ANNUAL REPORT2018 CONTENTS 03 Business Overview 06 Peet Values 07 Performance at a Glance 10 Chairman’s Review 14 Managing Director and CEO’s Review 17 Operating and Financial Review 23 Funds Management 25 Joint Ventures 27 Development Projects 29 Focusing on Sustainability 33 Peet in the Community 39 Promoting Healthy Active Lifestyles 41 Corporate Calendar 43 Financials LIGHTSVIEW APARTMENTS, SA “ The Group has evolved and broadened its capabilities and offerings – continuing to create high-quality residential opportunities for homebuyers across Australia, and the best possible results for our shareholders, investors and partners” s t n e t n o C 8 1 Y F 4 OVERVIEW VISTA BLUE TOWNHOUSES SHOREHAVEN, ALKIMOS WA “ The Group currently employs around 250 people across Australia with expertise covering various disciplines in the development process” inception to delivery. We also work with a variety of expert consultants who are carefully selected as required for each project. We pride ourselves on the sound governance framework, strong management, breadth of business skills and modern project management systems and procedures which underpin all our development and marketing activities. In the 2018 financial year, the Group has achieved another increase in profit on the back of continuing strong conditions across the east coast markets. Heading into the 2019 financial year, our strong balance sheet, low gearing and geographically diversified portfolio is well positioned for sustainable, long-term growth and the Group will continue to deliver an innovative and diverse mix of product and infrastructure. Our focus is creating high-quality, masterplanned residential communities that enable and inspire people of all ages and backgrounds to achieve home ownership, and deliver the best possible results for shareholders, wholesale, institutional and retail investors, and public and private sector development partners. The Group acquires, develops and markets residential land, predominantly under a capital-efficient funds management model. We take a strategic approach to land acquisition, and our geographically diversified portfolio means we are well positioned to leverage different property cycles. We currently have approximately 60 projects across the country, and the wide and varying nature of these developments reflect the evolution of the Group. We continue to broaden our capabilities ensuring we offer a product mix that suits the changing lifestyles being sought by homebuyers – this includes an increasing focus on completed homes and medium density products and, to a lesser extent, apartments. Investment in community infrastructure is also key to the success of each and every one of our communities – from the delivery and/or facilitation of key amenities such as parks and playgrounds, shopping centres, schools, medical centres, pharmacies, childcare centres and other local services in some estates, to the creation and installation of works of public art. The Group currently employs around 250 people across Australia with expertise covering various disciplines in the development process – from project CONNECTION: ENGAGED AND THRIVING COMMUNITIES w e i v r e v O s s e n i s u B 8 1 Y F THE PEET GROUP IS COMMITTED TO PROVIDING NEW OPPORTUNITIES – FOR OUR CUSTOMERS, INVESTORS AND DEVELOPMENT PARTNERS – LEVERAGING A PIPELINE OF APPROXIMATELY 49,700 LOTS, WITH A GROSS DEVELOPMENT VALUE OF APPROXIMATELY $14 BILLION, SPREAD ACROSS EVERY MAINLAND STATE AND TERRITORY OF AUSTRALIA.Peet Annual Report 2018 6 PEET VALUES INTEGRITY WE act with high integrity through open, honest and professional conduct. TEAMWORK WE recognise the strength of working together and encourage the development of our people and the sharing of knowledge. ACCOUNTABILITY WE respect the responsibility invested in us and have ownership and the freedom to act to deliver constant improvements. ADAPTABILITY WE embrace change and foster creativity, initiative, innovation and embrace progressive thinking. RESPECT WE treat our team, customers and the environment with respect, dignity and equality. CUSTOMER SERVICE WE strive to deliver a high standard of prompt, efficient and courteous service to our customers, both internal and external. CORNERSTONE WEERRIBEE, VIC s e u l a V t e e P 8 1 Y F Peet Annual Report 2018 8 PERFORMANCE AT A GLANCE The Peet Group increased operating and statutory profit by 10% to $49.1 million in FY18. 1 Operating profit is a non-IFRS measure that is determined to present the ongoing activities of the Group in a way that reflects its operating performance. Operating profit excludes unrealised fair value gains/ (losses) arising from the effect of revaluing assets and liabilities and adjustments for realised transactions outside the core ongoing business activities. 2 Statutory profit after tax means net profit measured in accordance with Australian Accounting Standards, attributable to the owners of Peet Limited. 3 Includes statutory revenue of $287.6 million (FY17: $296.0 million) and share of net profits from associates and joint ventures of $14.1 million (FY17: $15.3 million). 4 EBITDA is a non-IFRS measure that includes effects of non-cash movements in investments in associates and joint ventures totalling $14.1 million (FY17: $15.3 million). 5 Includes equivalent lots. Excludes englobo sales. 6 Calculated as (Total interest-bearing liabilities (including land vendor liabilities) less cash) / (Total assets adjusted for market value of inventory less cash, less intangible assets), excluding Syndicates consolidated under AASB10. REVENUE3 OF $301.7m TWO NEW PROJECTS COMMENCED SALES / DEVELOPMENT $49.1m OPERATING PROFIT1 AND STATUTORY PROFIT2 AFTER TAX GEARING6 OF 18.2% 2,257 CONTRACTS ON HAND5 AS AT 30 JUNE 2018 EBITDA4 OF $101.3m NET EBITDA4 MARGIN OF 34% STRONG OPERATING CASH FLOWS OF $118.1m BEFORE PAYMENTS FOR PURCHASE OF LAND DIVIDENDS OF 5.0 CENTS PER SHARE, FULLY FRANKED EARNINGS PER SHARE OF 10.02 CENTS TOTAL LOTS SETTLED 2,924 TOTAL LOTS SOLD 2,950 OPERATING PROFIT AFTER TAX ($M) DIVIDENDS (CPS) OPERATING EPS (CPS) EBITDA ($M) NET EBITDA MARGIN (%) 10% 5% 10% 11% 5% FY16: 42.6 FY17: 44.8 FY18: 49.1 FY16: 4.5 FY17: 4.75 FY18: 5.0 FY16: 8.7 FY17: 9.14 FY18: 10.02 FY16: 89.8 FY17: 91.1 FY18: 101.3 FY16: 32% FY17: 29% FY18: 34% AVON RIDGE, WA e c n a l G a t a e c n a m r o f r e P 8 1 Y F Peet Annual Report 2018 10 TONSLEY VILLAGE, SA “ Peet Group, with its diversified land bank and strong balance sheet, is well positioned for sustainable long-term growth.” CHAIRMAN’S REVIEW Market conditions for us in Australian Capital Territory / New South Wales and South Australia remained consistent and solid, while in Western Australian they were subdued yet stabilising. Peet’s methodically acquired and geographically diversified portfolio enabled the group to leverage opportunities across different markets and changing cycles throughout the financial year, culminating in a solid profit increase, strong operating cash in-flows and reduced gearing. As examples of this two Funds Management/Joint Venture developments commenced sales during the year – at Eden’s Crossing in Queensland and Tonsley Village in South Australia. The activity generated by these new projects and the continuing growth of the Flagstone project in Queensland are of significant benefit and contributed to revenue as we saw the completion of several successful projects in Victoria. Having been named the preferred proponent at the end of FY17 to partner with the Western Australian Government to deliver the Brabham project, the Peet Group has now finalised a formal Project Management Agreement to deliver this new transit-orientated community. Planning detail for this new community of Brabham, which is in a prime growth corridor of Perth, will commence in FY19. The acquisition during the year of four medium-density sites helps position Peet well to further diversify product offering to meet changing market needs in the medium-density and completed home market. The year ahead The Peet Group is well positioned for FY19, with a diversified land bank, low gearing and a strong balance sheet. Approximately 70% of the Group’s land bank was in development at year end, and this is expected to increase to more than 80% by FY20. To achieve that, some significant new projects will come into development, including Palmview in the improving Queensland market, Brabham in Western Australia and several Completed Homes and Medium Density projects. To ensure Peet is best positioned to maintain market share and momentum for these projects and across all of our activities, economic and political factors that may influence capital markets and the property sector will continue to be monitored. WELL POSITIONED: DIVERSIFIED LAND BANK AND STRONG BALANCE SHEET EDEN’S CROSSING, QLD w e i v e R s ’ n a m r i a h C 8 1 Y F ON BEHALF OF THE BOARD OF PEET LIMITED, I AM PLEASED TO PRESENT THE PEET 2018 ANNUAL REPORT. THE 2018 FINANCIAL YEAR (FY18) SAW VARIABLE MARKET CONDITIONS CONTINUE ACROSS THE AUSTRALIAN RESIDENTIAL PROPERTY SECTOR. VICTORIA SUSTAINED ITS STRONG MARKET POSITION, ALTHOUGH MODERATING FROM THE HEADY LEVELS OF FY17. THE EMPLOYMENT GROWTH AND INCREASED BUSINESS CONFIDENCE LIFTED PROPERTY DEMAND IN QUEENSLAND, PARTICULARLY IN THE AFFORDABLE PRODUCT CATEGORY.Peet Annual Report 2018 12 Much commentary has been made of the lessening of offshore and other investor participation in residential markets, however such investors have not been aggressively targeted by Peet. Indeed, we have sought a balance weighted towards owner occupiers rather than investors generally. During the year, Peet reduced its interest-bearing debt to $217.2 million at 30 June 2018, compared with $249.8 million at 30 June 2017 and also reduced its gearing to 18.2% at 30 June 2018. We will continue to maintain a disciplined approach to capital management and seek to further grow our funds management business, co-investing with selected investors with Peet as development manager. Given Peet’s strong financial position and in line with our focus on prudent capital management and since we have seen our share price trading at or below the book NTA as at 30 June 2018 of $1.18, we have announced that we will implement a 12-month on-market share buy-back of up to 5% of our issued ordinary shares. Peet reserves the right to suspend or terminate the buy-back at any time so as to have capital management flexibility and to take advantage of acquisition opportunities that may arise. expected to continue into FY19, which include moderating conditions in Victoria and New South Wales. The Board and Management will continue the Group’s focus on strategic acquisitions, while sustaining the development program for our existing land bank, and at all times maintaining prudent capital management to leverage growth opportunities. I look forward to working with my fellow Directors and Peet Managing Director and CEO Brendan Gore, to deliver these outcomes. I take this opportunity to acknowledge them, and the entire Peet team, for the work they do to deliver innovative and exciting communities and investment opportunities for our company across Australia. I look forward to FY19 and the positive outcomes and results we can achieve for all of our investors, partners and the present and future residents of our communities. Tony Lennon Chairman 17 October 2018 Dividends The Directors were pleased to declare a final dividend for FY18 of 3.0 cents per share, fully franked. This brings the total dividend for FY18 to 5.0 cents per share, fully franked, which is an increase of 5% on the FY17 dividend (4.75 cents per share, fully franked). Conclusion The Peet Group is well positioned for sustainable long-term growth and to manage its portfolio of projects through the variable market conditions that are FOCUS ON PRUDENT CAPITAL MANAGEMENT FY18 DIVIDEND 5c $1.18 BOOK NTA AS AT 30 JUNE 2018 “ I look forward to FY19 and the positive outcomes and results we can achieve for all of our investors, partners and the present and future residents of our communities. ” BLUESTONE MT BARKER, SA w e i v e R s ’ n a m r i a h C 8 1 Y F Peet Annual Report 2018 FINANCIAL YEAR 14 LAKELANDS ESTATE, WA “ Peet also enters FY19 will a strong balance sheet, including low gearing and cash and debt facility headroom of $148.3 million at 30 June 2018.” MANAGING DIRECTOR AND CEO’S REVIEW The Group achieved revenue of $301.7 million, with 2,924 lots settled and EBITDA of $101.3 million, up 11% on FY17, on the back of a strong EBITDA margin of 34%. There were 2,950 lots sold (down 2% on the previous year), with a gross value of $714.5 million and we had 2,257 contracts on hand valued at $616.0 million at 30 June 2018, compared with 2,186 contracts on hand with a gross value of $545.7 million at 30 June in 2017. The pipeline of contracts on hand across the country at year end provides strong momentum moving into FY19. Peet also enters FY19 will a strong balance sheet, including low gearing and cash and debt facility headroom of $148.3 million at 30 June 2018, reflecting Peet’s continued focus on prudent capital management. Capital management initiatives undertaken during the year included the issue of $50 million of Peet Bonds, which further diversified our debt structure. This diversification helped underpin the strong balance sheet and, together with low gearing of 18.2% (compared to 21.4% at 30 June 2017), provides Peet with the capacity to strategically replenish its land bank when opportunities emerge. Moving into FY19, the Peet Group will continue to strive for business efficiencies and improvements, and implement initiatives that deliver optimal outcomes to our investors, partners and the current and future residents in our communities. Group Strategy The Group will continue to target the delivery of quality residential communities around Australia by leveraging its land bank; working in partnership with wholesale, institutional and retail investors; and continuing to meet market demand for a mix of product in the growth corridors of major Australian cities, with a primary focus on affordable product. Key elements of the Group’s strategy for the year ahead and beyond include: • continuing to deliver high-quality, master-planned communities, adding value and facilitating additional investment in amenity and services wherever possible; • managing the Group’s land bank of approximately 49,700 lots with a focus on maximising return on capital employed; • continuing to assess opportunities to selectively acquire residential land holdings in a disciplined manner, predominantly under our funds management platform, and as appropriate to market conditions; • maintaining a focus on cost and the level of debt; and • broadening its product offering to Completed Homes and Medium Density. w e i v e R s ’ O E C d n A r o t c e r i D g n i g a n a M 8 1 Y F THE 2018 FINANCIAL YEAR WAS ANOTHER POSITIVE YEAR FOR THE PEET GROUP, WITH OUR GEOGRAPHICALLY DIVERSIFIED LAND BANK AND PRODUCT PORTFOLIO UNDERPINNING SOLID PERFORMANCE AND RESULTS.Favourable conditions on the east coast, including improving sales and settlements from the Queensland portfolio, more than offset the ongoing subdued Perth market. The Queensland land bank provides significant exposure to the improving market cycle across the state.Sales and settlements from the Group’s Queensland portfolio increased 16% and 64%, respectively, compared to FY17, with the performance underpinned by the continued growth of the Flagstone estate and the first full year of sales from the Eden’s Crossing estate.This contributed to an increase in operating profit and statutory profit, after tax, to $49.1 million, up 10% on FY17, and earnings per share of 10.02 cents, also up 10%. Peet Annual Report 2018 “ The Group is evolving and broadening its capabilities and offerings to home- buying customers, increasing its focus on Completed Homes and Medium Density products, and to a lesser extent the apartment market.” Traditionally, Peet has been a residential land developer with a focus on replenishing its land bank in a disciplined manner in its core markets of Victoria, Queensland and Western Australia, with opportunistic acquisitions in other states and territories. However, the Group is evolving and broadening its capabilities and offerings to home-buying customers, increasing its focus on Completed Homes and Medium Density products, and to a lesser extent the apartment market. In recent times, Peet has secured projects to deliver Completed Homes and Medium Density products under its funds management, development and joint arrangements operating segments. One project, which will deliver traditional product and Completed Homes and Medium Density products is the Brabham project in Western Australia. This project comprises a 220-hectare landholding 22km north east of the Perth CBD and has the potential to yield 3,000 dwellings as well as schools, neighbourhood shops and recreational areas. As new Completed Homes and Medium Density products are developed, the Group’s EBITDA margin is expected to be approximately 28% in FY19, which is within the Group’s target through-cycle EBITDA margin range of 25% to 30%. Outlook The Peet Group has entered FY19 in a solid position to target growth on FY18 earnings, subject to market conditions and the timing of settlements. The positive outlook for the Group is generally supported by market fundamentals with sustained low interest rates, strong population growth on the east coast and modest economic growth. Overall the varied conditions of Australia’s residential property market are expected to continue. The market in Victoria is moderating as expected with more focus placed on location and quality. It remains supported by continuing strong population growth and strong public-sector investment. Conditions in ACT and South Australia are expected to remain supportive. The Queensland residential market is expected to continue to improve due to its relative affordability, and while the depth of market in Western Australia continues to show improvement, we do not anticipate a material improvement in sales activity during FY19. In addition to the Group’s breadth of operations, its continued success will be driven by the dedicated Peet team. I take this opportunity to acknowledge and thank the hard-working individuals who operate across every mainland state and territory. They share their expertise, knowledge and enthusiasm for the benefit of all of our shareholders, investors, partners and residents. I also take this opportunity to thank the Board and shareholders of Peet Limited for their valuable input and support during the year. Brendan Gore Managing Director and Chief Executive Officer 17 October 2018 16 w e i v e R s ’ O E C d n A r o t c e r i D g n i g a n a M 8 1 Y F DIVERSITY: PRODUCT MIX TO RESPOND TO MARKET DEMAND ATRIA APARTMENTS, ACT LIGHTSVIEW, SA PEET COMPLETE HOME Peet Annual Report 2018 18 49,700 LOTS ON-COMPLETION VALUE OF AROUND $14.0b 2,257 $616.0m CONTRACTS ON HAND7 GROSS VALUE OF AS AT 30 JUNE 2018 2,924 TOTAL LOTS SETTLED GROSS VALUE $711.5m 11% EBITDA8 $101.3m 2,950 TOTAL LOTS SOLD GROSS VALUE $714.5m STRONG OPERATING CASH FLOWS OF $118.0 MILLION11 7 Includes equivalent lots. Excludes englobo sales. 8 EBITDA is a non-IFRS measure that includes effects of non-cash movements in investments in associates and joint ventures totalling $14.1 million (FY17: $15.3 million). 9 Operating profit is a non-IFRS measure that is determined to present the ongoing activities of the Group in a way that reflects its operating performance. Operating profit excludes unrealised fair value gains/ (losses) arising from the effect of revaluing assets and liabilities and adjustments for realised transactions outside the core ongoing business activities. 10 Statutory profit after tax means net profit measured in accordance with Australian Accounting Standards, attributable to the owners of Peet Limited. LIGHTSVIEW, SA 11 Calculated before payments for purchase of land. The Peet Group achieved a solid result in FY18, recording an operating profit9 and statutory profit10 after tax of $49.1 million for the year ended 30 June 2018. This represents an increase of 10% on FY17. The pleasing profit performance was underpinned by the continuing favourable conditions across the Group’s east coast markets, where there was continuing price growth, particularly across the Victoria and ACT/NSW portfolios. There was also an improvement in total sales and settlements across the Group’s Queensland portfolio during the year, on the back of the Flagstone and Eden’s Crossing projects. The Group derived EBITDA8 of $101.3 million during FY18, compared to $91.1 million in FY17, with a margin of 34% (FY17: 29%). The improved EBITDA8 and EBITDA8 margin is predominantly attributable to the price growth achieved across the Victoria portfolio, the settlement of super lots and a continuing focus on efficiencies across the business. OPERATING AND FINANCIAL REVIEW w e i v e R l a i c n a n i F d n A g n i t a r e p O 8 1 Y F THE FY18 RESULTS WERE UNDERPINNED BY CONTINUING FAVOURABLE CONDITIONS ACROSS EAST COAST MARKETS, AND PEET’S DIVERSIFIED PORTFOLIO OF PROJECTS ALLOWED IT TO CAPITALISE ON THE EASTERN STATES’ STRENGTH.Peet Annual Report 2018 20 “ Strong margins continue to be achieved, with an FY18 EBITDA12 margin of 34%.” The performance has resulted in earnings per share of 10.02 cents for the year ended 30 June 2018, compared to 9.14 cents per share in FY17, representing an increase of 10%. At 30 June 2018, there were 2,257 contracts on hand13, with a gross value of $616.0 million, compared with 2,186 contracts on hand13 with a gross value of $545.7 million at 30 June in 2017. The Group has maintained its focus on prudent capital management and, during 1H18, issued $50 million of Peet Bonds, which has further diversified its debt structure. The Group achieved 2,950 sales (with a gross value of $714.5 million) and 2,924 settlements (with a gross value of $711.5 million) for the full financial year, representing a decrease of 2% and 5%, respectively compared with FY17. Sales were impacted by the varied market conditions around the country, with east coast markets performing strongly during the year and the Western Australian market continuing to be subdued. Settlements were affected by the timing of lot settlements across projects and the substantial completion of several syndicated Victorian projects during FY17. Sales and settlements from the Group’s Queensland portfolio increased 16% and 64%, respectively, compared to FY17, with the performance underpinned by the continued growth of the Flagstone estate and the first full year of sales from the Eden’s Crossing estate. 12 EBITDA is a non-IFRS measure that includes effects of non-cash movements in investments in associates and joint ventures totalling $14.1 million (FY17: $15.3 million). 13 Includes equivalent lots. Excludes englobo sales. 14 Pre-overheads. The Group will continue to focus on delivering high-quality, masterplanned communities and built form projects, adding value and facilitating additional investment in amenity and services wherever possible and deliver a mix of innovative products to meet market demand in the growth corridors of major Australian cities, with a focus on affordable product. Risk management The Group’s operating and financial performance is influenced by a number of risks impacting the property sector. These include general economic conditions, government policy influencing a range of matters including population growth, household income and consumer confidence, the employment market, and land development conditions and requirements, particularly in relation to infrastructure and environmental management. Global and domestic economic factors which may influence capital markets and the movement of interest rates are also risks faced by the Group. The property market is cyclical and, while the Group is impacted by fluctuations in the market, it has also proved its capacity to manage through various cycles over a very significant period of time. At an individual project level, residential property developments also face a number of risks related to the price and availability of capital, the timeliness of approvals, delays in construction, and the level of competition in the market. The Group has a long history of managing these risks at an individual project and portfolio level and invests appropriately to ensure it has the systems, skills and processes in place to manage them. Project portfolio The Peet Group’s diversified land bank is strategically located in the growth corridors of major cities in every mainland state and territory. The diversity is both geographic and across our Funds Management, Joint Ventures and Development businesses and enables Peet to manage the variable market conditions around the country. As at 30 June 2018, the Group’s total land bank was approximately 49,700 lots with an on-completion value of approximately $14 billion, with more than 75% of all lots within the Funds Management and Joint Venture businesses. The land bank represents approximately 17 years’ lot supply based on current sales rates with the Queensland land bank, representing almost 17,400 lots, providing significant exposure to an improving market cycle. At the end of FY18, approximately 70% of the Group’s land bank was in development and this is expected to increase to more than 80% in development by FY20. The Group remains disciplined and well positioned in the management of its land bank, with a counter cyclical strategy that allows the Group to capitalise on strong market conditions with a focus on maximising return on capital employed. Between FY12 and FY16 Peet secured 2,600 lots and 13,000 lots in Victoria and Queensland, respectively, when pricing and returns were attractive. Over the past three years Peet has strategically targeted further opportunities in Queensland as well as in Western Australia, ensuring a strong market position in improving markets with a low cost base. There are several new projects (both land and Completed Homes and Medium Density) expected to commence development within the next two years. Approximately 90% of the lots in these projects sit within the Funds Management and Joint Venture businesses. These projects have an average duration of circa 8 years providing visibility of future earnings and cash flows. EBITDA12 COMPOSITION BY BUSINESS TYPE14 (%) DEVELOPMENT FUNDS MANAGEMENT JV’S EBITDA12 COMPOSITION BY GEOGRAPHY14 (%) WA VIC QLD NSW/ACT SA SALES COMPOSITION BY GEOGRAPHY (LOTS) WA VIC QLD NSW/ACT SA SETTLEMENTS COMPOSITION BY GEOGRAPHY (LOTS) WA VIC QLD NSW/ACT SA w e i v e R l a i c n a n i F d n A g n i t a r e p O 8 1 Y F Peet Annual Report 2018 22 PEET COMPLETE DISPLAY HOME 15 Calculated as (Total interest-bearing liabilities (including land vendor liabilities) less cash) / (Total assets adjusted for market value of inventory less cash, less intangible assets), excluding Syndicates consolidated under AASB10. 