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
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Kip McGrath Education Centres Limited ABN 73 003 415 889 | Annual Report 2019 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 2019
For the year ended 30 June 2018
2. Results for announcement to the market
The consolidated entity has adopted Accounting Standards AASB 9 'Financial Instruments' and AASB 15 'Revenue from
Contracts with Customers' for the ended 30 June 2019. The Accounting Standards have been applied retrospectively and
comparatives have been restated, where applicable.
Revenues from ordinary activities
up
Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA)
up
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
24.5% to
27.6% to
$'000
16,263
5,207
17.2%
to
2,652
17.2%
to
2,652
Dividends
A final dividend for the year ended 30 June 2018 of 2.0 cents per ordinary share, 100% fully franked, was paid on 21
September 2018. The total distribution was $900,686.
On 22 February 2019, the directors declared a fully franked interim dividend of 1.5 cents per ordinary share for the year
ending 30 June 2019 and was paid on 21 March 2019 to those shareholders on the register at 7p.m. on 7 March 2019. The
total distribution was $675,515.
On 23 August 2019, a final dividend for the year ended 30 June 2019 of 2.5 cents per ordinary share, 100% fully franked,
was declared and will be paid on 17 September 2019 to those shareholders on the register at 7p.m. on 3 September 2019.
The total distribution will be $1,130,858.
Comments
The profit for the consolidated entity after providing for income tax amounted to $2,652,000 (30 June 2018: $2,263,000).
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.
Annual Report 2019 | Kip McGrath Education Centres Limited ABN 73 003 415 889
Consolidated
Restated
2019
$'000
2018
$'000
16,263
13,060
5,207
(1,593)
(55)
-
3,559
(907)
4,079
(1,074)
(58)
2
2,949
(686)
2,652
2,263
Reporting
Previous
period
Cents
period
Cents
(1.30)
(3.63)
Kip McGrath Education Centres Limited
Appendix 4E
Preliminary final report
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
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.
Kip McGrath Education Centres Limited ABN 73 003 415 889 | Annual Report 2019
Kip McGrath Education Centres Limited
Appendix 4E
Preliminary final report
10. Attachments
Details of attachments (if any):
The Annual Report of Kip McGrath Education Centres Limited for the year ended 30 June 2019 is attached.
11. Signed
Signed ___________________________
Date: 23 August 2019
Ian Campbell
Chairman
Newcastle
Annual Report 2019 | Kip McGrath Education Centres Limited ABN 73 003 415 889
Kip McGrath Education Centres Limited
ABN 73 003 415 889
Annual Report - 30 June 2019
Kip McGrath Education Centres Limited ABN 73 003 415 889 | Annual Report 2019
Kip McGrath Education Centres Limited
Corporate directory
30 June 2019
Directors
Ian Campbell - Chairman
Kip McGrath (retired on 5 August 2019)
Trevor Folsom
Diane Pass
Storm McGrath (appointed on 5 August 2019)
Company secretary
Brett Edwards
Notice of annual general meeting
The details of the annual general meeting of Kip McGrath Education Centres Limited
are:
Level 18, Grosvenor Place, 225 George Street, Sydney, 2000, Australia
Friday 15 November 2019 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
1
Annual Report 2019 | Kip McGrath Education Centres Limited ABN 73 003 415 889
Kip McGrath Education Centres Limited
Chairman's letter
30 June 2019
Dear Shareholders,
On behalf of the Board of Directors it gives me great pleasure to report a record net profit after tax of $2.6M for the 2019
year which is an increase of 17.2% over the previous year. In addition, EBITDA of $5.2M increased by 27.6% with strong
contributions from our major markets in the United Kingdom, Australia and New Zealand through growth in numbers of
centres, Gold Partners, student face to face and online lessons. Cash flow remains strong.
We are fortunate to have a strong management team with a wealth of experience. Led by CEO Storm McGrath the team is
well aligned with the Board’s key strategic direction on growth and improving shareholder return. I thank them for their
commitment and achievement this past year.
The company has been able to demonstrate over the long term its ability to adapt to changes demanded by parents and
students in a fast-moving world and in so doing remain a leading global player in the education sector. In recent years we
have invested wisely in strengthening communication and education to our franchise network through continued technology
advancements in back office support, online tutoring and online booking systems. In addition, our national advertising
programs have resonated well in all markets giving us an edge in lead generation.
As announced on 30 May and in line with our global policy to centralise franchise servicing, we purchased the Area
Developer’s business for the UK’s North East and Yorkshire territories. This is expected to have a positive impact on
EBITDA of $280,000 for the 2020 year and $370,000 in the 2021 financial year.
Future growth will continue to come from our core business in franchisee owned centres and increasing online revenue, with
marketing efforts focused on building lesson numbers in both these areas. At the same time, we have recently introduced a
new initiative - establishing corporate owned centres in selective thriving shopping centre locations which is expected to
produce additional profit in the medium to long term.
As announced on 5 August, Kip McGrath founder and largest shareholder retired from the Board and made himself available
for ongoing consultancy as and when required. Kip’s contribution over 43 years in building a business which now provides
over 1.3 million lessons a year to students in 14 countries worldwide has been a remarkable effort and provides the solid
platform which enables the Company to continue its growth curve with confidence.
Today, the Board declared a fully franked final dividend of 2.5 cents per share payable on 17 September 2019 to those
shareholders on the register at 7pm on 3 September 2019. This takes the total dividends for the 2019 year to 4 cents (2018
– 3 cents), an increase of 33%.
On behalf of the entire Kip McGrath team, I would like to extend my appreciation for your continued support of the company.
I encourage you to attend the 2019 Annual General Meeting which provides the opportunity to gain an informed insight into
the operations and performance of your Company whilst also dealing with the statutory business of the day.
We look forward to continuing to share the Kip McGrath journey with you.
Ian Campbell
Chairman
23 August 2019
2
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Kip McGrath Education Centres Limited ABN 73 003 415 889 | Annual Report 2019
Kip McGrath Education Centres Limited
Chief Executive Officer's message
30 June 2019
Kip McGrath Education Centres Limited has continued to grow strongly with an EBITDA increase from $4.1M to $5.2M.
Revenue increased from $13.1M to $16.2M due to increased student numbers, increase in gold partners and an overall
increase in centre numbers. This is the 8th year in a row of continued profit growth.
We are seeing continued student increases through an expanded market, our consistency in service delivery over our 43-
year history and recent successful national advertising programs.
Overview of our major initiatives:
1. Gold Partner Franchisees
We have 311 Gold Partners which is an increase of 44 (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, due to the
additional Corporate support they receive. Gold Partners now make up 83% of total franchise fees.
2. Online Tutoring
Online tutoring is continuing to grow steadily with 2,500 lessons per month a pleasing 67% increase from 1500 last year.
Parents are still uncertain about online tutoring and prefer face to face however this is changing as parents see the
convenience and the excellent outcomes their children achieve. We are redeveloping the software after 4 years of
knowledge and 50,000+ lessons. This new software will be trialled in early 2020.
3. National Marketing
Campaigns in Australia, UK and New Zealand continue to be highly successful. Overall traffic to the website continues
to grow strongly as we use a combination of TV, radio and digital advertising.
4. Online Booking System
The online booking system has been live for 12 months in the UK, Australia and New Zealand. Enabling parents to self
select a free assessment directly has delivered an increase in the quality of the lead. The booking system now accounts
for nearly half of all assessments and reduces administration time for franchisees.
5. Technology Development
We are currently rebuilding all our tutoring and franchise software due to the current systems being between 4 and 8
years old. We alpha trialled our new student learning software in-centre and continue to work towards beta testing in
September. We have almost completed the integration of Xero for -Gold Partners to manage the accounting and payroll
requirements of their business. Salesforce is being used for Corporate management of franchisees. We expect to
upgrade our internal software and systems over the next 18 months.
6. Purchase of Master Franchise territories and Area Developers.
The purchase of North East and Yorkshire territories in the UK is on track for the 1st of September. This purchase will
add to EBITDA during the 2020 financial year.
New Developments
We have been operating an online tutoring centre from the Corporate Head Office for over 4 years. Due to the invaluable
feedback and testing, we have decided to trial the operation of Corporate owned centres. We have purchased two existing
centres and opened two new ones. Three of the centres are within a short drive of the Corporate Head Office in Newcastle.
One is in Canberra and is a long-established successful centre. At the time of writing we have more than 600 lessons being
delivered weekly by Corporate Centres. This represents a change in strategy which we take very seriously. The goal of
Corporate owned centres is the same as any large franchise organisation where we open centres based on the best
opportunity. Once the opportunity is identified we will decide the best operator – either an outstanding Franchisee or a
Corporate Manager.
Corporate Centres are also providing an invaluable learning and development opportunity for Franchisees who wish to
continue to grow and develop their business.
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Annual Report 2019 | Kip McGrath Education Centres Limited ABN 73 003 415 889
Kip McGrath Education Centres Limited
Chief Executive Officer's message
30 June 2019
Outlook
We expect revenue, profit and 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, Franchisees and employees for their hard work and support
throughout the 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 ‘every child can learn, they just have to be taught well’,
and we will continue to achieve this for our current 40,000 students and the thousands who will join Kip McGrath in the
future.
Storm McGrath
Chief Executive Officer
23 August 2019
4
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Kip McGrath Education Centres Limited ABN 73 003 415 889 | Annual Report 2019
Kip McGrath Education Centres Limited
Directors' report
30 June 2019
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 2019.
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 (retired as Chairman and Director on 5 August 2019)
Ian Campbell (appointed as Chairman on 5 August 2019)
Trevor Folsom
Diane Pass
Storm McGrath (appointed as Executive Director on 5 August 2019)
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 2018 of 2.0 cents (2017: 1.4 cents) per ordinary
share
Interim dividend for the year ended 30 June 2019 of 1.5 cents (2018: 1.0 cents) per ordinary
share
Consolidated
Restated
2019
$'000
2018
$'000
901
675
630
451
1,576
1,081
On 23 August 2019, a final dividend for the year ended 30 June 2019 of 2.5 cents per ordinary share, 100% fully franked,
was declared and will be paid on 17 September 2019 to those shareholders on the register at 7p.m. on 3 September 2019.
