Pilgrim's Pride
Annual Report 2019

Plain-text annual report

ANNUAL REPORT 2019 For personal use onlyCONTENTS About Peet What we do How we do it FY19 Performance at a Glance Financial Operational Future proofing Business Model Our Strategy National Reach Global Trends Shaping our Strategy Chairman’s Review Managing Director and CEO’s Review Operational and Financial Review Fund Management Projects Joint Ventures Development Projects Living Sustainably. Environment Social and Innovation Corporate Calendar FY2020 Financials 2 3 4 6 6 7 7 8 9 11 12 14 16 20 22 24 26 30 32 ) A W ( s o m i k l A n e v a h e r o h S : e g a m I PEET LIMITED | ANNUAL REPORT 2019 For personal use only Peet is one of Australia’s leading residential real estate developers, creating places to live for thousands of Australians each year. 1 ANNUAL REPORT 2019 | PEET LIMITEDFor personal use onlyAbout PEET Peet is one of Australia’s leading residential real estate developers, creating places to live for thousands of Australians every year. Listed on the Australian Stock Exchange (ASX) since 2004, Peet develops masterplanned communities, medium density housing and low-rise apartments in the major growth corridors in every mainland state in Australia. Established in 1895 by founder James Thomas Peet with a vision for Australians to build or buy their own home, Peet has enabled thousands of Australians achieve their ownership dreams. With strong roots in Western Australia and a presence that now reaches across the country, Peet has played a key role in shaping and enhancing the urbanisation of cities by creating desirable communities with a strong commitment to affordability. 2 Image: Bluestone, Mt Barker (SA)PEET LIMITED | ANNUAL REPORT 2019 For personal use onlyWHAT WE DO Peet acquires, develops and markets residential land in Australia. Currently, Peet manages a broad property portfolio of more than 49,000 lots with a gross development value of approximately $14.5 billion across 48 projects, making Peet Australia’s largest ‘pure play’ residential property developer. For 125 years, Peet has continuously evolved its business with a focus on providing choice for Australians. Historically, the company has been a residential land developer, replenishing its land bank in a disciplined manner, including using its unique and capital-lite funds management platform. Bolstered by its deep knowledge of the industry, Peet broadened its geographic scope resulting in a portfolio with national reach and a product mix of land, completed homes, medium density townhouses and low-rise apartments, in response to the changing lifestyles sought by Australians. Peet’s range of product type appeals across buyer segments whilst maintaining a core focus on first homebuyers. Peet prides itself on not only creating houses, but communities. Investing in infrastructure is key – from amenities such as parks, shopping centres and schools to installation works of public art, Peet develops communities that offer residents a safe, secure and convenient lifestyle and great places to live. Peet harnesses its deep experience and knowledge of Australia’s real estate markets to create long-term shareholder value by effectively managing the development and sale of land, houses, townhouses and apartments across the country’s cycles. The Peet team comprises committed and engaged individuals who work with specialist consultants to deliver projects ranging from boutique townhouses to substantial urban renewal and master- planned communities. Peet’s brand ethos is Life Your Way. This means we have a commitment to creating places that enable Australians to buy a new home in a new community that suits the lifestyle and needs of their family. Our financial results section provides an overview of our performance during the 2019 financial year (FY19). 3 ANNUAL REPORT 2019 | PEET LIMITEDFor personal use onlyHOW WE DO IT Our values 4 Image: Avon Ridge, Brigadoon (WA)PEET LIMITED | ANNUAL REPORT 2019 For personal use onlyIntegrity WE act with high integrity through open, honest and professional conduct. Teamwork WE recognise the strength of working together, encourage the development of 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. 5 ANNUAL REPORT 2019 | PEET LIMITEDFor personal use onlyFY19 PERFORMANCE at a glance Financial Operating1 and statutory2 profit after tax EBITDA3 EBITDA3 margin of $47.5 million $86 million 33% EARNINGS PER SHARE OF 9.8 CENTS PER SHARE BOOK NTA PER SECURITY $1.20 DIVIDEND OF 5 CENTS PER SHARE, FULLY FRANKED GEARING4 OF 24.6% 1 2 3 4 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. Statutory profit after tax means net profit measured in accordance with Australian Accounting Standards, attributable to the owners of Peet Limited. EBITDA is a non-IFRS measure that includes effects of non-cash movements in investments in associates and joint ventures. Calculated as (Total interest-bearing liabilities (including land vendor liabilities) less cash) / (Total assets less cash, less intangible assets). 6 PEET LIMITED | ANNUAL REPORT 2019 Image: The Village at Wellard (WA)For personal use only Operational 1,629 $336 million lots sold5 at a value of 2,629 LOTS SETTLED5 c.65% of land bank under development MEDIUM DENSITY 4 + 1 BROADACRE PROJECT ACQUIRED FOUR NEW PROJECTS COMMENCED SALES / DEVELOPMENT 1 NEW WHOLESALE FUND ESTABLISHED 1,257 CONTRACTS ON HAND5 Future proofing Land bank of 49,413 lots5 5 Includes equivalent lots. Land Bank of $14.5 billion gross development value 48 projects nationally In every mainland state and territory in Australia ANNUAL REPORT 2019 | PEET LIMITED 7 For personal use onlyBUSINESS Model A unique funding model is one of Peet’s key differentiators. It funds development through a combination of Company-owned Development projects, Funds Management projects and Joint Ventures, resulting in a capital-lite business model. Peet pioneered retail land syndication in Australia and its Funds Management and Joint Ventures businesses manage some 30 projects, providing opportunities for investors ranging from mums and dads to institutional and wholesale investors to participate in land development projects. Peet’s Funds Management and Joint Ventures contributed approximately 40% of the Group’s EBITDA6 in FY19. OWNED 11,750 lots $2.7bn GDV JOINT VENTURES 10,781 lots $4.0bn GDV WHOLESALE/ INSTITUTIONAL 20,218 lots $6.2bn GDV RETAIL 6,664 lots $1.6bn GDV 6 EBITDA is a non-IFRS measure that includes effects of non-cash movements in investments in associates and joint ventures. 8 PEET LIMITED | ANNUAL REPORT 2019 For personal use only Our STRATEGY Peet’s strategy is to target the delivery of 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 products in growth corridors of major Australian cities. We also take a strategic approach to land acquisition, and our geographically diversified portfolio means we are well positioned to leverage different property cycles. INVEST Invest in high quality land in strategic locations across the country PEET’S STRATEGY FOCUSES ON FOUR KEY PILLARS ENHANCE EXPAND MAINTAIN Enhance, plan and create communities and homes targeting the low to middle market segment Expand product offering and geographic presence to appeal to a wider variety of customers Maintain strong capital management 9 Image: Lightsview Apartments (SA)ANNUAL REPORT 2019 | PEET LIMITEDFor personal use only10 Image: Shorehaven Alkimos (WA)PEET LIMITED | ANNUAL REPORT 2019 For personal use onlyNATIONAL Reach NT PROJECTS: 1 ACT PROJECTS: 2 SA PROJECTS: 4 QLD PROJECTS: 11 NSW PROJECTS: 2 WA PROJECTS: 19 VIC PROJECTS: 9 49,413 LOTS7 $14.5bn GROSS DEVELOPMENT VALUE 48 PROJECTS NATIONALLY 7 Includes equivalent lots. 11 ANNUAL REPORT 2019 | PEET LIMITEDFor personal use only GLOBAL TRENDS shaping our strategy URBANISATION The percentage of people living in urban areas is expected to increase from 55% to 68% by 2050, according to the World Urbanization Project, United Nations. With developments in Australia’s growth corridors, Peet is perfectly positioned to benefit from this trend. POPULATION GROWTH According to the Australian Bureau of Statistics (ABS), Australia’s population grew 1.6% from 2017 to 2018. World Bank data ranks Australia fifth among OECD members for population growth. Peet’s large residential portfolio will provide places needed for Australians to create homes. 12 PEET LIMITED | ANNUAL REPORT 2019 Image: Acacia Townhouses, Botanic Ridge (VIC)Image: Newhaven Tarneit (VIC)For personal use onlyAGEING POPULATION As Australia’s population ages, their housing needs change as they look to downsize. Peet has recently expanded its product range to include completed homes, townhouses and low- rise apartments. PROPERTY AS AN ASSET CLASS Australian property has, historically, provided stable returns for investors. Peet’s Funds Management business offers retail and wholesale investors an opportunity to invest in Australia’s land development market. ANNUAL REPORT 2019 | PEET LIMITED 13 Image: Lightsview (SA)Image: Newhaven Tarneit (VIC)Image: Googong (NSW)For personal use onlyChairman’s REVIEW Dear Shareholders, I am pleased to present Peet’s Annual Report for the year ended 30 June 2019. Peet has a long history of creating communities in Australia. As the country’s largest ‘pure play’ residential property developer, Peet has traditionally focused on replenishing its land bank in a disciplined manner, predominantly under its fund management platform, in core markets across Australia, including Victoria, Queensland, South Australia, New South Wales and Western Australia, taking advantage of opportunistic acquisitions. In recent years, the Group has evolved and broadened its capabilities to offer a greater variety of products in every mainland state and territory, appealing to a wider selection of home-buyers and creating more flexibility for Peet to actively manage market cycles. This year, Peet continued this evolution and with almost 50,000 lots8 across 48 projects, is well placed to benefit from a recovery in the residential property market. FY19 was challenging for the Group, with varying conditions across Australia’s residential property sector. Consumer uncertainty, state and federal elections, restrictive lending conditions and the general economic and regulatory environment resulted in reduced consumer confidence and a more moderate real estate market. With a moderating residential market backdrop, our Group focused on the elements within its control; active portfolio management and executing on our strategic priorities to deliver a sound performance for FY19. As a result, we achieved an operating9 and statutory10 profit for the year of $47.5 million, we maintained a strong EBITDA11 margin and gearing12 remains within our target range. The Group continued its focus on prudent capital management throughout the year. Our disciplined and proactive approach to capital management gives us the financial strength to make the most of market opportunities that may arise. During the year, the Group raised $75 million from the issue of senior unsecured notes via the wholesale debt market and as at 30 June 2019, the Group had net interest-bearing debt (including Peet Bonds) of $211.6 million, compared with $140.5 million at 30 June 2018 and gearing12 of 24.6%, being maintained within our target range of 20% – 30%. Given the Company’s strong balance sheet and its share price trading at or below its NTA at the time, we commenced an on-market share buyback in August 2018 for up to 5% of Peet’s issued ordinary shares over 12 months. In August 2019, we extended the buyback for an additional 12 months. STRATEGY We made significant progress against our strategy to deliver quality residential communities around Australia through four key pillars: • Invest in quality land • Enhance, plan and create communities • Expand our product offering • Maintain strong capital management On Behalf of the Board, I am pleased to present Peet Limited’s 2019 Annual Report and outline our strategy to deliver quality residential communities around Australia. 8 9 Includes equivalent lots. 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. 11 EBITDA is a non-IFRS measure that includes effects of non-cash movements in investments in associates and joint ventures. 12 Calculated as (Total interest-bearing liabilities (including land vendor liabilities) less cash) / (Total assets less cash, less intangible assets). 14 PEET LIMITED | ANNUAL REPORT 2019 For personal use onlyWe aim to secure land predominantly through our Funds Management platform using capital raised from a combination of wholesale, institutional and retail investors. This capital-lite model, developed over many years, provides us with a distinct competitive advantage given the challenge it would be to replicate this component of our business model. In response to changing customer needs, we have expanded our market reach by continuing to broaden our product offering to homebuyers and investors over recent years. Now, in addition to developing and selling vacant land, we offer completed homes, medium density townhouses and low-rise apartments, diversifying our products and appealing to more customers. Peet has always targeted the low and middle market segments, in line with our founder’s vision to enable Australians to achieve home ownership. We continue to uphold this reputation for delivering value-driven, affordable, high quality land and homes. CONCLUSION The Peet Group’s fundamental strengths and strategic approach to land acquisition, our geographically diversified land bank and strong balance sheet, means we are well positioned to manage through the current challenging property market conditions. I take this opportunity to thank my fellow Board members for their work during the year, and on their behalf, thank Managing Director and CEO Brendan Gore and his team for their enthusiasm and dedication to the evolution of our business as well their leadership of Peet’s values and culture that underpin our success. On behalf of the Board, thank you to our loyal shareholders for your continued support of the company. We look forward to continuing to create residential communities across the country, adding value for current and future residents, employees, our investment partners, other stakeholders and you. DIVIDENDS The Board was pleased to declare a final FY19 dividend of 3.0 cents per share, full franked. This brings the total dividend for FY19 to 5.0 cents per share, fully franked and in line with the FY18 dividend. Tony Lennon Chairman ANNUAL REPORT 2019 | PEET LIMITED 15 For personal use onlyManaging Director and CEO’s REVIEW Dear Shareholders, Despite the moderation we have seen in residential property markets, Peet has delivered sound results in line with expectations. This underlines the strength of our strategic approach and of our diverse landbank and the Group’s ability to leverage opportunities in different markets and manage through market cycles. MARKET INSIGHT Australia’s property markets were varied during the year and they were all impacted by restrictive lending conditions. FY19 PERFORMANCE The Peet Group achieved an operating13 profit and statutory14 profit after tax of $47.5 million for FY19, which represents a decrease of 3.2% on FY18 and earnings per share of 9.8 cents, down 2% on FY18. This solid result was underpinned by strong settlements from several key projects, partly offset by lower sales impacted by the broader market conditions around the country, associated with restrictive lending conditions, a moderating Victorian market and a subdued Western Australian housing market. While Victoria’s strong economic growth and significant Government investment in infrastructure is expected to underpin demand for homes in the long-term, our FY19 sales were impacted by a moderating market and restrictive lending conditions. The Group achieved 1,629 sales15 with a gross value of $359.7 million and 2,629 settlements15, with a gross value of $641.4 million for the full year across its Funds Management, Development and Joint Venture projects. This represents a 45% and 10% decrease, respectively, compared with FY18. Migration to Queensland is strong and above the 10-year average with modest price growth in both house and land, however our sales were impacted by restrictive lending conditions. The Western Australian market remains challenging, impacting sales volumes during the year. While established market metrics remain soft, sales and prices are generally stable, albeit at lower levels. Growth in employment and wages in the Australian Capital Territory are supporting a steady market, though sales volumes are down due to restrictive lending conditions. Sales volumes and prices are steady in South Australia and we expect continued Government investment in defence and shipbuilding to support a population increase in South Australia. Peet delivered FY19 EBITDA16 of $86 million compared to $101.3 million in FY18 and despite the lower sales activity, maintained a strong EBITDA16 margin of 33%, compared with 34% in FY18, which can be attributed to solid settlements from our low cost Victorian Development projects, a continued focus on cost management across the portfolio of projects and implementing efficiencies across the business. Contracts on hand15 at 30 June 2019 decreased 44% to 1,257 lots (compared to 30 June 2018), with a value of $336 million (FY18: $616 million) due to lower sales activity. The lower contracts on hand as a result of lower sales activity is expected to impact settlements in FY20. 13 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. 14 Statutory profit after tax means net profit measured in accordance with Australian Accounting Standards, attributable to the owners of Peet Limited. 15 16 EBITDA is a non-IFRS measure that includes effects of non-cash movements in investments in associates and joint ventures. Includes equivalent lots. 16 PEET LIMITED | ANNUAL REPORT 2019 For personal use onlyACHIEVEMENTS AGAINST OUR STRATEGY We continue to make progress against our strategy: Invest in quality land in strategic locations across the country Peet has a geographically diverse portfolio of 48 projects comprising approximately 49,400 lots17 with a gross development value of $14.5 billion located in growth corridors of every mainland state and territory of Australia. We have strategically targeted opportunities across QLD, SA and WA over the past 3 years ensuring a strong market position in affordable markets with a low cost base; and avoided acquiring broadacre land across Melbourne and Sydney during this time. Expand our product offering and geographic presence We continued to extend our market reach by broadening our offering in Completed Homes, Medium Density Townhouses and low-rise Apartments, in response to changing customer demands, acquiring four medium density projects during the year. Peet continued to transition to a solid delivery phase, with settlements of Completed Homes and Medium Density product up 42% on last year. Maintain strong capital management We continued to maintain a strong focus on capital management throughout the year. Since FY12, more than 90% of lot acquisitions have been on capital-efficient terms, including the establishment of a new wholesale fund to acquire an 80-hectare property in Perth’s northern coastal corridor where we have approval to develop 1,100 lots. During the year, the Group raised $75 million from the issue of senior unsecured notes via the wholesale debt market, which together with the extension of its existing senior debt facility, increased the tenor of the Group’s debt maturity profile. Enhance, plan and create communities and homes targeting the lower to middle market segment Four new projects commenced sales in 2019, bringing 65% of our land bank under development. We expect up to seven new land projects and five medium density townhouse sites to commence development within the next two years and 80% of our land bank to be under development in the next three years. At 30 June 2019, the Group had net interest-bearing debt (including Peet Bonds) of $211.6 million, compared with $140.5 million at 30 June 2018. Approximately, 91% of the Group’s interest-bearing debt was hedged as at 30 June 2019, which is the same as at 30 June 2018. Peet’s balance sheet remains strong, including cash and debt facility headroom of $156.1 million as at 30 June 2019, a weighted average debt maturity of over three years and gearing18 of 24.6% (up from 19.0% at 30 June 2018). Strong relationships with government, investors and other industry stakeholders form the basis of our Funds Management and Joint Ventures businesses. During the year, Peet Flagstone City Pty Limited (50% owned by Peet) entered an infrastructure agreement to fund more than $1.2 billion of essential infrastructure including roads and water supply for Greater Flagstone, which will underpin development of the Flagstone community. 17 18 Includes equivalent lots. Calculated as (Total interest-bearing liabilities (including land vendor liabilities) less cash) / (Total assets less cash, less intangible assets). ANNUAL REPORT 2019 | PEET LIMITED 17 For personal use onlyOutlook The Peet Group enters FY20 with a strong balance sheet, low gearing and a residential development pipeline well positioned for sustainable long-term growth. While the residential sector continues to be impacted by restrictive lending conditions, recent macro-economic announcements including the approval of cuts in income tax rates following the Federal election in May 2019, reduction in interest rates and APRA’s announcement of changes to its residential mortgage lending guidelines would prove positive in an improved market. Despite a general improvement in enquiry from potential buyers of the Group’s products, we expect the market to take some time to normalise, with steady employment growth, record low interest rates and high investment in infrastructure by Government offset by the broad uncertainty driven by reduced credit availability, weak consumer sentiment and low wages growth. We remain cautious about the timing of recovery in the residential market and therefore expect a challenging year ahead. The lower contracts on hand as at 30 June 2019 will impact settlements in FY20 and result in earnings being heavily weighted towards the second half of the year. However, our strong pipeline of projects and the underlying fundamentals of the residential property sector, means that Peet is well positioned to deliver supply to the market as demand improves and lending conditions normalise. I thank Chairman Tony Lennon and our Board for their contributions during the year and for their continued insight and knowledge. Thanks also to Peet’s management team and staff for their considerable efforts during the year and who embody Peet’s values and culture. Lastly, thank you to our loyal shareholders who continue to support Peet. I look forward to updating you on our progress during the year. Brendan Gore Managing Director and Chief Executive Officer 18 PEET LIMITED | ANNUAL REPORT 2019 Image: Lightsview (SA)For personal use onlyOur focus on our strategic pillars means we have delivered a sound financial result and are well positioned for a residential market recovery. ANNUAL REPORT 2019 | PEET LIMITED 19 For personal use onlyOPERATIONAL AND FINANCIAL REVIEW FUNDS MANAGEMENT projects The Peet group manages a number of projects on behalf of land syndicates using funds raised from a combination of wholesale, institutional and retail investors. It also manages projects under project management and co-investment arrangements. This provides Peet a capital-lite profit source which is difficult to replicate while also providing long term earnings visibility. EBITDA 25% 19 26,882 lots20 GDV21 $7.8 billion 19 20 21 EBITDA is a non-IFRS that includes affects of non-cash movements in investments in associates. Includes equivalent lots. Gross Development Value. 