Table of Contents
Appendix 4E Preliminary Final Report
Corporate Directory
Chairman’s Letter
Chief Executive Officer’s Message
Director’s Report
Auditor’s Independence Declaration
Corporate Governance Statement
Financial Report
General information
Statement of profit or loss and other comprehensive income
Statement of financial position
Statement of changes in equity
Statement of cash flows
Notes to the financial statements
Director’s declaration
Independent auditor’s report
Shareholder information
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2
3
5
16
17
24
24
25
26
27
28
29
59
60
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Kip McGrath Education Centres Limited ABN 73 003 415 889 | Annual Report 2018 Kip McGrath Education Centres Limited
Appendix 4E
Preliminary final report
1. Company details
Name of entity:
ABN:
Reporting period:
Previous period:
Kip McGrath Education Centres Limited
73 003 415 889
For the year ended 30 June 2018
For the year ended 30 June 2017
2. Results for announcement to the market
Revenues from ordinary activities
up
1.8% to
Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA)
up
45.6% to
$'000
13,745
3,837
Profit from ordinary activities after tax attributable to the owners of Kip
McGrath Education Centres Limited
Profit for the year attributable to the owners of Kip McGrath Education
Centres Limited
up
up
40.7%
to
2,021
40.7%
to
2,021
Dividends
On 17 August 2018, a final dividend for the year ended 30 June 2018 of 2.0 cents per ordinary share, 100% fully franked,
was declared and will be paid on 21 September 2018 to those shareholders on the register at 7p.m. on 7 September 2018.
The total distribution will be $900,686.
Comments
The profit for the consolidated entity after providing for income tax amounted to $2,021,000 (30 June 2017: $1,436,000).
Refer to Chairman's report and Chief Executive Officer's message for further commentary.
The following table summarises key reconciling items between statutory profit after tax attributable to the owners of Kip
McGrath Education Centres and EBITDA.
Revenue
EBITDA
Less: Depreciation and amortisation
Less: Interest expense
Add: Interest income
Profit before Income tax expense
Income tax expense
Profit after income tax expense
3. Net tangible assets
Net tangible assets per ordinary security
Consolidated
2018
$'000
2017
$'000
13,745
13,507
3,837
(1,074)
(58)
2
2,707
(686)
2,635
(773)
(68)
1
1,795
(359)
2,021
1,436
Reporting
Previous
period
Cents
period
Cents
(2.23)
(0.12)
Kip McGrath Education Centres Limited ABN 73 003 415 889 | Annual Report 2018
Kip McGrath Education Centres Limited
Appendix 4E
Preliminary final report
4. Control gained over entities
Not applicable.
5. Loss of control over entities
Not applicable.
6. Dividend reinvestment plans
Not applicable.
7. Details of associates and joint venture entities
Not applicable.
8. Foreign entities
Details of origin of accounting standards used in compiling the report:
Not applicable.
9. Audit qualification or review
Details of audit/review dispute or qualification (if any):
The financial statements have been audited and an unqualified opinion has been issued.
10. Attachments
Details of attachments (if any):
The Annual Report of Kip McGrath Education Centres Limited for the year ended 30 June 2018 is attached.
11. Signed
Signed ___________________________
Date: 17 August 2018
Kip McGrath
Chairman
Newcastle
Annual Report 2018 | Kip McGrath Education Centres Limited ABN 73 003 415 889
Kip McGrath Education Centres Limited
ABN 73 003 415 889
Annual Report - 30 June 2018
Kip McGrath Education Centres Limited ABN 73 003 415 889 | Annual Report 2018
Kip McGrath Education Centres Limited
Corporate directory
30 June 2018
Directors
Kip McGrath (Chairman)
Ian Campbell
Trevor Folsom
Diane Pass
Company secretary
Brett Edwards
Notice of annual general meeting
The details of the annual general meeting of Kip McGrath Education Centres Limited
are:
3/6 Newcomen Street
Newcastle, NSW 2300
Friday 26 October 2018 at 11:00 a.m. (AEST)
Registered office
Share register
Auditor
Bankers
Level 3
6 Newcomen Street
Newcastle, NSW 2300
Head office telephone: 02 4929 6711
Computershare Investor Services Pty Limited
117 Victoria Street,
West End, QLD 4101
Shareholders enquiries: 1300 787 272
PKF Newcastle
755 Hunter Street
Newcastle West, NSW 2302
HSBC Bank Australia Ltd
Tower 1, International Towers Sydney
Level 36
100 Barangaroo Avenue
Sydney NSW 2000
Stock exchange listing
Kip McGrath Education Centres Limited shares are listed on the Australian Securities
Exchange (ASX code: KME)
Website
www.kipmcgrath.com
1
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Annual Report 2018 | Kip McGrath Education Centres Limited ABN 73 003 415 889
Kip McGrath Education Centres Limited
Chairman's letter
30 June 2018
Dear Shareholders,
I am pleased to report the company recorded its 7th straight increase in net profit after tax to $2.021M for the full year, which
is an increase of 41% over the previous year. In addition, EBITDA of $3.84M increased by 46%. The strategies I have been
communicating to shareholders are continuing to deliver increased shareholder value.
The most exciting thing for me is the increase in the number of children we are helping. The lessons delivered last year are
up 10% on the previous year. The business only works by producing fabulous educational outcomes initiated by franchisees
and their teachers. We are certainly making a difference.
This result is above the full year guidance issued in June with revenue and earnings stronger than budgeted. The pound is
still historically weak which impacts profit but it remained relatively flat this year.
Cash is another highlight with cashflow from operating activities of $5.2m for the year ended 30 June 2018. We have now
used all historical tax losses so the company will be paying company tax, with dividends from now on being franked.
Our national advertising strategies continue to deliver strong results and brand recognition. Having a significant presence on
TV, radio and digital certainly strengthens our 42-year history better than local advertising, and with results 4 times more
effective, franchisees are pleased. We are working with franchisees to increase the National Advertising Campaign and
reduce the local spend. The CEO will elaborate more in his report.
Gold Partner numbers continue to rise globally, with an increase of 30 for the year. We provide back office support to Gold
Partners, and they generally do better than other centres. This results in more profitable operations for themselves and the
company. New Zealand now has four Gold Partners, and we are looking to sell and convert more in the future.
Onscreen tutoring is still growing, and we are currently delivering 1,500 lessons per month. The National Advertising
Campaign is starting to see increased traction for onscreen tutoring in rural areas. As I mentioned in my report, I continue to
see this as an exciting opportunity for the company. We have spent additional money on development this year, but I believe
it was worth it, with the benefit to the tutors and students who are using it.
Growth will continue to come from the core business in centres and increasing online revenue, with marketing efforts
focussed on building lesson numbers in both these areas.
Today, the Board declared a fully franked final dividend of 2 cents per share payable on 21 September 2018 to those
shareholders on the register at 7pm on 7 September 2018. This takes the total dividends for the 2018 year to 3 cents (2017–
2 cents), an increase of 50%.
Kip McGrath
Chairman
17 August 2018
2
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Kip McGrath Education Centres Limited ABN 73 003 415 889 | Annual Report 2018
Kip McGrath Education Centres Limited
Chief Executive Officer's message
30 June 2018
Kip McGrath Education Centres Limited has continued to grow strongly with an EBITDA increase to $3.84M; this is a 46%
increase on the previous year. The main reasons are the continued increase in overall student numbers, and improved
margins resulting from investment in technology and systems to run the business better. This is the 7th year in a row for
continued growth in profit. The Australian dollar is still historically high against the pound, and profit would be higher if the
pound was not so weak.
10 Year Franchise Fee Revenue ($m)
14.0
12.0
10.0
8.0
6.0
4.0
2.0
0.0
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
The above graph shows strong franchise fee growth over the past 10 years. The tutoring market continues to expand with a
projected compounded annual growth rate of 10.2% according to Global Industry Analyst’s September 2016 report on the
private tutoring market. From the increase in the size of the market, combined with our 42-year history and national
advertising, we are seeing continued student growth.
Overview of our major initiatives:
1. Gold Partner Franchisees
We have 267 Gold Partners which is an increase of 37 (16%) from last year. Gold Partner student numbers on average
are higher than Silver Partners as the franchisees can focus more on the teaching side of their business.
2. Onscreen Tutoring
Onscreen tutoring is continuing to grow steadily with 1,500 lessons per month which up from 1,000 per month in
2016/17 (50% increase). Onscreen tutoring now accounts for 1% of the global student lessons. We expect this number
to increase as we begin solid advertising as part of our overall offering. Our software usability remains a focus, and
some major developments were completed during the year.
3. National Marketing
Campaigns in Australia, UK and New Zealand continue to be very successful. Leads were up 25% globally. We will
double the amount spent on national advertising in Australia and UK during the next 12 months. We will continue to use
a combination of TV, radio and digital advertising paid for by Franchisees and Head office.
4. Online Booking System
The online booking system is now live in Australia and New Zealand, with release in the UK in August. Parents being
able to book in for a free assessment directly has delivered an increase in the quality of the lead.
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Annual Report 2018 | Kip McGrath Education Centres Limited ABN 73 003 415 889
Kip McGrath Education Centres Limited
Chief Executive Officer's message
30 June 2018
5. Technology Development
The development team delivered another strong year with the release of iKip, our tutoring software, and the
decommissioning of the old software. They also delivered new global websites, the online booking system, and made
ongoing improvements to all software. The team is now focussed on the integration of iKip with Salesforce and Xero.
Both products will make running our franchised business more efficient and make it easier for our franchisees to run
theirs. These systems will improve communication channels with our customers and provide better reporting tools for
franchisees to monitor their business.
6. Purchase of Master Franchise territories and Area Developers.
The purchase of New Zealand Master Franchise and the Victorian Area Developer businesses took place and the
results are going well. It is a big change for the New Zealand franchisees considering they had a Master Franchise for
26 years, but head office is committed to servicing franchisees just as well as before. In July 2018, we executed a
contract to purchase the Area Developer business for the Midland in the UK, and this will add to EBITDA growth in the
coming year.
Outlook
We expect revenue, profit and profit margins will continue to grow through a combination of the ongoing development and
automation of the software as a service, our national advertising campaigns and the option for students to choose between
face to face and online tuition.
I would like to thank the Master Franchisees, Area Developers, Franchise Representative Council Members, Franchisees
and employees for their hard work and support throughout the year. This year I would also like to thank our dedicated and
motivating teachers and the parents who continue to bring their children to Kip McGrath. We are committed to our motto that
‘every child can learn, they just have to be taught well’, and we will continue to do this for our current 40,000 students and
the thousands that will join Kip McGrath in the future.
Storm McGrath
Chief Executive Officer
17 August 2018
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Kip McGrath Education Centres Limited ABN 73 003 415 889 | Annual Report 2018
Kip McGrath Education Centres Limited
Directors' report
30 June 2018
The directors present their report, together with the financial statements, on the consolidated entity (referred to hereafter as
the 'consolidated entity') consisting of Kip McGrath Education Centres Limited (referred to hereafter as the 'company' or
'parent entity') and the entities it controlled at the end of, or during, the year ended 30 June 2018.
Directors
The following persons were directors of Kip McGrath Education Centres Limited during the whole of the financial year and
up to the date of this report, unless otherwise stated:
Kip McGrath
Ian Campbell
Trevor Folsom
Diane Pass
Principal activities
The principal activities of the consolidated entity during the course of the financial year continued to be the sale of
franchises and providing services to franchisees in the education field. The consolidated entity operates in Australia and
overseas, principally in the United Kingdom and New Zealand.
Dividends
Dividends paid during the financial year were as follows:
Final dividend for the year ended 30 June 2017 of 1.4 cents (2016: 1.0 cents) per ordinary
share
Interim dividend for the year ended 30 June 2018 of 1 cents (2017: 0.6 cents) per ordinary
share
Consolidated
2018
$'000
2017
$'000
630
451
1,081
451
270
721
On 17 August 2018, a final dividend for the year ended 30 June 2018 of 2.0 cents per ordinary share, 100% fully franked,
was declared and will be paid on 21 September 2018 to those shareholders on the register at 7p.m. on 7 September 2018.
The total distribution will be $900,686.
Review of operations
The profit for the consolidated entity after providing for income tax amounted to $2,021,000 (30 June 2017: $1,436,000).
Revenue growth primarily came from the United Kingdom (2018: $6,458,000 versus $5,190,000 in 2017) where the
national advertising campaign and government incentives for tutoring helped to drive strong centre and lesson number
growth.
In the Australasian market, performance was more subdued (2018: $6,346,000 versus 2017: $7,352,000) with a decline in
student lesson revenue from older contracts ($1,245,000 reduction) , and the closure of many older Singapore centres
($217,000 reduction) offsetting solid franchise fee growth in the Australian and New Zealand businesses ($655,000
increase). Revenue from other markets decreased (2018: $941,000 versus $965,000) primarily due to weaker franchise
sales.
The number of Gold Partners grew to 113 in the Australian market (76% of total centres) and to 154 in the UK market (60%
of total centres). Overall centre numbers globally grew slightly to 550 (2017: 546). Lesson numbers on the Insight system
continued to grow, with total lesson numbers for the financial year reaching 1,233,000 (compared to 1,117,000 in the prior
year). Lessons in the United Kingdom are up 14% due to the factors noted above. The Middle East has grown by 15% this
year with strongly performing operations in Kuwait and Abu Dhabi. However the Australian, New Zealand and South
African operations have been more mixed with each region growing by 3%.
The earnings before interest, tax, depreciation and amortisation ('EBITDA') amounted to $3,837,000 (2017: $2,635,000).
The following table summarises key reconciling items between statutory profit after tax attributable to the shareholders of
Kip McGrath Education Centres and EBITDA.
5
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Annual Report 2018 | Kip McGrath Education Centres Limited ABN 73 003 415 889
Kip McGrath Education Centres Limited
Directors' report
30 June 2018
Revenue
EBITDA
Less: Depreciation and amortisation
Less: Interest expense
Add: Interest income
Profit before Income tax expense
Income tax expense
Profit after income tax expense
Consolidated
2018
$'000
2017
$'000
13,745
13,507
3,837
(1,074)
(58)
2
2,707
(686)
2,635
(773)
(68)
1
1,795
(359)
2,021
1,436
Significant changes in the state of affairs
There were no significant changes in the state of affairs of the consolidated entity during the financial year.
Matters subsequent to the end of the financial year
On 4 July 2018, the company purchased back the area developer territory for the East Midlands in England to allow better
focus on the United Kingdom business.
Apart from the event disclosed above and the dividend declared as disclosed in note 17, no other matter or circumstance
has arisen since 30 June 2018 that has significantly affected, or may significantly affect the consolidated entity's
operations, the results of those operations, or the consolidated entity's state of affairs in future financial years.
Likely developments and expected results of operations
The company has initiated a number of new marketing campaigns in the key Australian and United Kingdom markets for
both traditional tutoring services as well as the new on-line products and expects improved growth in both markets. It is
expected online lesson numbers will increase significantly as the number of franchises trained in the upgraded software
increases.
Environmental regulation
The consolidated entity is not subject to any significant environmental regulation under Australian Commonwealth or State
law.
Information on directors
Name:
Title:
Experience and expertise:
Kip McGrath
Non-Executive Director and Chairman
As co-founder, Kip's primary responsibility is strategic planning and developing the
"Train-the-Trainer" programs.
Other current directorships:
None
Former directorships (last 3 years): None
None
Special responsibilities:
16,227,499 ordinary shares (including 11,227,499 directly held)
Interests in shares:
None
Interests in options:
6
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Kip McGrath Education Centres Limited ABN 73 003 415 889 | Annual Report 2018
Kip McGrath Education Centres Limited
Directors' report
30 June 2018
Name:
Title:
Qualifications:
Experience and expertise:
Other current directorships:
Former directorships (last 3 years): None
Special responsibilities:
Interests in shares:
Interests in options:
Ian Campbell
Non-Executive Director
FCA, MAICD
Ian joined the Board on 25 August 2009 after a 32 year career with the international
accounting firm Ernst & Young principally working with entrepreneurial companies
and the capital markets. Ian is a Fellow of Chartered Accountants Australia and New
Zealand and a member of the Australian Institute of Company Directors. He is
currently a non-executive director of CVC Limited and Redox Pty Ltd and a partner
with the Board search practice of the Allegis Group (formerly Talent2). His previous
non-executive director roles included Gloria Jean’s Coffees International Pty Limited,
Green’s Foods Holdings Pty Ltd and Young Achievement Australia Limited.
CVC Ltd
Chairman of the Audit Committee and member of the Nomination and Remuneration
Committee
500,000 ordinary shares
None
Name:
Title:
Experience and expertise:
Trevor Folsom
Non-Executive Director
Trevor has extensive background and experience and is acknowledged for his ability
to engage, invest and advise growth companies, particularly in the technology sector.
He is a successful entrepreneur in his own right, developing, from start up, Blueprint
Management, which he sold in 2008. He is currently a Director of Elevation Capital,
an early stage technology investment company.
None
Other current directorships:
Former directorships (last 3 years): None
Special responsibilities:
Member of the Audit Committee and member of the Nomination and Remuneration
Committee
None
Interests in shares:
Name:
Title:
Experience and expertise:
Diane Pass
Non-Executive Director
Di is currently a Director of the human resources consultancy company 360HR and
the Chair of the Advisory Council of Sydney TAFE Institute. Di has more than 20
years local, national and international experience in the recruitment and consulting
industry. She is also accomplished in creating and delivering engaging professional
development programs and leading complex management consulting assignments. Di
is also a member of the Australian Institute of Company Directors.
None
Other current directorships:
Former directorships (last 3 years): None
Special responsibilities:
Chairman of the Nomination and Remuneration Committee and member of the Audit
Committee
30,000 ordinary shares
Interests in shares:
'Other current directorships' quoted above are current directorships for listed entities only and excludes directorships in all
other types of entities, unless otherwise stated.
'Former directorships (in the last 3 years)' quoted above are directorships held in the last 3 years for listed entities only and
excludes directorships in all other types of entities, unless otherwise stated.
Company secretary
Brett Edwards is a Fellow of Chartered Accountants Australia and New Zealand and a member of the Australian Institute of
Company Directors. He has 30 years of experience in accounting and reporting in a number of major Australian and
international businesses, including 10 years with international accounting firm Ernst & Young. He was previously a director
of GMAC Australia LLC, a US company operating in the finance segment in Australia.
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Annual Report 2018 | Kip McGrath Education Centres Limited ABN 73 003 415 889
Kip McGrath Education Centres Limited
Directors' report
30 June 2018
Meetings of directors
The number of meetings of the company's Board of Directors ('the Board') and of each Board committee held during the
year ended 30 June 2018, and the number of meetings attended by each director were:
Full Board
Nomination and
Remuneration Committee
Audit Committee
Attended
Held
Attended
Held
Attended
Held
Kip McGrath
Ian Campbell
Trevor Folsom
Diane Pass
10
10
10
10
10
10
10
10
-
2
2
2
-
2
2
2
-
4
4
4
-
4
4
4
Held: represents the number of meetings held during the time the director held office or was a member of the relevant
committee.
