OPPORTUNITY
IN ADVERSITY
ANNUAL REPORT
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2020 | REGIONAL EXPRESS HOLDINGS LIMITED
REGIONAL EXPRESS VALUE STATEMENT
WHAT DOES IT PROFIT A COMPANY
IF IT GAINS THE WHOLE WORLD AND LOSES ITS SOUL?
COMPANY
Staff members are part of the Rex family.
This comes with both privileges and
responsibilities.
We expect every staff member to take
ownership of issues encountered:
• Ownership means that if something is
wrong then it is everyone’s job to fix it.
• Matters that cannot be handled by the
staff member ought to be pursued further
with senior management.
• Staff have the right to make mistakes if
they act in the best interest of the customer
and the company.
We strive to be a learning organisation
identify
where we actively seek
issues no matter how small in order to
continually transform ourselves to a better
organisation:
to
• This entails a culture where issues are
highlighted as learning experiences even
though they may place our colleagues in
a bad light.
• An excellent airline is one that is
outstanding in a thousand small ways.
We believe that we can only count on
ourselves for our continued success:
• All staff members must embrace the
‘can do’ and ‘will do’ spirit that has been
the defining characteristic of our initial
success.
• Hard work is the cornerstone of our
work ethic.
• All staff share in the profits and so all
staff are expected to contribute his/her
fair share.
We value open communication and
will strive to create an environment that
removes barriers to communication:
• Staff members have a right to be heard
regardless of their position.
• Staff members are encouraged to
the
contact directly
Management Committee and Board if
they see the need.
the members of
We respect the dignity of each staff
member and will treat each other with
respect and fairness:
• The customer does not always come
first and we will stand by our staff member
if the customer is unreasonable.
• While we can be single-minded in
tackling issues and problems, we will
focus on the issue and not the person.
• We accept that staff members may
have different talents and capabilities and
will strive to fit the job to the person rather
than the other way around.
•
Important decisions concerning
staff matters are always referred to the
Management Committee
to ensure
transparency, fairness and consistency.
We are committed to standing behind our
staff members and their families and will
do all we can to help them in their times of
special need:
We are committed
treating our
customers as individuals and will respond
to all their comments and complaints.
to
COMMUNITY
Rex is mindful of the tremendous social
and economic impact its services have
on the regional communities and works
in partnership with these communities
to balance
their needs against Rex
commercial imperatives.
We are also committed to giving back to
the regional communities by supporting
worthwhile charitable causes which are
focused on helping the less fortunate.
We are committed to preserving the
environment
the measure of our
capabilities.
to
CONTRACTORS
We believe that our suppliers are partners
in our business.
• We believe in the value of the family
and will strive
to create a working
environment that is supportive of the family.
In all our dealings with suppliers we will
seek to be fair and honest and will strive
to work only with like-minded suppliers.
• All staff members have the right to
appeal to the Management Committee
if special assistance or consideration is
needed
CAPITAL
CUSTOMER
We are committed to providing our
customers with safe and reliable air
transportation with heartfelt hospitality.
As a regional carrier, we constantly strive
to keep fares low through our commitment
to simplicity, efficiency and good value.
Rex believes that its shareholders’ interest
is best served by pursuing a path of steady
but sustainable growth of its earnings.
We believe that maximizing shareholders’
returns in the long term is not incompatible
with our duties and
responsibilities
towards our other stakeholders outlined
above.
2
FOREWORD
THE FUTURE BECKONS
What an industry to be in. During normal times
the challenges are never-ending and the margins
are wafer-thin. When the COVID-19 pandemic
devastated almost every industry, aviation was hit the
hardest.
Even Rex, which had virtually no debt and strong
cash flow in the past, was brought to its knees with
passenger numbers plunging below 10% of normal
levels from 15 March 2020 to 28 March 2020.
from
In times like these, it is leadership that makes the
difference between survival and collapse. I am
so thankful that I have a management team that is
second-to-none. Within ten days when the full effects
of the pandemic was first felt in Australian aviation,
the Australian Competition
we obtained
and Consumer Commission (ACCC) an interim
authorisation to cooperate with QantasLink on all
the routes where we compete. Rex also presented
several submissions to the Federal Government on
the impending collapse of all independent regional
carriers in Australia if Commonwealth funding was
not made available immediately.
Leadership is also critical in Government, and
regional Australia is fortunate to have Deputy Prime
Minister Michael McCormack in charge of aviation.
