
-
3,122
3,122
(d) Ordinary shares
Ordinary shares entitle the holder to participate in dividends and the proceeds on winding up of the Company in
proportion to the number of and amounts paid on shares held.
On a show of hands every holder of ordinary shares present at a meeting in person or by proxy, is entitled to one
vote, and upon a poll each share is entitled to one vote.
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 entitlements satisfied by the issue of new ordinary shares. Shares are issued under
the plan. The Company advises the market at the time of announcing the dividend if there will be a discount
applied to the market price.
75 G8 Education limited | Annual Report 2016
(f) Capital risk management
The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern,
so that they can continue to provide returns for shareholders and benefits for other stakeholders and to maintain
an optimal 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 ratio. This ratio 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 ratios at 31 December were as follows:
Borrowings
Trade and other payables
Less: cash and cash equivalents
Net debt
Total equity
Total capital
Gearing ratio
Notes
19
11
18
Consolidated
2016
$'000
410,649
89,601
(26,467)
473,782
625,878
1,099,661
2015
$'000
515,161
83,054
(193,840)
404,375
602,785
1,007,160
43%
40%
The Directors assess an appropriate level of gearing based on a leverage rate of less than 45%. Gearing ratio is
calculated as net debt divided by total capital. Total capital is net debt plus total equity
Accounting Policy
Ordinary shares are classified as equity.
Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net
of tax, from the proceeds.
76 G8 Education limited | Annual Report 2016
Note 22: Reserves and Retained Earnings
Movements
Translation reserve
Opening balance
Currency translation differences arising during the year
Closing Balance
Profits 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
Revaluation - gross
Closing Balance
Total Reserves
Retained earnings movements
Opening balance
Profit for the year
Transfer to profits reserve
Closing Balance
(a) Nature and purpose of reserves
(i) Share-based payments
Consolidated
2016
$'000
6,026
(455)
5,571
33,706
87,994
(90,819)
30,881
344
(105)
239
3,559
(4,601)
(1,042)
35,649
Consolidated
2016
$'000
(43,893)
80,265
(87,994)
(51,622)
2015
$'000
4,512
1,514
6,026
22,745
98,852
(87,891)
33,706
-
344
344
-
3,559
3,559
43,635
2015
$'000
(33,622)
88,581
(98,852)
(43,893)
The share-based payments reserve is used to recognise the expensing of the grant date fair value of options issued
to employees but not exercised.
(ii) Translation
Exchange differences arising on translation of the foreign controlled entity are recognised in other comprehensive
income as described in note 17 and accumulated in a separate reserve within equity. The cumulative 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 20. Amounts are reclassified to profit or loss when
the associated hedge transaction 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 distribution as dividends in future years. Dividends amounting to $90.8 million (2015: $87.9 million)
were distributed from the profits reserve during the year.
77 G8 Education limited | Annual Report 2016
Note 23: Dividends
(a) Ordinary Shares
Dividends Declared or paid during the financial year were as follows:
Dividend for the quarter ended 31 March 2016 of 6.0 cents per share
(2015: 6.0 cents per share) paid on 8 April 2016 (2015: Paid on 10 April 2015)
Dividend for the quarter ended 30 June 2016 of 6.0 cents per share
(2015: 6.0 cents per share) paid on 8 July 2016 (2015: Paid on 7 July 2015)
2016
$'000
2015
$'000
22,481
21,549
22,616
21,903
Dividend for the quarter ended 30 September 2016 of 6.0 cents per share
(2015: 6.0 cents per share) paid on 7 October 2016 (2015: Paid on 7 October 2015)
22,772
22,070
Dividend for the quarter ended 31 December 2016 of 6.0 cents per share
(2015: 6.0 cents per share) paid on 6 January 2017 (2015: Paid 11 January 2016)
22,950
22,369
Dividends paid in cash or satisfied by the issue of shares
under the dividend reinvestment plan during the years
ended 31 December were as follows:
Paid in cash - March, June, September dividend
Dividend payable in cash December
Dividend reinvestment plan
Total dividend
Reconciliation to cash flow
Paid in cash - December dividend paid in January
Paid in cash - March, June, September dividend
Total paid in cash
90,819
87,891
2016
$'000
2015
$'000
41,497
12,846
36,476
90,819
40,355
16,467
31,069
87,891
16,467
41,497
57,964
12,889
40,355
53,244
(b) Franked credits
The franked portions of the December 2016 quarterly dividend will be franked out of existing franking credits.
Franking credits available for subsequent financial years
based on a tax rate of 30% (2015: 30%)
Consolidated
2016
$'000
2015
$'000
Parent Entity
2016
$'000
2015
$'000
11,622
14,868
11,622
14,868
The above amounts represent the balance of the franking account as at the end of the reporting period, adjusted
for:
a) Franking credits that will arise from the payment of the amount of the provision for income tax;
b) Franking debits that will arise from the payment of dividends recognised as a liability at the reporting date; and
c) Franking credits that will arise from the receipt of dividends recognised as receivables at the reporting date.
The consolidated amounts include franking credits that would be available to the parent entity if the distributable
profits of subsidiaries were paid as dividends.
78 G8 Education limited | Annual Report 2016
Accounting Policy
Provision is made for the amount of any dividend declared, being appropriately authorised and no longer at the
discretion of the entity, on or before the end of the financial year but not distributed at reporting date.
4. Group Structure
Note 24: Subsidiaries
The consolidated financial statements incorporate the assets, liabilities and results of the following subsidiaries in
accordance with the accounting policy set out in Note 35(b).
Name of Entity
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 Acquisitions (No.1) Pty Ltd
Ramsay Bourne Acquisitions (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 Acquisitions (No.1) Pty Ltd
World Of Learning Acquisitions Pty Ltd
World Of Learning Licences Pty Ltd
G8 KP Pty Ltd**
Sterling Early Education Finance Pty Ltd
Sterling Early Education Holdings Pty Ltd**
Woodland Education Operations Pty Ltd
Kindy Kids Operations Pty Ltd
CG Operations Pty Ltd **
Kool Kids Operations Pty Ltd **
North Shore Childcare Pty Ltd**
Ooorama Operations Pty Ltd**
Jacaranda Operations Pty Ltd**
Huggy Bear Operations Pty Ltd**
Jellybeans Operations Pty Ltd**
Janes Place Operations Pty Ltd
Jolimont Private Education Pty Ltd
WTTS Operations 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 Little Pigs Pty Ltd
79 G8 Education limited | Annual Report 2016
Country of
incorporation
Class of
Shares/Units
2016 2015
%
%
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
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
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
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
A.C.N 078 042 378 Pty Ltd
ES5 Pty Ltd
Kindy Patch Unit Trust
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**
The Trustee for Lane Cove CCC Unit Trust
Lane Cove CCC Pty Ltd
The Trustee for Waterloo CCC Unit Trust
Waterloo CCC Pty Ltd
The Trustee for GW Chatswood Unit Trust
GW Chatswood 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
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Singapore
Singapore
Singapore
Singapore
Singapore
Singapore
Singapore
Singapore
Singapore
Singapore
Singapore
Singapore
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
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
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
Australia
Ordinary
48
48
* The proportion of ownership interest is equal to the proportion of voting 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 Securities and Investment Commission. For further information please
refer to note 26.
