AN NUAL
REPORT
2018
OUR VALUES
INTEGRITY“Our moral compass points true north and is the beacon for the little eyes that watch and interpret our actions.”DEDICATION“We go home tired but satisfied everyday knowing that we put our hearts and souls into making our families and children proud to be our partners.”INNOVATION“There are endless possibilities when working in our sector. Children see the world in a simpler way than adults and sometimes it’s the simple path that leads to the greatest innovation.”COMPASSION“Our smallest acts of kindness often put the largest smile on a face.”PASSION“We have an infectious, positive attitude and are excited every day to be a part of our unique calling.” CONTENTS
SECTION ONE
Our People
Our Centres
Our Portfolio
Sustainability
Strategic Partnerships
Strategic Focus
At a Glance
Chairman’s Report
CEO Report
Key Operational Information
Directors’ Report
Remuneration Report
SECTION TWO
Financial Report
Shareholder Information
Corporate Directory
2
4
6
8
10
11
12
16
18
20
22
28
48
117
119
G8 EDUCATION LIMITED ANNUAL REPORT 2018
1
OUR PEOPLE
CENTRE MANAGER CONFERENCE
The 2018 Centre Manager Conference enabled our
people to collaborate, connect and celebrate the
important role they play in the lives of thousands of
Australian families.
More than 600 delegates joined together for the
two-day event in Brisbane themed Opportunity.
G8 Education’s highest-performing centres and
individuals were recognised, and keynote speakers
delivered entertaining and insightful presentations
which highlighted the opportunity we have to build
and operate a network of amazing early education
centres that deliver our purpose of creating spaces
that shape generations both now and next.
2
G8 EDUCATION LIMITED ANNUAL REPORT 2018
SUPPORTING AND CELEBRATING THE
IMPORTANT ROLE WE PLAY
Our people are our most valued asset and
2018 saw significant investment in employee
remuneration, professional development and
learning programs, including wage increases in
our centres above and beyond.
During 2018 G8 Education made some
significant improvements in the way we support
our people to ensure an even better experience
for the children and families in our care.
Recognition was a recurring theme throughout
the business, with a number of initiatives
implemented to identify and celebrate the
incredible impact our people have on the
lives of the children and families who attend
our centres. Early Childhood Educators’ Day
in September provided a platform for G8
Education and its families to say thank you
on a national scale, with the celebrations
showcasing the positive performance of all of
the Standout Educators to both internal and
external audiences.
TEAM SAFETY
Throughout the second half of 2018 we invested
heavily in our safety management system
framework. This included a review of our
Health and Safety Policy and procedures and
development of programs including our new
“Toy Box Talks” that seeks to engage both team
members and our children. Our framework
aligns to the ISO AS/NZS 45001 standard
for occupational health and safety and has
integrated our child safety quality standards.
EDUCATORS DAY
Early Childhood Educators Day was an opportunity for
G8 Education to show its appreciation for all of the
incredible work that our Educators do each day.
G8 Education announced the following six ‘Standout
Educators’ on Early Childhood Educators Day – who were
selected out of 55 finalists – from over 3,200 parent and peer
nominations that were received across the G8 network.
NSW/
ACT
Nicole
Gaby
Creative Garden
Early Learning
Centre Heathcote
Stephanie
James
Casa Bambini
Coburg
VIC
NSW
VIC
QLD
Mel
Hendry
Vicky
Packer
Amanda
Constable
WA/SA
Hayley
Miller
Bluebird Early
Education Centre
Empire Bay
First Grammar
Gumnut Drive
Creative Garden
Early Learning
Centre Sinnamon
Park
Great Beginnings
Child Care – Butler
Those Standout Educators were nominated by families
and team members for being someone who has had
a significant impact on the children and families they
care for.
We are proud to recognise these incredible
team members.
G8 EDUCATION LIMITED ANNUAL REPORT 2018
3
16NEW CENTRES
ACQUIRED IN 2018
OUR CENTRES
NEW CENTRES
NETWORK
GROWTH
4
G8 EDUCATION LIMITED ANNUAL REPORT 2018
16NEW CENTRES
ACQUIRED IN 2018
OUR CENTRES
REFURBISHED CENTRES
137CENTRES
REFURBISHED
IN 2018
QUALITY
IMPROVEMENT
G8 EDUCATION LIMITED ANNUAL REPORT 2018
5
OUR PORTFOLIO
Casa Bambini
Early Education Centre
6
SINGAPORE
17CENTRES
G8 EDUCATION LIMITED ANNUAL REPORT 2018 WESTERN AUSTRALIA
68CENTRES
QUEENSLAND
73CENTRES
TOTAL519CENTRES
SOUTH AUSTRALIA
29CENTRES
VICTORIA
134CENTRES
NSW
188CENTRES
10CENTRES
ACT
7
G8 EDUCATION LIMITED ANNUAL REPORT 2018 SUSTAINABILITY AND COMMUNITIES
Our vision
G8 Education Limited recognises the important role it
plays in the lives of the children in our care, the families
we support and the community in which we operate.
We aim to contribute to a robust, equitable and
sustainable future for all stakeholders. G8 Education’s
Sustainability Strategy reinforces our commitment to
foster a sustainable society in our education programs,
community engagement and corporate practices
with a view to restoring, replenishing and reviving the
environmental and human resources for children now
and into the future.
Our Practices
G8 Education engages in a broad range of
sustainable practices both within its Centres and
at the Support Office:
• Recycling
• Gardening
• Biodiversity
• Energy conservation
• Water conservation
• Sustainable equipment purchases
• Environmentally friendly initiatives
• Sustainability education
Supporting the Community
G8 Education’s teams are a collective force of almost
10,000 people who have worked hard during 2018 to
support our communities by:
• Raising money for the Drought Relief Appeal
• Collecting band-aids for Evie’s Band-aid Bonanza
• Cleaning up Australia
• Gathering pyjamas for Pyjama day
• Nappy collections
• Fun runs
• Blood donations
• Raising money for local charities
8
G8 EDUCATION LIMITED ANNUAL REPORT 2018 SUSTAINABILITY AND COMMUNITIES 2025
Goals and Ambitions
Our Communities
As an education and care community, G8 Education
has the opportunity to encourage and increase
awareness of environmental responsibilities
and implement practices that contribute to a
sustainable future.
Children are supported to become environmentally
responsible and to show respect for the environment
and the resources we use and to make a positive
impact in preserving the world.
Our people
G8 Education realises that our most important asset are
our valued team members. By investing in developing
and retaining the best people, we will not only meet,
but exceed the expectations of our families and
children in our care. G8 Education will:
• Develop a highly engaged, diverse and trusted
workforce
•
Increase engagement score to 90% by 2022
• Provide health and wellbeing support to our team
• Become an employer of choice in Early Childhood
Education by 2021
G8 Education will continue to support the communities
in which we operate by:
• Finding opportunities to add services into our
network so parents can spend more time with
their families
• Developing and implementing a National
Reconciliation Action Plan to close the gap between
Aboriginal and Torres Strait islander people and
other Australians
• Finding opportunities to give back to the community
through paid volunteer leave and community
reinvestment charities
Our planet
G8 Education is committed to reducing our carbon
footprint and is working towards a vision of being net
positive in our energy consumption by 2025.
To achieve this, we will:
•
•
Invest in solar and green energy for our
existing centres
Integrate sustainable building design principles for
all new builds
To reduce the environmental impact of our operations,
G8 Education will:
• Ensure 80% of our waste is diverted from landfill and
recycled by 2025
•
•
Identify opportunities to continue to reduce waste
creation across our network
Identify opportunities to recycle our waste into
clean energy
G8 Education has partnered with Cleanaway to
grow and evolve our sustainability commitment.
Everything Cleanaway does has sustainability at its
core. From educating children on the importance of
sorting waste, to working with all their customers and
communities on finding innovative ways to increase
the effectiveness of their waste management and
make a sustainable future possible.
9
G8 EDUCATION LIMITED ANNUAL REPORT 2018 EXECUTIVE LEADERSHIP TEAM
The Executive Leadership Team is responsible for
developing and managing the Group’s strategy
as well as ensuring that day-to-day operations are
conducted to meet key customer, team, safety and
financial targets and expectations. The team is made
up of senior executives from a range of industries,
providing a diversity of thought and experiences to
drive innovation throughout the Group.
STRATEGIC PARTNERSHIPS
To support our delivery of superior early childhood
education and care, G8 Education has partnered with
a number of leading organisations from the sector.
These include:
• Bravehearts to deliver tailored child
protection training
• Semann & Slattery and Dr Kaylene Henderson to
provide improved training and staff development
programs such as our Educational Excellence
Program and online learning tool Raising Good Kids
• Swinburne Online (part of Swinburne University) to
provide students with valuable sector experience
that compliments their studies
• Jennifer Ribarovski, renowned early childhood
education advocate, to provide a series of
workshops focused on further bringing the National
Quality Framework to life in our Centres
10
G8 EDUCATION LIMITED ANNUAL REPORT 2018
STRATEGIC FOCUS
ASX LISTING
• Acquisition strategy
• 47 centres
DEC
2007
THE JOURNEY
QUALITY
• Refresh and refurb program
• Embed work routines
• Training program
COMPANY
FOUNDED
FEB
2007
INTEGRATION
• Xplor P2
• Rostering
INNOVATION
• Roll out curriculum
and customer offer
• Best practice framework
and hub
Inherited
• c.480 centres
• Singular focus on growth
• Decentralised decision making, processes,
systems, training and rostering
• Committed Greenfield (GF) pipeline
• Build of unified G8 Culture
Next 12-18 months
• Scaleable, efficient platfrom – rosters,
work routine, call centre
• Industry leading, curriculum
• Differentiated innovative offer
and experience
• Embedded performance culture
2019
2020+
BUILT SCALE
• 500 centres
• 24 “brands”
2007-
2016
May
2017
DEBT +
EQUITY RAISING
• To fund GF
pipeline and
restructure
balance sheet
NEW
LEADERSHIP
TEAM
2017
Achieved
• Refocused strategy to harvest scale benefits
based on quality and innovation
• Centralised decision making
• Integrated systems on time for CCS
• Standardised training, reporting
and processes
INTEGRATION
• CRM
• Xplor Core/CCMS
• Leadership development
QUALITY
• Refresh program
• Training program
Medium term
• Early Learning champion and innovator
• Quality leader
• Employer of choice
• Industry leading occupancy
• Best ‘value’ provider
in sector
81%
GROUP
OCCUPANCY
INNOVATION
• Staff benefits
• Pilots
• Customer
research
MIN
15%
GROUP
ROCE
25%
ROI GF
PORTFOLIO
G8 EDUCATION LIMITED ANNUAL REPORT 2018
11
AT A GLANCE 2018
UNDERLYING EPS
17.54
CENTS PER SHARE
12
NUMBER OF
519CENTRES OWNED
UNDERLYING NPAT
$79.4MILLION
G8 EDUCATION LIMITED ANNUAL REPORT 2018 UNDERLYING EBIT
136.3MILLION
TOTAL NUMBER OF
9,981EMPLOYEES
UNDERLYING NPAT
$79.4MILLION
TOTAL REVENUE
$858.2MILLION
LICENCE CAPACITY OF OWNED CENTRES
41,547
PLACES
13
G8 EDUCATION LIMITED ANNUAL REPORT 2018 2012
2013
2014
2015
$179.9m
$275.2m
$491.3m
$706.2m
REVENUE
$30.0m
REVENUE
$50.5m
REVENUE
REVENUE
$101.4m
$146.4m
UNDERLYING EBIT
UNDERLYING EBIT
UNDERLYING EBIT
UNDERLYING EBIT
$19.7m
$32.2m
$60.6m
$87.1m
UNDERLYING NPAT
UNDERLYING NPAT
UNDERLYING NPAT
UNDERLYING NPAT
9.2 cents
11.72 cents
18.57 cents
23.87 cents
UNDERLYING EPS
UNDERLYING EPS
UNDERLYING EPS
UNDERLYING EPS
14
G8 EDUCATION LIMITED ANNUAL REPORT 2018
2016
2017
2018
$778.5m
$796.8m
$858.2M
REVENUE
REVENUE
REVENUE
$160.6m
$156.0m
$136.3M
UNDERLYING EBIT
UNDERLYING EBIT
UNDERLYING EBIT
$93.3m
$92.9m
$79.4M
UNDERLYING NPAT
UNDERLYING NPAT
UNDERLYING NPAT
24.68 cents
21.8 cents
17.54 cents
UNDERLYING EPS
UNDERLYING EPS
UNDERLING EPS
G8 EDUCATION LIMITED ANNUAL REPORT 2018
15
CHAIRMAN’S REPORT
Dear Shareholders,
On behalf of the Board, I am pleased to present the G8
Education Limited 2018 Annual Report.
During 2018, despite significant challenges in the
market and regulatory environment, the Group made
significant progress in building solid foundations across
its people, asset and capital bases to ensure sustained
growth well into the future.
As flagged in last year’s Annual Report, 2018 was
a period of significant change in the sector. The
heightened level of construction activity that was
present in 2017 continued into 2018, putting pressure on
industry occupancy levels. In July 2018, a fundamental
overhaul of the child care subsidy framework was
implemented, with the intention of driving workforce
participation and hence demand in the sector.
What has not changed is the tremendous opportunity
for the sector to make a profound impact on Australia’s
future, with extensive research and publications such
as the Lifting Our Game Report clearly articulating the
social, emotional and cognitive benefits of quality early
education.
2018 represented the second year of a strategic and
cultural transformation for G8 Education, with the
strategy being focused on harvesting the benefits of
the scale advantage that had been built in the period
from 2010 to 2016. In broad terms, we believe that the
Group has a fantastic opportunity to use its scale to
build a differentiated experience for both its families
and its team, with the end result that our centres
become the centre of choice in all of the markets in
which we operate.
A central component of building the centre of choice is
the quality of the centre, from both an asset and team
capability perspective.
In this respect, I am pleased to report that over 170
refurbishment and asset improvement activities were
undertaken in 2018 – a record result. From a team
capability viewpoint, the Group developed and rolled
out new training programs in relation to the national
quality standards, with further programs currently
under development for roll-out in 2019.
These activities improved the quality of centres,
with G8’s portfolio centre quality exceeding national
standards for the first time. This encouraging
performance provides a solid foundation for continued
growth in quality (and occupancy) in future years as the
strategy continues to be implemented.
The financial performance of the Group in 2018
reflected the impact of the changing market
environment and the impact of the Group’s strategy.
While the overall result was disappointing, with EBIT
reducing by 13% to $136.3 million, this was primarily
driven by the first half where the combination of supply
increases impacting occupancy and the negative
impact of implementing regulatory changes to wages
resulted in H1 EBIT being $13 million behind last year.
In the second half, a more favourable subsidy
framework and improvements flowing from
strategy implementation resulted in EBIT from the
organic centre group being broadly in line with the
prior corresponding period and $7 million lower
after investment in the support office to facilitate
G8 Education’s strategic plan. This second half
performance provides momentum and confidence
leading into 2019. Cash flow generation continued to be
strong, with $105.9 million in operating cash flows being
generated and $48.1 million being paid in dividends
to shareholders.
Further improvements to the Group’s capital base were
made in 2018, with the successful execution of a $500
million syndicated bank debt facility during the year.
The facility will be used to refinance the Group’s $200
million bank debt facility and $270 million Singapore
bond facility, providing increased capital with improved
tenor and pricing and ensuring the Group has all the
capital that is required to deliver its current strategy.
16
G8 EDUCATION LIMITED ANNUAL REPORT 2018 Looking forward to 2019, while we expect the demand/
supply environment to continue to be challenging as
recently built centres mature, the new development
pipeline is forecast to gradually slow down. When
combined with forecast increase in demand from
the new subsidy, this is expected to result in more
favourable market conditions in 2019. With the
encouraging progress in relation to implementation
of our strategy, 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.
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 2019.
Yours sincerely,
Mark Johnson
Chairman
17
G8 EDUCATION LIMITED ANNUAL REPORT 2018 MANAGING DIRECTOR’S REPORT
Dear Shareholders,
2018 was a year in which G8 Education endured
challenging market conditions to deliver good
earnings momentum during the year, while making
solid progress on transforming the Group to enable
sustainable growth in future years.
G8 Education is the leading for-profit early education
provider in Australia, with over 50,000 children
attending our services in any given week and almost
10,000 employees educating and caring for those
children. This scale is broadly three times greater than
our nearest for-profit competitors. We believe that we
have a real opportunity to use our scale advantage to
provide a differentiated offer to our families, centred on
the quality of education and care, breadth of offer and
through the provision of a highly engaging experience
for our families. We also believe that our scale affords
us the opportunity to provide a market-leading
employment offer, with our engaged and capable team
members reinforcing the quality and experience for our
families.
2018 represented a foundation-building year in terms
of building a differentiated experience for our families.
During the year we undertook extensive research to
truly understand the drivers and pain points of our
families at every stage of their journey, culminating
in a customer journey map that will guide changes
in operating processes in future years to ensure we
provide engaging experiences for families. A pilot
of a centralised customer engagement centre was
undertaken during 2018 with pleasing results in terms
of converting inbound enquiries to additional bookings.
A full-scale roll-out is currently underway, with
completion due in early April 2019. Finally, the Group
trialed a number of product innovation pilots during
the year, covering allied health, literacy programs and
sensory learning environments. The performance of
these pilots will be assessed during the first half of 2019
with a view to rolling out the successful pilots from the
second half of 2019.
Our strategic focus from a team member perspective
is to provide a compelling employment offer, covering
career pathways and training, as well as market-leading
remuneration, reward and recognition programs.
As part of a values-based, purpose-driven culture,
these programs will enable us to recruit and retain
highly capable and engaged team members. During
2018, the Group enhanced its cultural foundation via
the implementation of a behavioural competency
framework. Significant work was undertaken in
relation to remuneration in the year, with the roll-out
of a new total pay and benefits framework and a
revamped incentive framework for centre-based teams.
A partnership to provide discounted offers to team
members covering hundreds of retailers and service
providers was implemented during the year, with
encouraging numbers of team members accessing
the opportunity to stretch their dollar further. Finally, a
new operational training program for teams was rolled
out, focusing on up-skilling the teams in terms of new
national quality standards.
From an operational perspective, in 2018 we acquired
a total of 16 early education centres and divested 8
centres in Australia. This brought our total number of
centres as at 31 December 2018 to 502 in Australia and
17 in Singapore. These centres provide a total combined
licensed capacity of 41,547 places. It is pleasing to report
that our portfolio of greenfield centres that have been
opened during the year is performing in line with
expectations.
The significant increases in supply over the last two
years had a materially negative impact on the market
in 2018, particularly in the first half. The resulting impact
on occupancy and negative impact of implementing
regulatory changes in relation to wages weighed down
the profit of the Group, with Earnings Before Interest
and Tax (“EBIT”) reducing by $20 million to $136.3 million
in 2018. The primary impact was felt in H1, with the H2
result being broadly in line with the prior corresponding
period. It was pleasing to see occupancy growth in
2018 outstrip the prior year, with occupancy levels in
December 2018 being ahead of last year. This provides
good momentum leading into 2019. The Group’s ability
to convert Earnings Before Interest, Tax, Depreciation
and Amortisation (“EBITDA”) into cash remained
strong with 107% cash conversion in 2018, generating
operating cash flows of $105.9 million.
18
G8 EDUCATION LIMITED ANNUAL REPORT 2018 OUTLOOK FOR 2019
The Group’s occupancy growth in the latter part of
2018, when combined with a slowdown in supply
growth over the same period, are positive signs that
the operating environment will be more favourable in
2019. While the maturing of centres that were opened
during 2017 and 2018 are forecast to put pressure on
market occupancy levels in 2019, the new child care
subsidy regime that was introduced in July 2018 is
expected to offset this increased supply, although the
extent and timing is still unclear.