On 17 March 2020, the DPM acted swiftly to
unveil an assistance package of over $700 million
for all airlines. He later supplemented this on 27
March 2020 with an assistance package of around
$300 million to enable regional airlines to meet
their immediate cash flow needs and to underwrite
a skeleton essential regional air service until 30
September 2020 (later extended to 28 March
2021).
On behalf of all regional aviation, I would like
to place on record our gratitude to the Morrison
Government and to DPM Michael McCormack for
their swift and decisive actions that saved Australia’s
regional aviation. Without these bold measures, most
regional carriers would have collapsed and regional
aviation would have been irreparably damaged.
Remote and regional communities would be dealt a
third mortal blow following the devastating effects of
the bush fires and the pandemic.
Rex makes a solemn promise that it will give back
amply to the community in the future when it is strong
again.
Talking about the future, it must appear strange
to some that Rex is announcing bold plans to start
domestic jet operations in March 2021 when it
was on the brink of collapse just five months ago.
LIM KIM HAI
EXECUTIVE CHAIRMAN
Indeed, Rex is probably the only carrier in the world
making plans, with the help of external funding, to
increase substantially its operations.
The Rex Board has not made this decision lightly.
While this is a significant increase in our scale of
operations and the risks are considerable, the Rex
Board believes that we are probably one of the best
run, efficient and profitable airlines in the world and
with our extensive infrastructure already in place, the
extension to jet operations will not be a difficult step.
This is also our way of paying back to the community.
We believe
that Australia deserves a second
domestic carrier that is safe, reliable and affordable.
More importantly, Australia needs an alternative
carrier that is profitable and hence sustainable so
that it can go the distance against Qantas. Rex’s track
record will be enough to convince anyone that Rex is
up to the mark - we are the only listed RPT carrier in
Australia that made net statutory profits over the last
12 Financial Years.
We are excited at this next big chapter of domestic
jet expansion. However, even though our operations
may get much bigger, we promise our past and future
passengers that our trademark country hospitality will
not be diluted. Be it domestic or regional operations,
our heart will always be in the country.
Lim Kim Hai
Executive Chairman
30 September 2020
1
CORPORATE
This annual report covers both Regional Express Holdings Limited as an individual entity and the consolidated entity comprising Regional Express
Holdings Limited and its subsidiaries.
The Group’s functional and presentation currency is AUD ($).
DIRECTORS
COMPANY SECRETARIES
REGISTERED OFFICE
Irwin Tan
Benjamin Ng
Richard Kwan
81 - 83 Baxter Road
Mascot, NSW 2020
(Ph): 02 9023 3555
(Fax): 02 9023 3599
Lim Kim Hai
The Hon. John Sharp AM
Lee Thian Soo
Neville Howell
Chris Hine
James Davis
Prof. Ronald Bartsch
SHARE REGISTRY
SOLICITOR
BANKER
Link Market Services Limited
Baker & McKenzie
Westpac Banking Corporation
Level 12, 680 George Street
Sydney, NSW 2000
Level 46, Tower One
International Towers Sydney
100 Barangaroo Avenue
Barangaroo, NSW 2000
AUDITOR
Deloitte Touche Tohmatsu
2
CONTENTS
05
DIRECTORS’ REPORT
28
AUDITOR’S INDEPENDENCE DECLARATION
31
CORPORATE GOVERNANCE STATEMENT
41
FINANCIAL STATEMENTS
42
43
44
45
46
47
91
CONSOLIDATED STATEMENT OF PROFIT OR LOSS
CONSOLIDATED STATEMENT OF OTHER COMPREHENSIVE INCOME OR LOSS
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
CONSOLIDATED STATEMENT OF CASH FLOWS
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DIRECTORS’ DECLARATION
92
98
INDEPENDENT AUDITOR’S REPORT
ASX ADDITIONAL INFORMATION
3
THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK
4
DIRECTORS’
REPORT
5
1 BOARD OF DIRECTORS
In compliance with the provisions of the Corporations Act 2001, the directors of Regional Express Holdings Limited (‘Rex’) submit
herewith the annual report for Rex and its consolidated entities (the ‘Group’) for the Financial Year ended 30 June 2020 (FY20).
The names and particulars of the directors of Rex during or since the end of the FY are:
LIM KIM HAI | Executive Chairman
Appointed 27 June 2003 and re-appointed 16 November 2006, 25 November 2009, 27 November
2012, 27 November 2015, and 21 November 2018.