20 PEET LIMITED | ANNUAL REPORT 2019 Comprised 54% OF GROUP’S LAND BANKFor personal use onlyS T O L 2 2 D L O S S T O L 2 2 D E L T T E S S T C A R T N O C 2 2 D N A H N O 3 2 A D T I B E A D T I B E I 3 2 N G R A M FY19 909 value of $193.8 million FY18 1,782 value of $370.0 million FY19 1,535 Gross value of $355.2 million FY18 1,796 Gross value of $352.6million FY19 685 Total value of $149.0 million FY18 1,311 Total value of $310.8 million FY19 $24.4 million FY18 $28.3 million FY19 71% FY18 70% 22 23 Includes equivalent lots. EBITDA is a non-IFRS measure that includes effects of non-cash movements in investments in associates. ANNUAL REPORT 2019 | PEET LIMITED 21 Image: Yanchep Golf Estate (WA)For personal use only OPERATIONAL AND FINANCIAL REVIEW JOINT ventures The Peet Group has a number of high-profile joint venture projects, which are generally entered into on a 50/50 basis with Governments, statutory authorities, private land owners or partner developers. 24 EBITDA 14% 10,781 lots25 GDV26 $4.0 billion 24 25 26 EBITDA is a non-IFRS that includes non-cash movements in investments in Joint Ventures. Includes equivalent lots. Gross Development Value. 22 PEET LIMITED | ANNUAL REPORT 2019 Comprised 22% OF GROUP’S LAND BANKFor personal use onlyS T O L 7 2 D L O S S T O L 7 2 D E L T T E S S T C A R T N O C 7 2 D N A H N O 8 2 A D T I B E A D T I B E I 8 2 N G R A M FY19 414 FY18 756 value of $98.0 million value of $204.3 million FY19 539 FY18 690 Gross value of $123.1 million Gross value of $163.0 million FY19 361 FY18 486 Total value of $130.5 million Total value of $154.1 million FY19 $13.7 million FY18 $16.6 million FY19 31% FY18 30% 27 28 Includes equivalent lots. EBITDA is a non-IFRS measure that includes effects of non-cash movements in investments in associates. 23 Image: Lightsview (SA)ANNUAL REPORT 2019 | PEET LIMITEDFor personal use only OPERATIONAL AND FINANCIAL REVIEW DEVELOPMENT projects Peet’s Development projects are 100% owned by Peet and held on its balance sheet. 100% of returns are collected upon development, sale and settlement of these projects, generating solid margins. EBITDA 61% 11,750 lots29 GDV30 $2.7 billion 28 29 Includes equivalent lots. Gross Development Value. 24 PEET LIMITED | ANNUAL REPORT 2019 Comprised 24% OF GROUP’S LAND BANKFor personal use onlyS T O L 1 3 D L O S S T O L 1 3 D E L T T E S S T C A R T N O C 1 3 D N A H N O A D T I B E A D T I B E N I G R A M 31 Includes equivalent lots. FY19 306 value of $67.9 million FY18 412 value of $140.2 million FY19 555 FY18 438 Gross value of $163.1 million Gross value of $195.8 million FY19 211 FY18 460 Total value of $56.0 million Total value of $151.0 million FY19 $58.5 million FY18 $67.2 million FY19 32% FY18 34% ANNUAL REPORT 2019 | PEET LIMITED 25 Image: Greenlea Baldivis (WA)For personal use only LIVING SUSTAINABLY Environment Social and Innovation As Australia grows, Peet provides places to build new homes. In doing so, Peet is not just creating homes but communities that become part of Australia’s urban fabric for decades to come. As such, Peet focuses on planning, designing and developing communities that minimise the impact we have on the environment while looking for ways to make communities thrive. ENVIRONMENT LIGHTSVIEW SA WATER SENSITIVE URBAN DESIGN In line with Peet’s focus on planning, designing and developing communities that balance environmental, social and economic needs, benefits include stormwater treatment and re-use from the Salisbury Water managed aquifer recharge scheme. Treated stormwater is piped to each household and plumbed internally to toilets and for outdoor uses, including garden irrigation and car washing. 26 PEET LIMITED | ANNUAL REPORT 2019 For personal use onlyGOOGONG NSW SMART CITY Peet and its development partner, together with Queanbeyan-Palerang Regional Council (Council), were recently awarded a grant from the Federal Government Smart Cities Program that will establish Googong as a showcase for technology infrastructure. The technology will help reduce everyday community service costs including waste management, utility consumption and the maintenance of amenities. The first element of the Smart City infrastructure is already in place with the installation of a smart wind turbine and solar- powered pole, a foundation component in the new township’s high-tech backbone. The 5G ready ‘smart’ poles have the capability to be seamlessly fitted with network infrastructure to provide services such as free public Wifi, digital wayfinding and surveillance cameras. They will also enable Council to remotely manage key services like waste management, car park usage, irrigation, lighting, BBQs and security. Implementation of the infrastructure sees Googong as one of the first towns in Australia to have smart technology built in from the ground up and a leader in innovative technology-based urban living. ANNUAL REPORT 2019 | PEET LIMITED 27 For personal use onlySOCIAL Peet designs its communities around the people who are going to live in them, offering a diverse range of housing options to suit all ages and stages of life. They are not just houses, but 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 diverse and healthy social connection. PERTH SCORCHERS SPONSORSHIP Peet supported BBL team Perth Scorchers as its Community Partner for the 2018-19 season. The partnership provided Peet with the opportunity to host Community Fan Days and Cricket Workshops to provide engaging and unique experiences for its residents, in line with Peet’s vision to create connected communities and opportunities for its residents to live healthy active lifestyles. During the season, over 2,000 people from Peet communities attended fan days while thousands more engaged on social media by sharing their #ScorchersLife photos, bringing together families to support Western Australia’s 20/20 cricket team. NATIONAL COMMUNITY GRANTS PROGRAM Peet has a proud history of supporting the community through its National Community Grants Program and corporate partnerships. Peet has continued that tradition throughout FY19 by supporting over 50 community groups and organisations around the country. Typically, Peet supports initiatives in the following areas: • Environmental sustainability • Family and community-based activities • Health and wellbeing • Culture and the arts • Educational opportunities / youth development programs 28 PEET LIMITED | ANNUAL REPORT 2019 For personal use onlyFLAGSTONE CITY QUEENSLAND Flagstone is Peet’s largest project and will ultimately have 12,000 homes and a CBD that will support a population of approx. 50,000 in the Greater Flagstone region. Earthworks commenced on the Coles supermarket site at the end of April 2019 that will underpin the Flagstone Village shopping centre. The development has generated approximately 200 construction jobs plus 100 operational jobs and is expected to be the catalyst for significant additional investment in the local area. Peet Flagstone City is the biggest project in the Greater Flagstone Priority Development Area, and over the next 30 years, it will provide around 12,000 homes, 330 hectares of green space and a 126-hectare CBD, with plans for a future hospital, tertiary campus and train station. Residents will be well-served by retail, commercial and hospitality options – all contributing to employment opportunities for an estimated 10,000 people. INNOVATION TONSLEY VILLAGE SA LEADING-EDGE TECHNOLOGY Sustainability is a key part of what we do, and Tonsley Village incorporates leading-edge technology to deliver environmental benefits. Embedded into each street is a suite of innovative and world-leading infrastructure that will future-proof the power, water, gas and internet provision that drives environmental sustainability within the precinct. The whole of Tonsley’s electrical infrastructure has been designed to run off an independent embedded network owned by Enwave which distributes green energy generated on-site and natural gas to all homes, resulting in a minimum of 30% of all power used being generated on-site. All Tonsley Village homes will also receive smart meters. The meters provide the water utility with detailed data on use to help customers better understand their water consumption. ANNUAL REPORT 2019 | PEET LIMITED 29 For personal use onlyCorporate CALENDAR FY2020 19 SEPTEMBER 2019 Record data for final FY19 dividend 7 OCTOBER 2019 Payment date of final FY19 dividend 7 OCTOBER 2019 Interest payment date for Peet Bond holders (PPCHB) 18 OCTOBER 2019 Annual Report and notice of 2019 AGM dispatched to shareholders 20 NOVEMBER 2019 2019 AGM at the InterContinental Perth City Centre Hotel, 815 Hay Street, Perth 9 DECEMBER 2019 Interest payment date for unlisted notes 16 DECEMBER 2019 Interest payment date for Peet Bond holders (PPCHA) 6 JANUARY 2020 Interest payment date for Peet Bond holders (PPCHB) 2020 Release of results for the half year ending 31 December 2019 6 APRIL 2020 Interest payment date for Peet Bond holders (PPCHB) 9 JUNE 2020 Interest payment date for unlisted notes 16 JUNE 2020 Interest payment date for Peet Bond holders (PPCHA) 30 Image: Shorehaven Alkimos (WA)PEET LIMITED | ANNUAL REPORT 2019 For personal use only31 ANNUAL REPORT 2019 | PEET LIMITEDFor personal use onlyFINANCIAL REPORT 30 JUNE 2019 CONTENTS 1 Directors’ Report 2 Auditor’s Independence Declaration 3 Corporate Governance Statement 4 Financial Report 5 Directors’ Declaration 6 Independent Auditor’s Report to the Members of Peet Limited 7 Securityholder Information 8 Corporate Directory 34 61 62 64 106 107 114 118 32 PEET LIMITED | ANNUAL REPORT 2019 For personal use onlyTHIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK 33 ANNUAL REPORT 2019 | PEET LIMITEDFor personal use only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 2019 (‘the Group’). 01. 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 general commercial experience and 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. He is a World Fellow Member of The Duke of Edinburgh’s International Award. 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 and a Fellow of the Governance Institute of Australia. 34 DIRECTORS’ REPORTYear ended 30 June 2019PEET LIMITED | ANNUAL REPORT 2019 For personal use only01. DIRECTORS (CONTINUED) Anthony Lennon, BA, Grad Dip Bus Admin, MAICD Non-executive Director Anthony Lennon joined Peet in 1991 and became a Director in 1996. He moved to Victoria to establish Peet’s operations in Australia’s eastern states and oversaw significant expansion. Before joining the Company, Mr Lennon worked in the United Kingdom, where he completed his post-graduate qualification whilst working for major international construction and development company, John Laing PLC. His time with this global company saw him gain valuable experience in property planning, marketing, feasibility analysis and project management. Mr Lennon’s responsibilities during his career with Peet included project management, broadacre acquisitions, marketing and financing and a six-year term as Chairman of one of WA’s largest conveyancing businesses. Until his transition from Executive to Non-executive Director on 27 August 2012, Mr Lennon was Peet Limited’s National Business Development Director. In 2019 he became a director of Habitat for Humanity (Vic). Part of a worldwide organisation, it is a registered charity which assists low income families into affordable home ownership and out of the rental market by providing no interest mortgages. Trevor Allen, BComm (Hons), CA, FF, FAICD Independent Non-executive Director Trevor Allen joined Peet in April 2012, with almost four decades of experience in the corporate and financial sectors, primarily as a corporate and financial advisor to Australian and international public and privately-owned companies. Mr Allen is an Independent Non-executive Director of Freedom Foods Group Limited, where he chairs its Audit and Risk 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. In addition, Mr Allen is a 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 is also a non-executive director of TopCo Investments Pte Ltd, a Singapore company which is the holding company of Real Pet Food Company Limited. Mr Allen was a Non-executive Director of Yowie Group Limited (resigned January 2018) and Brighte Capital Pty Limited (resigned June 2018). 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. Vicki Krause, BJuris LLB W.Aust, GAICD Independent Non-executive Director Vicki Krause was appointed to the Board of Peet Limited in April 2014. An experienced commercial lawyer, Ms Krause had a 25 year career as a senior corporate executive with the Wesfarmers Group, including seven years as its Chief Legal Counsel. She supported successful outcomes in numerous significant acquisitions (including listed companies, trade sales and a privatisation) and divestments. As Chief Legal Counsel and a member of the Wesfarmers Executive Committee, Ms Krause led a large legal team and was responsible for the provision of legal advice and strategic planning in relation to the management of legal risk in the Wesfarmers Group with key outputs including the evaluation and completion of major business projects and major supply arrangements. Ms Krause has completed the PMD Management Course at Harvard Business School. She is currently a director of Western Power and a member of its Safety Health Environment and People Committee. 35 ANNUAL REPORT 2019 | PEET LIMITEDFor personal use only01. DIRECTORS (CONTINUED) Robert McKinnon, FCPA, FCIS, FGIA, MAICD Independent Non-executive Director Appointed as Non-executive Director in May 2014, Bob McKinnon has 40 years’ experience in finance and general management positions in the light manufacturing and industrial sectors in Australia, New Zealand, and Canada. 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. 02. 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 240 people in offices throughout Australia. As at 30 June 2019, the Group managed and marketed a land bank of 49,413 lots in the growth corridors of major mainland Australian cities. 03. REVIEW OF OPERATIONS AND CONSOLIDATED RESULTS OPERATING AND FINANCIAL REVIEW Key results1 • Operating profit2 and statutory profit3 after tax of $47.5 million • Earnings per share of 9.8 cents • FY19 dividends of 5.0 cents per share, fully franked • Revenue4 of $262.9 million, with 2,629 lots settled • EBITDA5 of $86.0 million • EBITDA5 margin of 33% • 1,257 contracts on hand6 as at 30 June 2019 • Gearing7 of 24.6% Financial commentary The Peet Group achieved an operating profit2 and statutory profit3 after tax of $47.5 million for the year ended 30 June 2019, which represents a decrease of 3.2% on FY18. This represents a solid result underpinned by strong settlements from several key projects; but also impacted by overall lower sales on the back of moderated market conditions and restrictive lending conditions. The Group derived EBITDA5 of $86.0 million during FY19, compared to $101.3 million in FY18, with a strong EBITDA5 margin of 33%, compared to the margin achieved in FY18 of 34%. 1 2 3 4 5 6 7 Comparative period is 30 June 2018, unless stated otherwise. The non-IFRS measures have not been audited. 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. Statutory profit after tax means net profit measured in accordance with Australian Accounting Standards, attributable to the owners of Peet Limited. Includes statutory revenue of $249.5 million (FY18: $287.6 million) and share of net profits from associates of $13.3 million (FY18: $14.1 million). EBITDA is a non-IFRS measure that includes effects of non-cash movements in investments in associates and joint ventures totalling $13.3 million (FY18: $14.1 million). Includes equivalent lots. Calculated as (Total interest-bearing liabilities (including land vendor liabilities) less cash) / (Total assets less cash, less intangible assets). 36 DIRECTORS’ REPORTYear ended 30 June 2019PEET LIMITED | ANNUAL REPORT 2019 For personal use only03. REVIEW OF OPERATIONS AND CONSOLIDATED RESULTS (CONTINUED) The performance has resulted in earnings per share of 9.8 cents for the year ended 30 June 2019, compared to 10.0 cents per share in FY18. The Group has maintained its focus on prudent capital management and during 2H19 issued $75 million of unsecured notes, further diversifying its debt structure. The Group’s balance sheet remains strong with gearing7 of 24.6%, within the Company’s target range of 20% to 30%. Operational commentary The Group achieved 1,629 sales8 (with a gross value of $359.7 million) and 2,629 settlements8 (with a gross value of $641.4 million) for the full year across its Funds Management, Development and Joint Venture projects, representing a decrease of 45% and 10%, respectively compared with FY18. Sales were impacted by the broader market conditions around the country, associated with restrictive lending conditions, a moderating Victorian market and a subdued Western Australian housing market. Settlements were affected by the completion of several syndicated Victorian projects during FY18, reduction in sales across the portfolio and the reduction in englobo sales during FY19. Despite the lower sales activity, Peet was able to achieve a strong EBITDA9 margin of 33% (FY18: 34%) across the business, driven by settlements from low cost Victorian Development projects, a continued focus on cost management across the portfolio of projects and implementing efficiencies across the business. At 30 June 2019, there were 1,257 contracts on hand8, with a gross value of $335.5 million, compared with 2,257 contracts on hand8 with a gross value of $615.9 million at 30 June in 2018. The lower contracts on hand as a result of lower sales activity is expected to impact settlements in FY20. Funds management projects The Group’s Funds Management business performed solidly in FY19, with strong settlements from projects in Victoria partially offsetting the impact of lower sales activity due to restrictive lending conditions and a moderation of market conditions (particularly in Victoria). The sales variance when compared to the previous year is also attributable to the completion of several projects in Victoria during FY18. Funds Management continues to be a key platform of the Group’s strategy, and as at 30 June 2019, approximately 54% of the Group’s land bank comprised Funds Management projects. This business provides Peet with a capital-lite earnings base which contributed approximately 25% of the Group’s EBITDA9,10 for FY19. • 909 lots sold8 for a gross value of $193.8 million, compared with 1,782 lots ($370.0 million) in FY18. • 1,535 lots settled8 for a gross value of $355.2 million, compared with 1,796 lots ($352.6 million) in FY18. • 685 contracts on hand8 as at 30 June 2019 with a total value of $149.0 million, compared with 1,311 contracts8 ($310.8 million) as at 30 June 2018. • EBITDA9 of $24.4 million compared with $28.3 million in FY18. • EBITDA9 margin increased slightly to 71% from 70% in FY18. Development projects During FY19, Development projects contributed 61% of the Group’s EBITDA10, with this performance underpinned by the results achieved from the Victorian and ACT portfolios, offset by the lower contribution of englobo sales, compared to FY18. During the year, the Group acquired a number of medium density townhouse and low-rise apartment sites that will expand the Group’s market reach by broadening available product offerings to home buyers and investors. Calculated as (Total interest-bearing liabilities (including land vendor liabilities) less cash) / (Total assets less cash, less intangible assets). Includes equivalent lots. EBITDA is a non-IFRS measure that includes effects of non-cash movements in investments in associates and joint ventures. 7 8 9 10 Before inter-segment transfers and other unallocated items. 37 ANNUAL REPORT 2019 | PEET LIMITEDFor personal use only03. REVIEW OF OPERATIONS AND CONSOLIDATED RESULTS (CONTINUED) As at 30 June 2019 approximately 24% of the Group’s land bank comprised Development projects. • 306 lots sold11 for a gross value of $67.9 million, compared with 412 lots ($140.2 million) in FY18. • 555 lots settled11 for a gross value of $163.1 million, compared with 438 lots ($195.8 million) in FY18. • 211 contracts on hand11 as at 30 June 2019 with a total value of $56.0 million, compared with 460 contracts11 ($151.0 million) as at 30 June 2018. • EBITDA12 of $58.5 million compared with $67.2 million in FY18. • EBITDA12 margin of 32%, compared with 34% in FY18. Joint Ventures As at 30 June 2019 approximately 22% of the Group’s land bank comprised Joint Venture projects, with major projects located in Qld, NSW, WA and SA. In FY19, Joint Venture projects contributed 14% of the Group’s EBITDA12, 13. Restrictive lending conditions and moderating east coast markets contributed to the reduced contribution from the Group’s Joint arrangements business in FY19. While sales and settlement activity reduced across the joint venture portfolio, average sales prices were generally able to be maintained, with some modest growth also evident. • 414 lots sold11 for a gross value of $98.0 million, compared with 756 lots ($204.3 million) in FY18. • 539 lots settled11 for a gross value of $123.1 million, compared with 690 lots ($163.0 million) in FY18. • 361 contracts on hand11 as at 30 June 2019 with a total value of $130.5 million, compared with 486 contracts11 ($154.1 million) as at 30 June 2018. • EBITDA12 of $13.7 million compared with $16.6 million in FY18. • EBITDA12 margin of 31%, compared with 30% in FY18. Land portfolio metrics Lot sales11 Lot settlements11 Contracts on hand as at 30 June11 Number Value CAPITAL MANAGEMENT FY19 1,629 2,629 1,257 FY18 2,950 2,924 2,257 $335.5 million $615.9 million Change (45%) (10%) (44%) (46%) The Group continues to apply a prudent focus on capital management and during FY19 derived $46.4 million net cash inflows from operations (before payments for purchase of land) and kept its gearing14 within its target range of 20% to 30% at 24.6% as at 30 June 2019. During the year, the Group raised $75 million from the issue of senior unsecured notes via the wholesale debt market, which together with the extension of its existing senior debt facility increased the tenor of the Group’s debt maturity profile, continued to diversify Peet’s capital funding sources and provides greater operating flexibility to fund investment opportunities that may arise. At 30 June 2019, the Group had net interest-bearing debt15 (including Peet Bonds) of $211.6 million, compared with $140.5 million at 30 June 2018. Approximately, 91% of the Group’s interest-bearing debt152was hedged as at 30 June 2019, which is the same as at 30 June 2018. Includes equivalent lots. 11 12 EBITDA is a non-IFRS measure that includes effects of non-cash movements in investments in associates and joint ventures. 13 Before inter-segment transfers and other unallocated items. 14 Calculated as (Total interest-bearing liabilities (including land vendor liabilities) less cash) / (Total assets less cash, less intangible assets). 15 Including net debt of syndicates consolidated under AASBID 38 DIRECTORS’ REPORTYear ended 30 June 2019PEET LIMITED | ANNUAL REPORT 2019 For personal use only03. REVIEW OF OPERATIONS AND CONSOLIDATED RESULTS (CONTINUED) Peet’s balance sheet remains strong, including cash and debt facility headroom of $156.1 million as at 30 June 2019 and a weighted average debt maturity of over three years. The Group is taking a cautious view into FY20, with a disciplined and conservative approach to the deployment of capital as a result of current market conditions. The strong balance sheet and available capital provides the Group with the capacity to accelerate delivery of product in response to any improvements in market conditions. In FY19, Peet Limited implemented a 12-month on-market share buy-back of up to 5% of its issued ordinary shares. As at 30 June 2019, the Company had acquired 6.7 million of its ordinary shares, representing approximately 27% of the total shares to be acquired, and subsequent to year end announced that the on-market buy-back has been extended for a further 12 months. DIVIDENDS Subsequent to year end, the Directors declared a final dividend for FY19 of 3.0 cents per share, fully franked. This brings the total dividend for FY19 to 5.0 cents per share, fully franked which is the same as the FY18 dividend. The dividend is to be paid on Monday, 7 October 2019, with a record date of Thursday, 19 September 2019. The Directors have resolved to keep the Company’s Dividend Reinvestment Plan deactivated. 