Remuneration report (audited)
The remuneration report, which has been audited, outlines the director and other key management personnel ('KMP')
arrangements for the consolidated entity, in accordance with the requirements of the Corporations Act 2001 and its
Regulations.
KMP are defined as those who have the authority and responsibility for planning, directing and controlling the major
activities of the consolidated entity.
The remuneration report is set out under the following main headings:
●
●
●
●
●
Principles used to determine the nature and amount of remuneration
Details of remuneration
Service agreements
Share-based compensation
Additional disclosures relating to key management personnel
Principles used to determine the nature and amount of remuneration
The objective of the consolidated entity's executive reward framework is to ensure reward for performance is competitive
and appropriate for the results delivered. The framework aligns executive reward with the achievement of strategic
objectives and the creation of value for shareholders, and it is considered to conform to market best practice for delivery of
reward. The Board ensures that executive reward satisfies the following key criteria for good reward governance practices:
●
●
●
●
competitiveness and reasonableness;
acceptability to shareholders;
performance linkage / alignment of KMP compensation; and
transparency.
The Nomination and Remuneration Committee ('NRC') is responsible for determining and reviewing remuneration
arrangements for its KMP. The performance of the consolidated entity depends on the quality of its KMP. The
remuneration philosophy is to attract, motivate and retain high performance and high quality personnel.
The remuneration committee makes recommendations to the Board in relation to remuneration of non-executive directors,
and establishes, reviews and approves remuneration terms and the performance of the chief executive officer. The
committee also assists the chief executive officer in the remuneration review of senior executives and sets the
remuneration package of the chief executive officer for approval by the Board.
In accordance with best practice corporate governance, the structure of non-executive director and executive director
remuneration is separate.
Non-executive directors' remuneration
Fees and payments to non-executive directors reflect the demands which are made on, and the responsibilities of, the
directors. Non-executive directors' fees and payments are reviewed annually by the NRC. The committee may take the
advice of independent remuneration consultants to ensure non-executive directors' fees and payments are appropriate and
in line with the market. The fees for the chair of the Board are determined independently to the fees of other non-executive
directors based on comparative roles in the external market. Non-executive directors do not receive share options or other
incentives.
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Kip McGrath Education Centres Limited ABN 73 003 415 889 | Annual Report 2018
Kip McGrath Education Centres Limited
Directors' report
30 June 2018
ASX listing rules requires that the aggregate non-executive directors' remuneration be determined periodically by a general
meeting. The most recent determination was at the Annual General Meeting held on 20 November 2015, where the
shareholders approved a maximum aggregate remuneration of $400,000.
Executive remuneration
The consolidated entity aims to reward KMP based on their position and responsibility, with a level and mix of
remuneration, which has both fixed and variable components.
The KMP remuneration and reward framework has four components:
●
●
●
●
base pay and non-monetary benefits;
short-term performance incentives;
share-based payments; and
other remuneration, such as superannuation and long service leave.
The combination of these comprises the KMP's total remuneration.
Fixed remuneration, consisting of base salary, superannuation and non-monetary benefits, are reviewed annually by the
NRC, based on individual and business unit performance, the overall performance of the consolidated entity and
comparable market remuneration.
KMPs can receive their fixed remuneration in the form of cash or other fringe benefits (for example motor vehicle benefits)
where it does not create any additional costs to the consolidated entity and adds additional value to the KMP.
The short-term incentives ('STI') program is designed to align the targets of the business units with the performance
hurdles of executives. STI payments are granted to executives based on specific annual targets and key performance
indicators ('KPI') being achieved. KPI’s for the chief executive officer are set by the NRC and currently focus on the
consolidated entity's financial performance measured by reference to annual after-tax profit. The KPI's of other executives
are set by the chief executive officer and are reviewed in consultation with the chair of the Board.
Long-term incentives ('LTI') include share options and long service leave. An employee share option plan was approved by
shareholders in 2012, the objective of which is to assist in the recruitment, reward, retention and motivation of key
employees and directors by facilitating the offering of options over ordinary shares, subject to performance and loyalty
hurdles. The plan aims to give selected employees and directors the opportunity to share in the future growth and
profitability of the company by better aligning their interests with those of shareholders and provides greater incentive for
them to work towards achieving the longer term goals of the company.
Under the plan, the board has discretion to decide which full or part-time employees or directors of the company (or related
body corporate) will be invited to acquire options, the number of options to be offered, any vesting conditions such as
performance targets or minimum vesting periods, the applicable exercise price (which must be at least equal to the market
value of shares at the time of the offer), and any other terms of issue.
Consolidated entity performance and link to remuneration
KMP remuneration is linked to the performance of the consolidated entity. Bonus and incentive payments are at the
discretion of the Board.
Use of remuneration consultants
During the financial year ended 30 June 2018, the consolidated entity, through the Nomination and Remuneration
Committee, engaged Ascent Data, remuneration consultants, to review its existing remuneration policies and provide
recommendations on how to improve both the STI and LTI programs. This has resulted in the production of a remuneration
benchmarking report for the use of the Nomination and Remuneration Committee, and the adjustment of salaries for the
Directors, Chief Executive Officer and Chief Financial Officer based, in part, on recommendations from this report. Ascent
Data was paid $10,000 for these services.
An agreed set of protocols were put in place to ensure that the remuneration recommendations would be free from undue
influence from key management personnel. These protocols include requiring that the consultant not communicate with
affected key management personnel without a member of the Nomination and Remuneration Committee being present,
and that the consultant not provide any information relating to the outcome of the engagement with the affected key
management personnel. The Board is also required to make inquiries of the consultant's processes at the conclusion of the
engagement to ensure that they are satisfied that any recommendations made have been free from undue influence. The
Board is satisfied that these protocols were followed and as such there was no undue influence.
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Annual Report 2018 | Kip McGrath Education Centres Limited ABN 73 003 415 889
Kip McGrath Education Centres Limited
Directors' report
30 June 2018
Voting and comments made at the company's 2017 Annual General Meeting ('AGM')
At the 2017 AGM, 99% of the shareholders voted to adopt the remuneration report for the year ended 30 June 2017. The
company did not receive any specific feedback at the AGM regarding its remuneration practices.
Details of remuneration
Amounts of remuneration
Details of the remuneration of the directors and other KMP of Kip McGrath Education Centres Limited are set out in the
following tables.
The KMP of the consolidated entity consisted of the directors of Kip McGrath Education Centres Limited and the following
persons:
●
●
●
●
●
●
●
●
●
Storm McGrath - Chief Executive Officer and Investor Relations
Brett Edwards - Company Secretary and Chief Financial Officer
Jackie Burrows - Chief Executive Officer UK Business
Catherine Cook - Global Curriculum and Training Manager
Julie Russell - Global Marketing Manager
Peter Hepp - IT Manager
Brad Leach - IT Development Manager (from 1 January 2018)
Chris Lee - Australian Operations and Sales Manager (from 1 February 2018)
James Street - Chief Executive Officer - Online (to 1 July 2016)
Short-term benefits
Post-
employment
benefits
Long-term
benefits
Cash salary
and fees
$
Bonus
$
Non-
Leave
monetary annuation benefits
Super-
$
$
$
Share-
based
payments
Share-
based
payments
Equity-
settled
shares
$
Equity-
settled
options
$
Total
$
132,192
63,927
54,794
54,794
-
-
-
-
2,146
2,146
2,146
2,146
7,808
6,073
5,205
5,205
317,941
191,254
142,857
145,768
127,503
127,327
59,059
18,654
1,436,070
25,000
15,000
16,071
15,000
15,000
5,000
5,600
-
96,671
2,146
2,146
2,146
2,146
2,146
2,146
6,547
882
28,889
30,204
19,095
-
14,560
12,730
12,690
6,210
1,772
121,552
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
142,146
72,146
62,145
62,145
26,585
9,129
2,694
2,283
2,283
2,283
-
-
401,876
236,624
163,768
179,757
159,662
149,446
77,416
21,308
45,257 1,728,439
2018
Non-Executive
Directors:
Kip McGrath
(Chairman) *
Ian Campbell
Trevor Folsom
Diane Pass
Other Key
Management
Personnel:
Storm McGrath
Brett Edwards
Jackie Burrows
Catherine Cook
Julie Russell
Peter Hepp
Brad Leach
Chris Lee
*
Kip McGrath receives a $90,000 fee as Non-executive Chairman plus additional remuneration for agreed services.
10
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Kip McGrath Education Centres Limited ABN 73 003 415 889 | Annual Report 2018
Kip McGrath Education Centres Limited
Directors' report
30 June 2018
Short-term benefits
Post-
employment
benefits
Long-term
benefits
Cash salary
and fees
$
Bonus
$
Non-
Leave
monetary annuation benefits
Super-
$
$
$
Share-
based
payments
Share-
based
payments
Equity-
settled
shares
$
Equity-
settled
options
$
Total
$
2017
Non-Executive
Directors:
Kip McGrath
(Chairman) *
Ian Campbell
Trevor Folsom
Diane Pass
Other Key
Management
Personnel:
Storm McGrath
James Street
Brett Edwards
Jackie Burrows
Catherine Cook
Julie Russell
Peter Hepp
142,608
63,927
54,795
20,653
-
-
-
-
2,158
2,158
2,158
1,079
7,808
6,073
5,205
1,962
273,831
65,951
177,924
143,230
138,104
123,139
115,589
1,319,751
-
-
9,750
15,175
7,500
6,500
6,250
45,175
2,158
-
2,158
2,158
2,158
2,158
2,158
20,501
25,445
601
16,903
-
13,120
11,698
10,981
99,796
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
152,574
72,158
62,158
23,694
20,335
-
9,288
2,487
528
528
528
321,769
66,552
216,023
163,050
161,410
144,023
135,506
33,694 1,518,917
*
Kip McGrath receives a $90,000 fee as Non-executive Chairman plus additional remuneration for agreed services.
The proportion of remuneration linked to performance and the fixed proportion are as follows:
Name
Non-Executive Directors:
Kip McGrath
Ian Campbell
Trevor Folsom
Diane Pass
Other Key Management
Personnel:
Storm McGrath
James Street
Brett Edwards
Jackie Burrows
Catherine Cook
Julie Russell
Peter Hepp
Brad Leach
Chris Lee
Fixed remuneration
2017
2018
At risk - STI
At risk - LTI
2018
2017
2018
2017
-
-
-
-
6%
-
6%
10%
8%
9%
3%
7%
-
-
-
-
-
-
-
5%
9%
5%
5%
5%
-
-
-
-
-
-
7%
-
4%
2%
1%
1%
2%
-
-
-
-
-
-
6%
-
5%
2%
-
-
-
-
-
100%
100%
100%
100%
87%
-
90%
88%
91%
90%
95%
93%
100%
100%
100%
100%
100%
94%
100%
90%
89%
95%
95%
95%
-
-
11
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Annual Report 2018 | Kip McGrath Education Centres Limited ABN 73 003 415 889
Kip McGrath Education Centres Limited
Directors' report
30 June 2018
Service agreements
KMP have standard contracts of employment that have no entitlement to termination payments in the event of removal for
misconduct. Termination can be made by either the consolidated entity or the individual subject to one to six months’
notice. Some KMP has entitlements to performance incentives as detailed below:
Storm McGrath has entitlements to performance incentives of up to 37.5% of salary;
Jackie Burrows and Chris Lee have entitlement to performance incentives based on sales in the UK market and
Australasian markets respectively, and
Other KMP have specific performance incentives of up to 18.75% of salary.
Share-based compensation
Issue of options
Details of options over ordinary shares granted to directors and other key management personnel as part of compensation
during the year, or that otherwise has affected the remuneration of directors and other key management personnel for the
year ended 30 June 2018, are set out below:
Name
Storm McGrath
Brett Edwards
Jackie Burrows
Peter Hepp
Julie Russell
Catherine Cook
Grant Date
21 Nov 2014
27 Oct 2017
28 Feb 2014
20 Aug 2014
19 Aug 2016
9 Oct 2017
28 Feb 2014
19 Aug 2016
9 Oct 2017
19 Aug 2016
9 Oct 2017
19 Aug 2016
9 Oct 2017
19 Aug 2016
9 Oct 2017
No. of options
granted
No. of options
lapsed during
year
Exercise price
1,000,000
500,000
150,000
150,000
100,000
150,000
50,000
100,000
100,000
100,000
100,000
100,000
100,000
100,000
100,000
$0.350
$0.370
$0.190
$0.350
$0.300
$0.370
$0.190
$0.300
$0.370
$0.300
$0.370
$0.300
$0.370
$0.300
$0.370
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
There have been no alterations to the terms or conditions of the options granted since grant date except for the extension
of the expiry date in relation to options granted on 28 February 2014 which is now 28 February 2019 (previously 28
February 2018).
The terms and conditions of each grant of options over ordinary shares affecting remuneration of directors and other KMP
in this financial year or future reporting years are as follows:
Grant date
No. granted
Vesting date
Exercise price at grant date
28 Feb 2014
20 Aug 2014
21 Nov 2014
19 Aug 2016
9 Oct 2017
27 Oct 2017
200,000
150,000
1,000,000
500,000
550,000
500,000
28 Feb 2019
31 Dec 2019
31 Dec 2019
31 Dec 2021
31 Dec 2021
31 Dec 2021
$0.190
$0.350
$0.350
$0.300
$0.370
$0.370
$0.223
$0.172
$0.172
$0.113
$0.104
$0.104
Fair value
per option
12
12
Kip McGrath Education Centres Limited ABN 73 003 415 889 | Annual Report 2018
Kip McGrath Education Centres Limited
Directors' report
30 June 2018
Options granted carry no dividend or voting rights. There were no amounts paid or payable by recipients on the granting of
options. Options can only be exercised once vested in the recipient and on or prior to expiry date. Options are not
transferable except in special or approved circumstances and will not be listed on the ASX. Shares issued on exercise of
options will rank equally with other ordinary shares and will be subject to an application for quotation on the ASX. Options
will vest after all specified vesting conditions have been met unless determined otherwise by the board where special
circumstances exist, such as in the event of a takeover. Unvested options will lapse immediately the holder ceases
employment with the company or where performance targets have not been met prior to expiry. On cessation of
employment, the holder has 60 business days to exercise any vested options, or 6 months if employment ceases due to
death, disablement or retirement, unless otherwise determined by the board. On exercise, each option converts to one
ordinary share in the company.
Vesting of options is subject to meeting a net profit before tax hurdle, meeting annual performance indicators set by the
board which are linked to centre number growth, student number growth and on-line business growth.
Issue of shares
There were no shares issued to directors and other key management personnel as part of compensation during the year
ended 30 June 2018.
Additional disclosures relating to key management personnel
Shareholding
The number of shares in the company held during the financial year by each director and other members of key
management personnel of the consolidated entity, including their personally related parties, is set out below:
Balance at Received
as part of
the start of
the year
remuneration Additions
Disposals/
other
Balance at
the end of
the year
Ordinary shares
Kip McGrath
Storm McGrath
Ian Campbell
Jackie Burrows
Diane Pass
16,227,499
1,333,959
500,000
150,000
-
18,211,458
-
-
-
-
-
-
-
-
-
-
30,000
30,000
(173,471)
-
-
-
- 16,227,499
1,160,488
500,000
150,000
30,000
(173,471) 18,067,987
Option holding
The number of options over ordinary shares in the company held during the financial year by each director and other
members of key management personnel of the consolidated entity, including their personally related parties, is set out
below. Options have not vested in the holder unless indicated otherwise.
Options over ordinary shares
Storm McGrath
Brett Edwards
Jackie Burrows
Peter Hepp
Julie Russell
Catherine Cook
Balance at
the start of
the year
Granted
Exercised
Expired/
forfeited/
other
Balance at
the end of
the year
1,000,000
400,000
150,000
100,000
100,000
100,000
1,850,000
500,000
150,000
100,000
100,000
100,000
100,000
1,050,000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1,500,000
550,000
250,000
200,000
200,000
200,000
2,900,000
Options do not entitle the holder to receive dividends or any distributions or to participate in any share issue of the
company.
This concludes the remuneration report, which has been audited.
13
13
Annual Report 2018 | Kip McGrath Education Centres Limited ABN 73 003 415 889
Kip McGrath Education Centres Limited
Directors' report
30 June 2018
Shares under option
Unissued ordinary shares of Kip McGrath Education Centres Limited under option at the date of this report are as follows:
Grant date
28 February 2014
20 August 2014
21 November 2014
19 August 2016
9 October 2017
27 October 2017
Expiry date
28 February 2019
31 December 2019
31 December 2019
31 December 2021
31 December 2021
31 December 2021
Exercise
price
Number
under option
$0.190
$0.350
$0.350
$0.300
$0.370
$0.370
200,000
150,000
1,000,000
500,000
550,000
500,000
2,900,000
No person entitled to exercise the options had or has any right by virtue of the option to participate in any share issue of
the company or of any other body corporate.
Shares issued on the exercise of options
There were no ordinary shares of Kip McGrath Education Centres Limited issued on the exercise of options during the year
ended 30 June 2018 and up to the date of this report.
Indemnity and insurance of officers
The company has indemnified the directors and executives of the company for costs incurred, in their capacity as a director
or executive, for which they may be held personally liable, except where there is a lack of good faith.
During the financial year, the company paid a premium in respect of a contract to insure the directors and executives of the
company against a liability to the extent permitted by the Corporations Act 2001. It is not possible to apportion the premium
between amounts relating to the insurance against legal costs and those relating to other liabilities.
Indemnity and insurance of auditor
The company has not, during or since the end of the financial year, indemnified or agreed to indemnify the auditor of the
company or any related entity against a liability incurred by the auditor.
During the financial year, the company has not paid a premium in respect of a contract to insure the auditor of the company
or any related entity.
Proceedings on behalf of the company
No person has applied to the Court under section 237 of the Corporations Act 2001 for leave to bring proceedings on
behalf of the company, or to intervene in any proceedings to which the company is a party for the purpose of taking
responsibility on behalf of the company for all or part of those proceedings.
Non-audit services
Details of the amounts paid or payable to the auditor for non-audit services provided during the financial year by the auditor
are outlined in note 21 to the financial statements.
The directors are satisfied that the provision of non-audit services during the financial year, by the auditor (or by another
person or firm on the auditor's behalf), is compatible with the general standard of independence for auditors imposed by
the Corporations Act 2001.