Mr Lim started his career as a Defence Engineer
specialising in underwater warfare. After ten years
he left to start his own business. Currently, he has
a portfolio of investment and business interests
in diverse sectors and countries. He is also the
Chairman of a biomedical company in Singapore,
Lynk Biotechnologies Pte Ltd.
Mr Lim obtained his Masters
in Electronics
Engineering from the prestigious ‘Grande Ecoles’
engineering colleges in France where he was
awarded a French Government scholarship. He
later returned to France to complete a Masters of
Public Administration at the elite Ecole Nationale
d’Administration in Paris on a Singapore Government
scholarship. Mr Lim also holds a Masters of Business
Administration
the National University of
Singapore.
from
Mr Lim was one of the founding shareholders and
directors of Rex in August 2002. He has been the
Executive Chairman of the Rex Group of companies
since July 2003.
THE HON. JOHN SHARP AM | Deputy Chairman & Independent Director
Appointed 14 April 2005 and re-appointed 19 November 2008, 23 November 2011, 27 November
2013, 29 November 2016, and 21 November 2019.
The Honourable John Sharp AM is an aviator,
having been a licensed pilot of both fixed-wing and
rotary-wing aircraft. Mr Sharp was a member of
the House of Representatives of the Commonwealth
Parliament for 14 years (1984 – 1998). He retired
from the House of Representatives in 1998 and
established his own high-level aviation and transport
consulting company.
Mr Sharp is a former Chairman of the Aviation Safety
Foundation of Australia. In 2001, he became a
director of Airbus Group, Australia Pacific, a position
he retired from in June 2015. He has retired as
Chairman of the Parsons Brinkerhoff Advisory Board,
an engineering and design company operating
throughout Australia and the region. He is Chairman
of Pel-Air Aviation Pty Ltd and is also a director of
Power and Data Corporation Pty Limited, and a
director of Luerssen Australia, and a director of the
Australian Maritime Shipbuilding Export Group.
Mr Sharp is a Trustee and Board Member of John
McKeown House. He was Honorary Federal
Treasurer, National Party of Australia from 1999
to 2017 and has retired as Chairman of Winifred
West Schools Foundation. He has been a member
of the University of Wollongong Vice Chancellor’s
Advisory Board. He is also currently a director of the
Tudor House Foundation. Mr Sharp was appointed
a director of the Flight Safety Foundation following
his receipt of the Foundation’s Presidential Citation
for Aviation Safety, the first Australian to receive
this award. He has been a director of the French,
Australian Chamber of Commerce and Industry, and
Co-Chair of the Cancer Council of NSW Southern
Highlands Branch. He is currently a member of the
Climate Change Authority. Mr Sharp is a director
of the Foundation for Rural and Regional Renewal,
(FRRR), having joined the board in 2019.
Mr Sharp was named a Member of the Order of
Australia for significant service to the people and
Parliament of Australia, to the aviation industry, and
the community during Queen’s Birthday Honours in
June 2018.
Mr Sharp’s extensive experience in aviation, regional
air services and as the former Federal Minister for
Transport and Regional Development in the Federal
Government, adds significantly to the expertise and
standing of the Board.
LEE THIAN SOO | Non-Executive Director
Appointed 27 June 2003 and re-appointed 16 November 2006, 25 November 2009, 27 November
2012, 27 November 2015, and 21 November 2018.
Lee has extensive
international business
Mr
experience and currently is the Chairman and owner
of a company supplying specialty medical devices,
systems and drugs to healthcare institutions in the
ASEAN region.
Mr Lee was one of the founding shareholders and
directors of Rex in August 2002.
6
LIM KIM HAI | Executive Chairman
THE HON. JOHN SHARP AM | Deputy Chairman & Independent Director
NEVILLE HOWELL | Executive Director and Chief Operating Officer
Appointed 1 July 2014 as Executive Director, re-appointed 26 November 2014, and 21 November 2017.
Mr Howell has over 39 years of aviation experience and
has been with the Company since its inception in August
2002. He operated the Saab 340 as a First Officer and
Captain for over 18 years for both Hazelton Airlines and
Regional Express. Prior to his role as General Manager
Flight Operations (GMFO) and Chief Pilot, Mr Howell
was Manager Training & Checking and Deputy Chief
Pilot. He is an extensively qualified and experienced
simulator and aircraft instructor and has held positions as
both Training and Check Captain. Mr Howell was the
Chief Flying Instructor and Chief Pilot for the first integrated
pilot training academy in Australia and has provided cadet
pilot training for both domestic and international carriers.