The total distribution will be $1,130,858.
Review of operations
The profit for the consolidated entity after providing for income tax amounted to $2,652,000 (30 June 2018: $2,263,000).
Strong revenue growth continues to come from the United Kingdom (2019: $8,323,000 versus $6,458,000 in 2018, up
29%) where the government incentives for tutoring are driving both strong centre and lesson number growth.
In the Australasian market, performance was also strong (2019: $6,860,000 versus 2018: $5,661,000 up 21%) with solid
franchise fee growth in the both Australian and New Zealand businesses. Revenue from other markets grew at 14% (2019:
$1,080,000 versus 2018: $941,000) with good performances in the UAE and South African markets.
The number of Gold Partners grew to 124 in the Australian market (83% of total centres) and to 181 in the UK market (66%
of total centres). Overall centre numbers globally grew to 565 (2018: 550) mainly coming out of the UK market.
Lesson numbers on the Insight system continued to grow, with total attended lesson numbers for the financial year
reaching 1,367,000 – up 11% compared to the prior year figure of 1,233,000. Lessons in the United Kingdom are up 12%
due to the factors noted above, while Australian lesson numbers grew by 8%. Other markets were more subdued growing
an average of 3%.
The earnings before interest, tax, depreciation and amortisation ('EBITDA') amounted to $5,207,000 (2018: $4,079,000).
The following table summarises key reconciling items between statutory profit after tax attributable to the shareholders of
Kip McGrath Education Centres and EBITDA.
5
5
Annual Report 2019 | Kip McGrath Education Centres Limited ABN 73 003 415 889
Kip McGrath Education Centres Limited
Directors' report
30 June 2019
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
Restated
2019
$'000
2018
$'000
16,263
13,060
5,207
(1,593)
(55)
-
3,559
(907)
4,079
(1,074)
(58)
2
2,949
(686)
2,652
2,263
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
No matter or circumstance has arisen since 30 June 2019 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 commenced operating a number of Corporately owned Education Centres in the Australian market as
part of a strategy to drive growth and greater franchisee engagement. More details are set out in the CEO’s Report. It is
expected that future growth will continue to be in line with recent experience.
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 (retired as Chairman and Director on 5 August 2019)
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:
16,078,474 ordinary shares (including 11,051,474 directly held)
Interests in shares:
None
Interests in options:
6
6
Kip McGrath Education Centres Limited ABN 73 003 415 889 | Annual Report 2019
Kip McGrath Education Centres Limited
Directors' report
30 June 2019
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 (appointed as Chairman on 5 August 2019)
Non-Executive Director and Chairman
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, Redox Pty Ltd and Bigstone
Capital Pty Ltd. 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 and he was a partner with the Board search practice of
the Allegis Group (formerly Talent2).
CVC Ltd
Chairman of the Audit Committee and member of the 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.
Other current directorships:
None
Former directorships (last 3 years): None
Special responsibilities:
Interests in shares:
Member of the Audit Committee and member of the Remuneration Committee
65,000 ordinary shares
Name:
Title:
Experience and expertise:
Diane Pass
Non-Executive Director
Diane is the Founder and Director of the human resources consultancy firm 360HR.
She has more than 25 years local, national and international experience in the
recruitment and consulting industry. She is accomplished in creating and delivering
engaging professional development programs, public speaking and leading complex
management consulting assignments. She currently sits on the Boards of Not for
Profit organisations, Wheelchair Sports NSW and Jobsupport (‘Employment for
People with Intellectual Disability). From 2001 to 2018 she was Chair of the Advisory
Council of Sydney Institute of TAFE NSW. Diane is also a member of the Australian
Institute of Company Directors.
Other current directorships:
None
Former directorships (last 3 years): None
Special responsibilities:
Interests in shares:
Chairman of the Remuneration Committee and member of the Audit Committee
55,000 ordinary shares
7
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Annual Report 2019 | Kip McGrath Education Centres Limited ABN 73 003 415 889
Kip McGrath Education Centres Limited
Directors' report
30 June 2019
Name:
Title:
Qualifications:
Experience and expertise:
Storm McGrath (appointed as Executive Director on 5 August 2019)
Executive Director, Chief Executive Officer and Investor Relations
Master of Business Administration
Storm is currently the CEO of Kip McGrath Education Centres Ltd. Storm first joined
the board in 1997 to advise on technology and strategy. At the time he had been
running two successful businesses of his own. He joined the executive team in 2000
and was employed to run the IT department and general operations and later went on
to be responsible for global franchise sales. In 2005 he was appointed joint managing
director and in 2007 he was appointed managing director. He is responsible for day to
day operations and strategic direction of the company.
Other current directorships:
None
Former directorships (last 3 years): None
None
Special responsibilities:
1,102,731 ordinary shares
Interests in shares:
1,500,000 options over ordinary shares
Interests in options:
'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.
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 2019, and the number of meetings attended by each director were:
Full Board
Remuneration Committee
Audit Committee
Attended
Held
Attended
Held
Attended
Held
Kip McGrath
Ian Campbell
Trevor Folsom
Diane Pass
8
7
8
7
8
8
8
8
-
2
2
2
-
2
2
2
-
4
4
3
-
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 information
Additional disclosures relating to KMP
8
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Kip McGrath Education Centres Limited ABN 73 003 415 889 | Annual Report 2019
Kip McGrath Education Centres Limited
Directors' report
30 June 2019
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 Remuneration Committee ('RC') 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 RC. 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.
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
RC, 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 RC 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.
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Annual Report 2019 | Kip McGrath Education Centres Limited ABN 73 003 415 889
Kip McGrath Education Centres Limited
Directors' report
30 June 2019
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
The consolidated entity did not engage the use of a remuneration consultant during the financial year ended 30 June 2019.
Voting and comments made at the company's 2018 Annual General Meeting ('AGM')
At the 2018 AGM, 94% of the shareholders voted to adopt the remuneration report for the year ended 30 June 2018. 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 this
section.
The Board has reviewed those members of staff identified as KMP and has updated disclosures accordingly. The KMP of
the consolidated entity now consists 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 (resigned in April 2019)
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
$
2019
Non-Executive
Directors:
Kip McGrath
(Chairman)
Ian Campbell
Trevor Folsom
Diane Pass
107,446
77,098
67,975
67,975
-
-
-
-
3,611
3,611
3,611
3,611
9,476
7,324
6,456
6,457
Other Key
Management
Personnel:
Storm McGrath
Brett Edwards
Jackie Burrows
Catherine Cook *
361,137
213,733
163,636
183,885
1,242,885
50,000
17,250
13,636
-
80,886
3,611
3,611
3,611
3,009
28,286
36,683
21,279
-
18,894
106,569
10
10
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
120,533
88,033
78,042
78,043
10,000
4,634
3,654
3,045
461,431
260,507
184,537
208,833
21,333 1,479,959
Kip McGrath Education Centres Limited ABN 73 003 415 889 | Annual Report 2019
Kip McGrath Education Centres Limited
Directors' report
30 June 2019
*
Includes remuneration from the beginning of the year to the date of resignation in April 2019.
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 received a $90,000 fee as Non-executive Chairman plus additional remuneration for agreed services.
No longer included as members of KMP.
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
Brett Edwards
Jackie Burrows
Catherine Cook
Julie Russell
Peter Hepp
Brad Leach
Chris Lee
Fixed remuneration
At risk - STI
2019
Restated
2018
2019
Restated
2018
At risk - LTI
2019
Restated
2018
-
-
-
-
11%
7%
7%
7%
-
-
-
-
-
-
-
-
6%
6%
10%
8%
9%
3%
7%
-
-
-
-
-
2%
2%
2%
1%
-
-
-
-
-
-
-
-
7%
4%
2%
1%
1%
2%
-
-
100%
100%
100%
100%
87%
91%
91%
92%
-
-
-
-
100%
100%
100%
100%
87%
90%
88%
91%
90%
95%
93%
100%
11
11
Annual Report 2019 | Kip McGrath Education Centres Limited ABN 73 003 415 889
Kip McGrath Education Centres Limited
Directors' report
30 June 2019
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 17% of salary plus an additional incentive for over
budget performance;
Jackie Burrows has entitlements to performance incentives based on sales, and
Other KMP have specific performance incentives of up to 7.5% of salary.
Share-based compensation
Issue of options
Details of options over ordinary shares granted to directors and other KMP as part of compensation during the year, or that
otherwise has affected the remuneration of directors and other KMP for the year ended 30 June 2019, are set out below:
Name
Storm McGrath
Brett Edwards
Jackie Burrows
Grant Date
21 Nov 2014
27 Oct 2017
20 Aug 2014
19 Aug 2016
9 Oct 2017
19 Aug 2016
9 Oct 2017
No. of options
granted
1,000,000
500,000
150,000
100,000
150,000
100,000
100,000
No. of options
lapsed during
year
Exercise price
$0.350
$0.370
$0.350
$0.300
$0.370
$0.300
$0.370
-
-
-
-
-
-
-
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:
Fair value
per option
Grant date
No. granted
Vesting date
Exercise price at grant date
20 Aug 2014
21 Nov 2014
19 Aug 2016
9 Oct 2017
27 Oct 2017
150,000
1,000,000
400,000
450,000
500,000
31 Dec 2019
31 Dec 2019
31 Dec 2021
31 Dec 2021
31 Dec 2021
$0.350
$0.350
$0.300
$0.370
$0.370
$0.172
$0.172
$0.113
$0.104
$0.104
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 KMP as part of compensation during the year ended 30 June 2019
other than those converted from options during the year.