16 Includes equivalent lots. Excludes englobo sales. Brabham is a 220-hectare landholding, 22 kilometres north-east of the Perth CBD which will potentially yield more than 3,000 dwellings, as well as schools, neighbourhood shops and recreational areas. The Group will continue to apply a prudent approach to the restocking of its landbank. Peet will remain focused on securing the right product in the right markets on acceptable returns. It expects future opportunities to emerge as competition for sites reduces due to changing market conditions and will continue to pursue growth with third- party capital partners and through capital-efficient transactions. Capital management The Group maintained its focus on prudent capital management during FY18. In the first half of the year it issued $50 million of Peet Bonds, which has further diversified its debt structure. This diversification, a strong increase in cash inflows from operations, up 19% to $118.1 million (before payments for purchase of land) and reduced gearing15 to 18.2% from 21.4% at 30 June 2017, provides Peet with the capacity to strategically replenish its landbank when opportunities emerge. As at 30 June 2018, interest-bearing debt (including Peet Bonds) was down to $217.2 million compared with $249.8 million at 30 June 2017, with approximately 91% hedged compared to 89% as at 30 June 2017. Peet enters FY19 with a strong balance sheet, including cash and debt facility headroom of $148.3 million as at 30 June 2018, and a weighted average debt maturity of over two years. On the basis of this strong financial position and pending the emergence of growth opportunities, the Directors resolved to implement an on-market share buy-back of up to 5% of the Company’s issued shares. Dividend payments Subsequent to year end, the Directors declared a final dividend for FY18 of 3.0 cents per share, fully franked. This brings the total dividend for FY18 to 5.0 cents per share, fully franked, which is an increase of 5% on the FY17 dividend (4.75 cents per share, fully franked). The dividend is to be paid on Friday, 5 October 2018, with a record date of Friday, 21 September 2018. CONTRACTS ON HAND16 (LOTS) CONTRACTS ON HAND16 (VALUE) 3,000 2,500 2,000 1,500 1,000 500 0 LOTS 2,426 2,186 2,257 1,990 2,061 FY14 FY15 FY16 FY17 FY18 700 600 500 400 300 200 100 0 $ $616m $546m $546m $468m $441m FY14 FY15 FY16 FY17 FY18 w e i v e R l a i c n a n i F d n A g n i t a r e p O 8 1 Y F ONE MAJOR PROJECT EXPECTED TO COMMENCE IN THE NEXT TWO YEARS IS THE BRABHAM PROJECT IN WESTERN AUSTRALIA. DURING THE YEAR, PEET ENTERED THE RELEVANT AGREEMENTS CONFIRMING ITS APPOINTMENT AS THE WESTERN AUSTRALIAN GOVERNMENT’S DEVELOPMENT MANAGER FOR BRABHAM.Peet Annual Report 2018 24 MANAGEMENT EBITDA17 MARGIN OF 70% 1,311 $310.8m CONTRACTS ON HAND18 WITH A TOTAL VALUE OF AS AT 30 JUNE 2018 1,796 TOTAL LOTS SETTLED GROSS VALUE $352.6m The Funds Management business performed solidly in FY18, with the strong performance of projects in the Victorian and Queensland markets being offset by the performance of projects in the weaker Western Australian market, and the substantial completion of several syndicate projects including Greenvale and Tarneit in Victoria. There were 1,782 lot sales across the Group’s Funds Management projects during the year with a gross value of $370.0 million, compared to 1,756 lots with a gross value of $419.5 million in FY17. A total of 1,796 lots were settled with a gross value of $352.6 million, compared to FY17 which saw 1,912 settlements with a gross value of $466.6 million. As at 30 June 2018, there were 1,311 contracts on hand18, with a gross value of $310.8 million. The Funds Management business continues to provide the Group a solid, capital-lite earnings base and, during FY18, represented 25% of the Group’s EBITDA. While fee revenue was impacted by the substantial completion of several Victorian projects in FY17, decreasing to $35.2 million from $48.3 million in FY17, it is expected to increase in FY19. 17 EBITDA is a non-IFRS measure that includes effects of non-cash movements in investments in associates. 18 Includes equivalent lots. EBITDA17 1,782 TOTAL LOTS SOLD GROSS VALUE $28.3m $370.0m BURNS BEACH, WA FM SALES COMPOSITION BY GEOGRAPHY (LOTS) WA VIC QLD SA FM EBITDA17 COMPOSITION BY GEOGRAPHY (%) WA VIC QLD SA t n e m e g a n a M s d n u F 8 1 Y F THE PEET GROUP MANAGES A NUMBER OF PROJECTS ON BEHALF OF LAND SYNDICATES AND UNDER PROJECT MANAGEMENT AND CO-INVESTMENT ARRANGEMENTS. THE FUNDS MANAGEMENT PORTFOLIO COMPRISES MORE THAN HALF THE GROUP’S TOTAL PORTFOLIO – WITH AN ON-COMPLETION VALUE OF CLOSE TO $7.6 BILLION.Peet Annual Report 2018 26 VENTURES EBITDA19 MARGIN OF 30% 486 $154.1m CONTRACTS ON HAND20 WITH A TOTAL VALUE OF AS AT 30 JUNE 2018 EBITDA19 $16.6m There were 756 lots sold during the year with a gross value of $204.3 million, compared with 735 lots sold for $191.2 million in FY17. A total of 690 lots settled for a gross value of $163.0 million, compared with 741 settlements in FY17 with a gross value of $189.9 million. As at 30 June 2018, there were 486 contracts on hand20 with a gross value of $154.1 million. FY18 saw a reduced contribution from the Group’s Joint Venture projects, predominantly due to the product mix at Lightsview in South Australia, and timing of settlements at Googong in New South Wales. This was partially offset by the commencement of earnings from Eden’s Crossing in Queensland. EBITDA19 derived during FY18 was $16.6 million, down 22% on FY17 on an EBITDA19 margin of 30%, 5% lower than FY17. At year end, the Group’s Joint Venture projects comprised more than 11,300 lots, with an estimated on-completion value of just over $3.4 billion. 19 EBITDA is a non-IFRS measure that includes effects of non-cash movements in investments in JVs. 20 Includes equivalent lots. 690 TOTAL LOTS SETTLED GROSS VALUE $163.0m 756 TOTAL LOTS SOLD GROSS VALUE $204.3m THE VILLAGE AT WELLARD, WA JV SALES BY GEOGRAPHY (LOTS) JV EBITDA19 COMPOSITION BY GEOGRAPHY (%) WA QLD NSW/ACT NT SA WA QLD NSW/ACT NT SA s e r u t n e V t n i o J 8 1 Y F THE PEET GROUP HAS A NUMBER OF HIGH PROFILE JOINT VENTURE PROJECTS ACROSS ITS PORTFOLIO, INCLUDING THE VILLAGE AT WELLARD IN WESTERN AUSTRALIA, LIGHSTVIEW AND TONSLEY VILLAGE IN SOUTH AUSTRALIA, GOOGONG IN NEW SOUTH WALES AND EDEN’S CROSSING IN QUEENSLAND.Peet Annual Report 2018 28 21 EBITDA MARGIN OF 34% 460 $151.0m CONTRACTS ON HAND22 WITH A TOTAL VALUE OF AS AT 30 JUNE 2018 EBITDA21 OF $67.2m A TOTAL OF 438 LOTS SETTLED FOR A GROSS VALUE OF $195.8 MILLION, COMPARED WITH 424 SETTLEMENTS IN FY17 WITH A GROSS VALUE OF $187.8 MILLION. There were 412 lots sold during the year with a gross value of $140.2 million, compared with 509 lots sold for $249.6 million in FY17. As at 30 June 2018, there were 460 contracts on hand22 with a gross value of $151.0 million. The increase in contribution from the Group’s Development projects in FY18 was underpinned by the strong Victorian market, with Aston continuing to be a significant contributor and the first settlements being achieved at Summerhill. The first settlements at Lightsview Apartments in South Australia and the settlement of super lots also provided positive contributions. Sales at Tonsley Village in Adelaide also commenced during the year and settlements will commence in FY19. EBITDA21 was 54% higher than the previous year, increasing to $67.2 million in FY18, with an EBITDA margin of 34%, up 11% on FY17. At year end, the Peet Group’s Development projects comprised more than 11,600 lots, with an estimated on-completion value of more than $2.7 billion. 21 EBITA is a non-IFRS measure. 22 Includes equivalent lots. Excludes englobo sales. ASTON CRAIGIEBURN, VIC DEVELOPMENT SALES COMPOSITION BY GEOGRAPHY (LOTS) DEVELOPMENT EBITDA COMPOSITION BY GEOGRAPHY (%) WA VIC NSW/ACT SA WA VIC s t c e j o r P t n e m p o l e v e D 8 1 Y F 438 TOTAL LOTS SETTLED GROSS VALUE $195.8m 412 TOTAL LOTS SOLD GROSS VALUE $140.2m PROJECTSPeet Annual Report 2018 30 FLAGSTONE, QLD “ As industry leaders, we not only build or facilitate the provision of infrastructure and amenities that support communities.” PEET COMMUNITIES BECOME A PERMANENT PART OF AUSTRALIA’S URBAN FABRIC – THAT’S WHY SUSTAINABILITY IS A KEY PART OF WHAT WE DO. WE FOCUS ON PLANNING, DESIGNING AND DEVELOPING COMMUNITIES THAT CAREFULLY BALANCE THE ENVIRONMENTAL, SOCIAL AND ECONOMIC NEEDS OF EVERY PROJECT. As industry leaders, we not only build or facilitate the provision of infrastructure and amenities that support communities, like roads, parks and other public open spaces, schools, neighbourhood centres and services, we ensure homes are integrated with existing landscapes, industries and neighbouring communities so they may grow sustainably over time. SOME OF THE HIGHLIGHTS DURING THE 2018 FINANCIAL YEAR INCLUDED: Outdoor classroom at Lakelands A unique learning opportunity is now available at Lakelands Estate, south of Perth, following the completion of an outdoor classroom as part of the development and landscaping of Black Swan Lake. Purpose-built to help the community learn about and connect to the area’s rich environmental and indigenous heritage, the outdoor classroom is available for all schools in the area to use and can seat up to 30 students. Launch of Tonsley Village A joint venture with Renewal SA, Tonsley Village is an important part of the award-winning Tonsley Innovation District 10km south of the Adelaide CBD. The $265 million residential precinct comprises 11-hectares and will offer more than 850 modern terraces and apartments, and 1.5ha of public open space. Affordability is a key focus with a minimum of 15% of the homes to be priced at an affordable price point, accessible to first home owners. With its proximity to Flinders University and Flinders Medical Centre as well as a host of other established businesses, institutions and other amenity, Tonsley Village is an extremely well-located community contributing to the social and economic sustainability of the region. Employment opportunities at Flagstone Activity within the Group’s Flagstone project is growing, with several sales of commercial property bringing early amenity to the first residents – and addressing economic, social and environmental sustainability through job opportunities, easy access to quality amenities and reducing the need for on-road transport. A 7 Eleven service station, complete with a drive-through fast food and coffee outlet, opened during the year, bringing with it the first of a projected 10,000 new jobs that will be delivered as the city centre grows. INNOVATION: WORLD-CLASS DESIGN AND THE LATEST TECHNOLOGY y t i l i b a n i a t s u S 8 1 Y F Peet Annual Report 2018 32 “ The “circle of life” ceremony celebrated the connection between the Googong community and the land.” SUSTAINABILITY: AT THE HEART OF PLANNING, DESIGN AND DELIVERY Construction of a shopping centre at Flagstone was also well underway at year end, and on track to open by the end of the 2018 calendar year. The centre is anchored by an IGA supermarket and complemented by other leading retailers including BWS, Domino’s and Snap Fitness. Coles has also purchased a site with plans to develop a supermarket and specialty stores. Celebrating Indigenous heritage Four prominent landmarks in the new township of Googong (NSW) were given Aboriginal names to promote cultural sustainability, in recognition of the area’s Indigenous heritage which dates back more than 20,000 years. Representatives of the Traditional Owners performed a traditional welcome to country and naming ceremony, with didgeridoo accompaniment, to formalise the process. The “circle of life” ceremony celebrated the connection between the Googong community and the land. The names were selected by the Ngunawal people, in their traditional language, and have been gazetted by the NSW State Government. Bridge to the future A multi-million-dollar traffic bridge over the Brisbane-Sydney rail line was opened by Queensland Deputy Premier Jackie Trad during the year, connecting the future Flagstone CBD and 12,000-lot residential development west of the line, with the existing community of Flagstone Rise, to the east. The revolutionary solar “car of the future”, Arrow 1, was the first to cross the bridge into the future satellite city of Flagstone. The two-lane bridge has been majority funded through a $5 million catalyst infrastructure funding arrangement between Peet and our Flagstone development partner MTAA Super, and Economic Development Queensland. Peet communities become home Two Peet communities welcomed their first residents during the year. In August 2017, the first of 1,000 households moved into Movida Estate, and by year end more than 200 lots had been sold at this growing community in Perth’s north eastern suburbs. In Melbourne’s west, the Queen’s Birthday long weekend marked ‘move in date’ for the first group of homebuyers at Cornerstone in Werribee. This masterplanned community will ultimately be home to more than 900 houses and will include cycle and walking paths, two parks and is positioned opposite 23ha of open space earmarked for sports and recreation development. FLAGSTONE, QLD GOOGONG, NSW MOVIDA ESTATE, WA y t i l i b a n i a t s u S 8 1 Y F Peet Annual Report 2018 34 SHOREHAVEN ALKIMOS, WA “ We also provide opportunities for people to come together to enjoy common experiences and to create a sense of community ownership and connection.” Legacy across the ages In August 2017, a group of 24 junior legatees and 15 current serving combat veterans came together to walk the 96km Kokoda Track in Papua New Guinea, with the backing and support of Peet. Operation Legacy Australia Kokoda Challenge 2017 commemorated the 75th anniversary of the Kokoda campaign and provided an opportunity for the legatees to develop leadership and teamwork skills. LEGACY: SUPPORTING YOUTH DEVELOPMENT THE REAL SUCCESS OF ANY COMMUNITY IS IN THE CONNECTIONS WE ARE ABLE TO MAKE, AND IN THE LIFESTYLE WE ARE ABLE TO LIVE. AT PEET, WE PLAN OUR COMMUNITIES AROUND THE PEOPLE WHO ARE GOING TO LIVE IN THEM – WITH A DIVERSE RANGE OF HOUSING OPTIONS TO SUIT ALL AGES AND STAGES OF LIFE, WITH PLACES TO MEET AND PLAY, PATHWAYS CONNECTING FRIENDS AND FAMILIES, RETAIL PRECINCTS AND COMMERCIAL AREAS WITH ALL LIFE’S CONVENIENCES, AND SHARED COMMUNITY FACILITIES THAT ENCOURAGE A DIVERSE AND HEALTHY SOCIAL LIFE. We also provide opportunities for people to come together to enjoy common experiences and to create a sense of community ownership and connection. Through the Group’s Community Partnership Program, we support the establishment and growth of local organisations that help build local community capacity. SOME OF THE HIGHLIGHTS DURING THE 2018 FINANCIAL YEAR INCLUDED: Community and corporate partnerships Throughout the 2018 financial year we were pleased to support more than 30 local groups and organisations, and to continue working alongside four corporate partners; Military Art Program Australia, Alongside, Legacy Australia’s Operation Legacy Australia Kokoda Challenge 2017 and the Santos UCI Tour Down Under. Local groups and organisations supported include sporting teams like the Bellbridge Cricket Club (Vic), Lightsview Cycling team (SA), the Swimming WA – Open Water Swim series event at Shorehaven at Alkimos, and the Yanchep Bowls Club (WA); community groups such as the Golden Bay Playgroup, Rockingham and Districts Toy Library (WA) and the Flagstone Community Association (Qld); and environmental initiatives like tree planting days at Googong (NSW) and Lakelands Estate (WA). y t i n u m m o C e y t i n u m m Th o C e h T n I n I t e e P 8 1 Y F t e e P 8 1 Y F Peet Annual Report 2018 36 “ The Lightsview Ride Like Crazy event has attracted over 12,000 riders and donated in excess of $1.5 million to charity.” Googfest 2018 Lightsview Ride Like Crazy Googfest continues to grow as 10,000 locals relaxed on picnic rugs to enjoy Canberra’s home-grown talent. Promoters put a call out for musicians to self- nominate for the concert and local artists Sophie Edwards, Ned Philpot, Mondecreen and The Baker Boys Band made it through the tough selection process to entertain the crowd before home-grown headliners, The Aston Shuffle, had the residents on their feet and dancing ahead of spectacular fireworks. Flagstone School Colour Run The inaugural Peet Colour Obstacle Run was held at Flagstone to help raise funds for the Flagstone State School. Participants ran through obstacles such as the tyre hop, mud hill, hay bale mountain, water arch and rope maize with coloured chalk and water pistols in the event organised by the school’s P&C to raise funds to install air conditioning in the prep and junior classrooms of the primary school. Lightsview has been the major sponsor of the Lightsview Ride Like Crazy since 2010. The event has attracted over 12,000 riders and donated in excess of $1.5 million to charity. In addition to supporting worthy charities, Lightsview Ride Like Crazy provides the opportunity to shine the spotlight on promoting wellbeing and road safety. Introducing a ‘Shore Thing’ The ‘Shore Thing’ event series was introduced at Shorehaven at Alkimos on Perth’s north coast during the year. The series was carefully designed to offer a calendar of events that provides opportunities for residents and purchasers to meet and connect with each other. The first two events – ‘Easter Maze’ in March and ‘Build Your Community’ in June – were both very well supported, with in excess of 1,000 people having attended Shore Things events by the end FY18. COMMUNITY SUPPORT: CREATING OPPORTUNITIES TO MEET, PLAY AND CONNECT y t i n u m m o C e h t n i t e e P 8 1 Y F Peet Annual Report 2018 COMMUNITY: MAKING REAL SOCIAL CONNECTIONS TO FEEL A SENSE OF BELONGING y t i n u m m o C e Th n I t e e P 8 1 Y F 40 “ Our public spaces and variety of facilities encourage and promote an active, healthy lifestyle.” C R E AT ING THRIVING COMMUNITIES AUSTRALIAN LIFESTYLES ARE EVOLVING AND PEET IS CREATING COMMUNITIES THAT RESPOND TO THE CHANGING NEEDS OF HOMEBUYERS AT ALL STAGES OF LIFE. RESIDENTS ACROSS THE COUNTRY ARE MAKING THE MOST OF THE SHARED SPACES IN OUR COMMUNITIES – PARKS AND OPEN SPACES THAT ARE DESIGNED AS A KIND OF ‘COMMUNAL BACKYARD’ WITH PLACES TO GET ACTIVE AND ALSO RELAX. Peet’s communities embrace modern urban planning and design principles and build on them to create places that are tailored for each individual location and community. Our public spaces and variety of facilities encourage and promote an active, healthy lifestyle – and the opportunity to relax with friends and family in a community setting. SOME OF THE HIGHLIGHTS DURING THE 2018 FINANCIAL YEAR INCLUDED: Dog parks at Flagstone and Riverbank The Flagstone dog park was developed as the first stage of a multi-million-dollar regional park open to the residents of Flagstone. The dog park features a canine water activity with in-ground spouts and dog tunnels through cave-like heaped rocks. The Riverbank residents are also benefiting from a new dog park which opened as part of the new Harvey Park at the centre of Peet’s residential community. Yanchep Golf Estate’s newest park Stage one of the landmark two-hectare park was opened at Yanchep Golf Estate during the year, with a grassed kick-about area, barbecue and picnic facilities, shade structures and seating, a “shipwreck” themed play area, flying fox, tunnel and balancing ropes and a climbing mound, slide, sand and water play elements and monkey bars. This is the third park and one of 20 different parks and open spaces planned for Yanchep Golf Estate and joins the award-winning Victory Park and Pocket Park. The Village at Wellard ‘Healthy Active by Design’ During the year, our award-winning The Village at Wellard community south of Perth was featured as a case study by the Heart Foundation’s Healthy Active by Design program, shining a spotlight on its many design features which support healthy and active living. The Village at Wellard is a sustainable, transit-focused development, with regional and local connectivity which creates a user-friendly movement network. Careful and clever design has ensured that most residents live within 800m of the Wellard Train Station, and the inclusion of shops, public open space and schools means residents have access to everything they need to live a healthy, active and connected life. Street orienteering at Googong Residents of Googong took to the streets to try their hand at street orienteering. Participants (either individual or teams) were given a map with 20 checkpoints and, depending on which course they selected, had to find at least some of the checkpoints, providing people a great reason to get out and explore the neighbourhood. Parkindula Village At the heart of our Bluestone community in Mt Barker, South Australia is Parkindula Village, which now comprises the fully restored historic Parkindula Homestead, which houses the Bluestone Sales and Information Centre, and a new premium display village. This impressive new community hub will also soon include high-quality recreational facilities, barbeque facilities, landscaped parklands, adventure playground, and hiking and cycling trails which were all under construction at year end. s e l y t s e f i L e v i t c A y h t l a e H g n i t o m o r P 8 1 Y F YANCHEP GOLF ESTATE, WA Peet Annual Report 2018 42 CALENDAR 21 September 2018 Record date for final FY18 dividend 5 October 2018 Payment date of final FY18 dividend 5 October 2018 Interest payment date for Peet Bond holders (PPCHB) 17 October 2018 Annual Report and notice of AGM dispatched to shareholders 21 November 2018 2018 AGM at the Parmelia Hilton Perth Hotel, Mill Street, Perth WA at 10.00am (WST) 17 December 2018 Interest payment date for Peet Bond holders (PPCHA) 7 January 2019 interest payment date for Peet Bond holders (PPCHB) February 2019 Release of results for the half year ending 31 December 2018 5 April 2019 Interest payment date for Peet Bond holders (PPCHB) 17 June 2019 Interest payment date for Peet Bond holders (PPCHA) SHOREHAVEN ALKIMOS, WA r a d n e l a C e t a r o p r o C 8 1 Y F Peet Annual Report 2018 FINANCIALS 2018 CONTENTS 44 Directors’ Report 71 Auditor’s Independence Declaration 72 Corporate Governance Statement 73 Financial Report 110 Directors’ Declaration 111 Independent Auditor’s Report to the Members of Peet Limited 118 Securityholder Information 122 Corporate Directory Directors’ Report Your Directors present their report on the Consolidated Entity consisting of Peet Limited (‘the Parent Entity’ or ‘the Company’) and the entities it controlled at the end of, or during, the financial year ended 30 June 2018 (‘the Group’). 1. DIRECTORS The following persons were Directors of the Company during part or the whole of the financial year and up to the date of this report: TONY LENNON FAICD NON-EXECUTIVE CHAIRMAN Tony Lennon has extensive commercial experience particularly in the property industry. Mr Lennon is a Fellow of the Australian Institute of Company Directors and an Associate of the Australian Property Institute. A former President of the Real Estate Institute of Western Australia, he has also served as a Councillor of the national body, the Real Estate Institute of Australia. His industry service has included State Government appointed roles as Chairman of both the Perth Inner City Living Taskforce and the Residential Densities Review Taskforce. He was also a Member of the Commercial Tribunal (Commercial Tenancies). Mr Lennon is a former President of Western Australia’s Shire of Peppermint Grove and Deputy Chairman of the National Board of the Australia Day Council. He is also a former Chairman of the Curtin Aged Persons Foundation and a founding Director of the Wearne and the Riversea Hostels for the Aged, both of which are locally initiated and managed community facilities. BRENDAN GORE BCOMM, FCPA, FCIS, FGIA, FAICD MANAGING DIRECTOR AND CHIEF EXECUTIVE OFFICER Brendan Gore has been Managing Director and Chief Executive Officer (“CEO”) of Peet Limited since 2007 – successfully leading the company through the global financial crisis, expanding its land bank and developing key new partnerships with Government and major institutions. Mr Gore’s appointment to the position of Managing Director and CEO followed experience in two other key executive roles within the Company. He began with Peet as Chief Financial Officer and played a key role in expanding the Company’s scope of activities and growing its core residential development and land syndication businesses; and in January 2007 he was appointed inaugural Chief Operating Officer. Mr Gore’s period in senior executive roles at Peet Limited was preceded by more than two decades’ experience in a range of senior corporate, commercial and operational positions where he gained extensive experience in strategy development and implementation, as well as expertise in debt and equity markets. He developed a reputation as a strong leader, with operational responsibilities across local and State Government relations, environmental and sustainability management and occupational health and safety. Mr Gore is a qualified accountant and a Fellow of CPA Australia. He is also a Fellow of the Australian Institute of Company Directors; a Fellow of the Governance Institute of Australia and a Fellow of the Chartered Institute of Secretaries and Administrators. 1. DIRECTORS (CONTINUED) ANTHONY LENNON BA, GRAD DIP BUS ADMIN, MAICD NON-EXECUTIVE DIRECTOR 1. DIRECTORS (CONTINUED) VICKI KRAUSE BJURIS LLB W.AUST, GAICD INDEPENDENT NON-EXECUTIVE DIRECTOR Anthony Lennon joined Peet in 1991 and became a Director in 1996. Vicki Krause was appointed to the Board of Peet Limited in April 2014. He moved to Victoria to establish Peet’s operations in Australia’s eastern states and oversaw significant expansion. An experienced commercial lawyer, Ms Krause had a 25 year career as a senior corporate executive with the Before joining the Company, Mr Lennon worked in the United Kingdom, where he completed his post-graduate Diploma Wesfarmers Group, including seven years as its Chief Legal Counsel. in Business Administration while on a Graduate Management Training Scheme with major international construction and She supported successful outcomes in numerous significant acquisitions (including listed companies, trade sales and a development company, John Laing PLC. His time with this global company saw him gain valuable experience in privatisation) and divestments. property planning, marketing, feasibility analysis and project management. As Chief Legal Counsel and a member of the Wesfarmers Executive Committee, Ms Krause led a large legal team and Mr Lennon’s responsibilities during his career with Peet included project management, broadacre acquisitions, was responsible for the provision of legal advice and strategic planning in relation to the management of legal risk in the marketing and financing and a six-year term as Chairman of one of WA’s largest conveyancing businesses. Wesfarmers Group with key outputs including the evaluation and completion of major business projects and major Until his transition from Executive to Non-executive Director on 27 August 2012, Mr Lennon was Peet Limited’s supply arrangements. National Business Development Director. TREVOR ALLEN BCOMM (HONS), CA, FF, FAICD INDEPENDENT NON-EXECUTIVE DIRECTOR Ms Krause has completed the PMD Management Course at Harvard Business School. She is currently a director of Western Power and Chair of its People and Performance Committee. ROBERT MCKINNON FCPA, FCIS, FGIA, MAICD Trevor Allen joined Peet in April 2012, with almost four decades of experience in the corporate and financial sectors, INDEPENDENT NON-EXECUTIVE DIRECTOR primarily as a corporate and financial advisor to Australian and international public and privately-owned companies. Appointed as Non-executive Director in May 2014, Bob McKinnon has 40 years’ experience in finance and general Mr Allen is an Independent Non-executive Director of Freedom Foods Group Limited, where he chairs its Audit and Risk management positions in the light manufacturing and industrial sectors in Australia, New Zealand, and Canada. Management Committee and is a member of its Remuneration Committee. He is also an Alternate Director, Company Secretary and Public Officer of Australian Fresh Milk Holdings Pty Ltd and Fresh Dairy One Pty Ltd. In addition, Mr Allen is Non-executive Director of Eclipx Group Limited, where he chairs its Audit and Risk Management Committee and is a member of its Remuneration Committee. He has recently been appointed as a non-executive director of TopCo Investments Pte Ltd, a Singapore company which is the holding company of Real Pet Food Company Limited. Until recently Mr Allen was a Non-executive Director of Yowie Group Limited and Brighte Capital Pty Limited. Prior to Mr Allen’s Non-executive roles, he held senior executive positions including Executive Director Corporate Finance at SBC Warburg (now part of UBS), at Baring Brothers and as a Corporate Finance Partner at KPMG. At the time of his retirement from KPMG in 2011 he was the lead partner in its National Mergers and Acquisitions group. He is the former Managing Director of Austal Ships and Fleetwood Corporation Limited and spent 28 years with Capral Aluminium (formerly Alcan Australia) in various financial and senior executive positions. Mr McKinnon is also a former Non-executive Director of Bankwest, Brierty Limited, Programmed Maintenance Services Limited and Tox Free Solutions Limited. 