The directors are of the opinion that the services as disclosed in note 21 to the financial statements do not compromise the
external auditor's independence requirements of the Corporations Act 2001 for the following reasons:
●
all non-audit services have been reviewed and approved to ensure that they do not impact the integrity 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 issued by the Accounting Professional and Ethical Standards Board, including
reviewing or auditing the auditor's own work, acting in a management or decision-making capacity for the company,
acting as advocate for the company or jointly sharing economic risks and rewards.
●
14
14
Kip McGrath Education Centres Limited ABN 73 003 415 889 | Annual Report 2018
Kip McGrath Education Centres Limited
Directors' report
30 June 2018
Officers of the company who are former partners of PKF Newcastle
There are no officers of the company who are former partners of PKF Newcastle.
Rounding of amounts
The company is of a kind referred to in ASIC Corporations (Rounding in Financial/Directors’ Reports) Instrument 2016/191,
issued by the Australian Securities and Investments Commission, relating to 'rounding-off'. Amounts in this report have
been rounded off in accordance with that instrument to the nearest thousand dollars, or in certain cases, the nearest dollar.
Auditor's independence declaration
A copy of the auditor's independence declaration as required under section 307C of the Corporations Act 2001 is set out
immediately after this directors' report.
Auditor
PKF Newcastle continues in office in accordance with section 327 of the Corporations Act 2001.
This report is made in accordance with a resolution of directors, pursuant to section 298(2)(a) of the Corporations Act
2001.
On behalf of the directors
___________________________
Kip McGrath
Chairman
17 August 2018
Newcastle
15
15
Annual Report 2018 | Kip McGrath Education Centres Limited ABN 73 003 415 889
Kip McGrath Education Centres Limited
ACN: 003 415 889
Auditor’s Independence Declaration under section 307C of the Corporations Act 2001
In accordance with the requirements of section 307C of the Corporations Act 2001, as lead auditor for the
audit of Kip McGrath Education Centres Limited for the year ended 30 June 2018, I declare that, to the best
of my knowledge and belief, there have been:
(i) No contraventions of the auditor independence requirements of the Corporations Act 2001 in relation
to the audit; and
(ii) No contraventions of any applicable code of professional conduct in relation to the audit.
PKF
MARTIN MATTHEWS
PARTNER
17 AUGUST 2018
NEWCASTLE, NSW
PKF(NS) Audit & Assurance Limited
Partnership
ABN 91 850 861 839
Liability limited by a scheme
approved under Professional
Standards Legislation
Sydney
Newcastle
Level 8, 1 O’Connell Street
Sydney NSW 2000 Australia
GPO Box 5446 Sydney NSW 2001
755 Hunter Street
Newcastle West NSW 2302 Australia
PO Box 2368 Dangar NSW 2309
p
f
+61 2 8346 6000
+61 2 8346 6099
p
f
+61 2 4962 2688
+61 2 4962 3245
PKF(NS) Audit & Assurance Limited Partnership is a member firm of the PKF International Limited family of legally independent firms and does not
accept any responsibility or liability for the actions or inactions of any individual member or correspondent firm or firms.
For office locations visit www.pkf.com.au
16
16
Kip McGrath Education Centres Limited ABN 73 003 415 889 | Annual Report 2018
Kip McGrath Education Centres Limited
Corporate Governance Statement
30 June 2018
This Corporate Governance Statement of Kip McGrath Education Centres Limited (the ‘company’) has been prepared in
accordance with the 3rd Edition of the Australian Securities Exchange’s (‘ASX’) Corporate Governance Principles and
Recommendations of the ASX Corporate Governance Council (‘ASX Principles and Recommendations’) and is included in
the company’s Annual Report pursuant to ASX Listing Rule 4.10.3. This listing rule requires the company to disclose the
extent to which it has followed the recommendations during the financial year, including reasons where the company has not
followed a recommendation and any related alternative governance practice adopted.
Both this Corporate Governance Statement and the ASX Appendix 4G have been lodged with the ASX. This statement has
been approved by the company’s Board of Directors (‘Board’) and is current as at 17 August 2018.
The ASX Principles and Recommendations and the company’s response as to how and whether it follows those
recommendations are set out below.
Principle 1: Lay solid foundations for management and oversight
Recommendation 1.1 - A listed entity should disclose: (a) the respective roles and responsibilities of its board and
management; and (b) those matters expressly reserved to the board and those delegated to management.
The Board is ultimately accountable for the performance of the company and provides leadership and sets the strategic
objectives of the company. It appoints all senior executives and assesses their performance on at least an annual basis. It is
responsible for overseeing all corporate reporting systems, remuneration frameworks, governance issues, and stakeholder
communications. Decisions reserved for the Board relate to those that have a fundamental impact on the company, such as
material acquisitions and takeovers, dividends and buy-backs, material profits upgrades and downgrades, and significant
closures.
Management is responsible for implementing Board strategy, day-to-day operational aspects, and ensuring that all risks and
performance issues are brought to the Boards attention. They must operate within the risk and authorisation parameters set
by the Board.
Recommendation 1.2 - A listed entity should: (a) undertake appropriate checks before appointing a person, or putting
forward to security holders a candidate for election, as a director; and (b) provide security holders with all material
information in its possession relevant to a decision on whether or not to elect or re-elect a director.
The company undertakes comprehensive reference checks prior to appointing a director, or putting that person forward as a
candidate, to ensure that person is competent, experienced, and would not be impaired in any way from undertaking the
duties of director. The company provides relevant information to shareholders for their consideration about the attributes of
candidates together with whether the Board supports the appointment or re-election.
Recommendation 1.3 - A listed entity should have a written agreement with each director and senior executive setting out
the terms of their appointment.
The terms of the appointment of non-executive directors, executive directors and senior executives are agreed upon and set
out in writing at the time of appointment.
Recommendation 1.4 - The company secretary of a listed entity should be accountable directly to the board, through the
chair, on all matters to do with the proper functioning of the board.
The Company Secretary reports directly to the Board through the Chairman on all matters to do with the proper functioning
of the board and is accessible to all directors.
Recommendation 1.5 - A listed entity should (a) have a diversity policy which includes requirements for the board or a
relevant committee of the board to set measurable objectives for achieving gender diversity and to assess annually both the
objectives and the entity’s progress in achieving them; (b) disclose that policy or a summary of it; and (c) disclose as at the
end of each reporting period the measurable objectives for achieving gender diversity set by the board or a relevant
committee of the board in accordance with the entity’s diversity policy and its progress towards achieving them, and either:
(1) the respective proportions of men and women on the Board, in senior executive positions and across the whole
organisation (including how the entity has defined “senior executive” for these purposes); or (2) if the entity is a “relevant
employer” under the Workplace Gender Equality Act, the entity’s most recent “Gender Equality Indicators”, as defined in and
published under that Act.
17
17
Annual Report 2018 | Kip McGrath Education Centres Limited ABN 73 003 415 889
Kip McGrath Education Centres Limited
Corporate Governance Statement
30 June 2018
The company has a diversity policy approved by the Board, which includes requirements for the Board to set measurable
objectives for achieving diversity, including gender, and to assess annually both the objectives and the entity’s progress in
achieving them.
The company is committed to providing an inclusive workplace and recognises the value individuals with diverse skills,
values, backgrounds and experiences bring to the company. As a global provider of education services, the company is
committed to equality and respect in all locations it operates.
Diversity is recognising and valuing the unique contribution people can make because of their individual background and
different skills, experiences and perspectives. People differ not just on the basis of race and gender, but also other
dimensions such as lifestyle, education, physical ability, age and family responsibility.
The Board’s measurable objective about gender diversity is to progressively increase the portion of women in Board and
Senior Executive roles and this objective is being continually reviewed. As at the date of this report the proportion of women
to men was as follows:
Proportion of
women
Proportion of
men
On the board
In senior executive positions
Across the whole organisation
25%
38%
81%
75%
62%
19%
For this purpose, the Board defines a senior executive as a person who makes, or participates in the making of, decisions
that affect the whole or a substantial part of the business or has the capacity to affect significantly the company’s financial
standing. This therefore includes all senior management and senior executive designated positions as well as senior
specialised professionals.
No entity within the consolidated entity is a ‘relevant employer’ for the purposes of the Workplace Gender Equality Act 2012
and therefore no Gender Equality Indicators to be disclosed.
Recommendation 1.6 - A listed entity should (a) have and disclose a process for periodically evaluating the performance of
the Board, its committees and individual directors; and (b) disclose, in relation to each reporting period, whether a
performance evaluation was undertaken in the reporting period in accordance with that process.
The company does not currently have a formal process for evaluating the performance of the Board, its committees or
individual directors. The Board conducts an introspective annual discussion of its performance on a collective basis to
identify general aspects of its performance that could be improved upon, and such analysis includes the roles played by
each Board member. Such reviews therefore encapsulate collective discussion around the performance of individual Board
members, their roles on specific projects during the financial year, and where relevant, how their role could be modified or
suggestions for individual development or performance improvement for the future.
Until such time as the company expands to justify an expansion of Board members, the Board is of the current opinion that
such performance evaluation is suitable for the company.
Recommendation 1.7 - A listed entity should (a) have and disclose a process for periodically evaluating the performance of
its senior executives; and (b) disclose, in relation to each reporting period, whether a performance evaluation was
undertaken in the reporting period in accordance with that process.
The Board conducts an annual performance assessment of the CEO against agreed performance measures determined at
the start of the year. The CEO undertakes the same assessments of senior executives. In assessing the performance of the
individual, the review includes consideration of the senior executive’s function, individual targets, group targets, and the
overall performance of the company. The most recent review was completed in July 2018.
18
18
Kip McGrath Education Centres Limited ABN 73 003 415 889 | Annual Report 2018
Kip McGrath Education Centres Limited
Corporate Governance Statement
30 June 2018
Principle 2: Structure the board to add value
Recommendation 2.1 - The board of a listed entity should (a) have a nomination committee which: (1) has at least three
members, a majority of whom are independent directors; and (2) is chaired by an independent director, and disclose: (3) the
charter of the committee; (4) the members of the committee; and (5) as at the end of each reporting period, the number of
times the committee met throughout the period and the individual attendances of the members at those meetings; or (b) if it
does not have a nomination committee, disclose that fact and the processes it employs to address Board succession issues
and to ensure that the board has the appropriate balance of skills, knowledge, experience, independence and diversity to
enable it to discharge its duties and responsibilities effectively.
The Board does not maintain a Nomination Committee as it is considered that the current size of the Board does not warrant
the formal establishment of a separate committee. The Board therefore performs the function of such a committee which
includes the identification of skills and competencies required for the Board and related committees, as well as nomination,
selection and performance evaluation of non-executive directors. The Board does not actively manage succession planning
and instead relies upon the Board’s extensive networking capabilities and/or executive recruitment firms to identify
appropriate candidates when a Board vacancy occurs or when a vacancy is otherwise envisaged. Attributes of candidates
put forward will be considered for ‘best-fit’ to the needs of the Board which are assessed at the time of the vacancy.
Recommendation 2.2 - A listed entity should have and disclose a board skills matrix setting out the mix of skills and diversity
that the board currently has or is looking to achieve in its membership.
The Board does not maintain a formal skills matrix that sets out the mix of skills and diversity that the Board aims to
achieve in its membership. The current Board members represent individuals that have extensive industry experience as
well as professionals that bring to the Board their specific skills in order for the company to achieve its strategic,
operational and compliance objectives. Their suitability to the directorship has therefore been determined primarily on the
basis of their ability to deliver outcomes in accordance with the company’s short and longer term objectives and therefore
deliver value to shareholders.
External consultants may be brought in with specialist knowledge to address areas where this is an attribute deficiency in
the Board.
All Board members are expected to be able to demonstrate the following attributes:
Board member
attributes
Leadership
Ethics and integrity
Communication
Negotiation
Corporate
governance
Represents the company positively amongst stakeholders and external parties; decisively acts
ensuring that all pertinent facts are considered; leads others to action; proactive solution seeker.
Awareness of social, professional and legal responsibilities at individual, company and
community level; ability to identify independence conflicts; applies sound professional
judgement; identifies when external counsel should be sought; upholds Board confidentiality;
respectful in every situation.
Effective in working within defined corporate communications policies; makes constructive and
precise contribution to the Board both verbally and in written form; an effective communicator
with executives.
Negotiation skills which engender stakeholder support for implementing Board decisions.
Experienced director that is familiar with the mechanisms, controls and channels to deliver
effective governance and manage risks.
Recommendation 2.3 - A listed entity should disclose: (a) the names of the directors considered by the board to be
independent directors; (b) if a director has an interest, position, association or relationship of the type described in Box 2.3
but the board is of the opinion that it does not compromise the independence of the director, the nature of the interest,
position, association or relationship in question and an explanation of why the board is of that opinion; and (c) the length of
service of each director.
19
19
Annual Report 2018 | Kip McGrath Education Centres Limited ABN 73 003 415 889
Kip McGrath Education Centres Limited
Corporate Governance Statement
30 June 2018
Details of the Board of directors, their appointment date, length of service and independence status is as follows:
Director’s name
Kip McGrath
Ian Campbell
Trevor Folsom
Diane Pass
Appointment date
Length of service at
reporting date
30 years
9 March 1988
25 August 2009
9 years
22 September 2014 3 years
1 year
1 February 2017
Independence status
Non-Executive Chairman
Independent Non-Executive
Independent Non-Executive
Independent Non-Executive
The composition of the Board is structured to ensure that the Board has the appropriate mix of expertise and experience.
Details of directors that the Board has declared as independent but which maintain an interest or relationship that could be
perceived as impairing independence, and the reason as to the Board’s determination are as follows:
Director’s name
Details of interest or relationship
Board reasoning why director is independent
Ian Campbell
500,000 ordinary shares held
indirectly in superfund
Diane Pass
30,000 ordinary shares
This holding aligns the interests of the director with
those of the shareholders and is encouraged by the
company.
This holding aligns the interests of the director with
those of the shareholders and is encouraged by the
company.
Recommendation 2.4 - A majority of the board of a listed entity should be independent directors.
Having regard to the response to Recommendation 2.3 above, the majority of the Board at the reporting date were
independent.
Recommendation 2.5 - The Chair of the board of a listed entity should be an independent director and, in particular, should
not be the same person as the CEO of the entity.
Kip McGrath is Chair of the Board and does not hold the position of CEO of the company. Whilst Kip McGrath is not an
independent director the Board considers him the most suitable director for the role due to being a co-founder of the
company. The CEO is Storm McGrath.
Recommendation 2.6 - A listed entity should have a program for inducting new directors and provide appropriate
professional development opportunities for directors to develop and maintain the skills and knowledge needed to perform
their role as directors effectively.
New directors undertake an induction program coordinated by the Company Secretary that briefs and informs the director on
all relevant aspects of the company’s operations and background. A director development program is also available to
ensure that directors can enhance their skills and remain abreast of important developments.
Principle 3: Act ethically and responsibly
Recommendation 3.1 - A listed entity should: (a) have a code of conduct for its directors, senior executives and employees;
and (b) disclose that code or a summary of it.
The company maintains a code of conduct for its directors, senior executives and employees. In summary, the code
requires that each person act honestly, in good faith and in the best interests of the company; exercise a duty of care; use
the powers of office in the best interests of the company and not for personal gain; declare any conflict of interest; safeguard
company’s assets and information; and not undertake any action that may jeopardise the reputation of company.
Principle 4: Safeguard integrity in corporate reporting
Recommendation 4.1 - The board of a listed entity should: (a) have an audit committee which: (1) has at least three
members, all of whom are non-executive directors and a majority of whom are independent directors; and (2) is chaired by
an independent director, who is not the chair of the board, and disclose: (3) the charter of the committee; (4) the relevant
qualifications and experience of the members of the committee; and (5) in relation to each reporting period, the number of
times the committee met throughout the period and the individual attendances of the members at those meetings; or (b) if it
does not have an audit committee, disclose that fact and the processes it employs that independently verify and safeguard
the integrity of its corporate reporting, including the processes for the appointment and removal of the external auditor and
the rotation of the audit engagement partner.
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Kip McGrath Education Centres Limited ABN 73 003 415 889 | Annual Report 2018
Kip McGrath Education Centres Limited
Corporate Governance Statement
30 June 2018
The Board has an Audit Committee, under a formal Charter, the members of which are:
Director’s name
Executive status
Independence status
Ian Campbell – Chair
Trevor Folsom
Non-Executive Director
Non-Executive Director
Independent
Independent
Diane Pass
Non-Executive Director
Independent
The Committee consists entirely of non-executive directors, Ian Campbell Diane Pass, and Trevor Folsom. The chairperson,
Ian Campbell is not Board chair and is an independent director.
The number of Committee meetings held and attended by each member is disclosed in the ‘Meetings of directors’ section of
the Directors’
Details of the qualifications and experience of the members of the Committee is detailed in the ‘Information of directors’
section of the Directors’ report.
Recommendation 4.2 - The board of a listed entity should, before it approves the entity’s financial statements for a financial
period, receive from its CEO and CFO a declaration that, in their opinion, the financial records of the entity have been
properly maintained and that the financial statements comply with the appropriate accounting standards and give a true and
fair view of the financial position and performance of the entity and that the opinion has been formed on the basis of a sound
system of risk management and internal control which is operating effectively.
For the financial year ended 30 June 2018 and the half-year ended 31 December 2017, the company’s CEO and CFO
provided the Board with the required declarations.
Recommendation 4.3 - A listed entity that has an AGM should ensure that its external auditor attends its AGM and is
available to answer questions from security holders relevant to the audit.
The audit engagement partner attends the AGM and is available to answer shareholder questions relevant to the audit.
Principle 5: Make timely and balanced disclosure
Recommendation 5.1 - A listed entity should (a) have a written policy for complying with its continuous disclosure obligations
under the Listing Rules; and (b) disclose that policy or a summary of it.
The company maintains a written policy that outlines the responsibilities relating to the directors, officers and employees in
complying with the company’s disclosure obligations. Where any such person, is of any doubt, as to whether they possess
information that could be classified as market sensitive, they are required to notify the Company Secretary immediately in
the first instance. The Company Secretary is required to consult with the Chairman in relation to matters brought to his
attention for potential announcement. Generally, the Chairman is ultimately responsible for decisions relating to the making
of market announcements. The Board is required to authorise announcements of significance to the company. No member
of the company shall disclose market sensitive information to any person unless they have received acknowledgement from
the ASX that the information has been released to the market.
Principle 6: Respect the rights of security holders
Recommendation 6.1 - A listed entity should provide information about itself and its governance to investors via its website.
The company maintains information in relation to the board of directors, share registry, ASX announcements and contact
details on the company’s website.
Recommendations 6.2 and 6.3
A listed entity should design and implement an investor relations program to facilitate effective two-way communication with
investors (6.2).
A listed entity should disclose the policies and processes it has in place to facilitate and encourage participation at meetings
of security holders (6.3).