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. Key elements of the Group’s strategy for the year ahead and beyond include: • selectively acquiring residential land holdings as cycles, markets and opportunities allow to restock the project pipeline with a focus on securing low cost projects, and predominantly under its funds management platform; • expanding market reach by continuing to broaden its product offering in Completed Homes, Medium Density Townhouses and low-rise Apartment product; • delivering affordable product targeted at the low and middle market segments; and • maintaining a strong balance sheet and cash flow position. FY19 saw the Group further invest in its Completed Homes and Medium Density Townhouse business. FY20 is expected to see further capital invested into development and construction of Completed Homes and Medium Density Townhouse pipeline, with a substantial recycling of this capital expected in FY21. FY19 also saw the Company establish a new wholesale fund to acquire an 80-hectare property in Perth’s northern coastal corridor, with approvals in place to develop more than 1,100 lots. Peet retains a 19.9% interest in the syndicate and will act as development manager of the property. Peet has an experienced and highly committed team and continues to make good progress on the delivery of its strategic priorities and on broadening its capital base to place it in a position to leverage any improvements in market conditions. RISKS The Group’s operating and financial performance is influenced by a number of risks impacting the property sector. These include ongoing restrictive bank lending conditions, 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, including in relation to infrastructure, environmental and climate-change 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. 39 ANNUAL REPORT 2019 | PEET LIMITEDFor personal use only03. REVIEW OF OPERATIONS AND CONSOLIDATED RESULTS (CONTINUED) 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 17 to the Financial Report. OUTLOOK The Peet Group enters FY20 with a strong balance sheet, low gearing16 and a residential development pipeline well positioned for sustainable long-term growth. While the residential sector continues to be impacted by restrictive lending conditions, recent macro-economic announcements including the approval of cuts in income tax rates following the Federal election in May 2019, reduction in interest rates and APRA’s announcement of changes to its residential mortgage lending guidelines would prove positive in an improved market. Despite a general improvement in enquiry from potential buyers of the Group’s products, we expect the market to take some time to normalise, with steady employment growth, record low interest rates and high investment in infrastructure by Government offset by the broad uncertainty driven by reduced credit availability, weak consumer sentiment and low wages growth. We remain cautious about the timing of recovery in the residential market. However, our strong pipeline of projects, and the underlying fundamentals of the residential property sector, means that Peet is well positioned to deliver supply to the market as demand improves and lending conditions normalise. 04. EARNINGS PER SHARE Basic and diluted earnings per share 2019 Cents 9.79 2018 Cents 10.02 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 2019. The weighted average number of shares on issue used to calculate earnings per share is discussed at note 7 to the Financial Report. 05. SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS There were no significant changes in the state of affairs of the Group during the year. 06. MATTERS SUBSEQUENT TO THE END OF THE FINANCIAL YEAR 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. 16 Calculated as (Total interest-bearing liabilities (including land vendor liabilities) less cash) / (Total assets less cash, less intangible assets). 40 DIRECTORS’ REPORTYear ended 30 June 2019PEET LIMITED | ANNUAL REPORT 2019 For personal use only07. DIVIDENDS In August 2018, the Directors declared a final dividend of 3.0 cents per share, fully franked, in respect of the year ended 30 June 2018. The dividend of $14.7 million was paid on Friday, 5 October 2018. In February 2019, the Directors declared an interim dividend of 2.0 cents per share, fully franked, in respect to the year then ending 30 June 2019. The dividend of $9.7 million was paid on Tuesday, 9 April 2019. Subsequent to the year end, the Directors declared a final dividend for FY19 of 3.0 cents per share, fully franked. This brings the total dividend for FY19 to 5.0 cents per share, fully franked which is consistent with FY18 dividend (5 cents per share, fully franked). The dividend is to be paid on Monday, 7 October 2019, with a record date of Thursday, 19 September 2019. The Directors have resolved to keep the Company’s Dividend Reinvestment Plan deactivated. 08. 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, which is the responsibility of the relevant contractor undertaking the works, and the remainder of the Group’s activities fall below the reporting thresholds for the FY19 reporting period. 09. 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. 41 ANNUAL REPORT 2019 | PEET LIMITEDFor personal use only10. DIRECTORS’ MEETINGS The number of meetings of Directors (including meetings of committees of Directors) held during the year and the number of meetings attended by each Director were as follows: 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 11 11 11 11 11 11 11 11 10 11 10 11 – – 6 6 – 6 – – 6 6 – 6 – – – 3 3 3 – – – 3 2 3 1 1 1 1 1 1 1 1 1 0 1 1 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 W Lennon and Mr R J McKinnon will retire by rotation and offer themselves for re-election. Your Board of Directors recommend the re-election of Mr A W Lennon and Mr R J McKinnon. 42 DIRECTORS’ REPORTYear ended 30 June 2019PEET LIMITED | ANNUAL REPORT 2019 For personal use only12. REMUNERATION Dear Shareholder, Peet is pleased to present its Remuneration Report for the year ended 30 June 2019. 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. Peet achieved an operating net profit after tax of $47.5 million for the 2019 financial year, compared to $49.1 million in the previous year. During the year, Peet secured several new projects, embarked on an on-market share buy back and further diversified its debt capital strengthening its balance sheet. 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. While the statutory financial statements show total revenue of $249.5 million and earnings before interest, tax, depreciation and amortisation (EBITDA) of $86.0 million, Peet management remains responsible for a greater 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 $249.5 million and EBITDA of $86.0 million, the properties that Peet is also responsible for within its Fund Management and Joint Arrangement Businesses generated revenues of $389.5 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 2019 was the same as for the previous year. • There were no increases in the base pay of the other non-director KMP during the year ended 30 June 2019. • Short–term incentives will be paid to the KMP in respect of the year ended 30 June 2019. 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. However, the quantum of short-term incentives paid to KMP reduced by 19%, compared to that paid in respect to the financial year ended 30 June 2018. • During the year, long-term incentive performance conditions were tested as at 30 June 2018 resulting in the partial vesting of performance rights. The vesting was met by way of ordinary shares acquired on market during the 2019 financial year. Peet also takes the opportunity to confirm that the MD’s base pay for the year ending 30 June 2020 will be the same as 2019, 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 2020 base pays of all other KMP will remain the same as their 2019 base pays. We encourage our shareholders to use the cash value of remuneration realised table on page 47 to assess the remuneration outcomes for KMP in the year ended 30 June 2019 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 2019 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 43 ANNUAL REPORT 2019 | PEET LIMITEDFor personal use only13. REMUNERATION REPORT (AUDITED) The Remuneration report is set out under the following main headings: 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 Position Managing Director and Chief Executive Officer Chief Investment Officer Group Company Secretary B C Fullarton 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 Terms of Agreement Superannuation1 Termination Benefit2,3 Base pay including B D Gore On-going renewed 5 August 2011 $937,300 Refer below4 P J Dumas On-going commenced 4 February 2008 $485,000 3 months base pay inclusive of superannuation D Scafetta On-going commenced 10 June 1998 $350,000 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 2 3 4 Base pays, inclusive of superannuation, for the year ended 30 June 2019. Base pays are reviewed annually by the Remuneration Committee. 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. 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). 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 remunera- tion-related arrangements was disclosed to the market on 5 August 2011 with certain parts approved by shareholders at the 2011 AGM. 44 DIRECTORS’ REPORTYear ended 30 June 2019PEET LIMITED | ANNUAL REPORT 2019 For personal use only13. REMUNERATION REPORT (AUDITED) (CONTINUED) B. PRINCIPLES USED TO DETERMINE THE NATURE AND AMOUNT OF REMUNERATION 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. For the purpose of assessing Executives’ eligibility to short-term incentives, the Remuneration Committee and Board have traditionally agreed to the use of a balanced scorecard. This methodology will continue to be used for the 2020 financial year, and will comprise a combination of financial and non-financial key performance indicators. 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 were also used for the 2019 financial year and will continue to be used for the 2020 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. NEDs’ fees (including the Chairman’s fees) Fees and payments to NEDs reflect the demands which are made on, and the responsibilities of, the NEDs. NEDs’ fees and payments are reviewed periodically by the Remuneration Committee and the Board. The Remuneration Committee considers, as appropriate, the advice of independent remuneration consultants to ensure NEDs’ fees and payments are appropriate and in line with the market. NEDs do not receive share options or performance rights. The NEDs’ remuneration is inclusive of committee fees and fees for their membership on any subsidiary Boards. The fees payable to NEDs and the Chairman of the Remuneration Committee and the Chairman of the Audit and Risk Management Committee were last amended with effect from 1 July 2018 (after last being amended with effect from 1 July 2014). NEDs may also be entitled to fees where they represent Peet on the Board of Syndicates. 45 ANNUAL REPORT 2019 | PEET LIMITEDFor personal use only13. REMUNERATION REPORT (AUDITED) (CONTINUED) NEDs’ fees are determined within an aggregate Directors’ fee pool limit, which is periodically recommended for 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. NEDs’ fees for the 2020 financial year will be the same as the 2019 financial year. 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 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. 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 2019 financial year. Short-term performance incentives (“STI”) Executives have a target STI opportunity depending on the accountabilities of their specific role and impact on the Group’s performance. The maximum target bonus opportunity for the Executives for the years ended 30 June 2019 and 2018 ranged between 50% and 100% of the relevant Executive’s base pay. However, the Board of Directors has the discretion to pay over and above these amounts. Each year, the Remuneration Committee considers the appropriate targets and key performance indicators (“KPIs”) to link to the STI plan and the level of payout if targets are met for the Managing Director and Chief Executive Officer (“MD”). This may include setting any maximum payout under the STI plan and minimum levels of performance to trigger payment of STI. The MD will then set the STI KPIs to apply to the other Executives. KPIs for each Executive are set by reference to the following criteria based on their specific role: • financial; • strategy; • stakeholder engagement; • people and processes improvements; and • health, safety and environment. 46 DIRECTORS’ REPORTYear ended 30 June 2019PEET LIMITED | ANNUAL REPORT 2019 For personal use only13. REMUNERATION REPORT (AUDITED) (CONTINUED) For the year ended 30 June 2019, the MD and other Executives were assessed as follows against the KPIs: Category Financial Strategic Stakeholder Weighting % Achieved % Forfeited MD Executives MD Executives MD Executives 70.0% 65.0% to 80% 49.0% 45.5% to 59.0% 21.0% 19.5% to 21.0% 10.0% 7.5% to 35.0% 10.0% 6.0% to 25.0% 7.5% 0.0% to 2.5% 7.5% 0.0% to 2.5% 0.0% 0.0% 0.0% 0.0% 0.0% to 10.0% 0.0% 0.0% to 2.5% 0.0% People, processes and culture 7.5% 0.0% to 12.5% 7.5% 0.0% to 10.0% Health, safety and environment 5.0% 0.0% to 12.5% 5.0% 0.0% to 12.5% 100.0% 100.0% 79.0% 70.5% to 79.0% 21.0% 21.0% to 29.5% For the year ended 30 June 2018, the KPI’s linked to STI plan were based on similar criteria. 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 2019 and 2018 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’. 47 ANNUAL REPORT 2019 | PEET LIMITEDFor personal use only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 49. 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 Value of PRs vested3 Bonus2 Other4 Superannuation Total DIRECTORS A W Lennon T J Allen V Krause R J McKinnon A J Lennon B D Gore Total 2019 2018 2019 2018 2019 2018 2019 2018 2019 2018 2019 2018 2019 2018 231,857 216,847 143,167 136,283 92,939 86,055 115,770 108,886 152,939 146,055 916,769 917,251 1,653,441 1,611,377 OTHER KEY MANAGEMENT PERSONNEL P J Dumas D Scafetta B C Fullarton Total 2019 2018 2019 2018 2019 2018 2019 2018 460,000 460,000 329,469 329,951 415,000 415,000 1,204,469 1,204,951 – – – – – – – – – – – – – – – – – – – – 740,467 918,554 740,467 918,554 205,155 261,900 138,250 161,000 165,000 198,000 508,405 620,900 1,040,125 856,369 1,040,125 856,369 – 259,844 194,197 148,470 244,135 201,004 438,332 609,318 – – – – – – – – – – 10,000 10,000 10,000 10,000 – – – – – – – – 24,462 20,453 13,601 12,947 8,829 8,175 10,998 10,344 8,829 8,175 20,531 20,049 87,250 80,143 25,000 25,000 20,531 20,049 25,000 25,000 70,531 70,049 256,319 237,300 156,768 149,230 101,768 94,230 126,768 119,230 161,768 154,230 2,727,892 2,722,223 3,531,283 3,476,443 690,155 1,006,744 682,447 659,470 849,135 839,004 2,221,737 2,505,218 1 2 3 4 Cash salary and fees, as well as fees paid to Directors for their directorship on Syndicate Boards. All cash bonuses are earned in the financial year to which they relate and are paid during the following financial year. Amount paid by the Company in order to settle the PRs exercised during years ended 30 June 2018 and 2019. The Company purchased ordinary shares in the Co mpany on-market on behalf of KMP. Other includes termination benefits, long service payments, motor vehicle costs, car-parking and other benefits. 48 DIRECTORS’ REPORTYear ended 30 June 2019PEET LIMITED | ANNUAL REPORT 2019 For personal use only13. REMUNERATION REPORT (AUDITED) (CONTINUED) 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 Bonus2 Other3 Superannuation Cash salary and fees1 $ 231,857 216,847 143,167 136,283 92,939 86,055 115,770 108,886 152,939 146,055 $ – – – – – – – – – – $ – – – – – – – – – – DIRECTORS AW Lennon T J Allen V Krause R J McKinnon A J Lennon B D Gore Total 2019 2018 2019 2018 2019 2018 2019 2018 2019 2018 2019 2018 2019 2018 916,769 740,467 917,251 918,554 1,653,441 740,467 1,611,377 918,554 10,000 10,000 10,000 10,000 OTHER KEY MANAGEMENT PERSONNEL P J Dumas D Scafetta B C Fullarton Total 2019 2018 2019 2018 2019 2018 2019 2018 460,000 205,155 460,000 261,900 329,469 138,250 329,951 161,000 415,000 165,000 415,000 198,000 1,204,469 508,405 1,204,951 620,900 – – – – – – – – Share-based payments Shares/ Options / Performance Rights4 Termination benefits $ 24,462 20,453 13,601 12,947 8,829 8,175 10,998 10,344 8,829 8,175 20,531 20,049 87,250 80,143 25,000 25,000 20,531 20,049 25,000 25,000 70,531 70,049 $ – – – – – – – – – – 229,121 972,099 229,121 972,099 77,273 302,842 46,470 182,122 58,419 228,953 182,162 713,917 $ – – – – – – – – – – – – – – – – – – – – – – 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. Total $ 256,319 237,300 156,768 149,230 101,768 94,230 126,768 119,230 161,768 154,230 1,916,888 2,837,953 2,720,279 3,592,173 767,428 1,049,742 534,720 693,122 663,419 866,953 1,965,567 2,609,817 49 ANNUAL REPORT 2019 | PEET LIMITEDFor personal use only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 as follows: Fixed remuneration At risk STI At risk LTI 2019 2018 2019 2018 20191 20181 DIRECTORS A W Lennon T J Allen V Krause R J McKinnon A J Lennon B D Gore 100% 100% 100% 100% 100% 49% OTHER KEY MANAGEMENT PERSONNEL P J Dumas D Scafetta B C Fullarton 63% 65% 66% 100% 100% 100% 100% 100% 33% 46% 51% 51% – – – – – 39% 27% 26% 25% – – – – – 33% 25% 23% 23% – – – – – 12% 10% 9% 9% – – – – – 34% 29% 26% 26% 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. 50 DIRECTORS’ REPORTYear ended 30 June 2019PEET LIMITED | ANNUAL REPORT 2019 For personal use only13. REMUNERATION REPORT (AUDITED) (CONTINUED) 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 dates and times 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. 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. 51 ANNUAL REPORT 2019 | PEET LIMITEDFor personal use only13. REMUNERATION REPORT (AUDITED) (CONTINUED) 2 3 4 3 4 3 5 3 5 3 4 3 4 3 5 3 5 Notes date of report exercisable at Vested and of report Balance at date Lapsed/ forfeited 0 0 0 , 0 0 2 1 , 0 0 0 , 0 0 2 , 1 – Exercised – – – – – 4 1 1 , 5 6 0 , 1 7 4 3 , 4 7 8 8 8 2 0 7 8 , – – – – – – – ) 9 4 2 , 1 6 ( ) 1 7 7 , 6 6 8 ( Granted – – – – July 18 Balance as at 1 conditions Vesting PR at Grant Date Value per option/ Exercise Expiry Service Period Performance/ Date of Grant 0 0 0 , 0 0 2 , 1 d e s a b e m i T 2 1 . 1 $ 0 1 . 4 $ A / N o t p U 1 1 0 2 v o N 0 3 7 0 0 2 v o N 0 3 s e v i t u c e x E S N O T P O I e r o G D B 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 6 1 0 2 v o N 3 2 E C O R 8 1 0 2 n u J 0 3 7 4 3 , 4 7 8 h t w o r G M U F 1 3 3 . 1 $ 0 0 . 0 $ 2 3 0 2 v o N 9 2 d e d n e s r y 3 7 1 0 2 v o N 9 2 h t w o r G S P E 0 2 0 2 n u J 0 3 E C O R 9 1 0 2 n u J 0 3 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 d e d n e s r y 3 5 1 0 2 v o N 5 2 e r o G D B I S T H G R E C N A M R O F R E P 8 8 2 , 0 7 8 – h t w o r G M U F 1 4 9 . 0 $ 0 0 . 0 $ 3 3 0 2 v o N 1 2 d e d n e s r y 3 8 1 0 2 v o N 1 2 h t w o r G S P E 1 2 0 2 n u J 0 3 : 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 52 3 0 1 9 6 2 , 7 7 2 , 5 3 1 5 , ) 7 7 0 , 6 0 1 ( ) 8 4 0 2 3 2 , , 1 ( 2 4 2 , 7 0 5 , 1 3 0 1 , 9 6 4 , 1 7 7 2 , 5 3 3 6 , ) 7 7 0 , 6 0 1 ( ) 8 4 0 2 3 2 , , 1 ( 2 4 2 , 7 0 5 , 1 0 6 1 , 6 6 9 , 4 0 6 1 , 6 6 1 , 6 – – – 6 4 5 , 9 7 7 5 2 9 , 9 3 6 4 5 9 6 3 6 , – – – – – – 3 0 1 , 9 6 2 3 0 1 9 6 2 , ) 8 2 8 , 4 4 ( ) 7 7 2 , 5 6 3 ( – – – 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 d e d n e s r y 3 5 1 0 2 c e D 1 2 E C O R 8 1 0 2 n u J 0 3 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 d e d n e s r y 3 6 1 0 2 c e D 1 2 5 2 9 , 9 3 6 h t w o r G M U F 0 3 . 1 $ 0 0 . 0 $ 2 3 0 2 c e D 5 d e d n e s r y 3 7 1 0 2 c e D 5 h t w o r G S P E 0 2 0 2 n u J 0 3 E C O R 9 1 0 2 n u J 0 3 4 5 9 , 6 3 6 – h t w o r G M U F 4 9 . 0 $ 0 0 . 0 $ 3 3 0 2 v o N 1 2 d e d n e s r y 3 8 1 0 2 v o N 1 2 h t w o r G S P E 1 2 0 2 n u J 0 3 s e v i t u c e x E r e h t O l a t o T DIRECTORS’ REPORTYear ended 30 June 2019PEET LIMITED | ANNUAL REPORT 2019 For personal use only Notes date of report exercisable at Vested and of report Balance at date July 18 Balance as at 1 conditions Vesting PR at Grant Date Value per option/ Exercise Expiry : 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 l e b e l b a t e h T 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 7 0 0 2 v o N 0 3 – ) 9 4 2 , 1 6 ( ) 1 7 7 , 6 6 8 ( 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 d e d n e s r y 3 5 1 0 2 v o N 5 2 e r o G D B 8 8 2 , 0 7 8 – h t w o r G M U F 1 4 9 . 0 $ 0 0 . 0 $ 3 3 0 2 v o N 1 2 d e d n e s r y 3 8 1 0 2 v o N 1 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 6 1 0 2 v o N 3 2 7 4 3 , 4 7 8 h t w o r G M U F 1 3 3 . 1 $ 0 0 . 0 $ 2 3 0 2 v o N 9 2 d e d n e s r y 3 7 1 0 2 v o N 9 2 3 0 1 , 9 6 2 7 7 2 , 5 3 1 , 5 ) 7 7 0 , 6 0 1 ( ) 8 4 0 , 2 3 2 , 1 ( 2 4 2 , 7 0 5 , 1 3 0 1 , 9 6 4 , 1 7 7 2 , 5 3 3 , 6 ) 7 7 0 , 6 0 1 ( ) 8 4 0 , 2 3 2 , 1 ( 2 4 2 , 7 0 5 , 1 0 6 1 , 6 6 9 , 4 0 6 1 , 6 6 1 , 6 3 0 1 , 9 6 2 3 0 1 , 9 6 2 ) 8 2 8 , 4 4 ( ) 7 7 2 , 5 6 3 ( 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 d e d n e s r y 3 5 1 0 2 c e D 1 2 4 5 9 , 6 3 6 – h t w o r G M U F 4 9 . 0 $ 0 0 . 0 $ 3 3 0 2 v o N 1 2 d e d n e s r y 3 8 1 0 2 v o N 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 d e d n e s r y 3 6 1 0 2 c e D 1 2 5 2 9 , 9 3 6 h t w o r G M U F 0 3 . 1 $ 0 0 . 0 $ 2 3 0 2 c e D 5 d e d n e s r y 3 7 1 0 2 c e D 5 Service Period Performance/ o t p U 1 1 0 2 v o N 0 3 8 1 0 2 n u J 0 3 9 1 0 2 n u J 0 3 0 2 0 2 n u J 0 3 1 2 0 2 n u J 0 3 8 1 0 2 n u J 0 3 9 1 0 2 n u J 0 3 0 2 0 2 n u J 0 3 1 2 0 2 n u J 0 3 Date of Grant S T H G I R E C N A M R O F R E P s e v i t u c e x E S N O I T P O e r o G D B s e v i t u c e x E r e h t O l a t o T E C O R E C O R h t w o r G S P E h t w o r G S P E E C O R E C O R h t w o r G S P E h t w o r G S P E 2 3 4 3 4 3 5 3 5 3 4 3 4 3 5 3 5 NOTE 1 13. REMUNERATION REPORT (AUDITED) (CONTINUED) – – – – – – – 4 1 1 , 5 6 0 , 1 7 4 3 , 4 7 8 8 8 2 , 0 7 8 6 4 5 , 9 7 7 5 2 9 , 9 3 6 4 5 9 , 6 3 6 Lapsed/ forfeited – – – – – – – 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 25 November 2015, 23 November 2016, 29 November 2017 and 21 November 2018, being the dates of Peet Limited’s, 2014, 2015, 2016, 2017 and 2018 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. 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. Granted – – – – – – – 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 relevant 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 Target – medium Medium – maximum Maximum 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% $60 million to $100 million Pro-rata between 50% and 70% $100 million to $150 million Pro-rata between 70% and 100% Greater than $150 million 100% The Group achieved FUM growth of $230.7 million for the three-year performance period ended 30 June 2018. Accordingly, the performance condition was fully met and on 21 August 2018 the Directors resolved that 100% of the FY16 PRs thereto vested. The FY17, FY18 and FY19 PRs remain unvested. 