12
12
Kip McGrath Education Centres Limited ABN 73 003 415 889 | Annual Report 2019
Kip McGrath Education Centres Limited
Directors' report
30 June 2019
Additional information
The earnings of the consolidated entity for the five years to 30 June 2019 are summarised below:
Sales revenue
EBITDA
Profit after income tax
2019
$'000
2018
$'000
2017
$'000
2016
$'000
2015
$'000
16,263
5,207
2,652
13,060
4,079
2,263
13,507
2,635
1,436
14,569
2,107
1,203
14,893
2,025
1,079
The factors that are considered to affect total shareholders return ('TSR') are summarised below:
Share price at financial year end ($)
Basic earnings per share (cents per share)
Diluted earnings per share (cents per share)
0.995
5.888
5.536
0.580
5.025
4.752
0.320
3.199
3.069
0.280
2.723
2.574
0.480
2.442
2.333
2019
2018
2017
2016
2015
Additional disclosures relating to KMP
Shareholding
The number of shares in the company held during the financial year by each director and other members of KMP 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
Ordinary shares
Kip McGrath
Storm McGrath
Ian Campbell
Jackie Burrows
Diane Pass
Trevor Folsom
Brett Edwards
16,227,499
1,160,488
500,000
150,000
30,000
-
-
18,067,987
-
-
-
-
-
-
-
-
-
-
-
50,000
25,000
65,000
150,000
290,000
Balance at
the end of
the year
Sales
(149,025) 16,078,474
1,102,731
500,000
200,000
55,000
65,000
150,000
(206,782) 18,151,205
(57,757)
-
-
-
-
-
Option holding
The number of options over ordinary shares in the company held during the financial year by each director and other
members of KMP of the consolidated entity, including their personally related parties, is set out below. Options have not
vested in the holder unless indicated otherwise.
Balance at
the start of
the year
Granted
Exercised
Expired/
forfeited/
other
Balance at
the end of
the year
Vested and
exercisable
-
(150,000)
(50,000)
-
-
-
-
-
-
(200,000)
(200,000)
(200,000)
1,500,000
400,000
200,000
-
-
-
1,000,000
150,000
-
-
-
-
(200,000)
(600,000)
2,100,000
1,150,000
Options over ordinary shares
Storm McGrath
Brett Edwards
Jackie Burrows
Peter Hepp *
Julie Russell *
Catherine Cook **
1,500,000
550,000
250,000
200,000
200,000
200,000
2,900,000
*
**
No longer considered KMP but still held their options.
Options cancelled after resignation in April 2019
-
-
-
-
-
-
-
13
13
Annual Report 2019 | Kip McGrath Education Centres Limited ABN 73 003 415 889
Kip McGrath Education Centres Limited
Directors' report
30 June 2019
Options do not entitle the holder to receive dividends or any distributions or to participate in any share issue of the
company.
Loans to KMP and their related parties
There are no loans to KMP or their related parties.
Other transactions with KMP and their related parties
During the year, $3,650 (2018: $2,937) was paid to 360 HR Pty Ltd, a related party to Diane Pass, for the reimbursement
of externally acquired training materials.
In June 2019, a contract was entered into with Catherine Cook (KMP) to provide curriculum resources to the company, and
$8,580 has been paid in respect of this contract.
This concludes the remuneration report, which has been audited.
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
20 August 2014
21 November 2014
19 August 2016
9 October 2017
27 October 2017
Expiry date
31 December 2019
31 December 2019
31 December 2021
31 December 2021
31 December 2021
Exercise
price
Number
under option
$0.350
$0.350
$0.300
$0.370
$0.370
150,000
1,000,000
400,000
450,000
500,000
2,500,000
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
The following ordinary shares of Kip McGrath Education Centres Limited were issued during the year ended 30 June 2019
and up to the date of this report on the exercise of options granted:
Date options granted
28 February 2014
Exercise
price
Number of
shares issued
$0.190
200,000
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.
14
14
Kip McGrath Education Centres Limited ABN 73 003 415 889 | Annual Report 2019
Kip McGrath Education Centres Limited
Directors' report
30 June 2019
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 24 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 24 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.
●
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
___________________________
Ian Campbell
Chairman
23 August 2019
Newcastle
15
15
Annual Report 2019 | Kip McGrath Education Centres Limited ABN 73 003 415 889
Kip McGrath Education Centres Limited
Kip McGrath Education Centres Limited
ACN: 003 415 889
ACN: 003 415 889
Auditorʼs Independence Declaration under section 307C of the Corporations Act 2001
Auditorʼs 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
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 2019, I declare that, to the best
audit of Kip McGrath Education Centres Limited for the year ended 30 June 2019, I declare that, to the best
of my knowledge and belief, there have been:
of my knowledge and belief, there have been:
(i) No contraventions of the auditor independence requirements of the Corporations Act 2001 in relation
(i) No contraventions of the auditor independence requirements of the Corporations Act 2001 in relation
to the audit; and
to the audit; and
(ii) No contraventions of any applicable code of professional conduct in relation to the audit.
(ii) No contraventions of any applicable code of professional conduct in relation to the audit.
PKF
PKF
CHARTERED ACCOUNTANTS
CHARTERED ACCOUNTANTS
CLAYTON HICKEY
CLAYTON HICKEY
PARTNER
PARTNER
23 AUGUST 2019
23 AUGUST 2019
NEWCASTLE, NSW
NEWCASTLE, NSW
PKF(NS) Audit & Assurance Limited
PKF(NS) Audit & Assurance Limited
Partnership
Partnership
ABN 91 850 861 839
ABN 91 850 861 839
Liability limited by a scheme
Liability limited by a scheme
approved under Professional
approved under Professional
Standards Legislation
Standards Legislation
Sydney
Sydney
16
16
Newcastle
Newcastle
Level 8, 1 O’Connell Street
Level 8, 1 O’Connell Street
Sydney NSW 2000 Australia
Sydney NSW 2000 Australia
GPO Box 5446 Sydney NSW 2001
GPO Box 5446 Sydney NSW 2001
755 Hunter Street
755 Hunter Street
Newcastle West NSW 2302 Australia
Newcastle West NSW 2302 Australia
PO Box 2368 Dangar NSW 2309
PO Box 2368 Dangar NSW 2309
p
p
f
f
+61 2 8346 6000
+61 2 8346 6000
+61 2 8346 6099
+61 2 8346 6099
p
p
f
f
+61 2 4962 2688
+61 2 4962 2688
+61 2 4962 3245
+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
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.
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
For office locations visit www.pkf.com.au
16
Kip McGrath Education Centres Limited ABN 73 003 415 889 | Annual Report 2019 Kip McGrath Education Centres Limited
Corporate Governance Statement
30 June 2019
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 23 August 2019.
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 2019 | Kip McGrath Education Centres Limited ABN 73 003 415 889
Kip McGrath Education Centres Limited
Corporate Governance Statement
30 June 2019
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%
50%
61%
75%
50%
39%
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 2019.
18
18
Kip McGrath Education Centres Limited ABN 73 003 415 889 | Annual Report 2019
Kip McGrath Education Centres Limited
Corporate Governance Statement
30 June 2019
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.
Details of the Board of directors, their appointment date, length of service and independence status is as follows:
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Annual Report 2019 | Kip McGrath Education Centres Limited ABN 73 003 415 889
Kip McGrath Education Centres Limited
Corporate Governance Statement
30 June 2019
Director’s name
Appointment date
Length of service at
reporting date
Independence status
Kip McGrath
Ian Campbell
Trevor Folsom
Diane Pass
Storm McGrath
9 March 1988
31 years
25 August 2009
10 years
22 September 2014 4 years
2 years
1 February 2017
-
5 August 2019
Chairman
Non-Executive
(retired on 5 August 2019)
Independent Non-Executive
– Chairman (appointed on 5
August 2019)
Independent Non-Executive
Independent Non-Executive
Executive Director – Chief
Executive Officer
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
Trevor Folsom
Diane Pass
500,000 ordinary shares held
indirectly in superfund
65,000 ordinary shares held
indirectly
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.
55,000 ordinary shares held directly 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 was Chair of the Board during the entire financial year and retired on 5 August 2019. Kip did not hold the
position of CEO of the company. Whilst Kip McGrath was 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.
Ian Campbell is Chair of the Board from 5 August 2019 and does not hold the position of CEO 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.
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Kip McGrath Education Centres Limited ABN 73 003 415 889 | Annual Report 2019
Kip McGrath Education Centres Limited
Corporate Governance Statement
30 June 2019
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.
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
During the year the Committee consisted entirely of non-executive directors, Ian Campbell, Diane Pass, and Trevor Folsom.
The chairperson, Ian Campbell was not Board chair and is an independent director during the financial year ended 30 June
2019 as he was appointed Chairman on 5 August 2019.
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 2019 and the half-year ended 31 December 2018, 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.
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Annual Report 2019 | Kip McGrath Education Centres Limited ABN 73 003 415 889
Kip McGrath Education Centres Limited
Corporate Governance Statement
30 June 2019
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).
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 July 2019.
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.
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Kip McGrath Education Centres Limited ABN 73 003 415 889 | Annual Report 2019
Kip McGrath Education Centres Limited
Corporate Governance Statement
30 June 2019
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.
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
Diane Pass – Chair
Ian Campbell
Trevor Folsom
Non-Executive Director
Non-Executive Chairman
Non-Executive Director
Independent
Independent
Independent
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.
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 2019 | Kip McGrath Education Centres Limited ABN 73 003 415 889
Kip McGrath Education Centres Limited
Contents
30 June 2019
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
63
64
70
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 23 August 2019. The
directors have the power to amend and reissue the financial statements.
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Kip McGrath Education Centres Limited ABN 73 003 415 889 | Annual Report 2019
Kip McGrath Education Centres Limited
Statement of profit or loss and other comprehensive income
For the year ended 30 June 2019
Revenue
Consolidated
Restated
Note
2019
$'000
2018
$'000
5
16,263
13,060
Other income
Interest revenue calculated using the effective interest method
10
Expenses
Royalties, commissions and other direct expenses
Employee expenses
Marketing expenses
Administration expenses
Merchandising expenses
Depreciation and amortisation expense
(Impairment)/reversal of impairment of receivables
Net foreign exchange (losses)/gain
Finance costs
Profit before income tax expense
Income tax expense
6
6
6
6
7
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
249
-
(1,864)
(3,630)
(2,959)
(1,954)
(809)
(1,593)
(76)
(13)
(55)
-
2
(2,791)
(3,097)
(999)
(1,677)
(437)
(1,074)
17
3
(58)
3,559
2,949
(907)
(686)
2,652
2,263
(70)
(70)
(12)
(12)
2,582
2,251
Cents
Cents
Basic earnings per share
Diluted earnings per share
31
31
5.888
5.536
5.025
4.752
Refer to note 3 for detailed information on Restatement of comparatives - adoption of AASB 9 'Financial Instruments' and
AASB 15 'Revenue from Contracts with Customers'.