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Annual Report 2018 | Kip McGrath Education Centres Limited ABN 73 003 415 889
Kip McGrath Education Centres Limited
Corporate Governance Statement
30 June 2018
The company does not have a formal investor relations program. The Board, CEO and Company Secretary engage with
investors at the AGM and respond to shareholder enquiry on an ad hoc basis. Material communications are dispatched to
investors either via email, surface mail, and/or via market announcement.
Recommendation 6.4 - A listed entity should give security holders the option to receive communications from, and send
communications to, the entity and its security registry electronically.
The company engages its share registry to manage the majority of communications with shareholders. Shareholders are
encouraged to receive correspondence from the company electronically, thereby facilitating a more effective, efficient and
environmentally friendly communication mechanism with shareholders. Shareholders not already receiving information
electronically can elect to do so through the share registry, Computershare www-au.computershare.com.
Principle 7: Recognise and manage risk
Recommendations 7.1 & 7.2
The board of a listed entity should: (a) have a committee or committees to oversee risk, each of which: (1) has at least three
members, a majority of whom are independent directors; and (2) is chaired by an independent director, and disclose: (3) the
charter of the committee; (4) the members of the committee; and (5) as at the end of each reporting period, the number of
times the committee met throughout the period and the individual attendances of the members at those meetings; or (b) if it
does not have a risk committee or committees that satisfy (a) above, disclose that fact and the processes it employs for
overseeing the entity’s risk management framework (7.1).
The board or a committee of the board should: (a) review the entity’s risk management framework at least annually to satisfy
itself that it continues to be sound; and (b) disclose, in relation to each reporting period, whether such a review has taken
place (7.2).
The company does not maintain a Risk Committee as it is considered that the current size of the Board does not warrant the
formal establishment of a separate committee. The Board and Audit Committee therefore performs the function of such a
committee which includes setting of corporate governance policy and exercising due care and skill in assessing risk,
developing strategies to mitigate such risk, monitoring the risk and the company’s effectiveness in managing it. The
company maintains internal controls which assist in managing enterprise risk, and these are reviewed as part of the scope
of the external audit, with the auditor providing the Board with commentary on their effectiveness and the need for any
additional controls. The CEO and CFO are responsible for monitoring operational risk, ensuring all relevant insurances are
in place, and ensuring that all regulatory and compliance obligations of the company are satisfied. The last review was
completed in May 2018.
Recommendation 7.3 - A listed entity should disclose: (a) if it has an internal audit function, how the function is structured
and what role it performs; or (b) if it does not have an internal audit function, that fact and the processes it employs for
evaluating and continually improving the effectiveness of its risk management and internal control processes.
The company does not have a dedicated internal audit function. The responsibility for risk management and internal controls
lies with both the CEO and CFO who continually monitor the company’s internal and external risk environment. Necessary
action is taken to protect the integrity of the company’s books and records through design and implementation of internal
controls and operational efficiencies, mitigation of risks, and safeguard of the company assets.
Recommendation 7.4 - A listed entity should disclose whether it has any material exposure to economic, environmental and
social sustainability risks and, if it does, how it manages or intends to manage those risks.
As at the date of reporting the company does not consider it has any material exposures to economic, environmental or
social sustainability risks. Refer to commentary at Recommendations 7.1 and 7.2 for information on the company’s risk
management framework.
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Kip McGrath Education Centres Limited ABN 73 003 415 889 | Annual Report 2018
Kip McGrath Education Centres Limited
Corporate Governance Statement
30 June 2018
Principle 8: Remunerate fairly and responsibly
Recommendation 8.1 - The board of a listed entity should: (a) have a remuneration committee which: (1) has at least three
members, a majority of whom are independent directors; and (2) is chaired by an independent director, and disclose: (3) the
charter of the committee; (4) the members of the committee; and (5) as at the end of each reporting period, the number of
times the committee met throughout the period and the individual attendances of the members at those meetings; or (b) if it
does not have a remuneration committee, disclose that fact and the processes it employs for setting the level and
composition of remuneration for directors and senior executives and ensuring that such remuneration is appropriate and not
excessive.
The Board maintains a Remuneration Committee, whose members during the financial year, were as follows:
Director’s Name
Executive Status
Independence Status
Ian Campbell
Trevor Folsom
Diane Pass - Chair
The Committee consists entirely of non-executive directors, Ian Campbell, Diane Pass and Trevor Folsom. The chairperson,
Diane Pass is not Board chair and is an independent director. The number of Committee meetings held and attended by
each member is disclosed in the ‘Meetings of directors’ section of the Directors’ report.
Non-Executive Director
Non-Executive Director
Non-Executive Director
Independent
Independent
Independent
The Board has established the committee under formal Charter.
Recommendation 8.2 - A listed entity should separately disclose its policies and practices regarding the remuneration of
non-executive directors and the remuneration of executive directors and other senior executives.
The Committee reviews remuneration packages and policies applicable to the CEO and senior executives. This may include
share schemes, incentive performance packages, superannuation entitlements, retirement and termination entitlements,
fringe benefit policies and professional indemnity and liability insurance policies. External advice is sought as appropriate.
Further details of directors’ and executives’ remuneration, superannuation and retirement payments are set out in the
remuneration report which forms part of the directors’ report. The CEO is invited to committee meetings, as required, to
discuss management performance and remuneration packages.
Non-executive directors do not receive incentive payments or retirement benefits (other than statutory superannuation).
Equity-based remuneration is not a standard component of executive remuneration agreements. Any future equity issued to
executives or non-executives as remuneration will be approved at the annual general meeting of shareholders.
No senior executive is involved directly in deciding their own remuneration.
Recommendation 8.3 - A listed entity which has an equity-based remuneration scheme should: (a) have a policy on whether
participants are permitted to enter into transactions (whether through the use of derivatives or otherwise) which limit the
economic risk of participating in the scheme; and (b) disclose that policy or a summary of it
The use of derivatives or other hedging arrangements for unvested securities of the company or vested securities of the
company which are subject to escrow arrangements is prohibited. Where a director or other senior executive uses
derivatives or other hedging arrangements over vested securities of the company, this will be disclosed.
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Annual Report 2018 | Kip McGrath Education Centres Limited ABN 73 003 415 889
Kip McGrath Education Centres Limited
Contents
30 June 2018
Statement of profit or loss and other comprehensive income
Statement of financial position
Statement of changes in equity
Statement of cash flows
Notes to the financial statements
Directors' declaration
Independent auditor's report to the members of Kip McGrath Education Centres Limited
Shareholder information
General information
25
26
27
28
29
59
60
66
The financial statements cover Kip McGrath Education Centres Limited as a consolidated entity consisting of Kip McGrath
Education Centres Limited and the entities it controlled at the end of, or during, the year. The financial statements are
presented in Australian dollars, which is Kip McGrath Education Centres Limited's functional and presentation currency.
Kip McGrath Education Centres Limited is a listed public company limited by shares, incorporated and domiciled in
Australia. Its registered office and principal place of business is:
Level 3
6 Newcomen Street
Newcastle NSW 2300
A description of the nature of the consolidated entity's operations and its principal activities are included in the directors'
report, which is not part of the financial statements.
The financial statements were authorised for issue, in accordance with a resolution of directors, on 17 August 2018. The
directors have the power to amend and reissue the financial statements.
24
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Kip McGrath Education Centres Limited ABN 73 003 415 889 | Annual Report 2018
Kip McGrath Education Centres Limited
Statement of profit or loss and other comprehensive income
For the year ended 30 June 2018
Revenue
Expenses
Royalties, commissions and other direct expenses
Employee expenses
Marketing expenses
Administration expenses
Merchandising expenses
Depreciation and amortisation expense
Net foreign exchange gain/(losses)
Finance costs
Profit before income tax expense
Income tax expense
Profit after income tax expense for the year attributable to the owners of Kip
McGrath Education Centres Limited
Other comprehensive income
Items that may be reclassified subsequently to profit or loss
Foreign currency translation
Other comprehensive income for the year, net of tax
Total comprehensive income for the year attributable to the owners of Kip
McGrath Education Centres Limited
Note
Consolidated
2018
$'000
2017
$'000
4
5
5
5
5
6
13,745
13,507
(3,716)
(3,097)
(999)
(1,660)
(437)
(1,074)
3
(58)
(5,030)
(2,906)
(910)
(1,571)
(326)
(773)
(128)
(68)
2,707
1,795
(686)
(359)
2,021
1,436
(12)
(12)
(101)
(101)
2,009
1,335
Cents
Cents
Basic earnings per share
Diluted earnings per share
28
28
4.488
4.244
3.199
3.069
The above statement of profit or loss and other comprehensive income should be read in conjunction with the
accompanying notes
25
25
Annual Report 2018 | Kip McGrath Education Centres Limited ABN 73 003 415 889
Kip McGrath Education Centres Limited
Statement of financial position
As at 30 June 2018
Assets
Current assets
Cash and cash equivalents
Trade and other receivables
Prepayments
Total current assets
Non-current assets
Trade receivables
Plant and equipment
Intangibles
Deferred tax
Total non-current assets
Total assets
Liabilities
Current liabilities
Trade and other payables
Borrowings
Income tax
Employee benefits
Total current liabilities
Non-current liabilities
Deferred tax
Total non-current liabilities
Total liabilities
Net assets
Equity
Issued capital
Reserves
Retained profits
Total equity
Note
Consolidated
2018
$'000
2017
$'000
7
8
9
10
11
12
13
14
15
16
5,916
507
320
6,743
12
71
12,252
306
12,641
4,932
980
141
6,053
19
111
10,304
526
10,960
19,384
17,013
5,188
600
490
448
6,726
1,412
1,412
4,091
750
37
364
5,242
1,522
1,522
8,138
6,764
11,246
10,249
8,838
655
1,753
8,838
598
813
11,246
10,249
The above statement of financial position should be read in conjunction with the accompanying notes
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Kip McGrath Education Centres Limited ABN 73 003 415 889 | Annual Report 2018
Kip McGrath Education Centres Limited
Statement of changes in equity
For the year ended 30 June 2018
Consolidated
Balance at 1 July 2016
Profit after income tax expense for the year
Other comprehensive income for the year, net of tax
Total comprehensive income for the year
Transactions with owners in their capacity as owners:
Contributions of equity, net of transaction costs (note 15)
Share-based payments
Dividends paid (note 17)
Issued
capital
$'000
Retained
Reserves
$'000
profits
$'000
Total equity
$'000
8,774
-
-
-
64
-
-
667
-
(101)
(101)
-
32
-
98
9,539
1,436
-
1,436
(101)
1,436
1,335
-
-
(721)
64
32
(721)
Balance at 30 June 2017
8,838
598
813
10,249
Consolidated
Balance at 1 July 2017
Profit after income tax expense for the year
Other comprehensive income for the year, net of tax
Total comprehensive income for the year
Transactions with owners in their capacity as owners:
Share-based payments
Dividends paid (note 17)
Issued
capital
$'000
Retained
Reserves
$'000
profits
$'000
Total equity
$'000
8,838
-
-
-
-
-
598
-
(12)
(12)
69
-
813
10,249
2,021
-
2,021
(12)
2,021
2,009
-
(1,081)
69
(1,081)
Balance at 30 June 2018
8,838
655
1,753
11,246
The above statement of changes in equity should be read in conjunction with the accompanying notes
27
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Annual Report 2018 | Kip McGrath Education Centres Limited ABN 73 003 415 889
Kip McGrath Education Centres Limited
Statement of cash flows
For the year ended 30 June 2018
Cash flows from operating activities
Receipts from customers (inclusive of GST)
Payments to suppliers and employees (inclusive of GST)
Interest received
Interest and other finance costs paid
Income taxes paid
Note
Consolidated
2018
$'000
2017
$'000
15,568
(10,220)
13,930
(10,730)
5,348
2
(58)
(123)
3,200
1
(68)
-
Net cash from operating activities
27
5,169
3,133
Cash flows from investing activities
Payments for property, plant and equipment
Payments for intangibles
Net cash used in investing activities
Cash flows from financing activities
Proceeds from issue of shares
Proceeds from borrowings
Dividends paid
Repayment of borrowings
Net cash used in financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the financial year
9
(16)
(2,938)
(110)
(1,064)
15
17
(2,954)
(1,174)
-
700
(1,081)
(850)
64
1,305
(721)
(1,205)
(1,231)
(557)
984
4,932
1,402
3,530
Cash and cash equivalents at the end of the financial year
7
5,916
4,932
The above statement of cash flows should be read in conjunction with the accompanying notes
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Kip McGrath Education Centres Limited ABN 73 003 415 889 | Annual Report 2018
Kip McGrath Education Centres Limited
Notes to the financial statements
30 June 2018
Note 1. Significant accounting policies
The principal accounting policies adopted in the preparation of the financial statements are set out below. These policies
have been consistently applied to all the years presented, unless otherwise stated.
New or amended Accounting Standards and Interpretations adopted
The consolidated entity has adopted all of the new or amended Accounting Standards and Interpretations issued by the
Australian Accounting Standards Board ('AASB') that are mandatory for the current reporting period. The adoption of these
Accounting Standards and Interpretations did not have any significant impact on the financial performance or position of
the consolidated entity.
Any new or amended Accounting Standards or Interpretations that are not yet mandatory have not been early adopted.
Basis of preparation
These general purpose financial statements have been prepared in accordance with Australian Accounting Standards and
Interpretations issued by the Australian Accounting Standards Board ('AASB') and the Corporations Act 2001, as
appropriate for for-profit oriented entities. These financial statements also comply with International Financial Reporting
Standards as issued by the International Accounting Standards Board ('IASB').
Historical cost convention
The financial statements have been prepared under the historical cost convention.
Critical accounting estimates
The preparation of the financial statements requires the use of certain critical accounting estimates. It also requires
management to exercise its judgement in the process of applying the consolidated entity's accounting policies. The areas
involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the
financial statements, are disclosed in note 2.
Parent entity information
In accordance with the Corporations Act 2001, these financial statements present the results of the consolidated entity
only. Supplementary information about the parent entity is disclosed in note 25.
Principles of consolidation
The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of Kip McGrath Education
Centres Limited ('company' or 'parent entity') as at 30 June 2018 and the results of all subsidiaries for the year then ended.
Kip McGrath Education Centres Limited and its subsidiaries together are referred to in these financial statements as the
'consolidated entity'.
Subsidiaries are all those entities over which the consolidated entity has control. The consolidated entity controls an entity
when the consolidated entity 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 to direct the activities of the entity. Subsidiaries are fully consolidated
from the date on which control is transferred to the consolidated entity. They are de-consolidated from the date that control
ceases.
Intercompany transactions, balances and unrealised gains on transactions between entities in the consolidated entity 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 consolidated entity.
The acquisition of subsidiaries is accounted for using the acquisition method of accounting. A change in ownership interest,
without the loss of control, is accounted for as an equity transaction, where the difference between the consideration
transferred and the book value of the share of the non-controlling interest acquired is recognised directly in equity
attributable to the parent.
Where the consolidated entity loses control over a subsidiary, it derecognises the assets including goodwill, liabilities and
non-controlling interest in the subsidiary together with any cumulative translation differences recognised in equity. The
consolidated entity recognises the fair value of the consideration received and the fair value of any investment retained
together with any gain or loss in profit or loss.
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Annual Report 2018 | Kip McGrath Education Centres Limited ABN 73 003 415 889
Kip McGrath Education Centres Limited
Notes to the financial statements
30 June 2018
Note 1. Significant accounting policies (continued)
Operating segments
Operating segments are presented using the 'management approach', where the information presented is on the same
basis as the internal reports provided to the Chief Operating Decision Makers ('CODM'). The CODM is responsible for the
allocation of resources to operating segments and assessing their performance.
Foreign currency translation
The financial statements are presented in Australian dollars, which is Kip McGrath Education Centres Limited's functional
and presentation currency.
Foreign currency transactions
Foreign currency transactions are translated into Australian dollars 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 financial year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are
recognised in profit or loss.
Foreign operations
The assets and liabilities of foreign operations are translated into Australian dollars using the exchange rates at the
reporting date. The revenues and expenses of foreign operations are translated into Australian dollars using the average
exchange rates, which approximate the rates at the dates of the transactions, for the period. All resulting foreign exchange
differences are recognised in other comprehensive income through the foreign currency reserve in equity.
The foreign currency reserve is recognised in profit or loss when the foreign operation or net investment is disposed of.
Revenue recognition
Revenue is recognised when it is probable that the economic benefit will flow to the consolidated entity and the revenue
can be reliably measured. Revenue is measured at the fair value of the consideration received or receivable.
Franchise fees
Revenue from franchise fees derived from franchise operations are recognised on a weekly or monthly basis, depending
on the underlying contract with the franchisee.
Student lesson fees
Revenue from student lessons derived from franchise operations are recognised when the services are provided pursuant
to a student's enrolment agreement, which is typically on a weekly basis.
Sales of master territories and franchise centres
Domestic sales and sales to overseas master franchisees are recognised on satisfactory completion of formal induction
and training programs. Overseas franchise sales are recognised when educational materials supplied by the franchisor are
shipped to the franchisees.
Direct sales
Revenue from the sale of educational materials and promotional products is recognised at the time the control of the
product passes to the customer. This control will pass when the customer orders the curriculum or other products are
shipped.
Interest
Interest revenue is recognised as interest accrues using the effective interest method. This is a method of calculating the
amortised cost of a financial asset and allocating the interest income over the relevant period using the effective interest
rate, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset
to the net carrying amount of the financial asset.
Other revenue
Other revenue is recognised when it is received or when the right to receive payment is established.
Income tax
The income tax expense or benefit for the period is the tax payable on that period's taxable income based on the
applicable income tax rate for each jurisdiction, adjusted by the changes in deferred tax assets and liabilities attributable to
temporary differences, unused tax losses and the adjustment recognised for prior periods, where applicable.
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Kip McGrath Education Centres Limited ABN 73 003 415 889 | Annual Report 2018
Kip McGrath Education Centres Limited
Notes to the financial statements
30 June 2018
Note 1. Significant accounting policies (continued)
Deferred tax assets and liabilities are recognised for temporary differences at the tax rates expected to be applied when
the assets are recovered or liabilities are settled, based on those tax rates that are enacted or substantively enacted,
except for:
●
when the deferred income tax asset or liability arises from the initial recognition of goodwill or an asset or liability in a
transaction that is not a business combination and that, at the time of the transaction, affects neither the accounting
nor taxable profits; or
when the taxable temporary difference is associated with interests in subsidiaries, associates or joint ventures, and
the timing of the reversal can be controlled and it is probable that the temporary difference will not reverse in the
foreseeable future.
●
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.
The carrying amount of recognised and unrecognised deferred tax assets are reviewed at each reporting date. Deferred
tax assets recognised are reduced to the extent that it is no longer probable that future taxable profits will be available for
the carrying amount to be recovered. Previously unrecognised deferred tax assets are recognised to the extent that it is
probable that there are future taxable profits available to recover the asset.