53 ANNUAL REPORT 2019 | PEET LIMITEDFor personal use only 13. REMUNERATION REPORT (AUDITED) (CONTINUED) NOTE 4 These PRs are convertible to ordinary shares on a 1:1 basis, with 60% subject to the ROCE vesting condition, measured over a three-year period from 1 July 2015 to 30 June 2018 (“FY16 Performance Period”) and 1 July 2016 to 30 June 2019 (“FY17 Performance Period”), respectively. ROCE is measured as the average of the below formula calculated on an annual basis over the relevant Performance Period: EBIT Average (Capital Employed) Where: EBIT means the earnings before interest, tax, write-downs of inventories and development costs and increases in the carrying value of inventories for the relevant financial year. Profits from associates are to be grossed up so as to be an EBIT equivalent. Capital Employed means the sum of (bank debt, corporate bonds, contributed equity, minority interests and retained earnings and less cash) at the start and end of the relevant financial year. Peet syndicates which are treated as subsidiaries under accounting standards will be treated as syndicates in the calculation of ROCE. Of the FY16 PRs subject to ROCE, the proportion to vest will be as follows: Performance level Less than 75% of the target 75% of the target 75% to 85% of the target 85% to 100% of the target 100% to 110% of the target Proportion of performance rights that may be eligible to vest 0% 30% Pro-rata between 30% and 50% Pro-rata between 50% and 70% Pro-rata between 70% and 100% Greater than 110% of the target 100% The Group achieved underlying ROCE of 13.75% against the target of 12.93% for the three-year performance period ended 30 June 2018. Accordingly, the ROCE performance condition attached to the FY16 PRs was partially met and on 21 August 2018 the Directors resolved that 89.1% of the FY16 PRs relating thereto vested. Of the FY17 PRs subject to ROCE, the proportion to vest will be as follows: Performance level Less than 90% of the target 90% of the target 90% to 95% of the target 95% to 100% of the target 100% to 105% of the target Proportion of performance rights that may be eligible to vest 0% 30% Pro-rata between 30% and 50% Pro-rata between 50% and 65% Pro-rata between 65% and 100% Greater than 105% of the target 100% The FY17 PRs remain unvested. 54 DIRECTORS’ REPORTYear ended 30 June 2019PEET LIMITED | ANNUAL REPORT 2019 For personal use only13. REMUNERATION REPORT (AUDITED) (CONTINUED) NOTE 5 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”) and 1 July 2018 to 30 June 2021 (“FY19 Performance Period”), respectively. The EPS growth condition will be measured as the average growth in operating EPS over the relevant Performance Period, with the EPS derived for the previous financial year as the base year. 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 carrying value of inventories during the relevant financial year, and is subject to other adjustments at the Board’s discretion. EPS growth is then compared to the Board’s internal target EPS growth for the FY18 Performance Period and the FY19 Performance Period, respectively. Of the PRs subject to EPS growth, the proportion to vest will be as follows: Performance level Less than 80% of the EPS growth target 80% of the EPS growth target 80% to 100% of the EPS growth target 100% to 120% of the EPS growth target Proportion of performance rights that may be eligible to vest 0% 50% Pro-rata between 50% and 80% Pro-rata between 80% and 100% Greater than 120% of the EPS growth target 100% The FY18 and FY19 PRs remain unvested. 55 ANNUAL REPORT 2019 | PEET LIMITEDFor personal use only13. REMUNERATION REPORT (AUDITED) (CONTINUED) 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 year1 Balance at end of the year Vested and exercisable at the end of the year DIRECTORS A W Lennon T J Allen V Krause R J McKinnon A J Lennon B D Gore – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 4,067,481 870,288 (866,771) (61,249) 4,009,749 1,200,000 OTHER KEY MANAGEMENT PERSONNEL P J Dumas D Scafetta B C Fullarton 890,256 535,377 673,046 270,195 162,488 204,271 – (161,831) (203,446) (19,016) (11,436) (14,376) 1,141,435 269,103 524,598 659,495 – – 1 Includes performance rights for which performance conditions were not met for the performance period. During the year ended 30 June 2019, 1,501,151 PRs (2018: 1,204,578) had vested and 1,232,048 (2018: 1,204,578) were exercised by KMP at $ Nil exercise price. In order to settle the PRs exercised during year ended 30 June 2019, the Company purchased ordinary shares in the Company on-market on behalf of KMP. Since 30 June 2019, no PRs were vested. No other options and PRs have been issued. Refer note 25 of the financial report for the total options and PRs outstanding. 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: 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 2018 49,112 9.6% 49,112 9.6% 10.02 9.6% 10.02 9.6% 5.00 1.32 10% 2019 47,549 (3.2%) 47,549 (3.2%) 9.79 (2.3%) 9.79 (2.3%) 5.00 1.12 ( 15.1%) Growth% cents per share Growth% cents per share Growth% cents per share $ Growth% (14.8%) (18.3%) 27.7% 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 56 DIRECTORS’ REPORTYear ended 30 June 2019PEET LIMITED | ANNUAL REPORT 2019 For personal use only13. REMUNERATION REPORT (AUDITED) (CONTINUED) Details of remuneration: cash bonuses, options and PRs 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 Vested1 % Forfeited1,2 % Financial years in which options/PRs may vest Maximum total value of grant yet to expense $ DIRECTORS A W Lennon T J Allen V Krause R J McKinnon A J Lennon B D Gore – – – – – – – – – – 79% 21% OTHER KEY MANAGEMENT PERSONNEL P J Dumas 71% 29% D Scafetta 79% 21% B C Fullarton 75% 25% – – – – – 2019 2018 2017 2016 2019 2018 2017 2016 2019 2018 2017 2016 2019 2018 2017 2016 – – – – – – – – – – – – – – – – 93.4% 6.6% – – – – – – 93.4% 6.6% – – – – – – 93.4% 6.6% – – – – – – 93.4% 6.6% – – – – – 2021 2020 2019 2019 2021 2020 2019 2019 2021 2020 2019 2019 2021 2020 2019 2019 – – – – – 736,339 851,780 – – 228,608 258,674 – – 167,999 155,560 – – 172,831 195,561 – – 1 2 Includes performance rights for which performance conditions were met for the performance period ended 30 June 2018 and confirmed by the Directors after balance date. Includes performance rights for which performance conditions were not met for the performance period. 57 ANNUAL REPORT 2019 | PEET LIMITEDFor personal use onlyDIRECTORS’ REPORT Year ended 30 June 2019 13. REMUNERATION REPORT (AUDITED) (CONTINUED) 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 1,232,048 PRs over shares in the Company and received shares in the Company during the 2019 financial year. Please refer to previous pages of the Remuneration Report for commentary on vesting conditions met during the performance period ended 30 June 2019. DIRECTORS B D Gore OTHER KEY MANAGEMENT PERSONNEL P J Dumas D Scafetta B C Fullarton Remuneration consisting of options & performance rights1 Value of options & performance rights granted2 Value of options & performance rights exercised3 12% 10% 9% 9% 818,071 844,234 253,983 152,739 192,015 - 154,873 194,698 1 2 3 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. 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. 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. Voting and comments made at the Company’s 2018 annual general meeting The instructions given to validly appointed proxies in respect of the resolution pertaining to the Company’s 2018 Remuneration Report were as follows: For 216,025,881 96.8% Against 6,847,574 3.1% Proxy’s discretion 210,502 0.1% The motion was carried as an ordinary resolution on show of hands. Abstain 142,646 58 PEET LIMITED | ANNUAL REPORT 2019 For personal use only 13. REMUNERATION REPORT (AUDITED) (CONTINUED) Interests in the shares and bonds of the Company Shares Balance at the start of the year 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 DIRECTORS A W Lennon T J Allen V Krause R J McKinnon B D Gore A J Lennon 97,314,685 92,054 – 50,000 5,237,046 1,331,344 OTHER KEY MANAGEMENT PERSONNEL P J Dumas D Scafetta B C Fullarton 1,087,882 1,118,158 400,404 – – – – 866,771 – – 161,831 203,446 – – – – – – – – – 97,314,685 92,054 – 50,000 6,103,817 1,331,344 1,087,882 1,279,989 603,850 4,875 5,114 1,000 500 – 500 – – – Since 30 June 2019, no PRs were vested. No other options and PRs have been issued. End of Remuneration report (audited) Bonds Other changes during the year – (4,614) – – – – – – – Balance at the end of the year 4,875 500 1,000 500 – 500 – – – 59 ANNUAL REPORT 2019 | PEET LIMITEDFor personal use onlyDIRECTORS’ REPORT Year ended 30 June 2019 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. 15. NON-AUDIT SERVICES The Company may decide to employ the auditor on assignments additional to their statutory audit duties where the 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 22 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 61. 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 28 August 2019 6060 PEET LIMITED | ANNUAL REPORT 2019 PEET LIMITED | ANNUAL REPORT 2019 For personal use onlyAUDITOR’S INDEPENDENCE DECLARATION Ernst & Young 11 Mounts Bay Road Perth WA 6000 Australia GPO Box M939 Perth WA 6843 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 Tel: +61 8 9429 2222 Fax: +61 8 9429 2436 ey.com/au Independent Auditor's Report to the Members of Peet Limited Report on the Audit of the Financial Report Auditor’s Independence Declaration to the Directors of Peet Limited Opinion As lead auditor for the audit of the financial report of Peet Limited for the financial year ended We have audited the financial report of Peet Limited (the Company) and its subsidiaries (collectively the 30 June 2019, I declare to the best of my knowledge and belief, there have been: Group), which comprises the consolidated balance sheet as at 30 June 2019, the consolidated statement of profit or loss and other comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended, notes to the financial statements, including a summary of significant accounting policies, and the directors' declaration. 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. In our opinion, the accompanying financial report of the Group is in accordance with the Corporations Act 2001, including: This declaration is in respect of Peet Limited and the entities it controlled during the financial year. giving a true and fair view of the consolidated financial position of the Group as at 30 June 2019 a) and of its consolidated financial performance for the year ended on that date; and b) complying with Australian Accounting Standards and the Corporations Regulations 2001. Basis for Opinion Ernst & Young We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report. We are independent of the Group in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other G Lotter ethical responsibilities in accordance with the Code. Partner 28 August 2019 We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key Audit Matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial report of the current year. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, but we do not provide a separate opinion on these matters. For each matter below, our description of how our audit addressed the matter is provided in that context. We have fulfilled the responsibilities described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report, including in relation to these matters. Accordingly, our audit included the performance of procedures designed to respond to our assessment of the risks of material misstatement of the financial report. The results of our audit procedures, including the procedures performed to address the matters below, provide the basis for our audit opinion on the accompanying financial report. A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation 64 A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation 23 61 ANNUAL REPORT 2019 | PEET LIMITEDFor personal use onlyCORPORATE GOVERNANCE STATEMENT A copy of the Group’s corporate governance policies and practices in place during the financial year ended 30 June 2019 is available at the following link: www.peet.com.au/corporate-governance-statement-2019 Unless otherwise stated, these are consistent with the 3rd edition of the ASX Corporate Governance Council’s Principles and Recommendations (released March 2014). 62 PEET LIMITED | ANNUAL REPORT 2019 For personal use onlyTHIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK 63 ANNUAL REPORT 2019 | PEET LIMITEDFor personal use onlyCONTENTS Consolidated Statement of Profit or Loss and Other Comprehensive Income Consolidated Balance Sheet Consolidated Statement of Changes in Equity Consolidated Statement of Cash Flows Notes to the Consolidated Financial Statements 66 67 68 69 70 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 28 August 2019. 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 64 FINANICAL REPORTYear ended 30 June 2019PEET LIMITED | ANNUAL REPORT 2019 For personal use onlyTHIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK 65 ANNUAL REPORT 2019 | PEET LIMITEDFor personal use onlyCONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 JUNE 2019 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 2019 $’000 249,545 (190,934) (8,538) 13,329 63,402 (16,052) 47,350 47,549 (199) 47,350 631 (1,560) 279 (650) 46,700 46,899 (199) 46,700 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 9.79 Cents 10.02 The above consolidated statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes. 66 FINANICAL REPORTYear ended 30 June 2019PEET LIMITED | ANNUAL REPORT 2019 For personal use only CONSOLIDATED BALANCE SHEET AS AT 30 JUNE 2019 Current assets Cash and cash equivalents Receivables Contract assets 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 Derivative financial instruments 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 12 9 11 9 10 13 14 17 17 15 14 17 17 8 15 18 18 2019 $’000 33,606 18,999 6,234 105,750 164,589 100,007 412,919 233,668 5,237 5,704 757,535 922,124 65,715 6,350 5,083 221 8,915 6,047 92,331 - 240,103 5,310 24,213 216 269,842 362,173 559,951 378,916 (5,051) 168,722 542,587 17,364 559,951 2018 $’000 76,749 10,770 16,622 119,259 223,400 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 The above consolidated balance sheet should be read in conjunction with the accompanying notes. 67 ANNUAL REPORT 2019 | PEET LIMITEDFor personal use onlyCONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2019 Contributed equity $’000 385,955 Notes – – – – – – Reserves $’000 1,417 – 1,587 1,587 (1,883) 2,276 – Balance at 1 July 2017 Profit for the year Other comprehensive income Total comprehensive income for the year Vesting of performance rights Share-based payments Dividends paid Balance at 30 June 2018 385,955 3,397 Retained profits $’000 126,258 49,112 – 49,112 – – (24,499) 150,871 Total $’000 513,630 49,112 1,587 50,699 (1,883) 2,276 (24,499) 540,223 Non-controlling interest Total equity $’000 11,692 (472) – (472) – – – 11,220 $’000 525,322 48,640 1,587 50,227 (1,883) 2,276 (24,499) 551,443 Balance at 1 July 2018 – as previously reported Effect of adopting new accounting standards (Note 2e) Balance at 1 July 2018 – restated Profit for the year Non-reciprocal contribution to a controlled entity Other comprehensive income Total comprehensive income for the year Share buyback, including transaction costs Vesting of performance rights Share-based payments Dividends paid 385,955 3,397 150,871 540,223 11,220 551,443 – – (5,332) (5,332) – (5,332) 385,955 3,397 145,539 – 47,549 (6,343) (650) – – 534,891 47,549 (6,343) (650) 11,220 (199) 6,343 – 546,111 47,350 – (650) (6,993) 47,549 40,556 6,144 46,700 (7,039) – – – – (2,085) 630 – – – – (24,366) 168,722 (7,039) (2,085) 630 (24,366) 542,587 – – – – 17,364 (7,039) (2,085) 630 (24,366) 559,951 – – – – Balance at 30 June 2019 378,916 (5,051) The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes. 68 FINANICAL REPORTYear ended 30 June 2019PEET LIMITED | ANNUAL REPORT 2019 For personal use onlyCONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 30 JUNE 2019 Notes Cash flows from operating activities Receipts from customers (inclusive of GST) Payments to suppliers and employees (inclusive of GST) Payments for purchase of land held for sale Interest and other finance costs paid Distributions and dividends received from associates and joint ventures Interest received Income tax paid Net cash (outflow)/inflow from operating activities 20 Cash flows from investing activities Payments for property, plant and equipment Payments for investment in associates and joint ventures Proceeds from capital returns from associates and joint ventures Loans to associates and joint ventures Repayment of loans by associates and joint ventures Net cash outflow from investing activities Cash flows from financing activities Dividends paid Repayment of borrowings Proceeds from borrowings Proceeds from issue of Peet bonds and notes (net of transaction costs) Share buyback (including transaction costs) Net cash outflow from financing activities Net decrease 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 2019 $’000 269,825 (186,511) (58,501) (21,134) 12,280 592 (28,605) (12,054) (1,812) (6,365) 1,479 (29,690) 9,702 (26,686) (24,366) (48,500) 1,926 73,576 (7,039) (4,403) (43,143) 76,749 33,606 2018 $’000 325,252 (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 The above consolidated statement of cash flows should be read in conjunction with the accompanying notes. 69 ANNUAL REPORT 2019 | PEET LIMITEDFor personal use only71 71 71 74 75 75 77 78 78 79 82 82 82 85 85 86 86 86 87 88 88 92 93 93 94 95 95 95 96 99 101 101 CONTENTS BASIS OF REPORTING 1. 2. 3. How to read the annual report Reporting entity Basis of preparation PERFORMANCE FOR THE YEAR 4. 5. 6. 7. 8. Segment information Revenue Expenses Earnings per share Taxes Inventories Investments accounted for using the equity method OPERATING ASSETS AND LIABILITIES 9. 10. 11. Receivables 12. Contract assets 13. Payables 14. Land vendor liabilities 15. Provisions 16. Interests in joint operations CAPITAL MANAGEMENT 17. Borrowings and derivative financial instruments 18. Contributed equity and reserves 19. Dividends 20. Reconciliation of profit after income tax to net cash inflow from operating activities 21. Fair value measurement OTHER NOTES 22. Remuneration of auditors 23. Contingencies and commitments 24. Parent entity financial information and subsidiaries 25. Share-based payments 26. Matters subsequent to the end of the financial year 27. Other accounting policies 7070 DIRECTORS’ REPORTYear ended 30 June 2019NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSYear ended 30 June 2019PEET LIMITED | ANNUAL REPORT 2019 PEET LIMITED | ANNUAL REPORT 2019 For personal use onlyBASIS OF REPORTING This section of the financial report sets out the basis of 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 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 nature of the operations and principal activities of the Group are described in the Directors’ Report. Peet Limited is a for-profit entity. 2. BASIS OF PREPARATION The Financial Report is a general purpose financial report which: • has been prepared in accordance with Australian issued by Accounting Standards and the Australian Accounting Standards Board and the Corporations Act 2001; Interpretations • complies with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB); • has been prepared under the historical cost convention, except for derivative instruments and certain financial assets which have been measured at fair value; • 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. a. Principles of consolidation 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 2019. 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); • exposure, or rights, to variable returns from its involvement with the investee; and • the ability to use its power over the investee to affect its returns. The Group re-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control. Consolidation of a subsidiary begins when the Group 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 subsidiary. Profit or loss and each component of other comprehensive income (OCI) are attributed to the equity holders of the parent of the Group and to the non-controlling interests, even if this results in the non-controlling interests having a deficit balance. All intra-group assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation. b. Associates Associates are all entities over which the Group has significant influence but not control, generally accompanying a shareholding of between 20% and 50% of the voting rights. In the case of syndicates, significant influence can exist with a lower shareholding by virtue of the Group’s position as project manager. Investments in associates are accounted for using the equity method of accounting, after i nitially being recognised at cost. The Group’s share of its associates’ post-acquisition profits or losses are recognised in the consolidated statement of profit or loss, and its share of post-acquisition other comprehensive income is recognised in other comprehensive income. The cumulative post-acquisition movements are adjusted against the carrying amount of the investment. Dividends receivable from associates are recognised as a reduction in the carrying amount of the investment. When the Group’s share of losses in an associate equals or exceeds its interest in the associate, including any other long-term receivables, the Group does not unsecured recognise further losses, unless it has incurred obligations or made payments on behalf of the associate. 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. 7171 ANNUAL REPORT 2019 | PEET LIMITEDANNUAL REPORT 2019 | PEET LIMITEDFor personal use only2. BASIS OF PREPARATION (CONTINUED) c. Investments in joint arrangements Joint arrangements are arrangements of which two or 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 applies, for the first time, AASB 15 Revenue from Contracts with Customers (“AASB 15”) and AASB 9 Financial Instruments (“AASB 9”). The nature and effect of these changes are disclosed below. Several other amendments and interpretations apply for the first time in 2019, but do not have a material impact on the Group. (a) AASB 15 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 as a joint operation and as such, the Group recognises its: • assets, including its share of any assets held jointly; • liabilities, including its share of any liabilities incurred jointly; • share of revenue from the sale of the output by the joint operation; and • expenses, including its share of any expenses incurred jointly. AASB 15 establishes a five-step model to account for revenue arising from contracts with customers. Under AASB 15, revenue is recognised at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer. The Group adopted AASB 15 as of 1 July 2018 using the full retrospective method of adoption. Under this approach, the Group has elected to apply the standard only to contracts that are not completed contracts at the beginning of the comparative period being 1 July 2017. Impact of adoption Other than a balance sheet reclassification adjustment relating to the presentation of contract assets and liabilities, the impact of AASB 15 on the Group for the year ended 30 June 2019 is immaterial. In accordance with AASB 15, when either party to a contract has performed, the Group is required to present the contract in the Consolidated Balance Sheet as a contract asset or contract liability depending on the relationship between the Group’s performance and the customer’s payment. The Group is obliged to present any unconditional right to payment as a receivable. Contract assets are considered to be unconditional if the right to receive payment is only conditional on the passage of time. Accordingly, a contract asset is recognised for the earned consideration that is conditional. Under AASB 118, amounts due from customers were previously included in receivables. To the extent the joint arrangement provides the Group with rights to the net assets of the arrangement, the investment is classified as a joint venture and accounted for using the equity method. Under the equity method, the cost of the investment is adjusted by the post-acquisition changes in the Group’s share of the net assets of the venture. d. Changes in ownership interests The Group treats transactions with non-controlling interests that do not result in a gain or loss of control as transactions with equity owners of the Group. A change in 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. e. Changes in accounting policies The accounting policies adopted in the preparation of the financial report are consistent with those followed in the preparation of the Group’s annual financial statements for the year ended 30 June 2018, except for changes arising from the adoption of new accounting standards effective as at 1 July 2018. 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 27(x)). 7272 DIRECTORS’ REPORTYear ended 30 June 2019NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSYear ended 30 June 2019PEET LIMITED | ANNUAL REPORT 2019 PEET LIMITED | ANNUAL REPORT 2019 For personal use only2. BASIS OF PREPARATION (CONTINUED) e. Changes in accounting policies (continued) The impact of the application of AASB 15 is analysed by financial statement line items below. 