The above statement of profit or loss and other comprehensive income should be read in conjunction with the
accompanying notes
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Annual Report 2019 | Kip McGrath Education Centres Limited ABN 73 003 415 889
Kip McGrath Education Centres Limited
Statement of financial position
As at 30 June 2019
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
Contract liabilities
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
Consolidated
Restated
Note
2019
$'000
2018
$'000
8
9
10
11
12
13
14
15
16
17
18
19
7,053
557
165
7,775
199
377
12,356
631
13,563
5,916
519
320
6,755
-
71
12,252
636
12,959
21,338
19,714
5,749
813
450
572
512
8,096
1,475
1,475
5,188
958
600
490
448
7,684
1,412
1,412
9,571
9,096
11,767
10,618
8,876
690
2,201
8,838
655
1,125
11,767
10,618
Refer to note 3 for detailed information on Restatement of comparatives - adoption of AASB 9 'Financial Instruments' and
AASB 15 'Revenue from Contracts with Customers'.
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 2019
Kip McGrath Education Centres Limited
Statement of changes in equity
For the year ended 30 June 2019
Consolidated
Balance at 1 July 2017
Issued
capital
$'000
Retained
Reserves
$'000
profits
$'000
Total equity
$'000
8,838
598
813
10,249
Adjustment for change in accounting policy (note 3)
-
-
(870)
(870)
Balance at 1 July 2017 - restated
8,838
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 20)
-
-
-
-
-
598
-
(12)
(12)
69
-
(57)
9,379
2,263
-
2,263
(12)
2,263
2,251
-
(1,081)
69
(1,081)
Balance at 30 June 2018
8,838
655
1,125
10,618
Refer to note 3 for detailed information on Restatement of comparatives - adoption of AASB 9 'Financial Instruments' and
AASB 15 'Revenue from Contracts with Customers'.
Consolidated
Balance at 1 July 2018
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 18)
Share-based payments
Dividends paid (note 20)
Balance at 30 June 2019
Issued
capital
$'000
Retained
Reserves
$'000
profits
$'000
Total equity
$'000
8,838
655
1,125
10,618
-
-
-
38
-
-
8,876
-
(70)
(70)
-
105
-
690
2,652
-
2,652
(70)
2,652
2,582
-
-
(1,576)
38
105
(1,576)
2,201
11,767
The above statement of changes in equity should be read in conjunction with the accompanying notes
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Annual Report 2019 | 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 2019
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
Consolidated
Restated
Note
2019
$'000
2018
$'000
16,850
(11,647)
15,568
(10,220)
5,203
-
(55)
(333)
5,348
2
(58)
(123)
Net cash from operating activities
30
4,815
5,169
Cash flows from investing activities
Payments for 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
11
(367)
(1,623)
(16)
(2,938)
18
20
(1,990)
(2,954)
38
1,325
(1,576)
(1,475)
-
700
(1,081)
(850)
(1,688)
(1,231)
1,137
5,916
984
4,932
Cash and cash equivalents at the end of the financial year
8
7,053
5,916
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 2019
Kip McGrath Education Centres Limited
Notes to the financial statements
30 June 2019
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.
The following Accounting Standards and Interpretations are most relevant to the consolidated entity:
AASB 9 Financial Instruments
The consolidated entity has adopted AASB 9 from 1 July 2018. The standard introduced 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 that are solely principal and interest. A debt investment shall be measured at fair value through other comprehensive
income if it is held within a business model whose objective is to both hold assets in order to collect contractual cash flows
which arise on specified dates that are solely principal and interest as well as selling the asset on the basis of its fair value.
All other financial assets are 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 or
contingent consideration recognised in a business combination) in other comprehensive income ('OCI'). Despite these
requirements, a financial asset may be irrevocably designated as measured at fair value through profit or loss to reduce the
effect of, or eliminate, an accounting mismatch. For financial liabilities designated at fair value through profit or loss, 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 use
an 'expected credit loss' ('ECL') model to recognise an allowance. Impairment is measured using 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. For receivables, a simplified approach to measuring expected credit losses using a lifetime
expected loss allowance is available.
AASB 15 Revenue from Contracts with Customers
The consolidated entity has adopted AASB 15 from 1 July 2017. The standard provides a single comprehensive model for
revenue recognition. The core principle of the standard is that an entity shall recognise revenue to depict the transfer of
promised goods or services to customers at an amount that reflects the consideration to which the entity expects to be
entitled in exchange for those goods or services. The standard introduced a new contract-based revenue recognition
model with a measurement approach that is based on an allocation of the transaction price. This is described further in the
accounting policies below. Credit risk is presented separately as an expense rather than adjusted against revenue.
Contracts with customers are 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. Customer
acquisition costs and costs to fulfil a contract can, subject to certain criteria, be capitalised as an asset and amortised over
the contract period.
The impact on the financial performance and position of the consolidated entity from the adoption of these Accounting
Standards is detailed in note 3.
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.
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Notes to the financial statements
30 June 2019
Note 1. Significant accounting policies (continued)
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 28.
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 2019 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.
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.
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Notes to the financial statements
30 June 2019
Note 1. Significant accounting policies (continued)
The foreign currency reserve is recognised in profit or loss when the foreign operation or net investment is disposed of.
Revenue recognition
The consolidated entity recognises revenue as follows:
Revenue from contracts with customers
Revenue is recognised at an amount that reflects the consideration to which the consolidated entity is expected to be
entitled in exchange for transferring goods or services to a customer. For each contract with a customer, the consolidated
entity: identifies the contract with a customer; identifies the performance obligations in the contract; determines the
transaction price which takes into account estimates of variable consideration and the time value of money; allocates the
transaction price to the separate performance obligations on the basis of the relative stand-alone selling price of each
distinct good or service to be delivered; and recognises revenue when or as each performance obligation is satisfied in a
manner that depicts the transfer to the customer of the goods or services promised.
Variable consideration within the transaction price, if any, reflects concessions provided to the customer such as discounts,
rebates and refunds, any potential bonuses receivable from the customer and any other contingent events. Such estimates
are determined using either the 'expected value' or 'most likely amount' method. The measurement of variable
consideration is subject to a constraining principle whereby revenue will only be recognised to the extent that it is highly
probable that a significant reversal in the amount of cumulative revenue recognised will not occur. The measurement
constraint continues until the uncertainty associated with the variable consideration is subsequently resolved. Amounts
received that are subject to the constraining principle are initially recognised as deferred revenue in the form of a separate
refund liability.
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. The contractual obligations primarily include providing access to software
and franchisee systems on an ongoing basis through the life of the franchise contract as well as marketing, development
and administrative support services. The consideration is variable in nature depending on the contract with the franchisee
and the volume of lessons being provided.
Sales of master territories and franchisee centres
Revenue from contracts for the sale of master franchise territories are recognised over time as services are provided to
establish the master territory during the first term of the contract. Revenue from contracts for the sale of new centres are
recognised over time as services are provided to establish the centre during the first term of the contract. Services to train
new franchisees are recognised at the time of satisfactory completion of formal induction and training programmes. The
contractual obligations over time primarily relate to the development, support and training required to assist a franchisee in
the establishment of a new centre in a territory and are typically discharged within the first period of the franchise contract
(over no more than five or six years depending on the country of operation). Typically the payment is received upfront and
the services are delivered over the contract term therefore giving rise to the recognition of a contract liability.
National advertising contributions ('NAC')
Revenue from national advertising contributions from franchisees is recognised on a weekly or monthly basis, depending
on the underlying contract with the franchisee and whether the marketing services and activities relating to the contribution
have been provided. The contractual obligations are to provide marketing activities through various channels in support of
the franchise network.
Direct sales
Direct sales revenue includes fees for the provision of payment gateway and ancillary franchise software services as well
as the sale of educational materials and promotional products. Revenue from payment gateway and ancillary franchise
software services is recognised on a weekly basis as the services are provided to franchises. 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.
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 during a set lesson time. These lessons are
provided directly by the consolidated entity and not through any franchised contract.
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Notes to the financial statements
30 June 2019
Note 1. Significant accounting policies (continued)
Other revenue
Other revenue is recognised when it is received or when the right to receive payment is established.
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.
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.
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.
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Notes to the financial statements
30 June 2019
Note 1. Significant accounting policies (continued)
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.
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 allowance for expected credit losses. Trade receivables are generally due for settlement within
30 days.
The consolidated entity has applied the simplified approach to measuring expected credit losses, which uses a lifetime
expected loss allowance. To measure the expected credit losses, trade receivables have been grouped based on days
overdue.
Other receivables are recognised at amortised cost, less any allowance for expected credit losses.
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.
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.
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.
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Kip McGrath Education Centres Limited
Notes to the financial statements
30 June 2019
Note 1. Significant accounting policies (continued)
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.
Contract liabilities
Contract liabilities represent the consolidated entity's obligation to transfer goods or services to a customer and are
recognised when a customer pays consideration, or when the consolidated entity recognises a receivable to reflect its
unconditional right to consideration (whichever is earlier) before the consolidated entity has transferred the goods or
services to the customer.
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.
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Notes to the financial statements
30 June 2019
Note 1. Significant accounting policies (continued)
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.
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.
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Kip McGrath Education Centres Limited
Notes to the financial statements
30 June 2019
Note 1. Significant accounting policies (continued)
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.
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.
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Kip McGrath Education Centres Limited
Notes to the financial statements
30 June 2019
Note 1. Significant accounting policies (continued)
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 2019.
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.