2. PRINCIPAL ACTIVITIES The Group acquires, develops and markets residential land, predominantly under a capital-efficient funds management model. Peet was founded in Western Australia in 1895 and has expanded over the years to become Australia’s largest pure-play residential developer. Peet has been listed on the ASX since 2004 and is focused on creating high-quality master-planned residential communities for homebuyers across Australia, and achieving the best possible results for its shareholders, investors and partners who include State and Federal Government agencies and major Australian institutions. The Group employs approximately 250 people in offices throughout Australia. As at 30 June 2018, the Group managed and marketed a land bank of more than 49,000 lots in the growth corridors of major mainland Australian cities. There was no significant change in the nature of the activities during the year. 3. REVIEW OF OPERATIONS AND CONSOLIDATED RESULTS 3. REVIEW OF OPERATIONS AND CONSOLIDATED RESULTS (CONTINUED) OPERATING AND FINANCIAL REVIEW KEY RESULTS 1 • Operating profit2 and statutory profit3 after tax of $49.1 million, up 10% • Earnings per share of 10.02 cents, up 10% • FY18 dividends of 5.0 cents per share, fully franked, up 5% • Revenue4 of $301.7 million with 2,924 lots settled • EBITDA5 of $101.3 million, up 11% • EBITDA5 margin of 34% • 2,257 contracts on hand6 as at 30 June 2018 • Gearing7 of 18.2% • Strong operating cash flows (before payments for purchase of land) of $118 million for FY18 FINANCIAL COMMENTARY The Peet Group achieved an operating profit2 and statutory profit3 after tax of $49.1 million for the year ended 30 June 2018, which represents an increase of 10% on FY17. This represents a solid result underpinned by the continuing favourable conditions across the Group’s east coast markets, with price growth continuing to be achieved, particularly across the Victoria and ACT/NSW portfolios. FY18 also saw total sales and settlements improve across the Group’s OPERATIONAL COMMENTARY The Group achieved 2,950 sales (with a gross value of $714.5 million) and 2,924 settlements (with a gross value of $711.5 million) for the full year, representing a decrease of 2% and 5%, respectively compared with FY17. Sales were impacted by the varied market conditions around the country, with east coast markets performing strongly during the year and the Western Australian and Northern Territory markets continuing to be subdued. Settlements were affected by the timing of lot settlements across projects and the substantial completion of several syndicated Victorian projects during FY17. Sales and settlements from the Group’s Queensland portfolio increased 16% and 64%, respectively, compared to FY17, with the performance underpinned by the continued growth of the Flagstone estate and the first full year of sales from the Eden’s Crossing estate. At 30 June 2018, there were 2,257 contracts on hand8, with a gross value of $616.0 million, compared with 2,186 contracts on hand8 with a gross value of $545.7 million at 30 June in 2017. The pipeline of contracts on hand at year end provides strong momentum into FY19. Funds management projects The Group’s Funds Management business performed solidly in FY18, with the strong performance of projects in the Victorian and Queensland markets being offset by the performance of projects in the weaker Western Australia market and the substantial completion of sales in several syndicates in FY17 (Greenvale (Vic) and Haven (Vic)). Queensland portfolio on the back of Flagstone and Eden’s Crossing. • 1,782 lots sold for a gross value of $370.0 million, compared with 1,756 lots ($419.5 million) in FY17. The Group derived EBITDA5 of $101.3 million during FY18, compared to $91.1 million in FY17, with a margin of 34% • 1,796 lots settled for a gross value of $352.6 million, compared with 1,912 lots ($466.6 million) in FY17. (FY17: 29%). The improved EBITDA5 and EBITDA margin is predominantly attributable to the price growth achieved • 1,311 contracts on hand9 as at 30 June 2018 with a total value of $310.8 million, compared with 1,328 contracts9 across the Victoria and Queensland portfolio, the settlement of super lots and a continuing focus on efficiencies across ($294.9 million) as at 30 June 2017. the business. • EBITDA10 of $28.3 million compared with $36.7 million in FY17. The performance has resulted in earnings per share of 10.02 cents for the year ended 30 June 2018, compared to 9.1 • EBITDA10 margin remains consistent at 70%, as per FY17. cents per share in FY17, representing an increase of 10%. The Group has maintained its focus on prudent capital management and during 1H18, issued $50 million of Peet Bonds, which has further diversified its debt structure. This diversification helps underpin a strong balance sheet and, together with low gearing7 of 18.2% (compared to 21.4% at 30 June 2017), provides Peet with the capacity to strategically replenish its landbank when opportunities emerge. Development projects The increase in contribution from the Group’s Development business is underpinned by the strong Victorian market. The Aston (Vic) project continued to be a significant contributor to earnings during the year, the first settlements were achieved at the Summerhill (Vic) and Lightsview Apartments (SA) projects and the settlement of super lots also contributed to FY18 performance. The timing of new stage releases in 2H18 and the minimising of investor sales to less than 15% of sales contributed to the fall in sales in FY18. • 412 lots sold for a gross value of $140.2 million, compared with 509 lots ($249.6 million) in FY17. • 438 lots settled for a gross value of $195.8 million, compared with 424 lots ($187.8 million) in FY17. • 460 contracts on hand8 as at 30 June 2018 with a total value of $151.0 million, compared with 438 contracts8 ($138.0 million) as at 30 June 2017. • EBITDA10 of $67.2 million compared with $43.7 million in FY17. • EBITDA10 margin of 34%, compared with 23% in FY17. 1 Comparative period is 30 June 2017, unless stated otherwise. The non-IFRS measures have not been audited. 2 Operating profit is a non-IFRS measure that is determined to present the ongoing activities of the Group in a way that reflects its operating performance. Operating profit excludes unrealised fair value gains/ (losses) arising from the effect of revaluing assets and liabilities and adjustments for realised transactions outside the core ongoing business activities. 3 Statutory profit after tax means net profit measured in accordance with Australian Accounting Standards, attributable to the owners of Peet Limited. 4 Includes statutory revenue of $287.6 million (FY17: $296.0 million) and share of net profits from associates and joint ventures of $14.1 million (FY17: $15.3 million). 5 EBITDA is a non-IFRS measure that includes effects of non-cash movements in investments in associates and joint ventures totalling $14.1 million (FY17: $15.3 million). 6 7 Calculated as (Total interest-bearing liabilities (including land vendor liabilities) less cash) / (Total assets adjusted for market value of inventory less cash, less intangible assets), excluding Syndicates consolidated Includes equivalent lots. Excludes englobo sales. under AASB10. Includes equivalent lots. Excludes englobo sales. Includes equivalent lots. 8 9 10 EBITDA is a non-IFRS measure that includes effects of non-cash movements in investments in associates and joint ventures totalling $14.1 million (FY17: $15.3 million). 3. REVIEW OF OPERATIONS AND CONSOLIDATED RESULTS (CONTINUED) 3. REVIEW OF OPERATIONS AND CONSOLIDATED RESULTS (CONTINUED) Joint arrangements GROUP STRATEGY The reduced contribution from the Group’s Joint arrangements business in FY18 is predominantly due to reduced contributions from Lightsview JV (SA) due to product mix and at Googong (NSW) due to timing of settlements. This has been partially offset by the commencement of earnings from Eden’s Crossing (Qld). The Group will continue to target the delivery of quality residential communities around Australia by leveraging its land bank; working in partnership with wholesale, institutional and retail investors; and continuing to meet market demand for a mix of product in the growth corridors of major Australian cities, with a primary focus on affordable product. • 756 lots sold for a gross value of $204.3 million, compared with 735 lots ($191.2 million) in FY17. • Key elements of the Group’s strategy for the year ahead and beyond include: continuing to deliver high-quality, • 690 lots settled for a gross value of $163.0 million, compared with 741 lots ($189.9 million) in FY17. masterplanned communities, adding value and facilitating additional investment in amenity and services wherever • 486 contracts on hand9 as at 30 June 2018 with a total value of $154.1 million, compared with 420 contracts9 ($112.8 possible; million) as at 30 June 2017. • EBITDA10 of $16.6 million compared with $21.2 million in FY17. • EBITDA10 margin of 30%, compared with 35% in FY17. Land portfolio metrics Lot sales Lot settlements Contracts on hand as at 30 June9 – Number – Value CAPITAL MANAGEMENT FY18 2,950 2,924 2,257 FY17 3,000 3,077 2,186 $616.0 million $545.7 million Change (1.7%) (5.0%) 3.2% – The Group continues to apply a prudent focus on capital management and during FY18 achieved a strong increase in cash inflows from operations (up 19% to $118 million before payments for purchase of land) and reduced gearing11 to 18.2%, from 21.4% at 30 June 2017. At 30 June 2018, the Group had interest-bearing debt (including Peet Bonds) of $217.2 million, compared with $249.8 million at 30 June 2017. Approximately, 91% of Group’s interest-bearing debt was hedged as at 30 June 2018, compared with 89% at 30 June 2017. • managing the Group’s land bank of more than 49,000 lots with a focus on maximising return on capital employed; • continuing to assess opportunities to selectively acquire residential land holdings in a disciplined manner, predominantly under our funds management platform, and as appropriate to market conditions; • maintaining a focus on cost and the level of debt; and • Broadening its product offering to Completed Homes and Medium Density. Traditionally, Peet has been a residential land developer with a focus on replenishing its land bank in a disciplined manner under its funds management platform, focused in its core markets of Victoria, Queensland and Western Australia, with opportunistic acquisitions in other states and territories. However, the Group has evolved and broadened its capabilities and offerings to home-buying customers, increasing its focus on Completed Homes and Medium Density products, and to a lesser extent the apartment market. As new Completed Homes and Medium Density products are developed, the Group’s EBITDA12 margin is expected to be approximately 28% in FY19, which is within the Group’s target through-cycle EBITDA12 margin range of 25% to 30%. In recent times, Peet has secured projects to deliver Completed Homes and Medium Density products under its funds management, development and joint arrangements operating segments. One project that will see a mix of the traditional residential land product and newer Completed Homes and Medium Density products is the Brabham (WA) project. During 2H18, Peet announced it had entered the relevant agreements confirming its appointment as the Western Australian Government’s development manager for the Brabham (WA) project, a 220-hectare landholding located in Brabham, 22 kilometres from the Perth CBD. The Brabham (WA) project will potentially yield more than 3,000 dwellings Peet enters FY19 with a strong balance sheet, including cash and debt facility headroom of $148.3 million as at 30 June as well as schools, neighbourhood shops and recreational areas. 2018 and a weighted average debt maturity of over two years. On the basis of this strong financial position and pending the emergence of growth opportunities, the Directors have RISKS resolved to implement an on-market share buy-back of up to 5% of the Company’s issued shares. The Group’s operating and financial performance is influenced by a number of risks impacting the property sector. DIVIDENDS These include general economic conditions, government policy influencing a range of matters including population growth, household income and consumer confidence, the employment market, and land development conditions and Subsequent to the year end, the Directors declared a final dividend for FY18 of 3.0 cents per share, fully franked. This requirements, particularly in relation to infrastructure and environmental management. brings the total dividend for FY18 to 5.0 cents per share, fully franked, which is an increase of 5% on the FY17 dividend (4.75 cents per share, fully franked). The dividend is to be paid on Friday, 5 October 2018, with a record date of Friday, 21 September 2018. The Directors have resolved to keep the Company’s Dividend Reinvestment Plan deactivated. Global and domestic economic factors which may influence capital markets and the movement of interest rates are also risks faced by the Group. The property market is cyclical and, while the Group is impacted by fluctuations in the market, it has also proved its capacity to manage through various cycles over a very significant period of time. At an individual project level, residential property developments also face a number of risks related to the price and availability of capital, the timeliness of approvals, delays in construction, and the level of competition in the market. The Group has a long history of managing these risks at an individual project and portfolio level. The Group’s financial risk management policies are set out in note 16 to the Financial Report. Includes equivalent lots. Excludes englobo sales. Includes equivalent lots. 8 9 10 EBITDA is a non-IFRS measure that includes effects of non-cash movements in investments in associates and joint ventures totalling $14.1 million (FY17: $15.3 million). 11 Calculated as (Total interest-bearing liabilities (including land vendor liabilities) less cash) / (Total assets adjusted for market value of inventory less cash, less intangible assets), excluding Syndicates consolidated under AASB10. 12 EBITDA is a non-IFRS measure that includes effects of non-cash movements in investments in associates and joint ventures totalling $14.1 million (FY17: $15.3 million). 3. REVIEW OF OPERATIONS AND CONSOLIDATED RESULTS (CONTINUED) 7. DIVIDENDS OUTLOOK The Peet Group enters FY19 with a strong balance sheet, low gearing13 and a portfolio of residential development In August 2017, the Directors declared a final dividend of 3.0 cents per share, fully franked, in respect of the year ended 30 June 2017. The dividend of $14.7 million was paid on Wednesday, 4 October 2017. landholdings well positioned for sustainable long-term growth. In February 2018, the Directors declared an interim dividend of 2.00 cents per share, fully franked, in respect to the year The outlook for the Group is generally supported by market fundamentals with sustained low interest rates, strong population growth on the east coast and modest economic growth. The Australian residential property market’s varied conditions are expected to continue into FY19, with some moderation of conditions in Victoria and New South Wales expected: • while conditions across Victoria are expected to moderate, it is supported by continuing strong population growth and strong public sector investment; • ACT and South Australia are expected to remain supportive; • while the depth of market in Western Australia continues to show improvement, we do not anticipate a material improvement in sales activity during FY19; and • the Queensland residential market is expected to continue to improve due to its relative affordability. The Group has moved into FY19 in a solid position to target growth on FY18 earnings, subject to market conditions and the timing of settlements. 4. EARNINGS PER SHARE Basic and diluted earnings per share 2018 Cents 10.02 2017 Cents 9.14 Basic earnings per share is calculated after income tax expense based on the weighted average number of shares on issue for the year ended 30 June 2018. The weighted average number of shares on issue used to calculate earnings per share is discussed at note 7 to the Financial Report. 5. SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS There were no significant changes in the state of affairs of the Group during the year. 6. MATTERS SUBSEQUENT TO THE END OF THE FINANCIAL YEAR Subsequent to 30 June 2018, the Directors have resolved to implement an on-market share buy-back of up to 5% of the Company’s issued shares. No matters or circumstances have arisen since the end of the financial year, which have significantly affected or may significantly affect the operations of the Group, the results of those operations, or the state of affairs of the Group in subsequent financial years. 13 Calculated as (Total interest-bearing liabilities (including land vendor liabilities) less cash) / (Total assets adjusted for market value of inventory less cash, less intangible assets), excluding Syndicates consolidated under AASB10 then ending 30 June 2018. The dividend of $9.8 million was paid on Friday, 6 April 2018. Subsequent to the year end, the Directors declared a final dividend for FY18 of 3.0 cents per share, fully franked. This brings the total dividend for FY18 to 5.0 cents per share, fully franked, which is an increase of 5% on the FY17 dividend (4.75 cents per share, fully franked). The dividend is to be paid on Friday, 5 October 2018, with a record date of Friday, 21 September 2018. The Directors have resolved to keep the Company’s Dividend Reinvestment Plan deactivated. 8. ENVIRONMENTAL REGULATION The Group is subject to environmental regulation by way of the Environment Protection and Biodiversity Conservation Act 1999 in respect of its land subdivision activities nationally, as well as other environmental regulations under both Commonwealth and State legislation. The Group is not aware of any breaches of environmental regulations in respect of its activities. However, from time to time, statutory authorities make enquiries, issue notices requiring documents and/or material to be provided, and undertake investigations or audits to confirm compliance with relevant regulations. GREENHOUSE GAS AND ENERGY DATA REPORTING REQUIREMENTS The Group may be subject to the reporting requirements of the National Greenhouse and Energy Reporting Act 2007. This requires the Group to report its annual greenhouse gas (GHG) emissions and energy use if it has operational control of facilities (sites) that emit greenhouse gases, produce energy, or consume energy at or above the specified GHG emission and energy thresholds per financial year. The Group is not required to register and report to the Clean Energy Regulator as the Group does not have operational control for each of its projects to the relevant contractor undertaking the works, and the remainder of the Group’s activities fall below the reporting thresholds for the FY18 reporting period. 9. INFORMATION ON DIRECTORS AND GROUP COMPANY SECRETARY Please refer to the Board of Directors section of this report for information on Directors. GROUP COMPANY SECRETARY Dom Scafetta is a Chartered Accountant who has worked with Peet Limited since 1998. Mr Scafetta began his career with major accounting firm Coopers & Lybrand (now PricewaterhouseCoopers) after completing a commerce degree in 1993. He held a senior role with the organisation in its Business Services division and advised a range of clients on accounting, taxation and general business matters. After four years at Coopers & Lybrand, Mr Scafetta joined Peet as Company Accountant and Company Secretary, which also required him to act as Company Secretary for the Company’s various syndicates and subsidiaries. Prior to Peet being listed on the Australian Securities Exchange, Mr Scafetta was appointed Chief Financial Officer and served in that role until February 2005, when he was appointed as Company Secretary of Peet Limited. 10. DIRECTORS’ MEETINGS 12. REMUNERATION (CONTINUED) The number of meetings of Directors (including meetings of committees of Directors) held during the year and the While the statutory financial statements show total revenue of $287.6 million and earnings before interest, tax, number of meetings attended by each Director were as follows: depreciation and amortisation (EBITDA) of $101.3 million, Peet management remains responsible for a greater Director Board of Directors Audit & Risk Management Committee Remuneration Committee Nomination Committee Entitled to Attend Attended Entitled to Attend Attended Entitled to Attend Attended Entitled to Attend Attended A W Lennon B D Gore A J Lennon T J Allen V Krause R J McKinnon 9 9 9 9 9 9 9 9 9 9 9 9 – – 7 7 – 7 – – 7 7 – 7 – – – 3 3 3 – – – 3 3 3 2 2 2 2 2 2 2 2 2 2 2 2 11. RETIREMENT, ELECTION AND CONTINUATION IN OFFICE OF DIRECTORS Directors are elected at the Annual General Meeting (AGM) of the Company. Retirement will occur on a rotational basis so that one third of the Directors, but not less than two, shall retire at each AGM. The Directors may also appoint a Director to fill a casual vacancy on the Board or in addition to the existing Directors, who will then hold office until the next AGM. No Director who is not the Managing Director, may hold office without re-election beyond the third AGM following the meeting at which the Director was last elected or re-elected. At this year’s AGM, both Mr A J Lennon and Mr T J Allen will retire by rotation and offer themselves for re-election. Your Board of Directors recommend the re-election of Mr A J Lennon and Mr T J Allen. 12. REMUNERATION Dear Shareholder, Peet is pleased to present its Remuneration Report for the year ended 30 June 2018. This report sets out remuneration information for Non-executive Directors (“NEDs”), the Managing Director and Chief Executive Officer (“MD”), and other key management personnel (“KMP”) and focuses on the remuneration decisions made by the Board and the pay outcomes that resulted. The 2018 financial year represented another year of growth as Peet achieved an operating net profit after tax of $49.1 million, up 10% on the $44.8 million achieved in the 2017 financial year. During the year, Peet secured several new projects, reduced and further diversified its debt capital strengthening its balance sheet, derived strong cash flows from operations and continued to deliver on its strategy for growth. To ensure Peet delivers on its growth strategy it must have the right people to lead the Group over the long-term and a competitive remuneration framework that encourages our Leadership Team to continue to make decisions with a view to creating long-term value for shareholders and all stakeholders. In considering remuneration outcomes, the Board’s Remuneration Committee (Committee): (a) balances Peet’s financial performance with the development and implementation of strategies for the long-term benefit of the Group; and (b) takes into account the underlying scale of Peet’s operations which are not fully identifiable from a pure focus on the Group’s statutory accounts. scale of business. In addition to its own land development projects, Peet is also responsible for the management of a significant portfolio of land development projects held within its Funds Management and Joint arrangements businesses. In addition to Group revenues of $287.6 million and EBITDA of $101.3 million, the properties that Peet is also responsible for within its Fund Management and Joint Arrangement Businesses generated revenues of $418.1 million and EBITDA of $84.4 million. Accordingly, the scale of business from which Peet derives its revenues and earnings, which drive its capacity to pay dividends to shareholders, is extensive. Key remuneration outcomes of the Committee’s deliberations are as follows: • The MD’s base pay for the year ended 30 June 2018 was the same as for the previous year. • There were no increases in the base pay of the KMP (including NEDs) during the year ended 30 June 2018. • Short–term incentives will be paid to the KMP in respect of the year ended 30 June 2018. This follows a positive assessment of the individual members’ performance against a balanced scorecard, which includes consideration of Group financial and strategic targets, together with individual targets. • During the year, long-term incentive performance conditions were tested as at 30 June 2017 resulting in the partial vesting of performance rights. The vesting was met by way of ordinary shares acquired on market during the 2018 financial year. Peet also takes the opportunity to confirm that the MD’s base pay for the year ending 30 June 2019 will be the same as 2018, notwithstanding his contractual entitlement to an adjustment of at least CPI. The MD’s base pay was last amended with effect from 1 July 2014. Additionally, the 2019 base pays of all other non-director KMP will remain the same as their 2018 base pays. The base pay of the NEDs was last amended with effect from 1 July 2014. The base NED’s and Chairman’s fee will increase by 8% from 1 July 2018. We encourage our shareholders to use the cash value of remuneration realised table on page 60 to assess the remuneration outcomes for KMP in the year ended 30 June 2017 and the alignment of these outcomes with the Group’s performance. The key difference between the cash value of remuneration realised and the statutory remuneration is the value included in the statutory remuneration table for potential future outcomes under the long-term incentive. A value is required to be included in the statutory remuneration table to account for long-term incentives that may or may not vest in the future, while the value for long-term incentives included in the cash value of remuneration realised table represents the value of shares actually received by KMP following the vesting of performance rights. The Board is satisfied that these remuneration outcomes for the year ended 30 June 2018 are appropriately performance-based while at the same time recognising the strategic needs of the Group, and we commend this report to you. Robert McKinnon Chairman, Remuneration Committee 13. REMUNERATION REPORT (AUDITED) 13. REMUNERATION REPORT (AUDITED) (CONTINUED) The Remuneration report is set out under the following main headings: B. PRINCIPLES USED TO DETERMINE THE NATURE AND AMOUNT OF REMUNERATION A. SERVICE AGREEMENTS B. PRINCIPLES USED TO DETERMINE THE NATURE AND AMOUNT OF REMUNERATION C. DETAILS OF REMUNERATION D. SHARE-BASED COMPENSATION E. ADDITIONAL INFORMATION The information provided in this remuneration report has been audited as required by section 308(3C) of the Corporations Act 2001. The key management personnel of the Group (“KMP”) include the Non-executive Directors (“NEDs”) of the Group, and the following executives (the “Executives”) who have authority and responsibility for planning, directing and controlling the activities of the Group. Name B D Gore P J Dumas D Scafetta B C Fullarton Position Managing Director and Chief Executive Officer Chief Investment Officer Group Company Secretary Chief Financial Officer A. SERVICE AGREEMENTS Remuneration and other terms of employment for the Executives are formalised in service agreements. Each of these agreements provide for the provision of performance related cash bonuses and participation, when eligible, in the Peet Limited Employee Share Option Plan and/or the Peet Limited Performance Rights Plan. The major provisions of the agreements are set out below. All contracts with Executives may be terminated early by either party with 3 to 6 months notice, subject to termination payments as detailed below. Name B D Gore Terms of Agreement On-going renewed 5 August 2011 P J Dumas On-going commenced 4 February 2008 D Scafetta On-going commenced 10 June 1998 Base pay including Superannuation 1 $937,300 $485,000 $350,000 Termination Benefit 2,3 Refer below 4 3 months base pay inclusive of superannuation 3 months base pay inclusive of superannuation B C Fullarton On-going commenced 21 October 2013 $440,000 3 months base pay inclusive of superannuation 1. Base pays, inclusive of superannuation, for the year ended 30 June 2018. Base pays are reviewed annually by the Remuneration Committee. 2. Termination benefits are payable on early termination by Peet Limited giving notice in writing. Payment may be made in lieu of notice, other than for gross misconduct. 3. Termination benefits referred to in the above table are in addition to any statutory entitlements payable (e.g. accrued annual leave and long service leave). 