Pilgrim's Pride
Annual Report 2020

Plain-text annual report

ANNUAL REPORT 2020 CONTENTS About Peet What we do How we do it FY20 Performance at a Glance Financial Operational Future proofing Business Model Our Strategy National Reach 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 FY2021 Financials 2 3 4 6 6 7 7 8 9 10 12 14 18 18 20 22 24 28 30 D L Q , e n o t s g a l F : e g a m I PEET LIMITED | ANNUAL REPORT 2020 Peet is one of Australia’s leading residential real estate developers, creating places to live for thousands of Australians each year. 1 ANNUAL REPORT 2020 | PEET LIMITED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: Googong, NSWPEET LIMITED | ANNUAL REPORT 2020 WHAT WE DO Peet acquires, develops and markets residential land in Australia. Currently, Peet manages a broad property portfolio of more than 47,000 lots with a gross development value of approximately $13.9 billion across 51 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 housing allotments, 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 2020 financial year (FY20). 3 ANNUAL REPORT 2020 | PEET LIMITEDHOW WE DO IT Our values 4 Image: Tonsley Village, SAPEET LIMITED | ANNUAL REPORT 2020 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 2020 | PEET LIMITEDFY20 PERFORMANCE at a glance Financial Operating profit1 after tax $15.1 million EBITDA2 (Before restructuring and divestment related provisions) $37.0 million OPERATING EARNINGS OF 3.1 CENTS PER SHARE DIVIDEND OF 1.5 CENTS PER SHARE, FULLY FRANKED BOOK NTA3 PER SECURITY $1.09 GEARING4 OF 28.8% 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/(unrealised) transactions outside the core ongoing business activities. In FY20, a restructuring and divestment-related provision of $45.2 million after tax was excluded in calculating the operating profit. EBITDA is a non-IFRS measure that includes effects of non-cash movements in investments in associates and joint ventures. NTA before application of AASB16 Leases. Calculated as (Total interest-bearing liabilities (including land vendor liabilities) less cash) / (Total assets less cash, less intangible assets). 6 PEET LIMITED | ANNUAL REPORT 2020 Image: Aston Craigieburn, VICOperational 2,323 43% LOTS SOLD5 INCREASE ON FY19 1,794 LOTS SETTLED5 c.70% of land bank under development MEDIUM DENSITY 2 + 1 BROADACRE PROJECT ACQUIRED TWO NEW PROJECTS COMMENCED SALES / DEVELOPMENT APPROX 1,100 PIPELINE OF TOWNHOUSES/LOW RISE APARTMENTS CONTRACTS ON HAND5 1,786 42% INCREASE ON 30 JUNE 2019 Future proofing Land bank of 47,323 lots5 5 Includes equivalent lots. Land Bank of $13.9 billion gross development value 51 projects nationally In every mainland state and territory in Australia ANNUAL REPORT 2020 | PEET LIMITED 7 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 efficient business model. Peet pioneered retail land syndication in Australia and its Funds Management and Joint Ventures businesses manage some 36,000 lots across 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 48% of the Group’s EBITDA6, 7,8 in FY20. OWNED 11,340 lots9 $2.6bn GDV WHOLESALE/ INSTITUTIONAL 22,616 lots9 $6.7bn GDV JOINT VENTURES 7,090 lots9 $3.1bn GDV T O W N H O U S E S RETAIL 6,277 lots9 $1.5bn GDV 6 7 8 9 EBITDA is a non-IFRS measure that includes effects of non-cash movements in investments in associates and joint ventures. Before inter-segment transfers and other unallocated items. Pre divestment and related provisions of $61.0 million (before tax). Includes equivalent lots. 8 PEET LIMITED | ANNUAL REPORT 2020 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: Lumeah Townhouses, VICANNUAL REPORT 2020 | PEET LIMITEDNATIONAL Reach NT PROJECTS: 1 ACT PROJECTS: 2 SA PROJECTS: 5 QLD PROJECTS: 12 NSW PROJECTS: 2 WA PROJECTS: 19 VIC PROJECTS: 10 47,323 LOTS10 $13.9bn GROSS DEVELOPMENT VALUE 51 PROJECTS NATIONALLY 10 Includes equivalent lots. 10 Image: Golden Bay, WA PEET LIMITED | ANNUAL REPORT 2020 Peet manages a broad property portfolio, encompassing 47,000 lots across 51 projects Diversified land bank strategically located in growth corridors of major cities in every mainland state of Australia Range of affordable product type appealing to all buyer segments with a core focus on first home buyers 11 ANNUAL REPORT 2020 | PEET LIMITEDChairman’s REVIEW Dear Shareholders, I am pleased to present Peet’s Annual Report for the year ended 30 June 2020. Key actions included the deferral of new project commencements, minimising operating and capital expenditure, and, managing settlement risk for contracts on hand so to reduce cancellations of sales. Peet has been creating communities for Australians for over 125 years. Despite the difficult circumstances brought on by the global COVID-19 pandemic in 2020, which has had a significant impact on businesses and individuals, we continued to execute our strategy and provide vibrant communities for Australians to live. The immediate and targeted response ensured the Group was in a solid position to respond to the significant increase in demand experienced in June 2020, following the announcement of the Federal Government’s HomeBuilder grant, in addition to support and stimulus provided by State Governments. Over the last few years, we have evolved elements of our strategy to diversify the types of product we develop. The flexibility afforded by this diversification has assisted in managing challenges throughout the year. With more than 47,000 lots in 51 projects across every mainland state and territory, Peet is well positioned to benefit from a sustained recovery in residential property markets throughout the nation. FY20 was a challenging year for our customers and our people. In the first half of the year, we experienced an uplift in sales and enquiries and an easing of tight credit conditions for our customers, indicating positive signs of a recovery in demand for residential housing. However, consumer confidence and markets were impacted towards the end of the third quarter with the onset of the COVID-19 pandemic and various warnings and restrictions imposed by Federal and State Governments. Peet responded with a focus on protecting our people and residents in our communities. In line with our disciplined and proactive approach to capital management, we put in place a range of initiatives to conserve capital and protect the balance sheet. Our financial results for FY20 include an operating profit11 after tax of $15.1 million and a statutory loss12 of $30.1 million (after a restructuring and divestment provision of $45.2 million after tax). The FY20 results were impacted by lower settlements, compared to FY19, on the back of lower contracts on hand at 30 June 2019, the completion or substantial completion of projects in FY19 and the impact of COVID-19. Strong sales achieved in June 2020 have provided the Group with good momentum as it enters into the 2021 financial year. At 30 June 2020, the Group had net interest-bearing debt (including Peet Bonds) of $235.3 million, compared with $211.6 million at 30 June 2019. Subsequent to year-end the Group further extended the on-market share buyback for up to 5% of Peet’s issued ordinary shares to 30 August 2021, subject to the Board’s right to extend or terminate the buy-back at any time. 11 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 / unrealised transactions outside the core ongoing business activities. In FY20, a restructuring and divestment-related provision of $45.2 million after tax was excluded in calculating the operating profit. 12 Statutory profit / (loss) after tax means net profit / (loss) measured in accordance with Australian Accounting Standards, attributable to the owners of Peet Limited. 12 PEET LIMITED | ANNUAL REPORT 2020 The flexibility afforded by our diversification strategy has assisted in managing challenges throughout the year. STRATEGY CONCLUSION We remain committed to: • Investing in quality land. • Enhancing, planning and creating communities. • Expanding our product offerings. • Maintaining strong capital management. While Peet’s strategic pillars have not changed, we announced some initiatives in seeking to position Peet positively to a post COVID-19 environment, including resetting the focus of the business on key growth corridors across Australia. I refer you to the Managing Director and CEO’s review for further detail on this matter. DIVIDENDS After year-end, the Directors declared a final dividend for FY20 of 1.0 cent per share, fully franked. This brings the total dividend for FY20 to 1.5 cents per share, fully franked. This dividend is payable 19 November 2020, with a record date of 26 October 2020. Despite the challenging year, we head into FY21 focused on being positioned to benefit from any sustained improvement in market conditions while keeping a cautious approach to project delivery and identifying new growth opportunities. Remaining agile will be key over the next 12 months as we closely monitor the market and make the necessary decisions to create long-term value for our shareholders and syndicate investors, creating high quality communities for our residents and providing a stimulating and rewarding environment for the Peet Team. This year has been extraordinary and I would like to thank my fellow Board members for their guidance. I would also like to thank our Managing Director and CEO Brendan Gore and the entire team at Peet for their dedication and commitment during an unprecedented year of change and disruption. We would also like to extend our gratitude to our shareholders for their support and we look forward to sharing our progress with you in FY21. Tony Lennon Chairman ANNUAL REPORT 2020 | PEET LIMITED 13 Managing Director and CEO’s REVIEW Dear Shareholders, PEOPLE AND SAFETY We entered FY2020 buoyed by signs of recovery in demand for residential housing as market conditions improved across the Group’s markets. As access to credit also improved, we experienced an increase in customer demand for our products, resulting in an uplift in sales during the first half of the year, providing optimism for the remainder of FY20. The onset of COVID-19 and the associated Government restrictions that followed impacted consumer sentiment and the ability of prospective customers to visit our projects in March 2020, resulting in lower sales in April 2020. However, enquiry levels and digital traffic recovered strongly in April 2020, with Peet’s sales offices generally fully operational in WA, ACT/NSW, SA and QLD with the easing of government restrictions. The introduction of Federal Government stimulus (in addition to support and stimulus provided by State Governments) resulted in a significant increase in enquiries and sales across the Group’s portfolio in the latter half of the June 2020 quarter. Enquiry levels increased by 75% during the quarter ended 30 June 2020, compared to the previous quarter. Sales increased 57% compared to the quarter ended 31 March 2020 and 25% compared to the quarter ended 31 December 2019. COVID-19 RESPONSE When the pandemic impacted Australia in March 2020, we took decisive action to protect our people, residents of our communities and the balance sheet through a variety of initiatives. The safety and wellbeing of our employees and residents was our top priority and we moved quickly to implement a targeted pandemic response. The speed of our transition to working from home and the dedication and efficiency of our people was impressive. Peet offices across the country introduced measures to ensure our employees could return to the office gradually and safely in line with Governments’ protocols. We prioritised supporting the ongoing viability of our small business customers and we also communicated digitally with residents in our communities. BUSINESS OPERATIONS Various initiatives were implemented to protect our business including: • Deferral of the commencement of new projects. • Minimising development expenditure to reflect management forecasts for COVID-19 sales rates pre-Government stimulus. • A strong focus on managing the settlement risk of contracts on hand to minimise cancellations. • Re-sequencing of masterplan staging to bring forward affordable lots. • Accelerated production to align with expected demand following the introduction of Government stimulus. • Negotiating variations to the Group’s senior debt facility, which have resulted in a waiver of the measurement of the Group’s debt covenants out to 30 June 2021, taking account of the Group’s COVID-19 responses and the organisational restructure being implemented. MANAGEMENT RESPONSE • Voluntary 20% reduction of the Leadership Team’s fixed salaries for the three months ended 31 July 2020. • Voluntary 20% reduction of Non-Executive Director fees for the three months ended 31 July 2020. • A 20% reduction in working hours across the balance of the Peet Team (with a pro-rata reduction in base pay) for the three months ended 31 July 2020. • No FY20 short-term incentives. • Reduction of discretionary spend and deferral of non- essential capital expenditure. 14 PEET LIMITED | ANNUAL REPORT 2020 RIGHT-SIZING COST BASE AND STRENGTHENING CAPITAL POSITION The Group continues to remain cautious on the outlook for FY21 and is seeking to position itself positively to a post COVID-19 environment. FY20 PERFORMANCE The Peet Group achieved an operating profit13 after tax of $15.1 million and a statutory loss14 after tax of $30.1 million for FY20, which represent decreases of 68% and 163% respectively on FY19. Peet has continued to focus on reducing its fixed corporate overhead and efficiently managing its asset base with a view to maximising returns on invested capital. The performance has resulted in an operating earnings per share of 3.1 cents (statutory loss per share of 6.2 cents) for FY20, compared to 9.8 cents in FY19. The Group has been investing in its information and digital platforms during the past few years to improve the efficiency of its workflows and the gathering of data to drive enquiry and increase sales. At the same time, the Group continually reviews its c.47,000-lot portfolio to identify opportunities to recycle capital. With a view to resetting the focus of the business on key growth corridors around the country, Peet will seek to divest non-core projects, including regional and sub-regional projects. The expectation is that this will result in the recycling of c.$75 million of capital over the next 18 to 24 months to further strengthen the Group’s balance sheet. This will assist in streamlining the business and simplifying its operating structure. The divestment of projects, as well as resulting efficiencies from our investment in digital platforms, has resulted in the reduction of the number of people employed by the Group. These difficult decisions are unfortunate but necessary to ensure the Group is well positioned for the post COVID-19 environment. It is expected that these measures will result in annualised savings of $5-7 million once fully implemented in 2H21. However, for FY20 the Group recognised a restructuring and divestment-related provision of approximately $45 million after tax. The operating result is on the back of lower settlements impacted by lower contracts on hand as at 30 June 2019 and completion of projects in FY19 and into FY20. The results were also negatively impacted by the onset of COVID-19 towards the end of 3Q20 and the resulting Government restrictions, as well as the Group’s own response to protect the health and safety of its employees and its balance sheet. The Group achieved 2,323 sales15 with a gross value of $528.7 million, representing an increase of 43% on the number of sales in FY19. Sales in the first half of the year showed a solid increase on the previous six months and sales activity continued to improve in the first two months of CY2020. While the impact of the COVID-19 pandemic and associated restrictions contributed to lower sales in April 2020, sales recovered strongly in the last quarter of the year. The Group achieved 1,794 settlements15 for the full year across its Funds Management, Development and Joint Venture projects, representing a decrease of 32% compared with FY19. Peet delivered FY20 EBITDA16 of $37.0 million (before restructuring and divestment-related provisions) compared to $86.0 million in FY19. FY20 EBITDA16 was impacted by lower settlement volumes on lower sales volumes in FY19 carrying into FY2020 and COVID-19. 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 / unrealised transactions outside the core ongoing business activities. In FY20, a restructuring and divestment-related provision of $45.2 million after tax was excluded in calculating the operating profit. 