The Group is preparing to respond to any ongoing
challenges in the market environment by driving
occupancy focus throughout the network, assisted
by initiatives such as the centralised customer
engagement centre and enhancements to our child
care management system during the first half of the
year. In addition, the appointment of the Group’s Head
of Early Education and Learning (Julie Madgwick) in
January 2019 will precede a full review of our current
learning curriculum, with enhancements to our
curriculum likely to be undertaken during the second
half of the year. We are particularly excited by the
opportunity to enhance the learning experiences for
both our families as well as our teams as part of this
program. The other focus in the second half of 2019 will
be the implementation of a new rostering system to
drive improved rostering processes and wage controls.
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
quality and education, value, as well as customer
experience. To facilitate this, the Group will continue
to invest in improving asset and curriculum quality,
while also developing new revenue streams for
existing and new centres that deliver enhanced value
to our families and better utilise our existing assets;
• Being the employer of choice by engaging and
such as enhanced professional and leadership
training and innovative remuneration, benefits and
recognition frameworks; and
• Continuing to grow our network of child care centres
through acquisition and greenfield developments.
This strategy, supported by a passionate and capable
team, will leave us well placed to deliver sustainable
value to children, families and our shareholders in the
years ahead.
developing our team through a series of initiatives
Yours sincerely,
Gary Carroll
CEO and Managing Director
19
G8 EDUCATION LIMITED ANNUAL REPORT 2018 KEY OPERATIONAL INFORMATION
20
G8 EDUCATION LIMITED ANNUAL REPORT 2018 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
519
41,547
9,981
7,698
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:
Contingent consideration not paid*
Acquisition related expenses
Share based payment expense*
Write off of borrowing costs*^
(Gain)/loss on disposal of assets/centres
Foreign currency translation loss*^
Underlying Net Profit After Tax
Underlying EPS (cents per share)^^
Earnings Before Interest and Tax
Add/(Less) non-operating transactions:
Contingent consideration not paid*
Acquisition expenses
Share based payment expense
(Gain)/loss on disposal of assets/centres
2018
$’000
2017
Variance
$’000
8%
13%
(14%)
(12%)
(11%)
(14%)
(20%)
857,758
795,759
(725,574)
(644,881)
(28,558)
(33,097)
103,626
71,831
(2,199)
5,451
-
3,078
825
431
79,417
17.54
117,781
80,581
(243)
3,965
(108)
5,201
1,542
1,936
92,874
21.80
132,184
150,878
(2,199)
5,451
-
825
(243)
3,965
(108)
1,542
Underlying Earnings Before Interest and Tax^^^
136,261
156,034
(13%)
# Adjustment for interest income of $0.4m excluded from revenue and included in financing costs (2017 $1.0m)
* 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
21
G8 EDUCATION LIMITED ANNUAL REPORT 2018 DIRECTOR’S REPORT
THE DIRECTORS PRESENT THEIR
ALL OF THE FOLLOWING
REPORT ON THE CONSOLIDATED
PERSONS WERE
ENTITY (REFERRED TO
DIRECTORS OF G8
HEREAFTER AS THE GROUP)
EDUCATION LIMITED
CONSISTING OF G8 EDUCATION
DURING THE FINANCIAL
LIMITED AND THE ENTITIES IT
YEAR AND UP TO THE
CONTROLLED AT THE END OF,
DATE OF THIS REPORT
OR DURING, THE YEAR ENDED 31
UNLESS OTHERWISE
DECEMBER 2018.
STATED
Mark Johnson
B. Comm, FCA, CPA, FAICD
Gary Carroll
B.Comm (Hons), B.Law (Hons), CPA
CHAIRMAN, INDEPENDENT NON-EXECUTIVE DIRECTOR
MANAGING DIRECTOR/CHIEF EXECUTIVE OFFICER
SINCE 1 JANUARY 2016
SINCE 1 JANUARY 2017
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 Education, 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. Gary 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: Nil
Other current listed public Company Directorships: Nil
Former listed public Company Directorships in the
last three years: Nil
Mark Johnson is an experienced chairman and
company director. He is currently a Director of
Coca-Cola Amatil Limited, The Hospitals Contribution
Fund of Australia Limited (HCF) and a number of owner
managed businesses and charities. He was previously
a Director of Westfield Corporation and HSBC Bank
Australia.
Prior to embarking on his Board career, Mark 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. Mark 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: Member of the Audit and Risk
Management Committee, Nomination Committee and
People and Culture Committee
Other current listed public Company Directorships:
Coca-Cola Amatil Limited (appointed 6 December 2016)
Former listed public Company Directorships in
the last three years: Westfield Corporation Limited
(resigned 8 June 2018)
22
G8 EDUCATION LIMITED ANNUAL REPORT 2018 Susan Forrester, AM
BA, LLB (Hons) EMBA, FAICD
Brian Bailison
B.Com., B.Acc (Cum Laude), ACA
INDEPENDENT NON-EXECUTIVE DIRECTOR
INDEPENDENT NON-EXECUTIVE DIRECTOR
SINCE 1 NOVEMBER 2011
SINCE 25 MARCH 2010
Susan Forrester, AM, is a highly respected and
accomplished professional Company Director
with a powerful blend of management, board and
consulting experience across ASX listed, public and
private companies. She draws on 25 years of executive
management expertise in large professional services
firms, covering law, finance, HR, business and governance.
Brian Bailison has over 25 years’ experience in finance,
corporate finance and operations from senior roles
in listed and unlisted businesses in South Africa and
Australia, including Rand-Merchant Bank Limited
(investment banking), the Ivany Investment Group
(diversified investment group) and PAYCE Consolidated
Limited (diversified property development group).
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
Susan has a proven leadership track record as a CEO
and senior executive in the national professional
services and finance industries. Her in-depth expertise
in financial services and prudential supervision
draws on her experience as a banking and finance
lawyer, corporate counsel with the predecessor to
the Australian Prudential Regulation Authority and
as Executive Director with Queensland Treasury
Corporation. Susan has gained a wealth of experience
at the board table in complex corporate transactions,
including private and public company mergers and
acquisitions, industry aggregations and overseeing
successful capital raisings.
On Australia Day 2019, she was awarded a Member
(AM) in the General Division of the Order of Australia for
significant service to business through governance and
strategic roles and as an advocate for women.
Special responsibilities: Chair of the People and
Culture Committee and Member of the Nomination
Committee
Other current listed public Company Directorships:
Over the Wire Holdings Ltd (appointed 1 November 2015),
Xenith IP Group Ltd (appointed 1 October 2015) and Chair
– National Veterinary Care Ltd (appointed 1 February 2015)
Former listed public Company Directorships in the
last three years: Nil
23
G8 EDUCATION LIMITED ANNUAL REPORT 2018 David Foster
B.App.Sci, MBA, GAICD, SFFin
Margaret Zabel
FAICD, MBA, BMath
INDEPENDENT NON-EXECUTIVE DIRECTOR
INDEPENDENT NON-EXECUTIVE DIRECTOR
SINCE 1 FEBRUARY 2016
SINCE 1 SEPTEMBER 2017
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 MotorCycle Holdings Limited and Thorn
Group Limited and as Director of Genworth Mortgage
Insurance Australia Limited.
Special responsibilities: Member of Audit and
Risk Management Committee and Chair of
Nomination Committee
Other current listed public Company Directorships:
MotorCycle Holdings Limited (appointed 8 March 2015),
Thorn Group Limited (appointed 1 December 2014)
and Genworth Mortgage Insurance Australia Limited
(appointed 30 May 2016)
Former listed public Company Directorships in the
last three years: Kina Securities Limited (retired
23 May 2018)
Margaret Zabel was appointed as Non-Executive
Director on 1 September 2017. Margaret is a specialist
in customer centred business transformation, brand
strategy, innovation, digital communications, customer
experience and change leadership. She has 20 years
senior executive experience working across major
companies and brands in FMCG, food, technology and
communications industries including multinationals,
ASX 100 and not-for-profits. Her previous roles include
National Marketing Director Lion Nathan, VP Marketing
for McDonald’s Australia and CEO and Board Director of
The Communications Council. Margaret has also served
as a non-executive board director for the mental health
charity R U OK? for 5 years, and is currently on the Board
of Fairtrade AUNZ.
Special responsibilities: Member of the Nomination
Committee (full year) and Audit and Risk Management
Committee (from 22 November 2018)
Other current listed public Company Directorships: Nil
Former listed public Company Directorships in the
last three years: Nil
24
G8 EDUCATION LIMITED ANNUAL REPORT 2018 Julie Cogin
FAICD, PhD, M.Ed., BBus
INDEPENDENT NON-EXECUTIVE DIRECTOR
SINCE 1 SEPTEMBER 2017
Julie Cogin was appointed as Non-Executive Director
on 1 September 2017. Julie is the Dean & Head of UQ
Business School, University of Queensland. Prior to
this position, Julie held numerous senior leadership
roles at the University of New South Wales. Julie is
a recognised thought leader in high performing
workplaces, leadership and corporate culture, having
authored several books and published in the world’s
top academic journals. As an educator she has received
national and international teaching awards and spoken
extensively about disruption in education. Julie has over
25 years’ experience leading education & consulting
engagements for many leading companies throughout
Australia, Asia and in the USA. In 2016 Julie was named
a one of Australia’s 100 women of influence for her work
to address the gender leadership imbalance.
Special responsibilities: Member of the Nomination
Committee and People and Culture Committee
Other current listed public Company Directorships: Nil
Former listed public Company Directorships in the
last three years: Nil
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. Gary has over 15 years’ experience
in senior leadership roles covering a number of
industries.
Company Secretary
Tracey Wood was appointed as Company
Secretary and General Counsel on 28 May 2018.
She is responsible for the Legal, Risk Management,
Insurance and Company Secretarial functions for
the Group.
The prior General Counsel, Sarah Zeljko, was
Company Secretary from the commencement of the
financial year until 24 April 2018 and Sharyn Williams
(CFO) was Company Secretary for the period 24 April
2018 to 28 May 2018.
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 2018.
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.
25
G8 EDUCATION LIMITED ANNUAL REPORT 2018 Significant changes in the state of affairs
Significant changes in the state of affairs of the Group
during the year were as follows:
• Acquired additional child care centres in Australia
• Trade volume restrictions applicable to shares held by
CIPI ceased to apply from close of trade on 4 June 2018
• Change of Share Registry to Link Market Services
effective 3 September 2018
• AUD$450 million senior secured syndicated bank
facility executed on 23 October 2018
• AUD$100 million junior secured syndicated bank
facility executed on 11 December 2018
Matters subsequent to the end of the
financial year
The following material matters have taken place
subsequent to year end:
• 52,333 performance rights were issued on 30 January
2019 pursuant to the G8 Executive Incentive Plan.
• 23,550 performance rights were cancelled on
22 February 2019 pursuant to the G8 Executive
Incentive Plan.
• The Board declared a 8.0c fully franked dividend at
the Board meeting which will be the final dividend
for the year.
• Post 31 December 2018, the Group completed the
acquisition of 3 centres for $4.7m and opened 6
centres that were acquired late in 2018. The initial
accounting in respect of the acquisitions has not yet
been completed as completion accounts have yet to
be finalised.
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.
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.
DIVIDENDS
Dividends declared or paid during the financial year were as follows:
No quarterly dividend for 2018. (2017: Dividend for the quarter ended 31 March 2017
of 6.0 cents per share paid on 7 April 2017)
Dividend for the full financial year ended 31 December 2017 of 10.0 cents per share
paid on 23 March 2018. (2017: Dividend for the quarter ended 30 June 2017 of 6.0
cents per share paid on 7 July 2017)
2018
$’000
2017
$’000
-
24,117
44,853
26,599
No quarterly dividend for 2018. (2017: Dividend for the quarter ended 30 September
2017 of 6.0 cents per share paid on 6 October 2017)
-
26,741
Dividend for the half year ended 30 June 2018 of 4.5 cents per share paid on
5 October 2018. (2017: No quarterly dividend declared for the period ended 31
December 2017)
TOTAL
26
20,406
-
65,259
77,457
G8 EDUCATION LIMITED ANNUAL REPORT 2018 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 2018, and the number of meetings attended by each Director were:
Full meetings
of Directors
Audit and Risk
Management
Committee
Nomination
Committee
People and Culture
Committee
A
12
12
12
12
12
12
12
B
12
12
12
12
12
12
12
A
4
4
-
4
1
-
-
B
4
4
-
4
1
-
-
A
4
4
4
4
4
4
-
B
4
4
4
4
4
4
-
A
4
-
4
-
-
4
-
B
4
-
4
-
-
4
-
M Johnson
B Bailison
S Forrester
D Foster
M Zabel*
J Cogin
G Carroll
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
* Member of Audit & Risk Committee since 22 November 2018.
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.
This does not include such liabilities that arise from
conduct involving willful breach of duty of the Managers
or the improper use by the Managers of their position
or of information to gain advantage for themselves or
someone else or to cause detriment to the Group.
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.
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.
INSURANCE OF OFFICERS AND AUDITORS
During the year, the Group paid a premium to insure
the Directors and Officers (Managers) 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 include legal costs that may be
incurred in defending civil or criminal proceedings that
may be brought against the Managers in their capacity
as Managers of entities in the Group alleging a wrongful
act, and other payments arising from liabilities incurred
by the Managers in connection with such proceedings.
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.
27
G8 EDUCATION LIMITED ANNUAL REPORT 2018 REMUNERATION REPORT AUDITED
SECTION
TITLE
DESCRIPTION
1
2
3
4
5
6
7
8
Introduction from the
People & Culture Chair
Sets out the activities of the People & Culture
Committee and the Board and people focussed
highlights.
Who is covered
Remuneration
Governance
Details the individuals whose remuneration
information is disclosed, which consists of senior
executives and Non-Executive Directors.
Describes the role of the Board and the People and
Culture Committee, and the use of remuneration
consultants when making remuneration decisions.
KMP Executive reward
Our Strategy, Vision and Values and link to KMP
Executive reward.
Remuneration details
for 2018
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 G8 Education and the
executives whose remuneration details are disclosed.
Non-Executive Director
remuneration
Provides details regarding the fees paid to
Non-Executive Directors.
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 THE KEY MANAGEMENT PERSONNEL
(KMP) DURING 2018.
28
G8 EDUCATION LIMITED ANNUAL REPORT 2018 1. INTRODUCTION FROM THE PEOPLE AND CULTURE COMMITTEE CHAIR
Dear Shareholders
G8 Education has a firm belief that focussing on and
investing in our people will provide sustainable benefits
over the long term.
After laying strong foundations in 2017, our goal in 2018
was to ensure our executive team was fully in place
which was achieved with the appointment of Jenni
Marsh in June, to the role of General Manager Safety,
Quality and Compliance.
Our combined Board and management review of the
Strategic Plan in August 2018 focussed on our four
core pillars comprising our team, quality, customer
and performance.
In terms of our ongoing commitment to our
people, we focussed on improving the quality of our
early education centre network, improving team
engagement and retention of Centre Managers and
Early Childhood Teachers (“ECTs”). This is consistent
with our strategy to provide both a market-leading
customer and employment offer to drive occupancy
and profitability of the Group, which in turn provides
sustainable growth for shareholders.
The highlights from the People and Culture Committee
work plan that were completed during 2018 are:
• review of our Senior Executive Remuneration Policy
to include our values and alignment of KPIs to our
four core pillars of team, quality, customer and
performance;
•
introduction of a new competency framework;
• review and monitoring of the first formal succession
plan for G8 Executive Leaders;
No substantive changes to our approach to executive
remuneration were made, as we were mindful of the
benefit to our executives of consistency and of allowing
our new scheme to run its course for a three year cycle.
A remuneration benchmarking exercise was carried
out for our CEO’s role with changes to be effective from
January 2019.
In terms of the at-risk components of our executives’
remuneration, the minimum financial performance
requirements of the Short-Term Incentive Plan were not
met as the Group did not achieve double digit annual
NPAT growth. In terms of the personal measures which
comprise 10% of their STI opportunity, each member
of the executive team achieved 4%. The Board decided
to exercise its discretion and reward a total of 5% to
each executive, in recognition of their concerted efforts
during the year towards achieving our strategic targets.
The Board and the People and Culture Committee
believe these annual incentive outcomes for each of our
disclosed executives reflects our performance in 2018.
In early 2018, the Board conducted an independent
review of Directors’ fees. Non-Executive Director (“NED”)
fees for 2018 were adjusted to the market median
for comparable listed companies based on market
benchmarks and specialist independent external
review. At our 2018 AGM we did not seek an increase to
the Aggregate NED Fee pool and no increase to that
pool is proposed in 2019.
2019 will be the final year in our 3-year remuneration
framework. During the year we will monitor the
effectiveness of this program and we will review with
our remuneration consultant.
• ongoing implementation of our comprehensive,
tailored executive and senior leadership
development programs;
We note that our Board composition reflects a healthy
gender balance. Women now represent 50% of our
independent NEDs and 42% of the full Board including
• detailed review of the role and work routines of
Centre Managers and Area Managers, to ensure
alignment across the network and optimisation of
effort for these key roles;
• review and re-setting of base remuneration for ECTs
to improve attraction and retention; and
• the ongoing refinement of our Board Skills Matrix.
2018 saw the second full year of implementation of
our Strategic Remuneration Framework and Policies.
the Managing Director.
The Board and the People and Culture Committee
hope you find this report informative.
Susan Forrester
Chair, People and Culture Committee
Brisbane
23 February 2019
29
G8 EDUCATION LIMITED ANNUAL REPORT 2018 2. WHO IS COVERED BY THE REPORT
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 DURING THE YEAR ARE SET OUT IN THE TABLE BELOW.
TITLE (AT YEAR END)/COMMITTEES
CHANGE IN 2018
Non-Executive Directors
Mark Johnson
Chairman
No Change.
Member, Audit & Risk Management
Member, Nomination
Member, People & Culture
Brian Bailison
Director
No Change.
Chair, Audit & Risk Management
Member, Nomination
Susan Forrester
Director
No Change.
Chair, People & Culture
Member, Nomination
David Foster
Director
No Change.
Chair, Nomination
Member, Audit & Risk Management
Julie Cogin
Director
No Change.
Member, Nomination
Member, People & Culture
Margaret Zabel
Director
No Change.
Member, Nomination
Member, Audit & Risk Management
From 22 November 2018
Executive Directors
Gary Carroll
CEO and Managing Director
No Change.
Other executive KMP
Sharyn Williams
Chief Financial Officer
Jason Ball
General Manager Operations
No Change.
No Change.
30
G8 EDUCATION LIMITED ANNUAL REPORT 2018 3. REMUNERATION GOVERNANCE AT G8 EDUCATION
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 August 2018. 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, 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 and 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
Remuneration
Talent
policy in
respect
of NEDs
policy,
composition
and
quantum of
remuneration
components
for executive
KMP,
and
performance
targets
management
policies and
Design
features of
employee
practices
including
and executive
STI and LTI
superannuation
plan awards,
arrangements
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 SET OUT IN THE CORPORATE GOVERNANCE SECTION OF
THE G8 EDUCATION WEBSITE.
31
G8 EDUCATION LIMITED ANNUAL REPORT 2018 • Either a standard set fee was charged, or a fixed fee
arrangement was agreed in advance directly with the
independent NED on behalf of the PCC.
The Board was satisfied that the limited remuneration
recommendations provided were made free from
undue influence from any member of the KMP. That
view was formed due to the above arrangements being
in place, the professional nature of the remuneration
consultant’s business and reputation and the absence
of any reason to suggest otherwise.
In addition to providing remuneration consulting
services, Crichton and Associates also provided services
relating to other aspects of remuneration of the Group’s
employees, including ad hoc advice in respect of the
Company’s remuneration framework, remuneration
reporting and proxy advisor engagement. Crichton
and Associates was paid $4,861.35 during 2018, for
these services.
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.