7 1 0 2 y l u J 1 t A 53,319 – 53,319 n o i t a c fi i s s a l c e r 5 1 B S A A (25,005) 25,005 – 7 1 0 2 y l u J 1 d e t a t s e R 8 1 0 2 y l u J 1 d e t a t s e R 8 1 0 2 y l u J 1 t A 28,314 25,005 53,319 27,392 – 27,392 (16,622) 16,622 – 8 1 0 2 y l u J 1 t A 10,770 16,622 27,392 Receivables Contract assets Total current assets (b) AASB 9 AASB 9 replaces aspects of AASB 139 Financial Instruments (“AASB 139”) that relate to the recognition, classification and measurement of financial assets and financial liabilities, including derecognition, impairment and hedge accounting. AASB 9 also amends other standards dealing with financial instruments such as AASB 7 Financial Instruments: Disclosures. The Group applied AASB 9 with the initial application date being 1 July 2018. The Group has not restated comparative information which continues to be reported under AASB 139. Differences arising from the adoption of AASB 9 have been recognised directly in retained earnings. The nature of the adjustments is described below: Classification and measurement Under AASB 9 debt instruments are measured at fair value through profit or loss, amortised cost or fair value through other comprehensive income (OCI). The classification is based on two criterion: the Group’s business model for managing the assets; and whether the instruments’ contractual cash flows represent ‘solely payments of principal and interest’ on the principal amount outstanding. The assessment of the Group’s business model was done on the date of initial application, 1 July 2018. The assessment of whether contractual cash flows on debt instruments are solely comprised of principal and interest was made based on the facts and circumstances as at the initial recognition of the financial asset. Under AASB 139 all financial assets were classified as loans and receivables carried at amortised cost. Under AASB 9 with the exception of certain loans to associates and joint ventures, all financial assets are classified as financial assets at amortised cost. Under AASB 9, certain loans to associates and joint ventures did not meet the criteria to be classified at amortised cost in accordance with AASB 9 because the cash flows do not represent payments of principal and interest solely and will be reclassified from loans and receivables carried at amortised cost under AASB 139 to financial assets at fair value through profit and loss under AASB 9. There were no changes in the classification of the Group’s financial liabilities. The change in classification of the Group’s financial assets has resulted in a measurement adjustment of $4.9 million arising on adoption of AASB 9 which has been reflected as an adjustment to opening retained earnings of $3.4 million (net of tax) at 1 July 2018. Impairment AASB 9 also changes the accounting for impairment losses for financial assets by replacing AASB 139’s incurred loss approach with a forward-looking expected credit loss (ECL) approach. AASB 9 requires the Group to recognise an allowance for ECL for all debt instruments not held at fair value through profit and loss. For trade receivables and contract assets, the Group has applied AASB 9’s simplified approach and has calculated the expected credit loss based on lifetime expected credit losses. In this regard, the Group has established a provision matrix that is based on the Group’s historical credit loss experience, adjusted for forward-looking factors specific to the debtors and the economic environment. As at 1 July 2018, the Group reviewed and assessed the existing financial assets carried at amortised cost for impairment using reasonable and supportable information. For cash and cash equivalents, all balances were assessed as having low credit risk as they are either on demand or short- term deposits held with reputable financial institutions. Whilst no trade receivables and contract assets were in default at the date of initial application, the Group has recognised additional impairment on the Group’s financial assets carried at amortised cost of $2.8 million which resulted in a reduction in retained earnings of $1.9 million (net of tax) at 1 July 2018. 7373 ANNUAL REPORT 2019 | PEET LIMITEDANNUAL REPORT 2019 | PEET LIMITEDFor personal use only 2. BASIS OF PREPARATION (CONTINUED) e. Changes in accounting policies (continued) Hedge accounting The new hedge accounting rules align the accounting for hedging instruments more closely to the Group’s financial risk management practices. The interest rate swaps in place at 30 June 2019 designated as cash flow hedges under AASB 139 qualify as cash flow hedges under AASB 9 and accordingly are treated as continuing hedges under AASB 9. 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. The impact of the application of AASB 9 is illustrated below. Where an accounting policy is specific to one note, the policy is described in the note to which it relates. 7 1 0 2 y l u J 1 t A n o i t a c fi i s s a l c e r 9 B S A A 86,996 (86,996) t n e m e r u s a e m 9 B S A A – 8 1 0 2 y l u J 1 d e t a t s e R – – 42,288 (2,766) 39,522 – 44,708 (4,852) 39,856 Loans to associates and joint ventures Loans to associates and joint ventures – amortised cost Loans to associates and joint ventures – fair value Other receivables 8,669 Receivables (non-current) Deferred tax asset 95,665 12,825 Opening retained profits 150,871 – – – – – 8,669 (7,618) 88,047 2,285 15,110 (5,332) 145,539 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 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 17); • liquidity risk (note 17); and • interest rate risk (note 17). 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. 7474 DIRECTORS’ REPORTYear ended 30 June 2019NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSYear ended 30 June 2019PEET LIMITED | ANNUAL REPORT 2019 PEET LIMITED | ANNUAL REPORT 2019 For personal use only PERFORMANCE FOR THE YEAR This section focuses on the results and performance of the Group. Company-owned projects The Group acquires parcels of land in Australia, primarily for residential development purposes. Certain land holdings will also produce non-residential blocks of land. 4. SEGMENT INFORMATION Joint arrangements into with government, Joint arrangements are entered statutory authorities and private landowners. The form of these arrangements can vary from project to project but generally involves Peet undertaking the development of land on behalf of the landowner or in conjunction with the co-owner. The Group is typically entitled to ongoing fees for management of the development project and also a share of the profits. Inter-segment transfers and other unallocated Segment revenue, expenses and results include transfers between segments. Such transfers are based on an arm’s length basis and are eliminated on consolidation. The adoption of AASB 10 Consolidated Financial Statements from 1 July 2013, resulted in certain property syndicates being consolidated. These entities however, 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 Group’s consolidated statement of profit or loss. Operating segments are reported in a manner that is consistent with the internal reporting provided to the chief 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. The executive management group assesses the performance of the operating segments based on multiple measures including earnings before interest (including interest and finance charges amortised through cost of sales), tax, depreciation and amortisation (“EBITDA”), earnings before interest (including interest and finance charges amortised through cost of sales) and tax (“EBIT”) and profit after tax. The share of profits from associates and joint ventures is included as segment revenue as it is treated as revenue for internal reporting purposes. The Group operates only in Australia. The executive management group considers the business to have the following reportable business segments: Funds management Peet enters into asset and funds management agreements 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. 7575 ANNUAL REPORT 2019 | PEET LIMITEDANNUAL REPORT 2019 | PEET LIMITEDFor personal use only4. SEGMENT INFORMATION (CONTINUED) 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 4 2 7 , 1 9 2 3 , 3 1 4 7 8 , 2 6 2 ) 6 1 0 , 1 1 ( 6 8 9 , 5 8 ) 5 3 3 , 2 ( 1 5 6 , 3 8 ) 7 1 9 , 9 2 ( ) 9 4 2 , 0 2 ( 2 1 6 , 7 6 2 0 4 , 3 6 ) 2 7 9 , 8 1 ( ) 2 5 0 , 6 1 ( 0 4 6 , 8 4 2 7 4 2 1 1 , 9 4 0 5 3 , 7 4 9 9 1 9 4 5 , 7 4 8 1 0 2 0 0 0 ’ $ 9 1 0 2 0 0 0 ’ $ 8 1 0 2 0 0 0 ’ $ 7 0 0 , 4 8 2 1 2 8 , 7 4 2 9 2 1 , 5 d e t a d i l o s n o C s r e f s n a r t t n e m g e s - r e t n I d e t a c o l l a n u r e h t o d n a i t n o J s t n e m e g n a r r a d e n w o - y n a p m o C s t c e o r p j s d n u F t n e m e g a n a m ) 1 2 7 , 2 1 ( ) 6 6 3 , 2 1 ( 4 3 4 , 6 1 1 5 4 6 7 2 6 5 8 , 5 ) 4 9 0 , 1 1 ( ) 8 5 8 , 0 1 ( ) 3 6 8 , 1 ( 9 1 0 2 0 0 0 ’ $ 2 4 3 3 9 3 8 4 9 , 2 3 8 6 , 3 ) 6 1 0 , 1 1 ( ) 4 4 6 , 0 1 ( ) 2 2 7 , 1 ( 8 1 0 2 0 0 0 ’ $ 9 1 0 2 0 0 0 $ ’ 8 1 0 2 0 0 0 $ ’ 9 1 0 2 0 0 0 $ ’ 8 1 0 2 0 0 0 $ ’ 9 1 0 2 0 0 0 $ ’ 5 2 0 , 6 4 1 8 7 , 8 3 4 4 8 , 7 9 1 0 6 9 , 9 7 1 9 0 0 , 5 3 2 3 1 , 6 2 7 7 8 7 7 2 , 8 9 7 1 , 5 5 ) 5 5 1 ( 9 8 5 , 6 1 8 1 6 3 0 , 5 5 3 8 , 3 4 2 0 7 , 3 1 ) 8 6 ( 4 3 6 , 3 1 - 8 0 1 , 2 - 2 2 1 , 1 6 7 1 8 2 5 , 5 2 4 2 0 0 9 , 7 2 5 9 , 9 9 1 2 8 0 , 1 8 1 3 1 7 , 0 4 4 7 2 , 4 3 5 2 2 , 7 6 ) 0 0 7 , 1 ( 5 2 5 , 5 6 6 9 4 , 8 5 ) 5 9 4 ( 1 0 0 , 8 5 1 4 3 , 8 2 ) 0 5 ( 1 9 2 , 8 2 2 3 4 , 4 2 ) 0 5 ( 2 8 3 , 4 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 t n e m g e s y b e u n e v e R s e i t r a p l a n r e t x e o t l s e a S 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 ( t l u s e r t n e m g e S 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 7676 ) s e a s l f o t s o c h g u o r h t d e s n e p x e 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 l 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 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 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 B E I . 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 : I T B E 1 2 DIRECTORS’ REPORTYear ended 30 June 2019NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSYear ended 30 June 2019PEET LIMITED | ANNUAL REPORT 2019 PEET LIMITED | ANNUAL REPORT 2019 For personal use only 5. REVENUE Project management 2019 $’000 2018 $’000 Revenue from contracts with customers • sales of land and built form 214,032 240,360 • project management and selling services 33,789 43,647 Project management represents a single performance obligation that is satisfied over time for the oversight and management of the development. The consideration receivable under the contract allocated to project management is variable and is measured using an expected value approach subject to a constraint. The transaction price is based on the relative standalone selling price. Revenue is recognised using an output method based on development milestones reached. Payment is received on settlement. • other revenue 1,724 3,612 Selling services 249,545 287,619 Recognition and measurement The main streams of revenue recognised by the Group relate to the sale of land and the provision of management and selling services. Revenue from contracts with customers is recognised when or as the Group transfers control of the goods and services to a customer at an amount that reflects the consideration to which the Group is expected to be entitled in exchange for those goods and services. Revenue is recognised when or as each performance obligation is satisfied at the amount of the transaction price allocated to that performance obligation. If the consideration in the contract includes a variable amount, the Group estimates the amount of the consideration to which it is entitled in exchange for transferring the goods and services to the customer. The variable consideration is estimated at contract inception and constrained until it is highly probable that a significant revenue reversal of the amount of the cumulative revenue recognised will not occur when the associated uncertainty with the variable consideration is subsequently resolved. When a performance obligation is satisfied by transferring a promised good or service to the customer before the customer pays consideration or before payment is due, the Group presents the contract as a contract asset, unless the Group’s rights to the amount of consideration are unconditional, in which case the Group recognises a receivable. The Group recognises contract fulfilment costs as an asset only if the costs relate directly to a contract, the costs generate or enhance resources of the Group that will be used to satisfy future performance obligations and the costs are expected to be recovered. If not capitalised, contract fulfilment costs are expensed as incurred. Sale of land and built form Revenue from the sale of land and built form is recognised on settlement of the sale. This represents the point when control (title) has passed to the customer. A sale service represents a performance obligation to facilitate the sale of an individual lot which is satisfied over the short period of time relating to the procedural steps of finalising the sale of the property to a purchaser. The consideration receivable under the contract allocated to selling services is considered to be variable consideration and is measured on a portfolio basis using an expected value approach subject to a constraint. The transaction price is based on the relative standalone selling price. Payment is received on settlement. Key estimates Constraints on 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 constraint for revenue recognised against selling fees. Percentage completion An analysis of development milestones is performed to determine an appropriate percentage of completion for completed lots. Revenue from related parties included above: 2019 $’000 2018 $’000 Revenue from related parties1 Associates Project management and selling services 23,630 32,017 Syndicate administration services 1,505 1,336 Joint arrangements Project management and selling services 3,738 5,158 28,873 38,511 1 Refer to note 3 for information on related party transactions. 7777 ANNUAL REPORT 2019 | PEET LIMITEDANNUAL REPORT 2019 | PEET LIMITEDFor personal use only6. EXPENSES Related party expenses 2019 $’000 2018 $’000 Profit before income tax includes the following specific expenses: KMP remuneration1 Short-term employee benefits Post-employment benefits Land and development costs 110,268 128,617 Share-based payments Amortised interest and finance expense 11,711 19,685 2019 $’000 4,117 158 411 4,686 2018 $’000 4,366 150 1,686 6,202 Total land and development cost 121,979 148,302 1. Refer to note 3 for information about related party transactions. Depreciation Amortisation Total depreciation and amortisation1 1,233 1,102 2,335 2,604 1,164 3,768 Land and development costs Land and development costs represent the portion of the land and development costs associated with the lots sold during the year (cost of sales). Employee benefits expense2 31,459 34,166 Project management, selling and other operating costs Other expenses Total other expenses Total expenses 16,763 18,923 18,398 18,697 66,620 71,786 190,934 223,856 Finance costs Interest and finance charges paid/ payable Interest on corporate bonds Amount capitalised 1. 2. Refer to note 27 (iii) and (iv) for accounting policies. Refer to note 27 (v) and (vi) for accounting policies. 10,151 10,364 12,609 11,275 (14,222) (11,407) 8,538 10,232 Borrowing costs Borrowing costs incurred for the construction of any qualifying asset are capitalised during the period of time that is required to complete and prepare the asset for its intended use or sale. Other borrowing costs are expensed in the period they are incurred. The capitalisation rate used to determine the amount of finance costs to be capitalised is the weighted average interest rate applicable to the Group’s outstanding borrowings during the year (refer note 17). 7. EARNINGS PER SHARE Profit attributable to the ordinary equity holders of the Company ($’000) Weighted average number of ordinary shares used as the denominator in calculating basic earnings per share Basic and diluted earnings per share (cents) 2019 2018 47,549 49,112 485,658,321 489,980,559 9.79 10.02 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 25 for the number of Performance Rights (PRs) outstanding at 30 June 2019. These PRs are contingently issuable shares and accordingly not included in diluted earnings per share. 7878 DIRECTORS’ REPORTYear ended 30 June 2019NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSYear ended 30 June 2019PEET LIMITED | ANNUAL REPORT 2019 PEET LIMITED | ANNUAL REPORT 2019 For personal use only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 2019 $’000 2018 $’000 18,165 27,144 3,957 (638) 22,122 26,506 (2,188) (3,882) (7,534) - (6,070) (7,534) 16,052 18,972 Deferred income tax expense included in income tax expense comprises: 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 probable that future taxable amounts will be available to utilise those temporary differences and losses. Increase in deferred tax assets Decrease in deferred tax liabilities (4,627) (1,443) (2,747) (4,787) (6,070) (7,534) Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets and 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 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. Tax reconciliation Profit before income tax Tax at Australian tax rate of 30% 63,402 19,021 67,612 20,284 Tax effect of amounts which are not assessable or deductible: Share of net profit of associates Employee benefits Franking credits Sundry items (1,035) (437) (2,024) 527 (913) 118 (806) 289 16,052 18,972 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. 7979 ANNUAL REPORT 2019 | PEET LIMITEDANNUAL REPORT 2019 | PEET LIMITEDFor personal use only $’000 2,692 Other $’000 3,531 Total $’000 10,758 (465) 3,017 2,747 – 2,227 – 6,548 (680) 12,825 (12,825) – 2,227 6,548 12,825 2,285 – – 2,285 2,285 2,227 6,548 15,110 7,053 (1,710) (1,968) 4,627 – – 517 – (3) 279 (3) 4,577 20,013 (20,013) – 8. TAXES (CONTINUED) b. Deferred tax assets Inventory Cash flow hedges Receivables Tax losses At 1 July 2017 Credited/(charged): – to profit or loss – to other comprehensive income Total deferred tax assets $’000 3,352 195 – 3,547 Set off against deferred tax liabilities pursuant to set off provisions At 30 June 2018 At 1 July 2018 Effect of adoption of new accounting standards Balance at 1 July 2018 (restated) Credited/(charged): – to profit or loss – to other comprehensive income – directly to equity 3,547 – 3,547 375 – – $’000 1,183 – (680) 503 503 – 503 877 279 – $’000 – – – – – – – Total deferred tax assets 3,922 1,659 9,338 Set off against deferred tax liabilities pursuant to set off provisions At 30 June 2019 8080 DIRECTORS’ REPORTYear ended 30 June 2019NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSYear ended 30 June 2019PEET LIMITED | ANNUAL REPORT 2019 PEET LIMITED | ANNUAL REPORT 2019 For personal use only 8. TAXES (CONTINUED) Deferred tax liabilities Movements 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 At 1 July 2018 Charged/(credited): – to profit or loss Total deferred tax liabilities Set off against deferred tax liabilities pursuant to set off provisions At 30 June 2019 Interest and finance charges Accrued income $’000 28,547 (2,935) 25,612 $’000 6,518 932 7,450 Share of joint arrangements deferred tax liabilities $’000 3,224 (109) 3,115 Inventory $’000 12,012 (2,675) 9,337 25,612 7,450 9,337 3,115 (3,689) 21,923 (4,909) 2,541 5,481 14,818 1,674 4,789 Other $’000 155 – 155 155 – 155 Total $’000 50,456 (4,787) 45,669 (12,825) 32,844 45,669 (1,443) 44,226 (20,013) 24,213 8181 ANNUAL REPORT 2019 | PEET LIMITEDANNUAL REPORT 2019 | PEET LIMITEDFor personal use only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 addressed in the capital management section. Key estimates Net realisable value 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 2019 $’000 2018 $’000 Carrying amount at 1 July 222,820 213,448 Acquisitions/additional investments Dividends Capital returns Share of profit after income tax 11,278 8,725 (12,280) (10,185) (1,479) 13,329 (3,249) 14,081 Carrying amount at 30 June 233,668 222,820 The Group assesses, at each balance date, the carrying value of investments in associates and joint ventures to ensure the assets are not impaired. 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 2019 $’000 2018 $’000 27,990 66,356 11,404 28,659 76,965 13,635 105,750 119,259 263,345 230,980 83,648 65,926 82,329 62,231 412,919 375,540 518,669 494,799 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. 8282 DIRECTORS’ REPORTYear ended 30 June 2019NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSYear ended 30 June 2019PEET LIMITED | ANNUAL REPORT 2019 PEET LIMITED | ANNUAL REPORT 2019 For personal use only10. INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD (CONTINUED) 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 t e s s a 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 n i t s e r e t n i f o e u l a v g n i y r r a C e r u t n e v t n i o j r o e t a i 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 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 8,967 399,865 117,575 32,578 258,679 71,534 8,624 (2,421) (807) 5,045 35,994 7,705 3,355 29,979 5,144 38,461 4,032 16,092 40,516 3,979 28,815 23,814 8,240 17,031 497 692 99 7,850 168,931 54,149 2,822 119,810 59,905 35,536 5,724 2,862 41,613 118,776 4,999 42,000 113,390 56,695 49,896 10,236 5,118 1,161 30,235 5,433 – 25,963 12,982 7,674 3,418 30,725 13,459 436 20,248 10,124 13,659 (74) 237 (37) 119 3,533 96,262 30,827 55,552 13,416 6,708 59,913 5,393 2,697 1,287 33,465 35,230 – (478) (239) (82) (474) (237) 2,575 233,668 2,823 13,329 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 1,084 9,351 48,446 41,882 4,994 10,921 2,184 20,780 1,634 327 11,210 151,643 47,194 1,598 114,061 57,031 32,641 2,795 1,398 49,216 110,773 41,836 – 118,153 59,077 77,349 16,106 8,053 3,319 30,038 5,320 – 28,037 14,019 7,991 415 2,840 29,495 11,971 354 20,010 10,005 11,138 1,507 208 754 7,200 107,617 48,868 57,729 8,220 4,110 15,872 2,599 1,300 3,503 30,419 33,932 – (10) (5) 4 (10) (5) 2,320 222,820 1,670 14,081 p i h s r e n w O % 33 17 20 50 50 50 50 50 50 27 17 20 50 50 50 50 50 50 As at 30 June 2019 Associates Peet Alkimos Pty Limited, WA Peet Werribee Land Syndicate, VIC Peet Caboolture Syndicate Limited, QLD Joint Ventures1 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 Brabham Pty Ltd, WA Other associates and JVs Total As at 30 June 2018 Associates Peet Alkimos Pty Limited, WA Peet Werribee Land Syndicate, VIC Peet Caboolture Syndicate Limited, QLD Joint Ventures1 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 Brabham Pty Ltd, WA Other associates and JVs Total 1 Refer to note 10(c) for further breakdown of financial information of joint ventures. 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. For Peet Alkimos Pty Ltd, the Group has agreed to defer payment of project management and selling fees to a future date. The Group has no further contractual obligations to provide ongoing financial support. 8383 ANNUAL REPORT 2019 | PEET LIMITEDANNUAL REPORT 2019 | PEET LIMITEDFor personal use only 10. INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD (CONTINUED) c. Additional summarised information in relation to amounts included in assets, liabilities and profit/(loss) of joint ventures Cash and cash equivalents Current financial liabilities1 Non-current financial liabilities1 $’000 7,058 4,125 3,198 2,841 3,205 20 10,756 3,092 3,475 2,949 8,177 502 $’000 48,360 – – 7,000 – – – 33,445 – 7,000 – – $’000 – 42,000 – – 77,724 35,103 39,110 – – – 77,747 33,784 Interest expense $’000 – – – – – – – – – – 2 – Income tax expense/ (benefit) $’000 2,496 (60) (38) 735 4,028 – 1,283 35 175 647 1,203 – As at 30 June 2019 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 Brabham Pty Limited 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 Brabham Pty Limited 1 Excluding trade and other payables and provisions 8484 DIRECTORS’ REPORTYear ended 30 June 2019NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSYear ended 30 June 2019PEET LIMITED | ANNUAL REPORT 2019 PEET LIMITED | ANNUAL REPORT 2019 For personal use only11. RECEIVABLES Current Trade receivables1 Other receivables1 Loans to associates at fair value2 Non-current Loans to associates and joint ventures2 - Amortised cost - ECL allowance3 Amortised cost (net of ECL allowance) Fair value Other receivables4 Total receivables 2019 $’000 8,444 4,210 6,345 2018 $’000 9,517 1,253 - 18,999 10,770 38,553 (2,766) 42,288 - 35,787 42,288 55,184 9,036 100,007 119,006 44,708 8,669 95,665 106,435 1 2 3 4 Trade and other receivables are non-interest bearing and generally have 30-60 day terms. There were no past due or impaired trade receivables at the end of the year (2018: $Nil). 