14 Statutory profit / (loss) after tax means net profit / (loss) 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. ANNUAL REPORT 2020 | PEET LIMITED 15 The reduction in our EBITDA17 margin to 19% (FY19: 33%), is attributable to lower settlements, the completion of high margin projects in ACT/NSW and VIC as well as reduced development expenditure on new stock in response to COVID-19. Peet enters FY21 with cash and debt facility headroom of $134.7 million as at 30 June 2020 and a weighted average debt maturity of over two years. This provides the capacity to accelerate delivery of product to meet the material increase in demand following the introduction of Government stimulus. OUTLOOK FY21 is expected to remain challenging as the various economic and social consequences of COVID-19 continue to develop and impact both the property industry and country more broadly. Low interest rates, accommodating credit conditions and Government stimulus are positive for the residential sector. However, there remain uncertainties around the impact of the roll-off of Government stimulus, including on the rate of unemployment and the impact of COVID-19 on the Federal Government’s immigration policy. Accordingly, the Group continues to adopt a cautious approach as it enters FY21. In a year of unprecedented change, I would like to thank Chairman Tony Lennon and our board for their contributions and insight during the year. Thanks also to Peet’s management team and staff for their commitment and dedication in what was a challenging year. 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 Contracts on hand18 at 30 June 2020 increased 42% to 1,786 lots (compared to 30 June 2019: 1,257 lots), with a value of $428 million (up 27% on FY19: $336 million) on the back of Government stimulus. DELIVERY AGAINST STRATEGY The Group’s portfolio is well positioned for positive medium to longer-term growth and value creation. Despite challenging conditions, we made progress against our strategic pillars. Invest in quality land in strategic locations across the country We continued to build our geographically diverse portfolio, with two townhouse sites and one broadacre land project secured during FY20 on attractive terms. Enhance, plan and create communities and homes targeting the lower to middle market segment. Two new projects commenced development/sales in FY20, with 70% of our projects now under development. We expect 80% of our projects to be under development by FY23. Expand our product offerings and geographic presence We continued to extend our market reach by broadening our offerings to townhouses and low-rise apartments. We now have a pipeline of approximately 1,100 townhouses and apartments. Maintain strong capital management We continued to maintain a strong focus on capital management throughout the year. Our robust capital position allowed us to be proactive in implementing initiatives in response to COVID-19. At 30 June 2020, the Group’s gearing19 was 28.8%, within the Company’s target range of 20% to 30%. Additionally, the recycling of c.$75 million of capital over the next 18 to 24 months from the divestment of non- core assets will further strengthen the Group’s balance sheet. 17 EBITDA is a non-IFRS measure that includes effects of non-cash movements in investments in associates and joint ventures. 18 19 Calculated as (Total interest-bearing liabilities (including land vendor liabilities) less cash) / (Total assets less cash, less intangible assets). Includes equivalent lots. 16 PEET LIMITED | ANNUAL REPORT 2020 When the pandemic impacted Australia in March 2020, we took decisive action to protect our people, residents and the balance sheet through a variety of initiatives. ANNUAL REPORT 2020 | PEET LIMITED 17 Image: Pier Street, WA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 efficient profit source which is difficult to replicate while also providing long term earnings visibility. 23 20, 21, 22 EBITDA 29% 28,893 lots24 GDV25 $8.2 billion 20 EBITDA is a non-IFRS measure that includes effects of non-cash movements in investments in associates and joint ventures. 21 Before inter-segment transfers and other unallocated items. 22 Pre divestment and related provisions of $61.0 million (before tax). 23 By number of lots. 24 25 Gross Development Value. Includes equivalent lots. 18 PEET LIMITED | ANNUAL REPORT 2020 Comprised 61% OF GROUP’S LAND BANKS T O L 6 2 D L O S S T O L 6 2 D E L T T E S S T C A R T N O C 6 2 D N A H N O 7 2 A D T I B E A D T I B E I 7 2 N G R A M FY20 1,412 value of $310.0 million FY19 909 value of $193.8 million FY20 924 Gross value of $217.9 million FY19 1,535 Gross value of $355.2million FY20 1,173 Total value of $241.2 million FY19 685 Total value of $149.0 million FY20 $13.0 million FY19 $24.4 million FY20 53% FY19 71% 26 27 Includes equivalent lots. EBITDA is a non-IFRS measure that includes effects of non-cash movements in investments in associates. ANNUAL REPORT 2020 | PEET LIMITED 19 Image: Shorehaven Alkimos, WA 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. 31 28, 29, 30 EBITDA 19% 7,090 lots32 GDV33 $3.1 billion 28 EBITDA is a non-IFRS measure that includes effects of non-cash movements in investments in associates and joint ventures. 29 Before inter-segment transfers and other unallocated items. 30 Pre divestment and related provisions of $61.0 million (before tax). 31 By number of lots. 32 33 Gross Development Value. Includes equivalent lots. 20 PEET LIMITED | ANNUAL REPORT 2020 Comprised 15% OF GROUP’S LAND BANKS T O L 4 3 D L O S S T O L 4 3 D E L T T E S S T C A R T N O C 4 3 D N A H N O 5 3 A D T I B E A D T I B E I 5 3 N G R A M FY20 479 FY19 414 value of $100.5 million value of $98.0 million FY20 436 FY19 539 Gross value of $103.0 million Gross value of $123.1 million FY20 404 FY19 361 Total value of $128.1 million Total value of $130.5 million FY20 $8.8 million FY19 $13.7 million FY20 22% FY19 31% 34 35 Includes equivalent lots. EBITDA is a non-IFRS measure that includes effects of non-cash movements in investments in joint ventures. Also before divestment and related provisions. 21 Image: Lightsview (SA)ANNUAL REPORT 2020 | PEET LIMITED 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. 39 36, 37, 38 EBITDA 52% 11,340 lots40 GDV41 $2.6 billion 36 EBITDA is a non-IFRS measure that includes effects of non-cash movements in investments in associates and joint ventures. 37 Before inter-segment transfers and other unallocated items. 38 Pre divestment and related provisions of $61.0 million (before tax). 39 By number of lots. 40 41 Gross Development Value. Includes equivalent lots. 22 PEET LIMITED | ANNUAL REPORT 2020 Comprised 24% OF GROUP’S LAND BANKS T O L 2 4 D L O S S T O L 2 4 D E L T T E S S T C A R T N O C 2 4 D N A H N O 3 4 A D T I B E A D T I B E I 3 4 N G R A M FY20 432 value of $118.2 million FY19 306 value of $67.9 million FY20 434 FY19 555 Gross value of $115.8 million Gross value of $163.1 million FY20 209 FY19 211 Total value of $58.4 million Total value of $56.0 million FY20 $23.5 million FY19 $58.5 million FY20 18% FY19 32% Includes equivalent lots. 42 43 Before divestment and related provisions. ANNUAL REPORT 2020 | PEET LIMITED 23 Image: Tonsley Village, SA 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 it has on the environment while looking for ways to make communities thrive. BRABHAM ESTATE – A 6 STAR ‘GREEN STAR’ COMMUNITY Peet’s newest community in Western Australia, Brabham Estate has in its first year been awarded a 6 Star ‘Green Star Communities’ certification by the Green Building Council of Australia, making it a World Leading Sustainable Development. The certification reflects our commitment to build sustainable outcomes for the lifecycle of the project across categories of liveability, environment, economic prosperity, governance and innovation. Initiatives at Brabham Estate include: • Creating a green environment by investing in alternative water solutions • Reducing waste by reusing and recycling materials • Retention of existing bushland • Designing for healthy and active lifestyles through thoughtful streetscapes and infrastructure linking residents to parks • Facilitating neighbourhood connections through investment in community • Planting up to double the number of trees required by Council • Investigating a community battery network and exploring eco-friendly technology 24 PEET LIMITED | ANNUAL REPORT 2020 GOOGONG TRIALS INNOVATIVE RECYCLED ROAD PRODUCT Googong is adding to its already extensive sustainability credentials with the trial of a new innovative recycled road product, known as Reconophalt - a first for the ACT / Queanbeyan region. A one kilometre, two-lane road paved with Reconophalt can contain 500,000 plastic bags and packaging equivalents, 165,000 glass bottle equivalents and toner from 12,000 used printer cartridges. The trial will be implemented in the netball precinct with a view to it being used more widely on the remaining roads at Googong. In addition to the environmental benefits from the recycled asphalt, there is a 65 per cent improvement in fatigue for longer life pavements when compared to standard asphalt. Googong continues to be at the forefront of sustainable design by incorporating new and innovative technologies across a range of areas to benefit its residents, which has seen the community win numerous awards including the 2019 UDIA NSW Best Masterplanned Community. CONSERVATION OF THE SOUTHERN BROWN BANDICOOT AT SUMMERHILL, BOTANIC RIDGE Summerhill, located within Botanic Ridge in Melbourne’s south east, has a unique ecological landscape rich in fauna and flora. In line with the project’s Conservation Management Plan and Peet’s ongoing commitment to sustainability, Peet has worked with key stakeholders to develop a plan to protect the population of the Southern Brown Bandicoot within the corridor from being landlocked. The corridors comprise of drainage reserves and include revegetation and landscaping suitable for the Southern Brown Bandicoot. ANNUAL REPORT 2020 | PEET LIMITED 25 HELPING FIRST HOME BUYERS THROUGH THE BUYING JOURNEY The home buying journey can be overwhelming and daunting for first-time buyers and Peet identified a need to provide additional support to customers to help guide them through the process. Peet’s First Home Buyer Toolkit, simplified into an easy to follow five step process, offers buyers comprehensive downloadable guides, checklists and Q&A videos with experts. Available completely online allowing customers the opportunity to work through the steps at their own pace, the Toolkit received an overwhelming response when launched during COVID-19, with buyers recognising the opportunity to use this time to prepare for this exciting next chapter in their lives. INNOVATION, SUSTAINABILITY AND COMMUNITY CONNECTION AT FLAGSTONE Flagstone, located near Jimboomba, QLD, is a large master- planned community that will eventually feature a CBD servicing approximately 150,000 people. In only a few years of operation, the project has delivered significant amenities for the community including drawcard parks, playgrounds and retail options. The latest feature in the Regional Rec Park is the Waterplay Park, which has not only provided a great source of play and community connection but has also been delivered sustainably. The Waterplay Park has been designed as a fully recirculated water system ensuring water usage is minimal. Among the many sustainable features, the park runs on sensors with the water delivery system shutting down when not in use, and reactivating when sensors are contacted. A full-size Coles supermarket is now open within the commercial precinct offering Flagstone residents convenience and choice right on their doorstep. The Coles carpark also includes an Electric Vehicle Charging Station which is managed through ChargeFox. The station is powered by 100% renewable energy, offering a sustainable and cost- effective mobility option. 26 PEET LIMITED | ANNUAL REPORT 2020 FOSTERING COMMUNITY CONNECTION DURING COVID-19 Facilitating community connection has become more important than ever during the COVID-19 pandemic. Peet has a proud history of community engagement, and in response to social distancing requirements, we explored opportunities to connect digitally with our communities across the country. At the close-knit community of Googong in NSW, a program of community initiatives was rolled out to continue community connection and bring much-needed entertainment to our residents - all delivered virtually. Programs included music concerts, dance classes, plus the chance to have a special ‘Driveway Portrait’ taken. A professional photographer visited hundreds of homes within the community to take socially-distanced portraits of Googong families to record this time in their lives. A LONG RELATIONSHIP SUPPORTING THE COMMUNITY WITH THE BEDFORD GROUP The Bedford Group is an organisation that supports people living with disability by providing employment opportunities. Peet is proud to have been working with the Bedford Group for 12 years across landscaping projects in our communities in South Australia. Beginning with a small team that undertook landscaping of front gardens and verges, the Bedford Group now have approximately 35 staff working on Peet projects and tender for all Peet’s landscaping work. Bedford Group have delivered a range of large-scale, high quality landscape projects for Peet, including the landscaping of seven large reserves at Lightsview, the linear reserve at Bluestone Mount Barker and street landscaping at Tonsley Village. Landscaping work on the larger reserve at Lightsview involved pouring of concrete walls and footpaths, installing irrigation systems, installation of shelters and furniture, installation of rain gardens, planting of trees, shrubs and groundcover, along with laying of instant turf and mulch. ANNUAL REPORT 2020 | PEET LIMITED 27 Corporate CALENDAR FY2021 5 OCTOBER 2020 Interest payment date for Peet Bond holders (PPCHB) 16 OCTOBER 2020 Annual Report and Notice of 2020 AGM dispatched to shareholders 26 OCTOBER 2020 Record date for final FY20 dividend 19 NOVEMBER 2020 2020 Annual General Meeting 19 NOVEMBER 2020 Payment date of final FY20 dividend 7 DECEMBER 2020 Interest payment date for unlisted notes 16 DECEMBER 2020 Interest payment date for Peet Bond holders (PPCHA) 5 JANUARY 2021 Interest payment date for Peet Bond holders (PPCHB) FEBRUARY 2021 Release of results for the half-year ending 31 December 2020 5 APRIL 2021 Interest payment date for Peet Bond holders (PPCHB) 7 JUNE 2021 Interest payment date for unlisted notes 7 JUNE 2021 Final interest payment date and maturity date for Peet Bond holders (PPCHA) 28 Image: Lakelands Estate, WAPEET LIMITED | ANNUAL REPORT 2020 29 ANNUAL REPORT 2020 | PEET LIMITEDPEET LIMITED | ANNUAL REPORT 2020 FINANCIAL REPORT 30 JUNE 2020 CONTENTS Directors’ Report Auditor’s Independence Declaration Corporate Governance Statement Financial Report Directors’ Declaration Independent Auditor’s Report to the Members of Peet Limited 32 60 61 62 102 103 30 PEET LIMITED | ANNUAL REPORT 2020 This page has been intentionally left blank 31 ANNUAL REPORT 2020 | PEET LIMITED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 2020 (‘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. 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. He is a World Fellow Member of The Duke of Edinburgh’s International Award. Brendan Gore, BComm, FCPA, FGIA, FCG (CS, CGP), 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’s strategy through its land bank expansion, diversification of its product offering 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. 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 large scale operations, 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. 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. 32 DIRECTORS’ REPORTYear ended 30 June 2020PEET LIMITED | ANNUAL REPORT 2020 01. DIRECTORS (CONTINUED) 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 Finance and Audit Committee and is a member of its Risk and Compliance Committee and of its People and Culture Committee. 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, where he chairs its Risk and Sustainability Committee and is the Deputy Chair of its Finance and Audit Committee. Mr Allen is a former Non-executive Director of Yowie Group Limited (resigned January 2018) and Brighte Capital Pty Limited. He is also a former Alternate Director, Company Secretary and Public Officer of Australian Fresh Milk Holdings Pty Ltd. 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 a former director of Western Power. Robert McKinnon, FCPA, FGIA, FCG (CS, CGP), MAICD Lead 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. Mr McKinnon is also Non-executive Chairman of M8 Sustainable Limited. 