80 G8 Education limited | Annual Report 2016
Note 25: Parent Entity Disclosures
As at, and throughout the financial year ended 31 December 2016 the parent entity of the Group was G8 Education
Limited.
Result of parent entity
Profit for the year after tax
Other comprehensive income
Total comprehensive income for the year
Financial position of parent entity at year end
Current assets
Non-current assets
Total assets
Current liabilities
Non-current liabilities
Total liabilities
Total equity of parent entity comprising of:
Contributed equity
Reserves
Accumulated losses
Total equity
Consolidated
2016
$'000
79,811
(5,056)
74,755
2015
$'000
90,519
3,559
94,078
36,542
1,080,209
1,116,751
233,993
994,220
1,228,213
125,239
376,090
501,329
641,848
30,079
(56,505)
615,422
251,487
371,051
622,538
603,043
31,445
(28,813)
605,675
Parent entity contingencies
Refer to note 28 for parent entity contingent liabilities.
Parent entity guarantees in respect of the debts of its subsidiaries
The parent entity 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 26.
Accounting Policy
The financial information for the parent entity, G8 Education Limited, has been prepared on the same basis as the
consolidated financial statements, except as set out below.
(i) Investments in subsidiaries
Investments in subsidiaries are accounted for at cost in the financial statements of G8 Education Limited.
(ii) Tax consolidation legislation
G8 Education Limited and its wholly-owned Australian controlled entities have implemented the tax consolidation
legislation.
The head entity, G8 Education Limited and the controlled entities in the tax consolidated Group account for their
own current and deferred tax amounts. These tax amounts are measured as if each entity in the tax consolidated
Group continues to be a standalone taxpayer in its own right.
In addition to its own current and deferred tax amounts, G8 Education Limited also recognises the current tax
liabilities (or assets) and the deferred tax assets arising from unused tax losses and unused tax credits assumed
from controlled entities in the tax consolidated Group.
81 G8 Education limited | Annual Report 2016
The entities have also entered into a tax funding agreement under which the wholly-owned entities fully
compensate G8 Education Limited for any current tax payable assumed and are compensated by G8 Education
Limited for any current tax receivable and deferred tax assets relating to unused tax losses or unused tax credits
that are transferred to G8 Education Limited under the tax consolidation legislation. The funding amounts are
determined by reference to the amounts recognised in the wholly-owned entities’ financial statements.
The amounts receivable/payable under the tax funding agreement is due upon receipt of the funding advice from
the head entity, which is issued as soon as practicable after the end of each financial year. The head entity may also
require payment of interim funding amounts to assist with its obligations to pay tax instalments.
Assets or liabilities arising under tax funding agreements with the tax consolidated entities are recognised as
current amounts receivable from or payable to other entities in the Group.
Any difference between the amounts assumed and amounts receivable or payable under the tax funding
agreement are recognised as a contribution to (or distribution from) wholly-owned tax consolidated entities.
82 G8 Education limited | Annual Report 2016
Note 26: Deed of Cross Guarantee
All Australia subsidiaries listed in Note 24 are considered to be in the closed group and 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 Securities and Investments Commission.
Below is a consolidated statement of comprehensive income for the year ended 31 December 2016 of the closed
group:
(a) Consolidated statements of comprehensive income
Revenue from continuing operations
Other income
Profit on sale of financial assets
Expenses
Employee benefits expense
Occupancy
Direct costs of providing services
Depreciation
Other expenses
Finance costs
Total expenses
Profit before income tax
Income tax (expense)
Profit for the year
Recycle to income statement for amount reversed in current period
Effective portion of changes in fair value of cash flow hedges
Total Comprehensive income for the year
2016
$'000
760,048
1,459
-
(423,780)
(85,639)
(57,603)
(11,333)
(25,092)
(45,750)
(649,197)
112,310
(34,581)
77,729
(3,559)
(1,042)
73,128
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
83 G8 Education limited | Annual Report 2016
(b) Balance Sheets
Set out below is a consolidated balance sheet as at 31 December of the Closed Group.
2016
$'000
2015
$'000
23,050
22,831
30,453
3,669
80,003
139
53,909
13,747
984,696
23,006
3,359
1,078,856
1,158,859
82,651
3,999
-
25,826
-
-
112,476
410,649
754
4,783
16,351
432,537
545,013
188,898
21,105
28,334
-
238,337
144,602
33,683
21,678
805,302
-
-
1,005,265
1,243,602
82,257
-
148,891
19,591
1,184
4,297
256,220
366,270
712
4069
-
371,051
627,271
613,846
616,331
641,848
29,714
(57,716)
613,846
603,043
36,274
(22,986)
616,331
Current assets
Cash and cash equivalents
Trade and other receivables
Other current assets
Current tax asset
Total current assets
Non-current assets
Investments in extended Group
Property, plant and equipment
Deferred tax assets
Intangible assets
Other non-current assets
Derivative Financial Instruments
Total non-current assets
Total assets
Current liabilities
Trade and other payables
Other creditors
Borrowings
Employee Entitlements
Derivative liability
Current tax liabilities
Total current liabilities
Non-current liabilities
Borrowings
Other payables
Employee Entitlements
Provisions
Total non-current liabilities
Total liabilities
Net assets
Equity
Contributed equity
Reserves
Accumulated losses
Total equity
84 G8 Education limited | Annual Report 2016
5. Unrecognised Items
Note 27: Commitments
(a) Capital commitments
There is no capital expenditure unconditionally contracted for at the reporting 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 facilities under non-cancellable operating leases. The leases have varying terms,
escalation clauses and renewal rights. On renewal, the terms of the leases are re-negotiated.
Commitments in relation to leases contracted for at the reporting date but not
recognised as liabilities:
Payable:
Within one year
Later than one year but no later than five years
Later than five years
Representing:
Non-cancellable operating leases
(ii) Finance Leases
The Group had no finance leases during 2016 or 2015.
Consolidated
2016
$'000
2015
$'000
86,406
242,078
164,788
493,272
81,191
233,038
172,484
486,713
493,272
486,713
Accounting Policy
Leases of property, plant and equipment where the Group, as lessee, has substantially all the risks and rewards of
ownership are classified as finance leases. Finance leases are capitalised at the lease’s inception at the fair value of
the leased property or, if lower, the present value of the minimum lease payments. The corresponding rental
obligations, net of finance charges, are included in other short-term and long-term payables. Each lease payment is
allocated between the liability and finance 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 leases are depreciated over the shorter of the asset’s useful
life and the lease term.