The Board directly engages external advisors to provide
input to the process of reviewing executive KMP and
NED remuneration.
During the 2018 financial year, Crichton and Associates
Pty Limited (Crichton and Associates) were engaged
by the Board to provide a remuneration benchmark
assessment in relation to the CEO/Executive Director
and two other executive roles. Crichton and Associates
were paid $5,886.25 for these services.
The following arrangements were made to ensure that
the remuneration recommendations have been made
free from undue influence:
• Crichton and Associates received written instructions
from an independent NED on behalf the PCC and
were accountable to the Board;
• During the course of this assignment, Crichton and
Associates received limited input from management.
Crichton and Associates reported its findings, in
writing, to the independent NED and the Board; and
4. OUR STRATEGY, VISION AND VALUES AND LINK TO KMP SENIOR EXECUTIVE REWARD
OUR EXECUTIVE KMP REMUNERATION HAS BEEN DESIGNED TO SUPPORT AND REINFORCE G8 EDUCATION’S STRATEGY, PURPOSE AND
VALUES. THE AT-RISK COMPONENTS OF THE EXECUTIVE KMP REMUNERATION ARE THEREFORE CLOSELY LINKED TO THE SUCCESSFUL
EXECUTION OF THE ORGANISATION’S STRATEGY.
Our Strategic Priorities
Short Term Incentive Plan (STIP)
EXISTING
FAMILIES
NEW
FAMILIES
QUALITY
&
SAFETY
TEAM & STAKEHOLDERS PERFORMANCE
Our Purpose
We create spaces that shape
generations now and next
The strategic
priorities are
translated into
performance
objectives and
KPIs
Net Profit
after Tax is the
performance
measure that
applies to over
65% of the
incentive
Measurable performance
objectives are set across all
strategic priorities and are closely
aligned to our purpose and values.
This ensures a balanced focus
across all key strategic areas
Our Values
Passion, Innovation, Dedication,
Compassion, Integrity
Our Values are considered as we
assess how performance has been
achieved
Our Shareholder
Value Proposition
Deliver sustainable
double-digit growth
in earnings for
shareholders
Long Term Incentive
Plan (LTIP)
Earnings per Share
growth over the vesting
period accounts for
100% of the award. The
purpose of the incentive
is to align executive KMP
remuneration opportunity
with shareholder value
and provide retention
stimulus
32
G8 EDUCATION LIMITED ANNUAL REPORT 2018 THE COMPONENTS OF KMP SENIOR
EXECUTIVE LEADERSHIP REMUNERATION
AT G8 EDUCATION
EXECUTIVE KMP REMUNERATION
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.
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
STI performance criteria are set by
relativities, reflecting responsibilities,
reference to G8 Education’s group earnings
LTI targets are linked to G8 Education
performance, qualifications, experience
and individual performance targets
EPS growth
and geographic location
relevant to the specific KMP
Remuneration will be delivered as:
Base salary plus any fixed elements
Part cash and part equity (performance
is held subject to service and performance
related to local markets, including
rights). The equity component will be
for three years from grant date. The equity
superannuation or equivalents
subject to service and deferred for one year
is at risk until vesting. Performance
Equity in performance rights. All equity
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 executive 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.
33
G8 EDUCATION LIMITED ANNUAL REPORT 2018 REMUNERATION COMPOSITION MIX
TOTAL TARGET REMUNERATION (TTR)
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.
In the opinion of the Board, the TTR under the
remuneration mix adopted by G8 Education delivers
on overall risk adjusted reward opportunity which is
intended to ensure both fair and market competitive
remuneration is awarded.
REMUNERATION MIX 2018
The mix of remuneration for the CEO and executive
KMP for 2018 resulted in the following remuneration
mix:
%
0
4
30
%
O
F
T
T
R
CEO
30% OF TTR
TFR
STI
LTI
0 %
5
T
S
A
E
L
T
A
UP TO 2
5
%
O
F
T
T
R
U
P
T
O 25% O
EXECUTIVE
KMP
F TTR
The “at risk” component of the (STI) and (LTI) of this mix
represents the intended remuneration opportunity
for these executives assuming the performance
requirements set for each component are satisfied. The
remuneration mix is the same in 2018 as in 2017 and
ensures that remuneration is linked to performance
and contains at risk components.
TOTAL FIXED REMUNERATION (TFR)
G8 Education’s approach continues to position
executive KMP at between the median and 62.5th
percentile of the market. This positioning is confirmed
regularly by reference to remuneration surveys and
independent benchmark assessments from time
to time. The comparator group used to benchmark
executive KMP remuneration is ASX listed companies of
a similar size.
A description of the 2018 short-term and long-term
incentive schemes are set out below.
REMUNERATION – “AT RISK”
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.
The three complementary components of executive
KMP remuneration are ‘earned’ over multiple time
ranges. This is illustrated in the following chart:
Year 1
Year 2
Year 3
Year 4
Year 5
TFR
F17 STI cash opportunity
STI equity deferral
LTI
TFR
F18 STI cash opportunity
STI equity deferral
LTI
TFR
F19 STI cash opportunity
STI equity deferral
LTI
34
G8 EDUCATION LIMITED ANNUAL REPORT 2018
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
competitiveness 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
SHORT-TERM INCENTIVES (STI)
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
encourage executives’ behaviours towards maximising
G8 Education’s short, medium and long-term
performance.
The key aspects are summarised below.
Purpose
Performance targets
Rewarding
performance
Deferral of STI
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.
All STI awards to the CEO and other executive KMP are approved by the PCC
and Board.
The key performance objectives of G8 Education are currently directed to
achieving Board approved earnings targets and by the achievement of individual
performance KPIs. The intention is that not more than 20% is awarded if the Board
approved budget is not reached. In respect of the individual KPIs, in 2018 they
were split into four areas – Team (2), Quality (3), Performance (1) and Customer (2).
For 2019 there are six individual KPIs split into three areas – Team (2), Quality (2)
and Customer (2). The change was made in 2019 to avoid duplication in relation to
performance KPIs as these were already captured in the STI calculation.
Any anomalies or discretionary elements are approved and validated by the Board.
An individual’s STI cannot be higher than 20% if the Group financial target is not met.
The STI performance ratings are determined under a predetermined matrix with
the Board determination final.
Effective from 1 January 2017 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 the 2018 and 2019 financial periods will be calculated
based on 50% of the STI amount, above a minimum threshold of $100,000.
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 2019. That is,
based on a Black-Scholes-Merton pricing model without discounting for service or
performance hurdles. The deferred component is granted as service rights.
Once the STI awarded as service rights has been granted, there are no further
performance measures attached to the rights other than continued tenure for the
vesting period (one year).
35
G8 EDUCATION LIMITED ANNUAL REPORT 2018 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
To align executive KMP remuneration opportunity with shareholder value and
provide retention stimulus.
Types of equity
awarded
LTI is provided under the G8 Education Executive Incentive Plan. See the section
below 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 executive KMP and other executives 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.
Performance hurdles
and vesting schedule
Equity grants to executive KMP and other executives are subject to one
performance condition, as follows: Compound annual growth in Reported EPS
(three years). The hurdles are set. Both were based on relevant market benchmarks.
Compound annual growth in Reported EPS (3 years)
Performance p.a.
% of equity to vest
< 10%
10% to 15%
> 15%
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 executive KMP and other executives 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.
36
G8 EDUCATION LIMITED ANNUAL REPORT 2018 G8 EDUCATION EXECUTIVE INCENTIVE
PLAN (GEIP)
Equity granted under the short term and long term
incentive schemes is granted by way of performance
or service rights issued in accordance with the GEIP.
Shareholders approved the GEIP at the AGM in May
2017. The Company has established the GEIP to
assist the retention and motivation of executives of
G8 Education (Participants). It is intended that the
Performance Rights will enable the Company to retain
and attract the skilled and experienced executives
and provide them with the motivation to enhance the
success of the Company.
Rights may be offered to Participants selected by the
Board. Unless otherwise determined by the Board, no
payment is required for the grant of rights under the GEIP.
Each right is an option to subscribe for one share. Upon
the exercise of a right by a Participant, each share issued
will rank equally with other Shares of the Company.
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.
The Claw Back Policy is available on the G8 Education
website.
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.
5. REMUNERATION DETAILS FOR 2018
ACTUAL REMUNERATION RECEIVED IN 2018
2018 SHORT TERM INCENTIVE PLAN
OUTCOMES – PROFIT
The profit targets in the 2018 Short Term Incentive
Plan were aligned to our shareholder value proposition
providing sustainable double-digit earnings growth
for shareholders.
These profit targets form 90% of the total STI for 2018
for the CEO/Executive Director and 85% for all other
Executive KMP.
The minimum financial performance requirements
of the Short-Term Incentive Plan were not met as the
Company fell short of the target earnings growth set by
the Board. Accordingly, the profit component of the STI
was not awarded to any Executive KMP.
2018 SHORT TERM INCENTIVE PLAN
OUTCOMES – INDIVIDUAL OBJECTIVES
The remaining 10% for the CEO/Managing Director
and 15% for the other Executive KMP was determined
based on the achievement of agreed annual objectives,
which as described earlier are a mix of quantitative and
qualitative objectives. These annual objectives for KMP
Senior Executives are intended to ensure continued
focus on strategic priorities and to raise the bar on
performance year on year.
At the outset of 2018, clear performance objectives
were set for the Executive KMP that were critical to
the delivery of the 2018 plan and fundamental to the
success of the long-term strategy while addressing
the ongoing challenges of our competitive operating
environment.
The overall assessment of Executive KMP took into
account performance against the achievement of
individual objectives and how the performance was
achieved (i.e. through demonstrating good leadership
aligned to our values) which ensures a holistic and full
assessment of performance.
Detailed assessments were prepared by the Managing
Director and discussed with the People and Culture
Committee. The Board and the People and Culture
Committee believe that the performance in 2018 has
been appropriately reflected in the Short Term Incentive
Plan outcomes.
37
G8 EDUCATION LIMITED ANNUAL REPORT 2018 THE TABLE BELOW SUMMARISES THE 2018 RESULTS FOR EXECUTIVE KMP AGAINST THE INDIVIDUAL KPI’S.
KPI’S
Team
Turnover
AREA OF FOCUS
ACHIEVEMENTS CONSISTENT WITH
SHAREHOLDER VALUE PROPOSITION
Not achieved, with turnover results for both
centre-based and support office team members,
while improved from 2017 levels, not being in line with
targeted levels
Achieved, with delivery of Group Safety Plan being in
line with target
Safety
Team Safety
Child Safety
Achieved, with delivery of Group Child Safety Plan
being in line with target
Performance
Strategic Plan
90% of Group Strategic Plan milestones, both in terms
of timing and benefits – achieved, with projects being
implemented on schedule and project-related benefits
being achieved.
Earnings Performance
Not achieved, with NPAT being behind budget
Customer
Improvement in
customer service
Customer NPS – not achieved, with 2018 NPS result,
while being slightly above 2017 levels, falling below the
target of 55%
THE DIAGRAM BELOW SUMMARISES THE SHORT TERM INCENTIVE POTENTIAL THAT COULD BE EARNED BY THE CEO AND OTHER KMP,
THE ALLOCATED WEIGHTING OF PERFORMANCE VS INDIVIDUAL KPIS, ALONG WITH THE PERFORMANCE AND RESULTING OUTCOMES.
THERE WERE DIFFERENTIATED OUTCOMES BOTH IN TERMS OF THE PROFIT COMPONENT AND THE ACHIEVEMENT OF INDIVIDUAL
BUSINESS OBJECTIVES.
CEO
75% OF TFR
INDIVIDUAL KPI’S 10%
PERFORMANCE KPI’S 90%
5% OF TFR PAID
OTHER KMP
50% OF TFR
INDIVIDUAL KPI’S 15%
PERFORMANCE KPI’S 85%
5% OF TFR PAID
During the year, the Group successfully refinanced its bank debt facilities by finalising a $500 million syndicated
bank debt facility, thereby extending the tenor of its borrowings while also lowering its funding costs. In addition,
all greenfield development contracts were reviewed and re-negotiated, achieving significant cost savings and
reductions in risk.
On the basis of the KPI results and additional activities noted above, the Board determined to award a short-term
incentive to the Executive KMP for the 2018 year of 5% of total fixed remuneration, which for the CEO equals
$38,014.
38
G8 EDUCATION LIMITED ANNUAL REPORT 2018
REMUNERATION RECEIVED BY KMP SENIOR
EXECUTIVES
the satisfaction of performance and service conditions
and may not ultimately vest).
The following table sets out the value of the
remuneration received by KMP Senior Executives
during the year. The figures in this table differ from
those shown in the statutory table later in Section
5 mainly because the statutory table includes an
apportioned accounting value for all unvested Long
Term Incentive Plan grants (which remain subject to
The values disclosed in the below table, while not
in accordance with the accounting standards, are
intended to be helpful for shareholders in better
demonstrating the linkages between performance
and the remuneration realised by the KMP Senior
Executives.
THE TABLE BELOW SHOWS:
• Fixed remuneration
• Any vesting of Long Term Incentive Plan awards
• Short Term Incentive
• Termination Payments
Amount $
Fixed
Remuneration
(1)
STI (2)
LTI vested (3)
Termination
payments
Total actual
remuneration
earned
G Carroll
760,290
145,000
S Williams
445,290
J Ball
425,290
54,667
19,250
-
-
-
-
-
-
905,290
499,957
444,540
1) Base Salary, superannuation and non-monetary benefits such as motor vehicle and travel
2) STI paid during the 2018 financial year in respect of 2017 performance
3) Intrinsic value of LTI that vested during the financial year
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
2014
2015
2016
2017
2018
$’000
$’000
$’000
$’000
$’000
491,288
706,164
778,513
796,806
858,173
105,965
160,423
160,691
150,878
132,184
Net Profit After Tax
52,731
88,581
80,265
80,581
71,831
Underlying EBIT (unaudited, Non IFRS)^
100,248
145,438
160,660
156,034
136,261
Underlying NPAT (unaudited, Non IFRS)^^
60,613
87,131
93,342
92,874
79,417
Underlying EPS (cents)
18.57
23.87
24.68
21.80
17.54
Average annual dividend per share (cents)
Share price as at 31 December ($)
19.0
4.17
24.0
3.57
24.0
3.59
Total Fixed Remuneration executive KMP
1,593
2,163
2,297
18.0
3.45
1,816
14.0
2.83
1,712
^Underlying EBIT equals NPBT plus finance costs plus non-operating costs as per page 21
^^ Underlying NPAT equals NPAT plus non-operating costs as per page 21
39
G8 EDUCATION LIMITED ANNUAL REPORT 2018
Performance
Rights
Share based
payment
77,611
19,426
-
-
-
-
-
(85,889)
Proportion of total
remuneration
Total
Performance
Share Plan
Rights
related
%
%
798,304
965,799
467,554
462,372
446,554
229,178
648,076
253,565
1,712,412
5%
23%
5%
16%
5%
8%
(13%)
-
8%
4%
-
-
-
-
-
(13%)
-
-
-
-
-
-
-
282,934
149,428
798,304
888,188
467,554
442,946
446,554
229,178
733,965
253,565
1,712,412
432,362
2,547,842
11,148
2,558,990
Year
Fixed Remuneration
Short-term
Post employment costs
Amount $
TFR
STI
Dividends
from Share
Plan
Superannuation
benefits
Termination
payment
Total
KMP
G Carroll
S Williams ^
J Ball ^^
Former KMP
C Scott^^^
T King^^^^
Total
Total
2018
2017
2018
2017
2018
2017
2017
2017
2018
2017
740,000
725,000
425,000
368,448
405,000
199,904
364,207
95,462
1,570,000
1,753,021
38,014
145,000
22,264
54,666
21,264
19,250
-
-
81,542
218,916
-
-
-
-
-
-
80,000
-
-
80,000
20,290
18,188
20,290
19,832
20,290
10,024
6,824
8,675
60,870
63,543
^ S Williams commenced 6 February 2017 ^^ J Ball commenced 26 June 2017 ^^^ C Scott resigned 29 May 2017 ^^^^ T King resigned 12 April 2017
The Total Fixed Remuneration of KMP is reviewed annually as part of the overall remuneration framework review.
Based upon CPI Index and independent benchmark assessment data, the Board approved an increase to the
CEO base salary for 2018 of 2%, a 3.7% increase to the CFO base salary and a 5.2% increase to the General Manager
Operations base salary effective from 1 January 2018.
When Gary Carroll was appointed as Chief Executive Officer on 1 January 2017 his base salary remuneration
was in the first quartile of the relevant benchmark at the time given it was his first CEO appointment. In late
2018 an updated independent benchmarking assessment was conducted in respect of the Executive Director/
Chief Executive Officer position, taking into account Gary’s experience and performance having been in the
role for 2 years. Effective from 1 January 2019, the CEO base salary was increased by 10.4% to $840,000 (including
superannuation) to be in line with market median for comparable listed companies. The comparator group
consists of listed companies of similar scale and complexity.
6. 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
Ordinary Shares
M Johnson
B Bailison
S Forrester
D Foster
G Carroll
M Zabel
J Cogin
KMP of G8 Education
Limited
Ordinary Shares
S Williams
J Ball
40
Ownership
type
Balance at the
start of the year
Other changes
during the year
Balance at the
end of the year
Directly
Directly
Directly
Directly
Directly
Directly
Directly
Directly
Directly
30,000
13,000
39,528
14,587
100,000
-
-
30,000
12,000
12,441
8,389
10,000
15,000
19,000
60,000
25,000
51,969
22,976
110,000
15,000
19,000
12,500
-
12,500
-
25,000
-
G8 EDUCATION LIMITED ANNUAL REPORT 2018
Year
2018
2017
2018
2017
2018
2017
2017
2017
2018
2017
KMP
G Carroll
S Williams ^
J Ball ^^
Former KMP
C Scott^^^
T King^^^^
Total
Total
740,000
725,000
425,000
368,448
405,000
199,904
364,207
95,462
1,570,000
1,753,021
38,014
145,000
22,264
54,666
21,264
19,250
-
-
81,542
218,916
-
-
-
-
-
-
-
-
80,000
80,000
20,290
18,188
20,290
19,832
20,290
10,024
6,824
8,675
60,870
63,543
^ S Williams commenced 6 February 2017 ^^ J Ball commenced 26 June 2017 ^^^ C Scott resigned 29 May 2017 ^^^^ T King resigned 12 April 2017
Fixed Remuneration
Short-term
Post employment costs
Amount $
TFR
STI
Dividends
from Share
Plan
Superannuation
benefits
Termination
payment
Total
-
-
-
-
-
-
282,934
149,428
-
798,304
888,188
467,554
442,946
446,554
229,178
733,965
253,565
1,712,412
Performance
Rights
Share based
payment
-
77,611
-
19,426
-
-
(85,889)
-
Proportion of total
remuneration
Total
Performance
Rights
Share Plan
related
%
%
798,304
965,799
467,554
462,372
446,554
229,178
648,076
253,565
1,712,412
5%
23%
5%
16%
5%
8%
(13%)
-
-
8%
-
4%
-
-
(13%)
-
432,362
2,547,842
11,148
2,558,990
THE MOVEMENT DURING THE REPORTING PERIOD IN THE NUMBER OF PERFORMANCE RIGHTS OVER ORDINARY SHARES IN THE COMPANY
HELD DIRECTLY OR BENEFICIALLY, BY EACH KMP, INCLUDING THEIR RELATED PARTIES IS AS TABLED BELOW.