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. 33 ANNUAL REPORT 2020 | PEET 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. As at 30 June 2020, the Group employed 215 people in offices throughout Australia and managed and marketed a land bank of more than 47,300 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 after tax of $15.1 million and statutory loss3 after tax of $30.1 million • Operating earnings per share of 3.1 cents and statutory loss per share of 6.2 cents • FY20 dividends of 1.5 cents per share, fully franked • Revenue4 of $196.3 million, with 1,794 lots settled • Restructuring and divestment-related provisions of $45.2 million after tax • EBITDA5 of $37.0 million (before restructuring and divestment-related provisions) • 1,786 contracts on hand6 as at 30 June 2020 • Gearing7 of 28.8% Financial commentary The Peet Group achieved an operating profit2 after tax of $15.1 million and statutory loss3 after tax of $30.1 million for the year ended 30 June 2020, which represent decreases of 68% and 163% respectively on FY19. The operating result is on the back of lower settlements impacted by the lower contracts on hand as at 30 June 2019 and the completion of projects in 30 June 2019 and into 30 June 2020. The onset of the COVID-19 pandemic towards the end of 3Q20, together with Government restrictions and protocols and the Company’s own responses to protect the health and safety of its employees and its balance sheet, also had a negative impact on the FY20 results. In July 2020, the Group announced that with a view to resetting the focus of the business on key growth corridors around the country, it will seek to divest non-core projects, including regional and sub-regional projects. This is expected to result in the recycling of circa $75 million of capital over the next 18 to 24 months and simplify the Group’s operating structure. While it is expected that these measures will result in annualised overhead and fixed cost savings of $5 - 7 million once fully implemented in 2H21, it has also resulted in a restructuring and divestment-related provision of $45.2 million after tax in FY20. The Group derived EBITDA5 of $37.0 million (before restructuring and divestment-related provisions) during FY20, compared to $86.0 million in FY19, with an EBITDA5 margin of 19%, compared to the margin achieved in FY19 of 33%. This margin reduction is attributable to the completion of high margin projects in ACT/NSW and Vic and the Group’s reduced development expenditure on new stock in response to COVID-19. The performance has resulted in an operating earnings per share of 3.1 cents (statutory loss per share of 6.2 cents) for FY20, compared to 9.8 cents in FY19. 1 2 3 4 5 6 7 Comparative period is 30 June 2019, 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 / unrealised transactions outside the core ongoing business activities. In FY20, a restruc- turing and divestment-related provision of $45.2 million after tax was excluded in calculating the operating profit. Statutory profit / (loss) after tax means net profit / (loss) measured in accordance with Australian Accounting Standards, attributable to the owners of Peet Limited. Includes statutory revenue of $188.2 million (FY19: $249.5 million) and share of net profits from associates and joint ventures of $8.1 million (FY19: $13.3 million) EBITDA is a non-IFRS measure that includes effects of non-cash movements in investments in associates and joint ventures. Includes equivalent lots. Calculated as (Total interest-bearing liabilities (including land vendor liabilities) less cash) / (Total assets less cash, less intangible assets). 34 DIRECTORS’ REPORTYear ended 30 June 2020PEET LIMITED | ANNUAL REPORT 2020 03. REVIEW OF OPERATIONS AND CONSOLIDATED RESULTS (CONTINUED) The Group has maintained its focus on prudent capital management. The Group entered 2H20 in a strong capital position, which allowed it to proactively implement capital management initiatives in response to COVID-19. At 30 June 2020, the Group’s gearing8 was 28.8% and within the Company’s target range of 20% to 30%. COVID-19 responses In response to COVID-19, the Group proactively implemented a range of measures to protect the safety of employees and other stakeholders, as well as capital management initiatives to shore up liquidity and protect the balance sheet, including: prioritising the safety and wellbeing of Peet’s employees, customers and residents; • a reduction or deferral of non-essential variable operating expenditures and corporate overheads, including placing a freeze on remuneration and implementing other cost saving measures; • a voluntary 20% reduction in Directors’ fees and the fixed salaries of Leadership Team members from 1 May 2020 to • 31 July 2020; • a temporary 20% reduction in working hours across the balance of the Peet Team (with a pro-rata reduction in base pay) from 1 May 2020 to 31 July 2020; • the deferral of the commencement of new projects; • minimising development capital expenditure to reflect management forecasts for COVID-19 sales rates pre-Government stimulus; and • a strong focus on managing the settlement risk of contracts on hand. Operational commentary The Group achieved 2,323 sales9 (with a gross value of $528.7 million) for the full year across its Funds Management, Development and Joint Venture projects, representing an increase of 43% on the number of sales achieved in FY19. 1H20 sales showed a solid increase on the previous six months and sales activity continued to improve in the first two months of CY2020. However, the impact of the COVID-19 pandemic and associated restrictions contributed to lower sales in April 2020 on the back of lower customer traffic and enquiry levels during the latter part of March 2020. Enquiry levels and digital traffic recovered strongly in April 2020, with Peet’s sales offices generally fully operational in WA, ACT/NSW, SA and Qld with the easing of Government restrictions. The introduction of Government stimulus (including the Federal Government’s HomeBuilder grant and the WA State Government’s Building Bonus grant) resulted in a significant increase in enquiries and sales across the Group’s portfolio in the latter half of the June 2020 quarter. Enquiry levels increased by 75% during the quarter ended 30 June 2020, compared to the quarter ended 31 March 2020. Sales increased 57% compared to the quarter ended 31 March 2020 and 25% compared to the quarter ended 31 December 2019. The Group achieved 1,794 settlements9 for the full year across its Funds Management, Development and Joint Venture projects, representing a decrease of 32% compared with FY19. This decrease was on the back of the lower contracts on hand at 30 June 2019, the completion or substantial completion of a number projects in FY19 and the minimising of development expenditure on new stock in response to COVID-19. At 30 June 2020, there were 1,786 contracts on hand9, with a gross value of $427.7 million, compared with 1,257 contracts on hand9 with a gross value of $335.5 million at 30 June in 2019. This represents an increase of 42% in contracts on hand9 and a 27% increase in contract value, providing a positive momentum into FY21. 8 9 Calculated as (Total interest-bearing liabilities (including land vendor liabilities) less cash) / (Total assets less cash, less intangible assets). Includes equivalent lots. 35 ANNUAL REPORT 2020 | PEET LIMITED03. REVIEW OF OPERATIONS AND CONSOLIDATED RESULTS (CONTINUED) Funds management projects Key highlights • 1,412 lots sold10 for a gross value of $310.0 million, compared with 909 lots sold10 ($193.8 million) in FY19. • 924 lots settled10 for a gross value of $217.9 million, compared with 1,535 lots settled10 ($355.2 million) in FY19. • 1,173 contracts on hand10 as at 30 June 2020 with a total value of $241.2 million, compared with 685 contracts on hand10 ($149.0 million) as at 30 June 2019. • EBITDA11 of $13.0 million compared with $24.4 million in FY19. • EBITDA11 margin decreased to 53% from 71% in FY19. While sales increased 55% during the year, the 40% reduction in settlements resulted in EBITDA11 reducing 47%. The increase in sales was experienced across the country, but particularly in WA, which saw some level of pent up demand bolstered by the introduction of Federal and State Government stimulus and also saw the release of the first stage of the Brabham project. As at 30 June 2020, approximately 61% of the Group’s land bank comprised Funds Management projects. This business provides Peet with a capital-lite earnings base which contributed approximately 29% of the Group’s EBITDA11,12 (before divestment and related provisions) for FY20. Development projects Key highlights • 432 lots sold10 for a gross value of $118.2 million, compared with 306 lots sold10 ($67.9 million) in FY19. • 434 lots settled10 for a gross value of $115.8 million, compared with 555 lots settled10 ($163.1 million) in FY19. • 209 contracts on hand10 as at 30 June 2020 with a total value of $58.4 million, compared with 211 contracts on hand10 ($56.0  million) as at 30 June 2019. • EBITDA11 of $23.5 million (before divestment and related provisions) compared with $58.5 million in FY19. • EBITDA11 margin of 18% (before divestment and related provisions) compared with 32% in FY19. The 41% increase in sales from the Development business was driven by new projects released during the year in Qld and Vic. With settlements down 22%, Development projects’ EBITDA11 contribution (before divestment and related provisions) reduced 60%. This reduction is primarily due to the lower number of settlements achieved from Craigieburn (Vic) as its first phase completed. As at 30 June 2020 approximately 24% of the Group’s land bank comprised Development projects. Joint Ventures Key highlights • 479 lots sold10 for a gross value of $100.5 million, compared with 414 lots sold10 ($98.0 million) in FY19. • 436 lots settled10 for a gross value of $103.0 million, compared with 539 lots settled10 ($123.1 million) in FY19. • 404 contracts on hand13 as at 30 June 2020 with a total value of $128.1 million, compared with 361 contracts on hand10 ($130.5 million) as at 30 June 2019. • EBITDA11 of $8.8 million (before divestment and related provisions) compared with $13.7 million in FY19. • EBITDA11 margin of 22% (before divestment and related provisions) compared with 31% in FY19. Sales increased 16% during the year on the back of increases from the Wellard (WA) and Googong (NSW) projects. Settlements were 19% lower in FY20, compared to FY19, resulting in the EBITDA11 contribution (before divestment and related provisions) reducing 36%. Includes equivalent lots. 10 11 EBITDA is a non-IFRS measure that includes effects of non-cash movements in investments in associates and joint ventures. 12 Before inter-segment transfers and other unallocated items. 36 DIRECTORS’ REPORTYear ended 30 June 2020PEET LIMITED | ANNUAL REPORT 2020 03. REVIEW OF OPERATIONS AND CONSOLIDATED RESULTS (CONTINUED) As at 30 June 2020 approximately 15% of the Group’s land bank comprised Joint Venture projects, with major projects located in Qld, NSW, WA and SA. Land portfolio metrics Lot sales13 Lot settlements13 Contracts on hand as at 30 June13 Number Value CAPITAL MANAGEMENT FY20 2,323 1,794 1,786 FY19 1,629 2,629 1,257 $427.7 million $335.5 million Change 43% (32%) 42% 27% The Group continues to apply a prudent focus on capital management and its gearing14 as at 30 June 2020 was 28.8% and within its target range of 20% to 30%. At 30 June 2020, the Group had net interest-bearing debt15 (including Peet Bonds) of $235.3 million, compared with $211.6 million at 30 June 2019. Peet enters FY21 with cash and debt facility headroom of $134.7 million as at 30 June 2020 and a weighted average debt maturity of over two years. It has the capacity to accelerate delivery of product to meet the material increase in demand following the introduction of Government stimulus. During FY20, Peet Limited: • extended its on-market share buy-back of up to 5% of its issued ordinary shares. As at 30 June 2020, 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; and • had pre-emptive discussions with the Group’s syndicate of banks resulting in variations to its senior debt facility, which have provided a waiver of the measurement of the Group’s debt covenants out to 30 June 2021, taking account of the Group’s COVID-19 responses and the organisational restructure announced to the market in July 2020. DIVIDENDS Subsequent to year end, the Directors declared a final dividend for FY20 of 1.0 cent per share, fully franked. This brings the total dividend for FY20 to 1.5 cents per share. This compares to the FY19 dividend of 5.0 cents per share, fully franked. The final FY20 dividend is to be paid on Thursday, 19 November 2020, with a record date of Monday, 26 October 2020. 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; • expanding market reach by continuing to broaden its product offering in 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. Includes equivalent lots 13 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 AASB10. 37 ANNUAL REPORT 2020 | PEET LIMITED03. REVIEW OF OPERATIONS AND CONSOLIDATED RESULTS (CONTINUED) RISKS The Group’s operating and financial performance is influenced by a number of risks impacting the property sector. These include bank lending conditions, general economic conditions, government policy influencing a range of matters including population growth (immigration policy), household income and consumer confidence, the employment market and land development conditions and requirements, including in relation to infrastructure, environmental and climate-change management. In respect to climate change, the Group’s focus is currently on understanding and mitigating climate change risks on development approvals processes, reputational matters and reporting obligations. 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. This continues to include managing risks associated with changing consumer preferences for products – size, location, product typology (house and land, low-rise apartments and medium density townhouses). 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 FY21 is expected to remain challenging as the various economic and social consequences of COVID-19 continue to develop and impact both the property industry and country more broadly. Low interest rates, accommodating credit conditions and Government stimulus are positive for the residential sector. However, there remain uncertainties around the impact of the roll-off of Government stimulus, including on the rate of unemployment and the impact of COVID-19 on the Federal Government’s immigration policy. Accordingly, the Group continues to adopt a cautious approach as it enters FY21. 04. EARNINGS PER SHARE Basic and diluted (loss)/ earnings per share 2020 Cents (6.19) 2019 Cents 9.79 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 2020. 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 Other than the final FY20 dividend (details of which are included below), 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. 38 DIRECTORS’ REPORTYear ended 30 June 2020PEET LIMITED | ANNUAL REPORT 2020 06. MATTERS SUBSEQUENT TO THE END OF THE FINANCIAL YEAR (CONTINUED) 07. DIVIDENDS In August 2019, the Directors declared a final dividend of 3.0 cents per share, fully franked, in respect of the year ended 30 June 2019. The dividend of $14.5 million was paid on Monday, 7 October 2019. In February 2020, the Directors declared an interim dividend of 0.5 cents per share, fully franked, in respect to the year then ending 30 June 2020. The dividend of $2.4 million was paid on Thursday, 9 April 2020. Subsequent to year end, the Directors declared a final dividend for FY20 of 1.0 cent per share, fully franked. This brings the total dividend for FY20 to 1.5 cents per share. This compares to the FY19 dividend of 5.0 cents per share, fully franked. The final FY20 dividend is to be paid on Thursday, 19 November 2020, with a record date of Monday, 26 October 2020. 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 FY20 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. 39 ANNUAL REPORT 2020 | PEET LIMITED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 21 21 21 21 21 21 21 21 20 20 21 20 – – 7 7 – 7 – – 7 7 – 7 – – 3 3 3 3 – – 2 3 3 3 4 4 4 4 4 4 4 4 3 2 4 3 On some occasions, Board and Committee meetings may have been called or rescheduled on short notice which meant that some Directors may not have been able to attend. 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 Ms V Krause and Mr A J Lennon will retire by rotation and offer themselves for re-election. Your Board of Directors recommend the re-election of Ms V Krause and Mr A J Lennon. 