Leases in which a significant portion of the risks and rewards of ownership are not transferred to the Group as
lessee are classified as operating leases. Payments made under operating leases (net of any incentives received
from the lessor) are charged to the income statement on a straight-line basis over the year of the lease.
85 G8 Education limited | Annual Report 2016
Note 28: Contingencies
(a) Contingent liabilities
The Group had no contingent liabilities as at 31 December 2016 (2015: Nil).
Note 29: Events occurring after the balance sheet date
The following material matters have taken place subsequent to year end:
Gary Carroll was appointed Managing Director and Chief Executive Officer on 1 January 2017.
Sarah Zeljko was appointed Company Secretary on 16 January 2017.
Sharyn Williams was appointed Chief Financial Officer on 6 February 2017.
To support our strategy, in February 2017 the Group announced raising approximately $212 million from a share
placement to a subsidiary of China First Capital Group, a Hong Kong-listed investment company. The funding
raised from the issue will enable the Group to repay a portion of it’s A$ bond and bank debt facilities as well as
assisting in funding the acquisition of additional child care centres.
In accordance with the terms of the executive share plan a third of the shares issued will be cancelled by the
Group as the underlying EPS growth did not exceed 15% as required by the terms of the plan. The impact of this
has been accounted for in accordance with the requirements of AASB 2 in the current period. The Group plans to
discontinue the Executive Share Plan, which was in place for the full year in 2016 and will implement the new LTI
scheme subject to shareholder approval as outlined above.
86 G8 Education limited | Annual Report 2016
6. Other
Note 30: Employee Entitlements
Employee benefits
Consolidated
2016
$'000
25,956
25,956
2015
$'000
22,824
22,824
(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 unconditional entitlements where employees have completed the required period of service and
also those where employees are entitled to pro-rata payments in certain circumstances. The entire amount of the
annual leave provision is presented as current since the Group does not have an unconditional right to defer
settlement for any of these obligations. 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 obligations expected to be settled after 12 months
Consolidated
2016
$'000
2,575
2,575
2015
$'000
2,231
2,231
Accounting Policy
(i) Short term obligations
Liabilities for wages and salaries, including non-monetary benefits and annual leave expected to be settled wholly
within 12 months of the reporting date are recognised in other payables in respect of employees’ services up to the
reporting date and are measured at the amounts expected to be paid when the liabilities are settled. The liability
for annual leave is recognised in the provision for employee benefits. All other short-term employee benefit
obligations are presented as payables.
(ii) Other long-term employee benefit obligations
The liability for long service leave and in particular 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 reporting date using the projected unit credit method. Consideration 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 reporting date on corporate bonds with terms to maturity and
currency that match, as closely as possible, the estimated future cash outflows.
(iii) Share-based payments
Share-based payments made to employees and others providing similar services, that grant rights over the shares
of the parent entity, G8 Limited, are accounted for as equity-settled share-based payment transactions when the
rights over the shares are granted by G8.
87 G8 Education limited | Annual Report 2016
Equity-settled 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 option pricing
model. The expected life used in the model has been adjusted, based on directors’ best estimates, for the effects of
non-transferability, exercise restrictions, and behavioural considerations. The fair value determined at the grant
date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based
on the Company’s estimate of shares that will eventually vest. At each reporting date, the Group revises its
estimate of the number of equity instruments expected to vest. The impact of the revision of the original estimates,
if any, is recognised in profit or loss over the remaining vesting period, with corresponding adjustment to the
equity-settled employee benefits reserve.
Note 31: Key Management Personnel Disclosures
(a) Directors
The following persons were directors of G8 Education Limited during the financial year:
(i) Chairperson –Independent Non-Executive
M Johnson (appointed 1 January 2016)
(ii) Executive Directors
C Scott
(iii) Non-Executive Directors
B Bailison
S Forrester
D Foster (appointed 1 February 2016)
M Reynolds
(b) Other Key Management Personnel
The following persons also had authority and responsibility for planning, directing and controlling the activities of
the Group, directly or indirectly, during the financial year:
Name Position
J Roberts - Chief Executive Officer
G Carroll - Chief Financial Officer (appointed 25 July 2016)
T King - General Manager Operations
A Perriam - Executive Officer
C Sacre - Chief Financial Officer & Company Secretary until resignation on 27 May 2016
(c) Key Management Personnel compensation
Short term employee benefits
Post-employment benefits
Share based payments*
Dividend payments on escrow shares
Termination payments
Consolidated
2016
$
3,419,408
155,683
(105,284)
290,998
14,870
3,775,676
2015
$
2,139,163
111,094
343,690
374,664
-
2,968,611
*Includes the write back of share based payments expense due to vesting conditions not being met
The relevant information on detailed remuneration disclosures can be found in the Remuneration Report on pages
16 to 32.
88 G8 Education limited | Annual Report 2016
(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 32(a) for details of options issued to Key Management Personnel.
(ii) Option holdings
Refer to note 32(a) for details of options 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 Education Limited and
other Key Management Personnel of the Group, including their associates, are set out below. There were no shares
issued during the reporting year as compensation.
* C Sacre resigned as Chief Financial Officer on 27 May 2016
89 G8 Education limited | Annual Report 2016
2016Balance at the start of the yearShares to be cancelled under limited recourse loans disclosed as share optionsShares cancelled under limited recourse loans disclosed as share optionsOther changes during the yearBalance at the end of the yearDirectors of G8 Education LimitedOrdinary SharesM Johnson--025,00025,000C Scott 1,000,000(333,333)(333,333)-333,333B Bailison-----M Reynolds24,195---24,195S Forrester5,423--10,00015,423D Foster---14,58714,587Other Key Management Personnel of the GroupOrdinary SharesJ Roberts1,000,000(333,333)(333,333)-333,333G Carroll-----T King---631,329631,329A Perriam122,198(40,733)(40,733)-40,733C Sacre*1,848,000-(1,000,000)(848,000)-
2015
Directors of G8 Education Limited
Ordinary Shares
C Scott
B Bailison
M Reynolds
S Forrester
J Hutson*
A Kemp*
Other Key Management Personnel of the
Group
Ordinary Shares
J Roberts
T King
A Perriam
C Sacre*
Other
changes
during the
year
Balance at
the end of
the year
Balance at
the start of
the year
Shares
issued under
limited
recourse
loans
disclosed as
share
options
-
-
14,695
-
1,800,000
103,043
1,000,000
-
-
-
-
-
-
9,500
5,423
153,778
120,660
1,000,000
-
24,195
5,423
1,953,778
223,703
-
-
-
600,000
1,000,000
-
122,198
1,000,000
-
-
-
248,000
1,000,000
-
122,198
1,848,000
* C Sacre resigned as Chief Financial Officer on 27 May 2016
*J Hutson resigned 15 October 2015
*A Kemp resigned 17 March 2015
(e) Loans to Key Management Personnel
Details of loans made to directors of G8 Education Limited and other Key Management Personnel of the Group,
including their associates, are set out below.