He is a qualified lecturer in several aviation subjects and
has a Diploma of Aviation. He has held many Civil Aviation
Safety Authority (CASA) delegations since 1984. As
GMFO Mr Howell was responsible for all facets of the
Company’s flight operations and all operational matters
affecting the safety of flight operations.
Mr Howell became Chief Operating Officer in July 2014.
As Chief Operating Officer he is responsible for Regional
Express operations including flight operations, continuing
airworthiness, maintenance control, airport operations and
the human factors group. Mr Howell is the Accountable
Manager
the Regional Express Air Operator’s
Certificate (AOC).
for
CHRIS HINE | Executive Director, Group Flight Operations Advisor and Chairman,
Australian Airline Pilot Academy
Appointed 1 March 2011 as Executive Director and re-appointed 23 November 2011.
Appointed 1 July 2014 as Non-Executive Director and re-appointed 26 November 2014.
Appointed Executive Director and Group Flight Operations Advisor 18 May 2015, and re-appointed 21 November 2017.
Mr Hine has over 25 years of aviation experience, including
15 years as a First Officer and Captain of Metroliner
and Saab 340 aircraft and is a well-accomplished and
knowledgeable instructor. He has been with the Company
since its inception in August 2002 and is the Group Flight
Operations Advisor, Chairman’s Office and Executive
Chairman of the Australian Airline Pilot Academy (Wagga
Wagga, New South Wales and Ballarat, Victoria).
Preceding his current role, he was the Chief Operating
Officer and General Manager Flight Operations and
Chief Pilot. Prior to Rex he worked for Kendell Airlines
from 1995, during which time he held various Check and
Training Captain positions. As Chief Operating Officer he
was responsible for the Company’s operations including
flight operations, maintenance control, airport operations
and the human factors group. Mr Hine has also had
experience as a lecturer in Cockpit Systems Management
for the Bachelor of Applied Science (Civil Aviation) degree
at the University of South Australia.
JAMES DAVIS | Independent Director
Appointed 26 August 2004 as Executive Director.
Appointed Managing Director on 27 May 2008 and retired 1 July 2011.
Appointed 23 November 2011 as an Independent Director, re-appointed 26 November 2014, and 21 November 2017.
Mr Davis has a degree in Aeronautical Engineering and
commenced his aviation career with the Civil Aviation
Safety Authority (CASA) before obtaining his Air Transport
Pilot Licence. He subsequently flew with airlines
in
Australia and overseas for 26 years, accumulating some
12,500 flying hours. Mr Davis joined Hazelton Airlines in
1999 as Flight Operations and Standards Manager and
later became Chief Pilot. He has been with Rex since its
inception in 2002, occupying the positions of Executive
General Manager Operations, Managing Director
Operations, Chief of Staff of the Chairman’s Office and
Managing Director. Mr Davis is a former Chairman of
the Australian Airline Pilot Academy Pty Ltd (AAPA) and
a former Director of Rex Group company Pel-Air Aviation
Pty Ltd. He is currently Chairman of the Regional Aviation
Association of Australia (RAAA) and sits on the board of
Airports Coordination Australia (ACA) Pty Ltd.
PROF. RONALD BARTSCH | Independent Director
Appointed 23 November 2010 and re-appointed 23 November 2011, 26 November 2014, and 21 November 2017.
Professor Bartsch has over 40 years’ experience in
the aviation industry in a variety of senior operational,
safety and regulatory roles. He was head of safety and
regulatory compliance
for Qantas Airways Limited’s
AOC and manager of the Civil Aviation Safety Authority
(CASA) Sydney Airline Transport Field Office. Professor
Bartsch is an experienced pilot and has extensive legal
and regulatory experience. He has formal qualifications in
law, education, philosophy and science, and is the author
of the definitive legal textbook on aviation law. Professor
Bartsch is an international aviation safety consultant
and visiting Professor of International Aviation Law at the
University of South Pacific and the College of Law at the
Australian National University and a Senior Visiting Fellow
with the School of Aviation at the University of New South
Wales. He is a former aviation specialist and Presiding
Member of the Administrative Appeals Tribunal and author
of several publications including Aviation Law in Australia,
International Aviation Law and Drones in Society and
contributing aviation author for The Laws of Australia.