40 DIRECTORS’ REPORTYear ended 30 June 2020PEET LIMITED | ANNUAL REPORT 2020 12. REMUNERATION Dear Shareholder, Peet is pleased to present its Remuneration Report for the year ended 30 June 2020. 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”). It focuses on the remuneration decisions made by the Board and the pay outcomes that resulted. 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. Peet achieved an operating net profit after tax of $15.1 million and a statutory loss after tax of $30.1 million for the 2020 financial year, compared to an operating and statutory net profit after tax of $47.5 million in the previous year. While the statutory financial statements show total revenue of $196.3 million and earnings before interest, tax, depreciation and amortisation (EBITDA) of ($24.1) 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 $196.3 million and EBITDA of ($24.1) million, the properties that Peet is also responsible for within its Fund Management and Joint Arrangement businesses generated revenues of $269.6 million and EBITDA of $36.2 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 during the year ended 30 June 2020 included: • The MD’s base pay for the year ended 30 June 2020 was the same as for the previous year. • There were no increases in the base pay of the other KMP, including NEDs, during the year ended 30 June 2020. • Short–term incentives will not be paid to the KMP in respect of the year ended 30 June 2020 in response to Peet’s financial performance during the year. • During the year, long-term incentive performance conditions were tested as at 30 June 2019 in respect to the performance over the three years ended on that date resulting in the vesting of performance rights. The vesting was met by way of ordinary shares acquired on market during the 2020 financial year. • In response to COVID-19: - - all members of the Leadership Team, as well as other members of senior management, took a voluntary 20% reduction of fixed salaries for the last two months of FY20. This was extended to 31 July 2020; and all NEDs took a voluntary 20% reduction of Directors’ fees for the last two months of FY20. This was extended to 31 July 2020. Peet also takes the opportunity to confirm that the MD’s base pay for the year ending 30 June 2021 will be the same as 2020, 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 FY21 base pays of all other KMP, including NEDs, will remain the same as their FY20 base pays. We encourage our shareholders to use the cash value of remuneration realised table on page 46 to assess the remuneration outcomes for KMP in the year ended 30 June 2020 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 2020 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 41 ANNUAL REPORT 2020 | PEET LIMITED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 2020. 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. 42 DIRECTORS’ REPORTYear ended 30 June 2020PEET LIMITED | ANNUAL REPORT 2020 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 2020 financial year and will continue to be used for the 2021 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. 43 ANNUAL REPORT 2020 | PEET LIMITED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 2021 financial year will be the same as the 2020 financial year. Executive pay The Company’s pay and reward framework for Executives 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 2020 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 2020 and 2019 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. 44 DIRECTORS’ REPORTYear ended 30 June 2020PEET LIMITED | ANNUAL REPORT 2020 13. REMUNERATION REPORT (AUDITED) (CONTINUED) For the year ended 30 June 2020, the MD and other Executives were assessed as follows against the KPIs: Weighting % Achieved % Forfeited MD Executives MD Executives Category Financial Strategic Stakeholder 70.0% 65.0% to 80% 10.0% 7.5% to 35.0% 7.5% 0.0% to 2.5% People, processes and culture 7.5% 0.0% to 12.5% Health, safety and environment 5.0% 0.0% to 12.5% 100.0% 100.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% MD 100% 100% 100% 100% 100% Executives 100% 100% 100% 100% 100% For the year ended 30 June 2019, 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 2020 and 2019 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’. 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 47. 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. 45 ANNUAL REPORT 2020 | PEET LIMITED13. REMUNERATION REPORT (AUDITED) (CONTINUED) 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 Gore5 Total 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 224,129 231,857 138,395 143,167 89,841 92,939 111,911 115,770 147,841 152,939 885,054 916,769 1,597,171 1,653,441 – – – – – – – – – – – – – – – – – – – – – – 740,467 1,040,125 – – 740,467 1,040,125 OTHER KEY MANAGEMENT PERSONNEL P J Dumas D Scafetta B C Fullarton Total 2020 2019 2020 2019 2020 2019 2020 2019 443,833 460,000 317,331 329,469 400,333 415,000 1,161,497 1,204,469 – 205,155 – 138,250 – 165,000 – 508,405 – – 226,705 194,197 – 244,135 226,705 438,332 – – – – – – – – – – 10,000 10,000 10,000 10,000 – – – – – – – – 21,292 24,462 13,148 13,601 8,535 8,829 10,632 10,998 8,535 8,829 21,003 20,531 83,145 87,250 25,000 25,000 21,003 20,531 25,000 25,000 71,003 70,531 245,421 256,319 151,543 156,768 98,376 101,768 122,543 126,768 156,376 161,768 916,057 2,727,892 1,690,316 3,531,283 468,833 690,155 565,039 682,447 425,333 849,135 1,459,205 2,221,737 1 2 3 4 5 Cash salary (including accrued annual leave) 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 2019 and 2020. The Company purchased ordinary shares in the Company on-market on behalf of KMP. Other includes termination benefits, long service payments, motor vehicle costs, car-parking and other benefits. During the year, B D Gore cashed out $327,010 of his accrued annual leave. 46 DIRECTORS’ REPORTYear ended 30 June 2020PEET LIMITED | ANNUAL REPORT 2020 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 Cash salary and fees1 Bonus2 Other3 Superannuation Share-based payments Shares/ Options / Performance Rights4 Termination benefits $ $ $ $ $ $ DIRECTORS AW Lennon T J Allen V Krause R J McKinnon A J Lennon B D Gore5 Total 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 224,129 231,857 138,395 143,167 89,841 92,939 111,911 115,770 147,841 152,939 885,054 – – – – – – – – – – – 916,769 740,467 1,597,171 – 1,653,441 740,467 OTHER KEY MANAGEMENT PERSONNEL P J Dumas D Scafetta B C Fullarton Total 2020 2019 2020 2019 2020 2019 2020 443,833 – 460,000 205,155 317,331 – 329,469 138,250 400,333 – 415,000 165,000 1,161,497 – 2019 1,204,469 508,405 – – – – – – – – – – 10,000 10,000 10,000 10,000 – – – – – – – – 21,292 24,462 13,148 13,601 8,535 8,829 10,632 10,998 8,535 8,829 21,003 20,531 83,145 87,250 25,000 25,000 21,003 20,531 25,000 25,000 71,003 70,531 – – – – – – – – – – 518,760 229,121 518,760 229,121 160,006 77,273 96,224 46,470 120,967 58,419 377,197 182,162 – – – – – – – – – – – – – – – – – – – – – – Total $ 245,421 256,319 151,543 156,768 98,376 101,768 122,543 126,768 156,376 161,768 1,434,817 1,916,888 2,209,076 2,720,279 628,839 767,428 434,558 534,720 546,300 663,419 1,609,697 1,965,567 1 2 3 4 5 Cash salary (including accrued annual leave) and fees include 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. Other includes motor vehicle costs, car-parking and other benefits. 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. During the year, B D Gore cashed out $327,010 of his accrued annual leave. 47 ANNUAL REPORT 2020 | PEET LIMITED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 DIRECTORS A W Lennon T J Allen V Krause R J McKinnon A J Lennon B D Gore 2020 100% 100% 100% 100% 100% 64% OTHER KEY MANAGEMENT PERSONNEL P J Dumas D Scafetta B C Fullarton 75% 78% 78% 2019 100% 100% 100% 100% 100% 49% 63% 65% 66% 2020 2019 20201 20191 – – – – – 0% 0% 0% 0% – – – – – 39% 27% 26% 25% – – – – – 36% 25% 22% 22% – – – – – 12% 10% 9% 9% 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. 48 DIRECTORS’ REPORTYear ended 30 June 2020PEET LIMITED | ANNUAL REPORT 2020 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. 49 ANNUAL REPORT 2020 | PEET LIMITED13. REMUNERATION REPORT (AUDITED) (CONTINUED) Notes date of report exercisable at Vested and of report Balance at date 2 0 0 0 , 0 0 2 1 , 0 0 0 , 0 0 2 1 , 3 4 3 5 3 5 3 5 3 4 3 5 3 5 3 5 4 1 1 , 5 6 0 1 , 4 1 1 , 5 6 0 1 , – – 7 4 3 4 7 8 , 8 8 2 0 7 8 , 7 9 7 7 9 8 , 3 0 1 9 6 2 , 3 0 1 9 6 2 , 2 8 6 0 8 5 , 2 8 6 0 8 5 , – – – 5 2 9 9 3 6 , 4 5 9 6 3 6 , 9 8 0 7 5 6 , 9 9 8 , 4 1 9 , 1 9 9 2 , 1 9 4 , 6 9 9 8 , 4 1 1 , 3 9 9 2 , 1 9 6 , 7 Lapsed/ forfeited – – – – – – – – – – – – Exercised – – – – – – – – – ) 4 6 8 , 8 9 1 ( Granted – – – – – – – – ) 4 6 8 , 8 9 1 ( 6 8 8 , 4 5 5 , 1 7 7 2 , 5 3 1 , 5 ) 4 6 8 , 8 9 1 ( 6 8 8 , 4 5 5 , 1 7 7 2 , 5 3 3 , 6 9 8 0 , 7 5 6 – 7 9 7 , 7 9 8 – 1 4 9 . 0 $ 0 0 . 0 $ 3 3 0 2 v o N 1 2 1 4 0 . 1 $ 0 0 . 0 $ 4 3 0 2 v o N 0 2 7 4 3 , 4 7 8 8 8 2 , 0 7 8 5 2 9 , 9 3 6 4 5 9 , 6 3 6 E C O R h t w o r G M U F h t w o r G S P E h t w o r G M U F h t w o r G S P E h t w o r G M U F h t w o r G S P E 3 0 1 , 9 6 2 h t w o r G M U F 6 9 . 0 $ 0 0 . 0 $ 0 3 0 2 c e D 1 2 E C O R 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 E C O R h t w o r G M U F h t w o r G S P E h t w o r G M U F h t w o r G S P E h t w o r G M U F h t w o r G S P E 0 3 . 1 $ 0 0 . 0 $ 2 3 0 2 c e D 5 4 9 . 0 $ 0 0 . 0 $ 3 3 0 2 v o N 1 2 4 0 . 1 $ 0 0 . 0 $ 4 3 0 2 v o N 0 2 d e d n e s r y 3 9 1 0 2 n u J 0 3 6 1 0 2 v o N 3 2 e r o G D B I S T H G R E C N A M R O F R E P 0 2 0 2 n u J 0 3 d e d n e s r y 3 1 2 0 2 n u J 0 3 d e d n e s r y 3 2 2 0 2 n u J 0 3 d e d n e s r y 3 8 1 0 2 n u J 0 3 d e d n e s r y 3 9 1 0 2 n u J 0 3 d e d n e s r y 3 0 2 0 2 n u J 0 3 d e d n e s r y 3 1 2 0 2 n u J 0 3 d e d n e s r y 3 2 2 0 2 n u J 0 3 5 1 0 2 c e D 1 2 6 1 0 2 c e D 1 2 7 1 0 2 c e D 5 8 1 0 2 v o N 1 2 9 1 0 2 v o N 0 2 8 1 0 2 v o N 1 2 9 1 0 2 v o N 0 2 I S E V T U C E X E R E H T O l a t o T 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 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 1 July 19 Balance as at Vesting conditions 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 1 1 0 2 v o N 0 3 o t p U 7 0 0 2 v o N 0 3 S N O T P O I e r o G D B Executives : 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 50 DIRECTORS’ REPORTYear ended 30 June 2020PEET LIMITED | ANNUAL REPORT 2020 13. REMUNERATION REPORT (AUDITED) (CONTINUED) NOTE 1 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 23 November 2016, 29 November 2017, 21 November 2018 and 20 November 2019, being the dates of Peet Limited’s, 2016, 2017, 2018 and 2019 AGMs, respectively. NOTE 2 These options are convertible to ordinary shares on a 1:1 basis at the exercise price after the fourth anniversary of the grant date. The exercise condition in respect of these options is that Mr Gore remains employed as Managing Director for a period of four years. Although the service period requirement has been met, the options have not been exercised. NOTE 3 These PRs are convertible to ordinary shares on a 1:1 basis, with 40% subject to the Funds Under Management (FUM) growth vesting condition. FUM growth is measured as the total of the following during the performance period: • the purchase price (ex GST) of land acquired by a Peet syndicate or Joint Venture; or • the market value (ex GST) of land for which Peet has been appointed development manager at the time of its appointment; or • the selling price (ex GST) of land sold by Peet, a Syndicate, a Joint Venture or Peet-managed project to a third party and Peet is appointed the development manager (and where applicable, to manage the leasing) of a commercial, industrial, retail or residential built-form project on that property; or • in all other property funds management-related transactions, as determined by the Board of Directors. The aggregate of the FUM growth during the 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 $198.1 million for the three-year performance period ended 30 June 2019. Accordingly, the performance condition was fully met and on 27 August 2019 the Directors resolved that 100% of the FY17 PRs thereto vested. The FY18, FY19 and FY20 PRs remain unvested. 51 ANNUAL REPORT 2020 | PEET LIMITED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 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 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 Group achieved ROCE of 14.2% against the target of 13.0% for the three-year performance period ended 30 June 2019. Accordingly, the ROCE performance condition attached to the FY17 PRs was fully met and on 27 August 2019 the Directors resolved that 100% of the FY17 PRs relating thereto vested. 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”), 1 July 2018 to 30 June 2021 (“FY19 Performance Period”) and 1 July 2019 to 30 June 2022 (“FY20 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, FY19 Performance Period and the FY20 Performance Period, respectively. 52 DIRECTORS’ REPORTYear ended 30 June 2020PEET LIMITED | ANNUAL REPORT 2020 13. REMUNERATION REPORT (AUDITED) (CONTINUED) 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, FY19 and FY20 PRs remain unvested. Option and performance rights holdings The number of options and PRs over unissued ordinary shares in the Company held during the financial year by the KMP of the Group, including their personally-related entities, is set out below. When exercisable, each option and PR is convertible into one ordinary share of Peet Limited. Balance at the start of the year Granted during the year Exercised during the year Lapsed/ forfeited during the 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 – – – – – – – – – – 4,009,749 897,797 OTHER KEY MANAGEMENT PERSONNEL P J Dumas D Scafetta B C Fullarton 1,141,435 524,598 659,495 278,736 167,625 210,728 – – – – – – – (198,864) – – – – – – – – – – – – – – – – – – – – 4,907,546 2,265,114 1,420,171 599,785 493,359 870,223 – 250,000 1 Includes performance rights for which performance conditions were not met for the performance period. During the year ended 30 June 2020, 1,844,660 PRs (2019: 1,501,151) had vested and 198,864 (2019: 1,232,048) were exercised by KMP at $ Nil exercise price. In order to settle the PRs exercised during year ended 30 June 2020, the Company purchased ordinary shares in the Company on-market on behalf of KMP. Since 30 June 2020, 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. 53 ANNUAL REPORT 2020 | PEET LIMITED13. REMUNERATION REPORT (AUDITED) (CONTINUED) E. ADDITIONAL INFORMATION Performance of Peet Limited The overall level of executive compensation takes into account the performance of the Group. STI is generally based on an assessment of performance over a 12-month period, while LTI is generally assessed over a three-year period. The high-level performance of the Group over the last five years is compared below: Net profit / (loss) after tax (NPAT) $’000 NPAT growth 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 Growth% cents per share Growth% cents per share Growth% cents per share $ 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 2020 (30,056) (163.2%) 15,060 (68.3%) (6.19) (2.3%) (163.2%) 9.79 3.10 (2.3%) (68.3%) 5.00 1.12 1.50 0.97 (15.1%) (13.4%) Growth% (18.3%) 27.7% 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. 54 DIRECTORS’ REPORTYear ended 30 June 2020PEET LIMITED | ANNUAL REPORT 2020 13. REMUNERATION REPORT (AUDITED) (CONTINUED) 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 – – – – – – – – – – 0% 100% OTHER KEY MANAGEMENT PERSONNEL P J Dumas 0% 100% D Scafetta 0% 100% B C Fullarton 0% 100% – – – – – 2020 2019 2018 2017 2020 2019 2018 2017 2020 2019 2018 2017 2020 2019 2018 2017 – – – – – – – – 100% – – – 100% – – – 100% – – – 100% – – – – – – – – – – – – – – – – – – – – – – – – – – 2022 2021 2020 2019 2022 2021 2020 2019 2022 2021 2020 2019 2022 2021 2020 2019 – – – – – 655,597 654,382 696,680 – 203,541 203,163 211,572 – 227,597 183,301 127,234 – 153,880 153,594 159,952 – 1 2 Includes performance rights for which performance conditions were met for the performance period and confirmed by the Directors after balance date. Includes performance rights for which performance conditions were not met for the performance period. 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 198,864 PRs over shares in the Company and received shares in the Company during the 2020 financial year. Please refer to previous pages of the Remuneration Report for commentary on vesting conditions met during the performance period ended 30 June 2020. 