(i) Aggregates for Key Management Personnel
Group
2016
2015
Balance at
the start of
the year
$
15,610,990
-
Shares issued
under limited
recourse
loans
disclosed as
share options
$
-
-
Other
changes
during the
year
Balance at
the end of
the year
$
(12,073,993)
-
$
3,536,997
15,610,990
(ii) Individuals with loans above $100,000 during the financial year
Refer to note 31(f)
90 G8 Education limited | Annual Report 2016
2016
Name
Balance at the
start of the year
C Scott
J Roberts
C Sacre
A Perriam
$
5,000,000
5,000,000
5,000,000
610,990
Limited
recourse loans
cancelled due to
vesting
condition not
being met
$
(1,666,667)
(1,666,667)
(1,666,667)
(203,663)
Limited
recourse loans
to be cancelled
due to vesting
condition not
being met
$
(1,666,667)
(1,666,667)
-
(203,663)
Forfeiture due
to resignation
Balance at the
end of the year
$
-
-
(3,333,333)
-
$
1,666,667
1,666,667
-
203,663
The Executive 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 until the loan is repaid. The shares are not able to be traded whilst the loan remains outstanding.
The Accounting Standards require that shares issued under employee incentive share plans in conjunction with
limited-recourse loans are to be accounted for as options. As a result, the amounts receivable from employees in
relation to these loans have not been recognised in the financial statements until repayment or part repayment of
the loans occur. The balance of limited recourse loans outstanding at 31 December 2016 is $3,536,997.
During the year the Group cancelled 1/3 of the KMP shares as the condition of 40% EPS growth from 2014 to 2015
was not met. Due to vesting conditions not being met in 2016, 1/3 of the shares in escrow were not issued. In
February 2017 the Group will discontinue the Executive Share Plan.
Refer to note 32 for the share based payments disclosure to Key Management Personnel.
2015
Name
Balance at the
start of the year
C Scott
J Roberts
C Sacre
A Perriam
$
-
-
-
-
Limited
recourse loans
cancelled due to
vesting
condition not
being met
$
-
-
-
-
Interest not
charged
Balance at the
end of the year
Highest
Indebtedness
during the year
$
-
-
-
-
$
5,000,000
5,000,000
5,000,000
610,990
$
5,000,000
5,000,000
5,000,000
610,990
91 G8 Education limited | Annual Report 2016
(f) Other transactions with Key Management Personnel
Details of material transactions and their impact on the financial statements exclusive of GST at year end that Key
Management Personnel and their related entities had with the Group during the year are as follows:
Mr C Scott (Managing Director) who had the following
transactions:
a) Interest charged on share loan agreement
b) Loan granted to nominee of Mr C Scott to purchase 1,000,000
shares G8 Education Limited for a total amount of $5,000,000
Revenue interest
income
Employment
Expenses
Mr C Sacre (Company Secretary and Chief Financial Officer) who
had the following transactions*:
a) Interest charged on share loan agreement
b) Loan granted to nominee of Mr C P Sacre to purchase 1,000,000
shares G8 Education 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
Revenue interest
income
Employment
expenses
Employment
expenses and
equity
Mr J Roberts (Chief Executive Officer) who had the following
transactions:
a) Loan granted to nominee of Mr J Roberts to purchase 1,000,000
shares G8 Education Limited for a total amount of $5,000,000
Employment
Expenses
Ms A Perriam (Junior Executive) who had the following
transactions:
a) Loan granted to nominee of Ms A Perriam to purchase 122,198
shares G8 Education Limited for a total amount of $610,990
Employment
Expenses
2016
2015
$
-
$
-
- 105,284
2016
2015
$
-
$
-
(105,284) 105,284
-
14,973
2016
2015
$
$
- 105,284
2016
2015
$
-
$
12,865
*Chris Sacre resigned on 27 May 2016 resulting in a write back of Share Based Payments expense.
On 21 May 2015 the Company obtained shareholders’ approval to offer:
The nominee of Chris Scott, 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 Executive 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 Executive, the right to acquire 122,198 Shares at $5.00 per Share with a total
value of $610,990.
92 G8 Education limited | Annual Report 2016
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
incentive to perform and to secure the ongoing commitment of each of them to the continued growth of the
Company. The shares were issued on 16 June 2015 (refer to note 21).
(g) The aggregate value of transactions with Key Management Personnel:
Revenue
Interest income
Expenses
Employment expense
Consolidated
2016
$
-
2015
$
-
(105,284)
343,690
93 G8 Education limited | Annual Report 2016
Note 32: Share–based payments
Details of options over ordinary shares in G8 Education Limited provided as an incentive to Key Management
Personnel of the Group are set out below. The value of options at grant date is set out below. When exercisable,
each option is convertible into one ordinary share of G8 Education Limited.
(a) Fair value of options granted
Executive Share Plan “the Plan”
In accordance with the terms and conditions 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. vesting conditions).
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 traditional
option plan, as the outstanding loan balance is effectively the ‘exercise price’ that must be paid before any value
can be realised.
The following is a summary of the key terms and conditions of the Plan:
The loan is repayable on termination 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 obligation 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 satisfaction 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 voting rights during the escrow period.
The shares rank equally with other ordinary shares on issue with respect to dividends, distribution 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 multiplied by $5 per share – exception is where the
borrower is unfit for work.
Shares are released to borrower in tranches – if conditions are not met then the shares are transferred or
cancelled 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.
During 2016 1/3 of the shares were cancelled due to conditions of performance criteria not being met. Due to the
vesting conditions not being met in 2016 shares 1/3 of the shares held in escrow were not released. The Group
plans to discontinue the Executive Share Plan, which was in place for the full year in 2016 and will implement the
new LTI scheme subject to shareholder approval.
94 G8 Education limited | Annual Report 2016
The table below shows the transactions relating to the plan during the year:
Name of Key Management Personnel
Plan Shares
Loan Amount
Christopher Scott
Jason Roberts
Ann Perriam
Chris Sacre
333,333
333,333
40,733
-
1,666,667
1,666,667
203,663
-
Share-based
payment
-
-
-
(105,284)
During 2016 the vesting condition was not met resulting in a NIL share based payment for C Scott, J Roberts and A
Perriam. C Sacre resigned resulting in a credit to reverse prior period share based payment expense.
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 Resolutions 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 option 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 after tax, non-cash share-
based payment of ($105,284) during the financial year with a corresponding credit to Shareholders’ Equity in the
form of a Share Option Reserve.