Tranche
Grant Date Fair Value
at Grant
Date
Balance
at the
start of
the year
Granted
during
the year
Balance at
the end of
the year
Value of
Performance
Rights
granted in
year ^
Financial
year in
which grant
vests
Number
Date
$ Number Number
Number
$
20-July 18
2.39
-
198,847
198,847
475,244
Year
2021
2018 Perf.
Rights
2017 Perf.
Rights
2018 Perf.
Rights
2017 Perf.
Rights
2018 Perf.
Rights
2017 Perf.
Rights
G Carroll
TOTAL
S Williams
TOTAL
J Ball
TOTAL
TOTAL
20-July 17
3.19
142,249
-
142,249
453,774
2020
20-July 18
2.39
-
77,623
77,623
185,519
2021
142,249
198,847
341,096
929,018
6-Oct 17
3.70
53,629
-
53,629
198,427
2020
20-July 18
2.39
22-Jan 18
3.42
53,629
77,623
131,252
383,946
-
-
-
74,135
74,135
177,183
2021
50,359
50,359
172,227
2020
124,494
124,494
349,410
195,878
400,964
596,842
1,662,374
^ The Performance Rights are expensed over a three year period in line with the vesting conditions of the Performance Rights (refer Note 29). Plan
participants may not enter into any transaction designed to remove the at-risk aspect of the Performance Rights before they vest. The value at the
exercise date for Performance Rights is the Group share price.
41
G8 EDUCATION LIMITED ANNUAL REPORT 2018
7. 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 twelve months’ written notice.* Other executive KMP
are required to provide G8 Education 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 twelve
months’ written notice.* For other executive KMP, the notice period is six
months’ written notice. The Company may make payment, based on total fixed
remuneration, in lieu of the notice period.
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.
*In February 2019 the CEO’s Employment Agreement was amended to increase the termination notice period to be provided by the CEO and by
G8 Education to the CEO from six to twelve months.
42
G8 EDUCATION LIMITED ANNUAL REPORT 2018 8. 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.
From 1 January 2018, following independent benchmarking undertaken in
November 2017, the NED remuneration was amended as follows:
• the Board Chairman fee was increased to $285,000 (including superannuation);
• the NED fee was increased to $140,000 (including superannuation);
• the Committee Chair fee for the Nomination and People & Culture Committees
was increased to $25,000 (including superannuation); and
• all Committee member fees were reduced to nil.
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 2018 is within the aggregate amount
approved by shareholders at the AGM in May 2017 of $1,100,000 per annum
including superannuation.
At the time of the 2017 AGM, it was the Board’s intention not to exceed $1 million
in NED payments in 2017 and 2018. Following benchmarking of NED fees in early
2018, changes were made to the NED fees as set out in this report. Due to those
changes the total NED fees payable in 2018 exceeded $1 million by approximately
$50,000. No increase to the NED fee pool is being sought at the 2019 AGM.
43
G8 EDUCATION LIMITED ANNUAL REPORT 2018 NED FEES AND OTHER BENEFITS EXPLAINED
Elements
Details
Board fees per annum
Board Chairman fee
Board NED Base fee
Committee fees per annum
Audit & Risk Chair fee
Nomination Chair fee
People and Culture Chair fee
Audit & Risk Member fee
Nomination Member fee
People and Culture Member fee
* fees include superannuation
2018*
$
285,000
140,000
25,000
25,000
25,000
No fee
No fee
No fee
2017*
$
246,375
120,450
27,375
18,615
18,615
10,950
No fee
9,855
Post-employment
benefits
Superannuation
Superannuation contributions have been made at a rate of 9.5% of the Board
fee which satisfies the Company’s statutory superannuation contributions. The
contribution rate will increase in future years in line with mandated legislative
increases. However, the base fees for 2017 above are exclusive of superannuation.
Contributions will be limited to the Australian Government’s prescribed maximum
contributions limit.
Retirement schemes
There are no retirement schemes in place for NEDs other than Statutory
Superannuation.
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 2018 for travel allowances, extra services
or special exertions, other than a payment $25,000 to Margaret Zabel in respect of
marketing consultancy services provided during 2018.
44
G8 EDUCATION LIMITED ANNUAL REPORT 2018 NED TOTAL REMUNERATION PAID
M Johnson (Chairman)
B Bailison
S Forrester
D Foster
M Zabel
Year
2018
2017
2018
2017
2018
2017
2018
2017
2018
Fees
$
256,544
225,000
150,685
135,000
150,685
127,000
150,685
129,423
127,854
(appointed 1 September 2017)
2017
36,385
J Cogin
2018
127,854
(appointed 1 September 2017)
2017
39,362
M Reynolds
(resigned 31 August 2017)
Total
Total
2018
2017
2018
2017
-
79,638
964,307
771,808
Superannuation
benefits
$
20,290
21,375
14,315
12,825
14,315
12,065
14,315
12,295
12,146
3,457
12,146
3,739
-
7,827
87,527
73,583
Total
$
276,834
246,375
165,000
147,825
165,000
139,065
165,000
141,718
140,000
39,842
140,000
43,101
-
87,465
1,051,834
845,391
During 2018, following an independent benchmark assessment NED fees were increased by 14% (on average). The
increase brought NED fees to be in line with the median of the selected ASX comparator group
45
G8 EDUCATION LIMITED ANNUAL REPORT 2018 MINIMUM SHAREHOLDING GUIDELINES
NON-AUDIT SERVICES
The Board has approved minimum shareholding
guidelines for NEDs, the CEO and executive KMP.
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 Board
believes that this requirement will ensure alignment
with shareholders’ interests.
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.
DIRECTOR’S TENURE
The Directors shall retire from office in accordance
with the Constitution of G8 Education Limited and/
or the applicable sections of the Corporations Act.
The Board has a policy that in general the maximum
term of service for a NED should be approximately ten
years. However, this term may be extended for reasons
such as Board or Committee chairmanship, providing
continuity or a particular capability of a Non‐executive
Director.
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 Education Limited’s compliance with
the Principles are found in the corporate governance
section of our website: www.g8education.edu.au/
investor-information/corporate-goverance.
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 2018, 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 in note 30, 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; and
• none of the services undermine the general
principles relating to auditor independence as
set out in APES 110 Code of Ethics of Professional
Accountants.
AUDITORS 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 47.
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
23 February 2019
46
G8 EDUCATION LIMITED ANNUAL REPORT 2018 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 2018, 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.
This declaration is in respect of G8 Education Limited and the entities it controlled during the financial
year.
Ernst & Young
Ric Roach
Partner
23 February 2019
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
47
G8 EDUCATION LIMITED ANNUAL REPORT 2018
SECTION TWO
FINANCIAL REPORT
Consolidated Income Statement
Consolidated Statement of
Comprehensive Income
Consolidated Balance Sheet
Consolidated Statement of
Changes in Equity
Consolidated Statement of Cash Flows
Notes to the Financial Statements
Directors’ Declaration
Independent Auditor’s Report
49
49
50
51
52
53
111
112
48
G8 EDUCATION LIMITED ANNUAL REPORT 2018 CONSOLIDATED INCOME STATEMENT
For the year ended 31 December 2018
Continuing operations
Revenue
Other income
Total revenue
Expenses
Employment costs
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
Notes
Consolidated
2018
$’000
2017
$’000
2
3
4
4
4
5
6
6
851,530
789,043
6,643
7,763
858,173
796,806
(507,105)
(445,841)
(108,915)
(97,846)
(61,622)
(58,568)
(16,483)
(31,449)
(13,959)
(28,667)
(28,973)
(34,144)
(754,547)
(679,025)
103,626
117,781
(31,795)
(37,200)
71,831
Cents
15.87
15.87
80,581
Cents
18.92
18.91
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 2018
Profit for the year
Other comprehensive income, net of income tax
Items that are or may be reclassified to the consolidated income statement:
Exchange differences on translation of foreign operations
Effective portion of changes in fair value of cash flow hedges
Total other comprehensive income
Total comprehensive income for the year
Consolidated
2018
$’000
71,831
2017
$’000
80,581
2,778
1,626
4,404
76,235
(23)
1,921
1,898
82,479
The above Consolidated Statement of Comprehensive Income should be read in conjunction with the accompanying notes.
49
G8 EDUCATION LIMITED ANNUAL REPORT 2018
CONSOLIDATED BALANCE SHEET
As at 31 December 2018
ASSETS
Current assets
Cash and cash equivalents
Trade and other receivables
Other current assets
Derivative financial instruments
Current tax asset
Total current assets
Non-current assets
Property plant and equipment
Deferred tax assets
Intangible assets
Other non-current assets
Derivative financial instruments
Total non-current assets
Total assets
LIABILITIES
Current liabilities
Trade and other payables
Contract liabilities
Current tax liability
Borrowings
Provisions
Total current liabilities
Non-current liabilities
Other payables
Borrowings
Provisions
Derivative financial instruments
Total non-current liabilities
Total liabilities
Net assets
EQUITY
Contributed equity
Reserves
Retained earnings
Total equity
Notes
Consolidated
2018
$’000
2017
$’000
16
7
8
18
9
5
14
8
18
10
17
11
10
17
11
18
55,521
36,502
14,120
10,837
-
49,209
30,366
12,361
-
250
116,980
92,186
91,710
17,856
63,906
16,220
1,134,456
1,087,969
25,547
-
32,273
622
1,269,569
1,200,990
1,386,549
1,293,176
67,911
8,517
700
279,566
29,988
386,682
5,260
92,188
8,935
-
106,383
493,065
893,484
65,902
9,155
-
49,905
26,096
151,058
1,067
253,589
8,321
13,806
276,783
427,841
865,335
19
893,567
876,394
56,530
(56,613)
44,552
(55,611)
893,484
865,335
The above Consolidated Balance Sheet should be read in conjunction with the accompanying notes.
50
G8 EDUCATION LIMITED ANNUAL REPORT 2018
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 31 December 2018
Contributed Hedging
Reserve
Equity
Cost of
Hedging
Reserve
Translation
Reserve
Share
Based
Payment
Reserve
Profits
Reserve
Retained
Earnings
Total
Consolidated
Notes
$’000
$’000
$’000
$’000
$’000
$’000
$’000
$’000
Balance 1 January 2017
641,848
(1,042)
5,571
239
30,881
(51,622) 625,875
-
-
-
-
1,921
1,921
Profit for the year
Other comprehensive
income (net of tax)
Total comprehensive
income for the year
Transactions with
owners in their
capacity as owners
Contributions of equity,
net of transaction cost
Share based payment
expense
Dividends provided for
or paid
19
234,546
29
20
-
-
-
-
-
-
Total
234,546
Balance 31 December
2017
876,394
879
Balance 1 January 2018
876,394
879
-
-
-
-
-
-
-
-
-
-
84,570
(3,989)
80,581
-
-
1,898
84,570
(3,989)
82,479
-
-
-
-
(108)
-
(23)
(23)
-
-
-
-
-
-
-
-
-
-
234,546
(108)
(77,457)
156,981
-
(77,457)
(108)
(77,457)
5,548
131
37,994
(55,611) 865,335
5,548
131
37,994
(55,611) 865,335
Adjustment on
adoption of AASB 9
Profit for the year
Other comprehensive
income (net of tax)
Total comprehensive
income for the year
Transactions with
owners in their
capacity as owners
Contributions of equity,
net of transaction cost
Dividends provided for
or paid
-
-
-
-
-
-
(620)
-
-
-
736
890
2,778
736
890
2,778
-
-
-
-
-
-
-
-
620
-
73,453
(1,622)
71,831
-
-
4,404
73,453
(1,622)
76,235
-
(65,259)
(65,259)
-
-
-
17,173
(65,259)
(48,086)
19
17,173
20
-
-
-
-
-
-
-
-
-
-
Total
17,173
Balance 31 December
2018
893,567
1,615
270
8,326
131
46,188
(56,613) 893,484
The above Consolidated Statement of Changes in Equity should be read in conjunction with the accompanying notes.
51
G8 EDUCATION LIMITED ANNUAL REPORT 2018 CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended 31 December 2018
Cash flows from operating activities
Receipts from customers (inclusive of GST)
Payments to suppliers and employees (inclusive of GST)
Interest received
Interest paid
Income taxes paid
Notes
Consolidated
2018
$’000
2017
$’000
853,627
777,833
(695,208)
(626,525)
455
(23,003)
(29,924)
1,004
(26,199)
(34,102)
92,011
Net cash inflows from operating activities
21
105,947
Cash flows from investing activities
Payments for purchase of businesses (net of cash acquired)
Payments for purchase of intangible assets
Payments for divestments
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
Repayment of corporate notes
Proceeds from issue of shares
Inflows from borrowings
Outflows of borrowings
14
19
20
19
Net cash (outflows)/ inflows from financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the financial year
Effects of exchange rate changes on cash
Cash and cash equivalents at the end of the financial year
16
The above Consolidated Statement of Cash Flows should be read in conjunction with the accompanying notes.
(52,613)
(3,250)
(128)
(67,422)
-
(358)
(36,819)
(18,432)
(92,810)
(86,212)
(47)
-
(5,347)
(4,357)
(48,131)
(62,787)
(50,000)
(70,000)
139
200,665
195,000
10,000
(103,981)
(51,204)
(7,020)
16,970
6,117
49,195
209
55,521
22,769
26,453
(27)
49,195
52
G8 EDUCATION LIMITED ANNUAL REPORT 2018
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 AND DEFERRED TAX ASSETS
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: CURRENT AND NON-CURRENT LIABILITIES – TRADE AND OTHER PAYABLES
NOTE 11: CURRENT AND NON-CURRENT LIABILITIES – PROVISIONS
2. Business Combinations, Goodwill & Impairment
NOTE 12: CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS
NOTE 13: BUSINESS COMBINATIONS
NOTE 14: NON-CURRENT ASSETS – INTANGIBLE ASSETS
3. Capital Structure & Financial Risk Management
NOTE 15: FINANCIAL RISK MANAGEMENT
NOTE 16: CURRENT ASSETS – CASH AND CASH EQUIVALENTS
NOTE 17: CURRENT AND NON – CURRENT LIABILITIES – BORROWINGS
NOTE 18: DERIVATIVE FINANCIAL INSTRUMENTS
NOTE 19: CONTRIBUTED EQUITY
NOTE 20: DIVIDENDS
NOTE 21: RECONCILIATION OF CASH FLOWS
4. Group Structure
NOTE 22: SUBSIDIARIES
NOTE 23: PARENT ENTITY DISCLOSURES
NOTE 24: DEED OF CROSS GUARANTEE
5. Unrecognised Items
NOTE 25: COMMITMENTS
NOTE 26: CONTINGENCIES
NOTE 27: EVENTS OCCURRING AFTER THE BALANCE SHEET DATE
6. Others
NOTE 28: KEY MANAGEMENT PERSONNEL DISCLOSURES
NOTE 29: SHARE-BASED PAYMENTS
NOTE 30: REMUNERATION OF AUDITORS
NOTE 31: RELATED PARTY TRANSACTIONS
NOTE 32: OTHER SIGNIFICANT ACCOUNTING POLICIES
54
55
56
56
57
60
61
63
64
66
66
68
69
72
73
81
82
85
87
89
91
92
94
95
97
98
98
98
101
103
103
104
53
G8 EDUCATION LIMITED ANNUAL REPORT 2018 1. FINANCIAL OVERVIEW
Note 1: Segment Information
(a) Description of segments
The Executive Team (the Chief Operating Decision Maker that makes strategic decisions) considers the business
as one Group of centres and regularly reviews operating results at this level to assist and make decisions about
the allocation of resources. The Executive Team 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.
31 December 2018
Revenue from external customers
Non-current assets*
31 December 2017
Revenue from external customers
Non-current assets*
Timing of revenue recognition
31 December 2018
Revenue recognised at a point in time
Total revenue from contracts with customers
Other revenue
Total revenue
31 December 2017
Australia
Foreign
Total
Country
$’000
$’000
$’000
835,222
1,217,624
16,308
34,089
851,530
1,251,713
772,537
1,152,506
16,506
31,642
789,043
1,184,148
Australia
Foreign
Total
Country
$’000
$’000
$’000
820,938
820,938
14,284
16,304
16,304
837,242
837,242
4
14,288
835,222
16,308
851,530
Revenue recognised at a point in time
Total revenue from contracts with customers
Other revenue
Total revenue
757,931
757,931
14,606
16,475
16,475
774,406
774,406
31
14,637
772,537
16,506
789,043
*Non-current assets exclude deferred tax assets and derivative financial instruments
54
G8 EDUCATION LIMITED ANNUAL REPORT 2018
1. FINANCIAL OVERVIEW
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
Accounting policy
Consolidated
2018
$’000
2017
$’000
835,843
13,499
773,516
13,269
849,342
786,785
2,188
2,258
851,530
789,043
Revenue is measured at the fair value of the consideration received or receivable. Amounts disclosed as revenue
are net of discounts, refunds and rebates.
The Group elected to adopt the full retrospective approach upon adoption of AASB 15. As there was no change to
the measurement or timing of the recognition (i.e. based on when the performance obligation is satisfied) there
has been no impact to the Group upon adoption of the new standard and therefore no changes to comparatives
were required.
Revenue is recognised for the major business activities as follows:
(i) Revenue from child care centres
Fees paid by families and/or the Australian Government (Child Care Benefit, Child Care Tax Rebate and Child
Care Subsidy) are recognised as and when a child attends a child care service, as under AASB15 this is when the
customer has consumed the benefits of this service (satisfies its performance obligation).
Revenue received in advance from parents, guardians and government is recognised as deferred income and
classified as a current liability (i.e. contract liability for performance obligations yet to be satisfied), (see note 10).
(ii) Funding related to child care operations
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 as under AASB 120.
(iii) Management fee income
Fees paid by franchisees are recognised in accordance with the franchise agreement and once the operational
support service has been performed, as this is when the Group transfers control of this service (satisfies its
performance obligation) to the franchisee.
55
G8 EDUCATION LIMITED ANNUAL REPORT 2018
1. FINANCIAL OVERVIEW
Note 3: Other Income
Deferred consideration not payable (refer note 13)
Licence and other fees
Interest
Total other income
Accounting policy
(i) Deferred consideration
Refer note 13.
(ii) Licence and other fees
Consolidated
2018
$’000
2,199
4,029
415
6,643
2017
$’000
243
6,473
1,047
7,763
Licence fees are recognised over the term of the licence period as the Group has an enforceable right.
(iii) Interest income
Interest income is recognised using the effective interest method.
