2019 annual report
1
G8 EDUCATION LIMITED ANNUAL REPORT 2019section one strategic report 2
G8 EDUCATION LIMITED ANNUAL REPORT 2019 table of
contents
SECTION ONE
Strategic Report
Our Business
Chairman’s Report
Managing Director’s Report
4
6
8
2019 Financial Results - At a Glance
10
2019 Highlights
• Build a Great Team
• Strengthen the Foundation
• Differentiated Family Offer
• Sustainable Profitability
Material Risks
Sustainability Report
Directors’ Report
Board of Directors
Key Operational Information
Remuneration Report
Section Two
Financial Report
Section Three
Shareholder Information
Corporate Directory
12
14
16
18
20
22
28
34
38
59
131
133
3
G8 EDUCATION LIMITED ANNUAL REPORT 2019section one strategic report
Our
Business
australia
475
WA
39
singapore
17
19
82
46
SA
28
16
11
16
27
40
26
Centres by BRAND
11
11
5
Casa Bambini
Early Education Centre
4
4
G8 EDUCATION LIMITED ANNUAL REPORT 2019
G8 EDUCATION LIMITED ANNUAL REPORT 2019 section one strategic report
Australia’s
largest
Listed Early
Childhood Education
& Care Provider
Centres in
australia &
Singapore
492
Licensed
Places
40k+
Early
childhood
educators
9k+
children
per week
54k
6
19
57
10
3
4
5
NSW
186
ACT
10
QLD
72
VIC
140
3
9
5
34
10
22
G8 EDUCATION LIMITED ANNUAL REPORT 2019section one strategic report
chairman’s
REPORT
Dear Shareholders,
On behalf of the Board, I am pleased to
present the G8 Education Limited 2019 Annual
Report.
Despite continuing challenges in the market
and regulatory environment during 2019, we
made significant progress on our pathway
to build a sustainable business and lead our
sector.
Last year, we forecast that market conditions
would improve as construction activity
slowed and the new child care subsidy drove
increased demand. The market environment
in the first half of the year was consistent
with this forecast - however, an increase in
construction activity in the fourth quarter of
the year negatively impacted the competitive
environment.
Our strategy remains focused on turning the
scale we built between 2010 and 2016 into
a source of competitive advantage. We’re
continuing to build strong foundations –
improving centre quality and getting the
right team in place – while also using our
scale for good, to make a difference in the
sector. 2019 represented a key step along this
strategic pathway for us, with some important
developments that have set us up well for
future success.
We know that when a child has quality
education and care early in life, it leads to
better health, education and employment
opportunities in the future. With this in mind,
I am pleased to report that the quality of our
services nationally continued to improve, and
that G8 Education is outpacing the sector’s
improvement.
In last year’s Report, we highlighted that
quality is fundamental to being a centre
of choice. As well as the safety of our team
members and children, quality in this sense
covers the physical environment, learning
environments and programs, team capability
and the experiences and interactions with
children and families. I will outline the 2019
achievements in terms of safety and physical
environment, while Gary Carroll will elaborate
on our achievements in the other quality areas
in his report.
In terms of physical environment, during
2019 we undertook 70 major refurbishments,
at a total cost of $21 million. From a safety
perspective, we made excellent progress both
in terms of team member and child safety.
As a result of a number of initiatives such as a
national injury hotline and enhanced training
and communications frameworks, the Group
reduced its Lost Time Injury Frequency Rate
for team members by more than 50%. From
a child safety viewpoint, we leveraged our
partnership with Bravehearts to jointly develop
an enhanced training package which has
been rolled out to a number of pilot centres
prior to the full roll-out in 2020.
Our financial performance in 2019 reflected
where we are on our pathway to growth.
Positive occupancy growth – the first in four
years – resulted in good growth in our organic
earnings. This organic growth was offset by the
investment in greenfield centres (those that
have been opened in the last two years), as
well as our investment in driving overall centre
quality.
6
G8 EDUCATION LIMITED ANNUAL REPORT 2019 On behalf of the Board, I would like to take this
opportunity to thank all of our shareholders,
employees and families for their ongoing
support in 2020.
Yours sincerely,
Mark Johnson
Chairman
Our statutory earnings have been impacted
by the introduction of the new accounting
standard for leases (AASB 16). On an underlying
basis, Net Profit After Tax was $76.4 million,
down 4% on 2018. Cash flow generation
continued to be strong, with $90.2 million in
operating cash flows being generated (before
AASB 16). Dividends for the year equated to
10.75c per share, bringing the full year dividend
payout ratio to 70%.
Further improvements to the Group’s capital
base were made in 2019, with higher cost
Singapore bond facilities being repaid and
all debt facilities being consolidated into
syndicated bank debt facilities. This provides
increased capital with improved tenor and
pricing and ensures the Group has the capital
that is required to deliver its current strategy.
Looking forward to the year ahead, we expect
the market environment to remain reasonably
static. From a strategic perspective, 2020 will
involve further investment in quality, balanced
with programs that enable the Group to
leverage its recently established capability to
accelerate earnings in both greenfield and
organic centres. We recognise that the pace
of earnings growth needs to accelerate, and
this strategy is aimed at doing that as well
as providing a strong pathway to sustainable
growth well into the future.
7
G8 EDUCATION LIMITED ANNUAL REPORT 2019section one strategic report managing director’s
REPORT
Dear Shareholders,
of enquiries to tours while maintaining excellent
levels of customer service.
We’ve been on a journey over the past two years to
Following the launch of our core child care
become a strong and sustainable business. After
years of acquisitions, we’ve been growing into
ourselves – creating the processes and structure
to make our scale an advantage. As we continue
on our journey, we have a clear and compelling
program to deliver over the next three years –
encompassing people, experiences and centres.
Leveraging scale for sustainable
growth
management system in 2018, we delivered the
parent and educator applications in 2019. As well
as providing a more seamless communication
experience for families, this system gives our
national Early Education & Learning support
team real-time visibility of the learning programs
being developed by our centres for the first time.
When combined with our connection platform,
Workplace, this system provides our centres with
access to a dedicated team of experienced early
learning professionals and best-practice ideas from
We take our responsibility as the leading for-profit
a 470+ centre network.
early education provider in Australia seriously. We
have over 9,000 team members educating and
caring for more than 54,000 children in any given
week – making us three times larger than our
nearest for-profit competitor.
We believe that we have a real opportunity to
use this scale advantage to reach the highest
standards of early childhood education and care to
our families – providing an unmatched breadth of
offer, engaging experiences and quality centres.
Against a challenging market backdrop, 2019
was a year in which this strategy started to bear
fruit. We delivered occupancy and earnings
growth from our prior investments in quality,
while continuing to drive future growth through
investment in critical areas.
Family Experience Program
Based on in-depth research into the needs and
wants of our parents and carers, we’ve been
introducing new offerings that will resonate
with and support them. For example, our 2018
Annual Report flagged the roll-out of a centralised
customer engagement centre to better support
families during the enquiry process. I am pleased
to report that this initiative has been delivered in
line with our targets, increasing our conversion
People Program
People are at the heart of our business. We know
that excellent Centre Managers and an engaged
team mean higher occupancy and a stronger
business and above all make a difference in
children’s lives. The career pathways and training
opportunities created by our scale mean we can
attract, train and retain the best people. As part
of a values-based, purpose-driven culture we
are also committed to providing market-leading
remuneration and reward and recognition
programs.
During 2019, the Group made very good progress
on a number of fronts. From a training and career
pathway perspective, we rolled out a market-
leading Bachelor Scholarship Program to support
our diploma-qualified educators to study towards
a Degree. This program has an initial cohort of
more than 120 educators. We also piloted an
innovative Centre Manager induction program
with promising results, ahead of a full roll-out in
2020.
Such initiatives, together with Workplace and
adjustments to Early Childhood Teacher (“ECT”)
wages in late 2018, have meant we have reduced
8
G8 EDUCATION LIMITED ANNUAL REPORT 2019 turnover of Centre Manager roles to record low
levels. Finally, we made good progress towards
implementing our new people management
platform, covering such aspects as recruitment,
onboarding, rostering and performance
management. The platform is on track to come
online in Q2 of 2020, delivering improvements in
both wage costs and process efficiencies.
Centre Network Performance
In 2019, we acquired a total of 15 early education
centres, divested 25 centres and closed 16 centres in
Australia. This brought our total number of centres
as at 31 December 2019 to 475 in Australia and 17 in
Singapore. These centres provide a total combined
licenced capacity of more than 40,000 places. This
has provided a source of material earnings growth in
future years as the greenfield portfolio matures.
After a number of years of declining occupancy, we
are pleased to report like-for-like occupancy grew
approximately 1% in 2019. This occupancy growth
translated to a 3% increase in Organic Earnings
Strategy plus execution
We are taking a highly disciplined approach to
our strategy, bringing single-minded rigour into
our execution. We are focusing on the things that
really matter – that will lead to better centres, more
engaged people and the best possible outcomes for
our children and families.
For the first time, we have a dedicated, full-time
team to support our centres to change. This team
is rolling out change gradually and carefully, testing
and learning as they go. We are also engaging with
our people across the network in a more consistent
and focused way. The full-time team will also enable
us to harvest the earnings growth that comes from
improved quality more quickly. We recognise that
the journey to improved quality has not translated
to substantial earnings growth to date, and our
program is aimed at accelerating such growth while
also delivering sustainable increases in quality.
This combination of strategy with rigorous execution
will leave us well placed to deliver sustainable value
to children, families and our shareholders in the
Before Interest and Tax (“EBIT”) to $165.7 million. The
years ahead.
investments made in greenfield centres and support
office to drive quality offset this organic growth,
with underlying Group EBIT of $132.5 million being
in line with last year after accounting for license
fees in 2018. The Group’s ability to convert earnings
before interest, tax, depreciation and amortisation
Yours sincerely,
(“EBITDA”) to cash remained strong with 107%
adjusted cash conversion in 2019, generating
Gary Carroll
operating cash flows of $90.2 million (pre AASB 16).
Managing Director
Outlook for 2020
The market environment is expected to be
similar to 2019, with continued supply offsetting
the impact of the increased child care subsidy.
Our pathway will continue to drive sustainable
growth. Specific focus areas this year include our
continuing centre refurbishment program, delivery
of practice support programs and enhanced
learning environments across the full network, and
implementation of our new people management
platform. We’re also rolling out a network-wide
safety program, because we know there’s nothing
more important than the children in our care.
Such initiatives are aimed at driving occupancy in
existing centres as well as positioning G8 Education
as the employer of choice in the sector. Finally,
we have the opportunity to continue to grow
our network of early learning centres through
acquisition and greenfield development.
9
G8 EDUCATION LIMITED ANNUAL REPORT 2019section one strategic report
2019 FINANCIAL RESULTS
at a glance
10
G8 EDUCATION LIMITED ANNUAL REPORT 2019 section one strategic report
underlying EPS
16.67
cents per share
underlying EBIT
$132.5
MILLION
underlying npat
$76.4
MILLION
G8 EDUCATION LIMITED ANNUAL REPORT 2019
11
11
G8 EDUCATION LIMITED ANNUAL REPORT 2019section one strategic report 2019
highlights
BUILD A GREAT TEAM
Our objective in this strategic pillar is to attract, retain and
develop great talent that is connected and engaged behind a
values-based, purpose-driven culture.
We will deliver this objective by using our scale to provide:
•
a differentiated employment offer based on career
pathways;
• market-leading professional development and training;
and
•
innovative remuneration, benefits and reward and
recognition frameworks.
The primary measures we will use to track our progress will
be Centre Manager and ECT Turnover, Team Engagement and
Employer Brand benchmarks.
Key achievements in 2019
Career Pathways
Roll-out of new Bachelor Scholarship program.
Training and Professional Development
Roll-out of new Teacher training course, pilot of new Centre Manager
Induction Program.
Remuneration, Benefits & Recognition
Extension of team member discount to G8 family members,
implementation of new Workplace connection and recognition
platform.
12
G8 EDUCATION LIMITED ANNUAL REPORT 2019 section one strategic report
performance in 2019
Record
reduction in Centre
Manager turnover
78%
team engagement
score, 1% above relevant
industry benchmark
top 20
Most Attractive
Employer in Australia,
awarded by Randstad
13
G8 EDUCATION LIMITED ANNUAL REPORT 2019section one strategic report Strengthen the
foundation
Our objective in this strategic pillar is to build high quality
early learning centres, with quality including safety of
both team members and children, the physical asset
environment, and learning environments and programs.
We will deliver this objective by using our scale to:
• provide high quality training and monitoring systems
for team and child safety;
• develop and maintain consistently high asset
standards; and
• utilise our dedicated Early Education & Learning
team to develop and roll-out market-leading practice
support and learning programs.
The primary measures we will use to track our progress
will be Team Member Lost Time Injury Frequency Rate
(“LTIFR”), Child Injury Rates, and Assessment & Rating
results in relation to adherence to National Quality
Standards.
Key achievements in 2019
child safety
Partnered with Bravehearts to develop refreshed child safety training and rolled
out the training to a pilot group of centres ahead of full roll-out in 2020.
Team member safety
Implemented national injury hotline, piloted new training programs and support
materials for centres, and connected 377 team health and safety champions.
learning and development programs
Developed practice support guides and environment guidelines to support
centres in setting up high quality learning environments and practices,
established state-based practice partner network to support and mentor centres.
asset standards
Completed 70 major upgrades at a total cost of $21 million.
14
G8 EDUCATION LIMITED ANNUAL REPORT 2019 section one strategic report
performance in 2019
3.6%
reduction in
Child Injury Rate
53%
reduction in Team
member LTIFR
+1.1% pts
above the relevant national
benchmark for centres that
are Meeting or Exceeding
National Quality Standards
15
G8 EDUCATION LIMITED ANNUAL REPORT 2019section one strategic report differentiated
Family Offer
Our objective in this strategic pillar is to provide offers and
experiences that enable our centres to be the centre of
choice in the market.
We will deliver this objective by using our scale to:
• Work with partners to develop and roll-out products
and programs that add value to families; and
• Develop and implement market-leading experiences
at every stage of a family’s journey with us.
The primary measures we will use to track our progress will
be Occupancy and Net Promoter Score (“NPS”)
In our strategic pathway, the development of differentiated
offers and experiences comes after the first 2 pillars related
to Team and Quality. Accordingly, the focus to date in this
pillar has been on building foundational family experience
processes and undertaking research and product
development for roll-out from 2020.
Key achievements in 2019
customer engagement centre
Roll-out of national customer engagement centre to
improve the experience from enquiry to booking.
learning and development programs
Pilot of a number of learning programs covering literacy
and sensory development, as well as research and product
development covering other value-adding areas for families.
16
G8 EDUCATION LIMITED ANNUAL REPORT 2019 section one strategic report
performance in 2019
1.1%
like-for-like
Occupancy growth
for the year
115k+
inbound calls
captured by the CET
since launch
17
G8 EDUCATION LIMITED ANNUAL REPORT 2019section one strategic report sustainable
profitability
Our objective in this strategic pillar is to provide
sustainable, attractive financial returns to
shareholders.
We will deliver this objective by using our scale to:
• Re-engineer our operating processes to centralise
and automate such processes, freeing up Centre
Managers to focus on families and team members
as well as reducing costs;
• Optimise the returns from our centre network
by actively managing network performance and
investing in growing our network of centres.
The primary measures we will use to track our
progress will be Earnings and Return on Capital.
Key achievements in 2019
acquisition and divestment of centres
Completed the acquisition of 15 centres, divested 25 centres
and closed 16 underperforming centres during the year.
Human Resource management platform
Commenced the implementation of a new Human Resource
management platform for the Group, covering all aspects of
people management. The new system is on track to be rolled
out in mid-2020 and generate time savings for Centre Managers
as well as ensuring supervision and ratio compliance while
reducing wage costs for the Group.
18
G8 EDUCATION LIMITED ANNUAL REPORT 2019 section one strategic report
performance in 2019
3%
growth in Organic
EBIT
10.3%
ROCE - down from
11.2% in prior year due
to lag time associated
with returns from
greenfield centre
acquisitions
19
G8 EDUCATION LIMITED ANNUAL REPORT 2019section one strategic report
material risks
The following risks identified by our Group represent threats to our Group’s growth strategy. We have a risk management
framework in place to manage the risks identified.
RISK
MITIGATING ACTIVITIES
1. Safety, health and well-being
• Our Group has a suite of policies supported by training that address various
We care about the physical and psychological safety
and health of the children in our care and our team
members. We are committed to creating a safe
aspects of both team and child safety and health, including interactions
with children, conduct, physical environments, procedures, recruitment and
reporting.
learning and working environment, where everyone
• Our educators must have a “Working with Children Check” and our
arrives home free from injuries and illness.
Recruitment Policy and Processes seek to ensure the best educators are
engaging with the children in our care.
• Our Board is provided with at least monthly update regarding child protection
and safety and our Group’s Audit & Risk Management Committee and People
& Culture Committee are provided with at least quarterly updates to monitor
the effectiveness of the implementation of the Safety and Health policies,
standards, plans, risk program, processes, resources and compliance.
• We continue to invest to improve quality and safety, address risks and develop
a safety culture across our business.
2. Strategic execution
The successful delivery of our Group’s strategic plan
• Our Board provides oversight of the delivery, progress against plan, key
resourcing, capability and critical dependencies for our Group’s strategy.
is critical to enable our Group to effectively leverage
• We have dedicated project and change management capabilities that assist
its scale advantage. This requires building and
with project delivery and evaluating the impact of change on our operations to
maintaining organisational capability in relation to
ensure key initiatives are effectively embedded.
planning, resourcing and execution of key projects.
3. Competition
The early learning sector remains competitive with
new supply consistently entering the market. This
• Our Executive Leadership Team regularly review key market trends, price points
across competitors, promotions and marketing activity along with our Group’s
occupancy, wages, strategic initiative benefits and costs.
environment creates both opportunities and risks that
• Our business intelligence and performance reporting systems provide clear
may impact business performance within the local
visibility of operating driver performance at centre level, enabling decisions to
markets in which we operate.
be made on a timely basis in response to changing local market conditions.
4. Changes to regulatory environment
• The sector continues to enjoy strong bipartisan Government support as
Regulatory changes to the early learning sector may
evidenced by increases to child care subsidy levels in mid-2018.
have an adverse impact on the way we manage and
• Our Group maintains productive working relationships at both Federal and
operate our centres and on our financial performance.
State Government levels providing our Group with early visibility of pending
The introduction of new legislation or regulations, or
regulatory changes and enabling us to prepare and respond to such change.
changes in Government funded child care subsidy
levels may adversely impact our financial performance
and future prospects.
5. Economic Conditions
Economic conditions, including but not limited to
the unemployment rates, birth rates, lower female
workforce participation, lower household income
and wealth or deterioration of market conditions in
the areas surrounding our centres may impact the
occupancy levels at our centres.
20
• Our Group undertakes detailed supply demand modelling in relation to
existing and new centre investments to ensure forecast social and economic
drivers are factored into any investment decisions.
G8 EDUCATION LIMITED ANNUAL REPORT 2019 6. Financial, treasury and insurance
• We have a Board approved Treasury Policy which governs the management
The management of liquidity to make payments to
team members and suppliers in particular, and the
management of capital and availability of funding,
of our treasury risks, including liquidity, funding, interest rates, the use of
derivatives and counterparty risk. These risks are managed day to day by our
Group Finance function.
are important requirements to support our business
• We have medium term bank funding facilities in place with a syndicate of
operations and growth.
In addition, we are exposed to material adverse
fluctuations in interest rates, which could impact
profitability.
banks and manage these facilities to ensure availability of cash and committed
debt facilities to meet our forecasted liquidity and capital requirements.