The treatment of the Plan Shares under applicable Accounting Standards as options 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 until
repayment or part repayment of the loans occurs. The Plan Shares were entitled to dividends of $441,996 from the
dividends paid on 8 April 2016, 8 July 2016, 7 October 2016 and 6 January 2017.
Valuation of instruments issued
Value of the financial Benefit
The financial benefit has been valued for accounting 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 option.
The option 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 option
value.
The Directors adopted the following assumptions:
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);
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);
Volatility of the share price over the expected life of the instrument of 32.809% (being the volatility for the
preceding 3 years as a proxy for expected future volatility over the life of the shares);
Volatility of earnings per share (EPS) growth for the years ending 31 December 2016 and 2017 of 59.33% (being
the volatility 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 distribution and
EPS growth follows a normal distribution.
Valuation inputs
95 G8 Education limited | Annual Report 2016
The valuation methodology is a function of the relationship between a number of valuations, including the share
price, the strike price, and the time of vesting and the volatility of the share price.
The application of the methodology therefore requires a number of inputs, some of which must be assumed. The
key inputs used in the valuation 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 effective date;
Time to expiry: The tranches expire on 31 December 2015, 31 December 2016 and 31 December 2017
respectively, if the vesting conditions 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;
Volatility of share price: this has been calculated for the preceding three years as a proxy for expected future
volatility over the life of the Shares.
The valuation methodology also took into consideration:
That the shares are to be issued at an effective exercise price of $5.00 which is a premium to the current volume
weighted average of $3.64 for the last month. Accordingly, no financial benefit will accrue to the recipient upon
issue of the shares as the shares are secured by a limited recourse loan and restricted pending performance targets
being met.
The EPS growth hurdle which is required to be met prior to each tranche of the shares vesting which requires
assumptions as to the probability that the performance targets will be met; in respect of the performance targets
for 31 December 2015, the probability of meeting the target was assumed to be 60%, for 31 December 2016, and
31 December 2017, the estimate a probability of the EPS growth target being met was assumed to be 51.05%. The
basis for these assumptions is that EPS growth follows a normal distribution and in other words, EPS follows a
lognormal distribution. This method is a proxy which is consistent with various share and option pricing models on
share price movements. The Black-Scholes value is then adjusted to arrive at the expected present value of the
option component.
Movement in options / share is subject to limited recourse loan
Balance at the beginning of the financial year
Granted during the year
Forfeited during the year
Exercised during the year
Balance at the end of the financial year
* Shares have been issued and are subject to payment of loan
Loan Balance ($)
Number of
Shares*
3,122,198
15,610,990
- -
(1,707,399)
(8,536,997)
- -
7,073,993
1,414,799
In February 2017 the Group plans to discontinue the Executive Share Plan this will result in a NIL balances of share
on issue to KMP.
(b) Expenses arising from share-based transactions
Expenses arising from share-based payment transactions recognised during the year as part of employee benefit
expenses were as follows:
Share-based payment expense on shares issued to KMP
96 G8 Education limited | Annual Report 2016
Consolidated
2016
$'000
(105)
(105)
2015
$'000
344
344
Note 33: 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
Ernst & Young
Audit and review of financial reports – half year
Audit and review of financial reports – year end
HLB Mann Judd
Audit and review of financial reports – half year
Audit and review of financial reports – year end
2. Non-audit service
Ernst & Young - accounting advice
Total Remuneration for audit services
Consolidated
2016
$
2015
$
75,000
140,000
-
-
-
-
75,000
140,000
20,000
235,000
-
215,000
97 G8 Education limited | Annual Report 2016
Note 34: Related Party Transactions
(a) Parent entity
The parent entity within the Group is G8 Education Limited.
(b) Subsidiaries
Interests in subsidiaries are set out in note 24.
(c) Key Management Personnel
For details of transactions that Key Management Personnel and their related entities had with the Group during the
year refer note 31.
(d) Outstanding balance arising from transactions with related parties
The following balances are outstanding at the reporting date in relation to transactions with related parties:
Current payable (purchase of goods and services)
Key Management Personnel
Consolidated
2016
$'000
2015
$'000
-
-
No allowance for doubtful debts was raised in relation to any outstanding balances, and no expenses were
recognised in respect of bad or doubtful debts due from related parties. All transactions with related parties during
the year were made on normal commercial terms and conditions. Outstanding balances were secured and are
repayable in cash.
Note 35: Other significant accounting policies
The principal accounting policies adopted in the preparation of the consolidated financial statements are set out
below. These policies have been consistently applied to all the years presented, unless otherwise stated. The
consolidated financial statements are for the consolidated entity consisting of G8 Education Limited and its
subsidiaries.
(a) Basis of preparation
These general purpose financial statements have been prepared in accordance with Australian Accounting
Standards (AASB), Australian Accounting Interpretations, other authoritative pronouncements of the Australian
Accounting Standards Board and the Corporations Act 2001.
The Company is a listed for profit public Company, incorporated in Australia and operating in Australia and
Singapore. The Company’s principal activities are operating child care centres and ownership of franchised child
care centres.
The financial statements were authorised for issue on 20 February 2017.
Compliance with IFRS
Compliance with AASB ensures that the financial report of G8 Education Limited and the Group complies with
International Financial Reporting Standards (IFRS).
Historical cost convention
These financial statements have been prepared under the historical cost convention as modified, where applicable,
by the measurement at fair value of selected non-current assets, financial assets and liabilities (including derivative
instruments).
98 G8 Education limited | Annual Report 2016
(b) Principles of consolidation
Subsidiaries
The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of G8 Education
Limited (“Company” or “parent entity”) as at 31 December 2016 and the results of all subsidiaries for the year then
ended.
G8 Education Limited and its subsidiaries together are referred to in this financial report as the Group or the
consolidated entity.
Subsidiaries are entities controlled by the Group. The Group controls an entity when it is exposed to, or has rights
to, variable returns from its involvement with the entity and has the ability to affect those returns through its
power over the entity.
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 transactions, balances and unrealised gains on transactions between Group companies are
eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of the impairment of
the asset transferred.
Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies
adopted by the Group.
(c) Goods and Services Tax (GST)
Revenues, expenses and assets and liabilities are recognised net of the amount of associated GST, unless the GST
incurred is not recoverable from the taxation authority. In this case it is recognised as part of the cost of acquisition
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 taxation 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 investing or financing
activities which are recoverable from, or payable to the taxation authority, are presented as operating cash flows.
(d) Rounding Amounts
The Company is of a kind referred to in ASIC Corporations (Rounding in Financial/Directors’ reports) Instrument
2016/191, relating to the “rounding off” of amounts in the financial reports. Amounts in the financial statements
have been rounded off in accordance with that Instrument to the nearest thousand dollars, or in certain cases, the
nearest dollar.