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Annual Report 2019 | Kip McGrath Education Centres Limited ABN 73 003 415 889
Kip McGrath Education Centres Limited
Notes to the financial statements
30 June 2019
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 standard takes effect in the 2020
financial year.
If AASB 16 was implemented by the consolidated entity as at 30 June 2019, the impact would be an increase in assets and
corresponding increase in liabilities of $1,824,550. This represents the net present value of all estimated office and vehicle
lease payments. Under the same lease assumptions, the consolidated entity expects a lease expense of $467,342 in the
year ending 30 June 2020 (comparatively, an expense of $433,385 would be expected under the current accounting
methodologies being applied).
New Conceptual Framework for Financial Reporting
A revised Conceptual Framework for Financial Reporting has been issued by the AASB and is applicable for annual
reporting periods beginning on or after 1 January 2020. This release impacts for-profit private sector entities that have
public accountability that are required by legislation to comply with Australian Accounting Standards and other for-profit
entities that voluntarily elect to apply the Conceptual Framework. Phase 2 of the framework is yet to be released which will
impact for-profit private sector entities. The application of new definition and recognition criteria as well as new guidance on
measurement will result in amendments to several accounting standards. The issue of AASB 2019-1 Amendments to
Australian Accounting Standards – References to the Conceptual Framework, also applicable from 1 January 2020,
includes such amendments. Where the consolidated entity has relied on the conceptual framework in determining its
accounting policies for transactions, events or conditions that are not otherwise dealt with under Australian Accounting
Standards, the consolidated entity may need to revisit such policies.
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 11.
38
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Kip McGrath Education Centres Limited ABN 73 003 415 889 | Annual Report 2019
Kip McGrath Education Centres Limited
Notes to the financial statements
30 June 2019
Note 2. Critical accounting judgements, estimates and assumptions (continued)
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 11.
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.
Determination of variable consideration
Judgement is exercised in estimating variable consideration which is determined having regard to past experience with
respect to the goods returned to the consolidated entity where the customer maintains a right of return pursuant to the
customer contract or where services have a variable component. Revenue will only be recognised to the extent that it is
highly probable that a significant reversal in the amount of cumulative revenue recognised under the contract will not occur
when the uncertainty associated with the variable consideration is subsequently resolved.
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. Restatement of comparatives - adoption of AASB 9 'Financial Instruments' and AASB 15 'Revenue from
Contracts with Customers'
Adoption of AASB 9 'Financial Instruments'
The consolidated entity has adopted AASB 9 from 1 July 2018, using the full retrospective method of adoption and
comparatives have been restated. Interest revenue calculated using the effective interest method is now required to be
shown on the face of the statement of profit or loss. There was no material impact to the financial statements rather than
presentation and classification, such as;
●
●
interest income is now shown separate on the face of the Statement of profit or loss and other comprehensive
income; and
impairment of receivables is now shown on the face of the Statement of profit or loss and other comprehensive
income;
39
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Annual Report 2019 | Kip McGrath Education Centres Limited ABN 73 003 415 889
Kip McGrath Education Centres Limited
Notes to the financial statements
30 June 2019
Note 3. Restatement of comparatives - adoption of AASB 9 'Financial Instruments' and AASB 15
'Revenue from Contracts with Customers' (continued)
Adoption of AASB 15 'Revenue from contracts with customers'
The consolidated entity has adopted AASB 15 from 1 July 2017 using the full retrospective method of adoption, resulting in
the following restatement of comparatives to the Statement of financial position as at 30 June 2018:
●
●
●
●
Contract liabilities of $1,200,000 were recognised at 1 July 2017 with a corresponding reduction in retained earnings
at that date. This is a result of AASB 15 requiring that revenue in relation to access to materials arising from the sale
of franchisees and master territories be deferred until the actual performance obligation is satisfied which occurs
progressively as the contract term expires. Previously, the consolidated entity's accounting policy was to recognise
this revenue upfront on the completion of training. The adjustment to retained earnings as at 1 July 2017 is also
reflected in the Statement of changes in equity.
A deferred tax asset was recognised amounting to $330,000 as at 1 July 2017 as a consequence of the recognition of
the contract liability.
Subsequent to recognition of the contract liability, revenue amounting to $242,000 was recognised as the
performance obligations were satisfied resulting in the recognition of a contract liability balance of $958,000 as at 30
June 2018.
As a consequence of the above, retained earnings as at 30 June 2018 was reduced by $958,000. This adjustment to
retained earnings is also disclosed in the Statement of changes in equity for the current period.
Corresponding adjustments were also made to the 30 June 2018 comparative information in the Statement of profit or loss
and other comprehensive income for the year ended 30 June 2018:
●
●
As mentioned above, services revenue increased by $242,000 for the period as the performance obligations
associated with previously deferred revenue were satisfied.
In June 2018, student lesson fee revenue of $925,000 was recognised from contracts where Gold Partner franchisees
provided services to the consolidated entity. Under AASB 15 this revenue must be disclosed net of expenses and
accordingly the comparative figure for revenue from June 2018 has been reduced by $925,000.
Statement of profit or loss and other comprehensive income
Extract
Revenue
Expenses
Royalties, commissions and other direct expenses
Administration expenses
(Impairment)/reversal of impairment of receivables
Profit before income tax expense
Income tax expense
Consolidated
Restated
2018
$'000
Restated
2018
$'000
$'000
Reported
Adjustment Restated
13,743
(683)
13,060
(3,716)
(1,660)
-
2,707
(686)
925
(17)
17
242
(2,791)
(1,677)
17
2,949
-
(686)
Profit after income tax expense for the year attributable to the owners of
Kip McGrath Education Centres Limited
2,021
242
2,263
Other comprehensive income for the year, net of tax
(12)
-
(12)
Total comprehensive income for the year attributable to the owners of
Kip McGrath Education Centres Limited
2,009
242
2,251
40
40
Kip McGrath Education Centres Limited ABN 73 003 415 889 | Annual Report 2019
Kip McGrath Education Centres Limited
Notes to the financial statements
30 June 2019
Note 3. Restatement of comparatives - adoption of AASB 9 'Financial Instruments' and AASB 15
'Revenue from Contracts with Customers' (continued)
Basic earnings per share
Diluted earnings per share
Cents
Cents
Cents
Reported
Adjustment Restated
4.488
4.244
0.537
0.508
5.025
4.752
Statement of financial position at the beginning of the earliest comparative period
Retained profits as at 1 July 2017 were reduced by $870,000 as result of the recognition of contract liabilities as described
above.
Statement of financial position at the end of the earliest comparative period
Extract
Assets
Non-current assets
Deferred tax
Total non-current assets
Total assets
Liabilities
Current liabilities
Contract liabilities
Total current liabilities
Total liabilities
Net assets
Equity
Retained profits
Total equity
Note 4. Operating segments
Consolidated
Restated
2018
$'000
Restated
2018
$'000
$'000
Reported
Adjustment Restated
306
12,629
19,384
-
6,726
8,138
330
330
330
958
958
958
636
12,959
19,714
958
7,684
9,096
11,246
(628)
10,618
1,753
(628)
1,125
11,246
(628)
10,618
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 and deferred tax assets.
41
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Annual Report 2019 | Kip McGrath Education Centres Limited ABN 73 003 415 889
Kip McGrath Education Centres Limited
Notes to the financial statements
30 June 2019
Note 4. Operating segments (continued)
Geographical information
Australasia
United Kingdom and Europe
Overseas other
Note 5. Revenue
Revenue from contract with customers
Franchise fees
Sale of master territories and franchisee centres
National advertising contributions (NAC)
Direct sales
Student lessons
Other revenue
Other revenue
Revenue
Sales to external customers
2019
$'000
Restated
2018
$'000
Geographical non-current
assets
2019
$'000
Restated
2018
$'000
6,860
8,323
1,080
5,661
6,458
941
11,974
759
-
11,577
746
-
16,263
13,060
12,733
12,323
Consolidated
Restated
2019
$'000
2018
$'000
12,336
1,010
1,782
798
302
16,228
10,532
984
756
634
103
13,009
35
51
16,263
13,060
Consolidated
Restated
2019
$'000
2018
$'000
15,829
399
12,567
442
16,228
13,009
Disaggregation of revenue
The disaggregation of revenue from contracts with customers is as follows:
Timing of revenue recognition
Services and goods transferred at a point in time
Services transferred over time
The disaggregation of revenue by major product lines is disclosed at the top of revenue note and the geographical regions
is presented in note 4 - operating segments.
42
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Kip McGrath Education Centres Limited ABN 73 003 415 889 | Annual Report 2019
Kip McGrath Education Centres Limited
Notes to the financial statements
30 June 2019
Note 6. 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
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
Consolidated
Restated
2019
$'000
2018
$'000
61
49
1,226
306
833
192
1,532
1,025
1,593
1,074
3,244
357
29
2,755
297
45
3,630
3,097
55
319
58
268
43
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Annual Report 2019 | Kip McGrath Education Centres Limited ABN 73 003 415 889
Kip McGrath Education Centres Limited
Notes to the financial statements
30 June 2019
Note 7. 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 12)
Increase/(decrease) in deferred tax liabilities (note 17)
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%
Tax effect amounts which are not deductible/(taxable) in calculating taxable income:
Prior year foreign exchange items
Sundry items
Adjustment from adoption of AASB 15 (note 3)
Income tax expense
Tax losses not recognised
Unused tax losses for which no deferred tax asset has been recognised
Potential tax benefit @ 27.5%
Consolidated
Restated
2019
$'000
2018
$'000
839
68
907
5
63
68
576
110
686
220
(110)
110
3,559
2,949
979
811
-
(72)
907
-
907
(104)
46
753
(67)
686
Consolidated
Restated
2019
$'000
2018
$'000
1,269
1,269
349
349
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.
44
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Kip McGrath Education Centres Limited ABN 73 003 415 889 | Annual Report 2019
Kip McGrath Education Centres Limited
Notes to the financial statements
30 June 2019
Note 8. Current assets - cash and cash equivalents
Cash at bank
Restricted cash
Consolidated
Restated
2019
$'000
2018
$'000
2,471
4,582
2,202
3,714
7,053
5,916
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 13].