7. Cyber and Business Interruption
• Our cyber security team is responsible for managing our information security
The protection of the personal information of our
families and team members is paramount. A major
data or information security breach has the potential
to result in unauthorised access, disclosure, loss and/or
misuse of family, supplier, team member and company
management system (ISMS) covering cyber, privacy and business continuity
planning. This includes monitoring, assessing and continuing to enhance our
information and physical security to keep pace with increasing threats, with
monthly reporting to our Board on the implementation and success of the
ISMS.
information which may cause significant business and
• How we collect, use, secure, manage and monitor data and our key systems
reputational damage, adverse regulatory and financial
is governed through our Group Cyber Security, Privacy, Acceptable Use of
impacts and legal proceedings. Additionally, business
Information Systems Policy and associated standards.
interruptions due to a failure in key operating systems
could impact the normal functioning of our centres
and could lead to financial loss.
Accidents, natural disasters and other events can
occur which affect our customers, team members and
business. Insurance can be used to protect against
losses from such incidents.
• We monitor and respond to threats in the continuity of our operations from
natural disasters, weather conditions, industrial disputes, technology or system
failures, cyber attacks, acts of terrorism and other factors.
• Our Group’s Business Continuity Planning guides our response to major
incidents.
• We invest in our technology infrastructure, applications and review our IT
recovery plans to enhance our offsite backup and recovery capabilities.
• We partner with leading cyber security firms to continuously minor
developments in relation to cyber threats and resulting remedial actions.
• Our Group Legal, Risk & Insurance function manages the purchase of insurance
where we determine this is prudent. In some cases, we choose to self insure
risks. This means that in the event of an incident, we cannot make a claim
against a third party insurer but we will pay or absorb the losses ourselves. We
monitor our self insured risks and have active programs to help us pre empt
and mitigate losses.
8. Service approval at particular centres or
other required licences may be revoked
• Our dedicated Safety, Quality & Compliance and Education teams ensure
that G8 Education and each of our centres adhere to the National Quality
Certain centres in our network may have their service
Framework and relevant operating regulations.
approval rejected or revoked or we may lose our licence
• Our Group Compliance Framework, which includes Executive and Board
to operate as an Approved Provider of early education
oversight, along with a range of policies, procedures and business operational
and care. Regulatory compliance is subject to periodic
compliance plans help us manage our legal and regulatory compliance.
review and may be revoked in certain circumstances. If
we do not comply with regulations and are unable to
maintain Service Approval for the operation of our early
education facilities or if any of our existing approvals
are adversely amended or revoked, this may adversely
impact our financial performance.
9. People
Our team members are key to the success of our
business and it is critical that we can attract, retain
• Our Group has a dedicated recruitment team focused on finding and
employing the right talent to ensure the people entering our business meet
the needs of each individual role.
and motivate appropriately skilled and trained team
• Our market leading Bachelor Scholarship program and G8 Family and Team
members that meet the existing or future education
Member Benefits programs are in place to attract and retain good people.
and care needs of our families.
There is a risk that we may not be able to suitably
maintain an appropriately skilled base of team
members. If this type of risk was to eventuate, it may
increase our costs, impact occupancy levels and reduce
profitability.
Those programs subsidise early learning for our team and provide direct
sponsorship and scholarships to enable our team members to undertake
further education and study. These programs and the development of our
people are supported by a dedicated Learning and Development team who
provide ongoing training and leadership development to ensure our team
members maintain our standards and develop their careers.
• We have a structured talent management framework covering workforce
planning, succession planning and performance management to ensure a
pipeline of talent for key roles.
• Team member engagement surveys are regularly conducted to understand
and help us respond to the needs of our team members.
21
G8 EDUCATION LIMITED ANNUAL REPORT 2019section one strategic report sustainabiliTy
report
Passion | Innovation | Dedication | Compassion | Integrity
Doing what
we love with
enthusiasm and
purpose.
Striving to go
above and
beyond.
Embracing new
ideas that further
develop our
shared purpose.
Showing empathy
and kindness to
others because
we care.
Consistently being
respectful, honest
and fair in all that
we do.
22
G8 EDUCATION LIMITED ANNUAL REPORT 2019 section one strategic report
OUR PURPOSE
G8 Education exists to deliver quality care and early education to children from every background and recognises the
enormous benefits that quality early education can have on each child’s social, cognitive and educational development.
Ensuring the safety of children and promoting the wellbeing of children are essential elements of our purpose. Through
our deep commitment to quality education and care, G8 Education is able to have a profoundly positive impact on
the future of the most valuable and vulnerable members of society. Every member of our team shares in our collective
commitment to create environments where children and families can feel safe, supported, and included and where
children from every background are able to thrive.
progress made in 2019
our planet
98%
of centres assessed by
ACECQA as meeting the
standard for both caring
for the environment
and supporting
children to become
environmentally
responsible
98%
waste diversion
rate achieved
for aged IT
equipment
94%
of centres use
natural lighting
where possible
88%
of centres
involve children
in biodiversity
initiatives
OUR CHILDREN
54k
Children provided
Education and Care
per week
306
Health & Safety
Champions
Child Safe
Organisation
Framework
developed
OUR PEOPLE
OUR COMMUNITY
Rated amongst the
top 20
Most Attractive
Employers in Australia
53%
45%
50%
improvement in
Lost Time Injury
Frequency Rate
females on the
Executive Leadership
Team
female
non-Excecutive
Directors
donations
to community
based charitable
organisations
care
Silver Award
123
provided without
charge to
communities
affected by fire,
drought, and
flooding
received from
Bravehearts in
recognition of our
contributions
and support to child
protection in
Australia
Full and Partial
Scholarships awarded
to individuals
completing a
Bachelor of Early
Childhood Education
Program
81%
of centres assessed
by ACECQA
as meeting or
exceeding the
National Quality
Standard
20%
of centres assessed
by ACECQA as
exceeding the
National Quality
Standard
Finalist
RM Advancer 2019
Award for team
safety outcomes
quality
23
G8 EDUCATION LIMITED ANNUAL REPORT 2019section one strategic report
OUR CHILDREN and THEIR
PROTECTION
Children and their families are at the heart of everything
we do. Caring for more than 54,000 children across
Australia within our care per week, we are deeply aware
that our approach to child protection is able to have a
significant impact. As a sector leader, G8 Education is a
committed champion in the development of the safest
and most secure environments possible for children and
families. We meet this commitment through ongoing
support and continuing development and education for
our team of over 9,000 early learning educators.
In 2019 we also enhanced our Child Safe Organisation
Framework developed in partnership with Bravehearts
and advice from Ernst & Young. Our ongoing investment in
this industry leading framework, reaffirms G8 Education’s
commitment to being a leader in promoting and
advocating for child protection.
OUR FAMILIES
The families we support are representative of the rich
diversity of the communities in which we operate. G8
Education is continually seeking opportunities to embrace
this diversity within our own centre communities. During
2019 this engagement has focused on three initiatives:
•
•
•
An improved Customer Experience Journey Map and
Planning process
Development of our industry leading Child Safe
Organisation Framework
Continual development of centre policies and practices
G8 Education’s customer feedback program provides
families with an accessible channel for providing feedback,
raising issues and seeking resolution to any concern they may
have regarding any aspect of the care or services provided.
G8 Education treats all feedback received from families as
a valuable opportunity to improve and deliver the highest
possible quality of care and early education.
24
G8 EDUCATION LIMITED ANNUAL REPORT 2019 section one strategic report
section one strategic report
OUR PEOPLE
sAFETY
Through the incredibly important role that our teams play,
we have continued to educate, nurture and inspire the next
generation of our nation. G8 Education recognises that our
people and the culture of our teams are what create and
maintain our reputation. We therefore continue to invest in the
retention and development of values-driven team members
who are committed to the best interest of the children under
our care.
Recognising that the safety of children and team members is
essential to the fulfilment of our purpose, G8 Education has
made an increased and focused investment in our dedicated
Safety, Quality and Compliance team during 2019. We have
affirmed our commitment to health and safety through
various campaigns #startasafetymovement, #findasaferyou,
#seesomethingdosomething, and have achieved important
and encouraging results during 2019, including:
•
•
•
•
Growing the number of Health and Safety Champions
within the G8 Education network from 12 to 306;
Implementing and embedding a telephone nurse triage
service across the entire G8 Education network;
Reducing our lost time injury frequency rate by 53%;
and
Reducing our total time lost from injury by 58%.
Key achievements in 2019 have included:
•
•
•
•
•
•
Our team engagement survey shows a continuing positive
trend;
Bachelor Scholarship Program successfully launched and
awarded to 123 educators throughout Australia;
Roll-out of co-creation workshops on a range of topics
including the strategic People Pathways Program, Xplor,
Practice, Safety, Child Protection, Change Impact and
Recruitment;
Assessed more than 14,000 nominations for the standout
educator of the year within the G8 Education network;
Launched Workplace (by Facebook) which has led
to improved sharing, engagement, collaboration and
communication across the G8 Education network, with
more than 8,830 posts, 22,650 comments and 80,230
reactions from more than 5,000 active team member
accounts;
Improved diversity in our team, with team members
representing 86 different nationalities and team members
representing a wide representation of age groups.
25
G8 EDUCATION LIMITED ANNUAL REPORT 2019section one strategic report OUR PLANET
G8 Education is committed to environmental
responsibility. During 2019, ACECQA has assessed 98%
of centres within the G8 Education network as meeting
the standard for both caring for the environment
and supporting children to become environmentally
responsible.
Our centre programs during 2019 have seen children
engage in activities such as:
•
•
•
•
recycling, re-purposing and reuse;
gardening, including growing vegetables;
education on energy conservation practices; and
education on water conservation practices.
During 2019, our support teams have achieved a 98%
landfill diversion rate for aged information technology
assets across the entire G8 Education network.
We continue to organically develop opportunities to
reduce waste and recycle our waste into energy across our
network and within our supply chain.
OUR SERVICE QUALITY
We have continued to improve our service quality and
achieved the following results during 2019:
•
•
81% of centres assessed as ”meeting” or “exceeding” the
National Quality Standard, being 1% above the national
average; and
20% of centres assessed as “exceeding” the National
Quality Standard.
During 2019, G8 Education’s commitment to children, team
members and their safety has been recognised across the
sector, including through:
•
•
•
Being recognised amongst the 20 most attractive
employer’s in Australia by the Ranstad Group;
Receipt of the Braveheart’s Silver Award in recognition of
contributions to child protection; and
Being named as a finalist in the RM Advancer 2019 Risk
Management Award for team safety outcomes.
26
G8 EDUCATION LIMITED ANNUAL REPORT 2019 section one strategic report
section one strategic report
OUR COMMUNITY
CHILDREN
G8 Education believes in the importance of community
in the lives of children. We support authentic learning
by providing diverse opportunities to develop a sense
of identity through our many community engagement
experiences. Excursions and centre events are integral in
their significance and value for children. Our rich offering
of experiences allows children to be both exposed to
people and places that offer new perspectives to enrich
their development, whilst also providing opportunities for
children to be visible and take their place within the wider
community.
SUPPORT
2019 has presented many opportunities for G8 Education
to offer unique support to the communities within which
it operates.
This support is driven overwhelmingly by the close people
to people connections between our teams and families.
Some of our initiatives have included:
•
•
•
•
“Buy a Bale” which has seen children raise over
$31,000 in funds and deliver 224 bales of hay to
drought affected farmers in rural areas;
“Care Packages” which has seen our team members
provide personal care packages to emergency services
personnel and community members affected by
bushfire;
Financial and experiential support for over 630
traineeships for early childhood education and care
Certificate III and Diploma qualifications;
Involvement in White Balloon Day to raise awareness
for the prevention of child sexual assault and
exploitation;
•
Extension of Childcare Benefit to G8 Families;
• Movember;
•
Brave the Shave supporting our contact center partner
to raise more than $50,000.
Sustainability Governance
Families put their trust in G8 Education to provide quality
care and education services that add value to families. We
recognise that the way we do business is critical in order for
us to earn and maintain the respect and trust of not only
G8 Education families but all stakeholders, including our
employees, shareholders and the community.
G8 Education and its Board are committed to good
corporate governance practices and complies with the ASX
Corporate Governance Council’s Corporate Governance
Principles and Recommendations (3rd Edition). The Board
of Directors guides and monitors the business and affairs of
G8 Education on behalf of the shareholders by whom they
are elected and to whom they are accountable. The Board
sees this commitment as fundamental to the sustainability
and performance of its business and to enhance
shareholder value.
27
G8 EDUCATION LIMITED ANNUAL REPORT 2019section one strategic report directors’ report
BOARD OF DIRECTORS
The directors present their report on the consolidated entity (referred to hereafter as the Group) consisting of G8 Education
Limited and the entities it controlled at the end of, or during, the year ended 31 December 2019. All of the following persons
were Directors of G8 Education Limited during the financial year and up to the date of this report unless otherwise stated.
Mark Johnson
B. Comm, FCA, CPA, FAICD
Gary Carroll
B.Comm (Hons), B.Law (Hons), FCPA
CHAIRMAN, INDEPENDENT NON-EXECUTIVE
DIRECTOR
SINCE 1 JANUARY 2016
MANAGING DIRECTOR/CHIEF EXECUTIVE
OFFICER
SINCE 1 JANUARY 2017
Mark Johnson is an experienced chairman and company director
Gary Carroll was appointed as Managing Director and
with a diverse portfolio. He was a Director of Westfield Corporate
CEO on 1 January 2017, having previously served as Chief
Limited until 8 June 2018, is currently a Director of Coca-Cola
Financial Officer for the Group from 25 July 2016. Prior to
Amatil Limited and a Director on other non-listed company
joining G8 Education, Gary had over 15 years’ experience in
boards.
Prior to embarking on his Board career, Mr Johnson was the Chief
Executive Officer and Senior Partner of PricewaterhouseCoopers
(PwC), one of Australia’s leading professional services firms, from
July 2008 to June 2012. His former roles include Chairman of the
PwC Foundation, member of the Auditing and Assurance Board
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.
and Deputy Chair of the Finance and Reporting Committee at
Special responsibilities: Nil
the Australian Institute of Company Directors.
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)
Other current listed public Company Directorships: Nil
Former listed public Company Directorships in the last
three years: Nil
28
G8 EDUCATION LIMITED ANNUAL REPORT 2019 Brian Bailison
B.Com., B.Acc (Cum Laude), ACA
professor Julie cogin
FAICD, PhD, M.Ed., BBus
INDEPENDENT NON-EXECUTIVE DIRECTOR
SINCE 25 MARCH 2010
INDEPENDENT NON-EXECUTIVE DIRECTOR
SINCE 1 SEPTEMBER 2017
Brian Bailison has over 25 years’ experience in finance,
Professor Julie Cogin has worked in education for more
corporate finance and operations from senior roles in listed
than 25 years. In addition to her non-executive director
and unlisted banking, diversified investment and property
responsibilities, Julie is the Pro Vice Chancellor & Vice
development businesses in South Africa and Australia,
President at RMIT University, a multisector global university.
including Rand-Merchant Bank, the Ivany Investment Group,
She also Chairs the board of RMIT Training Pty Limited.
PAYCE Consolidated and the Terrace Tower Group.
Prior to joining RMIT University, Julie was Dean and Head
Special responsibilities: Chair Audit and Risk Management
of UQ Business School at the University of Queensland,
Committee and Member of the Nomination Committee
being the first female Business Dean at a Go8 university.
Other current listed public Company Directorships: Nil
Preceding this, Julie held multiple senior leadership roles
at the University of New South Wales (UNSW). In 2012 Julie
Former listed public Company Directorships in the last
was awarded UNSW highest leadership award.
three years: Nil
Julie is a recognised thought leader in strategy
implementation, high performing workplaces and
corporate culture, having authored multiple books and
papers. She has been awarded education awards at
University, National and International levels and delivered
education or consulting engagements for many leading
companies throughout Australia, Asia and in the USA.
In 2016, Julie was named as one of Australia’s Women of
Influence by The Australian Financial Review and Westpac.
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
29
G8 EDUCATION LIMITED ANNUAL REPORT 2019section one directors’ report BOARD OF DIRECTORS
Susan Forrester, AM
BA, LLB (Hons) EMBA, FAICD
David Foster
B.App.Sci, MBA, GAICD, SFFin
INDEPENDENT NON-EXECUTIVE DIRECTOR
SINCE 1 NOVEMBER 2011
INDEPENDENT NON-EXECUTIVE DIRECTOR
SINCE 1 FEBRUARY 2016
Susan Forrester, AM, is a highly respected and accomplished
David Foster has had a successful career in financial services
professional Company Director with a powerful blend of
spanning over 25 years, with his last executive role being
management, board and consulting experience across
Chief Executive Officer of Suncorp Bank, Australia’s 5th
ASX listed, public and private companies. She draws on
largest bank. Since leaving Suncorp, David has further
more than 25 years of executive management expertise in
developed his career as an experienced Non-Executive
large professional services firms, covering law, finance, HR,
Director with a portfolio of Board roles across a diverse range
business and governance.
Susan has a proven leadership track record as a CEO and
senior executive in the national professional services and
finance industries. She gained a wealth of experience at the
board table in complex corporate transactions, including
of industries including financial services, retailing, local
government, education and professional services. David
currently serves as Chairman of MotorCycle Holdings Limited
and as Director of Genworth Mortgage Insurance Australia
Limited and Bendigo and Adelaide Bank Limited.
private and public company mergers and acquisitions,
Special responsibilities: Member of Audit and
industry aggregations and overseeing successful capital
Risk Management Committee and Chair of
raisings.
Nomination Committee
On Australia Day 2019, she was awarded a Member (AM) in
Other current listed public Company Directorships:
the General Division of the Order of Australia for significant
MotorCycle Holdings Limited (appointed 8 March 2015),
service to business through governance and strategic roles
Genworth Mortgage Insurance Australia Limited (appointed
and as an advocate for women.
30 May 2016) and Bendigo and Adelaide Bank Limited
Special responsibilities: Chair of the People and Culture
(appointed 4 September 2019)
Committee and Member of the Nomination Committee
Former listed public Company Directorships in the last
Other current listed public Company Directorships: Over
the Wire Holdings Ltd (appointed 1 November 2015), Viva
Leisure Limited (appointed 18 October 2018) and Chair –
National Veterinary Care Ltd (appointed 1 February 2015)
Former listed public Company Directorships in the last
three years: Xenith IP Group Ltd (resigned 15 August 2019)
three years: Kina Securities Limited (retired
23 May 2018), Thorn Group Limited (retired 23 October 2019)
30
G8 EDUCATION LIMITED ANNUAL REPORT 2019 Margaret Zabel
FAICD, MBA, BMath
INDEPENDENT NON-EXECUTIVE DIRECTOR
SINCE 1 SEPTEMBER 2017
Margaret Zabel 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 a
Non-Executive Director on the Board of Collective Wellness
Group and Fairtrade AUNZ.
Special responsibilities: Member of the Nomination
Committee and Audit and Risk Management 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 16 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.
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 2019.
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.
31
G8 EDUCATION LIMITED ANNUAL REPORT 2019section one directors’ report Significant changes in the state of affairs
Significant changes in the state of affairs of the Group
during the year were as follows:
• Acquired 15 child care centres in Australia
• Divested 25 child care centres in Western Australia
and closed a further 16 centres at the expiry of the
relevant lease
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.
•
Implemented AASB 16 Leases Standard
Rounding Amounts
• Redemption on Maturity of $270 million Singapore
Notes
Matters subsequent to the end of the
financial year
The following material matters have taken place
subsequent to year end:
• The Board declared a 6.0 cents fully franked dividend
at the Board meeting, which will be the final dividend
for the year.