1. FINANCIAL OVERVIEW
Note 4: Expenses
Profit before income tax includes the following specific expenses:
Depreciation (refer note 9)
16,483
13,959
Consolidated
2018
$’000
2017
$’000
Employment costs
Wages and salaries
Post-employment benefits
Share-based payment expense
Finance costs
Interest and finance charges
Foreign exchange loss
466,636
410,807
40,469
-
35,142
(108)
507,105
445,841
28,358
615
28,973
31,379
2,765
34,144
Property rental expenses relating to operating leases
Minimum lease payments
98,614
88,300
Bad & doubtful debts (refer note 7)
896
727
56
G8 EDUCATION LIMITED ANNUAL REPORT 2018
1. FINANCIAL OVERVIEW
Note 5: Income Tax and Deferred Tax Assets
(a) Income tax expense
Current tax
Deferred tax
Under provision prior year
Income tax expense
Income tax expense is attributable to:
Profit from continuing operations
Consolidated
2018
$’000
2017
$’000
34,088
36,708
(2,292)
(1)
425
67
31,795
37,200
31,795
31,795
37,200
37,200
Deferred income tax expense included in income tax expense comprises:
(Increase) / decrease in deferred tax assets
(2,292)
425
(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% (2017: 30%)
103,626
31,088
117,781
35,334
Tax effect of amounts which are not deductible (taxable) in calculating taxable
income
Adjustments relating to prior year
Entertainment
Deferred consideration not payable
Acquisition related costs – not deductible
Other non-allowable items
Difference in overseas tax rates
Income tax expense
Weighted average tax rate
(1)
224
(403)
968
2
(83)
67
140
(73)
1,336
218
178
31,795
30.7%
37,200
31.6%
(c) Amounts recognised directly in equity
Aggregate current and deferred tax arising in the reporting year and not
recognised in the consolidated income statement but directly debited or credited
to equity
Net deferred tax – (credited) / debited directly to equity
(656)
1,230
57
G8 EDUCATION LIMITED ANNUAL REPORT 2018
1. FINANCIAL OVERVIEW
Note 5: Income Tax and Deferred Tax Assets (continued)
Deferred tax asset
The balance comprises temporary differences attributable to:
Employee benefits
Cash flow hedging
Share issue transaction costs
Total
Other
s40-880 deductions
Provision for doubtful debts
Accrued expenses
Foreign exchange loss (derivatives)
Provisions
Total other
Consolidated
2018
$’000
2017
$’000
10,017
168
998
11,183
670
492
4,250
1,850
1,621
8,883
8,764
838
1,861
11,463
194
282
3,038
1,670
298
5,482
Total deferred tax assets
20,066
16,945
Deferred tax liability
Buildings
Make good
Prepayments
Total deferred tax liability
Net deferred tax asset
At 1 January 2017
Charged to the consolidated income statement
Charged directly to equity
At 31 December 2017
Charged to the consolidated income statement
Charged directly to equity
At 31 December 2018
58
(220)
(1,414)
(576)
(2,210)
(217)
-
(508)
(725)
17,856
16,220
Employee
Benefits
Share
Issue
Transaction
Other
Total
$’000
8,510
254
-
8,764
1,253
-
10,017
Costs
$’000
1,295
(1,041)
1,607
1,861
(877)
14
998
$’000
5,610
362
(377)
$’000
15,415
(425)
1,230
5,595
16,220
1,916
(670)
2,292
(656)
6,841
17,856
G8 EDUCATION LIMITED ANNUAL REPORT 2018
1. FINANCIAL OVERVIEW
Note 5: Income Tax and Deferred Tax Assets (continued)
Tax consolidation
(i) Members of the tax consolidated group and the tax
sharing agreement
G8 Education Ltd (G8 Education) and its 100%
owned Australian resident subsidiaries formed a tax
consolidated group with effect from 3 December 2007.
G8 Education 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 2018 there are no tax related
contingencies (2017: nil).
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.
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 the
consolidated income statement, 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.
59
G8 EDUCATION LIMITED ANNUAL REPORT 2018 1. FINANCIAL OVERVIEW
Note 6: Earnings per Share
Consolidated
2018
CPS
2017
CPS
(a) Basic earnings per share
Profit attributable to the ordinary equity holders of the company
15.87
18.92
(b) Diluted earnings per share
Profit from continuing operation attributable to the ordinary equity holders of
the Company
15.87
18.91
(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
71,831
80,581
Diluted earnings per share
Profit attributable to the ordinary equity holders of the Company used in
calculating diluted earnings per share
71,831
80,581
$’000
$’000
(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
452,819,479
425,942,976
Number
Number
Adjustments for calculation of diluted earnings per share:
Performance rights*
-
141,348
Weighted average number of ordinary shares and potential ordinary shares
used as the denominator in calculating diluted earnings per share
452,819,479
426,084,324
* If 31 December 2018 were the end of the contingency period nil shares would be issuable.
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.
60
G8 EDUCATION LIMITED ANNUAL REPORT 2018
1. FINANCIAL OVERVIEW
Note 7: Current Assets – Trade and Other Receivables
Trade receivables
Allowance for impairment of receivables (note (a) below)
GST receivable
Other debtors
Consolidated
2018
$’000
24,092
(1,721)
22,371
1,633
12,498
2017
$’000
20,525
(1,013)
19,512
1,007
9,847
Total trade and other receivables
36,502
30,366
(a) Impaired trade receivables
As at 31 December 2018 current trade receivables of the Group were assessed for impairment. The allowance for
expected credit losses recognised during the year was $1,721,174 (2017: $1,013,345).
Movements in the allowance for expected credit losses of receivables are as follows:
Opening balance
Allowance for impairment recognised during the year (refer note 4)
Receivables written off during the year as uncollectable
Closing balance
Consolidated
2018
$’000
1,013
896
(188)
1,721
2017
$’000
718
727
(432)
1,013
The creation and release of the provision for impaired receivables has been included in ‘other expenses’ in the
consolidated income statement. Amounts charged to the allowance account are generally written off when there
is no expectation of recovery.
61
G8 EDUCATION LIMITED ANNUAL REPORT 2018
1. FINANCIAL OVERVIEW
Note 7: Current Assets – Trade and Other Receivables (continued)
(b) Past due but not impaired
As at 31 December 2018, trade receivables of $6,046,442 (2017: $6,241,527) 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
(c) Fair value and credit risk
2018
$’000
5,826
51
169
2017
$’000
6,064
14
164
6,046
6,242
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 15.
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 (parent fees) and/or the Australian Government.
Under the Child Care Management System (CCMS), implemented in July 2008, Child Care Benefits are generally
paid weekly in arrears by the Australian Government based on the actual attendance and entitlement of each
child attending the child care centre. The Child Care Subsidy (CCS), implemented in July 2018, operates in the
same manner.
Parent fees are required to be paid one week in advance. The parent fees receivable relates to child care fees where
amounts are past due and not paid in advance.
The Group applied the expected credit loss (ECL) model. For trade and other receivables and deposits on
acquisition, the Group has applied the standard’s simplified approach whereby the loss allowance is measured
at an amount equal to lifetime expected credit losses. The Group assesses expected credit losses in a way
that reflects:
An unbiased and probability-weighted amount that is determined by evaluating a range of possible outcomes;
• The time value of money; and
• Reasonable and supportable information that is available without undue cost or effort at the reporting date
about past events, current conditions and forecast of future economic conditions.
The Group has established a calculation that is based on the Group’s historic credit loss experience, adjusted for
forward-looking factors specific to the debtors and the economic environment.
62
G8 EDUCATION LIMITED ANNUAL REPORT 2018
1. FINANCIAL OVERVIEW
Note 8: Current and Non-Current Assets – Other
Current
Prepayments
Inventory
Deposits
Total other current assets
Non-current
Deposits on acquisitions
Prepayments
Deposits
Total other non-current assets
Total other current and non-current assets
Accounting policy
Consolidated
2018
$’000
7,062
5,698
1,360
14,120
2017
$’000
5,500
4,463
2,398
12,361
24,200
29,443
692
655
25,547
39,667
1,456
1,374
32,273
44,634
Deposits on acquisitions relate to deposits made for the purchase of centres. Once settled the amount transferred
forms part of the business combination accounting.
Inventories relate to childcare centre consumables. These are measured at the lower of cost and net realisable
value. Any write down in the value of the inventory due to obsolescence is booked as an expense when the
inventory becomes obsolete. Current replacement cost is the cost the Group would incur to acquire or replace
inventories held for distribution at balance date.
63
G8 EDUCATION LIMITED ANNUAL REPORT 2018
1. FINANCIAL OVERVIEW
Note 9: Non-Current Assets – Property, Plant and Equipment
Buildings
Vehicles
Furniture,
Make good
Total
fittings and
equipment
$’000
$’000
$’000
$’000
$’000
Consolidated
Year ended 31 December 2018
Opening net book amount
4,146
251
54,429
5,080
63,906
Additions through business
combinations (refer note 13)
Provision
Additions
Disposals
Depreciation charge
Effect of foreign exchange on
depreciation
Closing net book amount
At 31 December 2018
Cost
Accumulated depreciation
Net book amount
-
-
-
-
(152)
-
3,994
5,046
(1,052)
3,994
276
-
10
(53)
(101)
-
383
6,706
-
37,778
(647)
(15,696)
-
170
-
-
6,982
170
37,788
(700)
(534)
(16,483)
47
-
47
82,617
4,716
91,710
1,412
(1,029)
383
145,778
(63,161)
82,617
5,250
(534)
4,716
157,486
(65,776)
91,710
Buildings
Vehicles
Furniture,
Make Good
Total
fittings and
equipment
$’000
$’000
$’000
$’000
$’000
Consolidated
Year ended 31 December 2017
Opening net book amount
4,298
312
50,235
Additions through business
combinations (refer note 13)
Initial provision
Additions
Disposals
Depreciation charge
Effect of foreign exchange on
depreciation
Closing net book amount
At 31 December 2017
Cost
Accumulated depreciation
Net book amount
64
-
-
-
-
(152)
-
4,146
5,046
(900)
4,146
-
-
5,080
-
-
-
-
54,845
815
5,080
18,187
(1,055)
(13,959)
(7)
-
-
-
(5)
(56)
-
251
815
-
18,187
(1,050)
(13,751)
(7)
54,429
5,080
63,906
1,179
(928)
251
101,812
(47,383)
54,429
5,080
-
113,117
(49,211)
5,080
63,906
G8 EDUCATION LIMITED ANNUAL REPORT 2018 1. FINANCIAL OVERVIEW
1. FINANCIAL OVERVIEW
1. FINANCIAL OVERVIEW
1. FINANCIAL OVERVIEW
Note 9: Non-Current Assets – Property, Plant and Equipment (continued)
Note 9: Non-Current Assets – Property, Plant and Equipment (continued)
Note 9: Non-Current Assets – Property, Plant and Equipment (continued)
Note 9: Non-Current Assets – Property, Plant and Equipment (continued)
(a) Leasehold Improvements
Furniture, fittings and equipment includes the following amounts that are leasehold improvements:
Cost
Accumulated depreciation
Net book amount
Consolidated
2018
$’000
91,681
2017
$’000
64,894
(30,908)
(21,448)
60,773
43,446
(b) Non-current assets pledged as security
Refer to note 17 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 consolidated 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
• Leasehold Improvements: 5 – 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 consolidated income statement.
Refer to note 11(b) for accounting policy on make good.
65
G8 EDUCATION LIMITED ANNUAL REPORT 2018
1. FINANCIAL OVERVIEW
Note 10: Current and Non-Current Liabilities – Trade and Other Payables
Trade payables (i)
Contingent consideration
Centre enrolment advances (i)
Other payables and accruals (i)
Acquisitions payables
Total current
Lease accounting liability (ii)
Contingent consideration
Total non-current
Accounting policy
Notes
13
13
Consolidated
2018
$’000
16,742
1,969
3,286
42,886
3,028
67,911
4,542
718
5,260
2017
$’000
9,343
13,546
5,845
35,170
1,999
65,903
312
755
1,067
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.
(i) Trade and other payables are non-interest bearing and are normally settled on 30-day terms.
(ii) Lease incentives under operating leases are recognised as a liability and amortised on a straight-line basis over
the life of the lease term.
1. FINANCIAL OVERVIEW
Note 11: Current and Non-Current Liabilities – Provisions
Current liabilities
Employee benefits (note (a) below)
Total current
Non-current liability
Employee benefits
Make good provision (note (b) below)
Total non-current
Consolidated
2018
$’000
29,988
29,988
3,537
5,398
8,935
2017
$’000
26,096
26,096
3,241
5,080
8,321
(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.
66
G8 EDUCATION LIMITED ANNUAL REPORT 2018
1. FINANCIAL OVERVIEW
Note 11: Current and Non-Current Liabilities – Provisions (continued)
Leave obligations expected to be settled after 12 months
Accounting policy
(i) Short term obligations
Consolidated
2018
$’000
4,454
4,454
2017
$’000
4,743
4,743
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 Education, are accounted for as equity-settled share-based payment transactions when
the rights over the shares are granted by G8 Education.
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 the consolidated income statement over the remaining vesting period, with
corresponding adjustment to the equity-settled employee benefits reserve.
(b) Make good provision
Costs required to return certain leased premises to their original condition as set out in the lease agreements are
recognised as a provision in the financial statements. The provision has been calculated as an estimate of future
costs and discounted to present value.
67
G8 EDUCATION LIMITED ANNUAL REPORT 2018
2. BUSINESS COMBINATIONS, GOODWILL & IMPAIRMENT
Note 12: 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 14. The recoverable amounts of goodwill have been determined based on value-in-use calculations.
These calculations require the use of assumptions. Refer to note 14 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. Where outside the measurement period under AASB 3 Business combinations, if the earn out target
is not met then the amount not paid of the deferred contingent consideration is taken to the consolidated income
statement as a credit and the corresponding entry against the liability.
(iii) Long service leave
The liability for long service leave is recognised as a provision for employee benefits and measured at the present
value of estimated future payments to be made in respect of services provided by employees up to the end of the
reporting period. The provision is calculated using expected future increases in wage and salary rates including
related on-costs and expected settlement dates based on staff turnover history.
68
G8 EDUCATION LIMITED ANNUAL REPORT 2018 2. BUSINESS COMBINATIONS, GOODWILL & IMPAIRMENT
Note 13: 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 16 centres from various vendors as outlined below:
Number of centres
State
Purchase consideration
Cash consideration
Purchase price adjustments (to cash)
Contingent consideration
Total purchase consideration
Assets and liabilities acquired at fair value
Property, plant and equipment
Net identifiable assets/(liabilities) acquired
Goodwill
6
SA/WA/
NSW/QLD
$’000
6,564
(635)
1,793
7,722
102
102
7,620
7,722
6
NSW
$’000
24,271
(46)
2,692
26,917
3,499
3,499
23,418
26,917
4
VIC
$’000
12,529
-
1,769
14,298
3,106
3,106
11,192
14,298
16
TOTAL
$’000
43,364
(681)
6,254
48,937
6,707
6,707
42,230
48,937
Revenue and profit contribution from the date of acquisition to period end 31 December 2018 (i)
Revenue
Profit/(Loss) before tax
4,949
(380)
3,002
(1,072)
573
8,524
(1,628)
(3,080)
(i) The loss for the period was $3.1m, the centres commenced operating on acquisition by G8 Education, therefore
there is no full year operating results to report.
Acquisition costs of $5,450,530 (2017: $3,422,860) are included in the consolidated income statement.
As at 31 December 2018 accounting for the 2018 acquisitions are provisional in nature due to final completion
statements not being received at year end.
No goodwill is deductible for tax purposes.
69
G8 EDUCATION LIMITED ANNUAL REPORT 2018
2. BUSINESS COMBINATIONS, GOODWILL & IMPAIRMENT
Note 13: Business Combinations (continued)
During the year accounting adjustments were made to provisional amounts recognised in 2017 as outlined below:
Purchase consideration
Cash consideration
Purchase price adjustments (to cash)
Contingent consideration
Total purchase consideration
Assets and liabilities acquired at fair value
Property, plant and equipment
Employee benefit liabilities
Net identifiable assets/(liabilities) acquired
Goodwill
2017 Adjustments
Australia
$’000
(335)
(274)
(767)
(1,376)
276
(35)
241
(1,617)
(1,376)
The above amounts relate to accounting adjustments for assets and liabilities taken on at acquisition date but not
finalised at 31 December 2017.
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:
Total potential
contingent
consideration
payable
Carrying
value
At 31 December 2018
$’000
$’000
Conditions
Acquisition of 3 centres*
Acquisition of 1 centre
Total
1,969
1,050
3,019
1,969
718
2,687
24 month performance hurdle based on EBIT
19 years occupancy hurdle based on licence capacity
*The Group has assessed these hurdles will be reached within 12 months and accordingly have recorded these amounts as current.
70
G8 EDUCATION LIMITED ANNUAL REPORT 2018
During the year accounting adjustments were made to provisional amounts recognised in 2017 as outlined below:
A reconciliation of the fair value of the contingent consideration liability is provided below:
2. BUSINESS COMBINATIONS, GOODWILL & IMPAIRMENT
Note 13: Business Combinations (continued)
2017 Adjustments
Australia
$’000
(335)
(274)
(767)
(1,376)
276
(35)
241
(1,617)
(1,376)
Purchase consideration
Cash consideration
Purchase price adjustments (to cash)
Contingent consideration
Total purchase consideration
Assets and liabilities acquired at fair value
Property, plant and equipment
Employee benefit liabilities
Net identifiable assets/(liabilities) acquired
Goodwill
finalised at 31 December 2017.
Contingent Consideration
The above amounts relate to accounting adjustments for assets and liabilities taken on at acquisition date but not
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:
Total potential
Carrying
contingent
consideration
payable
$’000
1,969
1,050
3,019
value
1,969
718
2,687
At 31 December 2018
Acquisition of 3 centres*
Acquisition of 1 centre
Total
$’000
Conditions
24 month performance hurdle based on EBIT
19 years occupancy hurdle based on licence capacity
*The Group has assessed these hurdles will be reached within 12 months and accordingly have recorded these amounts as current.
Financial liability for contingent consideration as at 31 December
Consolidated
2018
$’000
14,301
2017
$’000
4,752
Write back of contingent consideration to the consolidated income statement for
performance condition not met – other income (refer note 3)
(2,199)
(243)
Write back of contingent consideration to goodwill for performance condition
not met
Fair value adjustments
Contingent consideration paid
Contingent consideration for new acquisitions
Total contingent consideration payable as at 31 December
(805)
38
(14,902)
6,254
2,687
-
76
(4,231)
13,947
14,301
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.
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 as 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 or are re-estimated during the period are
recognised as other income.
71
G8 EDUCATION LIMITED ANNUAL REPORT 2018
2. BUSINESS COMBINATIONS, GOODWILL & IMPAIRMENT
Note 14: Non-Current Assets – Intangible assets
Consolidated
Opening net book amount
Additions
Adjustments in respect of prior year acquisitions
Disposal of centres
Exchange differences
Goodwill
$’000
1,087,969
42,230
(1,617)
-
2,624
2018
Intellectual
Property
$’000
Total
2017
Total
$’000
$’000
-
1,087,969
1,015,002
3,250
45,480
73,602
-
-
-
(1,617)
-
2,624
225
(851)
(9)
Closing net book amount
1,131,206
3,250
1,134,456
1,087,969
Cost
Accumulated impairment
Net book amount
The Group divested 8 centres during 2018 (2017: 22).
(a) Impairment tests
-
1,142,258
3,250
1,145,508
1,099,021
(11,052)
-
(11,052)
(11,052)
1,131,206
3,250
1,134,456
1,087,969
Goodwill and intellectual property are 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 2019
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 intangible assets impairment testing, the recoverable amount is
compared to the carrying amount of the assets of the Group, which aside from goodwill and intellectual property,
also includes the fixed assets of the child care centres and working capital.
(b) Key assumptions used for value-in-use calculation
The value-in-use calculation is based on forecast EBITDA which is a function of each of the following key
assumptions, 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 the historically established wage
cost as a percentage of revenue which is driven by future growth in occupancy;
• Centre occupancy expenses – based on current operating leases and increased by a historically established
occupancy cost as a percentage of revenue which is driven by future growth in occupancy; 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:
• Pre-tax discount rate of 12% (2017: 13%); the reduction in the weighted average cost of capital reflects the
refinance of the Group’s Syndicated Debt Facilities and the amendment to the dividend policy during the year.
• Full support office costs allocation; and
• Forecast period of 3 years plus a terminal growth calculation with a growth rate of 0% (2017: 0%).
(c) Impairment charge
The assessment of the discount rate calculation is based on the specific circumstances of the Group and is derived
from its weighted average cost of capital (WACC). The WACC takes into account both debt and equity. The cost of
equity is derived from the expected return on investment by the Group’s investors. The cost of debt is based on the
interest-bearing borrowings of the Group.
Management have determined no impairment was required as at 31 December 2018 (2017: nil). 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.
72
G8 EDUCATION LIMITED ANNUAL REPORT 2018 3. CAPITAL STRUCTURE & FINANCIAL RISK MANAGEMENT
Note 15: 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 under the expected
credit loss model.