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%. The ECL allowance is determined on a probability of default on a loan by loan basis. Includes deferred facilities fee – Those that purchase homes in the Lattitude Lakelands re- tirement 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. Refer note 27(i) and 27(ii) for accounting policy on financial assets and note 21 for fair value disclosures. Related party balances with associates and joint ventures included above: Current Trade receivables Loans to associates Non-current Loans to associates and joint ventures Amortised cost (net of ECL allowance) Fair value Other receivables Total Movements in loans to associates and joint ventures: Carrying amount at 1 July Loans advanced Loan repayments AASB 9 remeasurement (refer to note 2(e)) Other Carrying amount at 30 June 12. CONTRACT ASSETS Accrued Income Total contract assets 2019 $’000 2,927 6,345 2018 $’000 1,791 – 35,787 42,288 55,184 4,999 105,242 86,996 29,690 (9,702) (7,618) (2,050) 97,316 2019 $’000 6,234 6,234 44,708 4,418 93,205 73,396 21,024 (7,826) – 402 86,996 2018 $’000 16,622 16,622 These amounts represent project management and performance fees from associates and other managed entities. They are recognised for the earned consideration that is conditional under AASB 15. Refer note 5 for revenue related accounting policies. The reduction in contract assets as at 30 June 2019 is a result of lower number of contracts on hand compared with contracts on hand as at 30 June 2018. 8585 ANNUAL REPORT 2019 | PEET LIMITEDANNUAL REPORT 2019 | PEET LIMITEDFor personal use only13. PAYABLES Recognition and measurement Current Trade payables Advance from joint operators GST payable Accruals and other payables 2019 $’000 7,859 11,214 1,481 45,161 65,715 2018 $’000 392 19,433 5,952 56,289 82,066 Where the Group enters into unconditional contracts with land vendors to purchase properties for future development that contain deferred payment terms, these borrowings are initially measured at fair value and subsequently carried at amortised cost. 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 21 for fair value disclosures. The below table analyses the maturity of the Group’s land vendor liability obligation: 0 – 1 years 1 – 2 years Total contractual cash flows Carrying amount of liabilities 15. PROVISIONS Current Rebates Employee entitlements Non-current Employee entitlements Total provisions 2019 $’000 6,350 - 6,350 6,350 2019 $’000 2,812 3,235 6,047 216 216 6,263 2018 $’000 14,700 6,350 21,050 21,050 2018 $’000 2,778 3,048 5,826 285 285 6,111 Movements in the provision for rebates during the financial year are set out below: – – – 6,350 (970) 5,380 20,080 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 2019 $’000 2,778 2018 $’000 3,138 1,238 2,079 (1,204) 2,812 (2,439) 2,778 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. Trade and other payables are presented as current liabilities unless payment is not due within 12 months from the reporting date. They are recognised initially at their fair value and subsequently measured at amortised cost using the effective interest method. In some joint arrangement contracts, costs are reimbursed as incurred during development. As revenue is only recognised on settlements, reimbursements received are recognised as advance from joint operators until settlement. Refer note 21 for fair value disclosures. 14. LAND VENDOR LIABILITIES 2019 $’000 2018 $’000 6,350 14,700 6,350 14,700 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 6,350 8686 DIRECTORS’ REPORTYear ended 30 June 2019NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSYear ended 30 June 2019PEET LIMITED | ANNUAL REPORT 2019 PEET LIMITED | ANNUAL REPORT 2019 For personal use only 15. PROVISIONS (CONTINUED) Recognition and measurement 16. INTERESTS IN JOINT OPERATIONS Details of aggregate share of assets, liabilities, revenue, expenses and results of joint operations. Group’s share of: As at 30 June 2019 The Village at Wellard, WA Lightsview Joint Venture, SA The Heights Durack, NT Redbank Plains Joint Venture, QLD As at 30 June 2018 The Village at Wellard, WA Lightsview Joint Venture, SA The Heights Durack, NT Redbank Plains Joint Venture, QLD Total assets Total liabilities Revenue Expenses $’000 $’000 $’000 $’000 14,341 2,441 10,612 7,177 13,305 9,244 9,244 7,078 9,879 6,819 2,286 2,088 25,936 6,578 7,494 5,916 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 Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events; it 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 for rebates at settlement and is measured at the amount of consideration receivable under the sales contract for which the Group does not expect to be entitled. The provision is updated at the end of each reporting period for changes in circumstances. 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. 8787 ANNUAL REPORT 2019 | PEET LIMITEDANNUAL REPORT 2019 | PEET LIMITEDFor personal use onlyCAPITAL MANAGEMENT This section outlines how the Group manages its capital and related financing costs. For the purpose of the Group’s capital management, capital includes: • issued capital; • debt facilities; and • other equity reserves attributable to the equity holders of the parent. The Group’s objectives when managing capital are to: • safeguard its ability to continue as a going concern; • continue to provide returns to shareholders and benefits for other stakeholders; • maintain an efficient capital structure to reduce the cost of capital; and • ensure all covenants are complied with. 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 of cash and cash equivalents less intangible assets. The 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 2019. At 30 June 2019, the bank covenant gearing ratio was 25.8% (2018: 18.2%). 17. BORROWINGS AND DERIVATIVE FINANCIAL INSTRUMENTS Net debt Borrowings – Current Borrowings – Non-current Total borrowings1 Cash and cash equivalents Net debt 2019 $’000 5,083 240,103 245,186 (33,606) 211,580 2018 $’000 – 217,204 217,204 (76,749) 140,455 1 Excludes vendor financing. Refer note 14 for vendor financing on deferred payment terms. Recognition and measurement Borrowings are initially recognised at fair value, net of transaction costs incurred. Borrowings are subsequently measured at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption amount is recognised in the statement of profit or loss over the period of the borrowings using the effective interest method. For the purpose of presentation in the statement of cash flows, cash and cash equivalents includes cash on hand, deposits held at call with financial institutions, other short-term, highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value, and bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities on the balance sheet. Refer note 21 for fair value disclosures. Debt facilities The following provides details of the loans and borrowings utilised as at 30 June 2019: Facility amount $’000 179,000 Utilised amount1 $’000 23,187 Face value Carrying amount2 Effective interest rate % 6.0% Effective interest rate $’000 $’000 % 100,000 50,000 75,000 99,030 49,348 73,621 225,000 221,999 8.06 6.82 7.21 Bank loans – note a Peet bonds and notes – note b Series 1, Tranche 1 Series 2, Tranche 1 Peet notes 1 2 Excludes bank guarantees. Refer note 23 for bank guarantees information.. Net of transaction and finance costs. 8888 DIRECTORS’ REPORTYear ended 30 June 2019NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSYear ended 30 June 2019PEET LIMITED | ANNUAL REPORT 2019 PEET LIMITED | ANNUAL REPORT 2019 For personal use only17. 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 $687 million (2018: $700 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 2019. The Group’s main bank facility of $150 million was extended to 1 October 2022. 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: 2019 $’000 1,115 6,199 18,319 25,633 23,187 2018 $’000 4,229 55,035 16,371 75,635 69,456 0 – 1 years 1 – 2 years 2 – 5 years Total contractual cash flows Carrying amount of liabilities b. Peet bonds and notes Peet bonds Series 1, Tranche 1 On 7 June 2016, Peet issued 1,000,000 Peet bonds with a face value of $100 per bond with a maturity date of 7 June 2021. These bonds are unsecured and interest-bearing at a fixed rate of interest of 7.5%. Peet bonds Series 2, Tranche 1 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. These bonds are unsecured and carry a floating interest rate of BBSW+ 4.65% margin. Peet Notes On 4 April 2019, Peet issued 75,000 notes to eligible professional and sophisticated investors at a face value of $1,000 per bond with a maturity date of 7 October 2024.These bonds are unsecured and carry a fixed interest rate of 6.75%. The bonds and notes are presented in the balance sheet as follows: Face value of bonds and notes issued Transaction costs Cumulative interest expense1 Cumulative coupon payable 2019 $’000 2018 $’000 225,000 150,000 (4,669) 220,331 32,164 (30,496) 1,668 (3,245) 146,755 19,602 (18,609) 993 Non-current liability 221,999 147,748 1 Interest expense is calculated by applying the effective interest rate of 8.06% (Series 1), 6.82% (Series 2) (2018: 6.82%) and Notes 7.21% (2018: nil) to the liability component. The bonds and notes are repayable as follows: 0 – 1 years 1 – 2 years 2 – 5 years Total contractual cash flows Carrying amount of liabilities 2019 $’000 15,751 15,743 243,654 275,148 221,999 2018 $’000 10,680 10,689 164,438 185,807 147,748 c. Derivative financial instruments Current Interest rate swap contracts – cash flow hedges Non-current Interest rate swap contracts – cash flow hedges Total derivative financial instruments 2019 $’000 2018 $’000 221 – 5,310 3,777 5,531 3,777 The below table analyses the maturity of the Group’s interest rate swaps on a net settled basis: 0 – 1 years 1 – 2 years 2 – 5 years Total contractual cash flows Carrying amount of liabilities 2019 $’000 221 - 5,310 5,531 5,531 2018 $’000 335 3,442 3,777 3,777 8989 ANNUAL REPORT 2019 | PEET LIMITEDANNUAL REPORT 2019 | PEET LIMITEDFor personal use only 17. BORROWINGS AND DERIVATIVE FINANCIAL INSTRUMENTS (CONTINUED) Interest rate swap contracts – cash flow hedges Recognition and measurement Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently 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). The Group documents at the inception of the hedging transaction the relationship between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking various hedge transactions. The Group also documents how it will assess hedge effectiveness (including the analysis of sources of hedge ineffectiveness) and how the hedge ratio is determined. Hedge accounting is only applied where there is an economic relationship between the hedged item and hedging instrument and the hedge ratio of the hedging relationship is the same as that resulting from the quantity of the hedged item that the Group actually hedges and the quantity of the hedging instrument that the Group actually uses to hedge that quantity of hedged item. The gain or loss from remeasuring the hedging instruments at fair value is recognised in other comprehensive income and deferred in equity in the hedge reserve, to the extent that the hedge is effective. It is reclassified into profit or loss when the hedged interest expense is recognised. The ineffective portion is recognised in the statement of profit or loss immediately. When a hedging instrument expires or is sold or terminated, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in equity at that time remains in equity and is recognised when the forecast transaction is ultimately recognised in the statement of profit or loss. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is immediately reclassified to the statement of profit or loss. Bank loans of the Group currently bear a weighted average variable interest rate for the year before hedges of 1.81% (2018: 1.83%). 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 68.3% (2018: 83.7%) 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 2.82% and 3.11% (2018: 2.83% and 3.11%) and the variable rates are between 1.42% and 2.01% (2018: 1.59% and 1.90%). The contracts require settlement of net interest receivable or payable monthly. The settlement dates coincide with the dates on which interest is payable on the underlying debt. The notional principal amounts and periods of expiry of the interest rate swap contracts were as follows: 0 – 1 years 1 – 2 years 2 – 5 years 2019 $’000 25,000 – 100,000 125,000 2018 $’000 – 25,000 100,000 125,000 The full fair value of a hedging derivative is classified as a non-current asset or liability when the remaining maturity of the hedged item is more than 12 months, otherwise current. Liquidity risk Liquidity risk includes the risk that the Group, as a result of their operations: • will not have sufficient funds to settle a transaction on due date; • will be forced to sell financial assets at a value which is less than what they are worth; or • may be unable to settle or recover a financial asset at all. liquidity risk management Prudent implies maintaining sufficient cash, the availability of funding through an adequate amount of committed credit facilities to meet obligations when due, and the ability to close-out market positions. Due to the dynamic nature of the underlying business, the Group aims at maintaining flexibility in funding by keeping committed credit lines available, and regularly updating and reviewing its cash flow forecasts to assist in managing its liquidity. The maturity analysis of the Group’s derivative and non-derivative financial instruments can be located in their respective notes. The Group has unused borrowing facilities which can further reduce liquidity risk (refer to note 17 for analysis of maturities on borrowing facilities). 9090 DIRECTORS’ REPORTYear ended 30 June 2019NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSYear ended 30 June 2019PEET LIMITED | ANNUAL REPORT 2019 PEET LIMITED | ANNUAL REPORT 2019 For personal use only17. BORROWINGS AND DERIVATIVE FINANCIAL INSTRUMENTS (CONTINUED) At 30 June 2019, the Group had the following mix of financial assets and liabilities exposed to variable interest rates: Financial assets Cash and cash equivalents (floating) Loans to associates and joint ventures measured at fair value Financial liabilities Borrowings (floating, unhedged) Interest rate swap 2019 $’000 2018 $’000 33,606 76,749 55,184 44,708 (23,187) (5,531) (19,456) (3,777) 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) 2019 $’000 (221) 221 2018 $’000 (351) 351 2019 $’000 (221) 221 2018 $’000 (351) 351 – 50 basis points + 50 basis points Credit risk The cash component of financial assets is considered to have low credit risk as the counterparties are banks with high credit ratings assigned by international credit-rating agencies. An expected credit loss provision of $2.8 million (2018: Nil) has been recognised for loans measured at amortised cost of $38.5 million (2018: $42.3 million) (refer to note 11 and 27). Interest rate risk The Group’s main interest rate risk arises from cash, loans to associates and joint ventures measured at fair value 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 both fixed and floating rates. 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 certain loans to associates and joint ventures are carried at amortised cost. They are therefore not subject to interest rate risk. 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. 9191 ANNUAL REPORT 2019 | PEET LIMITEDANNUAL REPORT 2019 | PEET LIMITEDFor personal use only 18. CONTRIBUTED EQUITY AND RESERVES a. Movements in ordinary share capital Date Details 30 June 2017 Closing balance Movement for the year 30 June 2018 Closing balance Share buyback, including transaction costs 30 June 2019 Closing balance The nature of the Group’s contributed equity Number of shares 489,980,559 - 489,980,559 (6,680,070) 483,300,489 $’000 385,955 - 385,955 (7,039) 378,916 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. b. Reserves At 1 July 2017 Cash flow hedges (gross) Deferred tax Share based payment Vesting of performance rights4 At 30 June 2018 At 1 July 2018 Cash flow hedges (gross) Deferred tax Share based payment Vesting of performance rights5 Transactions with non-controlling interests At 30 June 2019 Cash flow hedge reserve1 Share-based payments reserve2 Non-controlling interest reserve3 $’000 (2,779) 2,267 (680) - - (1,192) (1,192) (929) 279 - - - (1,842) $’000 13,300 - - 2,276 (1,883) 13,693 $’000 (9,104) - - - - (9,104) 13,693 (9,104) - - 630 (2,085) - 12,238 - - - - (6,343) (15,447) Total $’000 1,417 2,267 (680) 2,276 (1,883) 3,397 3,397 (929) 279 630 (2,085) (6,343) (5,051) 1 2 3 4 5 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. The share-based payments reserve is used to recognise the fair value of options and performance rights granted. 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. In August 2017, the Company purchased 1,400,275 shares to settle the vesting of FY15 Performance Rights. In August/September 2018, the Company purchased 1,711,425 shares to settle the vesting of FY16 Performance Rights. 9292 DIRECTORS’ REPORTYear ended 30 June 2019NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSYear ended 30 June 2019PEET LIMITED | ANNUAL REPORT 2019 PEET LIMITED | ANNUAL REPORT 2019 For personal use only 19. DIVIDENDS Declared and paid during the period Prior year fully franked dividend 3.00 cents, paid on 5 October 2018 (2018: 3.00 cents) Fully franked interim dividend for 2019: 2.00 cents (2018: 2.00 cents) Dividend not recognised at year end Final dividend 3.00 cents per share to be paid on 7 October 2019 (2018: 3.00 cents per share) Franking credit balance Franking account balance as at the end of the financial year at 30% (2018: 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 2019 $’000 2018 $’000 20. RECONCILIATION OF PROFIT AFTER INCOME TAX TO NET CASH INFLOW FROM OPERATING ACTIVITIES 14,699 14,699 Profit after income tax Add/(deduct) non cash items: Depreciation Amortisation of intangible assets Employee share-based payments 9,667 24,366 9,800 24,499 Equity accounting for investments in associates and joint ventures Interest received 2019 $’000 2018 $’000 47,350 48,640 1,233 1,102 (1,455) 2,604 1,164 395 (13,329) (14,081) 902 (157) 649 675 Peet bonds and notes effective interest rate adjustment Add other items: Distributions and dividends from associates and joint ventures Change in operating assets and liabilities during the financial year Decrease in receivables 12,280 5,537 10,185 24,541 (Increase)/decrease in inventories (Decrease)/increase in tax liabilities Decrease in payables Increase/(decrease) in provisions (30,843) (6,483) (23,108) 152 197 10,700 (9,637) (333) Decrease in deferred tax liabilities (6,067) (7,534) 14,499 14,699 55,017 35,840 8,915 15,398 Net cash (outflow)/inflow from operating activities (12,054) 67,333 (6,214) 57,718 (6,300) 44,938 9393 ANNUAL REPORT 2019 | PEET LIMITEDANNUAL REPORT 2019 | PEET LIMITEDFor personal use only Key estimates Fair value estimation 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; the appropriate quoted market price for financial liabilities is the current ask price. Fair value of the Peet bonds is based on price quotations at the reporting date. The fair value of financial instruments that are not traded in an active market is determined using valuation techniques. The Group uses a variety of methods and makes assumptions that are based on market conditions existing at each balance date. • Interest rate swaps are valued using valuation techniques, which employs the use of market observable inputs such as forward pricing and swap models. • Receivables/borrowings are evaluated by the Group interest rates and based on parameters such as individual creditworthiness of the counter party. Based on this evaluation, allowances are taken into account for the expected losses of these receivables. trade impairment provision of The carrying amount of trade receivables and payables less receivables are assumed to approximate their fair values. The fair value of financial liabilities for 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. 21. FAIR VALUE MEASUREMENT Valuation of financial instruments For financial assets and liabilities, the Group uses the 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, upon adoption of AASB 9 Financial Instruments, have reclassified certain loans to associates and joint ventures from loans and receivables carried at amortised cost to financial assets carried at fair value through profit or loss. The fair values of these financial assets have been estimated using discounted cashflows with significant unobservable inputs at each reporting date (level 3 of the fair value hierarchy). At 30 June 2019, the carrying amount and fair value of these loans to associates and joint ventures is $61.6 million and $58.3 million, respectively. The Group measures its derivative financial liabilities at fair value at each reporting date. These derivatives are measured using significant observable inputs (level 2 of the fair value hierarchy). The fair value at 30 June 2019 is $5.5 million (30 June 2018: $3.8 million). There have been no transfers between levels during the period. Other financial instruments – fair value disclosures Except for the Peet bonds and notes, the carrying value of financial liabilities is considered to approximate fair values. The quoted market value (on ASX) as at 30 June 2019 of a Peet bond Series 1, Tranche 1 is $107.50 per bond and of a Peet bond Series 2, Tranche 1 is $105.75 per bond (Level 1). The fair value of Peet Notes as at 30 June 2019 is $1,012.50 per note. These notes are measured using significant observable inputs (level 3 of the fair value hierarchy). At 30 June 2019, the carrying value of Peet bonds and notes is $222.0 million (fair value $236.3 million). 9494 DIRECTORS’ REPORTYear ended 30 June 2019NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSYear ended 30 June 2019PEET LIMITED | ANNUAL REPORT 2019 PEET LIMITED | ANNUAL REPORT 2019 For personal use onlyOTHER NOTES 22. REMUNERATION OF AUDITORS 2019 $ 2018 $ Audit services Audit and review of financial reports and other audit work under the Corporations Act 2001 Ernst & Young 357,200 367,450 Total remuneration for audit services 357,200 367,450 Other services Ernst & Young 29,454 21,423 Taxation services Tax compliance services including review of Company income tax returns Ernst & Young 125,800 217,762 23. CONTINGENCIES AND COMMITMENTS 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 Insurance bonds outstanding 2019 $’000 21,128 20,526 41,654 2018 $’000 24,585 18,680 43,265 All contingent liabilities are expected to mature within 1 year. At 30 June 2019, the Group had commitments of $34.0 million (2018: $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. 