Deferred tax assets and liabilities are offset only where there is a legally enforceable right to offset current tax assets
against current tax liabilities and deferred tax assets against deferred tax liabilities; and they relate to the same taxable
authority on either the same taxable entity or different taxable entities which intend to settle simultaneously.
Kip McGrath Education Centres Limited (the 'head entity') and its wholly-owned Australian subsidiaries have formed an
income tax consolidated group under the tax consolidation regime. The head entity and each subsidiary in the tax
consolidated group continue to account for their own current and deferred tax amounts. The tax consolidated group has
applied the 'separate taxpayer within group' approach in determining the appropriate amount of taxes to allocate to
members of the tax consolidated group.
In addition to its own current and deferred tax amounts, the head entity also recognises the current tax liabilities (or assets)
and the deferred tax assets arising from unused tax losses and unused tax credits assumed from each subsidiary in the tax
consolidated group.
Assets or liabilities arising under tax funding agreements with the tax consolidated entities are recognised as amounts
receivable from or payable to other entities in the tax consolidated group. The tax funding arrangement ensures that the
intercompany charge equals the current tax liability or benefit of each tax consolidated group member, resulting in neither a
contribution by the head entity to the subsidiaries nor a distribution by the subsidiaries to the head entity.
Current and non-current classification
Assets and liabilities are presented in the statement of financial position based on current and non-current classification.
An asset is classified as current when: it is either expected to be realised or intended to be sold or consumed in the
consolidated entity's normal operating cycle; it is held primarily for the purpose of trading; it is expected to be realised
within 12 months after the reporting period; or the asset is cash or cash equivalent unless restricted from being exchanged
or used to settle a liability for at least 12 months after the reporting period. All other assets are classified as non-current.
A liability is classified as current when: it is either expected to be settled in the consolidated entity's normal operating cycle;
it is held primarily for the purpose of trading; it is due to be settled within 12 months after the reporting period; or there is no
unconditional right to defer the settlement of the liability for at least 12 months after the reporting period. All other liabilities
are classified as non-current.
Deferred tax assets and liabilities are always classified as non-current.
Cash and cash equivalents
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.
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Annual Report 2018 | Kip McGrath Education Centres Limited ABN 73 003 415 889
Kip McGrath Education Centres Limited
Notes to the financial statements
30 June 2018
Note 1. Significant accounting policies (continued)
Trade and other receivables
Trade receivables are initially recognised at fair value and subsequently measured at amortised cost using the effective
interest method, less any provision for impairment. Trade receivables are generally due for settlement within 30 days.
Collectability of trade receivables is reviewed on an ongoing basis. Debts which are known to be uncollectable are written
off by reducing the carrying amount directly. A provision for impairment of trade receivables is raised when there is
objective evidence that the consolidated entity will not be able to collect all amounts due according to the original terms of
the receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial
reorganisation and default or delinquency in payments (more than 60 days overdue) are considered indicators that the
trade receivable may be impaired. The amount of the impairment allowance is the difference between the asset's carrying
amount and the present value of estimated future cash flows, discounted at the original effective interest rate. Cash flows
relating to short-term receivables are not discounted if the effect of discounting is immaterial.
Other receivables are recognised at amortised cost, less any provision for impairment.
Investments and other financial assets
Investments and other financial assets are initially measured at fair value. Transaction costs are included as part of the
initial measurement, except for financial assets at fair value through profit or loss. They are subsequently measured at
either amortised cost or fair value depending on their classification. Classification is determined based on the purpose of
the acquisition and subsequent reclassification to other categories is restricted.
Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or have
been transferred and the consolidated entity has transferred substantially all the risks and rewards of ownership.
Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an
active market. They are carried at amortised cost using the effective interest rate method. Gains and losses are recognised
in profit or loss when the asset is derecognised or impaired.
Impairment of financial assets
The consolidated entity assesses at the end of each reporting period whether there is any objective evidence that a
financial asset or group of financial assets is impaired. Objective evidence includes significant financial difficulty of the
issuer or obligor; a breach of contract such as default or delinquency in payments; the lender granting to a borrower
concessions due to economic or legal reasons that the lender would not otherwise do; it becomes probable that the
borrower will enter bankruptcy or other financial reorganisation; the disappearance of an active market for the financial
asset; or observable data indicating that there is a measurable decrease in estimated future cash flows.
The amount of the impairment allowance for loans and receivables carried at amortised cost is the difference between the
asset's carrying amount and the present value of estimated future cash flows, discounted at the original effective interest
rate. If there is a reversal of impairment, the reversal cannot exceed the amortised cost that would have been recognised
had the impairment not been made and is reversed to profit or loss.
Plant and equipment
Plant and equipment is stated at historical cost less accumulated depreciation and impairment. Historical cost includes
expenditure that is directly attributable to the acquisition of the items.
Depreciation is calculated on a straight-line basis to write off the net cost of each item of plant and equipment over their
expected useful lives of between 3 and 20 years. Plant and equipment is currently not material to the financial statements.
Leases
The determination of whether an arrangement is or contains a lease is based on the substance of the arrangement and
requires an assessment of whether the fulfilment of the arrangement is dependent on the use of a specific asset or assets
and the arrangement conveys a right to use the asset.
A distinction is made between finance leases, which effectively transfer from the lessor to the lessee substantially all the
risks and benefits incidental to the ownership of leased assets, and operating leases, under which the lessor effectively
retains substantially all such risks and benefits.
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Kip McGrath Education Centres Limited ABN 73 003 415 889 | Annual Report 2018
Kip McGrath Education Centres Limited
Notes to the financial statements
30 June 2018
Note 1. Significant accounting policies (continued)
Finance leases are capitalised. A lease asset and liability are established at the fair value of the leased assets, or if lower,
the present value of minimum lease payments. Lease payments are allocated between the principal component of the
lease liability and the finance costs, so as to achieve a constant rate of interest on the remaining balance of the liability.
Leased assets acquired under a finance lease are depreciated over the asset's useful life or over the shorter of the asset's
useful life and the lease term if there is no reasonable certainty that the consolidated entity will obtain ownership at the end
of the lease term.
Operating lease payments, net of any incentives received from the lessor, are charged to profit or loss on a straight-line
basis over the term of the lease.
Intangible assets
Intangible assets acquired as part of a business combination, other than goodwill, are initially measured at their fair value
at the date of the acquisition. Intangible assets acquired separately are initially recognised at cost. Indefinite life intangible
assets are not amortised and are subsequently measured at cost less any impairment. Finite life intangible assets are
subsequently measured at cost less amortisation and any impairment. The gains or losses recognised in profit or loss
arising from the derecognition of intangible assets are measured as the difference between net disposal proceeds and the
carrying amount of the intangible asset. The method and useful lives of finite life intangible assets are reviewed annually.
Changes in the expected pattern of consumption or useful life are accounted for prospectively by changing the amortisation
method or period.
Intellectual property
Intellectual property primarily consists of the acquisition costs for the system of tuition developed by the founders, Kip and
Dug McGrath. Costs in relation to intellectual property are capitalised as an asset. These costs are not subsequently
amortised as they have an indefinite useful life.
Product and overseas development costs
Costs in relation to product and overseas development costs are capitalised as an asset. These costs are not subsequently
amortised where they have an indefinite useful life. Definite life costs are written off over their finite useful life of up to ten
years for curriculum items and up to five years for other items.
Franchise and development territories
Existing franchise and development territories that have been acquired by the consolidated entity are capitalised as an
asset and are not amortised, but are subject to annual impairment reviews based on student numbers remaining at the
acquisition level.
Other intangibles
Other intangibles are capitalised as an asset and amortised, being their finite useful life of five years.
Impairment of non-financial assets
Intangible assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment,
or more frequently if events or changes in circumstances indicate that they might be impaired. Other non-financial assets
are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be
recoverable. An impairment loss is recognised for the amount by which the asset's carrying amount exceeds its
recoverable amount.
Recoverable amount is the higher of an asset's fair value less costs of disposal and value-in-use. The value-in-use is the
present value of the estimated future cash flows relating to the asset using a pre-tax discount rate specific to the asset or
cash-generating unit to which the asset belongs. Assets that do not have independent cash flows are grouped together to
form a cash-generating unit.
Trade and other payables
These amounts represent liabilities for goods and services provided to the consolidated entity prior to the end of the
financial year and which are unpaid. Due to their short-term nature they are measured at amortised cost and are not
discounted. The amounts are unsecured and are usually paid within 30 days of recognition.
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Annual Report 2018 | Kip McGrath Education Centres Limited ABN 73 003 415 889
Kip McGrath Education Centres Limited
Notes to the financial statements
30 June 2018
Note 1. Significant accounting policies (continued)
Borrowings
Loans and borrowings are initially recognised at the fair value of the consideration received, net of transaction costs. They
are subsequently measured at amortised cost using the effective interest method.
Where there is an unconditional right to defer settlement of the liability for at least 12 months after the reporting date, the
loans or borrowings are classified as non-current.
Finance costs
Finance costs attributable to qualifying assets are capitalised as part of the asset. All other finance costs are expensed in
the period in which they are incurred.
Employee benefits
Short-term employee benefits
Liabilities for wages and salaries and other employee benefits expected to be settled wholly within 12 months of the
reporting date are measured at the amounts expected to be paid when the liabilities are settled.
Other long-term employee benefits
Employee benefits not expected to be settled within 12 months of the reporting date are 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 periods of service. Expected future payments are discounted using market yields at the reporting date on
high quality corporate bonds with terms to maturity and currency that match, as closely as possible, the estimated future
cash outflows.
Defined contribution superannuation expense
Contributions to defined contribution superannuation plans are expensed in the period in which they are incurred.
Share-based payments
Equity-settled share-based compensation benefits are provided to employees.
Equity-settled transactions are awards of shares, or options over shares, that are provided to employees in exchange for
the rendering of services.
The cost of equity-settled transactions are measured at fair value on grant date. Fair value is independently determined
using Black-Scholes option pricing model that takes into account the exercise price, the term of the option, the impact of
dilution, 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, together with non-vesting conditions that do not determine whether the
consolidated entity receives the services that entitle the employees to receive payment. No account is taken of any other
vesting conditions.
The cost of equity-settled transactions are recognised as an expense with a corresponding increase in equity over the
vesting period. The cumulative charge to profit or loss is calculated based on the grant date fair value of the award, the
best estimate of the number of awards that are likely to vest and the expired portion of the vesting period. The amount
recognised in profit or loss for the period is the cumulative amount calculated at each reporting date less amounts already
recognised in previous periods.
Market conditions are taken into consideration in determining fair value. Therefore, any awards subject to market
conditions are considered to vest irrespective of whether or not that market condition has been met, provided all other
conditions are satisfied.
If equity-settled awards are modified, as a minimum an expense is recognised as if the modification has not been made.
An additional expense is recognised, over the remaining vesting period, for any modification that increases the total fair
value of the share-based compensation benefit as at the date of modification.
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Kip McGrath Education Centres Limited ABN 73 003 415 889 | Annual Report 2018
Kip McGrath Education Centres Limited
Notes to the financial statements
30 June 2018
Note 1. Significant accounting policies (continued)
If the non-vesting condition is within the control of the consolidated entity or employee, the failure to satisfy the condition is
treated as a cancellation. If the condition is not within the control of the consolidated entity or employee and is not satisfied
during the vesting period, any remaining expense for the award is recognised over the remaining vesting period, unless the
award is forfeited.
If equity-settled awards are cancelled, it is treated as if it has vested on the date of cancellation, and any remaining
expense is recognised immediately. If a new replacement award is substituted for the cancelled award, the cancelled and
new award is treated as if they were a modification.
Fair value measurement
When an asset or liability, financial or non-financial, is measured at fair value for recognition or disclosure purposes, the
fair value is based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date; and assumes that the transaction will take place either: in the
principal market; or in the absence of a principal market, in the most advantageous market.
Fair value is measured using the assumptions that market participants would use when pricing the asset or liability,
assuming they act in their economic best interests. For non-financial assets, the fair value measurement is based on its
highest and best use. Valuation techniques that are appropriate in the circumstances and for which sufficient data are
available to measure fair value, are used, maximising the use of relevant observable inputs and minimising the use of
unobservable inputs.
Issued capital
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.
Dividends
Dividends are recognised when declared during the financial year and no longer at the discretion of the company.
Business combinations
The acquisition method of accounting is used to account for business combinations regardless of whether equity
instruments or other assets are acquired.
The consideration transferred is the sum of the acquisition-date fair values of the assets transferred, equity instruments
issued or liabilities incurred by the acquirer to former owners of the acquiree and the amount of any non-controlling interest
in the acquiree. For each business combination, the non-controlling interest in the acquiree is measured at either fair value
or at the proportionate share of the acquiree's identifiable net assets. All acquisition costs are expensed as incurred to
profit or loss.
On the acquisition of a business, the consolidated entity assesses the financial assets acquired and liabilities assumed for
appropriate classification and designation in accordance with the contractual terms, economic conditions, the consolidated
entity's operating or accounting policies and other pertinent conditions in existence at the acquisition-date.
Where the business combination is achieved in stages, the consolidated entity remeasures its previously held equity
interest in the acquiree at the acquisition-date fair value and the difference between the fair value and the previous carrying
amount is recognised in profit or loss.
Contingent consideration to be transferred by the acquirer is recognised at the acquisition-date fair value. Subsequent
changes in the fair value of the contingent consideration classified as an asset or liability is recognised in profit or loss.
Contingent consideration classified as equity is not remeasured and its subsequent settlement is accounted for within
equity.
35
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Annual Report 2018 | Kip McGrath Education Centres Limited ABN 73 003 415 889
Kip McGrath Education Centres Limited
Notes to the financial statements
30 June 2018
Note 1. Significant accounting policies (continued)
The difference between the acquisition-date fair value of assets acquired, liabilities assumed and any non-controlling
interest in the acquiree and the fair value of the consideration transferred and the fair value of any pre-existing investment
in the acquiree is recognised as goodwill. If the consideration transferred and the pre-existing fair value is less than the fair
value of the identifiable net assets acquired, being a bargain purchase to the acquirer, the difference is recognised as a
gain directly in profit or loss by the acquirer on the acquisition-date, but only after a reassessment of the identification and
measurement of the net assets acquired, the non-controlling interest in the acquiree, if any, the consideration transferred
and the acquirer's previously held equity interest in the acquirer.
Business combinations are initially accounted for on a provisional basis. The acquirer retrospectively adjusts the
provisional amounts recognised and also recognises additional assets or liabilities during the measurement period, based
on new information obtained about the facts and circumstances that existed at the acquisition-date. The measurement
period ends on either the earlier of (i) 12 months from the date of the acquisition or (ii) when the acquirer receives all the
information possible to determine fair value.
Earnings per share
Basic earnings per share
Basic earnings per share is calculated by dividing the profit attributable to the owners of Kip McGrath Education Centres
Limited, 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 financial
year.
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 shares assumed to have been issued for no consideration in relation to dilutive potential
ordinary shares.
Goods and Services Tax ('GST') and other similar taxes
Revenues, expenses and assets are recognised net of the amount of associated GST, unless the GST incurred is not
recoverable from the tax authority. In this case it is recognised as part of the cost of the 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 tax authority is included in other receivables or other payables in the statement of
financial position.
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 tax authority, are presented as operating cash flows.
Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the tax authority.
Comparatives
Certain reclassifications have been made to the prior year to enhance comparability in the statement of financial position.
Rounding of amounts
The company is of a kind referred to in ASIC Corporations (Rounding in Financial/Directors’ Reports) Instrument 2016/191,
issued by the Australian Securities and Investments Commission, relating to 'rounding-off'. Amounts in this report have
been rounded off in accordance with that instrument to the nearest thousand dollars, or in certain cases, the nearest dollar.
New Accounting Standards and Interpretations not yet mandatory or early adopted
Australian Accounting Standards and Interpretations that have recently been issued or amended but are not yet
mandatory, have not been early adopted by the consolidated entity for the annual reporting period ended 30 June 2018.
The consolidated entity's assessment of the impact of these new or amended Accounting Standards and Interpretations,
most relevant to the consolidated entity, are set out below.
36
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Kip McGrath Education Centres Limited ABN 73 003 415 889 | Annual Report 2018
Kip McGrath Education Centres Limited
Notes to the financial statements
30 June 2018
Note 1. Significant accounting policies (continued)
AASB 9 Financial Instruments
This standard is applicable to annual reporting periods beginning on or after 1 January 2018. The standard replaces all
previous versions of AASB 9 and completes the project to replace IAS 39 'Financial Instruments: Recognition and
Measurement'. AASB 9 introduces new classification and measurement models for financial assets. A financial asset shall
be measured at amortised cost, if it is held within a business model whose objective is to hold assets in order to collect
contractual cash flows, which arise on specified dates and solely principal and interest. All other financial instrument assets
are to be classified and measured at fair value through profit or loss unless the entity makes an irrevocable election on
initial recognition to present gains and losses on equity instruments (that are not held-for-trading) in other comprehensive
income ('OCI'). For financial liabilities, the standard requires the portion of the change in fair value that relates to the
entity's own credit risk to be presented in OCI (unless it would create an accounting mismatch). New simpler hedge
accounting requirements are intended to more closely align the accounting treatment with the risk management activities of
the entity. New impairment requirements will use an 'expected credit loss' ('ECL') model to recognise an allowance.
Impairment will be measured under a 12-month ECL method unless the credit risk on a financial instrument has increased
significantly since initial recognition in which case the lifetime ECL method is adopted. The standard introduces additional
new disclosures. The consolidated entity will adopt this standard from 1 July 2018. It is not expected to significantly impact
the financial statements on the basis that the main financial assets recognised represent cash and cash equivalent and
trade receivables that do not carry a significant financing component and involve a single cash flow representing the
repayment of principal, which in the case of trade receivables is the transaction price. Both asset classes will continue to
be measured at face value. Other financial asset classes are not material to the consolidated entity. Financial liabilities of
the consolidated entity are not impacted as the consolidated entity does not carry them at fair value.
AASB 15 Revenue from Contracts with Customers
This standard is applicable to annual reporting periods beginning on or after 1 January 2018. The standard provides a
single standard for revenue recognition. The core principle of the standard is that an entity will recognise revenue to depict
the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity
expects to be entitled in exchange for those goods or services. The standard will require: contracts (either written, verbal or
implied) to be identified, together with the separate performance obligations within the contract; determine the transaction
price, adjusted for the time value of money excluding credit risk; allocation of the transaction price to the separate
performance obligations on a basis of relative stand-alone selling price of each distinct good or service, or estimation
approach if no distinct observable prices exist; and recognition of revenue when each performance obligation is satisfied.