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:
Derivatives
Derivatives
Financial
Financial
Total
used for
used for
assets at
assets at
cash flow
fair value
fair value
amortised
2018
Financial assets
Cash and cash equivalents
Trade and other receivables
Deposits on acquisitions
Derivative financial instruments
2017
Financial assets
Cash and cash equivalents
Trade and other receivables
Deposits on acquisitions
Derivative financial instruments
hedges
hedges
$’000
$’000
$’000
-
-
-
-
-
-
(560)
(560)
11,397
11,397
-
-
24,200
-
cost
$’000
55,521
36,502
-
-
$’000
55,521
36,502
24,200
10,837
24,200
92,023
127,060
-
-
-
-
-
-
-
-
-
-
-
-
29,443
622
49,209
29,298
-
-
49,209
29,298
29,443
622
30,065
78,507
108,572
73
G8 EDUCATION LIMITED ANNUAL REPORT 2018
3. CAPITAL STRUCTURE & FINANCIAL RISK MANAGEMENT
Note 15: Financial Risk Management (continued)
2018
Financial liabilities
Trade and other payables
Borrowings
2017
Financial liabilities
Trade and other payables
Borrowings
Derivative financial instrument
Derivatives
used for
cash flow
hedges
Derivatives
used for
fair value
hedges
Liabilities
at
amortised
cost
Total
$’000
$’000
$’000
$’000
-
-
-
-
-
-
-
-
-
-
2,793
2,793
11,013
11,013
36,733
371,754
36,733
371,754
408,487
408,487
35,030
35,030
303,494
303,494
-
13,806
338,524
352,330
The Group also has contingent consideration measured at fair value as disclosed in Note 13.
(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
SGD$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 Education’s
SGD$600m Multicurrency Issuance Program); and
2) the foreign exchange exposure on the coupon payments associated with the SGD$270m corporate notes
where the group pays 6.54% on AUD$269,892,043 and receives 5.50% on SGD$270m.
On the 18 May 2016, the Group purchased an AUD/SGD call option with a notional value of SGD$270m, 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 consolidated income statement
(refer note 4).
74
G8 EDUCATION LIMITED ANNUAL REPORT 2018
3. CAPITAL STRUCTURE & FINANCIAL RISK MANAGEMENT
Note 15: Financial Risk Management (continued)
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
2018
2017
SGD $’000
SGD $’000
2,298
896
2,333
572
(270,000)
(265,748)
(161)
(324)
(266,967)
(263,167)
*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 2018 was 1.0394 (2017: 0.9581).
Amounts recognised in the consolidated income statement and other comprehensive income (refer note 4).
During the year, the following foreign-exchange related amounts were recognised in the consolidated income
statement and other comprehensive income:
Amounts recognised in the consolidated income statement
Exchange gains/(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 the cross currency swap – SGD borrowings
2018
$’000
(11,396)
11,396
(622)
(622)
2018
$’000
2,778
1,626
2017
$’000
10,985
(11,013)
(2,737)
(2,765)
2017
$’000
(23)
1,921
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 has in place a cross currency swap 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.
75
G8 EDUCATION LIMITED ANNUAL REPORT 2018
3. CAPITAL STRUCTURE & FINANCIAL RISK MANAGEMENT
Note 15: Financial Risk Management (continued)
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’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 consolidated 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 consolidated income statement,
within finance costs. All other foreign exchange gains and losses are presented in the consolidated 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.
(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 consolidated 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. G8 Education’s fixed and floating borrowing mix is to be monitored
by management and reported to the Board on a regular basis (at least quarterly). Derivative products may be used
to manage G8 Education’s interest rate risk profile but any hedging undertaken is subject to Board approval and
will not exceed the level of floating rate exposure. During 2018 and 2017, the Group’s borrowings at variable rates
where denominated in Australian dollars only.
76
G8 EDUCATION LIMITED ANNUAL REPORT 2018 3. CAPITAL STRUCTURE & FINANCIAL RISK MANAGEMENT
Note 15: Financial Risk Management (continued)
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 9, 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
During 2016, the group entered into a cross currency swap as set out in note 15(a).
As at the reporting date, the Group had the following variable rate borrowings outstanding:
Corporate Notes
Subordinated Facility 2
Net exposure to cash flow interest rate risk
31 December 2018
31 December 2017
Balance
Total Loans
Balance
Total Loans
$’000
-
47,200
47,200
%
-
13%
13%
$’000
50,000
-
50,000
%
16%
-
16%
An analysis by maturities is provided in 15(d) following.
Amounts recognised in the consolidated income statement and other comprehensive income
The following losses were recognised in the consolidated income statement and other comprehensive income in
relation to cross currency swap designated as a cash flow hedge:
Amounts recognised in other comprehensive income
Losses recognised as a result of cross currency swap designated as
cash flow hedge
Group sensitivity
2018
$’000
2017
$’000
(1,626)
(1,921)
At 31 December 2018, 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 $82,374 higher or $82,374 lower
respectively (net profit for 2017: $87,260 higher or $87,260 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 subsidy, the Federal Government is
considered to be a high quality debtor.
Analysis of the ageing of receivables is performed in note 7.
77
G8 EDUCATION LIMITED ANNUAL REPORT 2018 3. CAPITAL STRUCTURE & FINANCIAL RISK MANAGEMENT
Note 15: Financial Risk Management (continued)
(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. The Group have sufficient undrawn facilities of $400.0m as at 31 December 2018 to cover
current contractual cash flows including the repayment of corporate notes (refer note 17).
Financing arrangements
Details of financing arrangements are disclosed in note 17.
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 12 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.
Contractual maturities of financial liabilities
Consolidated 2018
$’000
0 to 6
6 to 12
Between
Between 2
>5years
Total cash
Carrying
months
months
1 and 2
and 5 years
contractual
amount
Non derivative
Corporate Note
278,693
-
Syndicated Debt Facilities
3,390
3,838
Contingent consideration
411
651
Trade and other payables
36,733
Derivatives
Net settled (FX hedge)
(10,587)
-
-
years
-
7,675
1,057
-
-
flows
-
-
278,693
280,678
75,840
64,634
155,377
100,000
225
675
3,019
2,687
-
-
-
-
36,733
36,733
(10,587)
(10,837)
78
G8 EDUCATION LIMITED ANNUAL REPORT 2018 (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. The Group have sufficient undrawn facilities of $400.0m as at 31 December 2018 to cover
current contractual cash flows including the repayment of corporate notes (refer note 17).
Financing arrangements
Details of financing arrangements are disclosed in note 17.
Maturities of financial liabilities
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.
Contractual maturities of financial liabilities
3. CAPITAL STRUCTURE & FINANCIAL RISK MANAGEMENT
Note 15: Financial Risk Management (continued)
Contractual maturities of financial liabilities
Consolidated 2017
$’000
0 to 6
6 to 12
Between
Between 2
>5years
Total cash
Carrying
months
months
1 and 2
and 5 years
contractual
amount
years
flows
Non derivative
Corporate Note
56,649
8,946
278,693
Syndicated Debt Facilities
Contingent consideration
-
-
-
-
-
-
-
-
344,288
308,268
-
-
2,390
11,306*
225
750
14,671
14,301
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
Derivatives
undiscounted cash flows. Balances due within 12 months equal their carrying balances as the impact of
Net settled (FX hedge)
1,662
1,678
10,853
Trade and other payables
35,030
-
-
-
-
-
-
35,030
35,030
14,193
13,806
*Refer note 13
(e) Fair value measurements
0 to 6
6 to 12
Between
Between 2
>5years
Total cash
Carrying
months
months
1 and 2
and 5 years
contractual
amount
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:
flows
i) quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1);
ii) inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly
278,693
278,693
280,678
(as prices) or indirectly (derived from prices) (level 2); and
Syndicated Debt Facilities
3,390
3,838
75,840
64,634
155,377
100,000
iii) inputs for the asset or liability that are not based on observable market data (unobservable inputs) (level 3).
Contingent consideration
411
651
225
675
3,019
2,687
Trade and other payables
36,733
36,733
36,733
The following table present the Group’s assets and liabilities measured and recognised at fair value on a recurring
basis at 31 December 2017 and 31 December 2018:
Consolidated 2018
$’000
years
7,675
1,057
-
-
-
-
-
-
-
-
-
-
-
-
Non derivative
Corporate Note
Derivatives
Net settled (FX hedge)
(10,587)
(10,587)
(10,837)
79
G8 EDUCATION LIMITED ANNUAL REPORT 2018 3. CAPITAL STRUCTURE & FINANCIAL RISK MANAGEMENT
Note 15: Financial Risk Management (continued)
At 31 December 2018
$’000
Asset
Derivatives used for hedging
Deposit on acquisitions*
Liabilities
Derivatives used for hedging
Contingent consideration (refer note 13)
At 31 December 2017
$’000
Asset
Derivative financial asset
Deposit on acquisitions*
Liabilities
Derivatives used for hedging
Contingent consideration (refer note 13)
*Deposits on acquisitions are fully refundable
Level 1
Level 2
Level 3
Total
-
-
-
-
10,837
-
-
-
-
24,200
-
2,687
10,837
24,200
-
2,687
Level 1
Level 2
Level 3
Total
-
-
-
-
622
-
-
622
29,443
29,443
13,806
-
-
14,301
-
13,806
14,301
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.
(i) Cross currency swap
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.
(ii) Foreign exchange option
On 18 May 2016, the Group purchased an AUD/SGD call option with a notional value of SGD$270.0m strike price
of $1.175 and maturity date of 18 May 2019. Under AASB 139, this instrument was not designated as a hedge
instrument and was purchased as an additional layer of counterparty security that ultimately eliminated collateral
posting requirements. However, following adoption of AASB 9 the Group elected to treat this as a cost of hedging.
The movement in the currency basis of the cash flow hedge (and the option) has been recognised within the
cost of hedging reserve.
80
G8 EDUCATION LIMITED ANNUAL REPORT 2018 3. CAPITAL STRUCTURE & FINANCIAL RISK MANAGEMENT
Note 16: Current Assets – Cash and Cash Equivalents
Cash at bank and in hand
Deposits at call
Total cash and cash equivalents
Consolidated
2018
$’000
38,437
17,084
55,521
2017
$’000
24,611
24,598
49,209
(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
2018
$’000
55,521
2017
$’000
49,209
-
(14)
55,521
49,195
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.
81
G8 EDUCATION LIMITED ANNUAL REPORT 2018 3. CAPITAL STRUCTURE & FINANCIAL RISK MANAGEMENT
Note 17: Current and Non-Current Liabilities – Borrowings
2018
2017
Current
Non-current
Total
Current
Non-current
Total
$’000
$’000
$’000
$’000
$’000
$’000
Unsecured
Corporate Notes (a)
280,678
280,678
-
-
280,678
50,000
258,268
308,268
280,678
50,000
258,268
308,268
-
-
100,000
100,000
100,000
100,000
-
-
-
-
-
-
(1,112)
(7,812)
(8,924)
(95)
(4,679)
(4,774)
279,566
92,188
371,754
49,905
253,589
303,494
Total unsecured
borrowings
Secured
Syndicated Debt
Facilities (b)
Total secured
borrowings
Borrowing costs
Total borrowings
(a) Corporate notes
G8 Education has the following Corporate notes outstanding at year end:
Issue Date
Face value in
Issue currency
Repayment date Interest rate % Floating or fixed
issue currency
$’000
270,000
18 May 2016
SGD
18 May 2019
5.5%*
Fixed
*SGD bonds are fully hedged at a fixed interest rate of 6.54% on AUD $269m
Details of the Group’s exposure to foreign exchange on Singapore denominated borrowings terms are set out in
note 15(a) and (e).
G8 Education has complied with the financial covenants relating to the AUD and SGD Corporate Notes and
Syndicated Debt Facilities during 2018 and 2017 reporting periods.
(b) Syndicated Debt Facilities
During 2018 the Group entered into a $400m Senior Syndicated Facility, a $100m Subordinated Facility and a
$50m letter of credit facility. The Syndicated Debt Facilities were successfully executed on the 19 October 2018. The
interest rate payable on the Senior Syndicated Facility and the Subordinated Facility 2 is based on the base rate
(BBSW) plus each lender’s margin, which is determined by reference to the Net Leverage Ratio calculated using
market standard financial ratios. The interest payable on the Subordinated Facility 1 is a fixed rate. In the event the
facilities remain undrawn a commitment fee was payable on the unused and uncancelled amount of the facilities.
(c) Interest rate risk exposures
Details of the Group’s exposure to interest rate changes on borrowings are set out in note 15(b).
82
G8 EDUCATION LIMITED ANNUAL REPORT 2018
3. CAPITAL STRUCTURE & FINANCIAL RISK MANAGEMENT
Note 17: Current and Non-Current Liabilities – Borrowings (continued)
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
Other non-current assets
Vehicles, furniture, fittings and equipment
Total non-current assets pledged as security
Total assets pledged as security
(d) Financing arrangements
As at 31 December 2018 the following lines of credit were in place:
Notes
16
7
8
9
8
9
Consolidated
2018
$’000
55,521
36,502
14,120
106,143
2017
$’000
49,209
30,366
12,361
91,936
3,994
4,146
25,547
83,000
112,541
32,273
54,680
91,099
218,684
183,035
83
G8 EDUCATION LIMITED ANNUAL REPORT 2018
3. CAPITAL STRUCTURE & FINANCIAL RISK MANAGEMENT
Note 17: Current and Non-Current Liabilities – Borrowings (continued)
Credit standby arrangements
Total facilities
Credit cards
Used at balance date
Unused at balance date
Syndicated Debt Facility
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
2018
$’000
2017
$’000
500
(377)
123
500
(158)
342
500,000
200,000
(100,000)
-
400,000
200,000
50,000
45,000
(33,233)
(36,663)
16,767
8,337
280,678
308,268
(280,678)
(308,268)
-
-
The group maintains a secured facility for the provision of bank guarantees to landlords of premises leased by the
Group and Syndicated Debt Facilities.
(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 AUD$280.7m which represents fair value. AUD$269.0m is payable to satisfy this
liability due to the cross currency swap.
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 consolidated 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 facilities, are capitalised to the loan and expensed on a straight-line basis over the term of the facilities.
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 the consolidated income statement 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.
84
G8 EDUCATION LIMITED ANNUAL REPORT 2018
3. CAPITAL STRUCTURE & FINANCIAL RISK MANAGEMENT
Note 18: Derivative Financial Instruments
Current asset
Cross currency swap contracts – cash flow hedges
Cross currency swap contracts – fair value hedge
Total current derivative financial instrument asset
Non-current asset
Foreign exchange option
Total non-current derivative financial instrument asset
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
2018
$’000
(560)
11,397
10,837
-
-
-
-
-
2017
$’000
-
-
-
622
622
2,793
11,013
13,806
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 15).
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 18. 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 in the consolidated income statement and offset with a similar gain or loss on the
associated borrowings. There is no ineffectiveness in the year 2018.
85
G8 EDUCATION LIMITED ANNUAL REPORT 2018
3. CAPITAL STRUCTURE & FINANCIAL RISK MANAGEMENT
Note 18: Derivative Financial Instruments (continued)
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 the consolidated income statement within other income or
other expense.
Amounts accumulated in equity are reclassified to the consolidated income statement in the periods when the
hedged item affects the consolidated income statement (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 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 the consolidated income statement. When a forecast
transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is immediately
reclassified to the consolidated income statement.
86
G8 EDUCATION LIMITED ANNUAL REPORT 2018 3. CAPITAL STRUCTURE & FINANCIAL RISK MANAGEMENT
Note 19: Contributed Equity
(a) Share capital
Ordinary shares fully paid
455,379,630
448,536,926
893,567
876,394
Consolidated
Consolidated
2018
2017
Shares
Shares
2018
$’000
2017
$’000
(b) Movements in ordinary share capital
Details
31 December 2016 balance
Dividend reinvestment plan
Equity placement
Issuance of shares (see note 19c)
Transaction costs of shares issued
Deferred tax credit recognised directly in equity
31 December 2017 balance
Dividend reinvestment plan
Issuance of shares (see note 19c)
Transaction costs of shares issued
Deferred tax credit recognised directly in equity
31 December 2018 balance
(c) Shares held in escrow under the executive share plan
Balance at the beginning of the financial year
Shares transferred to the Group under the plan*
Total outstanding at the end of the financial year
*Shares forfeited and sold on market due to the discontinuation of the plan.
Number
of Shares
‘000
$’000
381,097
641,848
10,121
55,904
1,374
-
-
37,621
195,658
5,007
(5,347)
1,607
448,496
876,394
6,843
17,129
41
-
-
139
(47)
(48)
455,380
893,567
Consolidated
2018
2017
Shares
Shares
‘000
41
(41)
-
‘000
1,415
(1,374)
41
87
G8 EDUCATION LIMITED ANNUAL REPORT 2018
3. CAPITAL STRUCTURE & FINANCIAL RISK MANAGEMENT
Note 19: Contributed Equity (continued)
(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.
(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 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
Less: cash and cash equivalents
Net debt
Total equity
Total capital
Gearing ratio
Notes
17
16
Consolidated
2018
$’000
2017
$’000
371,754
303,494
(55,521)
(49,209)
316,233
254,285
893,482
865,335
1,209,715
1,119,620
26%
23%
The Directors assess an appropriate level of gearing based on a leverage rate of less than 45%.
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.
88
G8 EDUCATION LIMITED ANNUAL REPORT 2018
3. CAPITAL STRUCTURE & FINANCIAL RISK MANAGEMENT
Note 20: Dividends
(a) Ordinary shares
Dividends declared or paid during the financial year were as follows:
Dividends
Financial year 2018
2018 interim dividend (paid on 23 March 2018)
2018 interim dividend (paid on 5 October 2018)
Dividend paid during the year ended 31 December 2018
Cash
Dividend reinvestment plan
Dividend paid during the year ended 31 December 2018
Dividends
Financial year 2017
Dividend for the quarter ended 31 December 2016 (paid on 6 January 2017)
Dividend for the quarter ended 31 March 2017 (paid on 7 April 2017)
Dividend for the quarter ended 30 June 2017 (paid on 7 July 2017)
Dividend for the quarter ended 30 September 2017 (paid on 6 October 2017)
Dividend paid during the year ended 31 December 2017
Cash
Dividend reinvestment plan
Dividend paid during the year ended 31 December 2017
CPS
Total
dividend
$’000
10.0
4.5
44,854
20,405
65,259
48,131
17,128
65,259
CPS
Total
dividend
$’000
6.0
6.0
6.0
6.0
22,950
24,117
26,599
26,741
100,407
62,787
37,620
100,407
G8 Education moved to a semi‐annual dividend payment policy from 1 January 2018, with dividends to be declared
in the full year and half year results announcements.
89
G8 EDUCATION LIMITED ANNUAL REPORT 2018 3. CAPITAL STRUCTURE & FINANCIAL RISK MANAGEMENT
Note 20: Dividends (continued)
(b) Franking credits
Consolidated
Parent Entity
2018
$’000
2017
$’000
2018
$’000
2017
$’000
Franking credits available for subsequent financial
years based on a tax rate of 30% (2017: 30%)
8,025
1,698
8,025
1,698
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.
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.