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:
Dividend for the full financial year ended 31 December 2018 of 8.0 cents per share
paid on 5 April 2019. (2018: Dividend for the full financial year ended 31 December
2017 of 10.0 cents per share paid on 23 March 2018)
Dividend for the half year ended 30 June 2019 of 4.75 cents per share paid on 3
October 2019. (2018: Dividend for the half year ended 30 June 2018 of 4.5 cents per
share paid on 5 October 2018)
TOTAL
32
2019
$’000
2018
$’000
36,430
44,853
21,771
20,406
58,201
65,259
G8 EDUCATION LIMITED ANNUAL REPORT 2019 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 2019, 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
14
14
13
14
14
14
14
B
14
14
14
14
14
14
14
A
4
4
-
4
4
-
-
B
4
4
-
4
4
-
-
A
4
4
3
4
4
4
-
B
4
4
4
4
4
4
-
A
5
-
6
-
-
6
-
B
6
-
6
-
-
6
-
M Johnson
B Bailison
S Forrester, AM
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
ENVIRONMENTAL REGULATION
The Group is subject to and complies with environmental
regulations under State Legislation in the management
of its operations. The Group does not engage in activities
that have particular potential for environmental harm.
No incidents have been recorded and the Directors are
not aware of any environmental issues which have had,
or are likely to have, a material impact on the Group’s
business.
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.
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
INDEMNIFICATION OF 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.
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.
33
G8 EDUCATION LIMITED ANNUAL REPORT 2019section one directors’ report KEY OPERATIONAL INFORMATION
Number of owned centres at year end
Licence capacity of owned centres at year end
Total Number of employees at year end
Total number of full time equivalent employees at year end
Consolidated Group
492
40,673
11,729
10,426
AASB 16 LEASES IMPACT
Given the pervasive effect the new accounting standard, AASB 16 Leases, has on the 2019 full year results and
balance sheet at 31 December 2019, which is not reflected in the 2018 year, the Directors have included the
following tables which are considered to provide useful and meaningful information to G8 Education’s stakeholders.
This is non-IFRS information which is unaudited.
AASB 16 LEASES IMPACT ON CONSOLIDATED INCOME STATEMENT
(Unaudited, Non IFRS)
31 December
2019
31 December
2019
31 December
2019
31 December
2018
Statutory
AASB 16
Adjustment
pre-AASB 162
pre-AASB 16
(Statutory)
pre-AASB 16
Consolidated Full Year
$’000
$’000
$’000
$’000
% Change
922,202
(1,588)
920,614
858,173
7.3%
Revenue1
Expenses
Employment costs
Occupancy
Direct costs of providing services
Depreciation
Other expenses
Finance costs1
Total expenses
Profit before income tax
(542,801)
-
(542,801)
(507,105)
(11,752)
(107,451)
(119,203)
(108,915)
(67,632)
(100,117)
(39,986)
(73,914)
(836,202)
86,000
-
(67,632)
78,029
(22,088)
(1,576)
(41,562)
(61,622)
(16,483)
(31,449)
45,010
14,012
12,424
(28,904)
(28,973)
(822,190)
(754,547)
98,424
103,626
Income tax expense
(23,411)
(4,152)
(27,563)
(31,795)
Profit for the year attributable to
members of the parent entity
Basic earnings per share
Diluted earnings per share
62,589
Cents
13.66
13.66
8,272
Cents
1.81
1.81
70,861
Cents
15.47
15.47
71,831
Cents
15.87
15.87
12019 revenue includes a $2.8 million FX gain. In the 2019 Interim Financial Report the $2.8 million gain was reflected as an offset to finance costs
rather than included in revenue.
2Pre-AASB 16 Leases Income Statement includes a gain on disposal of leases of $5.0 million, in relation to the sale of assets during the year.
34
7.0%
9.4%
9.8%
34.0%
32.2%
(0.2%)
9.0%
(5.0%)
(13.3%)
(1.4%)
(2.5%)
(2.5%)
G8 EDUCATION LIMITED ANNUAL REPORT 2019 AASB 16 LEASES IMPACT ON CONSOLIDATED BALANCE SHEET
(Unaudited, Non IFRS)
Consolidated Full Year
$’000
$’000
$’000
$’000
31 December
2019
31 December
2019
31 December
2019
31 December
2018
Statutory
AASB 16
Adjustment
pre-AASB 16
pre-AASB 16
(Statutory)
40,603
29,936
11,232
-
1,938
-
7,833
(53)
-
-
40,603
37,769
11,179
-
1,938
55,521
36,502
14,120
10,837
-
83,709
7,780
91,489
116,980
103,864
606,219
53,966
1,193,160
5,894
8,994
112,858
91,710
(606,219)
(32,899)
-
53
-
-
21,067
17,856
1,193,160
1,134,456
5,947
25,547
1,963,103
(630,071)
1,333,032
1,269,569
2,046,812
(622,291)
1,424,521
1,386,549
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
Right of use assets
Deferred tax assets
Intangible assets
Other non-current assets
Total non-current assets
Total assets
LIABILITIES
Current liabilities
Trade and other payables
Contract liabilities
Current tax liability
Borrowings
Lease liabilities
Provisions
54,840
7,148
-
-
68,482
34,264
1,854
-
-
-
(68,482)
-
56,694
7,148
-
-
-
34,264
98,106
67,911
8,517
700
279,566
-
29,988
386,682
5,260
92,188
-
8,935
Total current liabilities
164,734
(66,628)
Non-current liabilities
Other payables
Borrowings
Lease liabilities
Provisions
696
6,394
7,090
387,750
640,655
13,087
-
387,750
(640,655)
-
-
13,087
Total non-current liabilities
1,042,188
(634,261)
407,927
106,383
Total liabilities
Net assets
EQUITY
Contributed equity
Reserves
Retained earnings
Total equity
1,206,922
(700,889)
506,033
493,065
839,890
78,598
918,488
893,484
907,255
63,080
(130,445)
839,890
-
-
78,598
78,598
907,255
893,567
63,080
(51,847)
56,530
(56,613)
918,488
893,484
35
G8 EDUCATION LIMITED ANNUAL REPORT 2019section one directors’ report
AASB 16 LEASES IMPACT ON CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited, Non IFRS)
31 December
2019
31 December
2019
31 December
2019
31 December
2018
Statutory
AASB 16
Adjustment
pre-AASB 16
pre-AASB 16
(Statutory)
Consolidated Full Year
$’000
$’000
$’000
$’000
Cash flows from operating activities
Receipts from customers (inclusive of GST)
923,056
-
923,056
853,627
Payments to suppliers and employees
(inclusive of GST)
Interest received
Interest paid
Income taxes paid
(670,585)
(108,575)
(779,160)
(695,208)
494
(69,388)
(29,587)
-
494
44,827
(24,561)
-
(29,587)
455
(23,003)
(29,924)
Net cash inflows from operating activities
153,990
(63,748)
90,242
105,947
Cash flows from investing activities
Payments for acquisition of businesses (net of cash
acquired)
Payments for purchase of intangible assets
Net proceeds / (payments) for divestments
Payments for property, plant and equipment
Net cash outflows from investing activities
Cash flows from financing activities
Share issue costs
Dividends paid
Principal portion of lease payments
Repayment of corporate notes
Proceeds from issue of shares
Inflows from borrowings
Outflows of borrowings
(49,506)
-
5,553
(39,767)
(83,720)
(33)
(44,490)
(63,748)
(269,892)
-
295,000
(2,058)
-
-
-
-
-
-
-
(49,506)
-
5,553
(52,613)
(3,250)
(128)
(39,767)
(36,819)
(83,720)
(92,810)
(33)
(47)
(44,490)
(48,131)
63,748
-
-
-
-
-
-
(269,892)
(50,000)
-
139
295,000
195,000
(2,058)
(103,981)
Net cash outflows from financing activities
(85,221)
63,748
(21,473)
(7,020)
Net (decrease)/increase in cash and cash
equivalents
Cash and cash equivalents at the beginning of the
financial year
Effects of exchange rate changes on cash
Cash and cash equivalents at the end of the
financial year
(14,951)
55,521
33
-
-
-
(14,951)
6,117
55,521
33
49,195
209
40,603
-
40,603
55,521
36
G8 EDUCATION LIMITED ANNUAL REPORT 2019
UNDERLYING RESULT (UNAUDITED, NON-IFRS)
The financial performance of the Group for the year resulted in an underlying EBIT of $132.5 million which is in line
with market consensus.
The table below illustrates the reconciliation of reported NPAT and EBIT to underlying NPAT and EBIT:
UNDERLYING NET PROFIT AFTER TAX RECONCILIATION (Unaudited, Non IFRS)
Consolidated Full Year
Revenue1
Expenses
Net financing cost
Net profit before tax
Net profit after tax
Add/(less) AASB 16 Leases adjustments2
Add/(less) non-operating transactions:
Contingent consideration not paid
Acquisition related expenses3
Borrowing cost expense4,5
Loss on disposal of assets/closure of centres2
Foreign currency translation (gain)/loss4,5
Recognition of tax losses from acquired entities
Underlying net profit after tax
Underlying EPS (cents per share)
Earnings before interest and tax
Add/(less) AASB 16 Leases adjustments2
Add/(less) non-operating transactions:
Contingent consideration not paid
Acquisition related expenses3
Loss on disposal of assets/closure of centres2
Foreign currency translation (gain)/loss4
31 December
2019
31 December
2018
$’000
$’000
921,708
857,758
(762,288)
(725,574)
(73,420)
(28,558)
86,000
103,626
62,589
9,860
(681)
5,088
2,476
2,446
(1,967)
(3,435)
76,376
16.67
71,831
-
(2,199)
5,451
3,078
825
431
-
79,417
17.54
159,420
132,184
(30,998)
-
(681)
5,088
2,446
(2,810)
(2,199)
5,451
825
-
Underlying earnings before interest and tax
132,465
136,261
1 Excludes interest income of $0.5 million from revenue and included in financing costs (2018: $0.4 million)
2 Excludes gain on divestment of leases income of $1.6 million from AASB 16 Leases adjustments and included in Loss on disposal of assets/closure of centres (2018: nil)
3 Includes stamp duty, legal fees, establishment costs and abandoned acquisition costs
4 These items will cease to be removed from underlying from CY20 onwards following the repayment of the SGD bonds
5 These items have been adjusted for tax
NON-IFRS FINANCIAL INFORMATION
The 2019 Annual Report contains certain non-IFRS financial measures of historical financial performance, balance
sheet or cash flows that are used by management and the Directors as the primary measures of assessing the
financial performance of the Group. Non-IFRS financial measures are financial measures other than those defined
or specified under all relevant accounting standards and may not be directly comparable with other companies’
measures but are common practice in the industry in which G8 Education operates. Non-IFRS financial information
should be considered in addition to, and is not intended to be a substitute for, or more important than, IFRS
measures.
The presentation of non-IFRS measures is in line with Regulatory Guide 230 issued by Australian Security and
Investments Commission (ASIC) in December 2011 to promote full and clear disclosure for investors and other users
of financial information and minimise the possibility of being misled by such information. Non-IFRS measures are
not subject to audit or review.
37
G8 EDUCATION LIMITED ANNUAL REPORT 2019section one directors’ report remuneration report
SECTION
TITLE
DESCRIPTION
Introduction from
the People & Culture
Committee Chair
Sets out the activities of the People & Culture
Committee and the Board and people focussed
highlights
Who is covered
Details of senior executives and Non-Executive
Directors
Remuneration
Governance
Describes the role of the Board, the People and
Culture Committee, and the use of remuneration
consultants
KMP Executive
incentives
Our Strategy, Vision and Values that align to KMP
Executive incentives
Remuneration details
for 2019
Outlines the principles and strategy applied to
executive remuneration decisions and the framework
used to deliver incentives
KMP Equity Interests
Provides details of KMP shareholdings in G8
Education Limited
Employment
agreements
Provides details regarding the contractual
arrangements between G8 Education and KMP
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 2019.
1
2
3
4
5
6
7
8
38
G8 EDUCATION LIMITED ANNUAL REPORT 2019 1. INTRODUCTION FROM THE PEOPLE AND CULTURE COMMITTEE CHAIR
Dear Shareholders
In 2019 G8 Education continued to heavily invest in our
people as we believe doing so will provide sustainable
benefits over the long term.
With our executive team fully in place, our key focus was
on execution of our strategic plan and the initiatives
under the four core pillars comprising team, quality,
customer and performance.
In terms of our ongoing commitment to our people,
we concentrated on 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 2019 were:
•
•
•
•
Careful consideration of the recommendations
and community expectations following the Hayne
Royal Commission and incorporation of certain
recommendations into our Annual Work Plan
Review and development of the People Strategy
including guidance on the preparation of a People
Dashboard with real time reporting of KPIs
Review of our Executive KMP Remuneration
Strategy and Framework in its third year of operation
to include our updated values and alignment of
KPIs to our four core pillars and consideration of
alternative performance measures and hurdles
Active monitoring of the succession plan for
Executive Leaders
• Ongoing oversight of the implementation of our
comprehensive, tailored executive and senior
leadership development programs
• 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
•
•
Rigorous investigation and review of our WHS
Framework and
Review and endorsement of updates to our
Whistle-blower Policy.
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 the gateway NPAT
hurdle. In terms of the individual Short-Term Incentive
(“STI”) component, which comprises of 13.33% opportunity
for the CEO and 30% opportunity for other KMP, while
there was good progress in a number of performance
areas, the KPIs were not achieved so no STIs were payable.
The Board and the People and Culture Committee believe
these annual incentive outcomes for each of our disclosed
executives reflects our performance in 2019.
Last year’s report flagged that 2019 would be the final
year in our three year remuneration framework which
commenced in 2017. During the year we monitored
the effectiveness of this program and conducted
a comprehensive review with our remuneration
consultant. Some changes to our approach to executive
remuneration were made, including the introduction of
a financial gate for our STI and a confirmation of earnings
per share, being the single earnings-based metric for our
long-term incentive plan for Executives.
At our 2019 AGM we did not seek an increase to the
aggregate Non-Executive Director fee pool and no
increase to that pool is proposed in 2020. Our Board
composition continues to reflect a healthy gender
balance, with each gender now representing 50% of
our independent Non-Executive Directors and women
representing 42% of the full Board including the
Managing Director.
The Board and the People and Culture Committee hope
you find this report informative.
Susan Forrester, AM
Chair, People and Culture Committee
Brisbane
23 February 2020
39
G8 EDUCATION LIMITED ANNUAL REPORT 2019section one remuneration report 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 OF 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.
Non-Executive Directors
Mark Johnson
Chairman
TITLE/COMMITTEES
Member, Audit & Risk Management
Member, Nomination
Member, People & Culture
Brian Bailison
Director
Chair, Audit & Risk Management
Member, Nomination
Susan Forrester, AM
Director
David Foster
Julie Cogin
Chair, People & Culture
Member, Nomination
Director
Chair, Nomination
Member, Audit & Risk Management
Director
Member, Nomination
Member, People & Culture
Margaret Zabel
Director
Member, Nomination
Member, Audit & Risk Management
CEO and Managing Director
Chief Financial Officer
General Manager Operations
Executive Directors
Gary Carroll
Other Executive KMP
Sharyn Williams
Jason Ball
40
G8 EDUCATION LIMITED ANNUAL REPORT 2019 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
and Culture Committee (PCC) which comprises solely of
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 2019. 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 the 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 and Culture Committee (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
management
policies and
practices
including
Design
features of
employee
and executive
STI and LTI
superannuation
plan awards,
arrangements
including
setting of
performance
and other
vesting
conditions
policy,
composition
and
quantum of
remuneration
components
for executive
KMP,
and
performance
targets
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.
41
G8 EDUCATION LIMITED ANNUAL REPORT 2019section one remuneration report USE OF REMUNERATION CONSULTANTS
• During the course of this assignment, Crichton and
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 2019 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 Non-Executive Director and
three executive roles. Crichton and Associates were paid
$11,204 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;
Associates received limited input from management.
Crichton and Associates reported its findings, in
writing, to the independent NED and the Board; and
• 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 $2,232 during 2019, for these
services.
4. OUR STRATEGY, VISION AND VALUES THAT ALIGN TO KMP SENIOR
EXECUTIVE INCENTIVES
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.
THE STRATEGIC REMUNERATION FRAMEWORK WHICH APPLIES TO EXECUTIVE KMP OPERATES OVER A THREE YEAR CYCLE, ORIGINALLY
APPROVED FROM 1 JANUARY 2017 AND CONCLUDING ON 31 DECEMBER 2019.
Our Strategic Priorities
Short Term Incentive Plan (STIP)
Build a Great Team
Strengthen the Foundation
Create Sustainable Differentiation
Continue Profitable Growth
Our Purpose
We create spaces that shape
generations now and next
Our Values
Passion, Innovation, Dedication,
Compassion, Integrity
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 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
42
G8 EDUCATION LIMITED ANNUAL REPORT 2019 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 relativities,
STI performance criteria are set by
reflecting responsibilities, performance,
reference to G8 Education’s group earnings
LTI targets are linked to G8 Education
qualifications, experience
and geographic location
and individual performance targets
EPS growth
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.
43
G8 EDUCATION LIMITED ANNUAL REPORT 2019section one remuneration report 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 2019
The mix of remuneration for the CEO and executive KMP
for 2019 resulted in the following remuneration mix:
%
0
4
3
0
%
O
F
T
T
R
CEO
0% OF TTR
3
TFR
STI
LTI
25% O
F
T
T
R
EXECUTIVE
KMP
%
0
5
F T
TR
2
5% O
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 2019 as in 2018 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 or around the market median (allowing for
a range of 15% either side of the determined market
median level). 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 2019 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
44
G8 EDUCATION LIMITED ANNUAL REPORT 2019
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 as
reflected through independent benchmark assessments
or through promotion.
SHORT-TERM INCENTIVES (STI)
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
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.
Performance
targets
Rewarding
performance
Deferral of STI
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. In respect of
the individual KPIs, in 2019 there were six individual KPIs split into three areas – Team (2), Quality
(2) and Customer (2). For 2020 there are four individual KPIs split into three areas - Team (2),
Quality (1) and Customer (1).
Any anomalies or discretionary elements are approved and validated by the Board.
An individual’s STI award cannot be higher than 20% if the Group financial targets are not met.
The STI performance ratings are determined under a predetermined matrix with the Board
determination being final.
Effective from 1 January 2017 Board discretion to defer a portion of STI was introduced to
reinforce alignment with shareholder interests. Any deferred 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.
Board discretion may be applied to defer 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 2020. 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 is awarded and service rights have been granted, there are no further performance
measures attached to the rights other than continued tenure for the vesting period (one year).
45
G8 EDUCATION LIMITED ANNUAL REPORT 2019section one remuneration report 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), 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 based on relevant market benchmarks.
Compound annual growth in Reported EPS (three 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.
46
G8 EDUCATION LIMITED ANNUAL REPORT 2019 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.
REVIEW OF THE GEIP
The GEIP operates over a three year cycle, originally
approved for commencement from 1 January 2017.
The GEIP has been reviewed for the next three year
cycle, commencing 1 January 2020 and concluding 31
December 2022. Proposed changes to the LTIP will be
recommended for approval at the 2020 AGM.
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 Investors, Corporate
Governance.
5. REMUNERATION DETAILS FOR 2019
ACTUAL REMUNERATION RECEIVED IN 2019
2019 SHORT TERM INCENTIVE PLAN
OUTCOMES – FINANCIAL
The financial targets in the 2019 Short Term Incentive
Plan were aligned to our shareholder value proposition
providing sustainable double-digit earnings growth for
shareholders.