Credit risk will be presented separately as an expense rather than adjusted to revenue. For goods, the performance
obligation would be satisfied when the customer obtains control of the goods. For services, the performance obligation is
satisfied when the service has been provided, typically for promises to transfer services to customers. For performance
obligations satisfied over time, an entity would select an appropriate measure of progress to determine how much revenue
should be recognised as the performance obligation is satisfied. Contracts with customers will be presented in an entity's
statement of financial position as a contract liability, a contract asset, or a receivable, depending on the relationship
between the entity's performance and the customer's payment. Sufficient quantitative and qualitative disclosure is required
to enable users to understand the contracts with customers; the significant judgements made in applying the guidance to
those contracts; and any assets recognised from the costs to obtain or fulfil a contract with a customer. The consolidated
entity will adopt this standard from 1 July 2018. It is not expected to significantly impact the financial statements on the
basis that most of the consolidated entity's revenue is recognised at the time of lessons being provided to a student which
represents the satisfaction of the primary performance obligation.
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Annual Report 2018 | Kip McGrath Education Centres Limited ABN 73 003 415 889
Kip McGrath Education Centres Limited
Notes to the financial statements
30 June 2018
Note 1. Significant accounting policies (continued)
AASB 16 Leases
This standard is applicable to annual reporting periods beginning on or after 1 January 2019. The standard replaces AASB
117 ‘Leases’ and for lessees will eliminate the classifications of operating leases and finance leases. Subject to exceptions,
a ‘right-of-use’ asset will be capitalised in the statement of financial position, measured as the present value of the
unavoidable future lease payments to be made over the lease term. The exceptions relate to short-term leases of 12
months or less and leases of low-value assets (such as personal computers and small office furniture) where an
accounting policy choice exists whereby either a ‘right-of-use’ asset is recognised or lease payments are expensed to profit
or loss as incurred. A liability corresponding to the capitalised lease will also be recognised, adjusted for lease
prepayments, lease incentives received, initial direct costs incurred and an estimate of any future restoration, removal or
dismantling costs. Straight-line operating lease expense recognition will be replaced with a depreciation charge for the
leased asset (included in operating costs) and an interest expense on the recognised lease liability (included in finance
costs). In the earlier periods of the lease, the expenses associated with the lease under AASB 16 will be higher when
compared to lease expenses under AASB 117. However, EBITDA (Earnings Before Interest, Tax, Depreciation and
Amortisation) results will be improved as the operating expense is replaced by interest expense and depreciation in profit
or loss under AASB 16. For classification within the statement of cash flows, the lease payments will be separated into
both a principal (financing activities) and interest (either operating or financing activities) component. For lessor accounting,
the standard does not substantially change how a lessor accounts for leases. The consolidated entity will adopt this
standard from 1 July 2019 but the impact of its adoption is not expected to materially affect the consolidated entity as there
are minimal leases.
IASB revised Conceptual Framework for Financial Reporting
The revised Conceptual Framework has been issued by the International Accounting Standards Board ('IASB'), but the
Australian equivalent has yet to be published. The revised framework is applicable for annual reporting periods beginning
on or after 1 January 2020 and the application of the new definition and recognition criteria may result in future
amendments to several accountings standards. Furthermore, entities who rely on the conceptual framework in determining
their accounting policies for transactions, events or conditions that are not otherwise dealt with under Australian Accounting
Standards may need to revisit such policies. The consolidated entity will apply the revised conceptual framework from 1
July 2020 and is yet to assess its impact.
Note 2. Critical accounting judgements, estimates and assumptions
The preparation of the financial statements requires management to make judgements, estimates and assumptions that
affect the reported amounts in the financial statements. Management continually evaluates its judgements and estimates in
relation to assets, liabilities, contingent liabilities, revenue and expenses. Management bases its judgements, estimates
and assumptions on historical experience and on other various factors, including expectations of future events,
management believes to be reasonable under the circumstances. The resulting accounting judgements and estimates will
seldom equal the related actual results. The judgements, estimates and assumptions that have a significant risk of causing
a material adjustment to the carrying amounts of assets and liabilities (refer to the respective notes) within the next
financial year are discussed below.
Intangible assets with indefinite life
Intellectual property, franchise territories and certain product and overseas development costs are classified as having an
indefinite useful life and not amortised as management considers that there is no foreseeable limit to the cash flows these
assets are generating. Such assets are subject to annual impairment reviews in accordance with the accounting policy
stated in note 1. The recoverable amounts of cash-generating units to which such assets relate have been determined
based on value-in-use calculations which require the use of assumptions, including estimated discount rates based on the
current cost of capital and growth rates of the estimated future cash flows. Estimates that management has made with
respect to such calculations are disclosed in note 9.
Finite life intangible assets
The consolidated entity determines the estimated useful lives and related amortisation charges for its finite life intangible
assets. The useful lives could change significantly as a result of technical innovations or some other event. The
amortisation charge will increase where the useful lives are less than previously estimated lives. The consolidated entity
assesses impairment of such assets at each reporting date by evaluating conditions specific to the consolidated entity, the
cash generating unit to which the asset belongs, and to the particular asset that may lead to impairment. If an impairment
trigger exists, the recoverable amount of the asset is determined. This involves estimating the asset’s fair value less costs
of disposal or value-in-use calculations which incorporate a number of key estimates and assumptions. Estimates that
management has made with respect to such calculations are disclosed in note 9.
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Kip McGrath Education Centres Limited ABN 73 003 415 889 | Annual Report 2018
Kip McGrath Education Centres Limited
Notes to the financial statements
30 June 2018
Note 2. Critical accounting judgements, estimates and assumptions (continued)
Share-based payment transactions
The consolidated entity measures the cost of equity-settled transactions with employees by reference to the fair value of
the equity instruments at the date at which they are granted. The fair value is determined by using either the Binomial or
Black-Scholes model taking into account the terms and conditions upon which the instruments were granted. The
accounting estimates and assumptions relating to equity-settled share-based payments would have no impact on the
carrying amounts of assets and liabilities within the next annual reporting period but may impact profit or loss and equity.
Income tax
The consolidated entity is subject to income taxes in the jurisdictions in which it operates. Significant judgement is required
in determining the provision for income tax. There are many transactions and calculations undertaken during the ordinary
course of business for which the ultimate tax determination is uncertain. The consolidated entity recognises liabilities for
anticipated tax audit issues based on the consolidated entity's current understanding of the tax law. Where the final tax
outcome of these matters is different from the carrying amounts, such differences will impact the current and deferred tax
provisions in the period in which such determination is made.
Recovery of deferred tax assets
Deferred tax assets are recognised for deductible temporary differences only if the consolidated entity considers it is
probable that future taxable amounts will be available to utilise those temporary differences and losses. The deferred tax
assets are expected to be recovered through management’s forecast taxable profits over the next three years.
Employee benefits provision
As discussed in note 1, the liability for employee benefits expected to be settled more than 12 months from the reporting
date are recognised and measured at the present value of the estimated future cash flows to be made in respect of all
employees at the reporting date. In determining the present value of the liability, estimates of attrition rates and pay
increases through promotion and inflation have been taken into account.
Note 3. Operating segments
Identification of reportable operating segments
The consolidated entity has only one operating segment based on the internal reports that are reviewed and used by the
Chief Executive Officer and the Board of Directors (collectively referred to as the Chief Operating Decision Makers
('CODM')) in assessing performance and in determining the allocation of resources. The operating segment information is
disclosed throughout these financial statements.
The information reported to the CODM is on at least a monthly basis.
Geographical information
The geographical information of non-current assets below is exclusive of financial instruments, deferred tax assets, post-
employment benefits assets and rights under insurance contracts.
Geographical information
Australasia
United Kingdom and Europe
Overseas other
Sales to external customers
Geographical non-current
assets
2018
$'000
2017
$'000
2018
$'000
2017
$'000
6,346
6,458
941
7,352
5,190
965
11,589
746
-
9,723
711
-
13,745
13,507
12,335
10,434
39
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Annual Report 2018 | Kip McGrath Education Centres Limited ABN 73 003 415 889
Kip McGrath Education Centres Limited
Notes to the financial statements
30 June 2018
Note 4. Revenue
Sales revenue
Franchise fees
Student lesson fees
Sales of master territories and franchise centres
Direct sales
Other revenue
Interest
Other revenue
Revenue
Note 5. Expenses
Profit before income tax includes the following specific expenses:
Depreciation
Plant and equipment
Amortisation
Product and overseas development costs
Other intangibles
Total amortisation
Total depreciation and amortisation
Royalties, commissions and other direct expenses
Direct costs of student lessons
Direct costs of franchise fees
Consolidated
2018
$'000
2017
$'000
10,685
1,137
1,236
634
13,692
2
51
53
9,206
2,382
1,423
495
13,506
1
-
1
13,745
13,507
Consolidated
2018
$'000
2017
$'000
49
44
833
192
1,025
1,074
925
2,791
508
221
729
773
1,932
3,098
Total royalties, commissions and other direct expenses
3,716
5,030
Employee benefits
Employee benefits expense excluding superannuation
Defined contribution superannuation expense
Share-based payment expense
Total employee benefits
Finance costs
Interest and finance charges paid/payable
Rental minimum lease payments
2,755
297
45
2,640
234
32
3,097
2,906
58
268
68
217
40
40
Kip McGrath Education Centres Limited ABN 73 003 415 889 | Annual Report 2018
Kip McGrath Education Centres Limited
Notes to the financial statements
30 June 2018
Note 6. Income tax expense
Income tax expense
Current tax
Deferred tax - origination and reversal of temporary differences
Aggregate income tax expense
Deferred tax included in income tax expense comprises:
Decrease in deferred tax assets (note 10)
Increase/(decrease) in deferred tax liabilities (note 14)
Deferred tax - origination and reversal of temporary differences
Numerical reconciliation of income tax expense and tax at the statutory rate
Profit before income tax expense
Tax at the statutory tax rate of 27.5% (2017: 30%)
Tax effect amounts which are not deductible/(taxable) in calculating taxable income:
Prior year foreign exchange items
Sundry items
Income tax expense
Tax losses not recognised
Unused tax losses for which no deferred tax asset has been recognised
Potential tax benefit @ 27.5% (2017: 30%)
Consolidated
2018
$'000
2017
$'000
576
110
686
220
(110)
110
(9)
368
359
185
183
368
2,707
1,795
744
539
(104)
46
686
(169)
(11)
359
Consolidated
2018
$'000
2017
$'000
1,269
1,269
349
381
The above potential tax benefit for tax losses has not been recognised in the statement of financial position. These tax
losses are capital in nature and can only be utilised in the future to offset capital gains if the continuity of ownership test is
passed, or failing that, the same business test is passed.
Note 7. Current assets - cash and cash equivalents
Cash at bank
Restricted cash
Consolidated
2018
$'000
2017
$'000
2,202
3,714
1,697
3,235
5,916
4,932
Restricted cash represents amounts held on behalf of franchisees and is not available for use by the consolidated entity.
The corresponding liability is recognised in other payables and accruals at note 11.
41
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Annual Report 2018 | Kip McGrath Education Centres Limited ABN 73 003 415 889
Kip McGrath Education Centres Limited
Notes to the financial statements
30 June 2018
Note 8. Current assets - trade and other receivables
Trade receivables
Less: Provision for impairment of receivables
Other receivables
Consolidated
2018
$'000
2017
$'000
447
(68)
379
128
507
949
(84)
865
115
980
Impairment of receivables
The consolidated entity has recognised a loss of $3,000 (2017: $107,000) in profit or loss in respect of impairment of
receivables for the year ended 30 June 2018.
The ageing of the impaired receivables provided for above are as follows:
31-60 days overdue
61-90 days overdue
91-120 days overdue
Movements in the provision for impairment of receivables are as follows:
Opening balance
Additional provisions recognised
Amounts recovered during the year
Receivables written off during the year as uncollectable
Closing balance
Consolidated
2018
$'000
2017
$'000
-
-
68
68
2
1
81
84
Consolidated
2018
$'000
2017
$'000
84
3
(19)
-
68
224
107
-
(247)
84
Past due but not impaired
Customers with balances past due but without provision for impairment of receivables amount to $62,000 as at 30 June
2018 ($74,000 as at 30 June 2017).
The consolidated entity did not consider a credit risk on the aggregate balances after reviewing the credit terms of
customers based on recent collection practices.
42
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Kip McGrath Education Centres Limited ABN 73 003 415 889 | Annual Report 2018
Kip McGrath Education Centres Limited
Notes to the financial statements
30 June 2018
Note 8. Current assets - trade and other receivables (continued)
The ageing of the past due but not impaired receivables are as follows:
31-60 days overdue
61-90 days overdue
91-120 days overdue
Note 9. Non-current assets - intangibles
Intellectual property - at cost
Product and overseas development costs
Less: Accumulated amortisation
Franchise and development territories
Other intangible assets - at cost
Less: Accumulated amortisation
Consolidated
2018
$'000
2017
$'000
4
3
55
62
8
7
59
74
Consolidated
2018
$'000
2017
$'000
4,012
4,012
8,184
(2,782)
5,402
1,837
1,862
(861)
1,001
7,130
(2,034)
5,096
711
1,154
(669)
485
12,252
10,304
Reconciliations
Reconciliations of the written down values at the beginning and end of the current and previous financial year are set out
below:
Consolidated
Balance at 1 July 2016
Additions
Amortisation expense
Balance at 30 June 2017
Additions
Exchange differences
Amortisation expense
Product and
overseas
development
costs
$'000
Franchise and
development
territories
$'000
Intellectual
property
$'000
Other
intangibles
$'000
Total
$'000
4,012
-
-
4,012
-
-
-
5,065
539
(508)
5,096
1,139
-
(833)
711
-
-
711
1,091
35
-
181
525
(221)
485
708
-
(192)
9,969
1,064
(729)
10,304
2,938
35
(1,025)
Balance at 30 June 2018
4,012
5,402
1,837
1,001
12,252
43
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Annual Report 2018 | Kip McGrath Education Centres Limited ABN 73 003 415 889
Kip McGrath Education Centres Limited
Notes to the financial statements
30 June 2018
Note 9. Non-current assets - intangibles (continued)
The intellectual property and product and overseas development costs are the primary elements of the consolidated
entity’s system of tutoring which has been developed and acquired over a period exceeding 30 years by the founders and
the consolidated entity. The franchise territories asset consists of the buy-back of the right to operate the business in the
United Kingdom and New Zealand. As there is no foreseeable limit to the cash flows these assets are generating, they are
considered to have an indefinite useful life and not amortised. Instead they are subject to annual impairment reviews. Other
intangibles include the contractual rights for certain territories where KMEC has terminated an area developers contract
and the liability for these items are included in payables.
Impairment tests for indefinite life intangibles
Indefinite life intangibles are allocated to a single cash generating unit ('CGU').
The recoverable amount has been determined by a value-in-use calculation using a discounted cash flow model, based on
a three-year projection period approved by management and extrapolated for a further two years using a growth rate of
2.4% (2017: 2.4%). There are no terminal values in the calculation.
Key assumptions are those to which the recoverable amount of an asset or cash-generating units is most sensitive.
The following key assumptions were used in the discounted cash flow model:
a. Pre-tax discount rate 16.5% (2017: 16.5%). The discount rate reflects management’s estimate of the time value of
money and the consolidated entity’s weighted average cost of capital, the risk free rate and the volatility of the share price
relative to market movements.
b. New centre growth rate of 2.6% (2017: 4.0%) over the three-year projection period, which reflects, a renewed sales
push, an expected move towards larger on-line based centres and a continued movement towards percentage of revenue
contracts, which management believe is reasonable given the current trading performance of the consolidated entity.
c. Foreign exchange rates consistent with current market conditions.
Based on the above, there was no impairment required for the year ended 30 June 2018 (2017: $nil).
Sensitivity
As disclosed in note 2, the directors have made judgements and estimates in respect of the impairment testing of indefinite
life intangibles. Should these judgements and estimates not occur, the resulting indefinite life intangibles may vary in
carrying amount.
The key sensitivity is that centre numbers would need to fall by 6% (2017: fall by 5%) before the CGU would be impaired,
with all other assumptions remaining constant.
Management believes that other reasonable changes in the key assumptions on which the recoverable amount is based
would not cause the cash generating unit’s carrying amount to exceed its recoverable amount.
44
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Kip McGrath Education Centres Limited ABN 73 003 415 889 | Annual Report 2018
Kip McGrath Education Centres Limited
Notes to the financial statements
30 June 2018
Note 10. Non-current assets - deferred tax
Deferred tax asset comprises temporary differences attributable to:
Amounts recognised in profit or loss:
Tax losses
Impairment of receivables
Unrealised foreign exchange movements
Employee benefits
Accrued expenses
QAX licence
Deferred tax asset
Movements:
Opening balance
Charged to profit or loss (note 6)
Closing balance
Note 11. Current liabilities - trade and other payables
Trade payables
Amounts held on behalf of franchisees
GST and other similar payables
Other payables and accruals
Refer to note 18 for further information on financial instruments.
Note 12. Current liabilities - borrowings
Bank loans
Refer to note 18 for further information on financial instruments.
Total secured liabilities
The total secured current liabilities are as follows:
Bank loans
45
45
Consolidated
2018
$'000
2017
$'000
21
16
61
126
(76)
158
306
526
(220)
306
56
25
71
112
68
194
526
711
(185)
526
Consolidated
2018
$'000
2017
$'000
1,034
3,732
40
382
444
3,235
9
403
5,188
4,091
Consolidated
2018
$'000
2017
$'000
600
750
Consolidated
2018
$'000
2017
$'000
600
750
Annual Report 2018 | Kip McGrath Education Centres Limited ABN 73 003 415 889
Kip McGrath Education Centres Limited
Notes to the financial statements
30 June 2018
Note 12. Current liabilities - borrowings (continued)
Assets pledged as security
The bank loans are secured by fixed and floating charge over the assets of the consolidated entity.