90
G8 EDUCATION LIMITED ANNUAL REPORT 2018
3. CAPITAL STRUCTURE & FINANCIAL RISK MANAGEMENT
Note 21: Reconciliation of Cash Flows
Reconciliation of profit after tax to net cash flows from operating activities
Consolidated
Profit for the year
Depreciation
Foreign exchange gain / (loss) on Singapore Corporate Notes
Fair value adjustment to derivatives
Net loss on sale of assets
Write back of deferred consideration not payable
Amortised borrowings costs
Bank guarantee fees
Write back of make good costs
Brokerage fees treated as investing cashflows
(Increase)/decrease in deferred tax asset
(Increase)/decrease in trade and other debtors
Increase/(decrease) in trade and other creditors
Increase/(decrease) in contract liabilities
Increase/(decrease) in provisions
Non- cash employee benefits expense – share based payments
Increase/(decrease) in provision for income taxes payable
Net exchange differences
2018
$’000
71,831
16,483
-
622
729
(2,199)
4,200
576
147
1,179
(1,636)
(4,883)
11,953
(683)
4,119
-
3,508
1
2017
$’000
80,581
13,959
1,921
(23)
1,547
(243)
4,145
-
-
1,160
805
(13,355)
936
(1,011)
(1,402)
(108)
2,673
426
Net cash inflows from operating activities
105,947
92,011
Changes in liabilities arising from financing activities
Opening Cash flows
balance 1
Jan 2018
Foreign Change in
fair value
exchange
movement
Reclass Other
Closing
balance 31
Dec 2018
$’000
$’000
$’000
$’000
$’000
$’000
$’000
49,905
(50,649)
22,410
Current Interest bearing
loans and borrowing
Non-current interest
bearing loans and
borrowings
Derivative liability
13,806
-
253,589
91,668
-
-
-
-
255,657
2,244
279,566
(255,657)
2,588
92,188
(24,643)
-
(10,837)
91
G8 EDUCATION LIMITED ANNUAL REPORT 2018 3. CAPITAL STRUCTURE & FINANCIAL RISK MANAGEMENT
Note 21: Reconciliation of Cash Flows (continued)
Opening Cash flows
balance 1
Jan 2017
Foreign Change in
fair value
exchange
movement
Reclass
Other
Closing
balance 31
Dec 2017
$’000
$’000
$’000
$’000
$’000
$’000
$’000
Current Interest bearing
loans and borrowing
Non-current interest
bearing loans and
borrowings
-
-
-
410,649
(111,204)
11,013
Dividends payable
22,950
(12,846)
Derivative liability
16,351
-
-
-
-
-
-
(2,545)
49,628
277
49,905
(49,628)
(7,241)
253,589
-
-
(10,104)
-
-
13,806
4. GROUP STRUCTURE
Note 22: 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 33(b).
Name of Entity
Subsidiaries of Company
Grasshoppers Early Learning Centres 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**
92
Country of
incorporation
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
Class of
Shares/
Units
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
2018
2017
%
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
G8 EDUCATION LIMITED ANNUAL REPORT 2018
4. GROUP STRUCTURE
Note 22: Subsidiaries (continued)
Name of Entity
Jacaranda Operations Pty Ltd**
Huggy Bear Operations Pty Ltd**
Jellybeans Operations Pty Ltd**
Jellybeans Attadale (Pty Ltd)**
Jane’s 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 Daycare and Preschool Pty Ltd**
Three Little Pigs Pty Ltd**
A.C.N. 078 042 378 Pty Ltd**
ES5 Pty Ltd**
Kindy Patch Unit Trust
Sydney Cove Children’s Centre Unit Trust
Sydney Cove Children’s Centre Unit Trust B
Shemlex Investment Unit Trust
Shemlex Investments Freehold Unit Trust No 1
Morley Perth Unit Trust
Kindy Kids Village Trust
Kindy Kids Long Daycare and Preschool Trust
Adelaide Montessori Pty Ltd**
GW Concord Pty Ltd**
GW Chatswood Pty Ltd**
GW Macquarie Park Pty Ltd**
GW Brookvale Pty Ltd**
GW Bronte Pty Ltd**
GW Katoomba Pty Ltd**
GW Gladesville Pty Ltd**
GW Frenchs Forest Pty Ltd**
GW Prep Holdings Pty Ltd**
Lane Cove CCC Unit Trust
Lane Cove CCC Pty Ltd**
Waterloo CCC Unit Trust
Waterloo CCC Pty Ltd**
GW Chatswood Unit Trust
Homebush CCC Pty Ltd
Homebush CCC Unit Trust
G8 Education Singapore Pte. Ltd.
Cherie Hearts Corporate Pte. Ltd.
Cherie Hearts Holdings Pte. Ltd.
Cherie Hearts @ Gombak Pte. Ltd.
Bright Juniors Pte. Ltd.
Our Juniors Global Schoolhouse Pte. Ltd.
Country of
incorporation
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Singapore
Singapore
Singapore
Singapore
Singapore
Singapore
Class of
Shares/
Units
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
2018
2017
%
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
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
-
-
100
100
100
100
100
100
* 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 ASIC Legislative Instrument
2016/785 issued by the Australian Securities and Investment Commission. For further information please refer to note 24.
93
G8 EDUCATION LIMITED ANNUAL REPORT 2018 4. GROUP STRUCTURE
Note 23: Parent Entity Disclosures
As at, and throughout the financial year ended 31 December 2018 the parent entity of the Group was G8 Education.
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
Parent entity contingencies
Refer to note 26 for parent entity contingent liabilities.
2018
$’000
71,460
4,404
75,864
2017
$’000
81,035
1,898
82,933
96,420
80,055
1,281,282
1,176,690
1,377,702
1,256,745
368,735
123,400
156,633
238,913
492,135
395,546
893,567
876,394
48,825
39,005
(56,825)
(54,200)
885,567
861,199
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 24.
Accounting policy
The financial information for the parent entity, G8 Education, 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.
(ii) Tax consolidation legislation refer to note 5.
94
G8 EDUCATION LIMITED ANNUAL REPORT 2018
4. GROUP STRUCTURE
Note 24: Deed of Cross Guarantee
All subsidiaries identified in Note 22 as having been granted relief from the requirement to prepare a Financial
Report and Directors’ Report Under ASIC Legislative Instrument 2016/785 (As Amended) issued by the Australian
Securities and Investments Commission are considered to be in the closed group.
Below is a consolidated statement of comprehensive income for the year ended 31 December 2018 of the
closed group:
(a) Consolidated statements of comprehensive income
Continuing operations
Revenue
Other income
Total revenue
Expenses
Employment costs
Occupancy
Direct costs of providing services
Depreciation
Other expenses
Finance costs
Total expenses
Profit before income tax
Income tax expense
Profit for the year
Effective portion of changes in fair value of cash flow hedges
Total comprehensive income for the year
2018
$’000
2017
$’000
835,221
779,489
6,640
809
841,861
780,298
(497,877)
(435,947)
(106,001)
(94,810)
(59,906)
(56,532)
(16,177)
(29,711)
(13,566)
(27,123)
(28,973)
(34,144)
(738,645)
(662,122)
103,216
118,176
(31,756)
71,460
1,626
73,086
(37,139)
81,037
1,921
82,958
95
G8 EDUCATION LIMITED ANNUAL REPORT 2018
4. GROUP STRUCTURE
Note 24: Deed of Cross Guarantee (continued)
(b) Balance Sheet
Set out below is a consolidated balance sheet as at 31 December 2018 of the closed group.
Current assets
Cash and cash equivalents
Trade and other receivables
Other current assets
Derivative financial instruments
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
Contract liabilities
Borrowings
Provisions
Total current liabilities
Non-current liabilities
Other payables
Borrowings
Provisions
Derivative financial instruments
Total non-current liabilities
Total liabilities
Net assets
Equity
Contributed equity
Reserves
Retained earnings
Total equity
96
2018
$’000
53,132
35,758
33,404
10,837
-
2017
$’000
46,974
30,005
31,693
-
313
133,131
108,985
139
91,173
17,856
139
63,193
16,220
1,100,764
1,057,040
26,784
-
33,509
622
1,236,716
1,170,723
1,369,847
1,279,708
67,386
7,490
279,566
29,875
384,317
5,260
92,188
8,935
-
106,383
490,700
62,134
8,174
49,905
28,425
148,638
1,067
253,589
8,321
13,806
276,783
425,421
879,147
854,287
893,567
48,826
(63,246)
879,147
876,394
42,224
(64,331)
854,287
G8 EDUCATION LIMITED ANNUAL REPORT 2018 5. UNRECOGNISED ITEMS
Note 25: Commitments
(a) Capital commitments
There is no capital expenditure unconditionally contracted for at the reporting date but not recognised as a
liability. The Group has contracted arrangements that give the Group the ability to acquire centres conditional on
various hurdles and criteria that the vendors must meet.
(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 2018 or 2017.
Accounting policy
Consolidated
2018
$’000
2017
$’000
101,666
333,620
318,764
83,153
327,047
218,878
754,050
629,078
754,050
629,078
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 consolidated income statement on a straight-line basis over the term of
the lease.
97
G8 EDUCATION LIMITED ANNUAL REPORT 2018
5. UNRECOGNISED ITEMS
Note 26: Contingencies
(a) Contingent liabilities
The Group had no contingent liabilities as at 31 December 2018 (2017: Nil).
5. UNRECOGNISED ITEMS
Note 27: Events occurring after the balance sheet date
The following material matters have taken place subsequent to year end:
• 52,333 performance rights were issued on 30 January 2019 pursuant to the G8 Executive Incentive Plan.
• 23,550 performance rights were cancelled on 22 February 2019 pursuant to the G8 Executive Incentive Plan.
• The Board declared a 8.0c fully franked dividend at the Board meeting which will be the final dividend for the
year.
• Post 31 December 2018, the Group completed the acquisition of 3 centres for $4.7m and opened 6 centres that
were acquired late in 2018. The initial accounting in respect of the acquisitions has not yet been completed as
completion accounts have yet to be finalised.
6. OTHER
Note 28: Key Management Personnel Disclosures
(a) Directors
The following persons were directors of G8 Education during the financial year:
(i) Chairperson –Independent Non-Executive
• M Johnson
(ii) Executive Directors
• G Carroll
(iii) Independent Non-Executive Directors
• B Bailison
• S Forrester
• D Foster
• J Cogin
• M Zabel
98
G8 EDUCATION LIMITED ANNUAL REPORT 2018
6. OTHER
Note 28: Key Management Personnel Disclosures (continued)
(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
• S Williams
Chief Financial Officer
• J Ball
General Manager Operations
(c) Key Management Personnel compensation
Short term employee benefits
Post employment benefits
Share based payments*
Dividend payments on escrow shares
Termination payments
Consolidated
2018
$’000
1,651
61
-
-
-
2017
$’000
2,744
137
(97)
80
432
1,712
3,296
*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 28 to 46.
(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 29 for details of options issued to Key Management Personnel.
(ii) Option holdings
Refer to note 29 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 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.
99
G8 EDUCATION LIMITED ANNUAL REPORT 2018
6. OTHER
Note 28: Key Management Personnel Disclosures (continued)
2018
Balance at the
start of the year
Shares to be
cancelled under
limited recourse
loans disclosed as
share options
Other changes
during the year
Balance at the
end of the year
Directors
Ordinary Shares
M Johnson
B Bailison
S Forrester
D Foster
G Carroll
M Zabel
J Cogin
KMP
Ordinary Shares
S Williams
J Ball
30,000
13,000
39,528
14,587
100,000
-
-
12,500
-
-
-
-
-
-
-
-
-
-
30,000
12,000
12,441
8,389
10,000
15,000
19,000
12,500
-
60,000
25,000
51,969
22,976
110,000
15,000
19,000
25,000
-
2017
Balance at the
start of the year
Shares to be
cancelled under
limited recourse
loans disclosed as
share options
Other changes
during the year
Balance at the end
of the year
Directors
Ordinary Shares
M Johnson
B Bailison
S Forrester
D Foster
G Carroll
C Scott (resigned 29
May 2017)
M Reynolds (resigned
31 August 2017)
KMP
Ordinary Shares
S Williams
T King (resigned 12
April 2017)
A Perriam (resigned 10
April 2017)
100
25,000
-
15,423
14,587
-
-
-
-
-
-
5,000
13,000
24,105
-
100,000
333,333
(333,333)
-
30,000
13,000
39,528
14,587
100,000
-
-
24,195
-
631,329
40,733
-
-
-
(24,195)
12,500
12,500
(631,329)
(40,733)
-
-
G8 EDUCATION LIMITED ANNUAL REPORT 2018 6. OTHER
Note 29: Share–based payments
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
Consolidated
2018
$’000
-
2017
$’000
(108)
No expense has been recorded during the year as assessment on the probability of performance rights vesting
is nil.
G8 Education Executive Incentive Plan (GEIP)
Shareholders approved the GEIP at the Annual General Meeting (AGM) in May 2017. The Company has established
the GEIP to assist the retention and motivation of executives of G8 Education (Participants). It is intended that
the Performance Rights will enable the Company to retain and attract the skilled and experienced executives and
provide them with the motivation to enhance the success of the Company.
Under the Performance Rights, rights may be offered to Participants selected by the Board. Unless otherwise
determined by the Board, no payment is required for the grant of rights under the GEIP. Subject to any
adjustment in the event of a bonus issue, each right is an option to subscribe for one Share. Upon the exercise of a
right by a Participant, each Share issued will rank equally with other Shares of the Company.
Performance Rights issued under the plan may not be transferred unless approved by the Board. The table below
summarises rights granted under the plan.
Grant date
Balance at
Granted
Exercised
Forfeited
Balance at
Unvested
20 July 2017
6 October 2017
22 January 2018
20 July 2018
Total
the start of
during the
during the
during the
the end of
at the end
the year
year
year
year
the year
of the year
(Number)
(Number)
(Number)
(Number)
(Number)
(Number)
238,063
53,629
-
-
-
-
50,359
438,609
291,692
488,968
-
-
-
-
-
(85,677)
152,386
152,386
-
-
-
53,629
50,359
53,629
50,359
438,609
438,609
(85,677)
694,983
694,983
101
G8 EDUCATION LIMITED ANNUAL REPORT 2018
6. OTHER
Note 29: Share–based payments (continued)
Unissued ordinary shares of G8 Education under the GEIP at the date of this report are set out in the table below.
Grant date
Vesting date
Value of
Number of
Expiry date
performance right
performance
20 July 2017
6 October 2017
22 January 2018
20 July 2018
Total
1 March 2020
1 March 2020
1 March 2020
1 March 2021
at grant date ($)
3.19
3.70
3.82
2.39
rights
152,386
53,629
50,359
438,609
694,983
30 May 2020
30 May 2020
30 May 2020
30 May 2021
Valuation of instruments issued
Value of the financial benefit
The table lists the inputs to the models used
Share price on grant
date
Share price volatility
Risk free rate
Tranche 1
20-Jul-17
Tranche 2
6-Oct-17
Tranche 3
22-Jan-18
Tranche 4
20-Jul-18
$3.77
30%
2.31%
$3.83
30%
2.17%
$3.82
30%
2.04%
$2.87
30%
2.09%
Time to maturity
2.62 years
2.57 years
2.11 years
2.62 years
Annual dividend yield
6.37%
6.27%
5.45%
7.27%
Model used
Black Scholes
Black Scholes
Black Scholes
Black Scholes
Accounting policy
Share-based compensation benefits are provided to certain employees via the GEIP and the Executive Share Plan
(discontinued February 2017).
The fair value of options and performance rights are granted under the GEIP are recognised as an employee
benefit expense with a corresponding increase in equity. The fair value is measured at grant date and recognised
over the period during which the employees become unconditionally entitled to the options.
For share options and performance rights, the fair value at grant date is determined using a Binomial option pricing
model that takes into account the exercise price, the term of the option, the vesting and performance criteria, the
impact of dilution, the non-tradeable nature of the option, the share price at grant date and expected price volatility
of the underlying share, the expected dividend yield and the risk-free interest rate for the term of the option.
The fair value of the options granted excludes the impact of any non-market vesting conditions (for example,
profitability and sale growth targets). Non-market vesting conditions are included in assumptions about the
number of options that are expected to become exercisable. At each statement of financial position date,
the entity revises its estimate of the number of options and performance rights that are expected to become
exercisable. The employee benefit expense recognised each period takes into account the most recent estimate.
Upon exercise of the options and performance rights, the balance of the share-based payments reserve relating to
those options remains in the share based payments reserve.
102
G8 EDUCATION LIMITED ANNUAL REPORT 2018
6. OTHER
Note 30: Remuneration of Auditors
During the year the following fees were paid or payable for services provided by the auditor of the Group:
Consolidated
2018
$
2017
$
215,000
280,000
215,000
127,800
94,198
145,300
589,198
488,100
1. Audit services
Ernst & Young
Audit and review of financial reports
Other assurance services
2. Non-audit services
Ernst & Young – other advisory services
Total remuneration for services
6. OTHER
Note 31: Related Party Transactions
(a) Parent entity
The parent entity within the Group is G8 Education.
(b) Subsidiaries
Interests in subsidiaries are set out in note 22.
(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 28.
103
G8 EDUCATION LIMITED ANNUAL REPORT 2018
6. OTHER
Note 32: 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 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 23 February 2019.
Compliance with IFRS
Compliance with AASB ensures that the financial report of G8 Education 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).
(b) Principles of consolidation
Subsidiaries
The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of G8 Education
(“Company” or “parent entity”) as at 31 December 2018 and the results of all subsidiaries for the year then ended.
G8 Education 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.
104
G8 EDUCATION LIMITED ANNUAL REPORT 2018 6. OTHER
Note 32: Other significant accounting policies (continued)
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 $71.8m for the year ended 31 December 2018 and as at that
date, current liabilities exceed current assets by $269.7m. Management expect the working capital shortfall will be
met out of operating cash flows or from finance facilities. The Group have sufficient facilities in place to repay the
$270m SGD bonds when due in May 2019.
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.
(f) Reserves
(i) Share-based payments
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 15 and accumulated in a separate reserve within equity. The cumulative amount is
reclassified to the consolidated income statement 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 18. Amounts are reclassified to the consolidated
income statement when the associated hedge transaction affects the consolidated income statement.
(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 $65.3 million (2017: $77.5m) were
distributed from the profits reserve during the year.
The amount transferred to profits reserve comprises the transfer from net profit for the current year for
profit making entities within the Group and characterises profits available for distribution as dividends in
the future years.
105
G8 EDUCATION LIMITED ANNUAL REPORT 2018 6. OTHER
Note 32: Other significant accounting policies (continued)
(g) New accounting standards and interpretations for application in current and future periods
PRONOUNCEMENTS
AASB 16 Leases
NATURE OF THE CHANGE
IN ACCOUNTING POLICY
AASB 16 was issued in January 2016 and it replaces AASB 117 Leases, AASB
Interpretation 4 Determining whether an Arrangement contains a Lease, AASB
Interpretation-115 Operating Leases-Incentives and AASB Interpretation 127
Evaluating the Substance of Transactions Involving the Legal Form of a Lease.
AASB 16 sets out the principles for the recognition, measurement, presentation
and disclosure of leases and requires lessees to account for all leases under a
single on-balance sheet model similar to the accounting for finance leases under
AASB 117. The standard includes two recognition exemptions for lessees – leases of
’low-value’ assets (e.g., personal computers) and short-term leases (i.e., leases with
a lease term of 12 months or less).
At the commencement date of a lease, a lessee will recognise a liability to make
lease payments (i.e., the lease liability) and an asset representing the right to
use the underlying asset during the lease term (i.e., the right-of-use asset). From
transition date, instead of rental occupancy expenses, lessees will be required
to separately recognise the interest expense on the lease liability and the
depreciation expense on the right-of-use asset within the consolidated
income statement.
Lessees will be also required to remeasure the lease liability upon the occurrence
of certain events (e.g., a change in the lease term, a change in future lease
payments resulting from a change in an index or rate used to determine those
payments). The lessee will generally recognise the amount of the remeasurement
of the lease liability as an adjustment to the right-of-use asset.
EFFECTIVE DATE
Annual reporting period beginning on or after 1 January 2019
EXPECTED IMPACT
ON THE FINANCIAL
STATEMENTS
The group will apply the standard from its mandatory adoption date of 1 January
2019. The group intends to apply the simplified transition approach and will not
restate comparative amounts for the year prior to first adoption.
The Group will elect to use the exemptions proposed by the standard on lease
contracts for which the lease term ends within 12 months as of the date of initial
application, and lease contracts for which the underlying asset is of low value. The
Group has leases of certain office equipment (i.e., personal computers, printing
and photocopying machines) that are considered of low value.
The Group continues to work through the estimated impact in relation to the
right-of-use assets and lease liabilities based upon the available transition options.