9595 ANNUAL REPORT 2019 | PEET LIMITEDANNUAL REPORT 2019 | PEET LIMITEDFor personal use onlyNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Year ended 30 June 2019 24. PARENT ENTITY FINANCIAL INFORMATION AND SUBSIDIARIES b. Subsidiaries Significant investments in subsidiaries a. Parent entity financial information Summary financial information The individual financial statements for the parent entity show the following aggregate amounts: The consolidated financial statements incorporate the assets, liabilities and results of the following significant subsidiaries in accordance with the accounting policy described in note 2(a): Name of Subsidiary CIC Australia Pty Limited1 Peet Craigieburn Pty Limited2 Peet Greenvale No. 2 Pty Limited2 Peet Southern JV Pty Limited2 Peet Brigadoon Pty Limited2 Secure Living Pty Limited2 Peet No. 85 Pty Limited2 Peet No. 108 Pty Limited2 Peet No. 112 Pty Limited2 Peet No. 113 Pty Limited2 Peet Treasury Pty Limited2 Peet Estates (VIC) Pty Limited2 Peet Development Management Pty Limited2 Peet Estates (QLD) Pty Limited2 Peet No. 130 Pty Limited2 Peet Estates (WA) Pty Limited2 Peet Funds Management Limited2 Peet No. 119 Pty Limited2 Peet No. 125 Pty Limited2 Peet No. 126 Pty Limited2 Peet No. 73 Pty Limited2 Holding 2019 2018 % 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 % 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 Lakelands Retail Centre Development Pty Limited2 Peet Mt. Pleasant Pty Limited2 Peet No. 127 Pty Limited2 Peet Tonsley Pty Limited2 JTP Homes Pty Limited2 Peet Tonsley Apartments Pty Limited2 100 100 100 100 100 100 100 100 100 100 100 100 Peet Yanchep Land Syndicate2 66.4 66.4 1 2 Incorporated in ACT. Incorporated in WA. Balance sheet Current assets Total assets Current liabilities Total liabilities Shareholders’ equity Issued capital Reserves Share-based payments reserve Retained profits Total equity Profit/(loss) for the year 2019 $’000 2018 $’000 70,457 584,023 16,618 159,192 62,769 588,705 14,962 113,754 378,917 385,955 12,239 33,675 424,831 (14,083) 13,693 75,303 474,951 101,474 101,474 Total comprehensive income (14,083) 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 2019 $’000 586 2018 $’000 498 9696 PEET LIMITED | ANNUAL REPORT 2019 PEET LIMITED | ANNUAL REPORT 2019 For personal use only24. 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. 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 2019 $’000 5,941 78,628 1,645 29,671 17,893 3,228 (624) 199 2018 $’000 5,661 77,496 1,463 27,818 18,100 5,866 (412) 138 Peet Yanchep Land Syndicate 2019 $’000 (2,232) 1,926 (306) 2018 $’000 (649) 259 (390) Peet has provided loans to other partly-owned subsidiaries amounting to nil (2018: $7.6 million). The Group has no further contractual obligations to provide ongoing financial support. ANNUAL REPORT 2019 | PEET LIMITED 979797 ANNUAL REPORT 2019 | PEET LIMITEDANNUAL REPORT 2019 | PEET LIMITEDFor personal use only24. PARENT ENTITY FINANCIAL INFORMATION AND SUBSIDIARIES (CONTINUED) Deed of cross guarantee Consolidated balance sheet Set out below is a consolidated balance sheet at 30 June 2019 of the closed group consisting of Peet Limited and certain wholly owned subsidiaries. Peet Limited and certain wholly-owned subsidiaries are parties to a deed of cross guarantee under which each company guarantees the debts of the other. By entering 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. Receivables Inventories Current assets Cash and cash equivalents 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 2019 $’000 2018 $’000 33,330 26,390 99,890 159,610 76,178 29,318 115,062 220,558 135,773 319,684 126,916 298,044 266,031 255,577 5,227 5,700 732,415 892,025 53,752 6,350 5,083 8,981 5,873 5,398 6,082 692,017 912,575 81,925 14,700 – 14,061 5,767 80,039 116,453 – 5,380 221,999 201,026 5,531 27,425 216 255,171 335,210 556,815 378,916 9,785 168,114 556,815 3,777 35,234 285 245,702 362,155 550,420 385,955 11,890 152,575 550,420 279 (680) Deferred tax liabilities (650) 1,587 Total non-current liabilities Provisions 46,873 50,813 Total liabilities Net assets Equity Contributed equity Reserves Retained profits Total equity 2019 $’000 Consolidated statement of profit or loss Revenue 246,630 2018 $’000 282,469 Expenses Finance costs (187,489) (218,012) (8,492) (9,911) Share of net profit of associates accounted for using the equity method Profit before income tax Income tax expense Profit for the year 12,936 63,585 13,805 68,351 (16,062) (19,125) 47,523 49,226 Other comprehensive income Items that may be reclassified to profit or loss: (929) 2,267 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 Summary of movement in consolidated retained profits Retained profits at the beginning of the financial year 152,575 Profit for the year Dividends paid AASB9 measurement 47,523 (24,366) (7,618) 127,848 49,226 (24,499) – Retained profits at the end of the financial year 168,114 152,575 98 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSYear ended 30 June 2019PEET LIMITED | ANNUAL REPORT 2019 For personal use only25. SHARE-BASED PAYMENTS Peet Employee Share Option Plan (PESOP) and Peet Performance Rights Plan (PPRP) The establishment of the PESOP was approved by the Board and shareholders during the 2004 financial year and the Peet Limited PPRP was approved by shareholders at 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 Eligible employees, at the discretion of the Board, may be invited to apply for options and/or performance rights 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 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; • the date and time by which the application for options and/ or performance rights must be received by Peet; • 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. Vesting and exercise conditions Under the plans, options and/or PRs 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. Generally, as a pre-condition to exercise, any exercise conditions in respect of an option and/or performance right 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 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 performance rights under the PPRP carry no dividend or voting rights. Lapse of options and performance 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 expiry date of options and/ or performance rights, as determined by the Board. Fair value of options and performance rights granted The fair value of an option and PRs at grant date is determined using a Black-Scholes option pricing model and the value of a performance right at grant date is determined using a Binomial pricing model. The models take into account the exercise price, the term of the option and/or performance right, the vesting and performance criteria, the impact of dilution, the non-tradeable nature of the option or performance right, the share price at grant date and expected price volatility of the underlying share, the expected dividend yield and the risk free interest rate for the term of the option and/or performance right. The inputs for assessing the fair value of the performance rights issued during the year under the PPRP were: Grant Date Exercise Price Expiry date Share price at grant date Risk free interest rate Assessed fair value 21 Nov 18 $0.00 21 Nov 33 $1.06 1.97% $0.94 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 $628,877 (2018: $2,276,087). 99 ANNUAL REPORT 2019 | PEET LIMITEDFor personal use only25. SHARE-BASED PAYMENTS (CONTINUED) Set out below are summaries of options and performance rights granted under the plans: e t a d t n a r G y r i p x E e t a d $ e c i r P e s i c r e x E r i a f d e s s e s s A $ e u l a v y l u J 1 t a e c n a l a B g n i r u d d e t n a r G r a e y e h t g n i r u d d e s i c r e x E r a e y e h t d e t i e f r o f / d e s p a L r a e y e h t g n i r u d e n u J 0 3 t a e c n a l a B e l b a s i c r e x E e n u J 0 3 t a 30 June 2019 Options 30 Nov 07 Performance rights 21 Nov 15 21 Nov 30 N/A 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 21 Nov 18 21 Nov 33 30 June 2018 Options 30 Nov 07 Performance rights 26 Nov 14 26 Nov 19 N/A 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 – – – – – – – – – – – – – – – $4.10 $1.12 1,200,000 $0.974 928,020 $0.957 1,192,460 $0.801 1,065,114 $0.849 1,380,552 $1.328 874,347 $1.299 1,232,635 – – 1,200,000 1,200,000 (866,771) (61,249) – – (844,655) (78,702) 269,103 269,103 – – – – – – – – – – 1,065,114 1,380,552 874,347 1,232,635 2,097,201 – – – – – $0.940 – 2,097,201 6,673,128 2,097,201 (1,711,426) (139,951) 6,918,952 269,103 7,873,128 2,097,201 (1,711,426) (139,951) 8,118,952 1,469,103 $4.10 $1.12 1,200,000 – – 1,200,000 1,200,000 $1.065 $0.938 $0.974 833,897 988,794 928,020 $0.957 1,192,460 $0.801 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 – – – – – – – – – – – – – – – – – – – – – – – Total 7,588,837 2,106,982 (1,538,352) (284,339) 7,873,128 1,200,000 100 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSYear ended 30 June 2019PEET LIMITED | ANNUAL REPORT 2019 For personal use only 26. MATTERS SUBSEQUENT TO THE END OF Impairment 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 2019. The dividend is to be paid on Monday, 7 October 2019, with a record date of Thursday, 19 September 2019. 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. 27. OTHER ACCOUNTING POLICIES i. Financial assets – pre 1 July 2018 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 recognised at fair value plus transaction costs for all financial assets not carried at fair value through profit or loss. Financial assets carried at fair value through profit or 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. When securities classified as available for sale are sold or impaired, the accumulated fair value adjustments recognised in other comprehensive income are reclassified to the statement of profit or loss as gains or losses from investment securities. Measurement 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 statement of profit or loss as part of revenue from continuing operations when the Group’s right to receive payments is established. 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. If any such evidence exists for available for sale financial assets, the cumulative loss – measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously 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. Financial assets – post 1 July 2018 The Group’s new accounting policy for financial assets arising on adoption of AASB 9 and applied from 1 July 2018 is detailed below: Initial recognition and measurement Financial assets are classified, at initial recognition, as subsequently measured at amortised cost, fair value through other comprehensive income (OCI), and fair value through profit or loss. The classification of financial assets at initial recognition depends on the financial asset’s contractual cash flow characteristics and the Group’s business model for managing them. With the exception of trade receivables that do not contain a significant financing component or for which the Group has applied the practical expedient, the Group initially 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. Trade receivables that do not contain a significant financing component or for which the Group has applied the practical expedient are measured at the transaction price determined under AASB 15. Refer to section 2.e(a) Revenue from contracts with customers. In order for a financial asset to be classified and measured at amortised cost or fair value through OCI, it needs to give rise to cash flows that are ‘solely payments of principal and interest (SPPI)’ on the principal amount outstanding. This assessment is referred to as the SPPI test and is performed at an instrument level. The Group’s business model for managing financial assets refers to how it manages its financial assets in order to generate cash flows. The business model determines whether cash flows will result from collecting contractual cash flows, selling the financial assets, or both. 101 ANNUAL REPORT 2019 | PEET LIMITEDFor personal use only27. OTHER ACCOUNTING POLICIES (CONTINUED) 27. OTHER ACCOUNTING POLICIES (CONTINUED) Subsequent measurement For purposes of subsequent measurement, financial assets are classified in four categories: • Financial assets at amortised cost (debt instruments) • Financial assets at fair value through OCI with recycling of cumulative gains and losses (debt instruments) • Financial assets designated at fair value through OCI with no recycling of cumulative gains and losses upon derecognition (equity instruments) • Financial assets at fair value through profit or loss Financial assets at amortised cost (debt instruments) This category is the most relevant to the Group. The Group measures financial assets at amortised cost if both of the following conditions are met: • The financial asset is held within a business model with the objective to hold financial assets in order to collect contractual cash flows; and • The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding Financial assets at amortised cost are subsequently measured using the effective interest (EIR) method and are subject to impairment. Gains and losses are recognised in profit or loss when the asset is derecognised, modified or impaired. The Group’s financial assets at amortised cost includes trade receivables, and loans to associates and JVs included under Receivables. Financial assets at fair value through profit or loss Financial assets at fair value through profit or loss include financial assets held for trading, financial assets designated upon initial recognition at fair value through profit or loss, or financial assets mandatorily required to be measured at fair value. Financial assets are classified as held for trading if they are acquired for the purpose of selling or repurchasing in the near term. Derivatives, including separated embedded derivatives, are also classified as held for trading unless they are designated as effective hedging instruments. Financial assets with cash flows that are not solely payments of principal and interest are classified and measured at fair value through profit or loss, irrespective of the business model. Notwithstanding the criteria for debt instruments to be classified at amortised cost or at fair value through OCI, as described above, debt instruments may be designated at fair value through profit or loss on initial recognition if doing so eliminates, or significantly reduces, an accounting mismatch. Financial assets at fair value through profit or loss are carried in the statement of financial position at fair value with net changes in fair value recognised in the statement of profit or loss. This category includes loans to associates and joint ventures and derivative instruments. Impairment The Group recognises an allowance for expected credit losses (ECLs) for all debt instruments not held at fair value through profit or loss. ECLs are based on the difference between the contractual cash flows due in accordance with the contract and all the cash flows that the Group expects to receive, discounted at an approximation of the original effective interest rate. The expected cash flows will include cash flows from the sale of collateral held or other credit enhancements that are integral to the contractual terms. ECLs are recognised in two stages. For credit exposures for which there has not been a significant increase in credit risk since initial recognition, ECLs are provided for credit losses that result from default events that are possible within the next 12-months (a 12-month ECL). For those credit exposures for which there has been a significant increase in credit risk since initial recognition, a loss allowance is required for credit losses expected over the remaining life of the exposure, irrespective of the timing of the default (a lifetime ECL). For trade receivables and contract assets, the Group applies a simplified approach in calculating ECLs. Therefore, the Group does not track changes in credit risk, but instead recognises a loss allowance based on lifetime ECLs at each reporting date. The Group has established a provision matrix that is based on its historical credit loss experience, adjusted for forward-looking factors specific to the debtors and the economic environment. The Group considers a financial asset in default when internal or external information indicates that the Group is unlikely to receive the outstanding contractual amounts in full before taking into account any credit enhancements held by the Group. A financial asset is written off when there is no reasonable expectation of recovering the contractual cash flows. 102 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSYear ended 30 June 2019PEET LIMITED | ANNUAL REPORT 2019 For personal use only27. OTHER ACCOUNTING POLICIES (CONTINUED) iii. Intangible assets vii. Goods and services tax (GST) 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 iv. Property, plant and equipment Property, plant and equipment are shown at historical cost less depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of the items. 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 The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each balance date. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount. Gains and losses on disposals are determined by comparing proceeds with carrying amount. These are included in the statement of profit or loss. v. Termination benefits is Termination benefits are payable when employment terminated before the normal retirement date, or when an employee accepts voluntary redundancy in exchange for 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. vi. Retirement benefit obligations Contributions to defined contribution funds are recognised as an expense as they become payable. Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction in the future payments is available. 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 as part of the expense. Receivables and payables are stated inclusive of the amount of GST receivable or payable. The net amount of GST recoverable from, or payable to, the taxation authority is included with other receivables or payables in the balance sheet. Cash flows are presented on a gross basis. The GST components of cash flows arising from investing or financing activities which are recoverable from, or payable to the taxation authority, are presented as operating cash flows. viii. Leases 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. ix. Parent entity financial information Tax consolidation legislation Peet Limited and its wholly-owned Australian controlled 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. Any difference between the amount assumed and amounts receivable or payable under the tax funding agreement are recognised as a contribution to (or distribution from) the wholly-owned entity. 103 ANNUAL REPORT 2019 | PEET LIMITEDFor personal use onlyNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Year ended 30 June 2019 27. OTHER ACCOUNTING POLICIES (CONTINUED) Investments in subsidiaries Investments in subsidiaries are accounted for at cost in the seperate 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. x. New accounting standards and interpretations issued but not yet effective Certain new and amended accounting standards and interpretations have been published that are not mandatory for 30 June 2019 reporting periods. The Group’s assessment of the impact of these new standards and interpretations is set out below. Reference Title Summary AASB 16 Leases 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 2020 Impact on Group financial report 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. 104 PEET LIMITED | ANNUAL REPORT 2019 For personal use onlyTHIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK 105 ANNUAL REPORT 2019 | PEET LIMITEDFor personal use onlyDIRECTORS’ DECLARATION Year ended 30 June 2019 In the Directors’ opinion: a. the financial statements and notes set out on pages 64 to 105 are in accordance with the Corporations Act 2001, including: i. complying with Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements; and ii. giving a true and fair view of the Consolidated Entity’s financial position as at 30 June 2019 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 24 will be able to meet any obligations or liabilities to which they are, or may become, subject by virtue of the deed of cross guarantee described in note 24. 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 28 August 2019 106 PEET LIMITED | ANNUAL REPORT 2019 For personal use onlyINDEPENDENT AUDITOR’S REPORT Year ended 30 June 2019 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 Independent Auditor's Report to the Members of Peet Limited Report on the Audit of the Financial Report Opinion We have audited the financial report of Peet Limited (the Company) and its subsidiaries (collectively the Group), which comprises the consolidated balance sheet as at 30 June 2019, the consolidated statement of profit or loss and other comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended, notes to the financial statements, including a summary of significant accounting policies, and the directors' declaration. In our opinion, the accompanying financial report of the Group is in accordance with the Corporations Act 2001, including: a) giving a true and fair view of the consolidated financial position of the Group as at 30 June 2019 and of its consolidated financial performance for the year ended on that date; and b) complying with Australian Accounting Standards and the Corporations Regulations 2001. Basis for Opinion We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report. We are independent of the Group in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key Audit Matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial report of the current year. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, but we do not provide a separate opinion on these matters. For each matter below, our description of how our audit addressed the matter is provided in that context. We have fulfilled the responsibilities described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report, including in relation to these matters. Accordingly, our audit included the performance of procedures designed to respond to our assessment of the risks of material misstatement of the financial report. The results of our audit procedures, including the procedures performed to address the matters below, provide the basis for our audit opinion on the accompanying financial report. A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation 64 107 ANNUAL REPORT 2019 | PEET LIMITEDFor personal use only1. Recoverability of inventories 1. Why significant Recoverability of inventories How our audit addressed the key audit matter Land held for development and resale is treated Why significant by the Group as inventories which are measured at the lower of cost and net realisable value. Land held for development and resale is treated Cost includes the cost of acquisition, by the Group as inventories which are measured development and borrowing costs incurred at the lower of cost and net realisable value. during development. As at 30 June 2019, total Cost includes the cost of acquisition, inventories amounted to $518,669,000. development and borrowing costs incurred during development. As at 30 June 2019, total This was considered a key audit matter as the inventories amounted to $518,669,000. determination of net realisable value is affected by subjective elements within the projected costs This was considered a key audit matter as the and revenues over the assumed life of each determination of net realisable value is affected development. These values are sensitive to by subjective elements within the projected costs changes in the underlying economic environment and revenues over the assumed life of each and market forces. development. These values are sensitive to changes in the underlying economic environment Disclosure of inventories including significant and market forces. judgments is included in Note 9 of the financial report. Disclosure of inventories including significant judgments is included in Note 9 of the financial report. Our audit procedures included the following: How our audit addressed the key audit matter ► We assessed the effectiveness of controls over Our audit procedures included the following: the Group’s review process related to project monitoring, including the preparation and review ► We assessed the effectiveness of controls over of feasibility reports and updates at the related the Group’s review process related to project executive and board level. We also assessed monitoring, including the preparation and review controls over the process for the approval to of feasibility reports and updates at the related commence or amend significant projects. executive and board level. We also assessed controls over the process for the approval to ► We evaluated all available independent property commence or amend significant projects. valuations and a selection of internal projections prepared by the Group that we have identified as ► We evaluated all available independent property higher risk. valuations and a selection of internal projections prepared by the Group that we have identified as ► We also examined the qualifications, competence higher risk. and objectivity of the independent valuation experts. ► We evaluated all projects we considered ► We also examined the qualifications, competence and objectivity of the independent valuation ► We evaluated all projects we considered experts. significant, to understand project costs to date and estimated costs to complete, the progress of the development, and contingency estimates for significant, to understand project costs to date remaining development risks. and estimated costs to complete, the progress of the development, and contingency estimates for ► We assessed the valuation models prepared by remaining development risks. the Group for a sample of developments currently in progress. This included an ► We assessed the valuation models prepared by evaluation of the assumptions adopted by the Group for a sample of developments comparing project costs and sales to the most currently in progress. This included an recent historical or comparable sales and costs, evaluation of the assumptions adopted by including signed contracts or actual costs comparing project costs and sales to the most incurred for comparable projects and agreed recent historical or comparable sales and costs, relevant data to the current development including signed contracts or actual costs application submissions and/or approvals. incurred for comparable projects and agreed relevant data to the current development ► We tested the mathematical accuracy of the application submissions and/or approvals. valuation models. ► We tested the mathematical accuracy of the ► We performed sensitivity analysis in relation to valuation models. the key forward looking assumptions including sales price, cost per lot and escalation rates. ► We performed sensitivity analysis in relation to the key forward looking assumptions including We assessed the disclosure relating to inventories in sales price, cost per lot and escalation rates. accordance with Australian Accounting Standards. We assessed the disclosure relating to inventories in accordance with Australian Accounting Standards. A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation 65 A member firm of Ernst & Young Global Limited 108 Liability limited by a scheme approved under Professional Standards Legislation 65 PEET LIMITED | ANNUAL REPORT 2019 For personal use only2. Land and capitalised development costs expensed during the year Why significant How our audit addressed the key audit matter The Group has expensed as cost of sales, land and development costs of $121,979,000 related to sold lots. Development costs includes estimates of infrastructure costs which are incurred over the life of the development. Our audit procedures included the following: ► We evaluated the basis of estimation and allocation of total development costs and the allocation of costs to complete for lots sold. This was considered a key audit matter as the recognition of land and development costs is dependent on forecast development timing and future costs that are affected by expected performance and market conditions. Disclosure of land and development costs is included in Note 6 of the financial report. ► We assessed the effectiveness of controls over the review and approval of cost calculations. ► We selected a sample of cost calculations to assess whether they were mathematically accurate and the period they related to was appropriate. ► We assessed the costs allocated to each lot and compared the land and development costs to sales transactions. This included comparison to historical averages of similar projects, and the gross margin over the life of the project to identify and substantiate significant differences. We assessed the adequacy of the disclosures in the financial report in accordance with Australian Accounting Standards. A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation 66 109 ANNUAL REPORT 2019 | PEET LIMITEDFor personal use only3. Investments accounted for using the equity method Why significant 3. Investments accounted for using the equity method How our audit addressed the key audit matter Our audit procedures included the following: Our audit procedures included the following: ► ► ► How our audit addressed the key audit matter ► For new associates entered into during the year, we assessed the arrangements to understand the ownership interest and rights of each party. For new associates entered into during the year, This included considering the Group’s we assessed the arrangements to understand assessment of whether an entity is jointly the ownership interest and rights of each party. controlled and whether their application of the This included considering the Group’s equity method accounting to the investment was assessment of whether an entity is jointly appropriate. controlled and whether their application of the For existing joint ventures and associates, we equity method accounting to the investment was considered whether there had been any changes appropriate. to the arrangement with respect to decision For existing joint ventures and associates, we making power and exposure to variable returns. considered whether there had been any changes ► We assessed the financial performance and to the arrangement with respect to decision financial position of the associates and joint making power and exposure to variable returns. ventures, and the Group’s going concern ► We assessed the financial performance and assessment of the relevant entities as one of the financial position of the associates and joint indicators of potential impairment. ventures, and the Group’s going concern ► We evaluated the recoverability of interests in assessment of the relevant entities as one of the associates and joint ventures by assessing the indicators of potential impairment. feasibilities of the underlying development asset. ► We evaluated the recoverability of interests in We obtained an understanding of the status of associates and joint ventures by assessing the the underlying developments, considered the feasibilities of the underlying development asset. historical accuracy of the forecast development We obtained an understanding of the status of outcomes and evaluated the assumptions the underlying developments, considered the adopted in light of current market evidence. historical accuracy of the forecast development ► We considered the Group’s assessment of the outcomes and evaluated the assumptions recoverability of the loans. adopted in light of current market evidence. ► We assessed the interest rates used to value ► We considered the Group’s assessment of the loans at fair value through the profit and loss recoverability of the loans. against prevailing market rates and external ► We assessed the interest rates used to value borrowings for similar debt. loans at fair value through the profit and loss We assessed the adequacy of the disclosures in the against prevailing market rates and external financial report in accordance with Australian borrowings for similar debt. Accounting Standards. We assessed the adequacy of the disclosures in the financial report in accordance with Australian Accounting Standards. The Group has interests in joint ventures and Why significant associates which are involved in property investment or development of $233,668,000 The Group has interests in joint ventures and and are accounted for using the equity method. associates which are involved in property An associate is an entity over which the Group investment or development of $233,668,000 has significant influence. The classification of an and are accounted for using the equity method. interest in an entity as a joint venture is An associate is an entity over which the Group predicated on the Group having joint control with has significant influence. The classification of an the other party(ies) under the arrangement. interest in an entity as a joint venture is Interests in associates and joint ventures predicated on the Group having joint control with comprise of: the other party(ies) under the arrangement. (a) Interests in associates and joint ventures comprise of: The Group’s equity accounted investment in a number of joint venture arrangements and associates; and The Group’s equity accounted investment Loan facilities provided by the Group to in a number of joint venture arrangements certain associates and joint ventures. and associates; and These unsecured loans are either Loan facilities provided by the Group to recognised at amortised cost using the certain associates and joint ventures. effective interest rate method, less an These unsecured loans are either allowance for expected credit loss or at recognised at amortised cost using the fair value through the profit and loss. effective interest rate method, less an This was considered a key audit matter due to allowance for expected credit loss or at the following: fair value through the profit and loss. (a) (b) (b) ► ► ► The judgment involved in assessing whether ► This was considered a key audit matter due to the Group has control, joint control or the following: significant influence over the investee. The The judgment involved in assessing whether Group’s assessment is based on the relevant the Group has control, joint control or contractual agreements. significant influence over the investee. The The assessment of the recoverability of the Group’s assessment is based on the relevant interests is subject to significant judgment contractual agreements. as to the performance of the underlying The assessment of the recoverability of the developments. Significant changes in interests is subject to significant judgment feasibility assumptions impacting project as to the performance of the underlying cash flows may give rise to impairment. developments. Significant changes in The assessment of loans at fair value feasibility assumptions impacting project through the profit and loss is subject to cash flows may give rise to impairment. significant judgment as to the appropriate The assessment of loans at fair value interest rates for each development. through the profit and loss is subject to Disclosure of investments accounted for using significant judgment as to the appropriate the equity method, including significant interest rates for each development. judgments is included in Notes 2 and 10 of the Disclosure of investments accounted for using financial report. the equity method, including significant judgments is included in Notes 2 and 10 of the financial report. ► ► A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation A member firm of Ernst & Young Global Limited 110 Liability limited by a scheme approved under Professional Standards Legislation 67 67 PEET LIMITED | ANNUAL REPORT 2019 For personal use onlyInformation Other than the Financial Report and Auditor’s Report Thereon The directors are responsible for the other information. The other information comprises the information included in the Company’s 2019 Annual Report, but does not include the financial report and our auditor’s report thereon. Our opinion on the financial report does not cover the other information and accordingly we do not express any form of assurance conclusion thereon, with the exception of the Remuneration Report and our related assurance opinion. In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of the Directors for the Financial Report The directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. In preparing the financial report, the directors are responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters relating to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so. Auditor's Responsibilities for the Audit of the Financial Report Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this financial report. As part of an audit in accordance with the Australian Auditing Standards, we exercise professional judgment and maintain professional scepticism throughout the audit. We also: ► ► Identify and assess the risks of material misstatement of the financial report, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control. A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation 68 111 ANNUAL REPORT 2019 | PEET LIMITEDFor personal use only► ► ► ► ► ► ► Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors. Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or Evaluate the appropriateness of accounting policies used and the reasonableness of accounting conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If estimates and related disclosures made by the directors. we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial report or, if such disclosures are inadequate, to Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and, modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our based on the audit evidence obtained, whether a material uncertainty exists related to events or auditor’s report. However, future events or conditions may cause the Group to cease to continue as conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If a going concern. we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial report or, if such disclosures are inadequate, to Evaluate the overall presentation, structure and content of the financial report, including the modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our disclosures, and whether the financial report represents the underlying transactions and events in a auditor’s report. However, future events or conditions may cause the Group to cease to continue as manner that achieves fair presentation. a going concern. Obtain sufficient appropriate audit evidence regarding the financial information of the entities or Evaluate the overall presentation, structure and content of the financial report, including the business activities within the Group to express an opinion on the financial report. We are disclosures, and whether the financial report represents the underlying transactions and events in a responsible for the direction, supervision and performance of the Group audit. We remain solely manner that achieves fair presentation. responsible for our audit opinion. Obtain sufficient appropriate audit evidence regarding the financial information of the entities or ► We communicate with the directors regarding, among other matters, the planned scope and timing of the business activities within the Group to express an opinion on the financial report. We are audit and significant audit findings, including any significant deficiencies in internal control that we responsible for the direction, supervision and performance of the Group audit. We remain solely identify during our audit. responsible for our audit opinion. We also provide the directors with a statement that we have complied with relevant ethical requirements We communicate with the directors regarding, among other matters, the planned scope and timing of the regarding independence, and to communicate with them all relationships and other matters that may audit and significant audit findings, including any significant deficiencies in internal control that we reasonably be thought to bear on our independence, and where applicable, related safeguards. identify during our audit. From the matters communicated to the directors, we determine those matters that were of most We also provide the directors with a statement that we have complied with relevant ethical requirements significance in the audit of the financial report of the current year and are therefore the key audit regarding independence, and to communicate with them all relationships and other matters that may matters. We describe these matters in our auditor’s report unless law or regulation precludes public reasonably be thought to bear on our independence, and where applicable, related safeguards. disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be From the matters communicated to the directors, we determine those matters that were of most expected to outweigh the public interest benefits of such communication. significance in the audit of the financial report of the current year and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public Report on the Audit of the Remuneration Report disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be Opinion on the Remuneration Report expected to outweigh the public interest benefits of such communication. We have audited the Remuneration Report included in pages 10 to 21 of the directors' report for the year Report on the Audit of the Remuneration Report ended 30 June 2019. Opinion on the Remuneration Report In our opinion, the Remuneration Report of Peet Limited for the year ended 30 June 2019, complies with section 300A of the Corporations Act 2001. We have audited the Remuneration Report included in pages 44 to 59 of the directors' report for the year ended 30 June 2019. In our opinion, the Remuneration Report of Peet Limited for the year ended 30 June 2019, complies with section 300A of the Corporations Act 2001. A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation A member firm of Ernst & Young Global Limited 112 Liability limited by a scheme approved under Professional Standards Legislation 69 69 PEET LIMITED | ANNUAL REPORT 2019 For personal use onlyResponsibilities The directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. Ernst & Young G Lotter Partner Perth 28 August 2019 A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation 70 113 ANNUAL REPORT 2019 | PEET LIMITEDFor personal use onlySECURITYHOLDER INFORMATION (CONTINUED) SECURITYHOLDER INFORMATION Distribution of ordinary shares and Peet Bonds As at 23 September 2019 there were 2,223 current holders of ordinary shares, 1,387 current holders of Series 1, Tranche 1 Peet Bonds (“PPCHA Bonds”) and 522 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. of PPCHA Bondholders % of Issued PPCHA Bonds No. of PPCHB Bondholders % of Issued PPCHB Bonds 479 643 367 658 76 2,223 0.03 0.41 0.58 3.86 95.12 100.00 1,281 92 7 6 1 1,387 36.50 18.49 5.24 16.03 23.74 100.00 461 52 5 3 1 522 32.10 23.29 6.88 7.01 30.72 100.00 There were 341 shareholdings of less than a marketable parcel of $500 (435 shares). There were 2 holdings 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 23 September 2019 are listed below: Name Citicorp Nominees Pty Limited Scorpio Nominees Pty Ltd J P Morgan Nominees Australia Pty Limited HSBC Custody Nominees (Australia) Limited National Nominees Limited CS Third Nominees Pty Limited Argo Investments Limited Mr Warwick Donald Hemsley Ian Murray Charles Palmer & Helen Christina Palmer Golden Years Holdings Pty Ltd BNP Paribas Noms Pty Ltd Mr Brendan David Gore UBS Nominees Pty Ltd Brispot Nominees Pty Ltd Netwealth Investments Limited BNP Paribas Nominees Pty Ltd Mr Julian Charles Peet Domar Investments Pty Ltd HSBC Custody Nominees (Australia) Limited HSBC Custody Nominees (Australia) Limited – A/C 2 Total for 20 largest shareholders Total other shareholders Total ordinary shares on issue Number of Shares Held % of Shares 88,558,482 86,582,433 68,306,233 51,304,070 35,222,464 20,729,143 18,152,705 17,459,881 12,707,352 8,656,230 7,679,676 6,103,817 3,566,468 3,485,776 3,240,531 2,631,851 1,528,344 1,458,853 1,446,533 1,351,011 440,171,853 43,128,636 483,300,489 18.33 17.91 14.13 10.62 7.29 4.29 3.76 3.61 2.63 1.79 1.59 1.26 0.74 0.72 0.67 0.54 0.32 0.30 0.30 0.28 91.08 8.92 100.00 114 PEET LIMITED | ANNUAL REPORT 2019 For personal use onlySECURITYHOLDER INFORMATION (CONTINUED) The names of the 20 largest holders of PPCHA Bonds as at 23 September 2019 are listed below: Name HSBC Custody Nominees (Australia) Limited J P Morgan Nominees Australia Pty Limited Australian Executor Trustees Limited Grizzly Holdings Pty Ltd Jove Pty Ltd Finot Pty Ltd BNP Paribas Nominees Pty Ltd Hub24 Custodial Serv Ltd DRP Jamplat Pty Ltd Passini Pty Ltd Tierney Pty Limited George Tauber Management Pty Ltd Riseley Family Investments Pty Ltd Sunstone Finance Pty Ltd Majana Pty Ltd Invia Custodian Pty Limited < RISF A/C> Invia Custodian Pty Limited Invia Custodian Pty Limited Super Rab Pty Ltd Pulo Rd Pty Ltd Mrs Robin Lynn Beech Total for 20 largest PPCHA Bondholders Total other PPCHA Bondholders Total PPCHA Bonds on issue Number of PPCHA Bonds Held 237,342 43,720 35,330 26,400 22,612 20,000 12,268 10,000 8,500 8,000 7,500 7,250 5,632 5,500 5,000 5,000 5,000 5,000 4,680 4,000 478,734 521,266 1,000,000 % of PPCHA Bonds 23.73 4.37 3.53 2.64 2.26 2.00 1.23 1.00 0.85 0.80 0.75 0.73 0.56 0.55 0.50 0.50 0.50 0.50 0.47 0.40 47.87 52.13 100.00 115 ANNUAL REPORT 2019 | PEET LIMITEDFor personal use onlySECURITYHOLDER INFORMATION SECURITYHOLDER INFORMATION (CONTINUED) SECURITYHOLDER INFORMATION (CONTINUED) The names of the 20 largest holders of PPCHB Bonds as at 23 September 2019 are listed below:: Name HSBC Custody Nominees (Australia) Limited Grizzly Holdings Pty Limited Keppoch Pty Limited J P Morgan Nominees Australia Pty Limited Finot Pty Limited BNP Paribas Nominees Pty Ltd Hub24 Custodial Serv Ltd DRP BT Portfolio Services Limited Roni H Pty Ltd Mr Joseph Compagnone & Mrs Cheryl Robyn Compagnone BLB Corporation Pty Ltd Invia Custodian Pty Limited Hamilton Industries (Victoria) Pty Limited Mr Joseph Compagnone and Mrs Cheryl Robyn Compagnone Trendmead Pty Ltd Netwealth Investments Limited A Cameron Holdings Pty Limited Netwealth Investments Limited Bentleigh Nominees Pty Ltd Invia Custodian Pty Limited Mr Thomas Kiss and Mrs Amanda Aizenstros Mr Archibald John McKirdy Trancape Pty Ltd Mr Jian Wang Total for 20 largest PPCHB Bondholders Total other PPCHB Bondholders Total PPCHB Bonds on issue Substantial shareholders Number of PPCHB Bonds Held 153,590 12,600 12,000 10,449 8,000 7,607 7,000 6,000 5,800 4,970 4,690 4,000 3,662 3,500 3,350 3,125 3,102 3,000 3,000 3,000 3,000 3,000 3,000 % of PPCHB Bonds 30.72 2.52 2.40 2.09 1.60 1.52 1.40 1.20 1.16 0.99 0.94 0.80 0.73 0.70 0.67 0.63 0.62 0.60 0.60 0.60 0.60 0.60 0.60 271,445 228,555 500,000 54.29 45.71 100.00 As disclosed in substantial holding notices lodged with ASX (as applicable) as at 23 September 2019: Name Date of Last Notice Received Number of Shares Held % of Issued Shares1 Scorpio Nominees Pty Ltd and its associates 13 November 2018 Allan Gray Australia Pty Ltd and its related bodies corporate 3 September 2019 L1 Capital Pty Ltd 23 July 2018 99,156,523 94,507,563 28,058,347 20.50 19.55 5.73 1. Percentage of issued shares held as at the date notice provided. 116 PEET LIMITED | ANNUAL REPORT 2019 For personal use only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 23 September 2019, Peet Limited had 1,200,000 options on issue, held by one key management person, as disclosed elsewhere in the Annual Report. As at 23 September 2019, Peet Limited had 6,346,792 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. Peet Notes As at as at 23 September 2019, Peet Limited had 75,000 unsecured and unsubordinated, 6.75% fixed-rate notes on issue, with a maturity date of 7 June 2024. Noteholders are not entitled to vote at general meetings, however, are entitled to vote on certain matters that affect their rights under the notes’ Trust Deed. The notes were issued to professional and sophisticated investors and are not listed. 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. 117 ANNUAL REPORT 2019 | PEET LIMITEDFor personal use only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 118 PEET LIMITED | ANNUAL REPORT 2019 For personal use onlyNOTES 119 ANNUAL REPORT 2019 | PEET LIMITEDFor personal use onlyNOTES 120 PEET LIMITED | ANNUAL REPORT 2019 For personal use onlyNOTES 121 ANNUAL REPORT 2019 | PEET LIMITEDFor personal use onlyNOTES 122122 PEET LIMITED | ANNUAL REPORT 2019 PEET LIMITED | ANNUAL REPORT 2019 For personal use onlyNOTES 123123 ANNUAL REPORT 2019 | PEET LIMITEDANNUAL REPORT 2019 | PEET LIMITEDFor personal use only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 For personal use only