4. On 5 August 2011 B D Gore renewed his contractual arrangements with the Company. Under the agreement the components of his remuneration comprise fixed annual remuneration, short-term incentives and long-term incentives. There is no fixed termination date and the agreement is terminable on six months notice by either party. The Company may, at its option, make a payment in lieu of part or all of the notice period and certain conditions exist in relation to payment of long-term and short-term incentives upon termination. A summary of the key contractual terms and remuneration-related arrangements was disclosed to the market on 5 August 2011 with certain parts approved by shareholders at the 2011 AGM. The objective of the Company’s executive reward framework is to ensure reward for performance is competitive and appropriate for the results delivered. The framework aligns executive reward with achievement of strategic objectives for the long-term benefit of the Company and shareholders. 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 to executive compensation; and • capital management. In consultation with external remuneration consultants in prior financial years, the Company has structured, and continues to evolve, an executive remuneration framework that is market competitive and complementary to our reward strategy through the following features. ALIGNMENT TO SHAREHOLDERS’ INTERESTS • has a relevant measurement of financial performance as a core component of plan design; • rewards implementation of strategy; • focuses the Executive on other key financial and non-financial drivers of long-term value; and • attracts and retains high-calibre executives. In prior years, the Remuneration Committee of the Board had given consideration to the most appropriate financial measure to align the creation of shareholder value with incentive arrangements for senior management. Consideration was given to relative performance against comparable listed companies, measuring growth in Earnings before Interest, Tax, Depreciation and Amortisation (EBITDA), relative performance in measures such as Return on Equity (ROE) and Return on Capital Employed (ROCE) and absolute performance in measures such as ROE, ROCE and earnings per share. During the 2018 financial year, the Remuneration Committee recommended to the Board, and it agreed, to assess financial performance for the purposes of long-term incentive awards against earnings per share (EPS) growth, together with funds under management growth. These performance measures will continue to be used for the 2019 financial year. The Remuneration Committee and the Board will continue to assess the applicability of all short-term and long-term related key performance indicators as they are applied in assessing performance for remuneration purposes. ALIGNMENT TO PROGRAM PARTICIPANTS’ INTERESTS • rewards capability and experience; • provides a clear structure for earning rewards; and • provides recognition for contribution. The framework provides a mix of fixed and variable pay, and a blend of short and long-term incentives. As employees are promoted to executive and senior management roles within the Company, the balance of this mix shifts to a higher proportion of ‘at risk’ rewards. 13. REMUNERATION REPORT (AUDITED) (CONTINUED) 13. REMUNERATION REPORT (AUDITED) (CONTINUED) NON-EXECUTIVE DIRECTORS’ FEES (INCLUDING THE CHAIRMAN’S FEES) Short-term performance incentives (“STI”) Fees and payments to NEDs reflect the demands which are made on, and the responsibilities of, the NEDs. NEDs’ fees Executives have a target STI opportunity depending on the accountabilities of their specific role and impact on the and payments are reviewed periodically by the Remuneration Committee and the Board. The Remuneration Committee Group’s performance. The maximum target bonus opportunity for the Executives for the years ended 30 June 2018 and considers, as appropriate, the advice of independent remuneration consultants to ensure NEDs’ fees and payments are 2017 ranged between 50% and 100% of the relevant Executive’s base pay. However, the Board of Directors has the appropriate and in line with the market. NEDs do not receive share options or performance rights. discretion to pay over and above these amounts. The NEDs’ remuneration is inclusive of committee fees and fees for their membership on any subsidiary Boards. The Each year, the Remuneration Committee considers the appropriate targets and key performance indicators (“KPIs”) to fees payable to NEDs and the Chairman of the Remuneration Committee and the Chairman of the Audit and Risk link to the STI plan and the level of payout if targets are met for the Managing Director and Chief Executive Officer Management Committee were last amended with effect from 1 July 2014. NEDs may also be entitled to fees where (“MD”). This may include setting any maximum payout under the STI plan and minimum levels of performance to they represent Peet on the Board of Syndicates. trigger payment of STI. The MD will then set the STI KPIs to apply to the other Executives. NEDs’ fees are determined within an aggregate Directors’ fee pool limit, which is periodically recommended for KPIs for each Executive are set by reference to the following criteria based on their specific role: approval by shareholders. Shareholders approved a resolution at the 2012 AGM to increase the aggregate NEDs’ fees pool to $900,000. The NEDs do not receive any form of retirement allowance. From 1 July 2018, the base fee (inclusive of superannuation) of the Chairman and the other NEDs will increase by 8%. This increase does not apply to committee fees or fees paid to Directors where they represent Peet on the Board of Syndicates. EXECUTIVE PAY The Company’s pay and reward framework for Executive’s has the following components: • base pay and benefits; • short-term performance incentives; and • long-term performance incentives. The combination of these comprises the total remuneration for the individual concerned. Base pay and benefits • financial; • strategy; • stakeholder engagement; • people and processes improvements; and • health, safety and environment. For the year ended 30 June 2018, the MD and other Executives were assessed as follows against the KPIs: Category Financial Strategic Stakeholder People and processes improvements Health, safety and environment Weighting Executives 60.0% 15.0% to 40.0% 0.0% to 5.0% 0.0% to 25.0% 0.0% to 5.0% MD 60.0% 25.0% 5.0% 5.0% 5.0% MD1 60.0% 23.0% 5.0% 5.0% 5.0% % Achieved Executives2 60.0% 5.0% to 30.0% 0.0% to 5.0% 0.0% to 25.0% 0.0% to 5.0% 100.0% 100.0% 98.0% 75.0% to 100.0% % Forfeited Executives 0.0% 8.0% to 10.0% 0.0% 0.0% 0.0% 8.0% to 10.0% MD 0.0% 2.0% 0.0% 0.0% 0.0% 2.0% The base pay for Executives is structured as a total employment cost package, which may be delivered as a mix of cash and prescribed non-financial benefits and includes superannuation. 89.0% of the MD’s FY18 STI is payable on announcement to the market of the FY18 results; 9.0% is deferred to the achievement of certain follow-up actions; and 2.0% is forfeited. 1 2. 85.0% of the Chief Investment Officer’s FY18 STI is payable on announcement to the market of the FY18 results; 5.0% is deferred to the achievement of certain follow-up actions and 10.0% is forfeited. For the year ended 30 June 2017, the KPI’s linked to STI plan were based on similar criteria. Executives are offered a competitive base pay that comprises the fixed component of pay and rewards. As and when considered appropriate, external remuneration consultants provide analysis and advice to ensure base pay is set to reflect the market for a comparable role. Base pay is reviewed annually to ensure it remains competitive with the market. There were no changes to the quantum of total base pay for Executives during the 2018 financial year. Long-term incentives (“LTI”) Traditionally, the Company has provided its Executives with LTI through participation in the Peet Limited Employee Share Option Plan (“PESOP”) and/or the Peet Limited Performance Rights Plan (“PPRP”). Executives have a target LTI opportunity depending on the accountabilities of their specific role and impact on the Group’s performance. The maximum target opportunity for the Executives for the years ended 30 June 2018 and 2017 ranged between 50% and 100% of the relevant Executive’s base pay. Each year, the Remuneration Committee considers the appropriate targets and KPIs to link to the LTI plan and the level of payout if targets are met for the Executives. This may include setting any maximum payout under the LTI plan and minimum levels of performance to trigger payment of LTI. Further details of the Company’s LTI structures are included in the section titled ‘Share-based compensation’. 13. REMUNERATION REPORT (AUDITED) (CONTINUED) 13. REMUNERATION REPORT (AUDITED) (CONTINUED) C. DETAILS OF REMUNERATION Details of the statutory and cash value of remuneration of each member of the KMP of the Group are set out in the tables following. The statutory disclosures required by the Corporations Act 2001(Cth), as amended and its regulations are set out in the table on page 60. The company believes that the additional information provided in table below is useful to investors. The table below sets out the total cash value of remuneration realised for the KMP and provides shareholders with details of the “take-home” pay received/ receivable during the year. These earnings include cash salary and fees, bonus, superannuation, non-cash benefits received/ receivable during the year and the value of shares issued to, or acquired on behalf of, KMP following the vesting of Performance Rights (“PRs”) during the financial year. The table does not include the accounting value of share-based payments consisting of PRs granted in the current and prior years required for statutory purposes. This is because those share-based payments are dependent on the achievement of performance hurdles and so may or may not be realised. Cash salary and fees 1 Bonus 2 Value of PRs vested 3 Other 4 Superannuation Total Directors A W Lennon T J Allen V Krause R J McKinnon A J Lennon B D Gore Total 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017 Other key management personnel P J Dumas D Scafetta B C Fullarton Total 2018 2017 2018 2017 2018 2017 2018 2017 216,847 216,712 136,283 136,283 86,055 59,574 108,886 108,886 146,055 146,055 917,251 917,685 1,611,377 1,585,195 460,000 454,998 329,951 330,383 415,000 404,998 1,204,951 1,190,379 – – – – – – – – – – 918,554 890,435 918,554 890,435 261,900 267,720 161,000 175,000 198,000 165,000 620,900 607,720 – – – – – – – – – – 856,369 1,007,244 856,369 1,007,244 259,844 305,494 148,470 166,029 201,004 235,208 609,318 706,731 – – – – – – – – – – 10,000 10,000 10,000 10,000 – – – – – – – – 20,453 20,588 12,947 12,947 8,175 34,656 10,344 10,344 8,175 8,175 237,300 237,300 149,230 149,230 94,230 94,230 119,230 119,230 154,230 154,230 20,049 2,722,223 19,615 80,143 2,844,979 3,476,443 106,325 3,599,199 25,000 30,000 20,049 19,615 25,000 35,000 70,049 84,615 1,006,744 1,058,212 659,470 691,027 839,004 840,206 2,505,218 2,589,445 1. Cash salary and fees, as well as fees paid to Directors for their directorship on Syndicate Boards. 2. All cash bonuses are earned in the financial year to which they relate and are paid during the following financial year. 3. Amount paid by the Company in order to settle the PRs exercised during year ended 30 June 2018. The Company purchased ordinary shares in the Company on-market on behalf of KMP. 4. Other includes termination benefits, long service payments, motor vehicle costs, car-parking and other benefits. The table below is calculated in accordance with statutory obligations and Australian Accounting Standards. The amounts in the “Share-based payments” column relate to the component of the fair value of awards from the current year and prior years made under the various incentive plans attributable to the year measured in accordance with AASB 2 Share-based Payments. Short-term benefits Post-employment benefits Share-based payments Bonus 2 Other 3 Superannuation Shares/Options/ Performance Rights 4 Termination benefits Cash salary and fees 1 $ 216,847 216,712 136,283 136,283 86,055 59,574 108,886 108,886 146,055 146,055 $ – – – – – – – – – – $ – – – – – – – – – – 917,251 918,554 10,000 917,685 890,435 10,000 1,611,377 918,554 10,000 Directors A W Lennon T J Allen V Krause R J McKinnon A J Lennon B D Gore Total 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017 $ 20,453 20,588 12,947 12,947 8,175 34,656 10,344 10,344 8,175 8,175 20,049 19,615 80,143 1,585,195 890,435 10,000 106,325 Other key management personnel P J Dumas D Scafetta B C Fullarton Total 2018 2017 2018 2017 2018 2017 2018 2017 460,000 261,900 454,998 267,720 329,951 161,000 330,383 175,000 415,000 198,000 404,998 165,000 1,204,951 620,900 1,190,379 607,720 – – – – – – – – 25,000 30,000 20,049 19,615 25,000 35,000 70,049 84,615 $ – – – – – – – – – – 972,099 881,976 972,099 881,976 302,842 264,691 182,122 156,805 228,953 201,498 713,917 622,994 $ – – – – – – – – – – – – – – – – – – – – – – Total $ 237,300 237,300 149,230 149,230 94,230 94,230 119,230 119,230 154,230 154,230 2,837,953 2,719,711 3,592,173 3,473,931 1,049,742 1,017,409 693,122 681,803 866,953 806,496 2,609,817 2,505,708 1. Cash salary and fees include fees paid to Directors for their directorship on Syndicate Boards. 2. All cash bonuses are earned in the financial year to which they relate and are paid during the following financial year. 3. Other includes motor vehicle costs, car-parking and other benefits. 4. The value placed on options and performance rights in the table above is based on the valuation at the date of grant using a Black-Scholes model (options) or Binomial Model, pro-rated over the period from grant date to vesting date. These do not represent the value of equity benefits that vested in favour of KMP during the year. 13. REMUNERATION REPORT (AUDITED) (CONTINUED) 13. REMUNERATION REPORT (AUDITED) (CONTINUED) The relative proportions of remuneration that are linked to performance and those that are fixed based on the table are CONSIDERATION Unless the Board determines otherwise, no payment will be required for a grant of options and/or PRs under the PESOP and/or PPRP. EXERCISE CONDITIONS Generally, as a pre-condition to exercise, any exercise conditions in respect of an option and/or PR must be satisfied. However, the Board has the discretion to enable an option and/or PR holder to exercise options and/or PRs where the exercise conditions have not been met, including, for example, where a court orders a meeting to be held in relation to a proposed compromise or arrangement in respect of the Company, or a resolution is passed, or an order is made, for winding up the Company. Options granted under the PESOP and PRs granted under the PPRP carry no dividend or voting rights. LAPSE OF OPTIONS AND/OR PRS Unexercised options and/or PRs will lapse upon the earlier to occur of a variety of events specified in the rules of the PESOP and PPRP including, on the date or in circumstances specified by the Board in the invitation, failure to meet the options’ or PRs’ exercise conditions in the prescribed period or on a specified anniversary date of grant of the options or PRs, as determined by the Board. as follows: Directors A W Lennon T J Allen V Krause R J McKinnon A J Lennon B D Gore Fixed remuneration 2018 100% 100% 100% 100% 100% 33% 2017 100% 100% 100% 100% 100% 35% 48% 51% 55% At risk STI 2018 2017 At risk LTI 20181 20171 - - - - - 33% 25% 23% 23% - - - - - 33% 26% 26% 20% - - - - - 34% 29% 26% 26% - - - - - 32% 26% 23% 25% Other key management personnel P J Dumas D Scafetta B C Fullarton 46% 51% 51% 1. Since LTI are provided exclusively by way of options and/or PRs, the percentages disclosed also reflect the value of remuneration consisting of options and/or PRs based on the value of options and/or PRs expensed during the year. D. SHARE-BASED COMPENSATION Options over shares in Peet Limited are granted under the PESOP, which was approved by the Board and shareholders during the 2004 financial year. PRs over shares in Peet Limited are granted under the PPRP, which was approved by shareholders at the 2008 AGM. Changes have been made since to allow for changes in taxation of PRs. Employees of any Group Company (including an Executive Director) will be eligible to participate in the PESOP and/or PPRP at the discretion of the Board. The PESOP and PPRP are designed to provide long-term incentives for Executives to deliver long-term shareholder returns. Under the plans, participants are granted options and/or PRs, which only vest if the employees are still employed by the Group at the end of the vesting period, subject to the Board’s discretion, and any set performance hurdles have been met. INVITATIONS TO APPLY FOR OPTIONS AND/OR PERFORMANCE RIGHTS Eligible employees, at the discretion of the Board, may be invited to apply for options and/or PRs on terms and conditions to be determined by the Board including as to: • the method of calculation of the exercise price of each option; • the number of options and/or PRs being offered and the maximum number of shares over which each option and/or PR is granted; • the period or periods during which any of the options and/or PRs may be exercised; • the dates and times when the options and/or PRs lapse; • the date and time by which the application for options and/or PRs must be received by Peet; and • any applicable conditions which must be satisfied or circumstances which must exist before the options and/or PRs may be exercised. Eligible employees may apply for part of the options and/or PRs offered to them, but only in specified multiples. 13. REMUNERATION REPORT (AUDITED) (CONTINUED) 13. REMUNERATION REPORT (AUDITED) (CONTINUED) 2 3 4 3 5 3 5 3 6 3 4 3 5 3 5 3 6 NOTE 1 s e t o N t r o p e r f o e t a d l t a e b a s c r e x E i e t a d t a e c n a a B l t r o p e r f o / d e s p a L d e t i e f r o f d e t s e v i / d e s c r e x E s a e c n a a B l g n i t s e V r e p e u a V l t a R P / n o i t p o d e t n a r G 6 1 y l u J 1 t a s n o i t i d n o c e t a D t n a r G e s i c r e x E y r i p x E / e c n a m r o f r e P d o i r e P e c i v r e S t n a r G f o e t a D s e v i t u c e x E : s e v i t u c e x E o t d e t n a r g s t h g i r e c n a m r o f r e p d n a s n o i t p o s ’ y n a p m o C e h t f o s u t a t s e h t s e s i r a m m u s w o e b e b a t e h T l l 0 0 0 , 0 0 2 1 , 0 0 0 , 0 0 2 1 , - - 0 0 0 , 0 0 2 , 1 d e s a b e m i T 2 1 . 1 $ 0 1 . 4 $ A / N 1 1 0 2 v o N 0 3 o t p U 7 0 0 2 v o N 0 3 s n o i t p O e r o G D B - – – – – – – – – – – – - 0 0 0 , 0 0 2 , 1 0 2 0 , 8 2 9 , 4 1 1 5 6 0 1 , 7 4 3 , 4 7 8 – – – – – – – ) 8 8 0 , 0 3 1 ( ) 9 0 8 , 3 0 7 ( – ) 9 5 5 , 2 9 ( ) , 9 6 7 0 0 5 ( 8 0 2 , 9 7 6 6 4 5 , 9 7 7 5 2 9 , 9 3 6 – – – – – – , 0 6 1 6 6 9 , 4 ) 7 4 6 , 2 2 2 ( ) 8 7 5 , 4 0 2 1 , ( 7 4 3 , 4 7 8 – E C O R h t w o r G M U F h t w o r G S P E 3 3 . 1 $ 0 0 . 0 $ 1 3 0 2 v o N 9 2 – – – E C O R E F A O R 8 2 3 , 3 9 5 h t w o r G M U F 4 9 . 0 $ 0 0 . 0 $ 9 1 0 2 c e D 2 2 8 0 2 , 9 7 6 h t w o r G M U F 6 9 . 0 $ 0 0 . 0 $ 0 3 0 2 c e D 1 2 6 4 5 , 9 7 7 h t w o r G M U F 5 8 . 0 $ 0 0 . 0 $ 1 3 0 2 c e D 1 2 5 2 9 , 9 3 6 – 2 7 2 , 4 1 5 , 1 3 1 1 , 9 7 8 , 4 E C O R h t w o r G M U F h t w o r G S P E 0 3 . 1 $ 0 0 . 0 $ 2 3 0 2 c e D 5 E C O R E F A O R 7 9 8 , 3 3 8 h t w o r G M U F 1 7 0 . 1 $ 0 0 . 0 $ 9 1 0 2 c e D 2 2 0 2 0 , 8 2 9 h t w o r G M U F 1 7 9 . 0 $ 0 0 . 0 $ 0 3 0 2 v o N 5 2 4 1 1 , 5 6 0 , 1 h t w o r G M U F 1 0 8 . 0 $ 0 0 . 0 $ 1 3 0 2 v o N 3 2 d e d n e s r y 3 7 1 0 2 n u J 0 3 d e d n e s r y 3 8 1 0 2 n u J 0 3 d e d n e s r y 3 9 1 0 2 n u J 0 3 d e d n e s r y 3 0 2 0 2 n u J 0 3 d e d n e s r y 3 7 1 0 2 n u J 0 3 d e d n e s r y 3 8 1 0 2 n u J 0 3 d e d n e s r y 3 9 1 0 2 n u J 0 3 d e d n e s r y 3 0 2 0 2 n u J 0 3 4 1 0 2 v o N 6 2 e r o G D B i s t h g R e c n a m r o f r e P 5 1 0 2 v o N 5 2 6 1 0 2 v o N 3 2 7 1 0 2 v o N 9 2 4 1 0 2 c e D 2 2 5 1 0 2 c e D 1 2 6 1 0 2 c e D 1 2 7 1 0 2 c e D 5 s e v i t u c e x e r e h t O , 0 6 1 6 6 1 6 , ) 7 4 6 , 2 2 2 ( ) 8 7 5 , 4 0 2 , 1 ( 2 7 2 , 4 1 5 , 1 3 1 1 , 9 7 0 , 6 l a t o T The issue of a share-based payment award to a Director requires shareholder approval and the value at grant date is taken as the date at which that approval is granted. Accordingly, the value of these PRs is based on 26 November 2014, 25 November 2015, 23 November 2016 and 29 November 2017, being the dates of Peet Limited’s, 2014, 2015, 2016 and 2017 AGMs, respectively. NOTE 2 These options are convertible to ordinary shares on a 1:1 basis at the exercise price after the fourth anniversary of the grant date. The exercise condition in respect of these options is that Mr Gore remains employed as Managing Director for a period of four years. Although the service period requirement has been met, the options have not been exercised. NOTE 3 These PRs are convertible to ordinary shares on a 1:1 basis, with 40% subject to the Funds Under Management (FUM) growth vesting condition. FUM growth is measured as the total of the following during the performance period: • the purchase price (ex GST) of land acquired by a Peet syndicate or Joint Venture; or • the market value (ex GST) of land for which Peet has been appointed development manager at the time of its appointment; or • the selling price (ex GST) of land sold by Peet, a Syndicate, a Joint Venture or Peet-managed project to a third party and Peet is appointed the development manager (and where applicable, to manage the leasing) of a commercial, industrial, retail or residential built-form project on that property; or • in all other property funds management-related transactions, as determined by the Board of Directors. The aggregate of the FUM growth during the performance period is reduced by the equity interest retained by the Group and is then compared to the rolling three-year FUM growth target set by the Board. Of the PRs subject to FUM growth, the proportion to vest will be as follows: Performance level Less than the target Target Aggregate FUM growth target during performance period Proportion of performance rights that may be eligible to vest Less than $60 million $60 million 0% 50% Target – medium $60 million to $100 million Medium – maximum $100 million to $150 million Pro-rata between 50% and 70% Pro-rata between 70% and 100% Maximum Greater than $150 million 100% The Group achieved FUM growth of $187.7 million for the three-year performance period ended 30 June 2017. Accordingly, the performance condition was fully met and on 22 August 2017 the Directors resolved that 100% of the FY15 PRs thereto vested. The FY16, FY17 and FY18 PRs remain unvested. NOTE 4 These PRs are convertible to ordinary shares on a 1:1 basis, with 60% subject to the ROAFE vesting condition, measured over a three-year period from 1 July 2014 to 30 June 2017 (“FY15 Performance Period”). ROAFE is measured as the average of the earnings before interest, tax and write-downs of inventories and/or development costs or increases in the carrying value of inventories (EBIT) divided by the average of the sum of net debt, convertible notes, contributed equity, non-controlling interests and retained earnings. 13. REMUNERATION REPORT (AUDITED) (CONTINUED) 13. REMUNERATION REPORT (AUDITED) (CONTINUED) The ROAFE is compared to the Board’s internal target ROAFE for the FY15 Performance Period. NOTE 6 Of the PRs subject to ROAFE, the proportion to vest will be as follows: Performance level Proportion of performance rights that may be eligible to vest Less than 75% of the target 75% of the target 0% 30% 75% to 85% of the target Pro-rata between 30% and 50% 85% to 100% of the target Pro-rata between 50% and 70% 100% to 110% of the target Pro-rata between 70% and 100% Greater than 110% of the target 100% The Group achieved underlying ROAFE of 13.0% against the target of 12.8% for the three-year performance period ended 30 June 2017. Accordingly, the ROAFE performance condition attached to the FY15 PRs was partially met and on 22 August 2017 the Directors resolved that 74% of the FY15 PRs relating thereto vested. NOTE 5 These PRs are convertible to ordinary shares on a 1:1 basis, with 60% subject to the ROCE vesting condition, measured These PRs are convertible to ordinary shares on a 1:1 basis, with 60% subject to the EPS growth vesting condition, measured over a three-year period from 1 July 2017 to 30 June 2020 (“FY18 Performance Period”). EPS growth is then compared to the Board’s internal target EPS growth for the FY18 Performance Period. The earnings component of EPS is calculated as net profit measured in accordance with Australian Accounting Standards, excluding write-downs of inventories and development costs and increases in the carring value of inventories during the relevant financial year, and is subject to other adjustments at the Board’s discretion. Of the PRs subject to EPS growth, the proportion to vest will be as follows: Performance level Proportion of performance rights that may be eligible to vest Less than 80% of the EPS target 80% of the EPS target 0% 50% 80% to 100% of the EPS target Pro-rata between 50% and 80% 100% to 120% of the EPS target Pro-rata between 80% and 100% Greater than 120% of the EPS target 100% over a three-year period from 1 July 2015 to 30 June 2018 (“FY16 Performance Period”) and 1 July 2016 to 30 June The FY18 PRs remain unvested. 2019 (“FY17 Performance Period”), respectively. ROCE is measured the same way as the ROAFE vesting condition that was used in respect of prior years’ grants. Of the FY16 PRs subject to ROCE, the proportion to vest will be as follows: Performance level Proportion of performance rights that may be eligible to vest Less than 75% of the target 75% of the target 0% 30% 75% to 85% of the target Pro-rata between 30% and 50% 85% to 100% of the target Pro-rata between 50% and 70% 100% to 110% of the target Pro-rata between 70% and 100% Greater than 110% of the target 100% Of the FY17 PRs subject to ROCE, the proportion to vest will be as follows: Performance level Proportion of performance rights that may be eligible to vest Less than 90% of the target 90% of the target 0% 30% 90% to 95% of the target Pro-rata between 30% and 50% 95% to 100% of the target Pro-rata between 50% and 65% 100% to 105% of the target Pro-rata between 65% and 100% Greater than 105% of the target 100% The FY16 and FY17 PRs remain unvested. OPTION AND PERFORMANCE RIGHTS HOLDINGS The number of options and PRs over unissued ordinary shares in the Company held during the financial year by the KMP of the Group, including their personally-related entities, is set out below. When exercisable, each option and PR is convertible into one ordinary share of Peet Limited. Balance at the start of the year Granted during the year Exercised during the year Lapsed/forfeited during the year 1 Balance at end of the year Vested and exercisable at the end of the year – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 4,027,031 874,347 (703,809) (130,088) 4,067,481 1,200,000 Directors A W Lennon T J Allen V Krause R J McKinnon A J Lennon B D Gore Other key management personnel P J Dumas D Scafetta B C Fullarton 871,826 516,704 663,552 271,455 163,246 205,224 (213,553) (122,020) (165,196) (39,472) (22,553) (30,534) 890,256 535,377 673,046 – – – 1. Includes performance rights for which performance conditions were not met for the performance period. During the year ended 30 June 2018, 1,204,578 PRs (2017: 1,713,975) had vested and were exercised by KMP at $ Nil exercise price. In order to settle the PRs exercised during year ended 30 June 2018, the Company purchased ordinary shares in the Company on-market on behalf of KMP. Since 30 June 2018, no PRs were vested. No other options and PRs have been issued. Refer note 24 of the financial report for the total options and PRs outstanding. 