Note 9. Current assets - trade and other receivables
Trade receivables
Less: Allowance for expected credit losses
Other receivables
Consolidated
Restated
2019
$'000
2018
$'000
653
(110)
543
14
557
447
(68)
379
140
519
Allowance for expected credit losses
The consolidated entity has recognised a loss of $76,000 (2018: reversal of impairment of $17,000) in profit or loss in
respect of expected credit losses for the year ended 30 June 2019. The allowance is considered reasonable as all revenue
has already been received.
The ageing of the receivables and allowance for expected credit losses provided for above are as follows:
Consolidated
Not overdue
0 to 3 months overdue
Over 3 months overdue
Expected credit loss rate
Carrying amount
2019
%
Restated
2018
%
2019
$'000
Restated
2018
$'000
Allowance for expected
credit losses
Restated
2019
$'000
2018
$'000
1%
15%
91%
1%
20%
78%
448
106
99
653
317
62
68
447
4
16
90
110
3
12
53
68
45
45
Annual Report 2019 | Kip McGrath Education Centres Limited ABN 73 003 415 889
Kip McGrath Education Centres Limited
Notes to the financial statements
30 June 2019
Note 9. Current assets - trade and other receivables (continued)
Movements in the allowance for expected credit losses are as follows:
Opening balance
Additional provisions recognised
Amounts recovered during the year
Closing balance
Note 10. Non-current assets - trade receivables
Other receivables
Consolidated
Restated
2019
$'000
2018
$'000
68
76
(34)
110
84
3
(19)
68
Consolidated
Restated
2019
$'000
2018
$'000
199
-
Non-current receivables of $199,000 (current of $45,000) consist of the deferred payment component of a legal settlement
of $249,000 included as other income which offset legal expenses incurred in this period that relates to an ex-UK
franchisee.
Note 11. 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
Restated
2019
$'000
2018
$'000
4,012
4,012
9,373
(4,008)
5,365
8,184
(2,782)
5,402
1,850
1,837
2,287
(1,158)
1,129
1,862
(861)
1,001
12,356
12,252
46
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Kip McGrath Education Centres Limited ABN 73 003 415 889 | Annual Report 2019
Kip McGrath Education Centres Limited
Notes to the financial statements
30 June 2019
Note 11. Non-current assets - intangibles (continued)
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 2017
Additions
Exchange differences
Amortisation expense
Balance at 30 June 2018
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
-
-
-
5,096
1,139
-
(833)
5,402
1,189
-
(1,226)
711
1,091
35
-
1,837
-
13
-
485
708
-
(192)
1,001
434
-
(306)
10,304
2,938
35
(1,025)
12,252
1,623
13
(1,532)
Balance at 30 June 2019
4,012
5,365
1,850
1,129
12,356
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% (2018: 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 15.8% (2018: 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 3.5% (2018: 2.6%) over the three-year projection period, which reflects, a renewed sales
push, an expected move towards larger 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 2019 (2018: $nil).
47
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Annual Report 2019 | Kip McGrath Education Centres Limited ABN 73 003 415 889
Kip McGrath Education Centres Limited
Notes to the financial statements
30 June 2019
Note 11. Non-current assets - intangibles (continued)
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 5% (2018: 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.
Note 12. Non-current assets - deferred tax
Consolidated
Restated
2019
$'000
2018
$'000
-
25
63
224
140
40
139
631
636
(5)
-
631
21
16
61
330
126
(76)
158
636
526
(220)
330
636
Consolidated
Restated
2019
$'000
2018
$'000
596
4,410
58
685
1,034
3,732
40
382
5,749
5,188
Deferred tax asset comprises temporary differences attributable to:
Amounts recognised in profit or loss:
Tax losses
Allowance for expected credit losses
Unrealised foreign exchange movements
Contract liabilities
Employee benefits
Accrued expenses
QAX licence
Deferred tax asset
Movements:
Opening balance
Charged to profit or loss (note 7)
Adjustment from adoption of AASB 15 (note 3)
Closing balance
Note 13. 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 21 for further information on financial instruments.
48
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Kip McGrath Education Centres Limited ABN 73 003 415 889 | Annual Report 2019
Kip McGrath Education Centres Limited
Notes to the financial statements
30 June 2019
Note 14. Current liabilities - contract liabilities
Contract liabilities
Reconciliation
Reconciliation of the written down values at the beginning and end of the current and
previous financial year are set out below:
Opening balance
Payments received in advance
Transfer to revenue - other balances
Closing balance
Consolidated
Restated
2019
$'000
2018
$'000
813
958
958
253
(398)
813
1,200
201
(443)
958
Unsatisfied performance obligations
The aggregate amount of the transaction price allocated to the performance obligations that are unsatisfied at the end of
the reporting period was $813,000 as at 30 June 2019 ($958,000 as at 30 June 2018) and is expected to be recognised as
revenue in future periods as follows:
Consolidated
Restated
2019
$'000
2018
$'000
184
158
101
94
69
61
146
813
114
189
169
142
86
78
180
958
Consolidated
Restated
2019
$'000
2018
$'000
450
600
Consolidated
Restated
2019
$'000
2018
$'000
450
600
Within 6 months
6 to 12 months
12 to 18 months
18 to 24 months
24 to 30 months
30 to 36 months
beyond 36 months
Note 15. Current liabilities - borrowings
Bank loans
Refer to note 21 for further information on financial instruments.
Total secured liabilities
The total secured current liabilities are as follows:
Bank loans
49
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Annual Report 2019 | Kip McGrath Education Centres Limited ABN 73 003 415 889
Kip McGrath Education Centres Limited
Notes to the financial statements
30 June 2019
Note 15. 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
Consolidated
Restated
2019
$'000
2018
$'000
1,750
1,486
3,236
-
450
450
1,750
1,036
2,786
1,750
600
2,350
-
600
600
1,750
-
1,750
Unused bank loans of $1,036,000 are a GBP denominated loan facility with the HSBC Bank to fund the acquisition of two
UK Area Developer Territories in September 2019. This loan is repayable over three years.
Note 16. Current liabilities - employee benefits
Annual leave
Long service leave
Consolidated
Restated
2019
$'000
2018
$'000
236
276
512
210
238
448
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
Restated
2019
$'000
2018
$'000
314
275
50
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Kip McGrath Education Centres Limited ABN 73 003 415 889 | Annual Report 2019
Kip McGrath Education Centres Limited
Notes to the financial statements
30 June 2019
Note 17. 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 7)
Closing balance
Note 18. Equity - issued capital
Consolidated
Restated
2019
$'000
2018
$'000
1,475
-
1,366
46
1,475
1,412
1,412
63
1,522
(110)
1,475
1,412
Consolidated
2019
Shares
Restated
2018
Shares
2019
$'000
Restated
2018
$'000
Ordinary shares - fully paid
45,234,331 45,034,331
8,876
8,838
Movements in ordinary share capital
Details
Balance
Balance
Conversion of options
Balance
Date
Shares
Issue price
$'000
1 July 2017
45,034,331
30 June 2018
25 June 2019
45,034,331
200,000
$0.190
30 June 2019
45,234,331
8,838
8,838
38
8,876
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 2019 | Kip McGrath Education Centres Limited ABN 73 003 415 889
Kip McGrath Education Centres Limited
Notes to the financial statements
30 June 2019
Note 18. 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 2018 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 19. Equity - reserves
Foreign currency reserve
Share-based payments reserve
Other reserves
Consolidated
Restated
2019
$'000
2018
$'000
(315)
251
754
690
(245)
146
754
655
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 2017
Foreign currency translation
Share-based payments
Balance at 30 June 2018
Foreign currency translation
Share-based payments
Balance at 30 June 2019
Foreign
currency
$'000
Share-based
payments
$'000
Other
$'000
Total
$'000
(233)
(12)
-
(245)
(70)
-
(315)
77
-
69
146
-
105
251
754
-
-
754
-
-
754
598
(12)
69
655
(70)
105
690
52
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Kip McGrath Education Centres Limited ABN 73 003 415 889 | Annual Report 2019
Kip McGrath Education Centres Limited
Notes to the financial statements
30 June 2019
Note 20. Equity - dividends
Dividends paid during the financial year were as follows:
Final dividend for the year ended 30 June 2018 of 2.0 cents (2017: 1.4 cents) per ordinary
share
Interim dividend for the year ended 30 June 2019 of 1.5 cents (2018: 1.0 cents) per ordinary
share
Consolidated
Restated
2019
$'000
2018
$'000
901
675
630
451
1,576
1,081
On 23 August 2019, a final dividend for the year ended 30 June 2019 of 2.5 cents per ordinary share, 100% fully franked,
was declared and will be paid on 17 September 2019 to those shareholders on the register at 7p.m. on 3 September 2019.
The total distribution will be $1,130,858.
Note 21. 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.
53
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Annual Report 2019 | Kip McGrath Education Centres Limited ABN 73 003 415 889
Kip McGrath Education Centres Limited
Notes to the financial statements
30 June 2019
Note 21. 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
Restated
Liabilities
Restated
2019
$'000
2018
$'000
2019
$'000
2018
$'000
28
4
4,476
724
56
92
3
3
24
28
3,222
777
90
28
5
19
-
-
2,577
245
-
-
-
-
-
-
2,214
855
19
-
-
-
5,386
4,193
2,822
3,088
The consolidated entity had net assets denominated in foreign currencies of $2,564,000 as at 30 June 2019 (assets
$5,386,000 less liabilities $2,822,000)] (2018: $1,105,000 (assets $4,193,000 less liabilities $3,088,000)). Based on this
net position, a 10% strengthening in the Australian dollar from 30 June 2019 levels may expose the consolidated entity to a
$256,000 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.