(e) Going concern
The Group has recognised a net profit after tax of $80m for the year ended 31 December 2016 and as at that date,
current liabilities exceed current assets by $53m (2015 $33.8m). Management expect the working capital shortfall
will be met out of operating cash flows or from finance facilities.
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 liabilities are likely to be discharged, at the amounts
recognised in the financial statements in the ordinary course of business.
99 G8 Education limited | Annual Report 2016
(f) New accounting standards and interpretations for application in future periods
PRONOUNCEMENTS AASB 16 Leases
NATURE OF THE
CHANGE IN
ACCOUNTING
POLICY
IFRS 16 will cause the majority of leases of an entity to be brought onto the Balance
Sheet. There are limited exceptions relating to short-term leases and low value assets
which may remain off-balance sheet.
The calculation 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 amortised over the
term of the lease.
Rent expense will no longer be shown, the profit and loss impact of the leases will be
through amortisation and interest charges.
Annual reporting period beginning on or after 1 January 2019.
The Group has made a high level assessment of the standard on the Group's financial
statement but has not completed a detailed review of the impact. It is anticipated that
the Group’s interest and amortisation expense will increase and rental expense will
decrease.
EFFECTIVE DATE
EXPECTED IMPACT
ON THE FINANCIAL
STATEMENTS
PRONOUNCEMENTS AASB 9 Financial Instruments.
NATURE OF THE
CHANGE IN
ACCOUNTING
POLICY
AASB 2010-7 Amendments to Australian Accounting Standards arising from AASB 9
(December 2009).
AASB 2012-6 Amendments to Australian Accounting Standards – Mandatory Effective
Date of AASB 9 and Transitional Disclosures.
AASB 2013-9 Amendments to Australian Accounting Standards – Conceptual Framework,
Materiality and Financial Instruments.
AASB 2014-1 Amendments to Australian Accounting Standards.
Significant revisions to the classification and measurement of financial assets, reducing
the number of categories and simplifying the measurement choices, including the
removal of impairment testing of assets measured at fair value.
The amortised cost model is available for debt assets meeting both business model
and cash flow characteristics tests. All investments in equity instruments using AASB 9
are to be measured at fair value.
Amends measurement rules for financial liabilities that the entity elects to measure at fair
value through profit and loss. Changes in fair value attributable to changes in the entity’s
own credit risk are presented in other comprehensive income.
Chapter 6 Hedge Accounting supersedes the general hedge accounting requirements in
AASB 139 Financial Instruments: Recognition and Measurement, which many consider to
be too rules-based and arbitrary. Chapter 6 requirements include a new approach to
hedge accounting that is intended to more closely align hedge accounting with risk
management activities undertaken by entities when hedging financial and non-financial
risks.
Some of the key changes from AASB 139 are as follows:
· to allow hedge accounting of risk components of non-financial items that are identifiable
and measurable (many of which were prohibited from being designated as hedged items
under AASB 139);
100 G8 Education limited | Annual Report 2016
· changes in the accounting for the time value of options, the forward element of a
forward contract and foreign-currency basis spreads designated as hedging instruments;
and
· modification of the requirements for effectiveness testing (including removal of the
‘bright- line’ effectiveness test that offset for hedging must be in the range 80-125%).
Revised disclosures about an entity’s hedge accounting have also been added to AASB 7
Financial Instruments: Disclosures.
Impairment of assets is now based on expected losses in AASB 9 which requires entities
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 after the
reporting date); or
· full lifetime expected credit losses (expected credit losses that result from all possible
default events over the life of the financial instrument.
Annual reporting periods beginning on or after 1 January 2018.
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 consequential
amendments to AASB 7 and AASB 139 in their entirety.
EFFECTIVE DATE
EXPECTED IMPACT
ON THE FINANCIAL
STATEMENTS
PRONOUNCEMENTS AASB 15 Revenue from contracts with customers
NATURE OF THE
CHANGE IN
ACCOUNTING
POLICY
AASB 15 introduces a five step process for revenue recognition with the core principle of
the new Standard being for entities to recognise revenue to depict the transfer of goods
or services to customers in amounts that reflect the consideration (that is, payment) to
which the entity expects to be entitled in exchange for those goods or services.
Accounting policy changes will arise in timing of revenue recognition, treatment of
contracts costs and contracts which contain a financing element.
AASB 15 will also result in enhanced disclosures about revenue, provide guidance for
transactions that were not previously addressed comprehensively (for example, service
revenue and contract modifications) and improve guidance for multiple-element
arrangements.
Annual reporting periods beginning on or after 1 January 2018
The Group has not yet assessed what impact, if any, this standard will have on the
Group’s financial statements
EFFECTIVE DATE
EXPECTED IMPACT
ON THE FINANCIAL
STATEMENTS
101 G8 Education limited | Annual Report 2016
Directors’ Declaration
In the Directors’ opinion:
(a) the financial statements and notes set out on pages 37 to 102 are in accordance with the Corporations Act
2001, including:
(i) complying with Accounting Standards, the Corporations Regulations 2001 and other mandatory professional
reporting requirements; and
(ii) giving a true and fair view of the consolidated entity’s financial position as at 31 December 2016 and of its
performance for the financial year ended on that date;
(b) there are reasonable grounds to believe that the Company will be able to pay its debts as and when they
become due and payable; and
(c) at the date of this declaration, there are reasonable grounds to believe that the members of the extended
closed Group identified in note 26 will be able to meet any obligations or liabilities to which they are, or may
become, subject by virtue of the deed of cross guarantee described in note 26.
Note 35(a) confirms that the financial statements also comply with International Financial Reporting Standards as
issued by the International Accounting Standards Board.
The Directors have been given the declarations by the Managing Director and Chief Financial Officer required by
section 295A of the Corporations Act 2001.
This declaration is made in accordance with a resolution of the Directors.
Gary Carroll
Director
20 February 2017
102 G8 Education limited | Annual Report 2016
Ernst & Young
111 Eagle Street
Brisbane QLD 4000 Australia
GPO Box 7878 Brisbane QLD 4001
Tel: +61 7 3011 3333
Fax: +61 7 3011 3100
ey.com/au
INDEPENDENT AUDITOR’S REPORT
To the Shareholders of G8 Education Limited
Report on the Audit of the Financial Report
Opinion
We have audited the financial report of G8 Education Limited (the Company), including its subsidiaries
(the Group), which comprises the consolidated statement of financial position as at 31 December
2016, the 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.
In our opinion:
the accompanying financial report of the Group is in accordance with the Corporations Act 2001,
including:
(i)
giving a true and fair view of the Group’s financial position as at 31 December 2016 and of its
consolidated financial performance for the year ended on that date; and
(ii)
complying with Australian Accounting Standards and the Corporations Regulations 2001.