13. REMUNERATION REPORT (AUDITED) (CONTINUED) 13. REMUNERATION REPORT (AUDITED) (CONTINUED) E. ADDITIONAL INFORMATION PERFORMANCE OF PEET LIMITED The overall level of executive compensation takes into account the performance of the Group. STI is generally based on an assessment of performance over a 12-month period, while LTI is generally assessed over a three-year period. The high-level performance of the Group over the last five years is compared below: Net profit after tax (NPAT) NPAT growth $'000 Growth% Net operating profit after tax (NOPAT) $'000 NOPAT growth Basic EPS Basic EPS growth Operating EPS Operating EPS growth Dividends paid/payable Share price 30 June Share price growth 2014 30,291 3342.2% 31,555 72.0% 7.0 7.3 35.2% 3.5 1.35 2015 38,460 27.0% 38,460 21.9% 8.26 18.0% 8.26 13.2% 4.5 1.15 2016 42,592 10.7% 42,592 10.7% 8.70 5.3% 8.70 5.3% 4.5 0.94 2017 44,792 5.2% 44,792 5.2% 9.14 5.1% 9.14 5.1% 4.75 1.20 20.5% (14.8%) (18.3%) 27.7% 2018 49,112 9.6% 49,112 9.6% 10.02 9.6% 10.02 9.6% 5.00 1.32 10% Growth% 2592.3% Growth% cents per share cents per share Growth% cents per share $ Growth% Cash Bonus Options & Performance Rights Paid/ payable % Forfeited/ deferred % Financial year Granted Vested 1 % Forfeited 1,2 % Financial years in which options/PRs may vest Maximum total value of grant yet to vest $ Other key management personnel P J Dumas 90% 10% D Scafetta 92% 8% B C Fullarton 90% 10% 2018 2017 2016 2015 2018 2017 2016 2015 2018 2017 2016 2015 – – – – – – 84.4% 15.6% – – – – – – 84.4% 15.6% – – – – – – 84.4% 15.6% 2020 2019 2018 2018 2020 2019 2018 2018 2020 2019 2018 2018 235,187 93,583 – – 141,436 112,506 – – 177,805 141,435 – – DETAILS OF REMUNERATION: CASH BONUSES, OPTIONS AND PRs 1. 2. Includes performance rights for which performance conditions were met for the performance period ended 30 June 2017 and confirmed by the Directors after balance date. Includes performance rights for which performance conditions were not met for the performance period For each cash bonus, grant of options and/or PRs included in the tables within the remuneration report, the percentage of the available bonus or grant that was paid, or that vested and the percentage that was forfeited because the person did not meet the service and performance criteria, is set out below. Generally, no part of the bonuses forfeited is payable in future years. Subject to the rules of the PESOP and PPRP no options or PRs will vest if the conditions are not satisfied, subject to the discretion of the Board, hence the minimum value of the option and PRs yet to vest is nil. The maximum value of the options and PRs yet to vest has been determined as the amount of the grant date fair value of the options and PRs that is yet to be expensed. Cash Bonus Options & Performance Rights Paid/ payable % Forfeited/ deferred % Financial year Granted Vested 1 % Forfeited 1,2 % Financial years in which options/PRs may vest Maximum total value of grant yet to vest $ Directors A W Lennon T J Allen V Krause R J McKinnon A J Lennon B D Gore – – – – – – – – – – 98% 2% – – – – – 2018 2017 2016 2015 – – – – – – – – – – – – – – – – 84.4% 15.6% – – – – – 2020 2019 2018 2018 – – – – – 774,442 284,385 – – Further details relating to options and/or PRs, either granted, exercised or lapsed during the year, are set out below. The amounts below are calculated in accordance with Australian Accounting Standards. The KMPs exercised 1,204,578 PRs over shares in the Company and received shares in the Company during the 2018 financial year. Please refer to previous pages of the Remuneration Report for commentary on vesting conditions met during the performance period ended 30 June 2018. Directors B D Gore Other key management personnel P J Dumas D Scafetta B C Fullarton Remuneration consisting of options & performance rights 1 Value of options & performance rights granted 2 Value of options & performance rights exercised 3 34% 29% 26% 26% 1,161,133 352,620 212,057 266,586 749,556 200,312 114,454 154,954 The percentage of the value of remuneration consisting of options and PRs, based on the value of options and PRs expensed during the current year. 1. 2. The value at grant date calculated in accordance with AASB 2 Share-based payments of options and/or PRs granted during the year as part of remuneration. 3. The value at exercise date of options and/or PRs that were granted as part of remuneration and were exercised during the year, being the intrinsic value of the options and/or PRs at that date. LOANS TO DIRECTORS AND OTHER KEY MANAGEMENT PERSONNEL There were no loans made to KMP, or their personally-related entities, during the financial year. 13. REMUNERATION REPORT (AUDITED) (CONTINUED) 15. NON-AUDIT SERVICES VOTING AND COMMENTS MADE AT THE COMPANY’S 2017 ANNUAL GENERAL MEETING The Company may decide to employ the auditor on assignments additional to their statutory audit duties where the The instructions given to validly appointed proxies in respect of the resolution pertaining to the Company’s 2017 Remuneration Report were as follows: For 272,512,990 96.4% Against 9,837,066 3.5% Proxy’s discretion 219,519 0.1% Abstain 446,559 The motion was carried as an ordinary resolution on show of hands. INTERESTS IN THE SHARES AND BONDS OF THE COMPANY Directors A W Lennon T J Allen V Krause R J McKinnon B D Gore A J Lennon Balance at the start of the year 97,314,685 92,054 – 50,000 4,533,238 1,331,344 Other key management personnel P J Dumas D Scafetta B C Fullarton 874,329 996,138 235,208 Shares Received during the year on exercise of PRs Other changes during the year Balance at the end of the year Balance at the start of the year – – – – 703,809 – 213,553 122,020 165,196 – – – – – – – – – 97,314,685 92,054 – 50,000 5,237,047 1,331,344 1,087,882 1,118,158 400,404 3,000 5,114 1,000 500 – 500 – – – Bonds Other changes during the year 1,875 – – – – – – – – Balance at the end of the year 4,875 5,114 1,000 500 – 500 – – – Since 30 June 2018, no PRs were vested. No other options and PRs have been issued. END OF REMUNERATION REPORT (AUDITED) 14. INDEMNITY OF OFFICERS AND AUDITORS During the financial year, the Company paid a premium in respect of a Directors’ and Officers’ insurance policy that insures Directors and Officers of the Company. The liabilities insured are costs and expenses that may be incurred in defending civil or criminal proceedings that may be brought against the Directors and Officers in their capacity as such. The Directors have not included more specific details of the nature of the liabilities covered or the amount of the premium paid in respect of Directors’ and Officers’ liability, as such disclosure is prohibited under the terms of the contract. To the extent permitted by law, the Company has agreed to indemnify its auditors, Ernst & Young Australia, as part of the terms of its audit engagement agreement against claims by third parties arising from the audit (for an unspecified amount). The indemnity does not apply to any loss in respect of any matters which are finally determined to have resulted from the auditors’ negligent, wrongful or willful acts or omissions. No payment has been made to indemnify the auditors during or since the financial year. auditor’s expertise and experience with the Company and/or the Group are considered important. The Board of Directors has considered the position and, in accordance with the advice received from the Audit and Risk Management Committee, is satisfied that the provision of the non-audit services is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The Directors are satisfied that the provision of non-audit services by the auditor did not compromise the auditor independence requirements of the Corporations Act 2001 for the following reasons: • all non-audit services have been reviewed by the Audit and Risk Management Committee to ensure they do not impact the impartiality and objectivity of the auditor; and • none of the services undermine the general principles relating to auditor independence as set out in APES 110 Code of Ethics for Professional Accountants. The fees that were paid or payable for services provided by the auditors of the Group, its related practices and non- related audit firms is set out in note 21 of the Financial Report. 16. AUDITOR’S INDEPENDENCE DECLARATION A copy of the auditor’s independence declaration, as required under section 307C of the Corporation Act 2001, is set out on page 71. 17. ROUNDING OF AMOUNTS The Company is of a kind referred to in ASIC Corporations Instrument 2016/191, issued by the Australian Securities and Investments Commission, relating to the “rounding off” of amounts in the Director’s Report. Amounts in the Director’s Report have been rounded off in accordance with that legislative instrument to the nearest thousand dollars, or in certain cases, the nearest dollar. Signed for and on behalf of the Board in accordance with a resolution of the Board of Directors. Brendan Gore Managing Director and Chief Executive Officer Perth, Western Australia 23 August 2018 Ernst & Young 11 Mounts Bay Road Perth WA 6000 Australia GPO Box M939 Perth WA 6843 Tel: +61 8 9429 2222 Fax: +61 8 9429 2436 ey.com/au Corporate Governance Statement A copy of the Group’s corporate governance policies and practices in place during the financial year ended 30 June 2018 is available at the following link: www.peet.com.au/corporate-governance-statement-2018 Auditor’s Independence Declaration to the Directors of Peet Limited Unless otherwise stated, these are consistent with the 3rd edition of the ASX Corporate Governance Council’s As lead auditor for the audit of Peet Limited for the financial year ended 30 June 2018, I declare to the best of my knowledge and belief, there have been: a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and b) no contraventions of any applicable code of professional conduct in relation to the audit. This declaration is in respect of Peet Limited and the entities it controlled during the financial period. Principles and Recommendations (released March 2014). Ernst & Young G Lotter Partner 23 August 2018 A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation 71 Consolidated Statement of Profit or Loss and Other Comprehensive Income Revenue Expenses Finance costs (net of capitalised borrowing costs) Share of net profit of associates and joint ventures Profit before income tax Income tax expense Profit for the year Attributable to: Owners of Peet Limited Non-controlling interests Other comprehensive income Items that may subsequently be reclassified to profit or loss: Realised losses on cash flow hedges transferred to profit or loss Unrealised gains/(losses) on cash flow hedges Income tax relating to components of other comprehensive income Other comprehensive income for the year, net of tax Total comprehensive income for the year Attributable to: Owners of Peet Limited Non-controlling interests Notes 5 6 6 10 8 2018 $’000 287,619 (223,856) (10,232) 14,081 67,612 (18,972) 48,640 49,112 (472) 48,640 3,129 (862) (680) 1,587 50,227 50,699 (472) 50,227 Earnings per share for profit attributable to the ordinary equity holders of the Company Basic and diluted earnings per share Notes 7 Cents 10.02 2017 $’000 296,043 (240,609) (8,337) 15,326 62,423 (18,163) 44,260 44,792 (532) 44,260 2,307 1,857 (1,249) 2,915 47,175 47,707 (532) 47,175 Cents 9.14 The above consolidated statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes. Financial Report Contents Consolidated Statement of Profit or Loss and Other Comprehensive Income ................................................................ 74 Consolidated Balance Sheet ............................................................................................................................................. 75 Consolidated Statement of Changes in Equity ................................................................................................................. 76 Consolidated Statement of Cash Flows ............................................................................................................................ 77 Notes to the Consolidated Financial Statements .............................................................................................................. 78 This financial report covers the consolidated financial statements for the Group consisting of Peet Limited and its subsidiaries. The financial report is presented in Australian currency. Peet Limited is a for profit company limited by shares, incorporated and domiciled in Australia. Its registered office and principal place of business is; Level 7, 200 St Georges Terrace, Perth WA 6000. The financial report was authorised for issue by the Directors on 23 August 2018. The Directors have the power to amend and reissue the financial report. Through the use of the internet, we have ensured that our corporate reporting is timely and complete. All press releases, financial reports and other information are accessible via our website; www.peet.com.au 73 ANNUAL REPORT 2017 | PEET LIMITED PEET LIMITED | ANNUAL REPORT 2017 74 Consolidated Balance Sheet Consolidated Statement of Changes in Equity Current assets Cash and cash equivalents Receivables Inventories Total current assets Non-current assets Receivables Inventories Investments accounted for using the equity method Property, plant and equipment Intangible assets Total non-current assets Total assets Current liabilities Payables Land vendor liabilities Borrowings Current tax liabilities Provisions Total current liabilities Non-current liabilities Land vendor liabilities Borrowings Derivative financial instruments Deferred tax liabilities Provisions Total non-current liabilities Total liabilities Net assets Equity Contributed equity Reserves Retained profits Capital and reserves attributable to owners of Peet Limited Non-controlling interest Total equity Notes 11 9 11 9 10 12 13 16 14 13 16 16 8 14 17 17 2018 $’000 76,749 27,392 119,259 223,400 95,665 375,540 222,820 5,411 6,087 705,523 928,923 82,066 14,700 – 15,398 5,826 117,990 5,380 217,204 3,777 32,844 285 259,490 377,480 551,443 385,955 3,397 150,871 540,223 11,220 551,443 2017 $’000 88,367 53,319 133,237 274,923 78,002 352,919 213,448 8,298 6,251 658,918 933,841 69,492 15,975 5,791 4,698 6,245 102,201 17,853 244,017 4,551 39,698 199 306,318 408,519 525,322 385,955 1,417 126,258 513,630 11,692 525,322 The above consolidated balance sheet should be read in conjunction with the accompanying notes. Balance at 1 July 2016 Profit for the year Other comprehensive income Total comprehensive income for the year Transactions with owners in their capacity as owners: Non-reciprocal contribution to a controlled entity Capital return to non-controlling interests Vesting of performance rights Share-based payments Dividends paid Balance at 30 June 2017 Balance at 1 July 2017 Profit for the year Other comprehensive income Total comprehensive income for the year Transactions with owners in their capacity as owners: Vesting of performance rights Share-based payments Dividends paid Balance at 30 June 2018 Contributed equity $’000 Reserves $’000 Retained profits $’000 Non-controlling interest $’000 Total $’000 Total equity $’000 Notes 385,955 7,809 103,515 497,279 – – – – – – – – – 2,915 2,915 44,792 – 44,792 44,792 2,915 47,707 (7,988) (1,217) (2,201) 2,099 – – – – (7,988) (1,217) (2,201) 2,099 – (22,049) (22,049) 4,236 501,515 (532) 44,260 – (532) 2,915 47,175 7,988 – – – – – (1,217) (2,201) 2,099 (22,049) 385,955 1,417 126,258 513,630 11,692 525,322 385,955 1,417 126,258 513,630 11,692 525,322 49,112 – 49,112 1,587 49,112 50,699 (472) 48,640 – 1,587 (472) 50,227 – 1,587 1,587 (1,883) 2,276 – – – – – – – – (1,883) 2,276 – (24,499) (24,499) – – – (1,883) 2,276 (24,499) 385,955 3,397 150,871 540,223 11,220 551,443 The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes. 75 ANNUAL REPORT 2017 | PEET LIMITED PEET LIMITED | ANNUAL REPORT 2017 76 Consolidated Statement of Cash Flows Notes to the Consolidated Financial Statements Notes 2018 $’000 2017 $’000 CONTENTS BASIS OF REPORTING Cash flows from operating activities Receipts from customers (inclusive of GST) Payments to suppliers and employees (inclusive of GST) Payments for purchase of land Interest and other finance costs paid Distributions and dividends received from associates and joint ventures Interest received Income tax paid Net cash inflow from operating activities Cash flows from investing activities Payments for property, plant and equipment Payments for investment in associates Proceeds from capital returns from associates Loans to related parties Repayment of loans by related parties Net cash outflow from investing activities Cash flows from financing activities Dividends paid to Group’s shareholders Repayment of borrowings Proceeds from borrowings Proceeds from issue of Peet bonds (gross proceeds net of costs) Transactions with non-controlling interests (net of costs) Net cash outflow from financing activities Net (decrease)/increase in cash and cash equivalents Cash and cash equivalents at the beginning of the year Cash and cash equivalents at the end of the year 19 325,252 (183,177) (50,690) (18,983) 10,185 552 (15,806) 67,333 (2,252) (8,725) 3,249 (21,024) 7,826 (20,926) (24,499) (108,129) 25,598 49,005 – (58,025) (11,618) 88,367 76,749 334,369 (203,504) (42,376) (18,160) 3,949 901 (17,952) 57,227 (4,426) (3,537) 744 (16,220) 21,951 (1,488) (22,049) (67,296) 49,817 – (1,217) (40,745) 14,994 73,373 88,367 The above consolidated statement of cash flows should be read in conjunction with the accompanying notes. 1. Reporting entity .......................................................................................................................................................... 76 2. Basis of preparation .................................................................................................................................................... 76 3. How to read the annual report .................................................................................................................................... 78 PERFORMANCE FOR THE YEAR 4. Segment information .................................................................................................................................................. 79 5. Revenue ...................................................................................................................................................................... 81 6. Expenses .................................................................................................................................................................... 82 7. Earnings per share ...................................................................................................................................................... 82 8. Taxes ........................................................................................................................................................................... 83 OPERATING ASSETS AND LIABILITIES 9. Inventories .................................................................................................................................................................. 85 10. Investments accounted for using the equity method ................................................................................................ 85 11. Receivables ................................................................................................................................................................. 88 12. Payables ...................................................................................................................................................................... 89 13. Land vendor liabilities ................................................................................................................................................. 89 14. Provisions ................................................................................................................................................................... 89 15. Interests in joint operations ........................................................................................................................................ 90 CAPITAL MANAGEMENT 16. Borrowings and derivative financial instruments ....................................................................................................... 91 17. Contributed equity and reserves ................................................................................................................................ 95 18. Dividends .................................................................................................................................................................... 96 19. Reconciliation of profit after income tax to net cash inflow from operating activities ............................................... 97 20. Fair value measurement ............................................................................................................................................. 97 OTHER NOTES 21. Remuneration of auditors ........................................................................................................................................... 98 22. Contingencies and commitments .............................................................................................................................. 98 23. Parent entity financial information and subsidiaries ................................................................................................... 99 24. Share-based payments ............................................................................................................................................. 102 25. Matters subsequent to the end of the financial year ............................................................................................... 104 26. Other accounting policies ......................................................................................................................................... 104 77 ANNUAL REPORT 2017 | PEET LIMITED PEET LIMITED | ANNUAL REPORT 2017 78 Basis of Reporting This section of the financial report sets out the basis of a. Principles of consolidation preparation of the consolidated financial statements. Where an accounting policy is specific to one note, the policy is described in the note to which it relates. 1. Reporting entity This financial report covers the consolidated financial statements for the Consolidated Entity consisting of Peet Limited and its subsidiaries (Group). The Financial Report is presented in the Australian currency. Peet Limited is a The consolidated financial statements comprise the financial statements of the Group and the entities it controlled at the end of, or during the year ended 30 June 2018. The Group controls an investee if and only if the Group has: • power over the investee (i.e. existing rights that give it the current ability to direct the relevant activities of the investee); company limited by shares, incorporated and domiciled in • exposure, or rights, to variable returns from its Australia. Its registered office and principal place of involvement with the investee; and business is; Level 7, 200 St Georges Terrace, Perth WA 6000. The nature of the operations and principal activities of the Group are described in the Directors’ Report. Peet • the ability to use its power over the investee to affect its returns. Limited is a for-profit entity. The Group re-assesses whether or not it controls an 2. Basis of preparation investee if facts and circumstances indicate that there are changes to one or more of the three elements of control. The Financial Report is a general purpose financial report Consolidation of a subsidiary begins when the Group which: • has been prepared in accordance with Australian Accounting Standards and Interpretations issued by the Australian Accounting Standards Board and the Corporations Act 2001; obtains control over the subsidiary and ceases when the Group loses control of the subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the year are included in the statement of comprehensive income from the date the Group gains control until the date the Group ceases to control the • complies with International Financial Reporting subsidiary. Standards (IFRS) as issued by the International Accounting Standards Board (IASB); Profit or loss and each component of other comprehensive income (OCI) are attributed to the equity holders of the 2. Basis of preparation (continued) b. Associates To the extent the joint arrangement provides the Group with rights to the individual assets and obligations arising from the joint arrangement, the arrangement is classified Associates are all entities over which the Group has as a joint operation and as such, the Group recognises its: significant influence but not control, generally accompanying a shareholding of between 20% and 50% • assets, including its share of any assets held jointly; of the voting rights. In the case of syndicates, significant • liabilities, including its share of any liabilities incurred influence can exist with a lower shareholding by virtue of jointly; the Group’s position as project manager. Investments in associates are accounted for using the equity method of accounting, after initially being recognised at cost. The Group’s share of its associates’ post-acquisition profits or losses are recognised in the consolidated statement of • share of revenue from the sale of the output by the joint operation; and • expenses, including its share of any expenses incurred jointly. profit or loss, and its share of post-acquisition other To the extent the joint arrangement provides the Group comprehensive income is recognised in other with rights to the net assets of the arrangement, the comprehensive income. The cumulative post-acquisition investment is classified as a joint venture and accounted movements are adjusted against the carrying amount for using the equity method. Under the equity method, of the investment. Dividends receivable from associates the cost of the investment is adjusted by the post- are recognised as a reduction in the carrying amount of acquisition changes in the Group’s share of the net assets the investment. of the venture. When the Group’s share of losses in an associate equals or exceeds its interest in the associate, including any other d. Changes in ownership interests unsecured long-term receivables, the Group does not The Group treats transactions with non-controlling recognise further losses, unless it has incurred obligations interests that do not result in a gain or loss of control as or made payments on behalf of the associate. transactions with equity owners of the Group. A change in Unrealised gains on transactions between the Group and its associates are eliminated to the extent of the Group’s interest in the associates. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. c. Investments in joint arrangements ownership interest results in an adjustment between the carrying amounts of the controlling and non-controlling interests to reflect their relative interests in the subsidiary. Any difference between the amount of the adjustment to non-controlling interests and any consideration paid or received is recognised in a separate reserve within equity attributable to owners of Peet Limited. • has been prepared under the historical cost convention, parent of the Group and to the non-controlling interests, Joint arrangements are arrangements of which two or e. Changes in accounting policies except for derivative instruments which have been even if this results in the non-controlling interests having a measured at fair value; deficit balance. All intra-group assets and liabilities, equity, • provides comparative information in respect of the previous period; and • is rounded off to the nearest thousand dollars or in certain cases to the nearest dollar in accordance with ASIC Corporations Instrument 2016/191. income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation. more parties have joint control. Joint control is the contractual agreed sharing of control of the arrangement which exists only when decisions about the relevant activities require unanimous consent of the parties sharing control. Joint arrangements are classified as either a joint operation or joint venture, based on the rights and obligations arising from the contractual obligations between the parties to the arrangement. The Group has adopted all new and amended Australian Accounting Standards and Interpretations effective from 1 July 2017. New and amended Standards and Interpretations did not result in any significant changes to the Group’s accounting policies. The Group has not elected to early adopt any other new or amended Standards or Interpretations that are issued but not yet effective (refer note 26 ix). 