These financial targets form 87% of the total STI for 2019
for the CEO/Managing Director and 80% 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 revenue and earnings
growth set by the Board. Accordingly, the financial
component of the STI was not awarded to any executive
KMP.
2019 SHORT TERM INCENTIVE PLAN
OUTCOMES – INDIVIDUAL OBJECTIVES
The remaining 13% for the CEO/Managing Director
and 20% 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 2019, clear performance objectives
were set for the executive KMP that were critical to the
delivery of the 2019 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.
47
G8 EDUCATION LIMITED ANNUAL REPORT 2019section one remuneration report 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 2019 has been
appropriately reflected in the Short Term Incentive Plan outcomes.
THE TABLE BELOW SUMMARISES THE 2019 RESULTS FOR EXECUTIVE KMP AGAINST THE INDIVIDUAL KPI’S.
KPI’S
Team
AREA OF FOCUS
ACHIEVEMENTS CONSISTENT WITH
SHAREHOLDER VALUE PROPOSITION
Centre Manager voluntary
turnover
Team engagement
Achieved positive results in terms of turnover and
engagement, however these results were slightly below
target
Quality
Assessment & Rating
Strategic execution
Customer
Occupancy
Assessment & Rating results improved, however were
below target
Key initiatives delivered within the education strategy
and customer program with the roll-out of the Contact
Centre. There was good progress made in relation to a
number of foundational initiatives, however overall the
target was not achieved
Whilst there was an improvement in like for like
occupancy in 2019, the group did not achieve the
occupancy target set
NPS
Group NPS fell short of the 2019 target
The executive KMP were not awarded any STI payments in 2019 on the basis that the above KPIs were not achieved.
REMUNERATION RECEIVED BY KMP SENIOR EXECUTIVES
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 2 mainly because the statutory
table includes an apportioned accounting value for all unvested Long Term Incentive Plan grants (which remain
subject to the satisfaction of performance and service conditions and may not ultimately vest).
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 $
G Carroll
S Williams
J Ball
Fixed
Remuneration
(1)
839,982
458,267
447,017
STI (2)
LTI vested (3)
Termination
payments
Total actual
remuneration
earned
38,014
22,264
21,264
-
-
-
-
-
-
877,996
480,531
468,281
1) Base Salary, superannuation and non-monetary benefits such as motor vehicle and travel
2) STI paid during the 2019 financial year in respect of 2018 performance
3) Intrinsic value of LTI that vested during the financial year
48
G8 EDUCATION LIMITED ANNUAL REPORT 2019
RELATIONSHIP BETWEEN G8 EDUCATION
PERFORMANCE AND EXECUTIVE KMP REMUNERATION
THE PERFORMANCE OF THE GROUP AND REMUNERATION PAID TO KMP OVER THE LAST FIVE YEARS IS SUMMARISED IN THE TABLE
BELOW.
Total revenue
EBIT
2015*
2016*
2017*
2018*
2019
$’000
$’000
$’000
$’000
$’000
706,164
778,513
796,806
858,173
922,202
160,423
160,691
150,878
132,184
159,420
Net Profit After Tax
88,581
80,265
80,581
71,831
62,589
Underlying EBIT (unaudited, Non IFRS)^
145,438
160,660
156,034
136,261
132,465
Underlying NPAT (unaudited, Non IFRS)^^
87,131
93,342
92,874
79,417
76,376
Underlying EPS (cents)
23.87
24.68
21.80
17.54
Annual dividend per share (cents)
Share price as at 31 December ($)
24.0
3.57
24.0
3.59
Total Fixed Remuneration executive KMP
2,163
2,297
18.0
3.45
1,816
14.5
2.83
1,712
16.67
12.75
1.90
1,745
^Underlying EBIT equals NPBT plus finance costs plus non-operating costs as per page 37.
^^ Underlying NPAT equals NPAT plus non-operating costs as per page 37.
*Prior year numbers have not been restated for AASB 16 Leases standard.
49
G8 EDUCATION LIMITED ANNUAL REPORT 2019section one remuneration report EXECUTIVE KMP REMUNERATION
Year
2019
2018
2019
2018
2019
2018
2019
2018
Amount $
KMP
G Carroll
S Williams
J Ball
Total
Total
Short-term
Post employment costs
Fixed Remuneration
TFR
STI
Superannuation
benefits
Termination
payment
Total
819,215
740,000
437,500
425,000
426,250
405,000
1,682,965
1,570,000
-
38,014
-
22,264
-
21,264
-
81,542
20,767
20,290
20,767
20,290
20,767
20,290
62,301
60,870
Proportion of total remuneration
Total
Performance
Share Plan
related
Based
%
-
-
-
5%
5%
5%
%
-
-
-
-
-
-
Performance
Rights
Share based
payment
(77,611)
(19,426)
762,371
798,304
438,841
467,554
447,017
446,554
(97,037)
1,648,229
-
1,712,412
-
-
-
-
-
-
-
-
839,982
798,304
458,267
467,554
447,017
446,554
1,745,266
1,712,412
* The 2017 Performance Rights have been cancelled as the hurdle was not met.
The Total Fixed Remuneration of KMP is reviewed annually as part of the overall remuneration framework review.
Based upon the Company’s financial results for 2019 there has been no approved increase in base salary for the CEO
and executive KMP for 2020.
6. KMP EQUITY INTERESTS
THE TABLES BELOW SET OUT THE EQUITY INTERESTS HELD BY NON-EXECUTIVE DIRECTORS (NEDS) AND EXECUTIVE KMP.
Shares
Ownership type
Balance at the
start of the year
Other changes
during the year
Balance at the
end of the year
Directors of G8
Education Limited
Ordinary Shares
M Johnson
B Bailison
S Forrester, AM
D Foster
G Carroll
M Zabel
J Cogin
KMP of G8 Education
Limited
Ordinary Shares
S Williams
J Ball
Directly
Directly
Directly
Directly
Directly
Directly
Directly
Directly
Directly
60,000
25,000
51,969
22,976
110,000
15,000
19,000
25,000
-
15,000
-
-
-
10,000
14,000
-
10,000
-
75,000
25,000
51,969
22,976
120,000
29,000
19,000
35,000
-
50
G8 EDUCATION LIMITED ANNUAL REPORT 2019
EXECUTIVE KMP REMUNERATION
Year
2019
2018
2019
2018
2019
2018
2019
2018
Amount $
KMP
G Carroll
S Williams
J Ball
Total
Total
Short-term
Post employment costs
Fixed Remuneration
TFR
STI
Superannuation
819,215
740,000
437,500
425,000
426,250
405,000
1,682,965
1,570,000
38,014
22,264
21,264
-
-
-
-
81,542
benefits
20,767
20,290
20,767
20,290
20,767
20,290
62,301
60,870
* The 2017 Performance Rights have been cancelled as the hurdle was not met.
Termination
payment
Total
-
-
-
-
-
-
-
-
839,982
798,304
458,267
467,554
447,017
446,554
1,745,266
1,712,412
Performance
Rights
Share based
payment
(77,611)
(19,426)
Proportion of total remuneration
Total
Performance
Based
Share Plan
related
%
-
5%
-
5%
-
5%
%
-
-
-
-
-
-
762,371
798,304
438,841
467,554
447,017
446,554
(97,037)
1,648,229
-
1,712,412
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
$
10-May 19
3.18
-
198,119
198,119
630,018
Year
2022
2019 Perf.
Rights
2018 Perf.
Rights
2017 Perf.
Rights
2019 Perf.
Rights
2018 Perf.
Rights
2017 Perf.
Rights
2019 Perf.
Rights
2018 Perf.
Rights
2017 Perf.
Rights
G Carroll
TOTAL
S Williams
TOTAL
J Ball
TOTAL
TOTAL
20-July 18
2.39
198,847
20-July 17
3.19
142,249
-
-
198,847
475,244
2021
142,249
453,774
2020
10-May 19
3.18
-
72,020
72,020
229,023
2022
341,096
198,119
539,215
1,559,036
20-July 18
2.39
77,623
6-Oct 17
3.70
53,629
-
-
77,623
185,519
2021
53,629
198,427
2020
10-May 19
3.18
-
70,251
70,251
131,252
72,020
203,272
612,969
223,398
2022
20-July 18
2.39
74,135
22-Jan 18
3.42
50,359
-
-
74,135
177,183
2021
50,359
172,227
2020
124,494
70,251
194,745
572,808
596,842
340,390
937,232
2,744,813
^ The Performance Rights are expensed over a three year period in line with the vesting conditions of the Performance Rights (refer Note 31). 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.
* The 2017 Performance Rights lapsed on 21 February 2020 as the performance hurdle was not met.
51
G8 EDUCATION LIMITED ANNUAL REPORT 2019section one remuneration report
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
Death or total
and permanent
disability
Termination for
serious misconduct
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.
On death or total and permanent disability, the Board has discretion to allow all
unvested STI and LTI benefits to vest.
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 employee share scheme 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.
52
G8 EDUCATION LIMITED ANNUAL REPORT 2019 8. NON-EXECUTIVE DIRECTOR
(NED) REMUNERATION
NED remuneration
Principle
Comment
Fees are set by
reference to key
considerations
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.
No increase in NED remuneration occurred in 2019 and no increase is proposed for
2020.
Remuneration
is structured
to preserve
independence
whilst creating
alignment
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 encourages 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.
Aggregate Board
and committee fees
are approved by
shareholders
The total amount of fees paid to NEDs in 2019 is within the aggregate amount
approved by shareholders at the AGM in May 2017 of $1,100,000 per annum
including superannuation. No increase to the NED fee pool is being sought at the
2020 AGM.
53
G8 EDUCATION LIMITED ANNUAL REPORT 2019section one remuneration report NED FEES AND OTHER BENEFITS EXPLAINED
Elements
Details
Board fees per annum
Board Chairman fee
Board NED Base fee
2019*
$
285,000
140,000
Committee fees per
annum
Audit & Risk Chair fee
25,000
Nomination Chair fee
People and Culture Chair fee
Audit & Risk Member fee
Nomination Member fee
People and Culture Member fee
25,000
25,000
No fee
No fee
No fee
2018*
$
285,000
140,000
25,000
25,000
25,000
No fee
No fee
No fee
* fees include superannuation
Post-employment
benefits
Superannuation
Retirement
schemes
Other benefits
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 NED fees are inclusive of superannuation. Contributions will
be limited to the Australian Government’s prescribed maximum contributions limit.
There are no retirement schemes in place for NEDs other than Statutory
superannuation.
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
and reimbursement for up to $1,000 per annum of relevant continued education
expenses.
Payments of $2,007 were made to NEDs throughout 2019 for travel allowances. No
payments were made to NEDs during 2019 for extra services or special exertions.
54
G8 EDUCATION LIMITED ANNUAL REPORT 2019 NED TOTAL REMUNERATION
PAID
M Johnson (Chairman)*
B Bailison
Year
2019
2018
2019
2018
Fees
$
264,215
264,710
150,685
150,685
S Forrester, AM
2019
150,685
2018
150,685
D Foster
M Zabel
J Cogin
Total
Total
2019
2018
2019
2018
2019
2018
2019
2018
150,685
150,685
127,854
127,854
127,854
127,854
971,978
972,473
Superannuation
benefits
$
20,767
20,290
14,315
14,315
14,315
14,315
14,315
14,315
12,146
12,146
12,146
12,146
88,004
87,527
Total
$
284,982
285,000
165,000
165,000
165,000
165,000
165,000
165,000
140,000
140,000
140,000
140,000
1,059,982
1,060,000
There was no increase to NED fees in 2019.
*An error was made in reported remuneration for Mark Johnson in 2018 due to an adjustment of overpayments
made in prior years. The correct reported total fees paid was $285,000. In addition, an underpayment to Mark
Johnson in 2018 was also corrected in 2019.
55
G8 EDUCATION LIMITED ANNUAL REPORT 2019section one remuneration report 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 encouraged to
accumulate a minimum shareholding in G8 Education
shares equivalent in value to one year’s base fees and
all executive KMP are encouraged to accumulate
a minimum shareholding in G8 Education shares
equivalent to one year’s fixed remuneration. The Board
believes that this guideline will ensure alignment with
shareholders’ interests.
The guidelines were implemented in January 2017, with
NEDs and executive KMP encouraged to accumulate the
recommended holding over the next five years or from
appointment.
DIRECTOR’S TENURE
The Directors shall retire from office in accordance with
the Constitution of G8 Education 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 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) and will report against the ASX CGC’s Corporate
Governance Principles and Recommendations (Fourth
Edition) from the financial year ended 31 December
2020. The Board of directors guides and monitors the
business and affairs of G8 Education on behalf of the
shareholders by whom they are elected and to whom
they are accountable. G8 Education’s compliance with
the Principles are found in the corporate governance
section of our website: www.g8education.edu.au/
investor-information/corporate-governance.
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 2019, G8 Education engaged Ernst & Young to
perform non-audit services. 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. The Directors are satisfied the provision
of non-audit services by the auditor, as set out in note
32, did not compromise the auditor independence
requirements of the Corporations Act 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 for 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 57.
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 2020
56
G8 EDUCATION LIMITED ANNUAL REPORT 2019 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 the financial report of G8 Education Limited for the financial year
ended 31 December 2019, 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 2020
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
57
G8 EDUCATION LIMITED ANNUAL REPORT 2019section one directors’ report
SECTION two
58
G8 EDUCATION LIMITED ANNUAL REPORT 2019 FINANCIAL REPORT
CONTENTS
Consolidated Income Statement
Consolidated Statement of Comprehensive Income
Consolidated Balance Sheet
Consolidated Statement of Changes in Equity
Consolidated Statement of Cash Flows
Index to Notes to the Financial Statements
1. Financial Overview
2. Business Combinations, Goodwill & Impairment
3. Capital Structure & Financial Risk Management
4. Group Structure
5. Unrecognised Items
6. Other
60
60
61
62
63
64
65
80
87
106
112
113
59
G8 EDUCATION LIMITED ANNUAL REPORT 2019section tw0 financial report
CONSOLIDATED INCOME STATEMENT
For the year ended 31 December 2019
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
Consolidated
2019
$’000
2018
$’000
Notes
2
3
4
4
4
5
7
7
916,622
851,530
5,580
6,643
922,202
858,173
(542,801)
(507,105)
(11,752)
(108,915)
(67,632)
(100,117)
(39,986)
(61,622)
(16,483)
(31,449)
(73,914)
(28,973)
(836,202)
(754,547)
86,000
103,626
(23,411)
(31,795)
62,589
Cents
13.66
13.66
71,831
Cents
15.87
15.87
The above Consolidated Income Statement should be read in conjunction with the accompanying notes. The Directors note that the 2019 results
include the impact of accounting for AASB 16 Leases, whilst the 2018 results were prepared under the previous lease accounting standard
requirements; refer notes 20 and 34 for further explanations.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 December 2019
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
Otherotherother
Total other comprehensive income
Total comprehensive income for the year
Consolidated
2019
$’000
62,589
2018
$’000
71,831
672
(1,885)
(131)
(1,344)
61,245
2,778
1,626
-
4,404
76,235
The above Consolidated Statement of Comprehensive Income should be read in conjunction with the accompanying notes.
60
G8 EDUCATION LIMITED ANNUAL REPORT 2019
CONSOLIDATED BALANCE SHEET
As at 31 December 2019
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
Right of use assets
Deferred tax assets
Intangible assets
Other non-current assets
Total non-current assets
Total assets
LIABILITIES
Current liabilities
Trade and other payables
Contract liabilities
Current tax liability
Borrowings
Lease liabilities
Provisions
Total current liabilities
Non-current liabilities
Other payables
Borrowings
Lease liabilities
Provisions
Total non-current liabilities
Total liabilities
Net assets
EQUITY
Contributed equity
Reserves
Retained earnings
Total equity
Consolidated
2019
$’000
2018
$’000
Notes
17
8
9
19
10
20
5
15
9
11
18
20
12
11
18
20
12
21
40,603
29,936
11,232
-
1,938
55,521
36,502
14,120
10,837
-
83,709
116,980
103,864
606,219
53,966
91,710
-
17,856
1,193,160
1,134,456
5,894
25,547
1,963,103
1,269,569
2,046,812
1,386,549
54,840
7,148
-
-
68,482
34,264
67,911
8,517
700
279,566
-
29,988
164,734
386,682
696
387,750
640,655
13,087
1,042,188
1,206,922
839,890
5,260
92,188
-
8,935
106,383
493,065
893,484
907,255
63,080
(130,445)
893,567
56,530
(56,613)
839,890
893,484
The above Consolidated Balance Sheet should be read in conjunction with the accompanying notes. The Directors note that the 31 December 2019
balance sheet includes the impact of accounting for AASB 16 Leases, whilst the 31 December 2018 balance sheet was prepared under the previous
lease accounting standard requirements; refer notes 20 and 34 for further explanations.
61
G8 EDUCATION LIMITED ANNUAL REPORT 2019section tw0 financial report
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 31 December 2019
Contributed
Equity
Hedging
Reserves
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
2018
Adjustment on
adoption of AASB 9
Financial Instruments
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
Total
Balance 31 December
2018
Balance 1 January
2019
Adjustment on
adoption of AASB 16
Leases
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
Total
Balance 31 December
2019
876,394
879
-
5,548
131
37,994
(55,611) 865,335
-
-
-
-
-
-
(620)
-
-
-
736
890
2,778
736
890
2,778
21
17,173
22
-
17,173
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
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)
893,567
1,615
270
8,326
131
46,188
(56,613) 893,484
893,567
1,615
270
8,326
131
46,188
(56,613) 893,484
34
-
-
-
-
-
-
-
-
-
-
-
-
-
(70,326)
(70,326)
66,095
(3,506)
62,589
(1,615)
(270)
672
(131)
-
-
(1,344)
(1,615)
(270)
672
(131) 66,095
(3,506)
61,245
21
13,688
22
-
13,688
907,255
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(58,201)
(58,201)
-
-
-
13,688
(58,201)
(44,513)
8,998
-
54,082 (130,445) 839,890
The above Consolidated Statement of Changes in Equity should be read in conjunction with the accompanying notes.
62
G8 EDUCATION LIMITED ANNUAL REPORT 2019
CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended 31 December 2019
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
Consolidated
2019
$’000
2018
$’000
Notes
923,056
853,627
(670,585)
(695,208)
494
455
(69,388)
(23,003)
(29,587)
(29,924)
Net cash inflows from operating activities
23
153,990
105,947
Cash flows from investing activities
Payments for purchase of businesses (net of cash acquired)
Payments for purchase of intangible assets
Net proceeds / (payments) for divestments
Payments for property plant and equipment
Net cash outflows from investing activities
Cash flows from financing activities
Share issue costs
Dividends paid
Principal portion of lease payments
Repayment of corporate notes
Proceeds from issue of shares
Inflows from borrowings
Outflows of borrowings
Net cash outflows from financing activities
14
15
21
22
21
(49,506)
-
5,553
(52,613)
(3,250)
(128)
(39,767)
(36,819)
(83,720)
(92,810)
(33)
(44,490)
(63,748)
(47)
(48,131)
-
(269,892)
(50,000)
-
139
295,000
195,000
(2,058)
(103,981)
(85,221)
(7,020)
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the financial year
Effects of exchange rate changes on cash
(14,951)
55,521
33
Cash and cash equivalents at the end of the financial year
17
40,603
6,117
49,195
209
55,521
The above Consolidated Statement of Cash Flows should be read in conjunction with the accompanying notes. The Directors note that the 2019
results include the impact of accounting for AASB 16 Leases, whilst the 2018 results were prepared under the previous lease accounting standard
requirements; refer notes 20 and 34 for further explanations.