Financing arrangements
Unrestricted access was available at the reporting date to the following lines of credit:
Total facilities
Bank overdraft
Bank loans
Used at the reporting date
Bank overdraft
Bank loans
Unused at the reporting date
Bank overdraft
Bank loans
Note 13. Current liabilities - employee benefits
Annual leave
Long service leave
Consolidated
2018
$'000
2017
$'000
1,750
600
2,350
-
600
600
1,750
-
1,750
1,750
750
2,500
-
750
750
1,750
-
1,750
Consolidated
2018
$'000
2017
$'000
210
238
448
173
191
364
Amounts not expected to be settled within the next 12 months
The current provision for employee benefits includes 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 is presented as current, since the consolidated entity does not have an unconditional right to defer
settlement. However, based on past experience, the consolidated entity 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 within the next 12 months:
Employee benefits
Consolidated
2018
$'000
2017
$'000
275
215
46
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Kip McGrath Education Centres Limited ABN 73 003 415 889 | Annual Report 2018
Kip McGrath Education Centres Limited
Notes to the financial statements
30 June 2018
Note 14. Non-current liabilities - deferred tax
Deferred tax liability comprises temporary differences attributable to:
Amounts recognised in profit or loss:
Research and development costs
Overseas development
Deferred tax liability
Movements:
Opening balance
Charged/(credited) to profit or loss (note 6)
Closing balance
Note 15. Equity - issued capital
Consolidated
2018
$'000
2017
$'000
1,366
46
1,239
283
1,412
1,522
1,522
(110)
1,339
183
1,412
1,522
Consolidated
2018
Shares
2017
Shares
2018
$'000
2017
$'000
Ordinary shares - fully paid
45,034,331 45,034,331
8,838
8,838
Movements in ordinary share capital
Details
Balance
Conversion of options
Balance
Balance
Date
Shares
Issue price
$'000
1 July 2016
31 August 2016
44,184,331
850,000
$0.075
30 June 2017
45,034,331
30 June 2018
45,034,331
8,774
64
8,838
8,838
Ordinary shares
Ordinary shares entitle the holder to participate in dividends and the proceeds on the winding up of the company in
proportion to the number of and amounts paid on the shares held. The fully paid ordinary shares have no par value and the
company does not have a limited amount of authorised capital.
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 shall have one vote.
Share buy-back
There is no current on-market share buy-back.
Capital risk management
The consolidated entity's objectives when managing capital are to safeguard its ability to continue as a going concern, so
that it can provide returns for shareholders and benefits for other stakeholders and to maintain an optimum capital structure
to reduce the cost of capital.
Capital is regarded as total equity, as recognised in the statement of financial position, plus net debt. Net debt is calculated
as total borrowings less cash and cash equivalents.
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Annual Report 2018 | Kip McGrath Education Centres Limited ABN 73 003 415 889
Kip McGrath Education Centres Limited
Notes to the financial statements
30 June 2018
Note 15. Equity - issued capital (continued)
In order to maintain or adjust the capital structure, the consolidated entity may adjust the amount of dividends paid to
shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt.
The capital risk management policy remains unchanged from the 30 June 2017 Annual Report.
The capital structure of the consolidated entity consists of net debt (borrowings offset by cash and bank balances) and
equity of the consolidated entity (comprising issued capital, reserves and accumulated profits).
Note 16. Equity - reserves
Foreign currency reserve
Share-based payments reserve
Other reserves
Consolidated
2018
$'000
2017
$'000
(245)
146
754
655
(233)
77
754
598
Foreign currency reserve
The reserve is used to recognise exchange differences arising from the translation of the financial statements of foreign
operations to Australian dollars. It is also used to recognise profits and losses on hedges of the net investments in foreign
operations.
Share-based payments reserve
The reserve is used to recognise the value of equity benefits provided to employees and directors as part of their
remuneration, and other parties as part of their compensation for services.
Other reserves
This reserve is used to recognise the increments and decrements on changes in equity of the parent on acquisition of non-
controlling interests.
Movements in reserves
Movements in each class of reserve during the current and previous financial year are set out below:
Consolidated
Balance at 1 July 2016
Foreign currency translation
Share-based payments
Balance at 30 June 2017
Foreign currency translation
Share-based payments
Balance at 30 June 2018
Foreign
currency
$'000
Share-based
payments
$'000
Other
$'000
Total
$'000
(132)
(101)
-
(233)
(12)
-
(245)
45
-
32
77
-
69
146
754
-
-
754
-
-
754
667
(101)
32
598
(12)
69
655
48
48
Kip McGrath Education Centres Limited ABN 73 003 415 889 | Annual Report 2018
Kip McGrath Education Centres Limited
Notes to the financial statements
30 June 2018
Note 17. Equity - dividends
Dividends paid during the financial year were as follows:
Final dividend for the year ended 30 June 2017 of 1.4 cents (2016: 1.0 cents) per ordinary
share
Interim dividend for the year ended 30 June 2018 of 1 cents (2017: 0.6 cents) per ordinary
share
Consolidated
2018
$'000
2017
$'000
630
451
1,081
451
270
721
On 17 August 2018, a final dividend for the year ended 30 June 2018 of 2.0 cents per ordinary share, 100% fully franked,
was declared and will be paid on 21 September 2018 to those shareholders on the register at 7p.m. on 7 September 2018.
The total distribution will be $900,686.
Note 18. Financial instruments
Financial risk management objectives
The consolidated entity's activities expose it to a variety of financial risks: market risk (including foreign currency risk and
interest rate risk), credit risk and liquidity risk. The consolidated entity'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
consolidated entity and to ensure that the consolidated entity is able to finance its business plans. The consolidated entity
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, foreign exchange and other price risks and ageing analysis for credit risk.
Risk management is carried out by senior executives ('finance') under policies approved by the Board of Directors
('Board'). These policies include identification and analysis of the risk exposure of the consolidated entity and appropriate
procedures, controls and risk limits. The consolidated entity does not enter into or trade in financial instruments, including
derivative financial instruments, for speculative purposes. Finance reports to the Board are on a monthly basis.
Market risk
Foreign currency risk
The consolidated entity undertakes certain transactions denominated in foreign currency and is exposed to foreign
currency risk through foreign exchange rate fluctuations. The consolidated entity operates internationally and is exposed to
foreign exchange risk arising primarily from the Pound Sterling, Singapore dollar, South African Rand and New Zealand
dollar.
Foreign exchange risk arises from future commercial transactions and recognised financial assets and financial liabilities
denominated in a currency that is not the entity's functional currency. The consolidated entity presently does not hedge
foreign exchange risks.
49
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Annual Report 2018 | Kip McGrath Education Centres Limited ABN 73 003 415 889
Kip McGrath Education Centres Limited
Notes to the financial statements
30 June 2018
Note 18. Financial instruments (continued)
The carrying amount of the consolidated entity's foreign currency denominated financial assets and financial liabilities at
the reporting date were as follows:
Consolidated
US dollars
Euros
Pound Sterling
New Zealand dollars
Singapore dollars
South African Rand
Kenyan Shilling
Hong Kong Dollars
Assets
Liabilities
2018
$'000
2017
$'000
2018
$'000
2017
$'000
24
28
3,222
777
90
28
5
19
46
7
3,161
470
86
44
4
19
-
-
2,214
855
19
-
-
-
3
-
1,696
306
28
-
-
-
4,193
3,837
3,088
2,033
The consolidated entity had net assets denominated in foreign currencies of $1,105,000 as at 30 June 2018 (assets
$4,193,000 less liabilities $3,088,000) (2017: $1,804,000 (assets $3,837,000 less liabilities $2,033,000)). Based on this net
position, a 10% strengthening in the Australian dollar from 30 June 2018 levels may expose the consolidated entity to a
$110,000 foreign currency loss.
Price risk
The consolidated entity is not exposed to any significant price risk.
Interest rate risk
The consolidated entity's main interest rate risk arises from short-term and long-term borrowings. Borrowings issued at
variable rates expose the consolidated entity to interest rate risk. Borrowings issued at fixed rates expose the consolidated
entity to fair value interest rate risk.
The consolidated entity's objective is to maintain a balance between continuity of funding and flexibility through the use of
bank loans, related party loans and financial leases.
As at the reporting date, the consolidated entity had the following variable rate borrowings and term deposits.
Consolidated
Bank overdrafts and bank loans
Cash at bank - term deposit
Net exposure to cash flow interest rate risk
2018
2017
Weighted
average
interest rate
%
Weighted
average
interest rate
%
Balance
$'000
Balance
$'000
4.58%
-
4.05%
2.75%
600
-
600
750
(49)
701
The consolidated entity has net bank loans and borrowings outstanding, totalling $600,000 (2017: $701,000), which are
principal and interest payment loans. Annually cash outlays of approximately $38,000 (2017: $38,000 per quarter) are
required to service the debt. An official increase/decrease in interest rates of 100 (2017: 100) basis points would have an
adverse/favourable effect on profit before tax of $6,000 (2017: $7,000) per annum. The percentage change is based on the
expected volatility of interest rates using market data and analysis.
In June 2017 the consolidated entity entered into a new finance facility with HSBC Bank Australia Ltd. The bank loan
covenants are specific annual reporting requirements.
50
50
Kip McGrath Education Centres Limited ABN 73 003 415 889 | Annual Report 2018
Kip McGrath Education Centres Limited
Notes to the financial statements
30 June 2018
Note 18. Financial instruments (continued)
Credit risk
Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the
consolidated entity. The consolidated entity has adopted a policy of dealing with only recognised, creditworthy third parties.
All franchisees are subject to legal and credit checks prior to contracting with the consolidated entity. Policies have been
put in place to ensure that receivable balances are monitored on an ongoing basis with the result that the consolidated
entity's exposure to credit default is not significant. The consolidated entity does not hold any collateral. However, the
consolidated entity's policy for non-payment of debt by contracted partners within the maximum 30-day terms is
deactivation of access to student curriculum resources.
Before accepting any new customers, the consolidated entity assesses the potential customer's credit quality.
In determining the recoverability of a trade receivable, the consolidated entity considers any change in the credit quality of
the trade receivable from the date credit was initially granted up to the reporting date. The concentration of credit risk is
limited due to the customer base being large and unrelated. The maximum exposure to credit risk at the reporting date to
recognised financial assets is the carrying amount, net of any provisions for impairment of those assets, as disclosed in the
statement of financial position and notes to the financial statements.
Liquidity risk
Vigilant liquidity risk management requires the consolidated entity to maintain sufficient liquid assets (mainly cash and cash
equivalents) and available borrowing facilities to be able to pay debts as and when they become due and payable.
The consolidated entity manages liquidity risk by maintaining adequate cash reserves and available borrowing facilities by
continuously monitoring actual and forecast cash flows and matching the maturity profiles of financial assets and liabilities.
Financing arrangements
Unused borrowing facilities at the reporting date:
Bank overdraft
Consolidated
2018
$'000
2017
$'000
1,750
1,750
Remaining contractual maturities
The following tables detail the consolidated entity's remaining contractual maturity for its financial instrument liabilities. The
tables have been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which
the financial liabilities are required to be paid. The tables include both interest and principal cash flows disclosed as
remaining contractual maturities and therefore these totals may differ from their carrying amount in the statement of
financial position.
Consolidated - 2018
Non-derivatives
Non-interest bearing
Trade payables
Other payables
Interest-bearing - variable
Bank loans
Total non-derivatives
Weighted
average
interest rate
%
1 year or less
$'000
Between 1
and 2 years
$'000
Between 2
and 5 years
$'000
Over 5 years
$'000
Remaining
contractual
maturities
$'000
-
-
4.58%
1,034
4,154
175
5,363
-
-
468
468
-
-
-
-
-
-
-
-
1,034
4,154
643
5,831
51
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Annual Report 2018 | Kip McGrath Education Centres Limited ABN 73 003 415 889
Kip McGrath Education Centres Limited
Notes to the financial statements
30 June 2018
Note 18. Financial instruments (continued)
Consolidated - 2017
Non-derivatives
Non-interest bearing
Trade payables
Other payables
Interest-bearing - fixed rate
Bank loans
Total non-derivatives
Weighted
average
interest rate
%
1 year or less
$'000
Between 1
and 2 years
$'000
Between 2
and 5 years
$'000
Over 5 years
$'000
Remaining
contractual
maturities
$'000
-
-
4.05%
444
3,646
152
4,242
-
-
152
152
-
-
446
446
-
-
-
-
444
3,646
750
4,840
The cash flows in the maturity analysis above are not expected to occur significantly earlier than contractually disclosed
above.
Note 19. Fair value measurement
Unless otherwise stated, the carrying amounts of financial instruments reflect their fair value. The carrying amounts of
trade and other receivables and trade and other payables are assumed to approximate their fair values due to their short-
term nature. The fair value of financial liabilities is estimated by discounting the remaining contractual maturities at the
current market interest rate that is available for similar financial instruments. They are classified as level 3 fair values in the
fair value hierarchy due to the inclusion of unobservable inputs.
Note 20. Key management personnel disclosures
Compensation
The aggregate compensation made to directors and other members of key management personnel of the consolidated
entity is set out below:
Short-term employee benefits
Post-employment benefits
Share-based payments
Consolidated
2018
$
2017
$
1,561,630
121,552
45,257
1,385,427
99,796
33,694
1,728,439
1,518,917
52
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Kip McGrath Education Centres Limited ABN 73 003 415 889 | Annual Report 2018
Kip McGrath Education Centres Limited
Notes to the financial statements
30 June 2018
Note 21. Remuneration of auditors
During the financial year the following fees were paid or payable for services provided by PKF Newcastle, the auditor of the
company, its network firms and unrelated firms:
Audit services - PKF Newcastle
Audit or review of the financial statements
Other services - PKF Newcastle
Preparation of the tax return and other tax services
Other services - network firms
Preparation of the tax return (NZ)
Audit services - unrelated firms
Audit or review of the financial statements
Other services - unrelated firms
Payroll and tax services
Consolidated
2018
$
2017
$
105,000
96,206
21,139
6,430
126,139
102,636
3,727
-
10,778
17,352
1,769
4,304
12,547
21,656
Fees of $12,547 (2017: $21,656) were paid to Hazlewoods LLP, who are the auditors of the UK subsidiary Kip McGrath
Education United Kingdom Limited.
Note 22. Contingent liabilities
There were no contingent liabilities at 30 June 2018.
The consolidated entity has entered into arrangements to provide a guarantee to the lessor of the head office premises
amounting to $58,000 (2017: $58,000).
Note 23. Commitments
PPE Lease commitments - operating
Committed at the reporting date but not recognised as liability, payable:
Within one year
One to five years
Consolidated
2018
$'000
2017
$'000
223
416
639
267
639
906
Operating lease commitments includes contracted amounts for offices and plant and equipment under non-cancellable
operating leases expiring within one to five years with, in some cases, options to extend. The leases have various
escalation clauses. On renewal, the terms of the leases are renegotiated.
Note 24. Related party transactions
Parent entity
Kip McGrath Education Centres Limited is the parent entity.
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Annual Report 2018 | Kip McGrath Education Centres Limited ABN 73 003 415 889
Kip McGrath Education Centres Limited
Notes to the financial statements
30 June 2018
Note 24. Related party transactions (continued)
Subsidiaries
Interests in subsidiaries are set out in note 26.
Key management personnel
Disclosures relating to key management personnel are set out in note 20 and the remuneration report included in the
directors' report.
Transactions with related parties
During the year a child of Catherine Cook (KMP) was paid $4,825 (2017: $1,880) for undertaking marketing services and
curriculum testing services, respectively, for the consolidated entity.
During the year, $2,937.00 was paid to 360 HR Pty Ltd, a related party to Diane Pass, for the reimbursement of externally
acquired training materials.
In June 2017, the company Importaurus Pty Ltd became a related party to Kip McGrath and holds 274,050 shares in the
parent entity.
Receivable from and payable to related parties
There were no trade receivables from or trade payables to related parties at the current and previous reporting date.
Loans to/from related parties
There were no loans to or from related parties at the current and previous reporting date.
Terms and conditions
All transactions were made on normal commercial terms and conditions and at market rates.
Note 25. Parent entity information
Set out below is the supplementary information about the parent entity.
Statement of profit or loss and other comprehensive income
Profit after income tax
Total comprehensive income
Parent
2018
$'000
2017
$'000
3,104
1,091
3,104
1,091
54
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Kip McGrath Education Centres Limited ABN 73 003 415 889 | Annual Report 2018
Kip McGrath Education Centres Limited
Notes to the financial statements
30 June 2018
Note 25. Parent entity information (continued)
Statement of financial position
Total current assets
Total assets
Total current liabilities
Total liabilities
Equity
Issued capital
Foreign currency reserve
Share-based payments reserve
Accumulated losses
Total equity
Parent
2018
$'000
2017
$'000
2,350
8,632
9,627
6,257
3,810
2,557
5,296
4,058
8,838
(2)
146
(4,651)
8,838
(42)
77
(6,674)
4,331
2,199
Guarantees entered into by the parent entity in relation to the debts of its subsidiaries
The parent entity had no guarantees in relation to the debts of its subsidiaries as at 30 June 2018 and 30 June 2017,
except as disclosed in note 22.
Contingent liabilities
The parent entity had no contingent liabilities as at 30 June 2018 and 30 June 2017.
Financial support
The parent entity has issued a financial letter of support to Kip McGrath Education United Kingdom Limited. A letter of
support was also issued in the prior year.
Significant accounting policies
The accounting policies of the parent entity are consistent with those of the consolidated entity, as disclosed in note 1,
except for the following:
●
●
Investments in subsidiaries are accounted for at cost, less any impairment, in the parent entity.
Dividends received from subsidiaries are recognised as other income by the parent entity.
Note 26. Interests in subsidiaries
The consolidated financial statements incorporate the assets, liabilities and results of the following subsidiaries in
accordance with the accounting policy described in note 1:
Name
Principal place of business /
Country of incorporation
Kip McGrath Education Australia Pty Ltd
Kip McGrath Global Pty Limited
Kip McGrath Direct Pty Ltd
Kip McGrath Education United Kingdom Ltd
Kip McGrath Education New Zealand Limited
Australia
Australia
Australia
United Kingdom
New Zealand
Ownership interest
2017
2018
%
%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
55
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Annual Report 2018 | Kip McGrath Education Centres Limited ABN 73 003 415 889
Kip McGrath Education Centres Limited
Notes to the financial statements
30 June 2018
Note 27. Reconciliation of profit after income tax to net cash from operating activities
Profit after income tax expense for the year
Adjustments for:
Depreciation and amortisation
Write off of property, plant and equipment
Share-based payments
Foreign exchange differences
Change in operating assets and liabilities:
Decrease in trade and other receivables
Decrease in deferred tax assets
Decrease/(increase) in prepayments
Increase in trade and other payables
Increase/(decrease) in provision for income tax
Increase/(decrease) in deferred tax liabilities
Increase in employee benefits
Net cash from operating activities
Note 28. Earnings per share
Consolidated
2018
$'000
2017
$'000
2,021
1,436
1,074
2
69
(47)
480
220
(179)
1,102
453
(110)
84
773
-
32
(101)
25
185
12
530
(9)
183
67
5,169
3,133
Consolidated
2018
$'000
2017
$'000
Profit after income tax attributable to the owners of Kip McGrath Education Centres Limited
2,021
1,436
Weighted average number of ordinary shares used in calculating basic earnings per share
Adjustments for calculation of diluted earnings per share:
45,034,331 44,892,277
Options over ordinary shares
2,587,671
1,905,754
Weighted average number of ordinary shares used in calculating diluted earnings per share 47,622,002 46,798,031
Number
Number
Basic earnings per share
Diluted earnings per share
Note 29. Share-based payments
Cents
Cents
4.488
4.244
3.199
3.069
On 9 March 2012, shareholders approved the terms and conditions of the Kip McGrath Employee Share Option Plan ('the
Plan'). The Plan is designed to provide long-term incentives for employees to deliver long-term shareholder returns. Under
the Plan the consolidated entity may, at the discretion of the Nomination and Remuneration Committee, grant options over
ordinary shares in the parent entity to certain key management personnel. The options are issued for nil consideration and
only vest if certain conditions are met.