79 ANNUAL REPORT 2017 | PEET LIMITED PEET LIMITED | ANNUAL REPORT 2017 80 3. How to read the annual report The notes to the financial statements are set out in four specific sections: • Performance for the year; • Operating assets and liabilities; • Capital management; and • Other notes. Where an accounting policy is specific to one note, the policy is described in the note to which it relates. Key estimates are described in the following notes: • Note 5 – sales fall over rates on project management and selling fees; • Note 8 – deferred tax assets; and • Note 9 – net realisable value. Financial instrument risk management is carried out by management under policies approved by the Board of Directors and the Audit and Risk Management Committee. Management identifies, evaluates and mitigates financial risks in close co-operation with the Group’s operating units. The Board and Audit and Risk Management Committee provide written principles for overall risk management, as well as written policies covering specific areas, such as mitigating interest rate and credit risks, use of derivative financial instruments and investing excess liquidity. Financial risks and its management are detailed in the respective notes it pertains to. The Group’s activities expose it to financial risks including: • credit risk (note 11 and 16); • liquidity risk (note 16); and • interest rate risk (note 16). Related party transactions are disclosed within the notes they relate to. Transactions which occur between the Group and significant controlled entities are classified as related party transactions. Significant controlled entities are interests held in associates and joint ventures, which are set out in note 10. Details relating to the key management personnel, including remuneration paid, are set out in note 6. Performance for the year This section focuses on the results and performance of Company-owned projects the Group. 4. Segment information The Group acquires parcels of land in Australia, primarily for residential development purposes. Certain land holdings will also produce non-residential blocks of land. Operating segments are reported in a manner that is consistent with the internal reporting provided to the chief Joint arrangements operating decision maker. The chief operating decision maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the executive management group. Joint arrangements are entered into with government, statutory authorities and private landowners. The form of these arrangements can vary from project to project but generally involves Peet undertaking the development of The executive management group assesses the land on behalf of the landowner or in conjunction with the performance of the operating segments based on multiple co-owner. The Group is typically entitled to ongoing fees measures including earnings before interest (including for management of the development project and also a interest and finance charges amortised through cost of share of the profits. sales), tax, depreciation and amortisation (“EBITDA”), earnings before interest (including interest and finance Inter-segment transfers and other unallocated charges amortised through cost of sales) and tax (“EBIT”) and profit after tax. Segment revenue, expenses and results include transfers between segments. Such transfers are based on an arm’s The share of profits from associates and joint ventures is length basis and are eliminated on consolidation. included as segment revenue as it is treated as revenue for internal reporting purposes. The adoption of AASB 10 Consolidated Financial Statements from 1 July 2013, resulted in certain property The Group operates only in Australia. syndicates being consolidated. These entities however, The executive management group considers the business to have the following reportable business segments: Funds management continue to be managed and reported to the executive management group as part of the funds management business segment. Adjustments are included in “Inter-segment transfers and other unallocated” to reconcile reportable business segment information to the Peet enters into asset and funds management agreements Group’s consolidated statement of profit or loss. with external capital providers. Peet and/or the external capital provider commit equity funds towards the acquisition of land and this is generally supplemented with debt funds either at the time of acquisition or during the . development phase of a project. The Group derives fees from underwriting, capital raising and asset identification services. Ongoing project related fees (mainly project management and selling fees as well as performance fees) are then derived by the Group for the duration of a particular project. . 81 ANNUAL REPORT 2017 | PEET LIMITED PEET LIMITED | ANNUAL REPORT 2017 82 4. Segment information (continued) 2 8 2 , 4 6 2 3 , 5 1 9 6 3 , 1 1 3 ) 5 2 6 , 0 1 ( 1 3 1 1 9 , ) 9 3 5 , 3 ( 2 9 5 7 8 , ) 9 6 1 5 2 , ( 3 2 4 , 2 6 ) 3 6 1 8 1 , ( 0 6 2 , 4 4 2 3 5 2 9 7 , 4 4 2 1 6 , 3 1 8 0 , 4 1 0 0 7 1 0 3 , ) 4 9 0 , 1 1 ( 7 9 2 , 1 0 1 ) 8 6 7 3 , ( 9 2 5 7 9 , ) 7 1 9 , 9 2 ( 2 1 6 7 6 , ) 2 7 9 , 8 1 ( 0 4 6 , 8 4 2 7 4 2 1 1 9 4 , 7 1 0 2 0 0 0 ’ $ 8 1 0 2 0 0 0 ’ $ 7 1 0 2 0 0 0 ’ $ 1 6 7 1 9 2 , 7 0 0 , 4 8 2 1 5 3 , 4 9 0 2 5 1 1 5 7 6 , 4 ) 5 2 6 , 0 1 ( ) 4 0 5 , 0 1 ( ) 7 3 5 1 , ( ) 1 4 0 , 2 1 ( ) 1 2 7 , 2 1 ( 8 1 0 2 0 0 0 ’ $ 1 5 4 6 7 2 9 2 1 5 , 6 5 8 , 5 ) 4 9 0 , 1 1 ( ) 8 5 8 , 0 1 ( ) 3 6 8 1 , ( 7 1 0 2 0 0 0 ’ $ 1 6 8 , 8 4 1 5 5 1 , 9 2 6 , 0 1 1 4 0 , 1 6 ) 5 2 1 ( 7 6 1 1 2 , 2 4 0 , 1 2 8 1 0 2 0 0 0 ’ $ 5 2 0 , 6 4 7 7 8 7 7 2 , 8 9 7 1 , 5 5 ) 5 5 1 ( 9 8 5 , 6 1 4 3 4 , 6 1 d e t a d i l o s n o C t n e m g e s - r e t n I d n a s r e f s n a r t d e t a c o l l a n u r e h t o i t n o J s t n e m e g n a r r a 7 1 0 2 0 0 0 ’ $ 8 1 0 2 0 0 0 ’ $ d e n w o - y n a p m o C s t c e o r p j – 5 6 1 , 1 – 8 0 1 , 2 8 4 6 , 1 9 1 4 4 8 , 7 9 1 7 1 0 2 0 0 0 ’ $ 1 0 9 , 6 4 7 5 3 , 1 2 8 5 , 4 3 1 8 , 2 9 1 2 5 9 , 9 9 1 0 4 8 , 2 5 s d n u F t n e m e g a n a m 8 1 0 2 0 0 0 ’ $ 9 0 0 , 5 3 6 7 1 8 2 5 , 5 3 1 7 , 0 4 4 3 7 , 3 4 ) 7 2 8 , 1 ( 7 0 9 , 1 4 ) 0 0 7 , 1 ( 5 2 2 , 7 6 5 2 5 , 5 6 ) 0 5 ( ) 0 5 ( 4 3 7 , 6 3 1 4 3 , 8 2 4 8 6 , 6 3 1 9 2 , 8 2 s V J d n a s e t a i c o s s a f o t fi o r p t e n f o e r a h S s e i t r a p l a n r e t x e o t s e l a S t n e m g e s y b e u n e v e R e u n e v e r r e h t O n o i t a s i t r o m a d n a n o i t a i c e r p e D 2 T I B E s d a e h r e v o e t a r o p r o C 1 A D T I B E l a t o T s t s o c e c n a n fi d n a t s e r e t n i s e d u l c n i ( s t s o c g n i c n a n i F d e t i m i L t e e P f o s r e n w o o t e b a t u b i r t t a t fi o r P l s t s e r e t n i g n i l l o r t n o c - n o n o t e l b a t u b i r t t a s s o L ) s e l a s f o t s o c h g u o r h t d e s n e p x e x a t e m o c n i e r o f e b t fi o r P e s n e p x e x a t e m o c n I r a e y e h t r o f t fi o r P . n o i t a s i t r o m A d n a n o i t a i c e r p e D , x a T , ) s e l a s f o t s o c h g u o r h t d e s i t r o m a s e g r a h c e c n a n fi d n a t s e r e t n i g n i d u l c n i ( t s e r e t n I e r o f e B s g n i n r a E : A D T I B E . x a T d n a ) s e l a s f o t s o c h g u o r h t d e s i t r o m a s e g r a h c e c n a n fi d n a t s e r e t n i g n i d u l c n i ( t s e r e t n I e r o f e B s g n i n r a E : T I B E . 1 . 2 5. Revenue Revenue from sales of land Project management, selling and performance fees Other revenue 2018 $’000 2017 $’000 240,360 235,187 43,647 56,574 3,612 4,282 287,619 296,043 KEY ESTIMATES SALES FALL OVER RATES ON PROJECT MANAGEMENT AND SELLING FEES An analysis of sales fallen over is performed on a monthly basis for all business segments by location. This analysis is used to determine an appropriate allowance for sales fall overs to be recognised against project management and Recognition and measurement selling fees. Revenue is recognised at the fair value of consideration received or receivable. The main streams of revenue are Revenue from related parties included above: recognised if it meets the criteria outlined below. SALE OF LAND Revenue from the sale of lots from completed stages of land subdivision are recognised on settlement of the sale. This represents the point when risks and rewards have passed to the buyer. Revenue from related parties 1 Associates Project management, selling and performance fees 2018 $’000 2017 $’000 31,597 42,658 Syndicate administration fees 1,336 1,368 PROJECT MANAGEMENT AND SELLING FEES Interest Other Project management and selling fees are recognised where Joint arrangements there is a signed sales contract with a buyer as this is the point at which revenue has been earned by the project Project management, selling and performance fees manager, adjusted for estimates of sales fall over rates. 420 – 825 667 5,158 5,682 38,511 51,200 PERFORMANCE FEES 1. Refer to note 3 for information on related party transactions. Performance fee revenue is based on a profitability measurement in accordance with the relevant development management agreement. OTHER REVENUE Other revenue includes: • interest – this is recognised when earned, which is determined using the effective interest rate method. • dividends – this is recognised when the Group’s right to receive payment is established. • other trading activities – this is recognised as the service required under the contract is performed. 83 ANNUAL REPORT 2017 | PEET LIMITED PEET LIMITED | ANNUAL REPORT 2017 84 6. Expenses Land and development costs 2018 $’000 2017 $’000 Land and development costs represent the portion of the land and development costs associated with the lots sold Profit before income tax includes the following specific expenses: during the year. Land and development cost 128,617 148,665 Borrowing costs Amortised interest and finance expense 19,685 16,832 Total land and development cost 148,302 165,497 Depreciation Amortisation Total depreciation and amortisation 1 Employee benefits expense 2 Project management, selling and other operating costs Other expenses Total other expenses Total expenses 2,604 1,164 3,768 34,166 18,923 18,697 71,786 2,722 817 3,539 33,736 19,602 18,235 71,573 223,856 240,609 Finance costs Interest and finance charges paid/payable Interest on corporate bonds Amount capitalised 10,364 11,275 12,703 7,863 (11,407) (12,229) 10,232 8,337 1. Refer to note 26 (ii) and (iii) for accounting policies. 2. Refer to note 26 (iv) and (v) for accounting policies. Related party expenses KMP remuneration 1 Short-term employee benefits Post-employment benefits Share-based payments 1. Refer to note 3 for information about related party transactions. 2018 $’000 2017 $’000 4,366 150 1,686 6,202 4,284 191 1,505 5,980 Borrowing costs incurred for the construction of any qualifying asset are capitalised during the period of time that is required to complete and prepare the asset for its intended use or sale. Other borrowing costs are expensed in the period they are incurred. The capitalisation rate used to determine the amount of finance costs to be capitalised is the weighted average interest rate applicable to the Group’s outstanding borrowings during the year (refer note 16). 7. Earnings per share Profit attributable to the ordinary equity holders of the Company ($’000) Weighted average number of ordinary shares used as the denominator in calculating basic earnings per share Basic and diluted earnings per share (cents) 2018 49,112 2017 44,792 489,980,559 489,980,559 10.02 9.14 There are 1,200,000 options excluded from the calculation of diluted earnings per share as they are anti-dilutive. They could potentially dilute basic earnings per share in the future. Refer note 24 for the number of Performance Rights (PRs) outstanding at 30 June 2018. These PRs are contingently issuable shares and accordingly not included in diluted earnings per share. 8. Taxes a. Income tax expense Major components of tax expense Current income tax expense Current tax Adjustments for prior periods Deferred income tax expense Deferred tax Adjustments for prior periods Deferred income tax expense included in income tax expense comprises: (Increase)/ decrease in deferred tax assets (Decrease)/ increase in deferred tax liabilities 2018 $’000 2017 $’000 27,144 (638) 26,506 (7,534) – (7,534) 18,972 12,297 703 13,000 5,866 (703) 5,163 18,163 DEFERRED TAXES Deferred tax assets and liabilities are recognised for temporary differences at the tax rates expected to apply, when the assets are recovered or liabilities are settled, based on those tax rates which are enacted or substantively enacted for each jurisdiction by the end of the reporting period. The relevant tax rates are applied to the amounts of deductible and taxable temporary differences to measure the deferred tax asset or liability. An exception is made for certain temporary differences arising from the initial recognition of an asset or a liability. No deferred tax asset or liability is recognised in relation to these temporary differences if they arise in a transaction other than a business combination that at the time of the transaction did not affect either accounting profit or taxable profit or loss. Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is (2,747) 4,241 probable that future taxable amounts will be available to utilise those temporary differences and losses. (4,787) 922 Deferred tax assets and liabilities are offset when there is (7,534) 5,163 a legally enforceable right to offset current tax assets and Tax reconciliation Profit before income tax Tax at Australian tax rate of 30% 67,612 20,284 62,423 18,727 Tax effect of amounts which are not assessable or deductible: Share of net profit of associates Employee benefits Franking credits Sundry items (913) 118 (806) 289 (218) 630 (1,184) 208 liabilities and when the deferred tax balances relate to the same taxation authority. Current and deferred tax is recognised in profit or loss, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case, the tax is also recognised in other comprehensive income or directly in equity, respectively. KEY ESTIMATES 18,972 18,163 DEFERRED TAX ASSETS The Group has recognised deferred tax assets relating to carried forward tax losses to the extent there are sufficient taxable temporary differences (deferred tax liabilities) relating to the same taxation authority against which the unused tax losses can be utilised. However, utilisation of the tax losses also depends on the ability of the entity, to satisfy certain tests at the time the losses are recouped. Recognition and measurement CURRENT TAXES The income tax expense for the period is the tax payable on the current period’s taxable income based on the applicable income tax rate, adjusted by changes in deferred tax assets and liabilities attributable to temporary differences between the tax bases of assets and liabilities and their carrying amounts in the financial statements. Current tax assets and tax liabilities are offset where the entity has a legally enforceable right to offset and intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously. 85 ANNUAL REPORT 2017 | PEET LIMITED PEET LIMITED | ANNUAL REPORT 2017 86 8. Taxes (continued) b. Deferred tax assets Movements At 1 July 2016 Credited/(charged): - to profit or loss - to other comprehensive income Total deferred tax assets Set off against deferred tax liabilities pursuant to set off provisions At 30 June 2017 At 1 July 2017 Credited/(charged): – to profit or loss – to other comprehensive income Total deferred tax assets Set off against deferred tax liabilities pursuant to set off provisions At 30 June 2018 c. Deferred tax liabilities Movements At 1 July 2016 Charged/(credited): – to profit or loss Total deferred tax liabilities Set off against deferred tax assets pursuant to set off provisions At 30 June 2017 At 1 July 2017 Charged/(credited): – to profit or loss Total deferred tax liabilities Set off against deferred tax assets pursuant to set off provisions At 30 June 2018 Inventory $’000 Cash flow hedges $’000 Capital raising costs $’000 Tax losses $’000 3,272 2,432 690 5,652 80 – 3,352 – (1,249) 1,183 (484) – 206 (2,960) – 2,692 Other $’000 4,202 (877) – 3,325 Total $’000 16,248 (4,241) (1,249) 10,758 (10,758) – 3,352 1,183 206 2,692 3,325 10,758 195 – 3,547 – (680) 503 (100) – 106 (465) – 2,227 3,117 – 6,442 2,747 (680) 12,825 (12,825) – Interest and finance charges $’000 Accrued income $’000 Inventory $’000 Share of joint arrangements deferred tax liabilities $’000 Other $’000 Total $’000 29,590 8,072 9,029 2,688 155 49,534 (1,043) 28,547 (1,554) 6,518 2,983 12,012 536 3,224 – 155 922 50,456 (10,758) 39,698 28,547 6,518 12,012 3,224 155 50,456 (2,935) 25,612 932 7,450 (2,675) 9,337 (109) 3,115 – 155 (4,787) 45,669 (12,825) 32,844 Operating assets and liabilities This section shows the assets used to generate the Group’s trading performance and the liabilities incurred as a result. Liabilities relating to the Group’s financing activities are KEY ESTIMATES addressed in the capital management section. NET REALISABLE VALUE 9. Inventories Current Cost of acquisition Capitalised development costs Capitalised finance costs Non-current Cost of acquisition Capitalised development costs Capitalised finance costs Total inventory at cost 2018 $’000 2017 $’000 28,659 76,965 13,635 36,400 70,140 26,697 119,259 133,237 230,980 82,329 62,231 375,540 494,799 213,318 81,031 58,570 352,919 486,156 Recognition and measurement Land held for development and resale is stated at the lower of cost and net realisable value. Cost includes the cost of acquisition, development and borrowing costs during development. When development is completed, borrowing costs and other holding charges are expensed as incurred. Land is initially classified as non-current. It is subsequently reclassified to current if the development/subdivided lots are expected to be sold within the next 12 months. The Group is required to carry inventory at lower of cost and net realisable value. Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costs necessary to make the sale. Estimates of net realisable value are based on the most reliable evidence available at the time the estimates are made, of the amount the inventories are expected to realise and the estimate of costs to complete. The key assumptions require the use of management judgement and are reviewed annually. 10. Investments accounted for using the equity method Investments in associates and joint ventures are accounted for using the equity method of accounting. a. Movements in carrying amounts of investments in associates and joint ventures 2018 $’000 2017 $’000 Carrying amount at 1 July 213,448 198,115 Acquisitions/additional investments Dividends Capital returns Share of profit after income tax 8,725 (10,185) (3,249) 14,081 4,700 (3,949) (744) 15,326 Carrying amount at 30 June 222,820 213,448 87 ANNUAL REPORT 2017 | PEET LIMITED PEET LIMITED | ANNUAL REPORT 2017 88 10. Investments accounted for using the equity method (continued) 10. Investment accounted for using the equity method (continued) The Group assesses, at each balance date, the carrying value of investments in associates and joint ventures to ensure the assets are not impaired. b. Investments in associates and joint ventures (JVs) including summarised financial information s t e s s a t n e r r u c - n o N s e i t i l i b a i l t n e r r u C s e i t i l i b a i l t n e r r u c - n o N s t e s s a t e N s t e s s a t n e r r u C i p h s r e n w O n i t s e r e t n i l f o e u a v g n i y r r a C e r u t n e v t n o i j i r o e t a c o s s a e u n e v e R x a t r e t f a ) s s o l ( / t fi o r p t e N ) s s o l ( / t fi o r p f o e r a h S As at 30 June 2018 % $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 Peet Caboolture Syndicate Limited, QLD 20 9,351 48,446 41,882 4,994 10,921 2,184 20,780 7,928 377,199 103,706 20,385 261,036 69,150 5,075 (2,594) (708) 2,134 43,728 5,934 11,202 28,726 4,929 44,245 6,317 1,634 1,084 327 Associates Peet Alkimos Pty Limited, WA Peet Werribee Land Syndicate, VIC 27 17 Joint Ventures* Peet Flagstone City Pty Limited, QLD Googong Township Unit Trust, NSW Peet Golden Bay Pty Limited, WA Peet Mt Barker Pty Limited, SA Peet No.1895 Pty Limited, VIC Peet Brahbam Pty Ltd, WA # Other associates Other JVs Total As at 30 June 2017 Associates Peet Alkimos Pty Limited, WA Peet Werribee Land Syndicate, VIC 50 50 50 50 50 50 26 17 415 1,507 2,599 11,210 151,643 47,194 1,598 114,061 57,031 32,641 2,795 49,216 110,773 41,836 3,319 30,038 5,320 – – 118,153 59,077 77,349 16,106 28,037 14,019 7,991 2,840 29,495 11,971 354 20,010 10,005 11,138 7,200 107,617 48,868 57,729 8,220 4,110 15,872 3,503 30,419 33,932 – (10) (5) 4 (10) 2,066 254 222,820 7,952 379,668 125,351 28,585 233,684 61,155 31,404 (1,345) 1,472 48,243 25,754 56 23,905 77 (1,090) 1,398 8,053 208 754 1,300 (5) 1,917 (247) 14,081 (352) (187) 4,102 1,857 c. Additional summarised information in relation to amounts included in assets, liabilities and profit/(loss) of joint ventures As at 30 June 2018 Peet Flagstone City Pty Limited Googong Township Unit Trust Peet Golden Bay Pty Limited Peet Mt Barker Pty Limited Peet No. 1895 Pty Limited Peet Brahbam Pty Limited# As at 30 June 2017 Peet Flagstone City Pty Limited Googong Township Unit Trust Peet Golden Bay Pty Limited Peet Mt Barker Pty Limited Peet No. 1895 Pty Limited 1. Excluding trade and other payables and provisions # New joint venture in FY18 Cash and cash equivalents $’000 Current financial liabilities 1 $’000 Non-current financial liabilities 1 $’000 Interest expense $’000 Income tax expense/ (benefit) $’000 10,756 3,092 3,475 2,949 8,177 502 13,042 3,151 5,822 5,434 14,022 – 33,445 – 7,000 – – – 39,463 – 5,000 – 39,110 – – – 77,747 33,784 36,021 – – – 38,923 – – – – 2 – – 103 – – 101 1,283 35 175 647 1,203 – 1,014 (14) 1,043 14 1,409 Peet Caboolture Syndicate Limited, QLD 20 10,996 49,595 46,231 5,076 9,284 19,182 (1,582) (316) Joint Ventures* Peet Flagstone City Pty Limited, QLD Googong Township Unit Trust, NSW Peet Golden Bay Pty Limited, WA Peet Mt Barker Pty Limited, SA Peet No.1895 Pty Limited, VIC # 50 50 50 50 50 Other associates Other JVs Total 17,785 134,617 40,203 936 111,263 55,632 21,594 2,355 1,178 52,761 117,297 53,061 32,333 5,500 – – 116,997 58,499 90,263 21,166 10,583 31,621 15,811 13,757 2,434 1,217 28,714 10,539 282 22,912 11,456 12,548 23 12 4,788 5,019 13,989 81,565 49,715 40,219 5,620 2,810 1,874 252 213,448 61,327 6,118 3,059 22 110 15,326 * Refer to note 10(c) for further breakdown of financial information of joint ventures # New joint venture in FY18 The associates and joint ventures finance their operations through unitholder/shareholder contributions and also through external banking facilities. The Group also provides a loan facility to some of these entities which is disclosed in note 11. The Group has no further contractual obligations to provide ongoing financial support. 89 ANNUAL REPORT 2017 | PEET LIMITED PEET LIMITED | ANNUAL REPORT 2017 90 11. Receivables Current Trade receivables 1 Accrued income 2 Loans to associates and joint ventures 3 Other receivables Non-current Loans to associates and joint ventures 3 Other receivables 4 Recognition and measurement LOANS AND RECEIVABLES Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for those with maturities greater than 12 months after the balance date which are classified as non-current assets. Trade receivables generally mentioned in (1) are recognised initially at fair value and subsequently at amortised cost using the effective interest rate method, less allowance for impairment. Other receivables are recognised on an accrual basis as the services to which they relate are performed. 2018 $’000 2017 $’000 9,517 16,622 – 1,253 27,392 86,996 8,669 95,665 20,130 25,005 6,609 1,575 53,319 66,787 11,215 78,002 Total receivables 123,057 131,321 Refer note 20 for fair value disclosures. 1. Trade receivables are non-interest bearing and generally have 30-60 day terms. There were no impaired trade receivables at the end of the year for the Group (2017: $Nil). 2. These amounts represent project management and performance fees from associates and other Credit risk managed entities. 3. The Group has entered into financing arrangements (including loans and equity contributions in cash) with certain associates and JVs of the Group on commercial terms. The loans provided to associates and JVs are unsecured with interest rates based on Bank Bill Swap Bid Rate (BBSY) plus a margin up to 5%. Includes deferred facilities fee - Those that purchase homes in the Lattitude Lakelands retirement village enter into an agreement to pay deferred facilities fees on departure, which is based on 3% of the market value of the unit for each year of occupation (up to 24%). The deferred facilities fee is based on independent valuations. 4. Related party balances with associates and joint ventures included above: 2018 $’000 2017 $’000 Current Trade receivables and accrued income 19,020 Loans to associates and joint ventures – Non-current Loans to associates and joint ventures Other receivables Total 31,214 6,609 66,787 6,861 86,996 4,418 110,434 111,471 Movements in loans to associates and joint ventures: Carrying amount at 1 July Loans advanced to associates 73,396 21,024 63,761 31,220 Loan repayments from associates (7,826) (21,951) Other Carrying amount at 30 June 402 366 86,996 73,396 Credit risk is the risk that a counterparty will not meet its obligations under a financial instrument or customer contract, leading to a financial loss. The maximum exposure to credit risk as at 30 June 2018 is the carrying amount of the financial assets in the consolidated financial statements. The credit risk arising on trade and other receivables is monitored on an ongoing basis which results in the exposure to bad debts for the Group not being significant. There are no significant financial assets that have had renegotiated terms that would otherwise have been past due or impaired. Based on the credit history of trade and other receivables, it is expected that these amounts will be received. The Group does not hold any collateral in relation to these receivables. There is no significant concentration of credit risk with respect to receivables as the Group has a large number of balances with related parties and the remaining with other parties that have a good credit history with the Group. The Group manages this risk by: • transacting with creditworthy counterparties that have an appropriate credit history; • providing loans as an investment into joint ventures and associates where it is comfortable with the underlying property exposure within that entity; • performing ongoing checks to ensure that settlement terms detailed in individual contracts are adhered to; • regularly monitoring the performance of its associates, joint ventures and third parties; and • obtaining collateral as security (where appropriate). 12. Payables Recognition and measurement 2018 $’000 2017 $’000 Where the Group enters into unconditional contracts with land vendors to purchase properties for future development that contain deferred payment terms, these borrowings are disclosed at their present value. The unwinding of the discount applied to the acquisition price is included in finance costs. Generally, the land vendor holds the title over the property until settlement has occurred. Refer note 20 for fair value disclosures. The below table analyses the maturity of the Group’s land vendor liability obligation: Current Trade payables Unearned revenue GST payable Accruals and other payables 392 19,433 5,952 56,289 82,066 6,980 13,797 4,976 43,739 69,492 Recognition and measurement These amounts represent liabilities for goods and services provided to the Group prior to the end of the financial year which are unpaid. These amounts are unsecured and usually paid within 30 days of recognition. 0 – 1 years 1 – 2 years Trade and other payables are presented as current liabilities 2 – 5 years unless payment is not due within 12 months from the Total contractual cash flows reporting date. They are recognised initially at their fair Carrying amount of liabilities value and subsequently measured at amortised cost using the effective interest method. 14. Provisions In some joint arrangement contracts, costs are reimbursed as incurred during development. As revenue is only recognised on settlements, reimbursements received are recognised as unearned revenue until settlement. Although unearned revenue is classified as a liability in the Current Rebates consolidated balance sheet, on settlement it will be recognised in the consolidated statement of profit or loss and not be repaid in cash. Refer note 20 for fair value disclosures. 