Professor Bartsch’s latest publication, The Corona Dilemma:
20-20 Thinking for the Next Normal, will be released in
2020.
7
2
SENIOR MANAGEMENT EXECUTIVES
The names and particulars of the senior management executives of Rex during or since the end of the FY are:
NEVILLE HOWELL | Executive Director and Chief Operating Officer
Mr Howell is a member of the Rex Management
Committee. A description of his qualifications, skills
and experience is included on page 7.
WARRICK LODGE | General Manager, Network Strategy & Sales
been with Rex since its inception in 2002 and is also
a member of the Rex Management Committee.
Mr Lodge manages the team responsible for
scheduling, pricing, revenue management, sales
and commercial analysis. His duties include the
monitoring of network performance and analysis
of both existing and new market opportunities. Mr
Lodge has 28 years of regional airline experience
in the specialised areas of scheduling, pricing and
revenue management and held the position of
Manager Network Planning with Kendell Airlines,
having joined that company in 1992. Mr Lodge has
IRWIN TAN | General Manager, Corporate Services
Mr Tan’s background was originally in genetic
research after graduating with first-class honours
in biotechnology from the University of New South
Wales in Sydney. Mr Tan left the field of genetic
research when he joined Morrison Express Logistics
in 1999 and then Singapore Airlines in 2001. He
was later transferred to Singapore Airlines Cargo as
an executive where he took on various appointments
in product development, advertising, sales and
airline alliances before taking on the role of Regional
Marketing Manager for the South-West Pacific
region in 2003. Mr Tan joined Rex in July 2005
and was appointed the Company Secretary on 7
September 2005. Mr Tan is also a member of the
Rex Management Committee.
MAYOORAN THANABALASINGAM | General Manager, Information
Technology and Communications
Mr Thanabalasingam leads a team of Information
Technology (IT) professionals responsible for ensuring
day-to-day operations of the airline. With over 20
years of experience and an extensive background
in information technology, he has managed a
range of IT projects and initiatives for Rex including
the Internet Booking Engine, the Amend Booking
Engine, Web Check-in and numerous Mobile/ iPad
applications. Mr Thanabalasingam has a Masters of
Business Administration (Computing) from Charles
Sturt University. He also has a Graduate Certificate
in Management (Information Technology) as well
as an Associate Diploma of Electrical Engineering
/ Computer Engineering. He commenced with Rex
in April 2004. Mr Thanabalasingam is a member of
the Rex Management Committee and a Director of
the Australian Airline Pilot Academy (AAPA).
8
PNG YEOW TAT | General Manager, Engineering
in June 2013. He is a member of the Rex Engineering
Management Committee and a member of the Rex
Management Committee.
Mr Png has been in aviation engineering for more
than 40 years and has many years of experience in
various senior management positions. He graduated
with an Honours Degree in Electrical and Electronic
Engineering from the UK. Mr Png joined Rex in June
2007 as the Logistics Advisor and subsequently as
the Engineering Advisor in the Chairman’s Office.
He became the Deputy General Manager and Part
145 Alternate Accountable Manager for the Rex
and Approved Maintenance Organisations (AMO)
MARK BURGESS | Deputy General Manager, Engineering
Mr Burgess is a Licensed Aircraft Maintenance
Engineer with over 30 years’ experience and has
been with the Company since its inception in 2002.
Mr Burgess’ career began as an apprentice in
the British Armed Forces where he maintained
helicopters for 12 years and left as a Senior Rank.
He continued his career in the oil and gas industry
in Aberdeen, Scotland with CHC Scotia which also
included Line support for British Midland Regional
aircraft. He migrated to Australia in 2001 to work
for Kendell Airlines in Wagga Wagga and became
Production Leader coordinating maintenance and
manpower on heavy checks for Saab 340 aircraft.
In 2008 Mr Burgess moved to Adelaide as the
Line Maintenance Supervisor and oversaw the
expansion of Rex maintenance activities from line
to heavy maintenance. He is a member of the Rex
Engineering Management Committee.