55 ANNUAL REPORT 2020 | PEET LIMITED13. REMUNERATION REPORT (AUDITED) (CONTINUED) 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 36% 25% 22% 22% 937,300 291,000 175,000 220,000 – – 168,836 – 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 2019 annual general meeting The instructions given to validly appointed proxies in respect of the resolution pertaining to the Company’s 2019 Remuneration Report were as follows: For 252,420,836 98.4% Against 3,846,434 1.50% Proxy’s discretion 312,026 0.1% Abstain 1,611,622 The motion was carried as an ordinary resolution on show of hands. 56 DIRECTORS’ REPORTYear ended 30 June 2020PEET LIMITED | ANNUAL REPORT 2020 13. REMUNERATION REPORT (AUDITED) (CONTINUED) Interests in the shares and bonds of the Company Shares Bonds 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 Other changes during the year Balance at the end of the year DIRECTORS A W Lennon 97,314,685 T J Allen V Krause R J McKinnon B D Gore A J Lennon 92,054 – 50,000 6,103,817 1,331,344 OTHER KEY MANAGEMENT PERSONNEL P J Dumas D Scafetta B C Fullarton 1,087,882 1,279,989 603,850 – – – – – – – – – – – (797,138) – – 198,864 (458,853) – – 97,314,685 92,054 – 50,000 5,306,679 1,331,344 1,087,882 1,020,000 603,850 4,875 500 1,000 500 – 500 – – – Since 30 June 2020, no PRs were vested. No other options and PRs have been issued. End of Remuneration report (audited) – – – – – – – – – 4,875 500 1,000 500 – 500 – – – 57 ANNUAL REPORT 2020 | PEET LIMITED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 60. On 19 February 2019, the Board granted approval under section 324DAA of the Corporations Act 2001 for Mr Geoff Lotter to continue as lead auditor, to play a significant role in the audit of the company for two additional successive financial years, being the financial year ending 30 June 2020 and 30 June 2021. The approval was granted in accordance with a recommendation from the Audit and Risk Management Committee which was satisfied the approval: • is consistent with maintaining the quality of the audit provided to the company; and • would not give rise to a conflict of interest situation (as defined in section 324CD of the Corporations Act 2001). Reasons supporting this decision include: • the benefits associated with the continued retention of knowledge regarding key audit matters and significant judgements, in light of the changes in residential property markets and bank lending policies; • the Audit and Risk Management Committee has been satisfied with the quality of Ernst & Young and Mr Lotter’s work as auditor; and • the Audit and Risk Management Committee is satisfied with the introduction of a new engagement quality review partner on the completion of the 30 June 2019 audit. The company maintains, and will continue to maintain, robust auditor independence policies and controls to ensure the independence of the auditor is maintained. A copy of the Board resolution granting approval was lodged with ASIC in accordance with section 324DAC of the Corporations Act 2001. 58 DIRECTORS’ REPORTYear ended 30 June 2020PEET LIMITED | ANNUAL REPORT 2020 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 26 August 2020 PLACEHOLDER FOR AUDITORS INDEPENDENCE CONFIRMATION 59 ANNUAL REPORT 2020 | PEET LIMITEDAUDITOR’S INDEPENDENCE DECLARATION 6060 PEET LIMITED | ANNUAL REPORT 2020 PEET LIMITED | ANNUAL REPORT 2020 CORPRATE GOVERNANCE STATEMENT A copy of the Group’s corporate governance policies and practices in place during the financial year ended 30 June 2020 is available at the following link: www.peet.com.au/-/media/peet/documents/corporate/ corporate/corporate-governance/2020 Unless otherwise stated, these are consistent with the 3rd edition of the ASX Corporate Governance Council’s Principles and Recommendations (released March 2014). 61 ANNUAL REPORT 2020 | PEET LIMITED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 64 65 66 67 68 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 26 August 2020. 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 62 FINANICAL REPORTYear ended 30 June 2020PEET LIMITED | ANNUAL REPORT 2020 This page has been intentionally left blank 63 ANNUAL REPORT 2020 | PEET LIMITEDCONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 JUNE 2020 Revenue Expenses Finance costs (net of capitalised borrowing costs) Share of net profit of associates and joint ventures (Loss) / profit before income tax Income tax benefit / (expense) (Loss) / profit after income tax Attributable to: Owners of Peet Limited Non-controlling interests Other comprehensive income Items that may be reclassified to profit or loss: Gain / (loss) 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 2020 $’000 188,282 (230,253) (7,428) 8,060 (41,339) 10,648 (30,691) (30,056) (635) (30,691) 2,636 (794) 1,842 (28,849) (28,214) (635) (28,849) 2019 $’000 249,545 (190,934) (8,538) 13,329 63,402 (16,052) 47,350 47,549 (199) 47,350 (929) 279 (650) 46,700 46,899 (199) 46,700 Cents 9.79 (Loss) / earnings per share - attributable to the ordinary equity holders of the Company Basic and diluted (loss) / earnings per share Notes 7 Cents (6.19) The above consolidated statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes. 64 FINANICAL REPORTYear ended 30 June 2020PEET LIMITED | ANNUAL REPORT 2020 CONSOLIDATED BALANCE SHEET AS AT 30 JUNE 2020 Current assets Cash and cash equivalents Receivables Contract assets Inventories Total current assets Non-current assets Receivables Contract assets Inventories Investments accounted for using the equity method Property, plant and equipment Right-of-use assets Intangible assets Total non-current assets Total assets Current liabilities Payables Land vendor liabilities Borrowings Lease liabilities Derivative financial instruments Current tax liabilities Provisions Total current liabilities Non-current liabilities Borrowings Lease liabilities 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 12 9 10 2 13 14 17 2,17 17 15 17 2,17 17 8 15 18 18 2020 $’000 46,838 36,943 8,536 87,087 179,404 69,575 4,336 391,372 232,061 4,157 5,188 4,727 711,416 890,820 33,054 6,350 118,275 1,607 – 687 14,628 174,601 163,879 5,520 4,407 15,321 12,254 201,381 375,982 514,838 378,916 (2,557) 121,750 498,109 16,729 514,838 2019 $’000 33,606 18,999 6,234 105,750 164,589 95,970 4,037 412,919 233,668 5,237 – 5,704 757,535 922,124 38,746 6,350 5,083 – 221 8,915 21,449 80,764 240,103 – 5,310 24,213 11,783 281,409 362,173 559,951 378,916 (5,051) 168,722 542,587 17,364 559,951 The above consolidated balance sheet should be read in conjunction with the accompanying notes. 65 ANNUAL REPORT 2020 | PEET LIMITEDCONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2020 Contributed equity $’000 385,955 Notes – – – – Reserves $’000 3,397 – (6,343) (650) Retained profits $’000 145,539 47,549 – – Total $’000 534,891 47,549 (6,343) (650) Non-controlling interest Total equity $’000 11,220 (199) 6,343 – $’000 546,111 47,350 – (650) (6,993) 47,549 40,556 6,144 46,700 Balance at 1 July 2018 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 18 25 19 (7,039) – – – – (2,085) 630 – Balance at 30 June 2019 378,916 (5,051) Balance at 1 July 2019 378,916 (5,051) Loss for the year Other comprehensive income Total comprehensive income for the year Vesting of performance rights Share-based payments Dividends paid 18 25 19 – – – – – – – 1,842 (647) 1,299 – Balance at 30 June 2020 378,916 (2,557) – – – (24,366) 168,722 168,722 (30,056) – (7,039) (2,085) 630 (24,366) 542,587 542,587 (30,056) 1,842 – – – – 17,364 17,364 (635) – (7,039) (2,085) 630 (24,366) 559,951 559,951 (30,691) 1,842 1,842 (30,056) (28,214) (635) (28,849) – – (16,916) 121,750 (647) 1,299 (16,916) 498,109 – – – 16,729 (647) 1,299 (16,916) 514,838 The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes. 66 FINANICAL REPORTYear ended 30 June 2020PEET LIMITED | ANNUAL REPORT 2020 CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 30 JUNE 2020 Notes 2020 $’000 2019 $’000 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 from operating activities 20 Cash flows from investing activities Proceeds / (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 inflow / (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) Payment of principle portion of lease liabilities Share buyback (including transaction costs) Net cash inflow / (outflow) from financing activities Net increase / (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 191,596 (167,002) (11,340) (21,839) 7,962 39 (7,266) (7,850) 42 – 1,705 (9,180) 11,016 3,583 (16,916) (26,275) 62,120 – (1,430) – 17,499 13,232 33,606 46,838 269,825 (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 The above consolidated statement of cash flows should be read in conjunction with the accompanying notes. 67 ANNUAL REPORT 2020 | PEET LIMITEDCONTENTS BASIS OF REPORTING 1. Reporting entity 2. 3 Basis of preparation How to read the annual report PERFORMANCE FOR THE YEAR 4. Segment information 5. 6. 7. 8. Revenue Expenses (Loss) / earnings per share Taxes OPERATING ASSETS AND LIABILITIES 9. Inventories 10. Investments accounted for using the equity method 11. Receivables 12. Contract assets 13. Payables 14. Land vendor liabilities 15. Provisions 16. Interests in joint operations CAPITAL MANAGEMENT 17. Borrowings, lease liabilities and derivative financial instruments 18. Contributed equity and reserves 19. Dividends 20. Reconciliation of (loss) / profit after income tax to net cash outflow 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 69 69 69 72 73 73 75 76 76 77 80 80 80 82 83 83 83 84 85 86 86 89 91 91 92 93 93 93 93 96 98 98 6868 DIRECTORS’ REPORTYear ended 30 June 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSYear ended 30 June 2020PEET LIMITED | ANNUAL REPORT 2020 PEET LIMITED | ANNUAL REPORT 2020 This page has been intentionally left blank 6969 ANNUAL REPORT 2020 | PEET LIMITEDANNUAL REPORT 2020 | PEET LIMITED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 Accounting Standards and Interpretations issued by the Australian Accounting Standards Board and the Corporations Act 2001; • 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 financial 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 2020. 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. 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 unsecured long-term receivables, the Group does not 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. 7070 DIRECTORS’ REPORTYear ended 30 June 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSYear ended 30 June 2020PEET LIMITED | ANNUAL REPORT 2020 PEET LIMITED | ANNUAL REPORT 2020 BASIS OF REPORTING (CONTINUED) c. Investments in joint arrangements e. Changes in accounting policies 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. 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. 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. 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 2019, except for changes arising from the adoption of new and amended accounting standards and interpretations effective as at 1 July 2019. The Group has early adopted AASB 2019-3 Amendments to Australian Accounting Standards – Interest Rate Benchmark Reform which has not had a material impact on adoption. Other than that, the Group has not early adopted any standard, interpretation or amendment that has been issued but is not yet effective. The Group applies, for the first time, AASB 16 Leases (“AASB 16”). The nature and effect of these changes are disclosed below. Several other amendments and interpretations apply for the first time on 1 July 2019, but do not have a material impact on the Group. AASB 16 Leases AASB 16 and related interpretations replaces AASB 117 Leases (“AASB 117”) for reporting periods beginning on or after 1 January 2019. The standard sets out the principles for the recognition, measurement, presentation and disclosure of leases and requires lessees to account for all leases under a single on-balance sheet model. Under AASB 16, lessees are required to recognise a right-of-use asset and the related lease liability at commencement of the lease, with subsequent recognition of depreciation for the right-of-use asset and interest expense in respect of the lease liability. Lease payments on short term leases and low value leases are recognised on a straight-line basis. The Group adopted AASB 16 as of 1 July 2019 using the modified retrospective approach. Under this approach, the Group has not restated comparative information which continues to be reported under AASB 117. Lease liabilities and right-of-use assets arising from the new leasing rules are therefore recognised in the opening balance sheet on 1 July 2019. (a) The Group’s leasing activities and how they are accounted for The Group leases office spaces across Australia, with lease conditions individually negotiated. Rental periods are fixed for up to ten years with renewal options. Previously, these office leases were classified as operating leases under AASB 117, and the full rental charges were recognised in profit or loss on a straight-line basis over the period of the lease (net of any lease incentive amortisation). 7171 ANNUAL REPORT 2020 | PEET LIMITEDANNUAL REPORT 2020 | PEET LIMITEDBASIS OF REPORTING (CONTINUED) On adoption of AASB 16, the Group recognised a lease liability and a right-of-use asset for each contract that had a remaining lease term of more than 12 months on the date of initial application of 1 July 2019. Under the modified retrospective approach, the lease liabilities were measured at the present value of the remaining lease payments, discounted using the Group’s incremental borrowing rate as of 1 July 2019, which was 6.75%. The associated right-of-use assets were measured at an amount equal to the lease liability adjusted by any residual lease incentive liability balance immediately before the application date, as permitted under the specific transitional provisions in the standard. Subsequently, the interest on the lease liability is recognised in profit or loss over the remaining lease term. The associated right-of-use assets are depreciated over the remaining lease term on a straight-line basis. (b) Impact of adopting AASB16 The impact to balance sheet line items as at 1 July 2019 (increase/(decrease)) and 30 June 2020 is shown below: Assets Right-of-use assets (office space) Total Assets Liabilities Payables Lease liability (current) Lease liability (non-current) Total Liabilities 1 July 2019 ($’000) 30 June 2020 ($’000) 6,529 6,529 5,188 5,188 (2,028) 1,430 7,127 6,529 - 1,607 5,520 7,127 (c) Judgement in determining the lease term AASB 16 defines lease term to be the non-cancellable lease period of the lease, together with optional extension periods where the lessee is reasonably certain to extend, or optional termination periods if the lessee is reasonably certain not to exercise the option. As the Group’s current office leases are from four to six years, the Group is not reasonably certain if the extensions will occur. Therefore, the Group has not included the optional extension periods of all leases in measuring lease liabilities and right-of-use assets. (d) Practical expedients applied In applying AASB 16 for the first time, the Group has used the following practical expedients permitted by the standard: • the use of a single discount rate to a portfolio of leases with reasonably similar characteristics, • recognising the lease payments associated with short-term leases (leases with a remaining lease term of 12 months or less as at 1 July 2019) and low value leases as an expense on a straight-line basis over the lease term, and • relying on the assessment made previously under AASB 117 whether a contract is, or contains, a lease for contracts entered into before the transition date without reassessing at the date of the initial application. f. Impact of the COVID-19 pandemic on the significant accounting judgements, estimates and assumptions. The COVID-19 outbreak was declared a pandemic by the World Health Organization in March 2020. The outbreak and the response of Governments in dealing with the pandemic is interfering with general activity levels within the community, the economy and the operations of the Group. The scale and duration of these developments remain uncertain as at the date of this report. The Group has  considered the potential impact of the COVID-19 pandemic in the significant  accounting judgements, estimates and assumptions. However, as these are subject to increased uncertainty the actual outcomes may differ from the estimates. The Group has managed and continues to actively manage the risks arising from COVID-19. This includes a financial response plan incorporating: • the deferral of the commencement of new projects; • minimising development expenditure to reflect management forecasts for COVID-19 sales rates pre-Government stimulus; • a strong focus on managing the settlement risk of contracts on hand; and • negotiating variations to the Group’s senior debt facility which have resulted in a waiver of the measurement of the Group’s debt covenants out to 30 June 2021. 