13. Land vendor liabilities Employee entitlements Non-current Employee entitlements Total provisions 2018 $’000 2017 $’000 14,700 6,350 – 21,050 20,080 15,975 14,700 6,350 37,025 33,828 2018 $’000 2017 $’000 2,778 3,048 5,826 285 285 6,111 3,138 3,107 6,245 199 199 6,444 Movements in the provision for rebates during the financial 2018 $’000 2017 $’000 year are set out below: Current Instalments for purchase of development property Non-current Instalments for purchase of development property Future interest component of deferred payments Total land vendor liabilities 14,700 15,975 14,700 15,975 6,350 21,050 (970) (3,197) 5,380 20,080 17,853 33,828 Carrying amount at 1 July Charged/(credited) to the statement of profit or loss: – Additional provision recognised – Paid during year Carrying amount at 30 June 2018 $’000 3,138 2017 $’000 5,154 2,079 (2,439) 2,778 1,450 (3,466) 3,138 91 ANNUAL REPORT 2017 | PEET LIMITED PEET LIMITED | ANNUAL REPORT 2017 92 14. Provisions (continued) 15. Interests in joint operations Recognition and measurement Details of aggregate share of assets, liabilities, revenue, expenses and results of joint operations. Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events; it Group’s share of: Total assets $’000 Total liabilities $’000 Revenue $’000 Expenses $’000 18,739 4,159 12,261 8,085 16,078 13,184 9,758 8,649 9,600 6,738 4,231 3,604 23,511 5,731 10,026 8,684 29,608 7,411 17,424 12,080 4,997 2,340 13,465 10,567 10,393 6,561 4,083 3,601 21,903 5,446 2,599 2,642 As at 30 June 2018 The Village at Wellard, WA Lightsview Joint Venture, SA The Heights Durack, NT Redbank Plains Joint Venture, QLD As at 30 June 2017 The Village at Wellard, WA Lightsview Joint Venture, SA The Heights Durack, NT Redbank Plains Joint Venture, QLD is probable that an outflow of resources will be required to settle the obligation; and the amount has been reliably estimated. Provisions are not recognised for future operating losses. Provisions are measured at the present value of management’s best estimate of the expenditure required to settle the present obligation at the balance date. The discount rate used to determine the present value reflects current market assessments of the time value of money and the risks specific to the liability. The increase in the provision due to the passage of time is recognised as interest expense. Rebates The Group may be required under the terms of certain sale contracts to provide rebates for expenditures undertaken by land holders in respect of developments. These expenditures relate to landscaping and fencing and are generally payable where the land purchaser completes the construction of their dwelling within a specified period of time. This period is generally 12 to 18 months from the date of settlement. A liability is recorded at settlement and a related adjustment to profit or loss is recorded upon the expiration of the time limit if the rebate has not been paid. Employee entitlements The liability for long service leave and annual leave is recognised in the provision for employee benefits and measured as the present value of expected future payments to be made in respect of services provided by employees up to the balance date. Consideration is given to expected future wage and salary levels, experience of the 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. Liabilities for wages and salaries, including non-monetary benefits and accumulating sick leave expected to be settled within 12 months of the balance date are measured at the amounts expected to be paid when the liabilities are settled. Capital management This section outlines how the Group manages its capital Recognition and measurement and related financing costs. Borrowings are initially recognised at fair value, net of For the purpose of the Group’s capital management, transaction costs incurred. Borrowings are subsequently capital includes: • issued capital; • debt facilities; and measured at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption amount is recognised in the statement of profit or loss over the period of the borrowings using the effective • other equity reserves attributable to the equity holders interest method. of the parent. For the purpose of presentation in the statement of cash The Group’s objectives when managing capital are to: flows, cash and cash equivalents includes cash on hand, • safeguard its ability to continue as a going concern; • continue to provide returns to shareholders and benefits for other stakeholders; 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 • maintain an efficient capital structure to reduce the cost risk of changes in value, and bank overdrafts. Bank of capital; and overdrafts are shown within borrowings in current liabilities • ensure all covenants are complied with. on the balance sheet. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt. The Group monitors capital on the basis of the gearing ratio. This ratio is calculated as total interest-bearing liabilities (including deferred payment obligations) less cash, divided by total assets adjusted for market value, net Refer note 20 for fair value disclosures. Debt facilities The following provides details of the loans and borrowings utilised as at 30 June 2018: Facility amount $’000 Carrying amount 1 $’000 Effective interest rate % of cash and cash equivalents less intangible assets. The Bank loans – note a 178,000 69,456 6.1 market value is based on the latest independent mortgage valuations, adjusted for settlements, development costs and titled stock between the date of valuation and 30 June 2018. At 30 June 2018, the bank covenant gearing ratio was 18.2% (2017: 21.4%). 16. Borrowings and derivative financial instruments Net debt Face value $’000 Carrying amount 2 $’000 Effective interest rate % 100,000 50,000 98,577 49,171 150,000 147,748 8.06 6.82 Peet bonds – note b Series 1, Tranche 1 Series 2, Tranche 1 Total 1. Excludes bank guarantees. Refer note 22 for bank guarantees information. 2. Net of transaction and finance costs. Borrowings – Current Borrowings – Non-current Total borrowings* Cash and cash equivalents Net debt 2018 $’000 – 2017 $’000 5,791 217,204 244,017 217,204 249,808 (76,749) (88,367) 140,455 161,441 *Excludes vendor financing. Refer note 13 for vendor financing on deferred payment terms. 93 ANNUAL REPORT 2017 | PEET LIMITED PEET LIMITED | ANNUAL REPORT 2017 94 The bonds are presented in the balance sheet as follows: Face value of bonds issued 150,000 100,000 2018 $’000 2017 $’000 Transaction costs Cumulative interest expense 1 Cumulative coupon payable (3,245) 146,755 19,602 (18,609) 993 (2,288) 97,712 8,316 (7,934) 382 Non-current liability 147,748 98,094 1. Interest expense is calculated by applying the effective interest rate of 8.06% (Series 1) and 6.82% (Series 2) (2017: 8.06%) to the liability component. The bonds are repayable as follows: 0 – 1 years 1 – 2 years 2 – 5 years Total contractual cash flows Carrying amount of liabilities 2018 $’000 10,680 10,689 2017 $’000 7,500 7,500 164,438 114,733 185,807 129,733 147,748 98,094 c. DERIVATIVE FINANCIAL INSTRUMENTS Non-current Interest rate swap contracts – cash flow hedges 2018 $’000 2017 $’000 3,777 4,551 16. Borrowings and derivative financial instruments (continued) 2.83% and 3.11%) and the variable rates are between 1.59% and 1.90% (2017: 1.67% and 1.87%). Interest rate swap contracts – cash flow hedges The contracts require settlement of net interest receivable or payable monthly. The settlement dates coincide with the Recognition and measurement dates on which interest is payable on the underlying debt. Derivatives are initially recognised at fair value on the date a The notional principal amounts and periods of expiry of the derivative contract is entered into and are subsequently interest rate swap contracts were as follows: measured at fair value at each reporting period. The accounting for subsequent changes in fair value depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged. The Group designates certain derivatives as hedges of the cash flows of recognised assets and liabilities and highly probable forecast transactions (cash flow hedges). 1 – 2 years 2 – 5 years 2018 $’000 25,000 2017 $’000 – 100,000 125,000 125,000 125,000 The Group documents at the inception of the hedging a non-current asset or liability when the remaining transaction the relationship between hedging instruments maturity of the hedged item is more than 12 months, The full fair value of a hedging derivative is classified as and hedged items, as well as its risk management objective otherwise current. and strategy for undertaking various hedge transactions. The Group also documents its assessment, both at hedge Liquidity risk inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions have been and will continue to be highly effective in offsetting changes in fair Liquidity risk includes the risk that the Group, as a result of their operations: values or cash flows of hedged items. • will not have sufficient funds to settle a transaction on The gain or loss from remeasuring the hedging instruments at due date; fair value is recognised in other comprehensive income and • will be forced to sell financial assets at a value which is deferred in equity in the hedge reserve, to the extent that the less than what they are worth; or Total derivative financial instruments 3,777 4,551 hedge is effective. It is reclassified into profit or loss when the • may be unable to settle or recover a financial asset at all. 16. Borrowings and derivative financial instruments (continued) a. BANK LOANS The bank facilities are secured by a first registered fixed and floating charge over the assets and undertakings of the Group with a carrying amount of $700 million (2017: $714 million). Under these facilities the Group is required to meet bank covenants relating to interest cover, gearing ratio, real property ratio and minimum shareholders’ equity. All bank covenants have been met during the reporting period and as at 30 June 2018. The Group’s main bank facility of $150 million was extended to 1 October 2019. The table below analyses the maturity of the Group’s bank loans based on the remaining period at reporting date to the contractual maturity date: 2018 $’000 4,229 55,035 16,371 75,635 69,456 2017 $’000 14,546 29,449 126,922 170,917 151,714 0 – 1 years 1 – 2 years 2 – 5 years Total contractual cash flows Carrying amount of liabilities b. PEET BONDS SERIES 1, TRANCHE 1 Peet Limited issued 1,000,000 Peet bonds with a face value of $100 per bond on 7 June 2016. The bonds are unsecured and interest-bearing at a fixed rate of interest of 7.5%, payable semi-annually in arrears and have a maturity date of 7 June 2021. SERIES 2, TRANCHE 1 The below table analyses the maturity of the Group’s interest rate swaps on a net settled basis: On 5 July 2017, Peet issued 500,000 Bonds at a face value of $100 per bond with a maturity date of 5 October 2022. 1 – 2 years 2 – 5 years These bonds are unsecured and carry a floating interest Total contractual cash flows rate of BBSW+ 4.65% margin. Carrying amount of liabilities 2018 $’000 335 3,442 3,777 3,777 2017 $’000 – 4,551 4,551 4,551 hedged interest expense is recognised. The ineffective portion is recognised in the statement of profit or loss immediately. Prudent liquidity risk management implies maintaining sufficient cash, the availability of funding through an When a hedging instrument expires or is sold or terminated, adequate amount of committed credit facilities to meet or when a hedge no longer meets the criteria for hedge obligations when due, and the ability to close-out market accounting, any cumulative gain or loss existing in equity at positions. Due to the dynamic nature of the underlying that time remains in equity and is recognised when the business, the Group aims at maintaining flexibility in forecast transaction is ultimately recognised in the statement funding by keeping committed credit lines available, and of profit or loss. When a forecast transaction is no longer regularly updating and reviewing its cash flow forecasts to expected to occur, the cumulative gain or loss that was assist in managing its liquidity. The maturity analysis of the reported in equity is immediately reclassified to the statement Group’s derivative and non-derivative financial instruments of profit or loss. can be located in their respective notes. Bank loans of the Group currently bear a weighted average The Group has unused borrowing facilities which can variable interest rate for the year before hedges of 1.83% further reduce liquidity risk. (2017: 1.75%). It is the Group’s policy to protect part of the loans from exposure to increasing interest rates. Accordingly, the Group has entered into interest rate swap contracts under which it is obliged to receive interest at variable rates and to pay interest at fixed rates. Swaps currently cover approximately 83.7% (2017: 82.4%) of the variable debt principal outstanding and are timed to expire as each loan repayment falls due. During the year fixed interest rate swaps range between 2.83% and 3.11% (2017: 95 ANNUAL REPORT 2017 | PEET LIMITED PEET LIMITED | ANNUAL REPORT 2017 96 16. Borrowings and derivative financial instruments (continued) At 30 June 2018, the Group had the following mix of financial assets and liabilities exposed to variable interest rates: Credit risk 2018 $’000 2017 $’000 The cash component of financial assets is considered Financial assets to have low credit risk as the counterparties are banks Cash and cash equivalents (floating) 76,749 88,367 with high credit ratings assigned by international credit- Financial liabilities Borrowings (floating, unhedged) (19,456) (26,714) Interest rate swap Net movement (3,777) 53,516 (4,551) 57,102 The potential impact of a change in interest rates by +/-50 basis points on profit and equity has been tabulated below: Post-tax profits Increase/ (decrease) Equity Increase/ (decrease) 2018 $’000 2017 $’000 2018 $’000 2017 $’000 – 50 basis points + 50 basis points (195) 195 (216) 216 (195) 195 (200) 200 rating agencies. Interest rate risk The Group’s main interest rate risk arises from cash and long-term borrowings. Borrowings issued at variable rates expose the Group to cash flow interest rate risk. The Group manages its cash flow interest rate risk by using floating-to-fixed interest rate swaps. Such interest rate swaps have the economic effect of converting borrowings from floating rates to fixed rates. Generally, the Group raises long-term borrowings at floating rates and swaps them into fixed rates that are lower than those available if the Group borrowed at fixed rates directly. Under the interest rate swaps, the Group agrees with other parties to exchange, at specified intervals (mainly monthly), the difference between fixed contract rates and floating rate interest amounts calculated by reference to the agreed notional principal amounts. The Group’s fixed rate borrowings and receivables are carried at amortised cost. They are therefore not subject to interest rate risk as defined in AASB 7, Financial Investments: Disclosures. Interest rate sensitivity The sensitivity analysis below has been determined based on the exposure to interest rates in existence at balance date, and the stipulated change taking place at the beginning of the financial year and held constant throughout the reporting period. A 50 basis point increase or decrease used in the interest rate sensitivity analysis was determined based on the level of debt that was renewed and forecasters’ economic expectations and represents management’s assessment of the possible change in interest rates. 17. Contributed equity and reserves a. Movements in ordinary share capital Date Details 30 June 2016 Closing balance 30 June 2017 Closing balance Movement for the year Movement for the year 30 June 2018 Closing balance The nature of the Group’s contributed equity Number of shares 489,980,559 – $’000 385,955 – 489,980,559 385,955 – – 489,980,559 385,955 Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares of options and/ or performance rights are shown in equity as a deduction, net of tax, from the proceeds. Incremental costs directly attributable to the issue of new shares, options and/or performance rights for the acquisition of a business are not included in the cost of the acquisition as part of the purchase consideration. Ordinary shares entitle the holder to participate in dividends and the proceeds on winding up of the parent entity in proportion to the number of and amounts paid on the shares held. On a show of hands every holder of ordinary shares present at a meeting in person or by proxy, is entitled to one vote, and upon a poll each share held is entitled to one vote. 17. Contributed equity and reserves (continued) b. Reserves Cash flow hedge reserve 1 $’000 Share-based payments reserve 2 $’000 Non- controlling interest reserve 3 $’000 13,402 101 At 1 July 2016 Cash flow hedges (gross) Deferred tax Share based payment Vesting of performance rights4 Non-reciprocal contribution to a controlled entity Capital return to non-controlling interests (5,694) 4,164 (1,249) – – – – – – 2,099 (2,201) – – At 30 June 2017 (2,779) 13,300 – – – – (7,988) (1,217) (9,104) At 1 July 2017 Cash flow hedges (gross) Deferred tax Share based payment Vesting of performance rights5 At 30 June 2017 (2,779) 2,267 (680) – – (1,192) 13,300 (9,104) – – 2,276 (1,883) 13,693 – – – – (9,104) Total $’000 7,809 4,164 (1,249) 2,099 (2,201) (7,988) (1,217) 1,417 1,417 2,267 (680) 2,276 (1,883) 3,397 1. The cash flow hedge reserve is used to record gains or losses on a hedging instrument in a cash flow hedge that is recognised directly in equity. Amounts are recognised in profit or loss when the associated hedged transaction affects profit or loss. 2. The share-based payments reserve is used to recognise the fair value of options and performance rights granted. 3. The non-controlling interest reserve is used to record the differences described in note 2(d) which may arise as a result of transactions with non-controlling interests that do not result in a loss of control. 4. 5. In September 2016, the Company purchased 2,189,371 shares to settle the vesting of FY14 Performance Rights. In August 2017, the Company purchased 1,400,275 shares to settle the vesting of FY15 Performance Rights. 97 ANNUAL REPORT 2017 | PEET LIMITED PEET LIMITED | ANNUAL REPORT 2017 98 18. Dividends Declared and paid during the period Prior year fully franked dividend 3.00 cents, paid on 4 October 2017 (2016: 2.75 cents) Fully franked interim dividend for 2018: 2.00 cents (2017:1.75 cents) 2018 $’000 2017 $’000 14,699 9,800 24,499 13,474 8,575 22,049 Dividend not recognised at year end Final dividend 3.00 cents per share to be paid on 5 October 2018 (2017: 3.00 cents per share) 14,699 14,699 Franking credit balance Franking account balance as at the end of the financial year at 30% (2017: 30%) Franking credits that will arise from the payment of income tax Impact on the franking account of dividends proposed before the financial report was issued but not recognised as a distribution to equity holders during the period 35,840 15,398 (6,300) 28,214 4,698 (6,300) 44,938 26,612 19. Reconciliation of profit after income tax to net cash inflow from operating activities Other financial instruments – fair value disclosures The carrying value of receivables, payables and borrowings is considered to approximate their fair values. The quoted market value (on ASX) as at 30 June 2018 of a Peet bond Series 1, Tranche 1 was $105 per bond and of a Peet bond Series 2, Tranche 1 was $102 per bond (Level 1). KEY ESTIMATES FAIR VALUE ESTIMATION 2018 $’000 2017 $’000 48,640 44,260 2,604 1,164 395 2,722 817 (102) (14,081) (15,326) (157) 649 (535) 320 The fair value of financial assets and financial liabilities must be estimated for recognition and measurement or for disclosure purposes. 10,185 3,949 24,541 197 10,700 (7,531) 61,929 (6,446) The fair value of financial instruments traded in active markets (such as publicly traded derivatives and trading and available for sale securities) is based on quoted market prices at the balance date. The quoted market price used for financial assets held by the Group is the current bid price; (9,637) (31,632) the appropriate quoted market price for financial Profit after income tax Add/(deduct) non cash items: Depreciation Amortisation of intangible assets Employee share-based payments Equity accounting for investments in associates and joint ventures Interest received Peet Bonds effective interest Add other items: Distributions and dividends from associates and joint ventures Change in operating assets and liabilities during the financial year Increase/(decrease) in receivables Decrease in inventories Increase/(Decrease) in tax liabilities Decrease in payables Decrease in provisions (333) (1,856) 6,658 (Decrease)/increase in deferred tax liabilities (7,534) Net cash inflow from operating activities 67,333 57,227 20. Fair value measurement liabilities is the current ask price. The fair value of financial instruments that are not traded in an active market (for example, unlisted securities) is determined using valuation techniques. The Group uses a variety of methods and makes assumptions that are based on market Valuation of financial instruments conditions existing at each balance date. For financial assets and liabilities, the Group uses the • Interest rate swaps are valued using valuation following fair value measurement hierarchy: • Level 1: the fair value is calculated using quoted prices in active markets for identical assets and liabilities. • Level 2: the fair value is determined using inputs other than quoted prices included in level 1 that are observable for the asset or liability either directly (as prices) or indirectly (derived from prices). • Level 3: the fair value is based on inputs for the asset or liability that are not based on observable market data. Financial instruments measured at fair value The Group’s derivative financial instruments were valued using market observable inputs (Level 2) at the carrying value of $3.8 million (2017: $4.6 million). techniques, which employs the use of market observable inputs such as forward pricing and swap models. • Receivables/borrowings are evaluated by the Group based on parameters such as interest rates and individual creditworthiness of the counter party. Based on this evaluation, allowances are taken into account for the expected losses of these receivables. • Fair value of the Peet bonds is based on price quotations at the reporting date. The carrying amount of trade receivables and payables less impairment provision of trade receivables are assumed to approximate their fair values. The fair value of financial liabilities for There have been no transfers between levels during the year. disclosure purposes is estimated by discounting the future contractual cash flows at the current market interest rate that is available to the Group for similar financial instruments. 99 ANNUAL REPORT 2017 | PEET LIMITED PEET LIMITED | ANNUAL REPORT 2017 100 Other notes 23. Parent entity financial information b. Subsidiaries and subsidiaries SIGNIFICANT INVESTMENTS IN SUBSIDIARIES a. Parent entity financial information The consolidated financial statements incorporate the 21. Remuneration of auditors 22. Contingencies and commitments SUMMARY FINANCIAL INFORMATION assets, liabilities and results of the following significant subsidiaries in accordance with the accounting policy 2018 $ 2017 $ Details of the estimated maximum amounts of contingent liabilities (for which no amounts are recognised in the financial statements) are as follows: Audit services Audit and review of financial reports and other audit work under the Corporations Act 2001 Bank guarantees outstanding Ernst & Young 367,450 381,559 Insurance bonds outstanding Total remuneration for audit services 367,450 381,559 2018 $’000 24,585 18,680 43,265 2017 $’000 19,605 15,388 34,993 Other services Ernst & Young 21,423 14,405 Taxation services Tax compliance services including review of Company income tax returns Ernst & Young 217,762 204,333 All contingent liabilities are expected to mature within 1 year. At 30 June 2018, the Group had commitments of $40.3 million to purchase lots from associates and joint ventures, at arms-length, to be on-sold to third party buyers through the Group’s Peet Complete program. The Directors are not aware of any circumstances or information, which would lead them to believe that these contingent liabilities will eventuate and consequently no provisions are included in the accounts in respect of these matters. The individual financial statements for the parent entity described in note 2(a): show the following aggregate amounts: Balance sheet Current assets Total assets Current liabilities Total liabilities Shareholders’ equity Issued capital Reserves Share-based payments reserve Retained profits Total equity 2018 $’000 2017 $’000 Name of Subsidiary CIC Australia Pty Limited 1 62,769 74,012 Peet Craigieburn Pty Limited 2 588,705 479,742 Peet Greenvale No. 2 Pty Limited 2 14,962 113,754 15,055 82,159 Peet Southern JV Pty Limited 2 Peet Brigadoon Pty Limited 2 Secure Living Pty Limited 2 385,955 385,955 Peet No. 85 Pty Limited 2 13,693 75,303 13,300 (1,672) Peet No. 108 Pty Limited 2 Peet No. 112 Pty Limited 2 Peet No. 113 Pty Limited 2 474,951 397,583 Peet Treasury Pty Limited 2 Profit/(loss) for the year Total comprehensive income 101,474 101,474 (25,762) (25,762) Peet Estates (VIC) Pty Limited ² Peet Development Management Pty Limited 2 GUARANTEES ENTERED INTO BY THE PARENT ENTITY Details of the estimated maximum amounts of contingent liabilities (for which no amounts are recognised in the financial statements) are as follows: Bank guarantees outstanding 2018 $’000 498 2017 $’000 586 Peet Estates (QLD) Pty Limited 2 Peet No. 130 Pty Limited 2 Peet Estates (WA) Pty Limited 2 Peet Funds Management Limited 2 Peet No. 119 Pty Limited 2 Peet No. 125 Pty Limited 2 Peet No. 126 Pty Limited 2 Peet No. 73 Pty Limited 2 Lakelands Retail Centre Development Pty Limited 2 Peet Mt. Pleasant Pty Limited 2 Peet No. 127 Pty Limited 2 Peet Tonsley Pty Limited 2 JTP Homes Pty Limited 2 Peet Tonsley Apartments Pty Limited 2 Holding 2018 % 2017 % 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 – Peet Yanchep Land Syndicate 2 66.4 66.4 1. 