Options granted under the plan carry no dividend or voting rights. Shares issued under exercised options will rank equally
with ordinary shares.
On exercise each option converts to one share, except in certain circumstances such as rights issues or bonus issues.
56
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Kip McGrath Education Centres Limited ABN 73 003 415 889 | Annual Report 2018
Kip McGrath Education Centres Limited
Notes to the financial statements
30 June 2018
Note 29. Share-based payments (continued)
Set out below are summaries of options granted under the plan:
2018
Grant date
Expiry date
price
Exercise
Balance at
the start of
the year
Granted
Exercised
Expired/
forfeited/
other
Balance at
the end of
the year
28/02/2014
20/08/2014
21/11/2014
02/09/2016
09/10/2017
27/10/2017
28/02/2019
31/12/2019
31/12/2019
31/12/2021
31/12/2021
31/12/2021
2017
$0.190
$0.350
$0.350
$0.300
$0.370
$0.370
250,000
100,000
1,000,000
500,000
-
-
1,850,000
-
-
-
-
550,000
500,000
1,050,000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
250,000
100,000
1,000,000
500,000
550,000
500,000
2,900,000
Grant date
Expiry date
price
Exercise
Balance at
the start of
the year
Granted
Exercised
Expired/
forfeited/
other
Balance at
the end of
the year
31/03/2012
28/02/2014
20/08/2014
21/11/2014
02/09/2016
31/03/2022
28/02/2018
31/12/2019
31/12/2019
31/12/2021
$0.075
$0.190
$0.350
$0.350
$0.300
850,000
400,000
300,000
1,000,000
-
2,550,000
-
-
-
-
500,000
500,000
(850,000)
-
-
-
-
(850,000)
-
(150,000)
(200,000)
-
-
(350,000)
-
250,000
100,000
1,000,000
500,000
1,850,000
*
Other represents options lapsed
The options issued in the current financial year have the following vesting conditions:
• Meeting annual performance indicators set by the Board; and
• The employee remains in employment until date of vesting.
The weighted average share price was $0.320 (2017: $0.319).
The weighted average remaining contractual life of options outstanding at the end of the financial year was 2.86 years
(2017: 1.83 years).
For the options granted during the current financial year, the Black-Scholes option pricing model inputs used to determine
the fair value at the grant date, are as follows:
Grant date
Expiry date
Option price Exercise
at grant date
price
Expected
volatility
Dividend
Risk-free
Fair value
yield
interest rate at grant date
09/10/2017
27/10/2017
31/12/2021
31/12/2021
$0.000
$0.000
$0.370
$0.370
-
-
-
-
-
-
$0.104
$0.104
Total expenses arising from share-based payment transactions recognised during the period as part of employee benefit
expense were $45,000 (2017: $32,000).
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Annual Report 2018 | Kip McGrath Education Centres Limited ABN 73 003 415 889
Kip McGrath Education Centres Limited
Notes to the financial statements
30 June 2018
Note 30. Events after the reporting period
On 4 July 2018, the company purchased back the area developer territory for the East Midlands in England to allow better
focus on the United Kingdom business.
Apart from the event disclosed above and the dividend declared as disclosed in note 17, no other matter or circumstance
has arisen since 30 June 2018 that has significantly affected, or may significantly affect the consolidated entity's
operations, the results of those operations, or the consolidated entity's state of affairs in future financial years.
58
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Kip McGrath Education Centres Limited ABN 73 003 415 889 | Annual Report 2018
Kip McGrath Education Centres Limited
Directors' declaration
30 June 2018
In the directors' opinion:
●
●
●
●
the attached financial statements and notes comply with the Corporations Act 2001, the Accounting Standards, the
Corporations Regulations 2001 and other mandatory professional reporting requirements;
the attached financial statements and notes comply with International Financial Reporting Standards as issued by the
International Accounting Standards Board as described in note 1 to the financial statements;
the attached financial statements and notes give a true and fair view of the consolidated entity's financial position as
at 30 June 2018 and of its performance for the financial year ended on that date; and
there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due
and payable.
The directors have been given the declarations required by section 295A of the Corporations Act 2001.
Signed in accordance with a resolution of directors made pursuant to section 295(5)(a) of the Corporations Act 2001.
On behalf of the directors
___________________________
Kip McGrath
Chairman
17 August 2018
Newcastle
59
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Annual Report 2018 | Kip McGrath Education Centres Limited ABN 73 003 415 889
INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF KIP MCGRATH EDUCATION CENTRES LIMITED
Report on the Financial Report
Opinion
We have audited the accompanying financial report of Kip McGrath Education Centres Limited (the
company), which comprises the consolidated statement of financial position as at 30 June 2018, the
consolidated statement of profit or loss and other comprehensive income, the consolidated statement of
changes in equity and the consolidated statement of cash flows for the year then ended, notes comprising a
summary of significant accounting policies and other explanatory information, and the directors’ declaration
of the company and the consolidated entity comprising the company and the entities it controlled at the
year’s end or from time to time during the financial year.
In our opinion, the financial report of Kip McGrath Education Centres Limited is in accordance with the
Corporations Act 2001, including:
a) Giving a true and fair view of the consolidated entity’s financial position as at 30 June 2018 and of
its performance for the year ended on that date; and
b) Complying with Australian Accounting Standards and the Corporations Regulations 2001.
Basis for Opinion
We conducted our audit in accordance with Australian Auditing Standards. Those standards require that we
comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to
obtain reasonable assurance about whether the financial report is free from material misstatement. Our
responsibilities under those standards are further described in the Auditor’s Responsibility section of our
report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our
opinion.
Independence
We are independent of the consolidated entity in accordance with 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.
PKF(NS) Audit & Assurance Limited
Partnership
ABN 91 850 861 839
Liability limited by a scheme
approved under Professional
Standards Legislation
Sydney
Newcastle
Level 8, 1 O’Connell Street
Sydney NSW 2000 Australia
GPO Box 5446 Sydney NSW 2001
755 Hunter Street
Newcastle West NSW 2302 Australia
PO Box 2368 Dangar NSW 2309
p
f
+61 2 8346 6000
+61 2 8346 6099
p
f
+61 2 4962 2688
+61 2 4962 3245
PKF(NS) Audit & Assurance Limited Partnership is a member firm of the PKF International Limited family of legally independent firms and does not
accept any responsibility or liability for the actions or inactions of any individual member or correspondent firm or firms.
For office locations visit www.pkf.com.au
60 60
Kip McGrath Education Centres Limited ABN 73 003 415 889 | Annual Report 2018 Key Audit Matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our
audit of the financial report of the current period. These matters were addressed in the context of our audit
of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate
opinion on these matters. For each matter below, our description of how our audit addressed the matter is
provided in that context.
1.
Impairment testing of intangible assets
Why significant
As disclosed in note 9, the Group has
intangible assets of $12.252m as at 30
June 2018.
How our audit addressed the key audit matter
The Group has determined there is one CGU, being the whole Group.
Our audit procedures included but were not limited to:
•
to assessing and challenging:
is
An annual impairment test for intangible
required under Australian
assets
Accounting Standard
136
Impairment of Assets.
(AASB)
the
The evaluation of
recoverable
amount requires the group to exercise
significant judgment in determining key
assumptions, which include:
•
•
•
5-year cash flow forecast;
Terminal growth factor; and
Discount rate.
of
outcome
The
the
impairment
if different
assessment could vary
assumptions were applied. As a result,
the evaluation of the recoverable amount
of intangible assets including goodwill is
a key audit matter.
o
o
o
o
o
the assumption of one cash generating unit being appropriate;
the accuracy of the FY19 budget approved by the Board by
comparing the budget to FY18 actuals;
the assumptions used for the future growth rate by comparing
normalised average growth rate from FY17 to FY18 to the
growth rate adopted in the impairment model;
the key assumptions for long term growth in the forecast cash
flows by comparing them to historical results and industry
forecasts; and
the discount rate applied by comparing the weighted average
cost of capital to industry benchmarks.
•
•
•
•
testing, on a sample basis, the mathematical accuracy of the cash
flow models;
testing, on a sample basis, the validity and accuracy of intangibles
capitalised during the financial year;
considering management’s assessment of those with definite and
indefinite useful lives;
testing, on a sample basis, the validity and accuracy of amortisation
expense and accumulated amortisation where appropriate;
• agreeing inputs in the cash flow models to relevant data including
approved budgets and latest forecasts;
•
reviewing management’s sensitivity analysis in relation to key
assumptions including discount rate, growth rate and terminal
value; and
• assessing appropriateness of
financial statement disclosures
including sensitivities to assumptions used, included in Note 9.
Based on those procedures performed, we were satisfied with the
material accuracy of the intangibles and relevant disclosures.
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Annual Report 2018 | Kip McGrath Education Centres Limited ABN 73 003 415 889 2. Area Developer Termination payment (one-off transaction)
Why significant
How our audit addressed the key audit matter
During the year, KMEC entered into a confidential
termination agreement with an Australian Area
Developer ("AD”) which allowed KMEC to regain the
rights bestowed under this AD arrangement. For this
right, KMEC paid an amount upfront and capitalised the
purchase as an intangible asset at 31 January 2018. As
at 30 June 2018, the written down value of this intangible
asset has been included as a part of Note 9 in the
financial statements under “Other Intangible Assets”.
We reviewed the AD termination agreement and
ensured the asset was capitalised appropriately.
Payments made prior to 30 June 2018 have been
traced to bank statements. We recalculated the
corresponding amortisation to ensure its material
accuracy as at 30 June 2018.
We deemed management's decision to amortise the
AD termination asset over five years as reasonable
given the timeframe of expected future economic
benefits and customer churn.
3. Master Franchisee payment (one-off transaction)
Why significant
How our audit addressed the key audit matter
During the year, KMEC entered into an arrangement
with a Master Franchisee (“MF”) which allowed KMEC to
regain the rights bestowed under this MF arrangement.
A portion of the consideration payable by KMEC was
deferred and is dependent on the achievement of certain
performance hurdles.
KMEC has estimated the deferred consideration and is
included within Trade Payables in Note 11.
The acquisition of the MF has been capitalised as an
intangible asset with an indefinite useful life and is
included in note 9 in the financial statements under
Franchise and Development Territories.
We reviewed the MF termination agreement and
ensured the asset was capitalised appropriately.
Payments made prior to 30 June 2018 have been
traced to bank statements. Additionally, we have
reviewed management’s estimate of deferred
consideration to ensure the liability was materially
correct as at 30 June 2018.
we
Furthermore,
considered management's
assessment of the asset having an indefinite useful
life to be reasonable given the nature of the asset.
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62
Kip McGrath Education Centres Limited ABN 73 003 415 889 | Annual Report 2018 Other Information
Other information is financial and non-financial information in the annual report of the company which is
provided in addition to the Financial Report and the Auditor’s Report. The directors are responsible for Other
Information in the annual report.
The Other Information we obtained prior to the date of this Auditor’s Report was the Director’s Report. The
remaining Other Information is expected to be made available to us after the date of the Auditor’s Report.
Our opinion on the Financial Report does not cover the Other Information and, accordingly, the auditor does
not and will not express an audit opinion or any form of assurance conclusion thereon, with the exception of
the Remuneration Report.
In connection with our audit of the Financial Report, our responsibility is to read the Other Information. In
doing so, we 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.
We are required to report if we conclude that there is a material misstatement of this Other Information in
the Financial Report and based on the work we have performed on the Other Information that we obtained
prior to the date of this Auditor’s Report we have nothing to report.
Directors’ Responsibilities for the Financial Report
The Directors of the company are responsible for the preparation of the financial report that gives a true and
fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such
internal control as the Directors determine is necessary to enable the preparation of the financial report that
gives a true and fair view and is free from material misstatement, whether due to fraud or error. In Note 1,
the Directors also state, in accordance with Australian Accounting Standard AASB 101 Presentation of
Financial Statements, that the financial report complies with International Financial Reporting Standards.
In preparing the financial report, the Directors are responsible for assessing the consolidated entity’s ability
to continue as a going concern, disclosing, as applicable, matters related to going concern and using a
going concern basis of accounting unless the Directors either intend to liquidate the consolidated entity or to
cease operations, or have no realistic alternative but to do so.
Auditor’s Responsibilities for the Audit of the Financial Report
Our responsibility is to express an opinion on the financial report based on our audit. 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 and auditor’s report that includes our opinion.
Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in
accordance with Australian Auditing Standards will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individual or in aggregate, they
could reasonably be expected to influence the economic decisions of users taken on the basis of this
financial report.
As part of an audit in accordance with Australian Auditing Standards, we exercise professional judgement
and maintain professional scepticism throughout the audit.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the
financial report.
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63
Annual Report 2018 | Kip McGrath Education Centres Limited ABN 73 003 415 889 The procedures selected depend on the auditor’s judgement, including assessment of the risks of material
misstatement of the financial report, whether due to fraud or error. In making those risk assessments, the
auditor considers internal control relevant to the entity’s preparation of the financial report that gives a true
and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the
purpose of expressing an opinion on the effectiveness of the entity’s internal control.
The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from
error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of
internal control.
An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness
of accounting estimates made by the Directors, as well as evaluating the overall presentation of the financial
report.
We conclude on the appropriateness of the Directors’ use of the going concern basis of accounting and,
based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions
that may cast significant doubt on the consolidated entity’s ability to continue as a going concern. If we
conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the
related disclosures in the financial report or, if such disclosures are inadequate, to modify our opinion. Our
conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future
events or conditions may cause the consolidated entity to cease to continue as a going concern.
We evaluate the overall presentation, structure and content of the financial report, including the disclosures,
and whether the financial report represents the underlying transactions and events in a manner that
achieves fair presentation.
We obtain sufficient appropriate audit evidence regarding the financial information of the entities or business
activities within the consolidated entity to express an opinion on the financial report. We are responsible for
the direction, supervision and performance of the audit. We remain solely responsible for our audit opinion.
We communicate with the Directors regarding, among other matters, the planned scope and timing of the
audit and significant audit findings, including any significant deficiencies in internal control that we identify
during our audit.
The Auditing Standards require that we comply with relevant ethical requirements relating to audit
engagements. We also provide the Directors with a statement that we have complied with relevant ethical
requirements regarding independence, and to communicate with them all relationships and other matters
that may reasonably be thought to bear on our independence, and where applicable, related safeguards.
From the matters communicated with the Directors, we determine those matters that were of most
significance in the audit of the financial report of the current period and are therefore key audit matters. We
describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the
matter or when, in extremely rare circumstances, we determine that a matter should not be communicated
in our report because the adverse consequences of doing so would reasonably be expected to outweigh the
public interest benefits of such communication.
64
64
Kip McGrath Education Centres Limited ABN 73 003 415 889 | Annual Report 2018 Report on the Remuneration Report
Opinion
We have audited the Remuneration Report included in the directors’ report for the year ended 30 June
2018. In our opinion, the Remuneration Report of Kip McGrath Education Centres Limited for the year
ended 30 June 2018, complies with section 300A of the Corporations Act 2001.
Responsibilities
The directors of the Company are responsible for the preparation and presentation of the Remuneration
Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an
opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing
Standards.
PKF
CHARTERED ACCOUNTANTS
MARTIN MATTHEWS
PARTNER
17 AUGUST 2018
NEWCASTLE, NSW
65
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Annual Report 2018 | Kip McGrath Education Centres Limited ABN 73 003 415 889 Kip McGrath Education Centres Limited
Shareholder information
30 June 2018
The shareholder information set out below was applicable as at 23 July 2018.
Distribution of equitable securities
Analysis of number of equitable security holders by size of holding:
Number
of holders
of options
Number
of holders
of ordinary ordinary
over
1 to 1,000
1,001 to 5,000
5,001 to 10,000
10,001 to 100,000
100,001 and over
Holding less than a marketable parcel
Equity security holders
Twenty largest quoted equity security holders
The names of the twenty largest security holders of quoted equity securities are listed below:
shares
shares
77
326
151
164
32
750
58
-
-
-
-
6
6
-
Ordinary shares
% of total
Number held
11,842,862
11,200,499
4,000,000
1,365,933
1,160,488
1,015,000
1,000,000
758,052
688,000
500,000
475,301
400,000
400,000
343,261
274,238
274,050
269,300
250,000
250,000
249,512
shares
issued
26.30
24.87
8.88
3.03
2.58
2.25
2.22
1.68
1.53
1.11
1.06
0.89
0.89
0.76
0.61
0.61
0.60
0.56
0.56
0.55
36,716,496
81.54
J P MORGAN NOMINEES AUSTRALIA LIMITED
MR KIP MCGRATH
KMEC SUPERANNUATION PTY LTD (KMEC SUPERANNUATION FUND A/C)
EMERALD SHARES PTY LIMITED (EMERALD UNIT A/C)
MR STORM KIP MCGRATH
ENSI STREET SUPERANNUATION PTY LTD (ENSI STREET RETIREMENT A/C)
KIP MCGRATH INVESTMENTS PTY LTD (MCGRATH FAMILY A/C)
BELSOV PTY LTD (TURNER FAMILY S/F A/C)
MR BRIAN STEPHAN SLEIGH
HETALE PTY LIMITED (EAGLES NEST RETIRE FUND A/C)
BNP PARIBAS NOMINEES PTY LTD (IB AU NOMS RETAILCLIENT DRP)
MS SNEZANA BOWDEN
MRS STACEY-LEE SEGAL
INDWECO PTY LIMITED
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
IMPORTAURUS PTY LTD
GOOD HOPE MANAGEMENT PTY LTD (THE GOOD HOPE UNIT A/C)
LIBERTY CONSOLIDATED HOLDINGS PTY LTD
MR STEVEN JOHN MCCARTHY
MRS LYNETTE TIMMINS
Unquoted equity securities
There are no unquoted equity securities, except the options as disclosed in Note 29.
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Kip McGrath Education Centres Limited ABN 73 003 415 889 | Annual Report 2018
Kip McGrath Education Centres Limited
Shareholder information
30 June 2018
Substantial holders
Substantial holders in the company are set out below:
J P MORGAN NOMINEES AUSTRALIA LIMITED
MR KIP MCGRATH
KMEC SUPERANNUATION PTY LTD (KMEC SUPERANNUATION FUND A/C)
Voting rights
The voting rights attached to ordinary shares are set out below:
Ordinary shares
% of total
Number held
11,842,862
11,200,499
4,000,000
shares
issued
26.30
24.87
8.88
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 shall have one vote.
There are no other classes of equity securities.
67
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Annual Report 2018 | Kip McGrath Education Centres Limited ABN 73 003 415 889