7272 DIRECTORS’ REPORTYear ended 30 June 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSYear ended 30 June 2020PEET LIMITED | ANNUAL REPORT 2020 PEET LIMITED | ANNUAL REPORT 2020 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 • Other notes 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: Where an accounting policy is specific to one note, the policy is described in the note to which it relates. Funds management Key estimates are described in the following notes: • Note 5 - constraints on selling fees and estimates on percentage completion • Note 8 - deferred tax assets • Note 9 - net realisable value • Note 11 - receivables • Note 21 - fair value estimation 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 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. PERFORMANCE FOR THE YEAR This section focuses on the results and performance of the Group. 4. SEGMENT INFORMATION 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. 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. 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. Joint arrangements Joint arrangements are entered into with government, statutory authorities and private landowners. The form of these arrangements can vary from project to project but generally involves Peet undertaking the development of 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. Certain property syndicates are consolidated where the Group is considered to have control. 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. 7373 ANNUAL REPORT 2020 | PEET LIMITEDANNUAL REPORT 2020 | PEET LIMITED4. SEGMENT INFORMATION (CONTINUED) 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 – 6 8 9 , 5 8 ) 5 3 3 , 2 ( 1 5 6 , 3 8 9 1 0 2 0 0 0 ’ $ 0 2 0 2 0 0 0 ’ $ 9 1 0 2 0 0 0 ’ $ 1 2 8 , 7 4 2 1 5 7 , 4 8 1 8 4 9 , 2 1 3 5 , 3 0 6 0 , 8 2 4 3 3 9 3 ) 7 2 0 , 1 6 ( – 2 4 3 , 6 9 1 3 8 6 , 3 ) 0 5 9 , 8 ( 2 7 9 , 6 3 ) 6 1 0 , 1 1 ( ) 4 4 6 , 0 1 ( ) 9 4 2 , 0 2 ( ) 4 1 9 , 3 1 ( ) 2 5 0 , 6 1 ( 8 4 6 , 0 1 2 0 4 , 3 6 ) 9 3 3 , 1 4 ( 0 5 3 , 7 4 ) 1 9 6 , 0 3 ( 9 9 1 5 3 6 9 4 5 , 7 4 ) 6 5 0 , 0 3 ( ) 0 7 3 , 3 ( ) 2 2 7 , 1 ( ) 3 5 8 , 2 ( ) 8 6 ( ) 5 5 0 , 4 2 ( ) 4 4 6 , 0 1 ( ) 4 8 8 , 0 1 ( 2 0 7 , 3 1 ) 5 2 4 , 7 2 ( ) 6 6 3 , 2 1 ( ) 7 3 7 , 3 1 ( 4 3 6 , 3 1 t n e m g e s - r e t n I r e h t o d n a s r e f s n a r t d e n w o - y n a p m o C d e t a d i l o s n o C d e t a c o l l a n u s t n e m e g n a r r a t n o J i s t c e o r p j t n e m e g a n a m s d n u F 0 2 0 2 0 0 0 ’ $ – 6 3 4 , 2 6 8 2 , 1 2 2 7 , 3 ) 0 5 9 , 8 ( ) 4 8 3 , 8 ( ) 0 0 5 , 2 ( 8 1 6 3 0 , 5 5 3 8 , 3 4 – 2 0 7 , 3 1 9 1 0 2 0 0 0 ’ $ 0 2 0 2 0 0 0 $ ’ 9 1 0 2 0 0 0 $ ’ 0 2 0 2 0 0 0 $ ’ 9 1 0 2 0 0 0 $ ’ 0 2 0 2 0 0 0 $ ’ 1 8 7 , 8 3 7 8 2 4 3 , 0 6 9 9 7 1 , 6 6 5 5 2 1 , 2 3 1 6 2 , 2 6 4 2 2 , 7 9 2 4 3 8 4 , – 2 2 1 1 , – 7 0 9 2 , 2 4 2 0 0 9 7 , 7 2 3 0 4 9 1 , 8 1 4 9 3 , 2 8 0 1 8 1 , 3 7 4 8 2 1 , 4 7 2 4 3 , 9 2 7 4 2 , 5 2 8 8 , ) 0 0 7 2 , ( ) 2 9 ( 5 2 1 6 , 3 3 0 6 , 6 9 4 8 5 , 8 1 5 3 2 , 2 3 4 4 2 , 3 1 0 3 1 , i l ) s n o s i v o r p d e t a e r d n a t n e m t s e v i d e r o f e b ( A D T I B E – ) 5 9 4 ( 6 9 4 8 5 , 1 0 0 8 5 , ) 7 2 8 5 5 , ( – – s n o i s i v o r p d e t a l e r d n a t n e m t s e v i D ) 0 0 4 ( ) 0 5 ( ) 5 2 ( ) 9 0 3 2 3 ( , 2 3 4 4 2 , 3 1 0 3 1 , ) 9 0 7 2 3 ( , 2 8 3 4 2 , 8 8 9 2 1 , 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 1 A D T I B 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 L i 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 s o L ( s t s e r e t n i g n i l l o r t n o c - n o n o t e l b a t u b i r t t a s s o L x a t e m o c n i e r o f e b t fi o r p / ) s s o L ( ) s e l a s f o t s o c h g u o r h t d e s n e p x e x a t e m o c n i r e t f a t fi o r p / ) s s o L ( e s n e p x e x a t e m o c n I . 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 s V J d n a s e t a i c o s s a f o t fi o r p t e n f o e r a h S s d a e h r e v o e t a r o p r o C l a t o T 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 7474 DIRECTORS’ REPORTYear ended 30 June 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSYear ended 30 June 2020PEET LIMITED | ANNUAL REPORT 2020 PEET LIMITED | ANNUAL REPORT 2020 5. REVENUE Project management 2020 $’000 2019 $’000 Revenue from contracts with customers sales of land and built form 151,506 214,032 - - project management and selling services Other revenue 33,245 33,789 3,531 1,724 188,282 249,545 Recognition and measurement The main streams of revenue recognised by the Group relate to the sale of land and built form, 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. 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. Selling services This 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 of the service. 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, on a portfolio basis, is used to determine an appropriate constraint for revenue recognised against selling fees. The potential impact of the COVID-19 pandemic has been considered in the analysis. 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: 2020 $’000 2019 $’000 Revenue from related parties1 Associates Project management and selling services 19,843 23,630 Syndicate administration services 1,441 1,505 Joint arrangements Project management and selling services 3,815 3,738 25,099 28,873 1 Refer to note 3 for information on related party transactions. 7575 ANNUAL REPORT 2020 | PEET LIMITEDANNUAL REPORT 2020 | PEET LIMITED6. EXPENSES Related party expenses 2020 $’000 2019 $’000 2020 $’000 2019 $’000 (Loss) / profit before income tax includes the following specific expenses: KMP remuneration1 Short-term employee benefits 2,769 4,117 Land and development costs 94,707 110,268 Share-based payments Post-employment benefits 154 896 158 411 3,819 4,686 Amortised interest and finance expense 6,486 11,711 Total land and development cost 101,193 121,979 Divestment and related provisions1 61,027 Depreciation2 - Right-of-use assets - Property, plant and equipment Amortisation Total depreciation and amortisation 1,341 933 1,096 3,370 – – 1,233 1,102 2,335 Employee benefits expense3 30,865 31,459 Project management, selling and other operating costs Other expenses Total other expenses Total expenses 16,551 17,247 16,763 18,398 64,663 66,620 230,253 190,934 Finance costs Interest and finance charges - Bank borrowings - Lease liabilities Hedging losses reclassified to profit or loss Interest on corporate bonds Amount capitalised 5,951 10,151 534 2,424 – – 16,219 12,609 (17,700) (14,222) 7,428 8,538 1 2 3 This amount includes provisions of write-downs to a number of divesting projects (refer to note 9 for the inventory component) and provisions of related costs. Refer to note 27 (b), (c) and (d) for accounting policies. Refer to note 27 (e) for accounting policies. 7676 1 Refer to note 3 for information about related party transactions. 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). 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. (LOSS) / EARNINGS PER SHARE (Loss) / 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 (loss) / earnings per share (cents) 2020 2019 (30,056) 47,549 485,658,321 485,658,321 (6.19) 9.79 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 2020. These PRs are contingently issuable shares and accordingly not included in diluted earnings per share. DIRECTORS’ REPORTYear ended 30 June 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSYear ended 30 June 2020PEET LIMITED | ANNUAL REPORT 2020 PEET LIMITED | ANNUAL REPORT 2020 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 2020 $’000 2019 $’000 2,996 18,165 (3,958) 3,957 (962) 22,122 (13,717) 4,031 (2,188) (3,882) (9,686) (6,070) (10,648) 16,052 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 (2,313) (7,373) (4,627) (1,443) (9,686 ) (6,070) 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 (Loss) / profit before income tax Tax at Australian tax rate of 30% (41,339) (12,402) 63,402 19,021 Tax effect of amounts which are not assessable or deductible: Share of net profit of associates Employee benefits Franking credits Deferred tax assets not recognised Sundry items 452 195 (384) 1,237 254 (1,035) (437) (2,024) 178 349 (10,648) 16,052 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. 7777 ANNUAL REPORT 2020 | PEET LIMITEDANNUAL REPORT 2020 | PEET LIMITED 8. TAXES (CONTINUED) b. Deferred tax assets Inventory Cash flow hedges Receivables Tax losses At 1 July 2018 Effect of adoption of new accounting standards $’000 3,547 – Balance at 1 July 2018 (restated) 3,547 Credited/(charged): - to profit or loss - to other comprehensive income - directly to equity 375 – – $’000 503 – 503 877 279 – Property, plant and equipment (including leases) $’000 1,935 Other $’000 4,613 Total $’000 12,825 – – 2,285 $’000 – 2,285 $’000 2,227 – 2,285 2,227 1,935 4,613 15,110 7,053 (1,710) 28 (1,996) – – – – – – – (3) 4,627 279 (3) Total deferred tax assets 3,922 1,659 9,338 517 1,963 2,614 20,013 3,922 1,659 9,338 517 1,963 2,614 20,013 (20,013) – (195) – 3,727 457 (794) 1,322 2,732 – 546 – 12,070 1,063 3,048 1,085 (2,312) – – 302 2,313 (794) 21,532 (21,532) – Set off against deferred tax liabilities pursuant to set off provisions At 30 June 2019 At 1 July 2019 Credited/(charged): - to profit or loss - to other comprehensive income Total deferred tax assets Set off against deferred tax liabilities pursuant to set off provisions At 30 June 2020 7878 DIRECTORS’ REPORTYear ended 30 June 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSYear ended 30 June 2020PEET LIMITED | ANNUAL REPORT 2020 PEET LIMITED | ANNUAL REPORT 2020   8. TAXES (CONTINUED) c. Deferred tax liabilities Movements 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 At 1 July 2019 Charged/(credited): - to profit or loss Total deferred tax liabilities Set off against deferred tax liabilities pursuant to set off provisions At 30 June 2020 Finance charges $’000 25,612 Accrued income $’000 7,450 (3,689) 21,923 (4,909) 2,541 Share of joint arrangements Inventory $’000 9,337 5,481 14,818 $’000 3,115 1,674 4,789 Other $’000 155 - 155 Total $’000 45,669 (1,443) 44,226 (20,013) 24,213 21,923 2,541 14,818 4,789 155 44,226 3,902 25,825 1,648 4,189 (13,355) 1,463 432 5,221 - 155 (7,373) 36,853 (21,532) 15,321 7979 ANNUAL REPORT 2020 | PEET LIMITEDANNUAL REPORT 2020 | PEET LIMITED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 9. INVENTORIES Cost of acquisition 2020 $’000 2019 $’000 287,301 291,335 Capitalised development costs 159,250 150,004 Capitalised finance costs Total inventory at cost Provision for write-downs to net realisable value 1 88,375 77,330 534,926 518,669 (56,467) – Total inventory 478,459 518,669 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. The potential impact of the COVID-19 pandemic has been considered in assessing NRV. Current Non-current Total inventory 87,087 105,750 391,372 412,919 478,459 518,669 10. INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD Investments in associates and joint ventures are accounted for using the equity method of accounting. 1 The write-downs are from several non-core projects that are to be divested. The estimated net realisable values used to calculate the write-down provisions are based on the latest valuations and management’s assessment of the market for each project. 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. a. Movements in carrying amounts of investments in associates and joint ventures 2020 $’000 2019 $’000 Carrying amount at 1 July 233,668 222,820 Acquisitions/additional investments - 11,278 Dividends Capital returns Share of profit after income tax (7,962) (1,705) 8,060 (12,280) (1,479) 13,329 Carrying amount at 30 June 232,061 233,668 The Group assesses, at each balance date, the carrying value of investments in associates and joint ventures to ensure the assets are not impaired. 8080 DIRECTORS’ REPORTYear ended 30 June 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSYear ended 30 June 2020PEET LIMITED | ANNUAL REPORT 2020 PEET LIMITED | ANNUAL REPORT 2020 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 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 s t e s s a t e N s e i t i l i b a i l t n e r r u c - n o N 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 e u n e v e R $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 p i h s r e n w O % As at 30 June 2020 Associates Peet Alkimos Pty Limited, WA 33 7,587 405,389 123,857 34,675 254,444 66,430 9,359 (3,633) (1,212) Peet Caboolture Syndicate Limited, QLD 20 3,331 43,344 631 16,820 29,224 5,845 15,432 Peet Werribee Land Syndicate, VIC 17 7,701 32,620 1,879 5,385 33,057 5,672 19,144 1,154 3,081 231 529 Joint Ventures* Peet Flagstone City Pty Limited, QLD Googong Township Unit Trust, NSW Peet Golden Bay Pty Limited, WA Peet Mt Barker Pty Limited, SA Peet No.1895 Pty Limited, VIC Peet Brabham Pty Ltd, WA Other associates and JVs Total 50 50 50 50 50 50 As at 30 June 2019 Associates 3,771 177,828 56,862 4,063 120,674 60,337 19,358 907 454 35,638 128,554 2,618 45,000 116,573 58,287 43,533 9,684 4,842 1,014 23,789 687 – 24,116 12,058 6,647 2,299 23,213 1,572 3,336 20,604 10,302 11,930 2,166 99,173 2,343 84,080 14,916 7,473 24,627 7,805 37,546 419 45,840 (908) (291) (454) 6,111 232,061 173 360 2,755 (440) 86 180 1,380 (220) 1,790 8,060 Peet Alkimos Pty Limited, WA 33 8,967 399,865 117,575 32,578 258,679 71,534 8,624 (2,421) (807) Peet Caboolture Syndicate Limited, QLD 20 16,092 40,516 3,979 28,815 23,814 8,240 17,031 497 Peet Werribee Land Syndicate, VIC Joint Ventures* Peet Flagstone City Pty Limited, QLD Googong Township Unit Trust, NSW Peet Golden Bay Pty Limited, WA Peet Mt Barker Pty Limited, SA Peet No.1895 Pty Limited, VIC Peet Brabham Pty Ltd, WA Other associates and JVs Total 17 50 50 50 50 50 50 5,045 35,994 7,705 3,355 29,979 5,144 38,461 4,032 7,850 168,931 54,149 2,822 119,810 59,905 35,536 5,724 41,613 118,776 4,999 42,000 113,390 56,695 49,896 10,236 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 3,533 96,262 30,827 55,552 13,416 6,708 59,913 1,287 33,465 35,230 – (478) (82) (239) 2,575 233,668 (74) 237 5,393 (474) 99 692 2,862 5,118 (37) 119 2,697 (237) 2,823 13,329 * 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. 8181 ANNUAL REPORT 2020 | PEET LIMITEDANNUAL REPORT 2020 | PEET LIMITED                     10. INVESTMENT 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 $’000 3,475 9,589 1,647 2,191 2,014 475 7,058 4,125 3,198 2,841 3,205 20 Current financial liabilities1 $’000 53,557 – – – – – 48,360 – – 7,000 – – Non-current financial liabilities1 $’000 – 45,000 – 3,000 77,867 45,150 – 42,000 – – 77,724 35,103 Interest expense $’000 Income tax expense/ (benefit) $’000 – – – – – – – – – – – – 398 (16) 72 102 1,181 – 2,496 (60) (38) 735 4,028 – As at 30 June 2020 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 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 1 Excluding trade and other payables and provisions 8282 DIRECTORS’ REPORTYear ended 30 June 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSYear ended 30 June 2020PEET LIMITED | ANNUAL REPORT 2020 PEET LIMITED | ANNUAL REPORT 2020 8,444 4,210 Current Trade receivables 11. RECEIVABLES Current Trade receivables at amortised cost 1 Other receivables at amortised cost 1 Loans to associates and joint ventures 2 - Amortised cost - ECL allowance ∙ At amortised cost (net of ECL allowance) ∙ At fair value 2 Non-current Loans to associates and joint ventures 2 - Amortised cost - ECL allowance ∙ At amortised cost (net of ECL allowance) ∙ At fair value Other receivables Total receivables 2020 $’000 2019 $’000 8,224 1,182 7,774 (73) 7,701 – – – 19,836 6,345 36,943 18,999 26,848 38,553 (2,692) (2,766) 24,156 35,787 40,060 55,184 5,359 4,999 69,575 95,970 106,518 114,969 1 2 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 (2019: $Nil). The Group has entered into financing arrangements (including loans and equity contri- butions 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%. Refer note 27(a) for accounting policy on financial assets and  note 21 for fair value disclosures. Key estimates ECL allowance ECL allowance is determined on a probability of default on a loan by loan basis. Related party balances with associates and joint ventures included above: 2020 $’000 2019 $’000 2,048 2,927 7,701 – 19,836 6,345 24,156 35,787 40,060 55,184 5,359 4,999 99,160 105,242 97,316 9,180 (11,016) – (3,727) 91,753 86,996 29,690 (9,702) (7,618) (2,050) 97,316 2020 $’000 2019 $’000 8,536 6,234 4,336 4,037 12,872 10,271 Loans to associates and joint ventures - Amortised cost (net of ECL allowance) - Fair value 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 Other Carrying amount at 30 June 12. CONTRACT ASSETS Current Accrued income1 Non-current Deferred management fees2 Total contract assets 1 2 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 deferred management fees are receivable from residents in the Lattitude Lakelands retirement village, who entered into an agreement to pay the fee upon their departure. The fee is based on 3% of the resale price of the unit for each year of occupation (up to 24%). 