Basis for Opinion
We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under
those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial
Report section of our report. We are independent of the Group in accordance with the Corporations
Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s
APES110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the
financial report in Australia; and we have fulfilled our other ethical responsibilities in accordance with
the Code.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis
for our opinion.
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
Key Audit Matters
Key audit matters are those matters that, in our professional judgment, were of most significance in
our audit of the financial report of the current year. These matters were addressed in the context of
our audit of the financial report as a whole, and in forming our opinion thereon, but we do not provide
a separate opinion on these matters. For each matter below, our description of how our audit
addressed the matter is provided in that context.
We have fulfilled the responsibilities described in the Auditor’s Responsibilities for the Audit of the
Financial Report section of our report, including in relation to these matters. Accordingly, our audit
included the performance of procedures designed to respond to our assessment of the risks of
material misstatement of the financial statements. The results of our audit procedures, including the
procedures performed to address the matters below, provide the basis for our audit opinion on the
accompanying financial report.
1. Impairment Assessment of Goodwill
Why significant
How our audit addressed the key audit matter
The Group is required under Australian
Accounting Standards - AASB 136 ‘Impairment
of assets’ to perform an annual impairment test
of the carrying value of goodwill.
The Group comprises one operating segment and
one cash generating unit. The carrying value is
supported by a value in use cash flow forecast.
The cash flow forecasts depend upon
assumptions about future operating and financial
performance. These include judgements and
estimates over the expectation of future
revenues, anticipated EBITDA (which includes
assessment as to the costs incurred), growth
rates expected for G8 and the discount rate
applied.
The Group’s disclosures are included in note 16
to the financial statements, which includes the
key assumptions applied by the Group.
We examined the forecast cash flows which underpin
the Group’s impairment model and tested the basis of
preparing those forecasts taking into account
historical evidence supporting underlying
assumptions.
Future cash flow assumptions were evaluated
through comparison with current trading
performance, seeking corroborative evidence and
enquiry with the Group in respect of key growth and
trading assumptions.
We evaluated the Group’s identification of the CGU
and tested the mathematical accuracy of the
impairment model. We performed sensitivity analysis
over the model including in respect of growth rates
and discount rates.
We assessed other key assumptions including the
discount rate and long term growth rate with
involvement from EY valuation specialists.
We considered the adequacy of the Intangible Assets
disclosure in note 16 to the financial statements.
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
2. Acquisition Accounting
Why significant
How our audit addressed the key audit matter
The Group acquired a number of childcare
centres during 2016. Acquisition accounting
requires judgment in identifying and assessing
the fair value of the assets and liabilities
acquired including contingent consideration
payable to the vendors. Contingent
consideration is determined based on estimates
and assumptions about the future performance
of the acquired business. Given the level of
judgment in estimating the fair value as well as
the contingent consideration that may be paid by
G8, we consider this to be a significant audit risk.
Refer to note 15 to the financial statements for
disclosure relating to acquisition accounting.
In obtaining sufficient audit evidence, we:
►
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►
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Assessed the acquisition accounting entries
presented by the Group;
Evaluated the methodology applied to identify
and value the assets and liabilities (including
contingent consideration);
Agreed key items to underlying data including
contracts and settlement statements;
Assessed the terms and conditions of the sale
agreement;
Assessed the future earnings assumptions
impacting the contingent consideration,
comparing forecast performance to current and
historical trading results;
Assessed the amount and accounting treatment
of acquisition costs; and
Considered the allocation of goodwill to the Cash
Generating Unit.
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
3. Revenue Recognition
Why significant
How our audit addressed the key audit matter
Revenue is recognised by the Group when the
underlying service has occurred (i.e. the
provision of childcare services). The Group
focuses on revenue as a key performance
measure for executives and it is also a key
parameter by which the performance of the
Group is measured. Due to the significant
volume and balance of revenue we consider it a
key audit matter.
Refer to note 2 to the financial statements for
disclosure relating to revenues.
Our audit evaluated revenue recognised in
accordance with Australian Accounting Standards -
AASB 118 ‘Revenue’. To do this, we:
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Assessed the Group’s design and operating
effectiveness of key controls over the
recognition of revenue;
Performed substantive analytical procedures
specifically over cut-off at year end;
Tested revenue transactions to assess whether
revenue was recognised in the appropriate
period and that the transactions reconciled to
the underlying rates charged;
Assessed the completeness of the deferred
revenue balance;
Tested reconciliations relating to revenue
recognised and agreed this to support including
receipts of the Child Care Benefit and Child Care
Rebate payments;
Assessed journal entries for large or unusual
entries relating to revenue; and
Assessed the adequacy of the Group’s
disclosures in respect of the accounting policies
on revenue recognition.
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
4. Foreign Currency Hedge Transactions
Why significant
How our audit addressed the key audit matter
We tested, on a sample basis, whether the hedge
documentation met the requirements of Australian
Accounting Standards to assess whether the fixed
rate debt instrument, interest rate and foreign
currency hedge instruments were eligible for hedge
accounting.
Furthermore, we considered the prospective and
retrospective effectiveness testing to assess whether
the hedge relationships were effective. We checked
the calculation of the hedge effectiveness with
involvement from management’s treasury expert.
We reconciled the outcome of the retrospective
effectiveness testing to the financial statements,
where applicable.
We considered the completeness and accuracy of the
disclosures relating to derivative financial
instruments included in the financial statements.
The Group enters into financial instruments to
hedge both the interest rate and foreign
currency risk in its portfolio of fixed rate debt.
For accounting purposes the Group applies both
cash flow and fair value hedge accounting. In
order to apply hedge accounting, the Group is
required to comply with a number of
requirements under Australian Accounting
Standards, including:
• Formally documenting the hedge relationship;
• Performing prospective and retrospective
(quantitative) ineffectiveness testing; and
• Recording any resulting effectiveness in the
consolidated statement of comprehensive
income.
Given the technical requirements that are
applicable to the application of hedge accounting
and that incorrect application of these
requirements can lead to a material effect on the
consolidated statement of comprehensive
income, we determined this to be a significant
item for our audit.
Refer to note 20 to the financial statements for
disclosure relating to foreign currency hedge
transactions.
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
Information Other than the Financial Statements and Auditor’s Report
The Directors are responsible for the other information. The other information comprises the
information in the Group’s Annual Report for the year ended 31 December 2016, but does not include
the financial report and the auditor’s report thereon.
Our opinion on the financial report does not cover the other information and we do not express any
form of assurance conclusion thereon.
In connection with our audit of the financial report, our responsibility is to read the other information
and, in doing so, consider whether the other information is materially inconsistent with the financial
report or our knowledge obtained in the audit or otherwise appears to be materially misstated. If,
based upon the work we have performed, we conclude that there is a material misstatement of this
other information, we are required to report that fact. We have nothing to report in this regard.