Consolidated
Bank overdrafts and bank loans
Net exposure to cash flow interest rate risk
2019
Restated 2018
Weighted
average
interest rate
%
3.73%
Weighted
average
interest rate
%
Balance
$'000
Balance
$'000
4.58%
450
450
600
600
The consolidated entity has net bank loans and borrowings outstanding, totalling $450,000 (2018: $600,000), which are
principal and interest payment loans. Annually cash outlays of approximately $38,000 (2018: $38,000 per quarter) are
required to service the debt. An official increase/decrease in interest rates of 100 (2018: 100) basis points would have an
adverse/favourable effect on profit before tax of $4,500 (2018: $6,000) per annum. The percentage change is based on the
expected volatility of interest rates using market data and analysis.
54
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Kip McGrath Education Centres Limited ABN 73 003 415 889 | Annual Report 2019
Kip McGrath Education Centres Limited
Notes to the financial statements
30 June 2019
Note 21. 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.
The consolidated entity has adopted a lifetime expected loss allowance in estimating expected credit losses to trade
receivables through the use of a provisions matrix using fixed rates of credit loss provisioning. These provisions are
considered representative across all customers of the consolidated entity based on recent sales experience, historical
collection rates and forward-looking information that is available.
Before accepting any new customers, the consolidated entity assesses the potential customer's credit quality.
Generally, trade receivables are written off when there is no reasonable expectation of recovery. Indicators of this include
the failure of a debtor to engage in a repayment plan, no active enforcement activity and a failure to make contractual
payments for a period greater than 1 year.
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
Bank loans
Consolidated
Restated
2019
$'000
2018
$'000
1,750
1,036
2,786
1,750
-
1,750
A GBP denominated loan facility with the HSBC Bank has been established to fund the acquisition of two area developer
territories in England, early September 2019.
A letter of cross guarantee is in place between Kip McGrath Education Centres Ltd, Kip McGrath Education Australia Pty
Ltd, Kip McGrath Direct Pty Ltd and Kip McGrath Education Global Pty Ltd in relation to the HSBC banking facilities.
55
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Annual Report 2019 | Kip McGrath Education Centres Limited ABN 73 003 415 889
Kip McGrath Education Centres Limited
Notes to the financial statements
30 June 2019
Note 21. Financial instruments (continued)
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 - 2019
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
-
-
3.73%
596
5,153
450
6,199
-
-
-
-
-
-
-
-
-
-
-
-
596
5,153
450
6,199
Consolidated - Restated 2018
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
Non-derivatives
Non-interest bearing
Trade payables
Other payables
Interest-bearing - variable
Bank loans
Total non-derivatives
-
-
4.58%
1,034
4,154
175
5,363
-
-
468
468
-
-
-
-
-
-
-
-
1,034
4,154
643
5,831
The cash flows in the maturity analysis above are not expected to occur significantly earlier than contractually disclosed
above.
Note 22. 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 the consolidated entity’s non-current financial liabilities has been estimated as $450,000
(2018 $643,000) by discounting the remaining contractual maturities at current market interest rates for similar financial
instruments.
56
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Kip McGrath Education Centres Limited ABN 73 003 415 889 | Annual Report 2019
Kip McGrath Education Centres Limited
Notes to the financial statements
30 June 2019
Note 23. 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
Restated
2019
$
2018
$
1,352,057
106,569
21,333
1,561,630
121,552
45,257
1,479,959
1,728,439
The KMP total this year represents fewer KMP than last year because the Board has reviewed those identified as KMP and
determined that some members of staff no longer satisfy the definition of KMP as per AASB 124 ‘Related Party
Disclosures’.
Note 24. 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
Restated
2019
$
2018
$
105,000
105,000
14,285
21,139
119,285
126,139
3,100
3,727
10,878
10,778
6,213
1,769
17,091
12,547
Fees of $17,091 (2018: $12,547) were paid to Hazlewoods LLP, who are the auditors of the UK subsidiary Kip McGrath
Education United Kingdom Limited.
Note 25. Contingent liabilities
There were no contingent liabilities at 30 June 2019.
The consolidated entity has entered into arrangements to provide a guarantee to the lessor of the head office premises
amounting to $58,000 (2018: $58,000) and premises in Kotara of $51,000 (2018: $nil).
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Annual Report 2019 | Kip McGrath Education Centres Limited ABN 73 003 415 889
Kip McGrath Education Centres Limited
Notes to the financial statements
30 June 2019
Note 26. Commitments
Capital commitments
Committed at the reporting date but not recognised as liability, payable:
Property, plant and equipment
Intangible assets
PPE Lease commitments - operating
Committed at the reporting date but not recognised as liability, payable:
Within one year
One to five years
Consolidated
Restated
2019
$'000
2018
$'000
20
1,296
487
804
1,291
-
-
223
416
639
Capital commitments include amounts for the purchase of two AD territories in the UK market and the acquisition of a
franchised centre operating in Australia.
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 27. Related party transactions
Parent entity
Kip McGrath Education Centres Limited is the parent entity.
Subsidiaries
Interests in subsidiaries are set out in note 29.
Key management personnel
Disclosures relating to key management personnel are set out in note 23 and the remuneration report included in the
directors' report.
Transactions with related parties
During the year, $3,650 (2018: $2,937) was paid to 360 HR Pty Ltd, a related party to Diane Pass, for the reimbursement
of externally acquired training materials.
In June 2019, a contract was entered into with Catherine Cook (KMP) to provide curriculum resources to the company, and
$8,580 has been paid in respect of this contract.
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.
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Kip McGrath Education Centres Limited ABN 73 003 415 889 | Annual Report 2019
Kip McGrath Education Centres Limited
Notes to the financial statements
30 June 2019
Note 28. 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
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
Restated
2019
$'000
2018
$'000
769
769
3,346
3,346
Parent
Restated
2019
$'000
2018
$'000
1,947
2,330
8,276
9,937
3,817
4,748
5,225
6,234
8,876
10
251
(6,086)
8,838
(2)
146
(5,279)
3,051
3,703
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 2019 and 30 June 2018,
except as disclosed in note 22.
Contingent liabilities
The parent entity had no contingent liabilities as at 30 June 2019 and 30 June 2018.
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.
59
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Annual Report 2019 | Kip McGrath Education Centres Limited ABN 73 003 415 889
Kip McGrath Education Centres Limited
Notes to the financial statements
30 June 2019
Note 29. 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
Note 30. 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
Share-based payments
Foreign exchange differences
Write off of plant and equipment
Change in operating assets and liabilities:
Decrease/(increase) in trade and other receivables
Decrease/(increase) in deferred tax assets
Decrease/(increase) in prepayments
Increase in trade and other payables
Decrease in contract liabilities
Increase in provision for income tax
Decrease in deferred tax liabilities
Increase in employee benefits
Ownership interest
Restated
2019
%
2018
%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Consolidated
Restated
2019
$'000
2018
$'000
2,652
2,263
1,593
105
(83)
-
(237)
160
155
137
(145)
491
(77)
64
1,074
69
(47)
2
480
(110)
(179)
1,190
-
453
(110)
84
Net cash from operating activities
4,815
5,169
60
60
Kip McGrath Education Centres Limited ABN 73 003 415 889 | Annual Report 2019
Kip McGrath Education Centres Limited
Notes to the financial statements
30 June 2019
Note 31. Earnings per share
Consolidated
Restated
2019
$'000
2018
$'000
Profit after income tax attributable to the owners of Kip McGrath Education Centres Limited
2,652
2,263
Weighted average number of ordinary shares used in calculating basic earnings per share
Adjustments for calculation of diluted earnings per share:
45,037,619 45,034,331
Options over ordinary shares
2,862,740
2,587,671
Weighted average number of ordinary shares used in calculating diluted earnings per share 47,900,359 47,622,002
Number
Number
Basic earnings per share
Diluted earnings per share
Note 32. Share-based payments
Cents
Cents
5.888
5.536
5.025
4.752
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 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.
Set out below are summaries of options granted under the plan:
2019
Grant date
Expiry date
price
Exercise
Balance at
the start of
the year
Granted
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
$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
*
Other represents options that lapsed on resignation of an employee.
Exercised
-
-
-
-
-
-
-
(200,000)
-
-
-
-
-
(200,000)
Expired/
forfeited/
other *
Balance at
the end of
the year
-
-
-
(100,000)
(100,000)
-
(200,000)
-
150,000
1,000,000
400,000
450,000
500,000
2,500,000
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Annual Report 2019 | Kip McGrath Education Centres Limited ABN 73 003 415 889
Kip McGrath Education Centres Limited
Notes to the financial statements
30 June 2019
Note 32. Share-based payments (continued)
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
$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
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 $0.364 (2018: $0.320).
The weighted average remaining contractual life of options outstanding at the end of the financial year was 1.59 years
(2018: 2.86 years).
Total expenses arising from share-based payment transactions recognised during the period as part of employee benefit
expense were $29,000 (2018: $45,000).
Note 33. Events after the reporting period
Apart from the dividend declared as disclosed in note 20, no other matter or circumstance has arisen since 30 June 2019
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.
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Kip McGrath Education Centres Limited ABN 73 003 415 889 | Annual Report 2019
Kip McGrath Education Centres Limited
Directors' declaration
30 June 2019
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 2019 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
___________________________
Ian Campbell
Chairman
23 August 2019
Newcastle
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Annual Report 2019 | Kip McGrath Education Centres Limited ABN 73 003 415 889
INDEPENDENT AUDITORʼS REPORT
INDEPENDENT AUDITORʼS REPORT
TO THE MEMBERS OF KIP MCGRATH EDUCATION CENTRES LIMITED
TO THE MEMBERS OF KIP MCGRATH EDUCATION CENTRES LIMITED
Report on the Financial Report
Report on the Financial Report
Opinion
Opinion
We have audited the accompanying financial report of Kip McGrath Education Centres Limited (the
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 2019, the
company), which comprises the consolidated statement of financial position as at 30 June 2019, the
consolidated statement of profit or loss and other comprehensive income, the consolidated statement of
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
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 directorsʼ declaration
summary of significant accounting policies and other explanatory information, and the directorsʼ declaration
of the company and the consolidated entity comprising the company and the entities it controlled at the
of the company and the consolidated entity comprising the company and the entities it controlled at the
yearʼs end or from time to time during the financial year.
yearʼs 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
In our opinion, the financial report of Kip McGrath Education Centres Limited is in accordance with the
Corporations Act 2001, including:
Corporations Act 2001, including:
a) Giving a true and fair view of the consolidated entityʼs financial position as at 30 June 2019 and of
a) Giving a true and fair view of the consolidated entityʼs financial position as at 30 June 2019 and of
its performance for the year ended on that date; and
its performance for the year ended on that date; and
b) Complying with Australian Accounting Standards and the Corporations Regulations 2001.
b) Complying with Australian Accounting Standards and the Corporations Regulations 2001.