13. PAYABLES Current Trade payables and accruals Advance from joint operators 2020 $’000 2019 $’000 27,034 6,020 33,054 27,532 11,214 38,746 8383 ANNUAL REPORT 2020 | PEET LIMITEDANNUAL REPORT 2020 | PEET LIMITED13. PAYABLES (CONTINUED) Recognition and measurement 15. PROVISIONS 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. Current Rebates Employee entitlements Provision for development costs to complete Non-current Employee entitlements Provision for development costs to complete Refer note 21 for fair value disclosures. Total provisions 2020 $’000 2019 $’000 2,524 3,183 2,812 3,235 8,921 15,402 14,628 21,449 216 216 12,038 11,567 12,254 11,783 26,882 33,232 14. LAND VENDOR LIABILITIES Movements in the provision for rebates during the financial year are set out below: Current Instalments for purchase of development property 2020 $’000 2019 $’000 6,350 6,350 Total land vendor liabilities 6,350 6,350 Carrying amount at 1 July Charged/(credited) to the statement of profit or loss: - Additional provision recognised This liability was deferred and paid in July 2020. - Paid during year Carrying amount at 30 June 2020 $’000 2,812 2019 $’000 2,778 716 1,238 (1,004) (1,204) 2,524 2,812 Recognition and measurement 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 Total contractual cash flows Carrying amount of liabilities 2020 $’000 6,350 6,350 6,350 2019 $’000 6,350 6,350 6,350 Recognition and measurement 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. 8484 DIRECTORS’ REPORTYear ended 30 June 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSYear ended 30 June 2020PEET LIMITED | ANNUAL REPORT 2020 PEET LIMITED | ANNUAL REPORT 2020 16. INTERESTS IN JOINT OPERATIONS Details of aggregate share of assets, liabilities, revenue, expenses and results of joint operations Group’s share of: Total assets Total liabilities Revenue Expenses As at 30 June 2020 $’000 $’000 $’000 $’000 The Village at Wellard, WA Lightsview Joint Venture, SA The Heights Durack, NT Redbank Plains Joint Venture, QLD As at 30 June 2019 The Village at Wellard, WA Lightsview Joint Venture, SA The Heights Durack, NT Redbank Plains Joint Venture, QLD 12,532 3,128 7,708 5,756 9,134 5,181 6,567 5,674 9,882 6,482 2,270 1,827 25,023 6,180 7,952 6,455 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 15. PROVISIONS (CONTINUED) 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. Development costs to complete Provisions for development costs not yet incurred for lots settled are recognised at each reporting date based on the estimated costs to complete. 8585 ANNUAL REPORT 2020 | PEET LIMITEDANNUAL REPORT 2020 | PEET LIMITED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 2020. At 30 June 2020, the bank covenant gearing ratio was 29.7% (2019: 25.8%). 17. BORROWINGS, LEASE LIABILITIES AND DERIVATIVE FINANCIAL INSTRUMENTS Net debt Borrowings – Current Borrowings – Non-current Total borrowings* Cash and cash equivalents Net debt 2020 $’000 118,275 2019 $’000 5,083 163,879 240,103 282,154 245,186 (46,838) (33,606) 235,316 211,580 * 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 2020: Facility amount Utilised amount1 Effective interest rate $’000 $’000 % Bank loans – note a 181,450 59,341 5.9% Face value $’000 Carrying amount2 $’000 Effective interest rate % 100,000 50,000 75,000 99,500 49,517 73,796 225,000 222,813 8.06 5.95 7.21 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. 8686 DIRECTORS’ REPORTYear ended 30 June 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSYear ended 30 June 2020PEET LIMITED | ANNUAL REPORT 2020 PEET LIMITED | ANNUAL REPORT 2020 17. BORROWING, LEASE LIABILITIES 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 $655 million (2019: $687 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 or waived during the reporting period and as at 30 June 2020. 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: The bonds and notes are presented in the balance sheet as follows: Face value of bonds and notes issued 225,000 225,000 2020 $’000 2019 $’000 Transaction costs Cumulative interest expense Cumulative coupon payable (4,669) (4,669) 220,331 220,331 48,519 32,164 (46,037) (30,496) 2,482 1,668 Total bonds and notes liability 222,813 221,999 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 2020 $’000 21,583 2019 $’000 1,115 8,150 23,656 35,577 – 65,310 24,771 59,341 23,187 0 – 1 years 1 – 2 years 2 – 5 years 2020 $’000 2019 $’000 115,019 15,751 7,807 115,475 135,549 143,921 Total contractual cash flows 258,375 275,147 Carrying amount of liabilities 222,813 221,999 b. Peet bonds and notes Peet bonds Series 1, Tranche 1 c. Lease liabilities 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 has commenced the process to refinance the Series 1, Tranche 1 bonds and is considering a number of alternatives. The directors are confident that refinancing will be achieved. Current Office space leases Non-current Office space leases Total lease liabilities 2020 $’000 2019 $’000 1,607 5,520 7,127 – – – 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. During the year, total cash outflow for these leases is $2.0 million. The below table analyses the maturity of the Group’s lease liabilities based on the remaining period at reporting date to the contractual maturity date: 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 June 2024.These bonds are unsecured and carry a fixed interest rate of 6.75%. 0 – 1 years 1 – 2 years 2 – 5 years > 5 years Total contractual cash flows Carrying amount of liabilities 2020 $’000 2,039 2,115 3,898 101 8,153 7,127 2019 $’000 – – – – – – 8787 ANNUAL REPORT 2020 | PEET LIMITEDANNUAL REPORT 2020 | PEET LIMITED  17. BORROWINGS, LEASE LIABILITIES AND DERIVATIVE FINANCIAL INSTRUMENTS (CONTINUED) d. Derivative financial instruments Current Interest rate swap contracts Non-current Interest rate swap contracts Total derivative financial instruments 2020 $’000 2019 $’000 – 221 4,407 4,407 5,310 5,531 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 2020 $’000 – 4,407 – 4,407 4,407 2019 $’000 221 – 5,310 5,531 5,531 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). Hedge accounting is only applied where there is an economic relationship between the hedged item and hedging instrument. 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. The Group’s policy is 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. In FY20, the Group has determined the interest rate swap contracts no longer meet the Group’s risk management objective. As a result, the Group has discontinued hedge accounting. During the year, the fixed interest rate on the interest rate swap contracts was 3.11% (2019: 3.11%). The variable base rates are between 0.09% and 1.22% (2019: 1.42% and 2.01%). 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 2020 $’000 2019 $’000 – 25,000 100,000 – – 100,000 100,000 125,000 The full fair value of interest rate swap is classified as a non- current asset or liability when the remaining maturity 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 implies maintaining Prudent 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 8888 DIRECTORS’ REPORTYear ended 30 June 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSYear ended 30 June 2020PEET LIMITED | ANNUAL REPORT 2020 PEET LIMITED | ANNUAL REPORT 2020       17. BORROWING, LEASE LIABILITIES AND DERIVATIVE FINANCIAL INSTRUMENTS (CONTINUED) At 30 June 2020, 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 2020 $’000 2019 $’000 46,838 33,606 59,896 55,184 (24,341) (23,187) (4,407) (5,531) 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) 2020 $’000 (282) 282 2019 $’000 (221) 221 2020 $’000 (282) 282 2019 $’000 (221) 221 - 50 basis points +50 basis points 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). 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 (2019: $2.8 million) has been recognised for loans measured at amortised cost of $34.6 million (2019: $38.5 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 interest rate risk by both variable and fixed rate debt instruments. 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. 8989 ANNUAL REPORT 2020 | PEET LIMITEDANNUAL REPORT 2020 | PEET LIMITED  18. CONTRIBUTED EQUITY AND RESERVES a. Movements in ordinary share capital Date 30 June 2018 Details Closing balance Share buyback, including transaction costs 30 June 2019 Closing balance 30 June 2020 Closing balance Movement for the year The nature of the Group’s contributed equity Number of shares 489,980,559 (6,680,070) 483,300,489 – 483,300,489 $’000 385,955 (7,039) 378,916 – 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 2018 Cash flow hedges (gross) Deferred tax Share based payment Buyback on vesting of performance rights4 Transactions with non–controlling interests At 30 June 2019 At 1 July 2019 Cash flow hedges (gross) Deferred tax Share based payment Buyback on vesting of performance rights5 At 30 June 2020 Cash flow hedge reserve1 Share-based payments reserve2 Non-controlling interest reserve3 $’000 (1,192) (929) 279 – – – (1,842) (1,842) 2,636 (794) – – – $’000 13,693 – – 630 (2,085) – 12,238 $’000 (9,104) – – – – (6,343) (15,447) Total $’000 3,397 (929) 279 630 (2,085) (6,343) (5,051) 12,238 (15,447) (5,051) – – 1,299 (647) 12,890 – – – – 2,636 (794) 1,299 (647) (15,447) (2,557) 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/September 2018, the Company purchased 1,711,425 shares to settle the vesting of FY16 Performance Rights. In September 2019, the Company purchased 572,160 shares to settle the vesting of FY17 Performance Rights. 9090 DIRECTORS’ REPORTYear ended 30 June 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSYear ended 30 June 2020PEET LIMITED | ANNUAL REPORT 2020 PEET LIMITED | ANNUAL REPORT 2020   19. DIVIDENDS Declared and paid during the period Prior year fully franked dividend 3.00 cents, paid on 7 October 2019 (2019: 3.00 cents) Fully franked interim dividend for 2020: 0.5 cents (2019: 2.00 cents) Dividend not recognised at year end Final dividend 1.0 cents per share to be paid on 19 November 2020 (2019: 3.00 cents per share) Franking credit balance Franking account balance as at the end of the financial year at 30% (2019: 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 2020 $’000 2019 $’000 14,499 14,699 2,417 9,667 16,916 24,366 4,833 14,499 57,718 55,017 687 8,915 (2,071) (6,214) 56,334 57,718 20. RECONCILIATION OF (LOSS) / PROFIT AFTER INCOME TAX TO NET CASH OUTFLOW FROM OPERATING ACTIVITIES (Loss) / profit after income tax Add/(deduct) non cash items: Depreciation Amortisation of intangible assets Employee share-based payments Equity accounting for investments in associates and joint ventures Interest received 2020 $’000 2019 $’000 (30,691) 47,350 2,274 1,096 1,233 1,102 652 (1,455) (8,060) (13,329) 1,820 902 675 814 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 7,962 4,014 12,280 5,537 Decrease / (Increase) in inventories 40,210 (22,900) Decrease in tax liabilities Decrease in payables Decrease in provisions (8,228) (6,483) (3,677) (23,131) (6,350) (7,768) Decrease in deferred tax liabilities (9,686) (6,067) Net cash outflow from operating activities (7,850) (12,054) 9191 ANNUAL REPORT 2020 | PEET LIMITEDANNUAL REPORT 2020 | PEET LIMITED    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. The potential impact of the COVID-19 pandemic has been considered in the assessment of fair values. 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 Certain loans to associates and joint ventures 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 2020, the carrying amount and fair value of these loans to associates and joint ventures is $70.1 million and $59.9 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 2020 is $4.4 million (30 June 2019: $5.5 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 2020 of a Peet bond Series 1, Tranche 1 is $100.5 per bond and of a Peet bond Series 2, Tranche 1 is $94.1 per bond (Level 1). The fair value of Peet Notes as at 30 June 2020 is $975.0 per note. These notes are measured using significant observable inputs (level 3 of the fair value hierarchy). At 30 June 2020, the carrying value of Peet bonds and notes is $222.8 million (fair value $220.7 million). 9292 DIRECTORS’ REPORTYear ended 30 June 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSYear ended 30 June 2020PEET LIMITED | ANNUAL REPORT 2020 PEET LIMITED | ANNUAL REPORT 2020 OTHER NOTES 22. REMUNERATION OF AUDITORS 2020 2019 $ $ 301,900 286,200 Fees to Ernst & Young (Australia) Fees for auditing the statutory financial report of the parent covering the group and auditing the statutory financial reports of any controlled entities Fees for assurance services that are required by legislation to be provided by the auditor - Compliance Plan & AFSL audits 12,000 11,500 Fees for other assurance and agreed- upon-procedures services under other legislation or contractual arrangements Fees for other services - - Tax compliance Tax advice 54,750 81,000 184,585 152,122 99,650 48,200 Total Fees to Ernst & Young (Australia) 652,885 579,022 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 2020 $’000 2019 $’000 21,684 21,128 13,604 20,526 35,288 41,654 24. PARENT ENTITY FINANCIAL INFORMATION AND SUBSIDIARIES a. Parent entity financial information Summary financial information The individual financial statements for the parent entity show the following aggregate amounts: Balance sheet Current assets Total assets Current liabilities Total liabilities Shareholders’ equity Issued capital Reserves Share-based payments reserve Retained profits Total equity Profit / (loss) for the year Total comprehensive income 2020 $’000 2019 $’000 69,254 70,457 638,152 584,023 13,600 16,618 160,178 159,192 378,917 378,917 12,890 86,167 12,239 33,675 477,974 424,831 69,407 (14,083) 69,407 (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: All contingent liabilities are expected to mature within 1 year. Bank guarantees outstanding At 30 June 2020, the Group had commitments of $29.4 million (2019: $34.0 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. 2020 $’000 586 2019 $’000 586 9393 ANNUAL REPORT 2020 | PEET LIMITEDANNUAL REPORT 2020 | PEET LIMITED24. PARENT ENTITY FINANCIAL INFORMATION AND SUBSIDIARIES (CONTINUED) b. Subsidiaries 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. Peet Yanchep Land Syndicate 2020 $’000 3,861 2019 $’000 5,941 80,049 78,628 20,310 1,645 12,241 29,671 17,258 17,893 2,819 (1,889) 3,228 (624) 635 199 Current assets Non-current assets Current liabilities Non-current liabilities Non-controlling interest Revenue Loss after tax Loss attributable to non-controlling interest Summarised cash flow information: Peet Yanchep Land Syndicate 2020 $’000 2019 $’000 (998) (2,232) 871 (127) 1,926 (306) Operating Financing Net outflow Peet has not provided loans to other partly-owned subsidiaries. The Group has no further contractual obligations to provide ongoing financial support. Significant investments in subsidiaries 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 Limited 1 Peet Craigieburn Pty Limited 2 Peet Greenvale No. 2 Pty Limited 2 Peet Cranbourne (51A Craig Rd) Pty Limited 2 Peet No. 88 Pty Limited 2 Peet Southern JV Pty Limited 2 Peet Brigadoon Pty Limited 2 Secure Living Pty Limited 2 Peet No. 108 Pty Limited 2 Peet No. 112 Pty Limited 2 Peet Treasury Pty Limited 2 Peet Estates (VIC) Pty Limited 2 Peet Development Management Pty Limited 2 Peet Estates (QLD) Pty Limited 2 Peet Estates (WA) Pty Limited 2 Peet Estates (SA) Pty Limited 1 Peet Funds Management Limited 2 Peet R B Plains Pty Limited 2 Peet No. 125 Pty Limited 2 Peet No. 126 Pty Limited 2 Peet No. 73 Pty Limited 2 Lakelands Retail Centre Development Pty Limited 2 Peet Mt. Pleasant Pty Limited 2 Peet No. 127 Pty Limited 2 Lightsview Apartments Pty Limited 1 Peet Tonsley Pty Limited 2 JTP Homes Pty Limited 2 Peet Tonsley Apartments Pty Limited 2 Holding 2020 2019 % 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 % 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 Peet Yanchep Land Syndicate2 66.4 66.4 1 2 Incorporated in ACT. Incorporated in WA. 9494 PEET LIMITED | ANNUAL REPORT 2019 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSOTHER NOTESYear ended 30 June 2020PEET LIMITED | ANNUAL REPORT 2020 24. PARENT ENTITY FINANCIAL INFORMATION AND SUBSIDIARIES (CONTINUED) Deed of cross guarantee Consolidated balance sheet 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 Set out below is a consolidated balance sheet at 30 June 2020 of the closed group consisting of Peet Limited and certain wholly owned subsidiaries. 