Directors’ Responsibilities for the Financial Report
The Directors of the Company are responsible for the preparation of the financial report that gives a
true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001
and for such internal control as the Directors determine is necessary to enable the preparation of the
financial report that gives a true and fair view and is free from material misstatement, whether due to
fraud or error.
In preparing the financial report, the Directors are responsible for assessing the Group’s ability to
continue as a going concern, disclosing, as applicable, matters related to going concern and using the
going concern basis of accounting unless the Directors either intend to liquidate the Group or cease
operations, or have no realistic alternative but to do so.
Auditor’s Responsibilities for the Audit of the Financial Report
Our objectives are to obtain reasonable assurance about whether the financial report as a whole is
free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that
includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that
an audit conducted in accordance with Australian Auditing Standards will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and are considered material
if, individually or in the aggregate, they could reasonably be expected to influence the economic
decisions of users taken on the basis of this financial report.
As part of an audit in accordance with Australian Auditing Standards, we exercise professional
judgment and maintain professional scepticism throughout the audit. We also:
►
Identify and assess the risks of material misstatement of the financial report, whether due to
fraud or error, design and perform audit procedures responsive to those risks, and obtain audit
evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not
detecting a material misstatement resulting from fraud is higher than for one resulting from
error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the
override of internal control.
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
► Obtain an understanding of internal control relevant to the audit in order to design audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the entity’s internal control.
►
►
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting
estimates and related disclosures made by the Directors.
Conclude on the appropriateness of the Directors’ use of the going concern basis of accounting in
the preparation of the financial report. We also conclude, based on the audit evidence obtained,
whether a material uncertainty exists related to events and conditions that may cast significant
doubt on the entity’s ability to continue as a going concern. If we conclude that a material
uncertainty exists, we are required to draw attention in the auditor’s report to the disclosures in
the financial report about the material uncertainty or, if such disclosures are inadequate, to
modify the opinion on the financial report. However, future events or conditions may cause an
entity to cease to continue as a going concern.
►
Evaluate the overall presentation, structure and content of the financial report, including the
disclosures, and whether the consolidated financial statements represent the underlying
transactions and events in a manner that achieves fair presentation.
We communicate with the Directors regarding, among other matters, the planned scope and timing of
the audit and significant audit findings, including any significant deficiencies in internal control that we
identify during our audit.
We also provide the Directors with a statement that we have complied with relevant ethical
requirements regarding independence, and to communicate with them all relationships and other
matters that may reasonably be thought to bear on our independence, and where applicable, related
safeguards.
From the matters communicated to the Directors, we determine those matters that were of most
significance in the audit of the financial report of the current year and are therefore the key audit
matters. We describe these matters in our auditor’s report unless law or regulation precludes public
disclosure about the matter or when, in extremely rare circumstances, we determine that a matter
should not be communicated in our report because the adverse consequences of doing so would
reasonably be expected to outweigh the public interest benefits of such communication.
Report on the Remuneration Report
Opinion on the Remuneration Report
We have audited the Remuneration Report included in pages 16 to 32 of the Directors' Report for the
year ended 31 December 2016.
In our opinion, the Remuneration Report of G8 Education Limited for the year ended 31 December
2016, complies with section 300A of the Corporations Act 2001.
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
Responsibilities
The Directors of the Company are responsible for the preparation and presentation of the
Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our
responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in
accordance with Australian Auditing Standards.
Ernst & Young
Ric Roach
Engagement Partner
Brisbane
20 February 2017
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
Shareholder Information
The total issued capital of the Company as at 31 December 2016 was 382,511,773. On 6 January 2017, 2,976,320
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 385,488,093.
The Shareholder information set out below was applicable as at 8 February 2017.
(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
264,157,921
57,766,105
28,369,246
31,248,939
3,945,882
385,488,093
Holders
116
2,558
3,817
11,910
7,545
25,946
Options
68.53%
14.99%
7.36%
8.11%
1.01%
100.00%
There were 864 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
National Nominees Ltd
Citicorp Nominees Pty Ltd
BNP Paribas Nominees Pty Ltd
Geosine Pty Ltd
Mrs Kimberley Yin
RBC Investor Services
Geosine Pty Ltd
Brazil Farming Pty Ltd
Mr Craig Graeme Chapman
Mr Christopher Douglas Passfield & Mrs Rhonda Passfield
Mr Duncan Fraser Forrest & Mrs Judy Marie Forrest
Mr Garry Ronald Klye & Mrs Robyn Elizabeth Klye
Forsyth Barr Custodians Ltd
UBS Nominees Pty Ltd
Mrs Juwarseh Scott
Viss Holdings Pty Ltd
Mr Riccardo Pisaturo
AMP Life Ltd
112 G8 Education limited | Annual Report 2016
Quoted
ordinary
shares held
75,990,034
74,553,491
23,511,926
15,983,231
11,727,734
6,003,260
4,854,726
3,693,606
3,174,999
2,870,000
2,300,000
2,000,000
1,901,750
1,710,000
1,615,563
1,585,972
1,300,000
1,270,683
1,200,000
984,466
238,231,441
Percentage
of issued
shares
19.87
19.49
6.15
4.18
3.07
1.57
1.27
0.97
0.83
0.75
0.60
0.52
0.50
0.45
0.42
0.42
0.34
0.33
0.31
0.26
62.28
(c) Substantial holders]
Substantial holders as at 8 February 2017 in the Company are set out below:
Ordinary Shares
UBS Group AG
J P Morgan Nominees Australia
Number held
32,280,565
24,202,029
Percentage
8.44%
7.47%
(d) Voting rights
The voting rights attached to each class of equity securities are set out below.
(i) Ordinary shares
On a show of hands every member present at a meeting in person or by proxy shall have one vote and upon a poll
each share will have one vote.
(ii) Options
There are no voting rights attached to the options.
(iii) Unquoted securities
There are no unquoted securities on issue.
113 G8 Education limited | Annual Report 2016
Corporate Directory
Directors
M Johnson, Chairman
G Carroll, Managing Director (appointed 1 January
2017)
www.g8education.edu.au
Share registry:
Advanced Share Registry Limited
150 Stirling Hwy
Nedlands, WA 6009
C Scott, Executive Director
B Bailison, Non-Executive Director
M Reynolds, Non-Executive Director
S Forrester, Non-Executive Director
D Foster, Non-Executive Director
Company Secretary
S Zeljko
Auditor:
Ernst & Young
111 Eagle Street,
Brisbane, QLD 4001
Lawyers:
Minter Ellison Gold Coast
165 Varsity Parade
Varsity Lakes QLD 4217
Principal registered business office in Australia
G8 Education 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 Education Limited shares are listed on the Australian
Securities Exchange under the ticker code GEM.
159 Varsity Parade, Varsity Lakes
Telephone: 07 5581 5300
Facsimile: 07 5581 5311
114 G8 Education limited | Annual Report 2016
www.g8education.edu.au