The transition options include either (i) measuring the right-of-use assets as if the
new rules had always been applied, or (ii) measured at the amount of the lease
liability on adoption (adjusted for any prepaid or accrued lease expenses). On this
basis, the Group cannot disclose the impact on net assets, net current assets,
nor the individual line items within the consolidated income statement but
expects the majority of operating leases as disclosed in Note 25 to be recorded
on balance sheet.
The Group expects to fully report and quantify the impacts of adoption of AASB16
in the half year ending 30 June 2019.
106
G8 EDUCATION LIMITED ANNUAL REPORT 2018 6. OTHER
Note 32: Other significant accounting policies (continued)
PRONOUNCEMENTS
AASB 9 Financial Instruments
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.
NATURE
AASB 2014-1 Amendments to Australian Accounting Standards.
OF THE CHANGE IN
ACCOUNTING POLICY
AASB 9 replaces the existing guidance in AASB 139 Financial Instruments:
Recognition and Measurement. AASB 9 includes revised guidance on the
classification and measurement of financial instruments, a new expected credit
loss model for calculating impairment on financial assets, and new general hedge
accounting requirements. It also carries forward the guidance on recognition and
derecognition of financial instruments from AASB 139.
AASB 9 contains three principal classification categories for financial assets:
Amortised Cost, Fair Value Through Other Comprehensive Income (FVOCI), and
Fair Value Through Profit and Loss (FVTPL). The standard eliminates the existing
AASB 139 categories of held to maturity, loans and receivables.
Debt financial instruments are subsequently measured at amortised cost, FVOCI
or FVTPL. The classification is based upon two criteria:
The Group’s business model for managing the assets;
Whether the instruments’ contractual cash flows represent solely payments of
principal and interest on the principal amount outstanding (‘the SPPI criterion’).
EFFECTIVE DATE
Annual reporting periods beginning on or after 1 January 2018
EXPECTED IMPACT
ON THE FINANCIAL
STATEMENTS
From 1 January 2018, the group applied the full retrospective approach. The
classification and measurement of the Group’s financial assets are as follows:
Debt instruments at amortised cost for financial assets that are held within a
business model with the objective to hold financial assets to collect contractual
cash flows that meet the SPPI criterion. This category includes the Group’s Cash
and cash equivalents and Trade & other receivables.
Financial assets at FVTPL comprise derivative instruments which the Group had
not irrevocably elected, at initial recognition or transition, to classify at FVOCI. This
category would also include debt instruments whose cash flow characteristics fail
SPPI criterion or are not held within a business model whose objective is either
to collect contractual cash flows, or to both collect contractual cash flows and
sell. This category includes the Group’s Foreign exchange option. The assessment
of the Group’s business models was made as of the date of initial application, 1
January 2018, and then applied retrospectively to those financial assets that were
not derecognised before 1 January 2018. The assessment of whether contractual
cash flows on debt instruments met the SPPI criterion was made based on the
facts and circumstances as at initial recognition of the assets.
107
G8 EDUCATION LIMITED ANNUAL REPORT 2018 6. OTHER
Note 32: Other significant accounting policies (continued)
The new classification requirements of the standard did not have a material
impact on the Group’s existing financial assets, being cash and cash equivalents,
trade and other receivables, deposits on acquisition or derivative financial
instruments.
At initial recognition, the Group measures a financial asset at its fair value.
Measurement of cash and cash equivalents and trade and other receivables are
at amortised cost. Deposits on acquisition are at fair value whereas they were
recognised at amortised cost in the prior years.
AASB 9 requires financial liabilities to be measured on the same basis as AASB
139, with the only change being gains or losses on financial liabilities designated
at inception to be measured at fair value are recognised in profit or loss, except
that the effects of changes in the liability’s credit risk are recognised in other
comprehensive income.
The accounting for the Group’s financial liabilities remains largely the same as
it was under AASB 139. All loans and borrowings are initially recognised at fair
value, being the amount received less attributable transaction costs. After initial
recognition, interest bearing liabilities are stated at amortised cost with any
difference between cost and redemption value being recognised in the statement
of profit or loss over the period of the borrowings on an effective interest basis.
The Group recognises gains or losses on financial liabilities, designated at
inception to be measured at fair value, in profit or loss. The Group has had no
material change in the credit risk of these financial liabilities during the period.
Trade and other payables are recognised for amounts to be paid for goods or
services received. Trade payables are settled on terms aligned with the normal
commercial terms.
AASB 9 replaces the ‘incurred loss’ model in AASB 139 with a forward-looking
‘expected credit loss’ (ECL) model and requires the Group to record an allowance
for ECLs for all debt financial assets not held at FVTPL including contract assets
recognised in accordance with AASB 15. To assess for any expected credit losses
under AASB 9, there is consideration around the probability of default upon initial
recognition of the asset including an expectation of any security held.
For trade and other receivables, the Group has applied the standard’s simplified
approach whereby the loss allowance is measured at an amount equal to lifetime
expected credit losses. The Group assesses expected credit losses in a way that
reflects:
An unbiased and probability-weighted amount that is determined by evaluating a
range of possible outcomes;
• The time value of money; and
• Reasonable and supportable information that is available without undue cost or
effort at the reporting date about past events, current conditions and forecast of
future economic conditions.
The Group has established a calculation that is based on the Group’s historic credit
loss experience, adjusted for forward-looking factors specific to the debtors and
the economic environment.
108
G8 EDUCATION LIMITED ANNUAL REPORT 2018 6. OTHER
Note 32: Other significant accounting policies (continued)
The Group applied the ECL model. On transition, there have been no adjustments
to the provision. Due to the short-term nature of Trade and Other receivables, and
the credit profile of G8 Education’s customers who mainly prepay childcare fees
or have debtors settled by government subsidies, there was no material change to
the total amount of provisioning.
AASB 9 allows the Group to choose to apply the new hedge accounting
requirements under the standard upon initial application or continue to apply the
requirements of AASB 139. The Group has chosen to apply the new requirements
of AASB 9.
The Group entered 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 swap has been dual designated as a fair value hedge relating to the principal
repayment of SGD denominated borrowings (senior unsecured notes under G8
Education’s SGD$600m multicurrency issuance program) and as a cash flow
hedge for the coupon payments associated with the Series 003 notes.
On adoption of AASB 9, the Group elected to separately account for the currency
basis as a cost of hedging. Consequently, currency basis has been recognised in
OCI and accumulated in a cost of hedging reserve as a separate component within
equity and accounted for subsequently as gains and losses accumulated in the
cash flow hedge reserve. Upon adoption $0.6m was transferred from retained
earnings to a cost of hedging reserve, to separately recognise the cost of hedging.
The types of hedge accounting relationships that the Group currently designates
meet the requirements of AASB 9 and are aligned with the Group’s risk
management strategy and objective.
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 recognize 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.
AASB 15 also requires enhanced disclosures about revenue, provides guidance
for transactions that were not previously addressed comprehensively (for
example, service revenue and contract modifications) and improves guidance for
multiple-element arrangements.
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.
109
G8 EDUCATION LIMITED ANNUAL REPORT 2018 6. OTHER
Note 32: Other significant accounting policies (continued)
EFFECTIVE DATE
Annual reporting periods beginning on or after 1 January 2018
EXPECTED IMPACT
ON THE FINANCIAL
STATEMENTS
(i) Revenue from child care centres (refer note 2)
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, as this is when the customer has consumed the benefits of this service
(satisfies its performance obligation).
Revenue received in advance from parents and guardians or government is
recognised as deferred income and classified as a current liability (i.e. contract
liability for performance obligations yet to be satisfied).
(ii) Management fee income (refer note 2)
Fees paid by franchisees are recognised in accordance with the franchise
agreement and once the operational support service has been performed, as
this is when the Group transfers control of this service (satisfies its performance
obligation) to the franchisee.
The Group elected to adopt the full retrospective approach upon adoption of AASB
15. As there was no change to the measurement or timing of the recognition (i.e.
based on when the performance obligation is satisfied) there has been no impact
to the Group upon adoption of the new standard and therefore no changes to
comparatives were required. The only change has been to the presentation of
the balance sheet for contract liabilities and this line item has been reclassified
from trade and other payables. Any new agreements for the provision of goods
and services have been assessed as they arise throughout the full year ending 31
December 2018.
110
G8 EDUCATION LIMITED ANNUAL REPORT 2018 DIRECTORS’ DECLARATION
In the Directors’ opinion:
(a) the financial statements and notes set out on pages
48 to 110 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 2018 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
or may become, subject by virtue of the deed of cross
guarantee described in note 24.
Note 32(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.
(c) at the date of this declaration, there are reasonable
grounds to believe that the members of the extended
closed Group identified in note 24 will be able to
meet any obligations or liabilities to which they are,
Gary Carroll
Director
23 February 2019
111
G8 EDUCATION LIMITED ANNUAL REPORT 2018 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 Members 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) and its subsidiaries
(collectively the Group), which comprises the consolidated balance sheet as at 31 December 2018,
the consolidated income statement, consolidated statement of comprehensive income, consolidated
statement of changes in equity and consolidated statement of cash flows for the year then ended,
notes to the financial statements, including a summary of significant accounting policies, and the
directors' declaration.
In our opinion, the accompanying financial report of the Group is in accordance with the Corporations
Act 2001, including:
a)
b)
giving a true and fair view of the consolidated financial position of the Group as at 31 December
2018 and of its consolidated financial performance for the year ended on that date; and
complying with Australian Accounting Standards and the Corporations Regulations 2001.
Basis for Opinion
We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under
those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial
Report section of our report. We are independent of the Group in accordance with the auditor
independence requirements of the Corporations Act 2001 and the ethical requirements of the
Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional
Accountants (the Code) that are relevant to our audit of the financial report in Australia. We have also
fulfilled our other ethical responsibilities in accordance with the Code.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis
for our opinion.
Key Audit Matters
Key audit matters are those matters that, in our professional 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 report. 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.
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G8 EDUCATION LIMITED ANNUAL REPORT 2018
Impairment Assessment of Goodwill
Why significant
How our audit addressed the key audit matter
The Group is required under Australian
Accounting Standard - AASB 136 ‘Impairment of
assets’ to perform an annual impairment test of
the carrying value of goodwill.
In obtaining sufficient audit evidence we:
► Agreed the cash flow forecasts to Board
approved budgets;
The Group comprises one operating segment,
which is the cash generating unit for Goodwill
assessment purposes. The carrying value is
supported by a value in use cash flow forecast.
The cash flow forecast is based on assumptions
as to the Group’s future operating and financial
performance. These include judgements and
estimates relating to occupancy, future
revenues, anticipated costs, growth rates
expected, and the discount rate applied. As such,
impairment testing of goodwill was considered to
be a key audit matter.
The Group’s disclosures are included in note 14
to the financial statements, which includes the
key assumptions applied by the Group.
► Evaluated the Group’s identification of the CGU
and tested the mathematical accuracy of the
impairment model;
► Assessed future cash flow assumptions through
comparison with current trading performance,
externally derived data (where applicable) and
other evidence and enquiry with the Group in
respect of key growth and trading assumptions;
► Assessed other key assumptions including the
discount rate and long term growth rate with
involvement from EY valuation specialists;
► Considered the market capitalisation of the
Group relevant to the recorded net asset amount
at 31 December 2018;
► Performed sensitivity analyses over the model in
relation to key assumptions including occupancy,
growth rates and discount rates; and
► Considered the adequacy of the Intangible
Assets disclosure in note 14 to the financial
statements.
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G8 EDUCATION LIMITED ANNUAL REPORT 2018
Acquisition Accounting
Why significant
How our audit addressed the key audit matter
The Group acquired a number of childcare
centres during 2018, including under
Developer Agreements. Acquisition
accounting requires judgment in
identifying the point at which the Group
obtains control of the childcare centre,
assessing the fair value of the assets and
liabilities acquired and measuring the fair
value of contingent consideration payable
to the vendors. The fair value of
contingent consideration is determined
based on estimates and assumptions
about the future performance of the
acquired business. Acquisition costs such
as broker costs are often directly paid by
the vendor and may require judgement to
estimate the amount paid. Given the level
of judgment in estimating the fair value as
well as the contingent consideration that
may be paid by G8, this was considered to
be a key audit matter.
In obtaining sufficient audit evidence, we:
►
►
►
►
►
►
Read the terms and conditions of the developer and
sale agreements and assessed the point at which the
Group obtained control of the childcare centres;
Evaluated the methodology applied to identify assets
and liabilities (including contingent consideration)
acquired and measure their respective fair values;
Agreed key items to underlying data including
contracts and settlement statements;
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 adequacy of the business combinations
disclosure in note 13 to the financial statements.
Refer to note 13 to the financial
statements for disclosure relating to
acquisition accounting.
Revenue Recognition
Why significant
How our audit addressed the key audit matter
Revenue is recognised by the Group when the
underlying childcare service has been provided.
Revenue from childcare services and related
grant revenue for the Group for the financial
year was $849.3 million. Customers are
generally invoiced in advance and adjustments
made through processing of Child Care Subsidy
by the Department of Human Services.
Accordingly, there is a risk that revenue is
recognised in the incorrect period.
The new accounting standard AASB15 ‘Revenue
from contracts with customers’ was applicable to
the Group from 1 January 2018. The Group
determined there was no material impact on
adoption of the new standard.
Our audit evaluated revenue recognised in
accordance with AASB15. To do this, we:
►
►
►
►
Assessed the Group’s identification of the
performance obligations and revenue
recognition under AASB15;
Assessed the Group’s design and operating
effectiveness of key controls over the
recognition of revenue;
Used computer assisted auditing techniques to
compare revenue recognised to cash receipts
and investigated differences;
Assessed the completeness of the deferred
revenue balance by testing parent fees in
advance bookings;
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G8 EDUCATION LIMITED ANNUAL REPORT 2018
Why significant
How our audit addressed the key audit matter
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. As a result, we
consider revenue to be a key audit matter.
Refer to note 2 to the financial statements for
disclosure relating to revenue.
►
►
►
Tested reconciliations relating to revenue
recognised and agreed this to support for Child
Care Subsidy;
Assessed journal entries relating to revenue, in
particular those near the year end; and
Assessed the adequacy of the Group’s
disclosures in relation to revenue and related
accounting policies.
Information Other than the Financial Report and Auditor’s Report Thereon
The directors are responsible for the other information. The other information comprises the
information included in the Company’s 2018 Annual Report, but does not include the financial report
and our auditor’s report thereon.
Our opinion on the financial report does not cover the other information and accordingly we do not
express any form of assurance conclusion thereon, with the exception of the Remuneration Report
and our related assurance opinion.
In connection with our audit of the financial report, our responsibility is to read the other information
and, in doing so, consider whether the other information is materially inconsistent with the financial
report or our knowledge obtained in the audit or otherwise appears to be materially misstated.
If, based on the work we have performed, we conclude that there is a material misstatement of this
other information, we are required to report that fact. We have nothing to report in this regard.
Responsibilities of the Directors for the Financial Report
The directors of the Company are responsible for the preparation of the financial report that gives a
true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001
and for such internal control as the directors determine is necessary to enable the preparation of the
financial report that gives a true and fair view and is free from material misstatement, whether due to
fraud or error.
In preparing the financial report, the directors are responsible for assessing the Group’s ability to
continue as a going concern, disclosing, as applicable, matters relating to going concern and using the
going concern basis of accounting unless the directors either intend to liquidate the Group or to cease
operations, or have no realistic alternative but to do so.
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G8 EDUCATION LIMITED ANNUAL REPORT 2018
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 the 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.
A further description of our responsibilities for the audit of the financial report is located at the
Auditing and Assurance Standards Board website at: http://www.auasb.gov.au/auditors_files/ar2.pdf.
This description forms part of our auditor’s report.
Report on the Audit of the Remuneration Report
Opinion on the Remuneration Report
We have audited the Remuneration Report included in pages 28 to 45 of the directors' report for the
year ended 31 December 2018.
In our opinion, the Remuneration Report of G8 Education Limited for the year ended 31 December
2018, complies with section 300A of the Corporations Act 2001.
Responsibilities
The directors of the Company are responsible for the preparation and presentation of the
Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our
responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in
accordance with Australian Auditing Standards.
Ernst & Young
Ric Roach
Partner
Brisbane
23 February 2019
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G8 EDUCATION LIMITED ANNUAL REPORT 2018
SHAREHOLDER INFORMATION
The total issued capital of the Company as at 31 December 2018 and as at the date of this annual report is
455,379,824.
The Shareholder information set out below was applicable as at 12 February 2019.
(a) Distribution of equity securities
Analysis of number of equity security holders by size of holding is listed below.
100,001 and Over
10,001 – 100,000
5,001 – 10,000
1,001 – 5,000
1 – 1,000
Class of equity security
Shares
Holders
Options
335,682,171
98
61,427,637
27,726,189
2,788
3,698
27,297,759
10,022
3,246,068
6,766
73.72%
13.49%
6.09%
5.99%
0.71%
455,379,824
23,372
100.00%
There were 1,023 holders of less than a marketable parcel of ordinary shares.
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G8 EDUCATION LIMITED ANNUAL REPORT 2018
(b) Quoted equity security holders
Twenty largest quoted equity security holders.
Name
HSBC Custody Nominees (Australia) Limited
J P Morgan Nominees Australia Pty Limited
Citicorp Nominees Pty Limited
National Nominees Limited
BNP Paribas Nominees Pty Ltd
BNP Paribas Noms Pty Ltd
Geosine Pty Ltd
BNP Paribas Nominees Pty Ltd
HSBC Custody Nominees (Australia) Limited
Citicorp Nominees Pty Limited
Geosine Pty Ltd
Investorlink Securities Limited
RAP Investments Pty Limited
HSBC Custody Nominees (Australia) Limited
HSBC Custody Nominees (Australia) Limited
Mr Christopher Douglas Passfield & Mrs Rhonda Passfield
Mr Craig Graeme Chapman
Mr Riccardo Pisaturo
Viss Holdings Pty Ltd
National Nominees Limited
Quoted ordinary
Percentage of
shares held
issued shares
103,087,514
67,289,625
52,625,448
29,068,116
13,261,201
12,874,513
6,003,260
4,991,977
3,745,782
3,094,793
3,036,000
2,651,071
2,600,000
1,818,472
1,647,212
1,500,000
1,400,000
1,400,000
1,170,683
829,811
22.64
14.78
11.56
6.38
2.91
2.83
1.32
1.10
0.82
0.68
0.67
0.58
0.57
0.40
0.36
0.33
0.31
0.31
0.26
0.18
314,095,478
68,98
(c) Substantial holders]
Substantial holders as at 12 February 2019 in the Company are set out below:
Ordinary Shares
Number held
Percentage
Legg Mason Asset Management Limited
Sumitomo Mitsui Trust Holdings, Inc.
The Vanguard Group, Inc.
31,033,741
28,216,695
22,776,392
6.84%
6.20%
5.002%
(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.
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G8 EDUCATION LIMITED ANNUAL REPORT 2018
CORPORATE DIRECTORY
Directors
M Johnson, Chairman
G Carroll, Managing Director
B Bailison, Non-Executive Director
S Forrester, Non-Executive Director
D Foster, Non-Executive Director
J Cogin, Non-Executive Director
M Zabel, Non-Executive Director
Company Secretary
T Wood
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:
159 Varsity Parade, Varsity Lakes
Telephone: 07 5581 5300
Facsimile: 07 5581 5311
www.g8education.edu.au
Share registry:
Link Market Services Limited
Level 21, 10 Eagle Street
Brisbane QLD 4000
Auditor:
Ernst & Young
111 Eagle Street,
Brisbane, QLD 4001
Lawyers:
Minter Ellison Gold Coast
165 Varsity Parade
Varsity Lakes QLD 4217
Securities exchange listing:
G8 Education Limited shares are listed on the
Australian Securities Exchange under the ticker
code GEM.
G8 EDUCATION LIMITED ANNUAL REPORT 2018
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www.g8education.edu.au