63
G8 EDUCATION LIMITED ANNUAL REPORT 2019section tw0 financial report
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: PROFIT FOR THE YEAR
NOTE 7: EARNINGS PER SHARE
NOTE 8: CURRENT ASSETS – TRADE AND OTHER RECEIVABLES
NOTE 9: CURRENT AND NON-CURRENT ASSETS – OTHER
NOTE 10: NON-CURRENT ASSETS – PROPERTY, PLANT AND EQUIPMENT
NOTE 11: CURRENT AND NON-CURRENT LIABILITIES – TRADE AND OTHER PAYABLES
NOTE 12: CURRENT AND NON-CURRENT LIABILITIES – PROVISIONS
2. Business Combinations, Goodwill & Impairment
NOTE 13: CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS
NOTE 14: BUSINESS COMBINATIONS
NOTE 15: NON-CURRENT ASSETS – INTANGIBLE ASSETS
3. Capital Structure & Financial Risk Management
NOTE 16: FINANCIAL RISK MANAGEMENT
NOTE 17: CURRENT ASSETS – CASH AND CASH EQUIVALENTS
NOTE 18: CURRENT AND NON – CURRENT LIABILITIES - BORROWINGS
NOTE 19: DERIVATIVE FINANCIAL INSTRUMENTS
NOTE 20: RIGHT OF USE ASSETS AND LEASE LIABILITIES
NOTE 21: CONTRIBUTED EQUITY
NOTE 22: DIVIDENDS
NOTE 23: RECONCILIATION OF CASH FLOWS
4. Group Structure
NOTE 24: SUBSIDIARIES
NOTE 25: PARENT ENTITY DISCLOSURES
NOTE 26: DEED OF CROSS GUARANTEE
5. Unrecognised Items
NOTE 27: COMMITMENTS
NOTE 28: CONTINGENCIES
NOTE 29: EVENTS OCCURRING AFTER THE BALANCE SHEET DATE
6. Other
NOTE 30: KEY MANAGEMENT PERSONNEL DISCLOSURES
NOTE 31: SHARE-BASED PAYMENTS
NOTE 32: REMUNERATION OF AUDITORS
NOTE 33: RELATED PARTY TRANSACTIONS
NOTE 34: OTHER SIGNIFICANT ACCOUNTING POLICIES
64
65
66
66
67
68
71
72
73
75
76
78
78
80
82
85
87
94
94
97
98
101
103
105
106
109
110
112
112
112
113
114
117
117
118
G8 EDUCATION LIMITED ANNUAL REPORT 2019 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 2019
Revenue from external customers
Non-current assets*
31 December 2018
Revenue from external customers
Non-current assets*
Timing of revenue recognition
31 December 2019
Revenue recognised at a point in time
Total revenue from contracts with customers
Other revenue
Total revenue
31 December 2018
Australia
$’000
Foreign
Country
$’000
Total
$’000
900,834
15,788
916,622
1,869,647
39,490
1,909,137
835,222
1,217,624
16,308
34,089
851,530
1,251,713
Australia
$’000
Foreign
Country
$’000
Total
$’000
884,615
884,615
16,219
15,783
900,398
15,783
900,398
5
16,224
900,834
15,788
916,622
Revenue recognised at a point in time
820,938
16,304
837,242
Total revenue from contracts with customers
820,938
16,304
837,242
Other revenue
Total revenue
*Non-current assets exclude deferred tax assets and derivative financial instruments
14,284
4
14,288
835,222
16,308
851,530
65
G8 EDUCATION LIMITED ANNUAL REPORT 2019section tw0 financial report
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
Consolidated
2019
$’000
2018
$’000
899,521
14,660
914,181
835,843
13,499
849,342
2,441
2,188
916,622
851,530
ACCOUNTING POLICY
Revenue is measured at the fair value of the consideration received or receivable. Amounts disclosed as revenue are
net of discounts, refunds and rebates.
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) and the Singapore Government are recognised as and when a child attends a child care service, as under
AASB 15 Revenue from Contracts with Customers 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).
(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 Accounting
for Government Grants and Disclosure of Government Assistance.
(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.
1. FINANCIAL OVERVIEW
Note 3: Other Income
Deferred consideration not payable (refer note 14)
Licence and other fees
Interest
Gain on divestment of leases
Translation gain on revaluation of notes issued in Singapore dollars
and hedge FX movement
Total other income
66
Consolidated
2019
$’000
681
7
494
1,588
2,810
2018
$’000
2,199
4,029
415
-
-
5,580
6,643
G8 EDUCATION LIMITED ANNUAL REPORT 2019
Accounting policy
(i) Deferred consideration
Refer note 13 and 14.
(ii) Licence and other fees
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 expense
Depreciation expense of property, plant and equipment (refer note 10)
Depreciation expense of right-of-use assets (refer note 20)
Employment costs
Wages and salaries
Post-employment benefits
Share-based payment expense
Finance costs
Interest and finance charges
Interest expense on lease liabilities (refer note 20)
Foreign exchange loss
Property rental expenses relating to operating leases
Minimum lease payments
Expense relating to leases of low-value assets
Variable lease payments
Consolidated
2019
$’000
2018
$’000
21,372
78,745
16,483
-
100,117
16,483
499,244
466,636
43,688
40,469
(131)
-
542,801
507,105
29,087
44,827
-
28,358
-
615
73,914
28,973
-
98,614
3,206
560
-
-
Bad & doubtful debts (refer note 8)
1,461
896
The above should be read in conjunction with the notes 20 and 34. The Directors note that the 2019 results include the impact of accounting for
AASB 16 Leases, whilst the 2018 results were prepared under the previous lease accounting standard requirements.
67
G8 EDUCATION LIMITED ANNUAL REPORT 2019section tw0 financial report
1. FINANCIAL OVERVIEW
Note 5: Income Tax and Deferred Tax Assets
(a) Income tax expense
Current tax
Deferred tax
Under / (over) provision prior year
Income tax expense
Income tax expense is attributable to:
Profit from continuing operations
Consolidated
2019
$’000
30,600
(7,353)
164
23,411
2018
$’000
34,088
(2,292)
(1)
31,795
23,411
23,411
31,795
31,795
Deferred income tax expense included in income tax expense comprises:
(Increase) / decrease in deferred tax assets
(7,353)
(2,292)
(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% (2018: 30%)
86,000
25,800
103,626
31,088
Tax effect of amounts which are not deductible (taxable) in calculating
taxable income
Adjustments relating to prior year
Entertainment
Deferred consideration not payable
Acquisition and divestment related costs - not deductible
Recognition of losses from previously acquired entities
Recognition of tax benefit from financial instruments
Other non-allowable items
Difference in overseas tax rates
Income tax expense
Weighted average tax rate
164
256
(204)
2,224
(3,435)
(1,031)
(288)
(75)
23,411
27.2%
(1)
224
(403)
968
-
670
(668)
(83)
31,795
30.7%
(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 equity1
28,757
(656)
1This mainly relates to AASB 16 Leases adoption, refer to note 34(g) for further details.
68
G8 EDUCATION LIMITED ANNUAL REPORT 2019
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)
Lease liabilities
Recognised losses transferred in from previously acquired entities
Provisions and lease liabilities
Total other
Total deferred tax assets
Deferred tax liability
Buildings
Right of use / make good assets
Prepayments
Total deferred tax liability
Net deferred tax asset
Consolidated
2019
$’000
2018
$’000
10,957
10,017
-
996
168
998
11,953
11,183
737
594
4,309
-
211,745
3,435
3,225
224,045
670
492
4,250
1,850
-
-
1,621
8,883
235,998
20,066
(211)
(181,208)
(613)
(182,032)
53,966
(220)
(1,414)
(576)
(2,210)
17,856
At 1 January 2018
Charged to the consolidated income statement
Charged directly to equity
At 31 December 2018
Charged to the consolidated income statement
Charged directly to equity (refer note 34)
At 31 December 2019
Employee
Benefits
Share Issue
Transaction
Costs
Lease
liabilities
net of right
of use /
make good
assets
$’000
8,764
1,253
-
10,017
940
-
10,957
$’000
$’000
1,861
(877)
14
998
(12)
10
996
(2,469)
107
-
(2,362)
4,152
28,747
30,537
Other
Total
$’000
8,064
1,809
(670)
9,203
2,273
-
$’000
16,220
2,292
(656)
17,856
7,353
28,757
11,476
53,966
69
G8 EDUCATION LIMITED ANNUAL REPORT 2019section tw0 financial report
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.
IFRIC 23 Uncertainty over Income Tax Treatments
The Group applies judgement in identifying
uncertainties over income tax treatments. As the Group
operates in a multinational environment, it assessed
whether the Interpretation had an impact on its
consolidated financial statements. Upon adoption of
the Interpretation, the Group considered whether it has
any uncertain tax positions, particularly those relating
to transfer pricing. The Company’s and the subsidiaries’
tax filings in different jurisdictions include treatment of
related party transactions and the taxation authorities
may challenge those tax treatments. The Group
determined, based on its tax compliance and transfer
pricing reviews, that it is probable that its tax treatments
(including those for the subsidiaries) will be accepted by
the taxation authorities. The Interpretation did not have
an impact on the consolidated financial statements of
the Group.
(iii) Tax related contingencies
At 31 December 2019 there are no tax related
contingencies (2018: 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.
70
G8 EDUCATION LIMITED ANNUAL REPORT 2019 1. FINANCIAL OVERVIEW
Note 5: Income Tax and Deferred Tax Assets (continued)
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.
1. FINANCIAL OVERVIEW
Note 6: Profit for the Year
Profit for the year includes the following post-tax items that are unusual because of their nature, size or incidence:
Expenses
Acquisition related expenses
Borrowing costs expense
Loss on disposal of assets/centres
Foreign currency translation loss
Income
Gain on divestment of leases
Contingent consideration not paid
Foreign currency translation gain
Net total post-tax expense
Consolidated
2019
$’000
5,088
2,476
4,034
-
(1,588)
(681)
(1,967)
7,362
2018
$’000
5,451
3,078
825
431
-
(2,199)
-
7,586
71
G8 EDUCATION LIMITED ANNUAL REPORT 2019section tw0 financial report 1. FINANCIAL OVERVIEW
Note 7: Earnings per Share
(a) Basic earnings per share
Profit attributable to the ordinary equity holders of the Company
Consolidated
2019
CPS
13.66
2018
CPS
15.87
(b) Diluted earnings per share
Profit from continuing operation attributable to the ordinary equity holders
of the Company
13.66
15.87
(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
62,589
71,831
Diluted earnings per share
Profit attributable to the ordinary equity holders of the Company used in
calculating diluted earnings per share
62,589
71,831
$’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
458,050,791
452,819,479
Number
Number
Adjustments for calculation of diluted earnings per share:
Performance Rights*
-
-
Weighted average number of ordinary shares and potential ordinary
shares used as the denominator in calculating diluted earnings per
share
458,050,791
452,819,479
* If 31 December 2019 or 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.
72
G8 EDUCATION LIMITED ANNUAL REPORT 2019
1. FINANCIAL OVERVIEW
Note 8: Current Assets - Trade and Other Receivables
Trade receivables
Allowance for impairment of receivables (note (a) below)
GST receivable
Other debtors
Consolidated
2019
$’000
18,605
(2,063)
16,542
2,145
11,249
2018
$’000
24,092
(1,721)
22,371
1,633
12,498
Total trade and other receivables
29,936
36,502
a) Impaired trade receivables
As at 31 December 2019, current trade receivables of the Group were assessed for impairment. 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
2019
$’000
1,721
1,461
(1,119)
2,063
2018
$’000
1,013
896
(188)
1,721
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.
(b) Past due but not impaired
As at 31 December 2019, trade receivables of $5.3 million (2018: $6.0 million) 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
2019
$’000
5,196
2
97
2018
$’000
5,826
51
169
5,295
6,046
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 16.
Accounting policy
A trade receivable is recognised if an amount of consideration that is unconditional is due from the customer (i.e.,
only the passage of time is required before payment of the consideration is due).
73
G8 EDUCATION LIMITED ANNUAL REPORT 2019section tw0 financial report
1. FINANCIAL OVERVIEW
Note 8: Current Assets - Trade and Other Receivables (continued)
Trade receivables that do not contain a significant financing component or for which the Group has applied the
practical expedient are measured at the transaction price.
Trade receivables represent child care fees receivable from families (parent fees) and/or the Australian Government
and the Singapore Government.
Under the Child Care Subsidy (CCS), 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.
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.
74
G8 EDUCATION LIMITED ANNUAL REPORT 2019 1. FINANCIAL OVERVIEW
Note 9: Current and Non-Current Assets - Other
Current
Prepayments
Inventory
Deposits
Total other current assets
Non-current
Deposits on acquisitions
Prepayments
Inventory
Deposits
Total other non-current assets
Total other current and non-current assets
Accounting policy
Consolidated
2019
$’000
8,679
1,507
1,046
11,232
2,669
356
1,762
1,107
5,894
17,126
2018
$’000
7,062
5,698
1,360
14,120
24,200
692
-
655
25,547
39,667
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.
75
G8 EDUCATION LIMITED ANNUAL REPORT 2019section tw0 financial report 1. FINANCIAL OVERVIEW
Note 10: Non-Current Assets – Property, Plant and Equipment
Buildings
Vehicles
Furniture,
fittings and
equipment
Make good
Total
$’000
$’000
$’000
$’000
$’000
Consolidated
Year ended 31 December 2019
Opening net book amount (reported)
3,994
Transfer to right of use asset
(refer note 34)
-
Opening net book amount (adjusted)
3,994
Additions through business
combinations (refer note 14)
Additions - other
Disposals
Depreciation charge
Effect of foreign exchange on
depreciation
-
146
(3)
(157)
-
383
-
383
-
-
(18)
(97)
-
82,617
1,171
40,751
(3,816)
(21,118)
11
Closing net book amount
3,980
268
99,616
At 31 December 2019
Cost
Accumulated depreciation
Net book amount
5,189
(1,209)
3,980
1,394
(1,126)
268
183,895
(84,279)
99,616
82,617
4,716
91,710
-
(4,716)
(4,716)
-
-
-
-
-
-
-
-
-
-
86,994
1,171
40,897
(3,837)
(21,372)
11
103,864
190,478
(86,614)
103,864
Buildings
Vehicles
Furniture,
fittings and
equipment
Make Good
Total
$’000
$’000
$’000
$’000
$’000
Consolidated
Year ended 31 December 2018
Opening net book amount
4,146
Additions through business
combinations
Provision
Additions - other
Disposals
Depreciation charge
Effect of foreign exchange on
depreciation
-
-
-
-
(152)
-
251
276
-
10
(53)
(101)
-
54,429
5,080
63,906
6,706
-
37,778
(647)
(15,696)
-
170
-
-
6,982
170
37,788
(700)
(534)
(16,483)
47
-
47
Closing net book amount
3,994
383
82,617
4,716
91,710
At 31 December 2018
Cost
Accumulated depreciation
Net book amount
76
5,046
(1,052)
3,994
1,412
(1,029)
383
145,778
(63,161)
82,617
5,250
157,486
(534)
(65,776)
4,716
91,710
G8 EDUCATION LIMITED ANNUAL REPORT 2019
1. FINANCIAL OVERVIEW
Note 10: 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
(b) Non-current assets pledged as security
Consolidated
2019
$’000
98,999
2018
$’000
91,681
(37,785)
(30,908)
61,214
60,773
Refer to note 18 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 and impairment. 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 12(b) for accounting policy on make good.
77
G8 EDUCATION LIMITED ANNUAL REPORT 2019section tw0 financial report
1. FINANCIAL OVERVIEW
Note 11: Current and Non-Current Liabilities - Trade and Other Payables
Trade payables (i)
Contingent consideration
Centre enrolment advances
Other payables and accruals (i)
Acquisitions payables
Total current
Lease accounting liability (ii)
Contingent consideration
Total non-current
Accounting policy
Consolidated
2019
$’000
18,201
797
2,494
33,348
-
54,840
-
696
696
Notes
14
14
2018
$’000
16,742
1,969
3,286
42,886
3,028
67,911
4,542
718
5,260
These amounts (excluding contingent consideration and acquisition payables) 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 the previous lease accounting standard requirements were recognised as a liability and
amortised on a straight-line basis over the life of the lease term. 2019 has been accounted for under the new AASB
16 Leases standard (refer note 20).
1. FINANCIAL OVERVIEW
Note 12: 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
2019
$’000
34,264
34,264
2,338
10,749
13,087
2018
$’000
29,988
29,988
3,537
5,398
8,935
(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.
78
G8 EDUCATION LIMITED ANNUAL REPORT 2019
1. FINANCIAL OVERVIEW
Note 12: Current and Non-Current Liabilities – Provisions (continued)
Leave obligations expected to be settled after 12 months
Accounting policy
(i) Short term obligations
Consolidated
2019
$’000
4,422
4,422
2018
$’000
4,454
4,454
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.
79
G8 EDUCATION LIMITED ANNUAL REPORT 2019section tw0 financial report
2. BUSINESS COMBINATIONS, GOODWILL & IMPAIRMENT
Note 13: 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 15. The recoverable amounts of goodwill have been determined based on value-in-use calculations.
These calculations require the use of assumptions. Refer to note 15 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.
(iv) 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.
(v) Leases - Determining the lease term of contracts with renewal and termination options
The Group determines the lease term as the non-cancellable term of the lease, together with any periods covered
by an option to extend the lease if it is reasonably certain to be exercised, or any periods covered by an option to
terminate the lease, if it is reasonably certain not to be exercised.
The Group has several lease contracts that include extension and termination options. The Group applies judgement
in evaluating whether it is reasonably certain whether or not to exercise the option to renew or terminate the lease.
That is, it considers all relevant factors that create an economic incentive for it to exercise either the renewal or
termination. After the commencement date, the Group reassesses the lease term if there is a significant event or
change in circumstances that is within its control and affects its ability to exercise or not to exercise the option to
renew or to terminate (e.g., construction of significant leasehold improvements).
(vi) Leases - Estimating the incremental borrowing rate
The Group cannot readily determine the interest rate implicit in the lease, therefore, it uses its incremental
borrowing rate (IBR) to measure lease liabilities. The IBR is the rate of interest that the Group would have to pay to
borrow over a similar term, and with a similar security, the funds necessary to obtain an asset of a similar value to
80
G8 EDUCATION LIMITED ANNUAL REPORT 2019 2. BUSINESS COMBINATIONS, GOODWILL & IMPAIRMENT
Note 13: Critical Accounting Estimates and Judgements (continued)
the right-of-use asset in a similar economic environment. The IBR therefore reflects what the Group ‘would have to
pay’, which requires estimation when no observable rates are available (such as for subsidiaries that do not enter
into financing transactions) or when they need to be adjusted to reflect the terms and conditions of the lease. The
Group estimates the IBR using observable inputs (such as market interest rates) when available and is required to
make certain entity-specific estimates (such as the subsidiary’s stand-alone credit rating).
(vii) Taxes
Deferred tax assets are recognised for unused tax losses to the extent that it is probable that taxable profit will be
available against which the losses can be utilised. Management judgement is required to determine the amount
of deferred tax assets that can be recognised, based upon the likely timing and the level of future taxable profits,
together with future tax planning strategies.