Basis for Opinion
Basis for Opinion
We conducted our audit in accordance with Australian Auditing Standards. Those standards require that we
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
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
obtain reasonable assurance about whether the financial report is free from material misstatement. Our
responsibilities under those standards are further described in the Auditorʼs Responsibility section of our
responsibilities under those standards are further described in the Auditorʼs Responsibility section of our
report.
report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our
opinion.
opinion.
Independence
Independence
We are independent of the consolidated entity in accordance with the Corporations Act 2001 and the ethical
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 Boardʼs APES 110 Code of Ethics for
requirements of the Accounting Professional and Ethical Standards Boardʼs APES 110 Code of Ethics for
Professional Accountants (the code) that are relevant to our audit of the financial report in Australia. We
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.
have also fulfilled our other ethical responsibilities in accordance with the Code.
PKF(NS) Audit & Assurance Limited
PKF(NS) Audit & Assurance Limited
Partnership
Partnership
ABN 91 850 861 839
ABN 91 850 861 839
Liability limited by a scheme
Liability limited by a scheme
approved under Professional
approved under Professional
Standards Legislation
Standards Legislation
Sydney
Sydney
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64
Newcastle
Newcastle
Level 8, 1 O’Connell Street
Level 8, 1 O’Connell Street
Sydney NSW 2000 Australia
Sydney NSW 2000 Australia
GPO Box 5446 Sydney NSW 2001
GPO Box 5446 Sydney NSW 2001
755 Hunter Street
755 Hunter Street
Newcastle West NSW 2302 Australia
Newcastle West NSW 2302 Australia
PO Box 2368 Dangar NSW 2309
PO Box 2368 Dangar NSW 2309
p
p
f
f
+61 2 8346 6000
+61 2 8346 6000
+61 2 8346 6099
+61 2 8346 6099
p
p
f
f
+61 2 4962 2688
+61 2 4962 2688
+61 2 4962 3245
+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
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.
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
For office locations visit www.pkf.com.au
64
Kip McGrath Education Centres Limited ABN 73 003 415 889 | Annual Report 2019 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
How our audit addressed the key audit matter
As disclosed in note 11, the Company
and its subsidiaries has intangible assets
of $12.356m as at 30 June 2019.
The Company has reviewed the disposition of how cash flows are
generated and determined there is one CGU, being the Company and its
subsidiaries. Our audit procedures included but were not limited to:
An annual impairment test for indefinite
useful life intangible assets is required
under Australian Accounting Standard
(AASB) 136 Impairment of Assets.
the
The evaluation of
recoverable
amount requires the group to exercise
key
in
judgment
assumptions, which include:
determining
• Preparation of a 5-year cash
flow forecast;
• Determination of a
growth factor; and
terminal
• Determination of a discount
rate.
•
•
• Assessing and challenging:
o
o
o
o
the assumption of one cash generating unit being appropriate;
the accuracy of the FY20 budget approved by the Board by
comparing the budget to FY19 actuals;
the key assumptions for the future growth rate used in the
model by comparing the average historical growth rates from
FY18 to FY19 and other 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;
of
outcome
impairment
The
the
assessment could vary
if different
assumptions were applied. As a result,
the evaluation of the recoverable amount
of intangible assets including goodwill is
a key audit matter.
• considering managementʼs 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 managementʼs 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 11.
Based on those procedures performed, we were satisfied with the
material accuracy of the intangibles and relevant disclosures.
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Annual Report 2019 | Kip McGrath Education Centres Limited ABN 73 003 415 889
2.
Revenue recognition
Why significant
How our audit addressed the key audit matter
The Company has adopted AASB 15 Revenue from
Contracts with Customers from 1 July 2018.
Our procedures included, but were not limited to, the
following:
The Companyʼs sales revenue noted in Note 5 Revenue
amounted to $16.23m during the year. Note 1 describes
the accounting policies applicable to distinct revenue
streams noting that revenue from:
• for a sample of contracts across each of the revenue
streams, assessing Managementʼs identification of
the Companyʼs disaggregated
revenue streams
across:
franchise fees are recognised on a weekly or
monthly basis as support services are rendered;
and
• Customer contracts;
•
Franchise fees;
•
•
franchisee owners
the development, support, use of
intellectual
property and training for new master franchisees
the
and
contract term. Therefore, the initial upfront payment
received
the
recognition of a Contract liability recognised on the
Statement of Financial Position and in Note 14.
is delivered over
franchisees gives
from
rise
to
Restatement of comparative amounts
reflect
retrospective application of this Standard has also
occurred as shown in Note 3 and 5.
to
Due to the different revenue streams and separate
performance obligations of the Company, the timing of
revenue recognition is varied under AASB 15. As a
result, revenue recognition is considered a key audit
matter.
• Sales of master territories and franchise
centres;
• National advertising contributions;
• Direct sales;
• Student lesson fees;
• evaluating the contracts and agreeing revenue
amounts to the records accumulated as inputs to
the financial statements, including supporting billing
systems and bank records;
recognition
• assessing the values recorded and the timing of
revenue
the
timeframe of product delivery or period of service by
either recognising revenue at a point in time or over
the contract term;
in accordance with
• assessing the accuracy of revenue cut off and
completeness of deferred revenue as of year end;
and
• assessing the consistency of the Companyʼs accounting
policies in respect of revenue recognition with the
criteria prescribed by AASB 15.
Based on those procedures performed, we are satisfied
with the material accuracy of the adoption of AASB 15
and the relevant disclosures in the financial report.
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Kip McGrath Education Centres Limited ABN 73 003 415 889 | Annual Report 2019
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 Auditorʼs Report. The directors are responsible for Other
Information in the annual report.
The Other Information we obtained prior to the date of this Auditorʼs Report was the Directorʼs Report. The
remaining Other Information is expected to be made available to us after the date of the Auditorʼs 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 Auditorʼs Report we have nothing to report.
Directorsʼ 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 entityʼs 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.
Auditorʼs 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 auditorʼs 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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Annual Report 2019 | Kip McGrath Education Centres Limited ABN 73 003 415 889
The procedures selected depend on the auditorʼs 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 entityʼs 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 entityʼs 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 Directorsʼ 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 entityʼs ability to continue as a going concern. If we
conclude that a material uncertainty exists, we are required to draw attention in our auditorʼs 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 auditorʼs 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 auditorʼs 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.
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Kip McGrath Education Centres Limited ABN 73 003 415 889 | Annual Report 2019
Report on the Remuneration Report
Opinion
We have audited the Remuneration Report included in the directorsʼ report for the year ended 30 June
2019. In our opinion, the Remuneration Report of Kip McGrath Education Centres Limited for the year
ended 30 June 2019, complies with section 300A of the Corporations Act 2001.
Responsibilities
The directors of the Company are responsible for the preparation and presentation of the Remuneration
Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an
opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing
Standards.
PKF
CHARTERED ACCOUNTANTS
CLAYTON HICKEY
PARTNER
23 AUGUST 2019
NEWCASTLE, NSW
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Annual Report 2019 | Kip McGrath Education Centres Limited ABN 73 003 415 889
Kip McGrath Education Centres Limited
Shareholder information
30 June 2019
The shareholder information set out below was applicable as at 1 August 2019.
Distribution of equitable securities
Analysis of number of equitable security holders by size of holding:
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:
National Nominees Limited
Mr Kip McGrath
KMEC Superannuation Pty Ltd (KMEC Superannuation Fund A/C)
Mr Storm Kip McGrath
Kip McGrath Investments Pty Ltd (McGrath Family A/C)
BNP Paribas Nominees Pty Ltd (IB AU NOMS Retailclient DRP)
Rendina Pty Ltd (Rendina Super Fund A/C)
Emerald Shares Pty Limited (Emerald Unit A/C)
Mr Matthew Charles Peek
Ensi Street Superannuation Pty Ltd (Ensi Street Retirement A/C)
Hetale Pty Limited (Eagles Nest Retire Fund A/C)
Ms Snezana Bowden
Mrs Stacey-Lee Segal
Mr Brian Stephan Sleigh
DMX Capital Partners Limited
Indweco Pty Limited
HSBC Custody Nominees (Australia) Limited
Good Hope Management Pty Ltd (The Good Hope Unit A/C)
Liberty Consolidated Holdings Pty Ltd
Mr Steven John McCarthy
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Number
of holders
of options
Number
of holders
of ordinary ordinary
over
shares
shares
111
438
209
212
38
1,008
38
-
-
-
-
5
5
-
Ordinary shares
% of total
Number held
10,197,606
11,036,991
4,000,000
1,102,731
1,000,000
751,661
750,052
600,000
580,000
533,881
500,000
400,000
400,000
688,000
379,425
343,261
322,873
269,300
250,000
250,000
shares
issued
22.54
24.40
8.84
2.44
2.21
1.66
1.66
1.33
1.28
1.18
1.11
0.88
0.88
1.52
0.84
0.76
0.71
0.60
0.55
0.55
34,355,781
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Kip McGrath Education Centres Limited ABN 73 003 415 889 | Annual Report 2019
Kip McGrath Education Centres Limited
Shareholder information
30 June 2019
Unquoted equity securities
Options over ordinary shares issued
Substantial holders
Substantial holders in the company are set out below:
National Nominees 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:
Number
on issue
Number
of holders
2,500,000
5
Ordinary shares
% of total
Number held
10,197,606
11,036,991
4,000,000
shares
issued
22.54
24.40
8.84
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.
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Annual Report 2019 | Kip McGrath Education Centres Limited ABN 73 003 415 889