2. Incorporated in ACT. Incorporated in WA. 101 ANNUAL REPORT 2017 | PEET LIMITED PEET LIMITED | ANNUAL REPORT 2017 102 23. Parent entity financial information and subsidiaries (continued) 23. Parent entity financial information and subsidiaries (continued) MATERIAL PARTLY-OWNED SUBSIDIARIES Financial information of subsidiaries that have material non-controlling interests is provided below. This information is based on amounts before inter-company eliminations. Deed of cross guarantee Consolidated balance sheet Peet Limited and certain wholly-owned subsidiaries are Set out below is a consolidated balance sheet at 30 June parties to a deed of cross guarantee under which each 2018 of the closed group consisting of Peet Limited and company guarantees the debts of the other. By entering certain wholly owned subsidiaries. Current assets Non-current assets Current liabilities Non-current liabilities Non-controlling interest Revenue Profit or loss after tax Loss attributable to non-controlling interest Summarised cash flow information: Operating Financing Net outflow Peet Yanchep Land Syndicate 2018 $ ’000 5,661 77,496 1,463 27,818 18,100 5,866 (412) 138 2017 $ ’000 18,740 64,325 12,858 15,919 18,238 4,917 (153) 51 Peet Yanchep Land Syndicate 2018 $ ’000 (649) 259 (390) 2017 $ ’000 (188) 449 261 Peet has provided loans to other partly-owned subsidiaries amounting to $7.6 million (2017: $1.4 million). The Group has no further contractual obligations to provide ongoing financial support. into the deed, the wholly-owned entities have been relieved from the requirements to prepare a financial report and directors’ report under ASIC Corporations (Wholly- owned Companies) Instrument 2016/785 issued by the Australian Securities and Investments Commission. The companies represent a ‘closed group’ for the purposes of the Class Order. Consolidated statement of profit or loss Revenue Expenses Finance costs Share of net profit of associates accounted for using the equity method Profit before income tax Income tax expense Profit for the year 2018 $’000 2017 $’000 282,469 291,687 (218,012) (235,908) (9,911) 13,805 68,351 (19,125) 49,226 (7,965) 15,211 63,025 (18,182) 44,843 Current assets Cash and cash equivalents Receivables Inventories Total current assets Non-current assets Receivables Inventories Investments accounted for using the equity method Property, plant and equipment Intangible assets Total non-current assets Total assets Current liabilities Payables Land vendor liabilities Current tax liabilities Provisions Total current liabilities Non-current liabilities Other comprehensive income Items that may be reclassified to profit or loss: Changes in the fair value of cash flow hedges Income tax relating to components of other comprehensive income Other comprehensive income for the year, net of tax Total comprehensive income for the year 2,267 4,164 (680) (1,249) Land vendor liabilities Borrowings* 1,587 2,915 Derivative financial instruments 50,813 47,758 Deferred tax liabilities Provisions Total non-current liabilities Summary of movement in consolidated retained profits Retained profits at the beginning of the financial year 127,848 105,054 Total liabilities Net assets Equity Profit for the year Dividends paid Retained profits at the end of the financial year 49,226 44,843 Contributed equity (24,499) (22,049) Reserves 152,575 127,848 Retained profits Total equity 2018 $’000 2017 $’000 76,178 29,318 115,062 220,558 87,378 55,471 114,869 257,718 126,916 100,524 298,044 279,231 255,577 246,480 5,398 6,082 8,283 6,246 692,017 640,764 912,575 898,482 81,925 14,700 14,061 5,767 56,824 15,975 11,626 5,933 116,453 90,358 5,380 17,853 201,026 228,098 3,777 35,234 285 4,551 33,762 199 245,702 284,463 362,155 374,821 550,420 523,661 385,955 385,955 11,890 9,858 152,575 127,848 550,420 523,661 103 ANNUAL REPORT 2017 | PEET LIMITED PEET LIMITED | ANNUAL REPORT 2017 104 * At 30 June 2018, bank facility available to Peet and wholly owned subsidiaries is $150 million (utilised at 30 June 2018: $50 million debt and $21 million bank guarantees) was extended to 1 October 2019 24. Share-based payments Peet Employee Share Option Plan (PESOP) and Peet Performance Rights Plan (PPRP) Vesting and exercise conditions Fair value of options and performance rights granted Under the plans, options and/or PRs only vest if the The fair value of an option and PRs at grant date is determined using a Black-Scholes option pricing model and the value of 24. Share-based payments (continued) The establishment of the PESOP was approved by the employees are still employed by the Group at the end of a performance right at grant date is determined using a Binomial pricing model. The models take into account the exercise Board and shareholders during the 2004 financial year and the vesting period, subject to the Board’s discretion, and price, the term of the option and/or performance right, the vesting and performance criteria, the impact of dilution, the non- the Peet Limited PPRP was approved by shareholders at any set performance hurdles have been met. tradeable nature of the option or performance right, the share price at grant date and expected price volatility of the underlying Generally, as a pre-condition to exercise, any exercise share, the expected dividend yield and the risk free interest rate for the term of the option and/or performance right. conditions in respect of an option and/or performance right The inputs for assessing the fair value of the performance rights issued during the year under the PPRP were: Lapse of options and performance rights Set out below are summaries of options and performance rights granted under the plans: the 2008 AGM. Employees of any Group Company (including Executive Directors) will be eligible to participate in the PESOP and/or PPRP at the discretion of the Board. Invitations to apply for options and/or performance rights must be satisfied. However, the Board has the discretion to enable an option and/or performance right holder to exercise options and/or performance rights where the exercise conditions have not been met, including, for Eligible employees, at the discretion of the Board, may be example, where a court orders a meeting to be held in invited to apply for options and/or performance rights on relation to a proposed compromise or arrangement in terms and conditions to be determined by the Board respect of the Company, or a resolution is passed or an including as to: • the method of calculation of the exercise price of each option; • the number of options and/or performance rights being offered and the maximum number of shares over which each option and/or performance rights is granted; • the period or periods during which any of the options and/or performance rights may be exercised; • the dates and times when the options and/or performance rights lapse; order is made for winding up the Company. Options granted under the PESOP and performance rights under the PPRP carry no dividend or voting rights. Unexercised options and/or performance rights will lapse upon the earlier to occur of a variety of events specified in the rules of the PESOP and PPRP including, on the date or in circumstances specified by the Board in the invitation, failure to meet the options’ or performance rights’ exercise conditions in the prescribed period or on • the date and time by which the application for options the expiry date of options and/ or performance rights, as and/or performance rights must be received by Peet; determined by the Board. • any applicable conditions which must be satisfied or circumstances which must exist before the options and/ or performance rights may be exercised. Eligible employees may apply for part of the options and/or performance rights offered to them, but only in specified multiples. Consideration Unless the Board determines otherwise, no payment will be required for a grant of options and/or performance rights under the PESOP and/or PPRP. Grant Date 29 Nov 17 05 Dec 17 Exercise price $0.00 $0.00 Expiry date 29 Nov 32 05 Dec 32 Share price at grant date $1.44 $1.41 Expected price volatility of shares 25% 25% Risk free interest rate 1.86% 2.00% Assessed fair value $1.328 $1.299 The expected price volatility is based on the historic volatility (based on the remaining life of the options and/or performance rights), adjusted for any expected changes to future volatility due to publicly available information. Total expenses arising from share-based payment transactions recognised during the year as part of employee benefits expense is $2,276,087 (2017: $2,098,936). Grant date Expiry date Exercise price $ Assessed fair value $ Balance at 1 July Granted during the year Exercised during the year Lapsed/ forfeited during the year Balance at 30 June Exercisable at 30 June 30 June 2018 Options 30 Nov 07 N/A $4.10 $1.12 1,200,000 – – 1,200,000 1,200,000 Performance rights 26 Nov 14 26 Nov 19 22 Dec 14 22 Dec 19 21 Nov 15 21 Nov 30 21 Dec 15 21 Dec 30 23 Nov 16 23 Nov 31 21 Dec 16 21 Dec 31 29 Nov 17 29 Nov 32 5 Dec 17 5 Dec 32 – – – – – – – – $1.065 $0.938 $0.974 $0.957 $0.801 833,897 988,794 928,020 1,192,460 1,065,114 $0.849 1,380,552 $1.328 $1.299 - - 874,347 1,232,635 (703,809) (130,088) (834,543) (154,251) – – – – – – – – – – – – – – 928,020 1,192,460 1,065,114 1,380,552 874,347 1,232,635 6,388,837 2,106,982 (1,538,352) (284,339) 6,673,128 7,588,837 2,106,982 (1,538,352) (284,339) 7,873,128 1,200,000 N/A $4.10 $1.12 1,200,000 – – 1,200,000 1,200,000 Performance rights 20 Dec 13 20 Dec 18 8 Sep 14 8 Sep 19 26 Nov 14 26 Nov 19 22 Dec 14 22 Dec 19 21 Nov 15 21 Nov 30 21 Dec 15 21 Dec 30 23 Nov 16 23 Nov 31 21 Dec 16 21 Dec 31 – – – – – – – – $1.27 $1.27 $1.065 $0.938 $0.974 $0.957 $0.801 $0.849 1,896,513 328,459 833,897 988,794 928,020 1,192,460 – – 1,065,114 1,380,552 (1,866,169) (30,344) (323,203) (5,256) – – – – – – – – – – – – – – 833,897 988,794 928,020 1,192,460 1,065,114 1,380,552 6,168,143 2,445,666 (2,189,372) (35,600) 6,388,837 Total 30 June 2017 Options 30 Nov 07 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 105 ANNUAL REPORT 2017 | PEET LIMITED PEET LIMITED | ANNUAL REPORT 2017 106 Total 7,368,143 2,445,666 (2,189,372) (35,600) 7,588,837 1,200,000 25. Matters subsequent to the end of MEASUREMENT 26. Other accounting policies (continued) the financial year The Directors have declared a final fully franked dividend of 3.00 cents per share in respect to the year ended 30 June 2018. The dividend is to be paid on Friday, 5 October 2018, with a record date of Friday, 21 September 2018. No provision has been made for this dividend in the financial report as the dividend was not declared or determined by the directors on or before the end of the financial year. Subsequent to 30 June 2018, the Directors have resolved to implement an on-market share buy-back of up to 5% of the Company’s issued shares. 26. Other accounting policies At initial recognition, the Group measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss, transaction costs that are directly attributable to the acquisition of the financial asset. Transaction costs of financial assets carried at fair value through profit or loss are expensed in profit or loss. Available for sale financial assets and financial assets at fair value through profit or loss are subsequently carried at fair value. Gains or losses arising from changes in the fair value of the financial assets at fair value through profit or loss category are presented in the statement of profit or loss within other income or other expenses in the period in which they arise. Dividend income from financial assets at fair value through profit or loss is recognised in the i. Investments and other financial assets statement of profit or loss as part of revenue from RECOGNITION AND DERECOGNITION Regular purchases and sales of investments are recognised on trade-date - the date on which the Group commits to purchase or sell the asset. Investments are initially continuing operations when the Group’s right to receive payments is established. FAIR VALUE Details on how the fair value of financial instruments is recognised at fair value plus transaction costs for all determined are disclosed in note 20. financial assets not carried at fair value through profit or loss. Financial assets carried at fair value through profit or IMPAIRMENT loss are initially recognised at fair value and transaction costs are expensed in the statement of profit or loss. Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or have been transferred and the Group has transferred substantially all the risks and rewards of ownership. The Group assesses at each balance date whether there is objective evidence that a financial asset or group of financial assets is impaired. In the case of equity securities classified as available for sale, a significant or prolonged decline in the fair value of a security below its cost is considered in determining whether the security is impaired. When securities classified as available for sale are sold or If any such evidence exists for available for sale financial impaired, the accumulated fair value adjustments assets, the cumulative loss - measured as the difference recognised in other comprehensive income are reclassified between the acquisition cost and the current fair value, to the statement of profit or loss as gains or losses from less any impairment loss on that financial asset previously investment securities. recognised in profit or loss - is removed from equity and recognised in the statement of profit or loss. Impairment losses recognised in the statement of profit or loss on equity instruments classified as available for sale are not reversed through the statement of profit or loss. ii. Intangible assets Intangible assets primarily consist of software and management rights. The management rights acquired by the Company are initially carried at cost. Amortisation is calculated based on the timing of projected cash flows of the management rights over their estimated useful lives. • Management rights – 10 to 25 years iii. Property, plant and equipment v. Retirement benefit obligations Property, plant and equipment are shown at historical cost Contributions to defined contribution funds are recognised less depreciation. Historical cost includes expenditure that as an expense as they become payable. Prepaid is directly attributable to the acquisition of the items. contributions are recognised as an asset to the extent Depreciation on property, plant and equipment is calculated using the straight line method to allocate their cost, net of their residual values, over their estimated useful lives, as follows: • Fixtures and fittings – 3 to 10 years • Leasehold improvements – 10 years • Property – 40 years that a cash refund or a reduction in the future payments is available. vi. Goods and services tax (GST) Revenues, expenses and assets are recognised net of the amount of associated GST, unless the GST incurred is not recoverable from the taxation authority. In this case it is recognised as part of the cost of acquisition of the asset or The assets’ residual values and useful lives are reviewed, as part of the expense. and adjusted if appropriate, at each balance date. An Receivables and payables are stated inclusive of the asset’s carrying amount is written down immediately to its amount of GST receivable or payable. The net amount of recoverable amount if the asset’s carrying amount is GST recoverable from, or payable to, the taxation authority greater than its estimated recoverable amount. Gains and is included with other receivables or payables in the losses on disposals are determined by comparing proceeds balance sheet. with carrying amount. These are included in the statement of profit or loss. iv. Termination benefits Cash flows are presented on a gross basis. The GST components of cash flows arising from investing or financing activities which are recoverable from, or payable to the taxation authority, are presented as operating Termination benefits are payable when employment is cash flows. terminated before the normal retirement date, or when an employee accepts voluntary redundancy in exchange for vii. Leases these benefits. The Group recognises termination benefits when it is demonstrably committed to either terminating the employment of current employees according to a detailed formal plan without possibility of withdrawal or providing termination benefits because of an offer made to encourage voluntary redundancy. Benefits falling due more than 12 months after balance date are discounted to present value. Leases in which a significant portion of the risks and rewards of ownership are not transferred to the Group as lessee are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to profit or loss on a straight-line basis over the period of the lease. 107 ANNUAL REPORT 2017 | PEET LIMITED PEET LIMITED | ANNUAL REPORT 2017 108 Directors’ Declaration In the Directors’ opinion: a. the financial statements and notes set out on pages 73 to 109 are in accordance with the Corporations Act 2001, i. complying with Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements; and ii. giving a true and fair view of the Consolidated Entity’s financial position as at 30 June 2018 and of its performance for the financial year ended on that date; and b. there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable; and c. at the date of this declaration, there are reasonable grounds to believe that the members of the extended closed group identified in note 23 will be able to meet any obligations or liabilities to which they are, or may become, subject by virtue of the deed of cross guarantee described in note 23. Note 2 confirms that the financial statements also comply with International Financial Reporting Standards as issued by the International Accounting Standards Board. The Directors have been given the declarations by the Chief Executive Officer and Chief Financial Officer required by section 295A of the Corporations Act 2001. This declaration is made in accordance with a resolution of the Directors. Brendan Gore Managing Director and Chief Executive Officer Perth, Western Australia 23 August 2018 INVESTMENTS IN SUBSIDIARIES including: 26. Other accounting policies (continued) viii. Parent entity financial information Any difference between the amount assumed and amounts TAX CONSOLIDATION LEGISLATION receivable or payable under the tax funding agreement are recognised as a contribution to (or distribution from) the Peet Limited and its wholly-owned Australian controlled wholly-owned entity. entities have implemented the tax consolidation legislation as of 1 July 2003. Peet Limited is the head entity of the tax consolidated group. Members of the group are taxed as a single entity and the deferred tax assets and liabilities of the entities are set-off in the consolidated financial statements. The entities in the tax consolidated group entered into a tax sharing agreement which limits the joint and several liability of the wholly-owned entities in the case of a default by the head entity, Peet Limited. At the balance sheet date the possibilities of default were remote. 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 Group. Investments in subsidiaries are accounted for at cost in the individual financial statements of Peet Limited. Such investments include both investments in shares issued by the subsidiary and other parent entity interests that in substance form part of the parent entity’s investment in the subsidiary. These include investments in the form of interest-free loans which have no fixed repayment terms and which have been provided to subsidiaries as an additional source of long-term capital. ix. New accounting standards and interpretations Except as disclosed below, accounting policies have been consistently applied over all periods presented. The Group has adopted all new and amended Australian Accounting Standards and AASB Interpretations effective as of 1 July 2017. The impact of new standards and amendments is not material. Certain new and amended accounting standards and interpretations have been published that are not mandatory for 30 June 2018 reporting periods. The Group’s assessment of the impact of these new standards and interpretations is set out below. Reference Title Summary AASB 9 Financial Instruments AASB 15 Revenue from Contracts with Customers AASB 16 Leases AASB 9 includes requirements for the classification and measurement of financial assets. These requirements improve and simplify the approach for classification and measurement of financial assets compared with the requirements of AASB 139. AASB 15 establishes principles for reporting useful information to users of financial statements about the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity’s contracts with customers. AASB 16 eliminates the classification of leases as either operating or finance. Lessees are required to recognise leases on the balance sheet for leases with a term of more than 12 months, unless the underlying asset is of low value. Application date for Group year ending 30 June 2019 Impact on Group financial report The Group is in the process of determining the extent of the impact of the amendment, if any. 30 June 2019 30 June 2020 A review has been undertaken. Based on existing significant revenue contracts, the extent of the impact of the amendment is not expected to be material. A review has been undertaken. Based on existing significant lease agreements, the extent of the impact of the amendment is not expected to be material. There are no other standards that are not yet effective and that are expected to have a material impact on the entity in the current or future reporting periods and on foreseeable future transactions. 109 ANNUAL REPORT 2017 | PEET LIMITED PEET LIMITED | ANNUAL REPORT 2017 110 Independent Auditor’s Report Independent Auditor’s Report (continued) 111 ANNUAL REPORT 2017 | PEET LIMITED PEET LIMITED | ANNUAL REPORT 2017 112 Independent Auditor’s Report (continued) Independent Auditor’s Report (continued) 113 ANNUAL REPORT 2017 | PEET LIMITED PEET LIMITED | ANNUAL REPORT 2017 114 Independent Auditor’s Report (continued) Independent Auditor’s Report (continued) 115 ANNUAL REPORT 2017 | PEET LIMITED PEET LIMITED | ANNUAL REPORT 2017 116 Independent Auditor’s Report (continued) Securityholder Information Distribution of ordinary shares and Peet Bonds As at 25 September 2018 there were 2,158 current holders of ordinary shares, 1,350 current holders of Series 1, Tranche 1 Peet Bonds (“PPCHA Bonds”) and 482 current holders of Series 2, Tranche 1 Peet Bonds (“PPCHB Bonds”). These holdings were distributed in the following categories: Size of Holding 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 and over No of Shareholders % of Issued Shares No PPCHA Bondholders % of Issued PPCHA Bonds No of PPCHB Bondholders % of Issued PPCHB Bonds 459 613 379 631 76 2,158 0.02 0.39 0.60 3.47 95.52 100.00 1,245 89 8 7 1 36.59 19.25 6.35 17.23 20.58 1,350 100.00 418 54 6 3 1 482 31.42 23.55 7.72 8.86 28.45 100.00 There were 338 shareholdings of less than a marketable parcel of $500 (428 shares). There was 1 holding of PPCHA Bonds of less than a marketable parcel of $500 (five PPCHA Bonds). There were nil holdings of PPCHB Bonds of less than a marketable parcel of $500 (five PPCHB Bonds). Securityholders The names of the 20 largest holders of ordinary shares as at 25 September 2018 are listed below: Name Scorpio Nominees Pty LtdCiticorp Nominees Pty Limited J P Morgan Nominees Australia Limited HSBC Custody Nominees (Australia) Limited National Nominees Limited HSBC Custody Nominees (Australia) Limited - A/C 2 CS Third Nominees Pty Limited Mr Warwick Donald Hemsley Argo Investments Limited Ian Murray Charles Palmer & Helen Christina Palmer BNP Paribas Nominees Pty Ltd HSBC Custody Nominees (Australia) Limited-Gsco Eca Golden Years Holdings Pty Ltd BNP Paribas Noms Pty Ltd Mr Brendan David Gore UBS Nominees Pty Ltd Netwealth Investments Limited Brispot Nominees Pty Ltd Mr Julian Charles Peet Ms Gwenyth Elaine Lennon Total for 20 largest shareholders Total other shareholders Total ordinary shares on issue Number of Shares Held % of Shares 86,582,433 68,886,531 59,534,485 54,912,867 31,578,832 26,995,084 17,946,215 17,642,912 16,152,705 12,707,352 11,763,965 11,591,541 8,656,230 7,553,228 6,103,817 3,669,571 3,089,562 2,927,984 1,528,344 1,294,556 451,118,214 38,862,345 489,980,559 17.67 14.06 12.15 11.21 6.44 5.51 3.66 3.60 3.30 2.59 2.40 2.37 1.77 1.54 1.25 0.75 0.63 0.60 0.31 0.26 92.07 7.93 100.00 117 ANNUAL REPORT 2017 | PEET LIMITED PEET LIMITED | ANNUAL REPORT 2017 118 Securityholder Information (continued) The names of the 20 largest holders of PPCHA Bonds as at 25 September 2018 are listed below: Securityholder Information (continued) The names of the 20 largest holders of PPCHB Bonds as at 25 September 2018 are listed below: Name HSBC Custody Nominees (Australia) Limited J P Morgan Nominees Australia Limited Australian Executor Trustees Limited Grizzly Holdings Pty Ltd Jove Pty Ltd Finot Pty Ltd Stonecot Pty Ltd Farallon Capital Pty Ltd Jamplat Pty Ltd BNP Paribas Nominees Pty Ltd Hub24 Custodial Serv Ltd DRP Passini Pty Ltd Tierney Pty Limited George Tauber Management Pty Ltd Riseley Family Investments Pty Ltd Investment Management Co Pty Ltd Sunstone Finance Pty Ltd Invia Custodian Pty Limited < Risf A/C> Invia Custodian Pty Limited Invia Custodian Pty Limited Majana Pty Ltd Super Rab Pty Ltd Total for 20 largest PPCHA Bondholders Total other PPCHA Bondholders Total PPCHA Bonds on issue Number of PPCHA Bonds Held % of PPCHA Bonds 205,766 20.58 45,240 28,558 26,400 22,612 20,000 15,000 14,488 10,000 8,758 8,500 8,000 7,500 7,250 6,800 6,655 5,000 5,000 5,000 5,000 5,000 4.52 2.85 2.64 2.26 2.00 1.50 1.45 1.00 0.88 0.85 0.80 0.75 0.72 0.68 0.67 0.50 0.50 0.50 0.50 0.50 466,527 533,473 1,000,000 46.65 53.35 100.00 Name HSBC Custody Nominees (Australia) Limited BNP Paribas Noms Pty Ltd Grizzly Holdings Pty Limited Keppoch Pty Limited Finot Pty Limited BT Portfolio Services Limited Roni H Pty Ltd BLB Corporation Pty Ltd BNP Paribas Nominees Pty Ltd Hub24 Custodial Serv Ltd DRP Mr Joseph Compagnone + Mrs Cheryl Robyn Compagnone J P Morgan Nominees Australia Limited Hamilton Industries (Victoria) Pty Limited Trendmead Pty Ltd A Cameron Holdings Pty Limited Invia Custodian Pty Limited Mr Thomas Kiss + Mrs Amanda Aizenstros Mr Archibald John McKirdy Sims Trading Pty Ltd Mr Jian Wang Burdekin Nominees Pty Ltd Daviesville Pty Ltd Total for 20 largest PPCHB Bondholders Total other PPCHB Bondholders Total PPCHB Bonds on issue Number of PPCHB Bonds Held % of PPCHB Bonds 142,236 19,699 12,600 12,000 8,000 7,000 7,000 6,000 5,500 5,090 4,060 4,000 3,500 3,125 3,000 3,000 3,000 3,000 3,000 2,950 2,950 28.45 3.94 2.52 2.40 1.60 1.40 1.40 1.20 1.10 1.02 0.81 0.80 0.70 0.63 0.60 0.60 0.60 0.60 0.60 0.59 0.59 260,710 239,290 500,000 52.15 47.85 100.00 Substantial shareholders As disclosed in substantial holding notices lodged with ASX (as applicable) as at 25 September 2018: Name Date of Last Notice Received Number of Shares Held % of Issued Shares1 Scorpio Nominees Pty Ltd and its associates 14 November 2014 92,299,388 Allan Gray Australia Pty Ltd and its related bodies corporate 16 August 2018 75,676,739 Ellerston Capital Limited and its associates L1 Capital Pty Ltd Eley Griffiths Group Pty Limited 4 May 2018 34,864,418 23 July 2018 28,058,347 19 April 2018 24,558,576 Challenger Limited (and various other entities) 8 September 2014 23,908,410 1. Percentage of issued shares held as at the date notice provided. 19.40 15.44 7.12 5.73 5.01 5.52 119 ANNUAL REPORT 2017 | PEET LIMITED PEET LIMITED | ANNUAL REPORT 2017 120 Securityholder Information (continued) Voting rights of Ordinary Shares The constitution provides for votes to be cast: (i) on a show of hands, one vote for each shareholder; and (ii) on a poll, one vote for each fully paid ordinary share. Voting rights of Peet Bonds Bondholders have certain rights to vote at meetings of bondholders but are not entitled to vote at general meetings, unless provided for by the ASX Listing Rules or the Corporations Act. Securities Exchange Listings Peet Limited’s ordinary shares are listed on the Australian Securities Exchange (“ASX”). The Company’s ASX code is PPC. Peet Limited’s Series 1, Tranche 1 Peet Bonds are listed on the ASX, with the code being PPCHA. Peet Limited’s Series 2, Tranche 1 Peet Bonds are listed on the ASX, with the code being PPCHB. Options and Performance Rights As at 25 September 2018, Peet Limited had 1,200,000 options on issue, held by one key management person, as disclosed elsewhere in the Annual Report. As at 25 September 2018, Peet Limited had 4,821,751 performance rights on issue, held by a total of eight key management personnel and other senior managers. These options and performance rights, which are not listed, were issued under the PESOP and PPRP, respectively. Website address www.peet.com.au The Peet Limited website offers the following features: • Investor relations page with the latest Company announcements; • News service providing up to date information on the Company’s activities and projects; and • Access to annual and half year reports. Corporate Directory PEET LIMITED A.B.N. 56 008 665 834 Website Address – www.peet.com.au Directors Tony Lennon, FAICD, Non-executive Chairman Brendan Gore, BComm, FCPA, FCIS, FGIA, FAICD, Managing Director and Chief Executive Officer Anthony Lennon, BA, Grad Dip Bus Admin, MAICD, Non-executive Director Trevor Allen, BComm (Hons), CA, FF, FAICD, Independent Director Vicki Krause, BJuris LLB W.Aust, GAICD, Independent Director Robert (Bob) McKinnon, FCPA, FCIS, FGIA, MAICD, Independent Director Group Company Secretary Dom Scafetta, BComm, CA Registered Office and Principal Place of Business 7th Floor, 200 St Georges Terrace Perth, Western Australia 6000 Tel. (08) 9420 1111 Share Register Computershare Investor Services Pty Limited Level 11, 172 St Georges Terrace Perth, Western Australia 6000 Tel: (08) 9323 2000 Auditor Ernst & Young Ernst & Young Building 11 Mounts Bay Road Perth, Western Australia 6000 121 ANNUAL REPORT 2017 | PEET LIMITED PEET LIMITED | ANNUAL REPORT 2017 122 Notes Notes 123 ANNUAL REPORT 2017 | PEET LIMITED PEET LIMITED | ANNUAL REPORT 2017 124 Notes Notes 125 ANNUAL REPORT 2017 | PEET LIMITED PEET LIMITED | ANNUAL REPORT 2017 126 Peet Limited ACN 008 665 834 Level 7, 200 St Georges Terrace Perth WA 6000 Telephone +61 8 9420 1111 | Facsimile +61 8 9481 4712 www.peet.com.au Perth | Melbourne | Brisbane | Canberra | Adelaide | Darwin