81
G8 EDUCATION LIMITED ANNUAL REPORT 2019section tw0 financial report 2. BUSINESS COMBINATIONS, GOODWILL & IMPAIRMENT
Note 14: Business Combinations
The acquisitions below have increased the Group’s size 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 15 centres in various states as outlined below:
Number of centres
State
Purchase consideration
Cash consideration
Purchase price adjustments (to cash)
Contingent consideration
8
VIC
$’000
39,411
(1,042)
-
5
NSW
$’000
22,294
(1,393)
722
2
QLD
$’000
6,233
(205)
-
15
TOTAL
$’000
67,938
(2,640)
722
Total purchase consideration
38,369
21,623
6,028
66,020
Assets and liabilities acquired at fair value
Property, plant and equipment
Right of use assets
Lease liabilities
Employee benefit liabilities
Net identifiable assets/(liabilities) acquired
Goodwill
704
444
39,402
28,836
23
8,321
1,171
76,559
(39,402)
(28,836)
(8,321)
(76,559)
(28)
676
37,693
38,369
-
444
21,179
21,623
-
23
6,005
6,028
(28)
1,143
64,877
66,020
Revenue and profit contribution from the date of acquisition to period end 31 December 2019 (i)
Revenue
Profit/(Loss) before tax
6,539
(3,814)
1,896
(2,647)
6
(675)
8,441
(7,136)
Refer to note 13 in the Annual Report 2018 for 2018 Business Combinations disclosure.
(i) The loss for the period was $7.1 million, the centres commenced operating on acquisition by G8 Education,
therefore there is no full year operating results to report.
Acquisition related expenses of $5.1 million (2018: $5.5 million) are included in the consolidated income statement.
As at 31 December 2019 accounting for 2019 acquisitions are provisional in nature due to the finalisation of
determining the fair value of all assets and liabilities acquired.
No goodwill is deductible for tax purposes.
The Group had payments for purchase of businesses (net of cash acquired) of $49.5 million in 2019 relating to 2019
acquisitions and contingent consideration payments on prior year acquisitions. Cash consideration payments for
2019 acquisitions were made both in the current year and also in previous years, with $16.7 million paid in prior years
for deposits and quantity surveyor payments for 2019 acquisitions. Prior year payments relating to 2019 acquisitions
were classified as ‘deposits on acquisitions’ in the prior year balance sheet - refer note 9.
82
G8 EDUCATION LIMITED ANNUAL REPORT 2019
2. BUSINESS COMBINATIONS, GOODWILL & IMPAIRMENT
Note 14: Business Combinations (continued)
During the year accounting adjustments were made to provisional amounts recognised in 2018 as outlined below:
Purchase consideration
Purchase price adjustments (to cash)
Contingent consideration
Total purchase consideration
Net identifiable assets/(liabilities) acquired
Goodwill
2018 Adjustments
Australia
$’000
20
916
936
-
936
936
The above amounts relate to accounting adjustments for assets and liabilities taken on at acquisition date but not
finalised at 31 December 2018.
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:
Carrying
value
Total
potential
contingent
consideration
payable
At 31 December 2019
$’000
$’000
Conditions
Acquisition of 1 centre *
Acquisition of 1 centre **
Total
722
975
1,697
722
771
1,493
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.
** The Group has assessed that a portion of this amount should be recorded as current.
83
G8 EDUCATION LIMITED ANNUAL REPORT 2019section tw0 financial report
2. BUSINESS COMBINATIONS, GOODWILL & IMPAIRMENT
Note 14: Business Combinations (continued)
Movement in Contingent Consideration
A reconciliation of the fair value of the contingent consideration liability is provided below:
Financial liability for contingent consideration as at 31 December
Write back of contingent consideration to the consolidated income statement for
performance condition not met - other income (refer note 3)
Increase / (write back) of contingent consideration to goodwill for performance
condition met / (not met)
Fair value adjustments
Contingent consideration paid
Contingent consideration for new acquisitions
Total contingent consideration payable as at 31 December
Accounting policy
Consolidated
2019
$’000
2,687
2018
$’000
14,301
(681)
(2,199)
693
127
(805)
38
(2,055)
(14,902)
722
1,493
6,254
2,687
The acquisition method of accounting is used to account for all business combinations. Purchase consideration 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.
84
G8 EDUCATION LIMITED ANNUAL REPORT 2019 2. BUSINESS COMBINATIONS, GOODWILL & IMPAIRMENT
Note 15: Non-Current Assets – Intangible assets
Consolidated
Year ended 31 December 2019
Opening net book amount
Additions
Adjustments in respect of prior year acquisitions
Disposal of centres
Exchange differences
Closing net book amount
At 31 December 2019
Cost
Accumulated impairment
Net book amount
Consolidated
Year ended 31 December 2018
Opening net book amount
Additions
Adjustments in respect of prior year acquisitions
Disposal of centres
Exchange differences
Closing net book amount
At 31 December 2018
Cost
Accumulated impairment
Net book amount
Goodwill
Intellectual
Property
Total
$’000
$’000
$’000
1,131,206
64,877
936
(7,747)
638
3,250
1,134,456
-
-
-
-
64,877
936
(7,747)
638
1,189,910
3,250
1,193,160
1,200,962
3,250
1,204,212
(11,052)
-
(11,052)
1,189,910
3,250
1,193,160
Goodwill
Intellectual
Property
Total
$’000
$’000
$’000
1,087,969
-
1,087,969
42,230
(1,617)
-
2,624
3,250
45,480
-
-
-
(1,617)
-
2,624
1,131,206
3,250
1,134,456
1,142,258
3,250
1,145,508
(11,052)
-
(11,052)
1,131,206
3,250
1,134,456
The Group divested or closed 41 centres during 2019 (2018: 8), this includes the sale of 25 centres in Western Australia
to Sparrow Early Learning Pty Ltd. The Group announced that the sale of the 25 centres had been completed on 20
December 2019 for proceeds of approximately $6.4 million. The results of the 25 centres in Western Australia and
the other divested centres were not material and therefore did not meet the conditions under AASB 5 Non-current
Assets Held for Sale and Discontinued Operations to be disclosed as discontinued operations.
85
G8 EDUCATION LIMITED ANNUAL REPORT 2019section tw0 financial report
2. BUSINESS COMBINATIONS, GOODWILL & IMPAIRMENT
Note 15: Non-Current Assets – Intangible assets (continued)
(a) Impairment tests
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 2020 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 EBITDA1 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 rental payments 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% (2018: 12%);
• Full support office costs allocation; and
• Forecast period of 3 years plus a terminal growth calculation with a growth rate of 2% (2018: 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 2019 (2018: nil).
The Group has completed a sensitivity analysis on its impairment model.
The calculation of value in use is most sensitive to the following assumptions:
• Occupancy %
• Wages expense
•
Pre-tax discount rate
Key changes to inputs that would result in no headroom are:
•
•
A net movement in average occupancy and wages expense leading to a 12.6% decrease in forecast EBITDA1; or
An increase in pre-tax discount rate of 2.5%
1 Measured on a pre-AASB 16 Leases basis
86
G8 EDUCATION LIMITED ANNUAL REPORT 2019 3. CAPITAL STRUCTURE & FINANCIAL RISK MANAGEMENT
Note 16: 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. During the year the Group used
certain 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:
2019
Financial assets
Cash and cash equivalents
Trade and other receivables
Deposits on acquisitions
2018
Financial assets
Cash and cash equivalents
Trade and other receivables
Deposits on acquisitions
Derivative financial instruments
Derivatives
used for
cash flow
hedges
Derivatives
used for
fair value
hedges
Financial
assets at
fair value
Financial
assets at
amortised
cost
Total
$’000
$’000
$’000
$’000
$’000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(560)
(560)
11,397
11,397
-
-
2,669
2,669
-
-
24,200
-
40,603
29,936
-
40,603
29,936
2,669
70,539
73,208
55,521
36,502
-
-
55,521
36,502
24,200
10,837
24,200
92,023
127,060
87
G8 EDUCATION LIMITED ANNUAL REPORT 2019section tw0 financial report
3. CAPITAL STRUCTURE & FINANCIAL RISK MANAGEMENT
Note 16: Financial Risk Management (continued)
Derivatives
used for
cash flow
hedges
Derivatives
used for
fair value
hedges
Liabilities
at fair
value
Liabilities
at
amortised
cost
Total
$’000
$’000
$’000
$’000
$’000
2019
Financial liabilities
Trade and other payables
Borrowings
Contingent consideration
Lease liabilities
2018
Financial liabilities
Trade and other payables
Borrowings
Contingent consideration
(a) Foreign exchange risk
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
36,762
36,762
387,750
387,750
1,493
-
1,493
-
709,783
709,783
1,493
1,134,295
1,135,788
-
-
2,687
2,687
36,733
371,754
-
408,487
36,733
371,754
2,687
411,174
The Group has operations 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 carrying amounts of the Group’s financial assets and liabilities that are denominated in other foreign currencies
are set out below:
Cash and cash equivalents
Trade receivables
Borrowings*
Trade payables
2019
2018
SGD $’000
SGD $’000
2,337
1,025
2,298
896
-
(270,000)
(260)
(161)
3,102
(266,967)
* The Group repaid the SGD$270 million Singapore notes during the 2019 year. The fair value movement on the cross currency swap relating to the
principal SGD$270 million Singapore notes repayment was treated as a fair value hedge with all movements being recorded through finance costs.
The coupon payments associated with the corporate notes were designated as a cash flow hedge with all movements being recorded in other
comprehensive income.
On 18 May 2016, the Group purchased an AUD/SGD call option with a notional value of SGD$270 million with a
strike price of $1.175 and maturity date of 18 May 2019. The foreign exchange option was 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 was recognised through the income statement.
This option was closed on 18 May 2019.
The SGD to AUD exchange rate at 31 December 2019 was 1.0592 (2018: 1.0394).
88
G8 EDUCATION LIMITED ANNUAL REPORT 2019
3. CAPITAL STRUCTURE & FINANCIAL RISK MANAGEMENT
Note 16: Financial Risk Management (continued)
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
FX gain on settlement of corporate notes included in other income
Net revaluation of the AUD/SGD call option included in finance costs
Net gains/(losses) recognised in other comprehensive income
Translation of foreign operations
Maturity of the cross currency swap - SGD borrowings
Sensitivity
2019
$’000
-
-
2,810
-
2,810
2019
$’000
672
(1,885)
2018
$’000
(11,396)
11,396
-
(622)
(622)
2018
$’000
2,778
1,626
As shown in the table above, as at 31 December 2019, the Group has financial assets and liabilities that are
denominated in SGD. However, these SGD financial assets and liabilities are denominated in the functional
currency of the relevant subsidiary and thus there is no foreign exchange exposure as at 31 December 2019 relating
to changes in AUD/SGD exchange rates.
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.
89
G8 EDUCATION LIMITED ANNUAL REPORT 2019section tw0 financial report
3. CAPITAL STRUCTURE & FINANCIAL RISK MANAGEMENT
Note 16: Financial Risk Management (continued)
(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 2019 and 2018, the Group’s borrowings at variable rates were
denominated in Australian dollars only.
The Group’s fixed rate borrowings and receivables are carried at amortised cost. They are therefore not subject to
interest rate risk as defined in AASB 9 Financial Instruments, since neither the carrying amount nor the future cash
flows will fluctuate because of a change in market interest rates.
As at the reporting date, the Group had the following variable rate borrowings outstanding:
31 December 2019
31 December 2018
Balance
Total Loans
Balance
Total Loans
$’000
342,200
342,200
%
88%
88%
$’000
47,200
47,200
%
13%
13%
Subordinated Facility 2
Net exposure to cash flow interest rate risk
An analysis by maturities is provided in note 16(d).
Sensitivity
At 31 December 2019, 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 $598,850 higher or $598,850 lower
respectively (post-tax profit for the year for 2018: $82,374 higher or $82,374 lower respectively).
90
G8 EDUCATION LIMITED ANNUAL REPORT 2019 3. CAPITAL STRUCTURE & FINANCIAL RISK MANAGEMENT
Note 16: Financial Risk Management (continued)
(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 the impaired trade receivables is performed in note 8.
(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.
(i) Financing arrangements
Details of financing arrangements are disclosed in note 18.
(ii) 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.
91
G8 EDUCATION LIMITED ANNUAL REPORT 2019section tw0 financial report 3. CAPITAL STRUCTURE & FINANCIAL RISK MANAGEMENT
Note 16: Financial Risk Management (continued)
Contractual maturities of financial liabilities
Consolidated 2019
$’000
0 to 6
months
6 to 12
months
Between 1
and 2 years
Between 2
and 5 years
>5years
Total
contractual
cash flows
Carrying
amount
Non derivative
Syndicated debt facilities
Contingent consideration
Trade and other payables
8,716
722
36,762
8,716
111,797
278,107
56,675
464,011
395,000
75
-
75
-
225
-
600
1,697
1,493
-
36,762
36,762
Lease liabilities
56,091
55,935
111,718
318,972
465,800
1,008,516
709,783
Contractual maturities of financial liabilities
Consolidated 2018
$’000
0 to 6
months
6 to 12
months
Between 1
and 2 years
Between 2
and 5 years
>5years
Total
contractual
cash flows
Carrying
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)
(e) Fair value measurements
-
-
-
7,675
1,057
-
-
-
-
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)
The fair value of financial assets and financial liabilities (excluding lease liabilities) must be estimated for recognition
and measurement or for disclosure purposes.
AASB 13 Fair Value Measurement requires disclosure of fair value measurements by level of the following fair value
measurement hierarchy:
a) quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1);
b) inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly
(as prices) or indirectly (derived from prices) (level 2); and
c) inputs for the asset or liability that are not based on observable market data (unobservable inputs) (level 3).
The following table present the Group’s assets and liabilities measured and recognised at fair value on a recurring
basis at 31 December 2019 and 31 December 2018:
92
G8 EDUCATION LIMITED ANNUAL REPORT 2019
3. CAPITAL STRUCTURE & FINANCIAL RISK MANAGEMENT
Note 16: Financial Risk Management (continued)
At 31 December 2019
Level 1
Level 2
Level 3
Total
$’000
Asset
Deposit on acquisitions* (refer note 9)
Liabilities
Contingent consideration (refer note 14)
-
-
-
-
2,669
2,669
1,493
1,493
At 31 December 2018
Level 1
Level 2
Level 3
Total
$’000
Asset
Derivatives used for hedging
Deposit on acquisitions*
Liabilities
Contingent consideration (refer note 14)
*Deposits on acquisitions are fully refundable
-
-
-
10,837
-
-
-
24,200
10,837
24,200
2,687
2,687
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
During the prior year the fair value movement on the principal repayment was treated as a fair value hedge with all
movements up until 18 May 2019 being recorded through finance costs. The coupon payments associated with the
corporate notes were 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 million with a
strike price of $1.175 and maturity date of 18 May 2019. The foreign exchange option was 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 was recognised through the income statement.
This option was closed on 18 May 2019.
93
G8 EDUCATION LIMITED ANNUAL REPORT 2019section tw0 financial report 3. CAPITAL STRUCTURE & FINANCIAL RISK MANAGEMENT
Note 17: Current Assets - Cash and Cash Equivalents
Cash at bank and in hand
Deposits at call
Total cash and cash equivalents
(a) Reconciliation to cash at the end of the year
Consolidated
2019
$’000
40,603
-
40,603
2018
$’000
38,437
17,084
55,521
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
Balance as per statement of cash flows
Accounting policy
Consolidated
2019
$’000
40,603
40,603
2018
$’000
55,521
55,521
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.
3. CAPITAL STRUCTURE & FINANCIAL RISK MANAGEMENT
Note 18: Current and Non-Current Liabilities - Borrowings
2019
2018
Current
Non-current
$’000
$’000
Total
$’000
Current
Non-current
$’000
$’000
Total
$’000
-
-
-
-
-
-
-
-
-
-
280,678
280,678
-
-
280,678
280,678
395,000
395,000
395,000
395,000
-
-
100,000
100,000
100,000
100,000
(7,250)
(7,250)
(1,112)
(7,812)
(8,924)
387,750
387,750
279,566
92,188
371,754
Unsecured
Corporate Notes (a)
Total unsecured
borrowings
Secured
Syndicated debt
facilities (b)
Total secured
borrowings
Borrowing costs
Total borrowings
(a) Corporate notes
G8 Education repaid the following Corporate Notes during the period:
94
G8 EDUCATION LIMITED ANNUAL REPORT 2019
3. CAPITAL STRUCTURE & FINANCIAL RISK MANAGEMENT
Note 18: Current and Non-Current Liabilities - Borrowings (continued)
Issue Date
Face value in
issue currency
$’000
Issue
currency
Repayment
date
Interest
rate %
Floating
or fixed
18 May 2016
270,000
SGD
18 May 2019
5.5%*
Fixed
*SGD bonds were fully hedged at a fixed interest rate of 6.54% on AUD $269 million
Details of the Group’s exposure to foreign exchange on Singapore denominated borrowings terms are set out in
note 16(a) and (e).
(b) Syndicated debt facilities
During 2018 the Group entered into a $400 million senior syndicated facility, a $100 million subordinated facility
and a $50 million 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 is payable on the unused and uncancelled amount of the facilities.
The Group had $395 million drawn from the $500 million syndicated debt facilities as at 31 December 2019.
(c) Interest rate risk exposures
Details of the Group’s exposure to interest rate changes on borrowings are set out in note 16(b).
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 2019 the following lines of credit were in place:
Notes
17
8
9
10
9
10
Consolidated
2019
$’000
40,603
29,936
11,232
81,771
2018
$’000
55,521
36,502
14,120
106,143
3,980
3,994
5,894
99,884
109,758
25,547
83,000
112,541
191,529
218,684
95
G8 EDUCATION LIMITED ANNUAL REPORT 2019section tw0 financial report
3. CAPITAL STRUCTURE & FINANCIAL RISK MANAGEMENT
Note 18: Current and Non-Current Liabilities - Borrowings (continued)
Credit standby arrangements
Total facilities
Credit cards
Used at balance date
Unused at balance date
Syndicated debt facilities
Total facilities
Used at balance date
Unused at balance date
Bank guarantee facilities
Total facilities
Used at balance date
Unused at balance date
Corporate Notes
Total facilities
Used at balance date
Unused at balance date
Consolidated
2019
$’000
2018
$’000
500
(412)
88
500
(377)
123
500,000
500,000
(395,000)
(100,000)
105,000
400,000
50,000
50,000
(36,321)
13,679
(33,233)
16,767
-
-
-
280,678
(280,678)
-
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.
Accounting policy
Measurement
Borrowings are initially recognised at fair value, net of transaction costs 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.
96
G8 EDUCATION LIMITED ANNUAL REPORT 2019
3. CAPITAL STRUCTURE & FINANCIAL RISK MANAGEMENT
Note 19: 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
Consolidated
2019
$’000
-
-
-
2018
$’000
(560)
11,397
10,837
The Group was 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 16).
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 19. 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 was no ineffectiveness in the year 2019.
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.
97
G8 EDUCATION LIMITED ANNUAL REPORT 2019section tw0 financial report
3. CAPITAL STRUCTURE & FINANCIAL RISK MANAGEMENT
Note 20: Right of Use Assets and Lease Liabilities
The right of use assets and lease liabilities have arisen upon adoption of AASB 16 Leases from 1 January 2019. Refer
to note 34 for further information.