2020 $’000 2019 $’000 46,719 33,330 23,335 26,390 87,087 99,890 157,141 159,610 101,649 135,773 302,472 319,684 266,175 266,031 5,188 4,151 4,725 – 5,227 5,700 684,360 732,415 841,501 892,025 40,896 53,752 6,350 105,066 1,607 687 5,550 6,350 5,083 – 8,981 5,873 Current assets Cash and cash equivalents Total current assets Non-current assets Receivables Inventories Investments accounted for using the equity method Right-of-use assets Property, plant and equipment Intangible assets Total non-current assets Total assets Current liabilities Payables Land vendor liabilities Borrowings Lease liabilities Current tax liabilities Provisions Non-current liabilities Borrowings Lease liabilities Derivative financial instruments Deferred tax liabilities Provisions Total current liabilities 160,156 80,039 158,313 221,999 5,520 4,407 – 5,531 15,321 27,425 216 216 183,777 255,171 343,933 335,210 497,568 556,815 378,916 378,916 (2,423) 9,785 121,075 168,114 497,568 556,815 959595 2020 $’000 2019 $’000 Consolidated statement of profit or loss Revenue 183,785 246,630 Expenses Finance costs (224,921) (187,489) (7,428) (8,492) Share of net profit of associates accounted for using the equity method 6,774 12,936 (Loss) / profit before income tax (41,790) 63,585 Income tax expense (Loss) / profit for the year 11,667 (16,062) (30,123) 47,523 Other comprehensive income Items that may be reclassified to profit or loss: Changes in the fair value of cash flow hedges Income tax relating to components of other comprehensive income Other comprehensive income for the year, net of tax Total comprehensive loss for the year 2,636 (929) (794) 279 1,842 (650) (28,280) 46,873 Summary of movement in consolidated retained profits Retained profits at the beginning of the financial year 168,114 152,575 (Loss) / profit for the year Dividends paid AASB9 measurement (30,123) 47,523 Total non-current liabilities (16,916) (24,366) Total liabilities - (7,618) Net assets Retained profits at the end of the financial year 121,075 168,114 Equity Contributed equity Reserves Retained profits Total equity ANNUAL REPORT 2020 | PEET LIMITEDANNUAL REPORT 2020 | PEET LIMITED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 20 Nov 19 $0.00 20 Nov 34 $1.17 0.84% $1.044 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 $1,298,700 (2019: $628,877). 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 96 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSOTHER NOTESYear ended 30 June 2020PEET LIMITED | ANNUAL REPORT 2020 – – – – – – – – – – – – – – e t a d t n a r G y r i p x E e t a d 30 June 2020 Options 30 Nov 07 Performance rights 21 Dec 30 21 Dec 15 N/A 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 20 Nov 19 20 Nov 34 30 June 2019 Options 30 Nov 07 Performance rights 21 Nov 30 21 Nov 15 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 25. SHARE-BASED PAYMENTS (CONTINUED) Set out below are summaries of options and performance rights granted under the plans: $ 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 t a e c n a l a B y l u J 1 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 g n i r u d d e t i e f r o f r a e y e h t / d e s p a L 0 3 t a e c n a l a B e n u J t a e l b a s i c r e x E e n u J 0 3 $4.10 $1.12 1,200,000 – – – – – – – $0.957 $0.801 $0.849 $1.328 $1.299 $0.940 $1.044 269,103 1,065,114 1,380,552 874,347 1,232,635 2,097,201 – – – (572,160) – – – – – 2,333,607 6,918,952 2,333,607 (572,160) 8,118,952 2,333,607 (572,160) – – – – – – – – – – 1,200,000 1,200,000 269,103 269,103 1,065,114 1,065,114 808,392 874,347 1,232,635 2,097,201 2,333,607 808,392 – – – – 8,680,399 2,142,609 9,880,399 3,342,609 N/A $4.10 $1.12 1,200,000 – – – – – – – $0.974 $0.957 $0.801 $0.849 $1.328 $1.299 $0.940 928,020 1,192,460 1,065,114 1,380,552 874,347 1,232,635 – 2,097,201 – – 1,200,000 1,200,000 (866,771) (844,655) (61,249) (78,702) – – 269,103 269,103 – – – – – – – – – – 1,065,114 1,380,552 874,347 1,232,635 2,097,201 – – – – – Total 7,873,128 2,097,201 (1,711,426) (139,951) 8,118,952 1,469,103 6,673,128 2,097,201 (1,711,426) (139,951) 6,918,952 269,103 97 ANNUAL REPORT 2020 | PEET LIMITED     26. MATTERS SUBSEQUENT TO THE END OF Subsequent measurement THE FINANCIAL YEAR The Directors have declared a final fully franked dividend of 1.0 cents per share in respect to the year ended 30 June 2020. The dividend is to be paid on Thursday, 19 November 2020, with a record date of Monday, 26 October 2020. 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 a. Financial assets 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. 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 losses upon no recycling of cumulative gains and 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. 98 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSOTHER NOTESYear ended 30 June 2020PEET LIMITED | ANNUAL REPORT 2020 27. OTHER ACCOUNTING POLICIES (CONTINUED) 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. The potential impact of the COVID-19 pandemic has been considered in the assessment of ECLs. 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. b. Leases The Group’s new accounting policy for leases arising on adoption of AASB 16 and applied from 1 July 2019 is detailed below: For leases with a lease term greater than 12 months that are not considered low value leases (see below), right-of-use assets and associated lease liabilities are recognised at the commencement of the lease. Right-of-use assets are measured at cost initially and then depreciated over the shorter of the asset’s useful life and the lease term on a straight-line basis. The cost of right-of-use assets includes the amount of lease liabilities recognised, initial direct costs incurred, and lease payments made at or before the commencement date less any lease incentives received. Right-of-use assets are subject to impairment. The lease liability is initially measured at net present value of future lease payments using the Group’s incremental borrowing rate. The lease payments include fixed payments less any lease incentives receivable and variable lease payments that depend on an index or a rate. The lease payments are allocated between repayment of lease liability and interest expense (charged to profit or loss over the lease period). In addition, the carrying amount of lease liabilities is remeasured if there is a modification or a change in the lease term. For short-term leases and leases of low-value assets, lease payments are recognised on a straight-line basis as an expense in profit or loss. Short-term leases are leases with a lease term of 12 month or less. Low-value assets are generally small items of office equipment. c. Intangible assets Intangible assets primarily consist of software and are shown at historical costs less depreciation. Depreciation on intangible assets is calculated using the straight-line method over their estimated useful lives as below. • Software – 5 years 99 ANNUAL REPORT 2020 | PEET LIMITED27. OTHER ACCOUNTING POLICIES (CONTINUED) d. Property, plant and equipment g. Government grants 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 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. e. Termination benefits Termination benefits are payable when employment is 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. f. Goods and services tax (GST) Revenues, expenses and assets are recognised net of the amount of associated GST, unless the GST incurred is not recoverable from the taxation authority. In this case it is recognised as part of the cost of acquisition of the asset or 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. Government grants are recognised where there is reasonable assurance that the grant will be received, and all attached conditions will be complied with. When the grant relates to an expense item, it is recognised as income on a systematic basis over the periods that the related costs are expensed. h. 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. Investments in subsidiaries Investments in subsidiaries are accounted for at cost in the separate 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. i. New accounting standards and interpretations issued but not yet effective There are no new and amended accounting 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. 100 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSOTHER NOTESYear ended 30 June 2020PEET LIMITED | ANNUAL REPORT 2020 This page has been intentionally left blank 101 ANNUAL REPORT 2020 | PEET LIMITEDDIRECTORS’ DECLARATION Year ended 30 June 2020 In the Directors’ opinion: a. the financial statements and notes set out on pages 64 – 100 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 2020 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 discloses that the financial statements and notes also comply with International Financial Reporting Standards. 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 26 August 2020 102 PEET LIMITED | ANNUAL REPORT 2020 INDEPENDENT AUDITOR’S REPORT Year ended 30 June 2020 103 ANNUAL REPORT 2020 | PEET LIMITED104 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSOTHER NOTESYear ended 30 June 2020PEET LIMITED | ANNUAL REPORT 2020 105 ANNUAL REPORT 2020 | PEET LIMITED106 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSOTHER NOTESYear ended 30 June 2020PEET LIMITED | ANNUAL REPORT 2020 107 ANNUAL REPORT 2020 | PEET LIMITED108 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSOTHER NOTESYear ended 30 June 2020PEET LIMITED | ANNUAL REPORT 2020 109 A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation Report on the audit of the Remuneration Report Opinion on the Remuneration Report We have audited the Remuneration Report included in pages 42 to 57 of the directors' report for the year ended 30 June 2020. In our opinion, the Remuneration Report of Peet Limited for the year ended 30 June 2020, complies with section 300A of the Corporations Act 2001. Responsibilities The directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. Ernst & Young G Lotter Partner Perth 26 August 2020 ANNUAL REPORT 2020 | PEET LIMITEDSECURITYHOLDER INFORMATION Distribution of ordinary shares and Peet Bonds As at 17 September 2020 there were 2,167 current holders of ordinary shares, 1,382 current holders of Series 1, Tranche 1 Peet Bonds (“PPCHA Bonds”) and 537 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 507 627 342 621 70 2,167 0.03 0.40 0.55 3.59 95.43 100.00 1,278 91 6 6 1 1,382 37.04 18.74 4.27 17.55 22.40 100.00 473 54 6 3 1 537 31.76 23.05 8.67 7.76 28.76 100.00 There were 361 shareholdings of less than a marketable parcel of $500 (443 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 (six PPCHB Bonds). Securityholders The names of the 20 largest holders of ordinary shares as at 17 September 2020 are listed below: Name Scorpio Nominees Pty Ltd Citicorp Nominees Pty Limited J P Morgan Nominees Australia Pty Limited HSBC Custody Nominees (Australia) Limited National Nominees Limited CS Third Nominees Pty Limited HSBC Custody Nominees (Australia) Limited - A/C 2 360 Capital FM Limited <360 Capital Active REIT A/C> 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 Zero Nominees Pty Ltd Netwealth Investments Limited HSBC Custody Nominees (Australia) Limited 360 Capital FM Limited 360 Capital FM Limited Mr Julian Charles Peet Total for 20 largest shareholders Total other shareholders Total ordinary shares on issues 110 Number of Shares Held % of Shares 86,582,433 64,856,897 53,680,147 47,353,201 31,367,572 26,542,152 23,419,317 19,248,105 18,152,705 17,459,881 12,707,352 8,656,230 5,331,530 5,303,817 5,000,000 4,733,250 4,450,095 3,360,953 3,138,808 1,528,344 442,872,789 40,427,700 483,300,489 17.91 13.42 11.11 9.80 6.49 5.49 4.85 3.98 3.76 3.61 2.63 1.79 1.10 1.10 1.03 0.98 0.92 0.70 0.65 0.32 91.64 8.36 100.00 PEET LIMITED | ANNUAL REPORT 2020 SECURITYHOLDER INFORMATION (CONTINUED) The names of the 20 largest holders of PPCHA Bonds as at 17 September 2020 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 Jamplat Pty Ltd Passini Pty Ltd Tierney Pty Limited George Tauber Management Pty Ltd Hibou Holdings Pty Ltd BNP Paribas Nominees Pty Ltd Hub24 Custodial Serv Ltd Majana Pty Ltd Invia Custodian Pty Limited < RISF A/C> Invia Custodian Pty Limited Super RAB Pty Ltd Pulo Rd Pty Ltd Investment Management Co Pty Ltd Mrs Robin Lynn Beech Mr Ah Khing Teo & Mrs Kit Har Ng Total for 20 largest PPCHA Bondholders Total other PPCHA Bondholders Total PPCHA Bonds on issue Number of PPCHA Bonds Held % of PPCHA Bonds 223,971 22.40 52,084 43,200 26,400 22,612 20,000 11,230 8,500 8,000 7,500 6,886 6,264 5,500 5,000 5,000 5,000 4,680 4,107 4,000 3,766 5.21 4.32 2.64 2.26 2.00 1.12 0.85 0.80 0.75 0.69 0.63 0.55 0.50 0.50 0.50 0.47 0.41 0.40 0.38 473,700 526,300 1,000,000 47.37 52.63 100.00 111 ANNUAL REPORT 2020 | PEET LIMITEDSECURITYHOLDER INFORMATION SECURITYHOLDER INFORMATION (CONTINUED) The names of the 22 largest holders of PPCHB Bonds as at 17 September 2020 are listed below: Name HSBC Custody Nominees (Australia) Limited J P Morgan Nominees Australia Pty Limited Grizzly Holdings Pty Limited Keppoch Pty Limited Finot Pty Limited HSBC Custody Nominees (Australia) Limited BNP Paribas Nominees Pty Ltd Hub24 Custodial Serv Ltd Mr Joseph Compagnone & Mrs Cheryl Robyn Compagnone BT Portfolio Services Limited Roni H Pty Ltd Invia Custodian Pty Limited Mr Joseph Compagnone & Mrs Cheryl Robyn Compagnone Hamilton Industries (Victoria) Pty Limited Trancape Pty Ltd Netwealth Investments Limited Trendmead Pty Ltd A Cameron Holdings Pty Limited Bentleigh Nominees Pty Ltd Invia Custodian Pty Limited Mr Thomas Kiss & Mrs Amanda Aizenstros Mr Archibald John McKirdy Mr Jian Wang Total for 22 largest PPCHB Bondholders Total other PPCHB Bondholders Total PPCHB Bonds on issue Substantial shareholders Number of PPCHB Bonds Held % of PPCHB Bonds 143,815 28.76 14,224 12,600 12,000 8,000 7,900 7,409 7,050 7,000 6,000 4,690 4,262 4,000 4,000 3,746 3,500 3,125 3,000 3,000 3,000 3,000 3,000 2.84 2.52 2.40 1.60 1.58 1.48 1.41 1.40 1.20 0.94 0.85 0.80 0.80 0.75 0.70 0.63 0.60 0.60 0.60 0.60 0.60 268,321 231,679 500,000 53.66 46.34 100.00 As disclosed in substantial holding notices lodged with ASX (as applicable) as at 17 September 2020: Name Date of Last Notice Received Number of Shares Held % of Issued Shares1 Scorpio Nominees Pty Ltd and its associates Allan Gray Australia Pty Ltd and its related bodies corporate L1 Capital Pty Ltd 13 November 2018 14 August 2020 31 March 2020 360 Capital Whiskey Pty Ltd as trustee of 360 Capital Whiskey Trust 1 September 2020 Eley Griffiths Group Pty Limited 20 April 2020 99,156,523 88,722,096 67,316,177 25,747,866 24,406,898 20.50 18.36 13.93 5.33 5.05 1. Percentage of issued shares held as at the date notice provided. 112 PEET LIMITED | ANNUAL REPORT 2020 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 Australian Securities Exchange (“ASX”) Listing Rules or the Corporations Act. Securities Exchange Listings Peet Limited’s ordinary shares are listed on the 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 17 September 2020, Peet Limited had 1,200,000 options on issue, held by one key management person, as disclosed elsewhere in the Annual Report. As at 17 September 2020, Peet Limited had 7,020,590 performance rights on issue, held by a total of 10 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 17 September 2020, 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. 113 ANNUAL REPORT 2020 | PEET LIMITED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, FGIA, FCG (CS, CGP), 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, FGIA, FCG (CS, CGP), 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 114 PEET LIMITED | ANNUAL REPORT 2020 NOTES This page has been intentionally left blank 115115 ANNUAL REPORT 2020 | PEET LIMITEDANNUAL REPORT 2020 | PEET LIMITEDNOTES 116116 This page has been intentionally left blank DIRECTORS’ REPORTYear ended 30 June 2020PEET LIMITED | ANNUAL REPORT 2020 PEET LIMITED | ANNUAL REPORT 2020 NOTES This page has been intentionally left blank 117117 ANNUAL REPORT 2020 | PEET LIMITEDANNUAL REPORT 2020 | PEET LIMITED118 PEET LIMITED | ANNUAL REPORT 2020 119 ANNUAL REPORT 2020 | PEET LIMITEDPEET LIMITED | ANNUAL REPORT 2020