(a) Right of use assets
Set out below are the carrying amounts of right-of-use assets recognised on adoption of AASB 16 and movements
during the year:
Leased
property
Leased
vehicle
Adjustment on adoption of AASB 16 as at 1 January 2019
Additions through business combinations
Additions through make good
Additions - other
Disposals or terminations
Depreciation charge
Modification to lease terms
Variable lease payments reassessment
Effects of exchange rate changes
$’000
611,810
76,559
4,755
1,279
(20,287)
(77,138)
132
7,502
117
$’000
1,947
-
206
-
Total
$’000
613,757
76,559
4,755
1,485
(20,287)
(1,607)
(78,745)
944
-
-
1,076
7,502
117
Closing net book amount as at 31 December 2019
604,729
1,490
606,219
Cost
Accumulated depreciation
As at 31 December 2019
(b) Lease liabilities
682,403
(77,674)
604,729
3,097
(1,607)
1,490
685,500
(79,281)
606,219
Set out below are the carrying amounts of lease liabilities and the movements during the year:
Consolidated
31
December
2019
$’000
68,482
1
January
2019
$’000
63,584
640,655
647,214
709,137
710,798
Current lease liabilities
Non-current lease liabilities
Total lease liabilities
98
G8 EDUCATION LIMITED ANNUAL REPORT 2019
3. CAPITAL STRUCTURE & FINANCIAL RISK MANAGEMENT
Note 20: Right of Use Assets and Lease Liabilities (continued)
Adjustment on adoption of AASB 16 as at 1 January 2019
Additions through business combinations
Additions - other
Disposals or terminations
Accretion of interest
Payments Accretion of interest
Modification to lease terms
Variable lease payments reassessment
Effects of exchange rate changes
Closing net book amount as at 31 December 2019
The maturity analysis of lease liabilities are disclosed in note 16(d). Also refer to note 34(g).
(c) Amounts recognised in profit and loss
The following are the amounts recognised in profit and loss:
Depreciation expense of right-of-use assets
Interest expense on lease liabilities
Expense relating to leases of low-value assets (included in direct costs)
Variable lease payments (included in occupancy and other expenses)
(Gain)/Loss on surrender/termination of leases
(Gain)/Loss on sale of assets
Total amount recognised in profit and loss
Total
$’000
710,798
76,559
1,485
(26,236)
44,827
(108,575)
1,076
9,084
119
709,137
Consolidated
2019
$’000
78,745
44,827
3,206
560
(1,588)
(4,957)
120,793
The Group had total cash outflows for leases of approximately $112.3 million in 2019 - the principal portion of lease
payments totalled $63.7 million, interest payments totalled $44.8 million and other payments relating to low-value
assets and variable lease payments totalled approximately $3.8 million (included in payments to suppliers and
employees).
99
G8 EDUCATION LIMITED ANNUAL REPORT 2019section tw0 financial report
3. CAPITAL STRUCTURE & FINANCIAL RISK MANAGEMENT
Note 20: Right of Use Assets and Lease Liabilities (continued)
Accounting policy
Right of use assets
The Group recognises right of use assets at the commencement date of the lease (i.e. the date the underlying asset
is available for use). Right of use assets are measured at cost, less any accumulated depreciation and impairment
losses and adjusted for any remeasurement of lease liabilities. The cost of right of use assets includes the amount of
lease liabilities recognised, initial direct costs incurred, and lease payments made at or before the commencement
date less any lease incentives received. The recognised right of use assets are depreciated on a straight-line basis
over the shorter of useful life and the lease term.
Lease liabilities
At the commencement date of the lease, the Group recognises lease liabilities measured at the present value
of lease payments to be made over the lease term. The lease payments include fixed payments (including in
substance fixed payments) less any lease incentives receivable and variable lease payments that depend on an
index or a rate. The lease payments also include the exercise price of a purchase option reasonably certain to be
exercised by the Group and payments of penalties for terminating a lease, if the lease term reflects the Group
exercising the option to terminate. The variable lease payments that do not depend on an index or a rate are
recognised as expense in the period on which the event or condition that triggers the payment occurs.
In calculating the present value of lease payments, the Group uses the incremental borrowing rate at the
lease commencement date as the interest rate implicit in the lease is not readily determinable. After the
commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced
for the lease payments made. In addition, the carrying amount of lease liabilities is remeasured if there is a
modification, a change in the lease term, a change in the in-substance fixed lease payments or a change in the
assessment to purchase the underlying asset.
Short-term leases and leases of low-value assets
The Group currently does not have any short-term leases.
The Group applies the low-value assets recognition exemption to leases of office equipment that are considered
of low value. Lease payments on short term leases and leases of low-value assets are recognised as expense on a
straight-line basis over the lease term.
Significant judgement in determining the lease term of contracts with renewal options
The Group determines the lease term as the non-cancellable term of the lease, together with any periods covered
by an option to extend the lease if it is reasonably certain to be exercised, or any periods covered by an option to
terminate the lease, if it is reasonably certain not to be exercised.
The Group has the option, under some of its leases to lease the assets for additional terms. The Group applies
judgement in evaluating whether it is reasonably certain to exercise the option to renew. That is, it considers all
relevant factors that create an economic incentive for it to exercise the renewal. After the commencement date, the
Group reassesses the lease term if there is a significant event or change in circumstances that is within its control
and affects its ability to exercise (or not to exercise) the option to renew.
100
G8 EDUCATION LIMITED ANNUAL REPORT 2019 3. CAPITAL STRUCTURE & FINANCIAL RISK MANAGEMENT
Note 21: Contributed Equity
(a) Share capital
Consolidated
Consolidated
2019
2018
2019
2018
No. of
Shares
No. of
Shares
$’000
$’000
Ordinary shares fully paid
460,176,931
455,379,630
907,255
893,567
(b) Movements in ordinary share capital
Details
31 December 2017 balance
Dividend reinvestment plan
Issuance of shares (see note 21(c))
Transaction costs of shares issued
Deferred tax credit recognised directly in equity
31 December 2018 balance
Dividend reinvestment plan
Transaction costs of shares issued
Deferred tax credit recognised directly in equity
31 December 2019 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.
(d) Ordinary shares
Number
of Shares
‘000
$’000
448,496
876,394
6,843
17,129
41
-
-
139
(47)
(48)
455,380
893,567
4,797
13,711
-
-
(33)
10
460,177
907,255
Consolidated
2019
Shares
‘000
2018
Shares
‘000
-
-
-
41
(41)
-
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.
101
G8 EDUCATION LIMITED ANNUAL REPORT 2019section tw0 financial report
3. CAPITAL STRUCTURE & FINANCIAL RISK MANAGEMENT
Note 21: Contributed Equity (continued)
(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 on a pre-AASB 16 Leases basis. Net debt is calculated as total
borrowings less cash and cash equivalents. Total capital is calculated as ‘equity’ as shown in the pre-AASB 16 Leases
balance sheet plus net debt.
The gearing ratios at 31 December were as follows on a pre-AASB 16 Leases basis:
Borrowings
Less: cash and cash equivalents
Net debt
Total equity (pre-AASB 16 Leases)
Total capital (pre-AASB 16 Leases)
Notes
18
17
Consolidated
(Unaudited, Non IFRS)
2019
$’000
2018
$’000
387,750
371,754
(40,603)
(55,521)
347,147
316,233
918,488
893,482
1,265,635
1,209,715
Gearing ratio (pre-AASB 16 Leases)
27%
26%
The Directors assess an appropriate level of gearing based on a leverage rate of less than 45% (on a pre-AASB 16
Leases basis).
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.
102
G8 EDUCATION LIMITED ANNUAL REPORT 2019
3. CAPITAL STRUCTURE & FINANCIAL RISK MANAGEMENT
Note 22: Dividends
(a) Ordinary shares
Dividends declared or paid during the financial year were as follows:
Dividends
Financial year 2019
2018 final dividend (paid on 5 April 2019)
2019 interim dividend (paid on 3 October 2019)
Dividend paid during the year ended 31 December 2019
Cash
Dividend reinvestment plan
Dividend paid during the year ended 31 December 2019
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
CPS
8.0
4.75
CPS
10.0
4.5
Total
dividend
$’000
36,430
21,771
58,201
44,490
13,711
58,201
Total
dividend
$’000
44,854
20,405
65,259
48,131
17,128
65,259
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.
103
G8 EDUCATION LIMITED ANNUAL REPORT 2019section tw0 financial report
3. CAPITAL STRUCTURE & FINANCIAL RISK MANAGEMENT
Note 22: Dividends (continued)
(b) Franking credits
Consolidated
Parent Entity
2019
$’000
2018
$’000
2019
$’000
2018
$’000
Franking credits available for subsequent financial
years based on a tax rate of 30% (2018: 30%)
13,679
8,025
13,679
8,025
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.
104
G8 EDUCATION LIMITED ANNUAL REPORT 2019 3. CAPITAL STRUCTURE & FINANCIAL RISK MANAGEMENT
Note 23: Reconciliation of Cash Flows
Reconciliation of profit after tax to net cash flows from operating activities
Profit for the year
Depreciation
Write back of deferred consideration not payable
(Gain)/Loss on divestment of leases
Translation gain on revaluation of notes issued in Singapore dollars and hedge FX movement
(2,810)
Net loss on sale of assets
Fair value adjustment to derivatives
Amortised borrowings costs
Bank guarantee fees
Brokerage and legal fees treated as investing cashflows
Non- cash employee benefits expense - share based payments
Write back of make good costs
(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
Increase/(decrease) in provision for income taxes payable
Net exchange differences
Net cash inflows from operating activities
Changes in liabilities arising from financing activities
Consolidated
2019
2018
$’000
$’000
62,589
71,831
100,117
16,483
(681)
(2,199)
(1,588)
4,034
-
-
-
729
622
3,539
4,200
-
970
(131)
-
576
1,179
-
147
(7,353)
(1,636)
7,125
(4,883)
(17,635)
11,953
(1,369)
8,428
(683)
4,119
(1,238)
3,508
(7)
1
153,990
105,947
Opening
balance 1
Jan 2019
Cash
flows
Foreign
exchange
movement
Change
in fair
value
New
Leases
Considered
Other
interest in
operating
cash flows
Closing
balance
31 Dec
2019
$’000
$’000
$’000
$’000
$’000
$’000
$’000
$’000
63,584
(108,575)
119
68,482
-
44,827
45
68,482
Current lease
liabilities
Non-current lease
liabilities
Current interest
bearing loans and
borrowing
Non-current
interest bearing
loans and
borrowings
647,214
-
-
(68,482)
78,044
279,566
(269,892)
(11,397)
-
-
10,837
-
-
-
-
-
92,188
292,943
Derivative liability
(10,837)
-
-
-
-
-
(16,121)
640,655
1,723
-
2,619
387,750
-
-
105
G8 EDUCATION LIMITED ANNUAL REPORT 2019section tw0 financial report 3. CAPITAL STRUCTURE & FINANCIAL RISK MANAGEMENT
Note 23: Reconciliation of Cash Flows (continued)
Opening
balance 1
Jan 2018
Cash
flows
Foreign
exchange
movement
Change
in fair
value
Reclass Considered
interest in
Other
operating
cash flows
Closing
balance
31 Dec
2018
$’000
$’000
$’000
$’000
$’000
$’000
$’000
$’000
49,905
(50,649)
22,410
253,589
91,668
-
-
255,657
(255,657)
(24,643)
-
-
-
-
2,244
279,566
2,588
92,188
-
(10,837)
-
-
Current interest
bearing loans and
borrowing
Non-current
interest bearing
loans and
borrowings
Derivative liability
13,806
-
4. GROUP STRUCTURE
Note 24: Subsidiaries
The consolidated financial statements incorporate the assets, liabilities and results of the following subsidiaries in
accordance with the accounting policy set out in note 34(b).
Name of Entity
Subsidiaries of Company
Country of
incorporation
Class of
Shares/
Units
Grasshoppers Early Learning Centres Pty Ltd
Australia
Ordinary
Togalog Pty Ltd
RBWOL Holding Pty Ltd**
Ramsay Bourne Holdings Pty Ltd**
Bourne Learning Pty Ltd
Australia
Ordinary
Australia
Ordinary
Australia
Ordinary
Australia
Ordinary
Ramsay Bourne Acquisitions (No.1) Pty Ltd
Australia
Ordinary
Ramsay Bourne Acquisitions (No.2) Pty Ltd**
Australia
Ordinary
RBL No. 1 Pty Ltd
Ramsay Bourne Licences Pty Ltd
Australia
Ordinary
Australia
Ordinary
Sydney Cove Children’s Centre Pty Ltd**
Australia
Ordinary
Sydney Cove Children’s Centre B Pty Ltd**
Australia
Ordinary
2019
2018
%
100
100
100
100
100
100
100
100
100
100
100
%
100
100
100
100
100
100
100
100
100
100
100
106
G8 EDUCATION LIMITED ANNUAL REPORT 2019
4. GROUP STRUCTURE
Note 24: Subsidiaries (continued)
Name of Entity
Country of
incorporation
Class of
Shares/
Units
Sydney Cove Children’s Centre C Pty Ltd**
Australia
Ordinary
Sydney Cove Property Holdings Pty Ltd**
Australia
Ordinary
World Of Learning Pty Ltd**
Australia
Ordinary
World Of Learning Acquisitions (No.1) Pty Ltd
Australia
Ordinary
World Of Learning Acquisitions Pty Ltd
Australia
Ordinary
World Of Learning Licences Pty Ltd
Australia
Ordinary
G8 KP Pty Ltd
Australia
Ordinary
Sterling Early Education Finance Pty Ltd**
Australia
Ordinary
Sterling Early Education Holdings Pty Ltd**
Australia
Ordinary
Woodland Education Operations Pty Ltd**
Australia
Ordinary
Kindy Kids Operations Pty Ltd**
CG Operations Pty Ltd **
Kool Kids Operations Pty Ltd **
North Shore Childcare Pty Ltd**
Ooorama Operations Pty Ltd**
Jacaranda Operations Pty Ltd**
Huggy Bear Operations Pty Ltd**
Jellybeans Operations Pty Ltd**
Jellybeans Attadale (Pty Ltd)**
Jane’s Place Operations Pty Ltd**
Australia
Ordinary
Australia
Ordinary
Australia
Ordinary
Australia
Ordinary
Australia
Ordinary
Australia
Ordinary
Australia
Ordinary
Australia
Ordinary
Australia
Ordinary
Australia
Ordinary
Jolimont Private Education Pty Ltd**
Australia
Ordinary
WTTS Operations Pty Ltd**
BUI Investments Pty Ltd**
Derafi Pty Ltd**
Alfoom Investments Pty Ltd**
Shemlex Pty Ltd**
Kindy Kids Village Pty Ltd**
Australia
Ordinary
Australia
Ordinary
Australia
Ordinary
Australia
Ordinary
Australia
Ordinary
Australia
Ordinary
Kindy Kids Long DayCare and Preschool Pty Ltd**
Australia
Ordinary
Three Little Pigs Pty Ltd**
A.C.N. 078 042 378 Pty Ltd**
ES5 Pty Ltd**
Kindy Patch Unit Trust
Australia
Ordinary
Australia
Ordinary
Australia
Ordinary
Australia
Ordinary
Sydney Cove Children’s Centre Unit Trust
Australia
Ordinary
Sydney Cove Children’s Centre Unit Trust B
Australia
Ordinary
Shemlex Investment Unit Trust
Australia
Ordinary
Shemlex Investments Freehold Unit Trust No 1
Australia
Ordinary
Morley Perth Unit Trust
Australia
Ordinary
2019
2018
%
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
107
G8 EDUCATION LIMITED ANNUAL REPORT 2019section tw0 financial report 4. GROUP STRUCTURE
Note 24: Subsidiaries (continued)
Name of Entity
Kindy Kids Village Trust
Country of
incorporation
Class of
Shares/
Units
Australia
Ordinary
Kindy Kids Long Day Care and Preschool Trust
Australia
Ordinary
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
Dendy Street Childcare Pty Ltd
Childcare Saver Pty Ltd
Australia
Ordinary
Australia
Ordinary
Australia
Ordinary
Australia
Ordinary
Australia
Ordinary
Australia
Ordinary
Australia
Ordinary
Australia
Ordinary
Australia
Ordinary
Australia
Ordinary
Australia
Ordinary
Australia
Ordinary
Australia
Ordinary
Australia
Ordinary
Australia
Ordinary
Australia
Ordinary
Australia
Ordinary
Australia
Ordinary
Australia
Ordinary
G8 Education Singapore Pte. Ltd.
Singapore
Ordinary
Cherie Hearts Corporate Pte. Ltd.
Cherie Hearts Holdings Pte. Ltd.
Singapore
Ordinary
Singapore
Ordinary
Cherie Hearts @ Gombak Pte. Ltd.
Singapore
Ordinary
Bright Juniors Pte. Ltd.
Singapore
Ordinary
Our Juniors Global Schoolhouse Pte. Ltd.
Singapore
Ordinary
* The proportion of ownership interest is equal to the proportion of voting power held.
2019
2018
%
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
** 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 26.
108
G8 EDUCATION LIMITED ANNUAL REPORT 2019 4. GROUP STRUCTURE
Note 25: Parent Entity Disclosures
As at, and throughout the financial year ended 31 December 2019 the parent entity of the Group was G8 Education
Limited.
Result of parent entity
Profit for the year after tax
Other comprehensive income
2019
$’000
66,095
(2,016)
2018
$’000
71,460
4,404
Total comprehensive income for the year
64,079
75,864
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 28 for parent entity contingent liabilities.
Parent entity guarantees in respect of the debts of its subsidiaries
69,308
96,420
1,816,304
1,281,282
1,885,612
1,377,702
150,365
904,503
368,735
123,400
1,054,868
492,135
907,255
893,567
54,083
48,825
(130,594)
(56,825)
830,744
885,567
The parent entity has entered into a Deed of Cross Guarantee with the effect that the Company guarantees debts in
respect of its subsidiaries.
Further details of the Deed of Cross Guarantee and the subsidiaries subject to the deed are disclosed in note 26.
Accounting policy
The financial information for the parent entity, G8 Education, 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.
109
G8 EDUCATION LIMITED ANNUAL REPORT 2019section tw0 financial report
4. GROUP STRUCTURE
Note 26: Deed of Cross Guarantee
All subsidiaries identified in note 24 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 2019 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
2019
$’000
2018
$’000
900,834
835,221
5,572
6,640
906,406
841,861
(533,732)
(497,877)
(11,509)
(106,001)
(65,971)
(59,906)
(97,656)
(38,174)
(16,177)
(29,711)
(73,620)
(28,973)
(820,662)
(738,645)
85,744
103,216
(23,411)
(31,756)
62,333
(1,885)
60,448
71,460
1,626
73,086
110
G8 EDUCATION LIMITED ANNUAL REPORT 2019 4. GROUP STRUCTURE
Note 26: Deed of Cross Guarantee (continued)
(b) Balance Sheet
Set out below is a consolidated balance sheet as at 31 December 2019 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
Right of use assets
Deferred tax assets
Intangible assets
Other non-current assets
Total non-current assets
Total assets
Current liabilities
Trade and other payables
Contract liabilities
Borrowings
Lease liabilities
Provisions
Total current liabilities
Non-current liabilities
Other payables
Borrowings
Lease liabilities
Provisions
Total non-current liabilities
Total liabilities
Net assets
Equity
Contributed equity
Reserves
Retained earnings
Total equity
2019
$’000
38,127
29,025
30,600
-
2,000
99,752
-
103,307
601,475
53,966
2018
$’000
53,132
35,758
33,404
10,837
-
133,131
139
91,173
-
17,856
1,158,970
1,100,764
6,991
26,784
1,924,709
1,236,716
2,024,461
1,369,847
53,686
6,200
-
66,654
34,187
160,727
696
387,750
637,398
13,087
1,038,931
1,199,658
67,386
7,490
279,566
-
29,875
384,317
5,260
92,188
-
8,935
106,383
490,700
824,803
879,147
907,255
54,083
(136,535)
824,803
893,567
48,826
(63,246)
879,147
111
G8 EDUCATION LIMITED ANNUAL REPORT 2019section tw0 financial report 5. UNRECOGNISED ITEMS
Note 27: Commitments
(a) Capital commitments
There is no capital expenditure unconditionally contracted for at the reporting date but not recognised as a liability.
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.
5. UNRECOGNISED ITEMS
Note 28: Contingencies
(a) Contingent liabilities
The Group had no contingent liabilities as at 31 December 2019 (2018: Nil).
5. UNRECOGNISED ITEMS
Note 29: Events Occurring After the Balance Sheet Date
The following material matter has taken place subsequent to year end:
• The Board declared a 6.0c fully franked dividend at the Board meeting on 23 February 2020 which will be the
final dividend for the year.
112
G8 EDUCATION LIMITED ANNUAL REPORT 2019 6. OTHER
Note 30: 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, AM
• D Foster
• J Cogin
• M Zabel
(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*
Consolidated
2019
$’000
1,683
62
(97)
1,648
2018
$’000
1,651
61
-
1,712
*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
38 to 55.
(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 31 for details of options issued to Key Management Personnel.
(ii) Option holdings
Refer to note 31 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 in the Remuneration Report. There
were no shares issued during the reporting year as compensation.
113
G8 EDUCATION LIMITED ANNUAL REPORT 2019section tw0 financial report
6. OTHER
Note 31: 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
G8 Education Executive Incentive Plan (GEIP)
Consolidated
2019
$’000
(131)
2018
$’000
-
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 vest on achievement of the following performance and service conditions by the vesting date.
Performance Conditions –
Earnings per Share (EPS)
Compound Annual Growth
Rate (CAGR)
The percentage of Performance Rights that vest for each % EPS
CAGR is based on the vesting schedule below:
EPS CAGR
Less than 10%
10% to 15%
> 15%
Percentage of Performance Rights
that vest
0%
50% - 100% (pro-rata)
100%
Service Condition
Retesting
Dividend Policy
Holders of Performance Rights must be continuously employed by the
Company from the Grant Date to the Vesting Date.
Awards are not retested.
Holders of Performance Rights are not entitled to receive dividends prior
to vesting.
114
G8 EDUCATION LIMITED ANNUAL REPORT 2019
6. OTHER
Note 31: Share–based Payments (continued)
Performance Rights issued under the plan may not be transferred unless approved by the Board. The table below
summarises rights granted under the plan.
Balance at
the start
of the year
(Number)
Granted
during
the year
(Number)
Exercised
during
the year
(Number
Forfeited
during
the year
(Number)
Balance at
the end of
the year
(Number)
Unvested
at the end
of the year
(Number)
Grant date
20 July 2017
152,386
6 October 2017
22 January 2018
53,629
50,359
20 July 2018
438,609
-
-
-
-
30 January 2019
10 May 2019
-
-
52,333
452,631
Total
694,983
504,964
-
-
-
-
-
-
-
152,386
152,386
-
-
-
53,629
50,359
(23,550)
415,059
-
-
52,333
452,631
(23,550)
1,176,397
1,176,397
53,629
50,359
415,059
52,333
452,631
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
20 July 2017
1 March 2020
6 October 2017
1 March 2020
22 January 2018
1 March 2020
20 July 2018
1 March 2021
30 January 2019
1 March 2021
10 May 2019
1 March 2022
Total
Value of
Performance Right
at grant date ($)
Number of
Performance
Rights
3.19
3.70
3.42
2.39
2.73
2.42
152,386
53,629
50,359
415,059
52,333
452,631
1,176,397
Expiry date
30 May 2020
30 May 2020
30 May 2020
30 May 2021
30 May 2021
30 May 2022
115
G8 EDUCATION LIMITED ANNUAL REPORT 2019section tw0 financial report
6. OTHER
Note 31: Share–based Payments (continued)
Valuation of instruments issued
Value of the financial benefit
In terms of performance rights issued to Key Management Personnel (KMP), the table below lists the inputs used in
the model:
Tranche 1
Tranche 2
Tranche 3
Tranche 4
Tranche 5
Tranche 6
20-Jul-17
6-Oct-17
22-Jan-18
20-Jul-18
30-Jan-19
10-May-19
Share price on
grant date
Share price volatility
Risk free rate
$3.77
30%
2.31%
$3.83
30%
2.17%
$3.82
30%
2.04%
$2.87
30%
2.09%
$3.06
34%
1.82%
$2.83
34%
1.28%
Time to maturity
2.62 years
2.57 years
2.11 years
2.62 years
2.08 years
2.81 years
Annual dividend yield
6.37%
6.27%
5.45%
7.27%
5.56%
5.79%
Model used
Accounting policy
Black
Scholes
Black
Scholes
Black
Scholes
Black
Scholes
Black
Scholes
Black
Scholes
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 Black Scholes 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.
116
G8 EDUCATION LIMITED ANNUAL REPORT 2019
6. OTHER
Note 32: Remuneration of Auditors
During the year the following fees were paid or payable for services provided by the auditor of the Group:
Consolidated
2019
$’000
2018
$’000
Ernst & Young
Fees to the group auditor for auditing the statutory report
542
495
Fees for assurance services that are required by legislation
Fees for other assurance and agreed-upon-procedure services
Fees for other services
Total remuneration for services
-
-
155
697
-
-
94
589
6. OTHER
Note 33: 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 24.
(c) Key Management Personnel
For details of transactions that Key Management Personnel and their related entities had with the Group during the
year refer note 30.
During the year 2018 a Director, M Zabel was engaged by G8 Education as a marketing consultant for the 2018
calendar year with a fee based on normal commercial rates of $25,000 paid for the services provided. M Zabel was
not engaged by G8 Education as a marketing consultant during the 2019 calendar year.
117
G8 EDUCATION LIMITED ANNUAL REPORT 2019section tw0 financial report
6. OTHER
Note 34: 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 2020. The Company has the power to amend and
reissue the financial report.
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 2019 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.
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.
118
G8 EDUCATION LIMITED ANNUAL REPORT 2019 6. OTHER
Note 34: Other Significant Accounting Policies (continued)
(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 $62.6 million for the year ended 31 December 2019 and as at that
date, current liabilities exceed current assets by $81.0 million, of which $68.5 million is the current portion of lease
liabilities arising from the implementation of the AASB 16 Leases standard. Management expect the working capital
shortfall will be met out of operating cash flows or from long term finance facilities.
The Directors have concluded that there are reasonable grounds to believe that the going concern basis is
appropriate, and that assets are likely to be realised, and liabilities are likely to be discharged, at the amounts
recognised in the financial statements in the ordinary course of business.
(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 entities are recognised in other comprehensive
income as described in note 16 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 19. 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 $58.2 million (2018: $65.3 million)
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.
(g) New accounting standards and interpretations for application in current and future periods
The Group adopted AASB 16 Leases using the modified retrospective method from 1 January 2019, and has not
restated comparatives for the 2018 year, as permitted under the specific transitional provisions in the standard. The
reclassifications and the adjustments arising from the new leasing rules are therefore recognised in the opening
balance sheet on 1 January 2019.
As at 31 December 2019 there are no standards that have been issued but are not yet effective which are expected
to have a material impact on the Group’s financial position, performance, presentation and/or disclosures.
119
G8 EDUCATION LIMITED ANNUAL REPORT 2019section tw0 financial report 6. OTHER
Note 34: Other Significant Accounting Policies (continued)
Adjustments recognised on adoption of AASB 16 Leases
On adoption of AASB 16 Leases, the Group recognised lease liabilities in relation to leases which had previously been
classified as ‘operating leases’ under the principles of AASB 117 Leases. These liabilities were measured at the present
value of the remaining lease payments, discounted using the lessee’s incremental borrowing rate as of 1 January
2019. The weighted average lessee’s incremental borrowing rate applied to the lease liabilities on 1 January 2019 was
6.18%.
Operating lease commitments as at 31 December 2018
Discounted using the incremental borrowing rate
Add:
Payments in optional extension periods not included as at 31 December 2018
Lease liabilities recognised as at 1 January 2019
2019
$’000
754,050
540,753
170,045
710,798
The associated right-of-use assets for leases were measured on a retrospective basis as if the AASB 16 Leases
standard had been applied since the commencement date, but discounted using the lessee’s incremental
borrowing rate at the date of initial application.
In accordance with AASB 16(53)(j) the recognised right-of-use assets relate to the following types of assets:
Consolidated
31
December
2019
1 January
2019
$’000
$’000
604,729
1,490
611,810
1,947
606,219
613,757
Leased property
Leased vehicles
Total right of use of assets
120
G8 EDUCATION LIMITED ANNUAL REPORT 2019
6. OTHER
Note 34: Other Significant Accounting Policies (continued)
The effect of adoption AASB 16 Leases as at 1 January 2019 (increase/(decrease)) is as follows:
Assets
Right of use assets
Property, plant and equipment
Deferred tax assets
Trade and other receivables
Total assets
Liabilities
Lease liabilities
Other payables
Total liabilities
Equity
Retained earnings
Total adjustment on equity
(i) Impact on earnings per share
1 January 2019
$’000
613,757
(4,716)
28,747
(3,160)
634,628
710,798
(5,844)
704,954
(70,326)
(70,326)
Earnings per share decreased by 1.81 cents for the year ended 31 December 2019 as a result of the adoption of AASB
16 Leases.
(ii) Practical expedients applied
In applying AASB 16 Leases for the first time, the Group has used the following practical expedients permitted by
the standard:
• the previous assessment under AASB 117 Leases of whether a contract contains a lease
• the use of a single discount rate to a portfolio of leases with reasonably similar characteristics
• the accounting for operating leases with a remaining lease term of less than 12 months as at 1 January 2019 as
short-term leases. The Group currently does not have any short-term leases.
• the accounting for operating leases as low value leases
• the exclusion of initial direct costs for the measurement of the right-of-use asset at the date of initial application,
and
• the use of hindsight in determining the lease term where the contract contains options to extend or terminate
the lease.
121
G8 EDUCATION LIMITED ANNUAL REPORT 2019section tw0 financial report 6. OTHER
Note 34: Other Significant Accounting Policies (continued)
(b) The Group’s leasing activities and how these are accounted for
The Group leases childcare centres, vehicles and equipment. Lease terms are negotiated on an individual basis and
contain a wide range of different terms and conditions. The lease agreements do not impose any covenants, but
leased assets may not be used as security for borrowing purposes.
Prior to 1 January 2019, leases of property and equipment were classified as operating leases. Payments made under
operating leases (net of any incentives received from the lessor) were charged to the income statement, within
occupancy expenses.
From 1 January 2019, the Group applied a single recognition and measurement approach for all leases of which it
is the lessee, except for low-value assets. The Group recognised lease liabilities to make lease payments and right
of use assets representing the right to use the underlying assets. Leases are recognised as a right-of-use asset and a
corresponding liability at the date at which the leased asset is available for use by the Group. Each lease payment
is allocated between the liability and finance cost. The finance cost is charged to profit or loss over the lease period
so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The
right-of-use asset is depreciated over the shorter of the asset’s useful life and the lease term on a straight-line basis.
Assets and liabilities arising from a lease are initially measured on a present value basis. Lease liabilities include the
net present value of the following lease payments:
• fixed payments (including in-substance fixed payments), less any lease incentives receivable
• variable lease payments that are based on an index or a rate
• the exercise price of a purchase option if the lessee is reasonably certain to exercise that option, and
• payments of penalties for terminating the lease, if the lease term reflects the lessee exercising that option.
The lease payments are discounted using the lessee’s incremental borrowing, being the rate that the lessee would
have to pay to borrow the funds necessary to obtain an asset of similar value in a similar economic environment
with similar terms and conditions.
Right-of-use assets are measured at cost comprising the following:
• the amount of the initial measurement of lease liability
• any lease payments made at or before the commencement date less any lease incentives received
• any initial direct costs, and
• restoration costs.
Payments associated with short-term leases and leases of low-value assets are recognised on a straight-line basis
as an expense in profit or loss. Short-term leases are leases with a lease term of 12 months or less. Low-value assets
comprise of office equipment.
122
G8 EDUCATION LIMITED ANNUAL REPORT 2019 directors’ declaration
In the Directors’ opinion:
(a) the financial statements and notes set out on pages 60 to 122 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 2019 and of
its performance for the financial year ended on that date;
(b) there are reasonable grounds to believe that the Company will be able to pay its debts as and when they
become due and payable; and
(c) at the date of this declaration, there are reasonable grounds to believe that the members of the extended
closed Group identified in note 24 will be able to meet any obligations or liabilities to which they are, or may
become, subject by virtue of the deed of cross guarantee described in note 26.
Note 34(a) confirms that the financial statements also comply with International Financial Reporting
Standards as issued by the International Accounting Standards Board.
The Directors have been given the declarations by the Managing Director and Chief Financial Officer required
by section 295A of the Corporations Act 2001.
This declaration is made in accordance with a resolution of the Directors.
Gary Carroll
Director
23 February 2020
123
G8 EDUCATION LIMITED ANNUAL REPORT 2019section tw0 financial report
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 2019,
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
2019 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.
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
124
G8 EDUCATION LIMITED ANNUAL REPORT 2019
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.
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 15
to the financial statements, which includes the
key assumptions applied by the Group
In obtaining sufficient audit evidence we:
►
►
►
►
►
►
►
►
Agreed the cash flow forecasts to Board
approved budgets;
Evaluated the Group’s identification of the CGU;
Tested the mathematical accuracy of the
impairment model;
Assessed future cash flow assumptions through
comparison with current trading performance,
externally derived data (where applicable),
disposals in the period 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 relative to the recorded net asset amount
at 31 December 2019;
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 15 to the financial
statements.
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
125
G8 EDUCATION LIMITED ANNUAL REPORT 2019section tw0 auditor’s report
Acquisition Accounting
Why significant
How our audit addressed the key audit matter
The Group acquired a number of childcare
centres during 2019, 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.
Refer to note 14 to the financial statements for
disclosure relating to acquisition accounting.
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 14 to the
financial statements.
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 $914.2 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 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.
Our audit evaluated revenue recognised in
accordance with AASB15 Revenue from contracts
with customers. 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;
Tested a sample of daily revenue to source
documentation;
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
126
G8 EDUCATION LIMITED ANNUAL REPORT 2019
Refer to note 2 to the financial statements for
disclosure relating to revenue.
►
►
►
►
Assessed whether revenue is recognised in the
appropriate financial period by testing the
completeness of the deferred revenue balance
through testing parent fees in advance bookings;
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.
AASB 16 Leases Transition
Why significant
How our audit addressed the key audit matter
Our audit procedures included the following:
►
►
►
►
►
►
Assessed the Group’s processes relating to the
identification, recognition and measurement of
lease liabilities and right of use assets;
Tested management’s controls on the integrity
and completeness of the lease data in the
Group’s leasing system;
Assessed key inputs and assumptions applicable
to a sample of lease contracts;
Assessed discount rates applied by the Group;
Tested mathematical accuracy of a sample of
lease calculations; and
Evaluated adequacy of the Group’s disclosures in
relation to Leases including disclosure of
associated judgements and estimates.
The Group adopted the new Australian
Accounting standard AASB 16 Leases in the
current year. In doing so, the Group has elected
to apply the modified retrospective approach.
The new standard requires the Group to
recognize its lease commitments as liabilities in
the statement of financial position, along with an
associated right of use asset.
Effective on the date of transition, being 1
January 2019, a $710.8 million Lease Liability
and $613.8 million Right of use Asset were
recognized, with an after-tax adjustment of
$70.3million impacting retained earnings.
The key inputs used in derivation of the lease
liability and right of use asset are:
►
►
►
Lease term, including termination clauses
and option periods;
Incremental Borrowing Rate (‘IBR’);
Lease contractual terms including payments.
This was considered to be a key audit matter due
to the significant judgment and assumptions
involved in the calculation of these right of use
assets and associated lease liabilities on
transition and the magnitude of the lease
liabilities and right of use assets in the
consolidated balance sheet relative to total
liabilities and total assets.
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
127
G8 EDUCATION LIMITED ANNUAL REPORT 2019section tw0 auditor’s report
Information Other than the Financial Report and Auditor’s Report Thereon
The directors are responsible for the other information. The other information comprises the
information included in the Company’s 2019 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.
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.
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
128
G8 EDUCATION LIMITED ANNUAL REPORT 2019
Report on the Audit of the Remuneration Report
Opinion on the Remuneration Report
We have audited the Remuneration Report included in pages 38 to 55 of the directors' report for the
year ended 31 December 2019.
In our opinion, the Remuneration Report of G8 Education Limited for the year ended 31 December
2019, 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 2020
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
129
G8 EDUCATION LIMITED ANNUAL REPORT 2019section tw0 auditor’s report
SECTION THREE
130
G8 EDUCATION LIMITED ANNUAL REPORT 2019 shareholder information
The total issued capital of the Company as at 31 December 2019 and as at the date of this annual report is 460,176,931.
The Shareholder information set out below was applicable as at 3 February 2020.
(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 % Issued Capital
328,394,496
74,951,900
27,632,561
26,211,712
2,986,262
107
3,171
3,649
9,461
6,256
71.36%
16.29%
6.00%
5.70%
0.65%
460,176,931
22,644
100.00%
There were 2089 holders of less than a marketable parcel of ordinary shares.
131
section three Shareholder informationG8 EDUCATION LIMITED ANNUAL REPORT 2019
(b) Quoted equity security holders
Twenty largest quoted equity security holders.
Name
HSBC Custody Nominees (Australia) Limited
Citicorp Nominees Pty Limited
J P Morgan Nominees Australia Pty Limited
National Nominees Limited
BNP Paribas Noms Pty Ltd
BNP Paribas Nominees Pty Ltd (Agency Lending)
BNP Paribas Nominees Pty Ltd (IB AU Noms Retail)
RAP Investments Pty Limited
HSBC Custody Nominees (Australia) Limited
Netwealth Investments Limited
Mr Craig Graeme Chapman
Dreamline Development Corporation Pty Ltd
Mr Riccardo Pisaturo
BNP Paribas Nominees Pty Ltd (Hub24 Custodial Serv)
Viss Holdings Pty Ltd
Citicorp Nominees Pty Limited
Geosine Pty Ltd
HSBC Custody Nominees (Australia)
Gwynvill Trading Pty Ltd
Mr Louis Pierre Ledger
section three shareholder information
Quoted ordinary
Percentage of
shares held
issued shares
100,212,013
76,628,150
52,127,925
27,476,479
16,889,406
13,422,887
4,216,050
2,600,000
1,960,789
1,838,691
1,400,000
1,400,000
1,400,000
1,358,323
1,170,683
1,132,741
1,000,000
814,148
750,000
735,000
21.78
16.65
11.33
5.97
3.67
2.92
0.92
0.57
0.43
0.40
0.30
0.30
0.30
0.30
0.25
0.25
0.22
0.18
0.16
0.16
308,533,285
67.06
(c) Substantial holders]
Substantial holders in the Company as at 3 February 2020 are set out below:
Ordinary Shares
Number held
Percentage
Sumitomo Mitsui Trust Holdings, Inc.
Legg Mason Asset Management Limited
Dimensional Entities
47,268,737
36,416,439
23,072,573
10.31%
7.94%
5.014%
(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.
132
G8 EDUCATION LIMITED ANNUAL REPORT 2019
corporate Directory
Directors
M Johnson, Chairman
G Carroll, Managing Director
B Bailison, Non-Executive Director
Prof J Cogin, Non-Executive Director
S Forrester, AM, Non-Executive Director
D Foster, 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 4000
Lawyers:
Allens Linklaters Lawyers
Level 26, 480 Queen Street
Brisbane QLD 4000
Securities exchange listing:
G8 Education Limited shares are listed on the
Australian Securities Exchange under the ticker
code GEM.
133
133
section three Shareholder informationG8 EDUCATION LIMITED ANNUAL REPORT 2019
134
G8 EDUCATION LIMITED ANNUAL REPORT 2019