DAVID BROOKSBY | National Airports Manager
Mr Brooksby commenced the role of National
Airports Manager for Rex in 2010. Mr Brooksby
has held previous senior roles in a management
and operational capacity at each of Rex’s major
airports
including Adelaide, Sydney, Brisbane
and Melbourne since joining the company in April
2006. Prior to commencing employment with Rex,
Mr Brooksby worked as a contracted outport agent
with his family’s business at Mount Gambier airport
where his father is the Company’s longest-standing
contracted ground handling agent, having been
contracted by Rex/Kendell since 1982 to provide
ground handling services. Mr Brooksby graduated
from the University of South Australia with a Bachelor
of Management in 2003. Mr Brooksby is also a
member of the Rex Management Committee.
PAUL FISHER | General Manager, Flight Operations and Chief Pilot
Mr Fisher has over 30 years of aviation experience
and has been with the Company since its inception
in August 2002. He has operated the Saab 340
aircraft as a First Officer and Captain for over 20
years with both Hazelton Airlines and Regional
Express. Prior to his role as General Manager
Flight Operations (GMFO) and Chief Pilot, Mr
Fisher served in various roles within the Training and
Checking department including the Adelaide Flight
Operations Manager, Flight Standards Manager
and the Training & Checking Manager / Deputy
Chief Pilot. He holds several Civil Aviation Safety
Authority (CASA) delegations. As GMFO he is
responsible for all facets of the Company’s flight
operations and all operational matters affecting the
safety of flight operations.
9
3 DIRECTORSHIPS OF OTHER LISTED COMPANIES
During the year under review, no directors appointed as at 30 June 2020 served as a director with any other company listed on the ASX.
4 DIRECTORS’ SHAREHOLDINGS
The following table sets out each director’s relevant interest in shares and options of Rex as at the date of this report. No debentures or rights exist.
Directors
Lim Kim Hai
The Hon. John Sharp
Lee Thian Soo
Neville Howell
Chris Hine
James Davis
Ronald Bartsch
Fully paid ordinary shares
direct interest
Fully paid ordinary shares
indirect interest
Share options
18,998,346
50,000
7,722,181
26,186
79,415
200,866
-
5,755,513
275,032
3,727,181
-
-
-
-
-
-
-
-
-
-
-
5 DIRECTORS’ MEETINGS
The following table sets out the number of directors’ meetings (including meetings of committees of directors) held during the FY and the number of
meetings attended by each director (while they were a director or committee member). During the FY, seven Board meetings; one Remuneration,
Nominations and Disciplinary Committee meeting; two Audit and Corporate Governance Committee meetings; and three Safety and Risk
Management Committee meetings were held.
Directors
Board
Remunerations,
Nominations and
Disciplinary Committee
Audit & Corporate
Governance Committee
Safety & Risk
Management
Committee
No. of Meetings Held:
Attendance:
Lim Kim Hai
The Hon. John Sharp AM
Lee Thian Soo
Neville Howell
Chris Hine
James Davis
Ronald Bartsch
7
7
7
5
7
6
7
7
1
-
1
-
-
-
1
-
2
-
2
-
-
-
2
-
3
-
-
-
3
3
-
3
10
6 REMUNERATION OF DIRECTORS AND SENIOR
MANAGEMENT
Information about the remuneration of directors and senior management is set out in the remuneration report of this directors’ report, on pages 22
to 26.
7
SHARES UNDER OPTION OR ISSUED ON EXERCISE
OF OPTIONS
No options were granted or exercised in FY20.
8
FORMER PARTNERS OF THE AUDIT FIRM
No directors or officers in Rex or the Group have been a partner or director of Deloitte Touche Tohmatsu, the Group’s auditor.
9
COMPANY SECRETARIES
Mr Irwin Tan holds the position of Rex Company Secretary. A description of his qualifications, skills and experience is included on page 8.
Mr Benjamin Ng, having completed his Bachelor of Science followed by an MBA in the UK, started his career with the German multi-national
chemical company, Henkel in Malaysia. In his eight years with Henkel/Cognis, he held various positions ranging from sales, marketing, business
analysis and cost controlling. In 2001, he was posted to headquarters in Germany for just over a year where he was the cost controller for the Asia
Pacific Region. Upon his return to Malaysia, he oversaw the controlling department of Cognis for three years. Mr Ng joined Rex in May 2006
and was appointed Company Secretary on 10 October 2007.
Mr Richard Kwan started his career with Rex after graduating with a Bachelor of Aviation (Hons) from the University of New South Wales (UNSW)
in 2010. He has held various roles within the Corporate Services and Network Strategy & Sales departments. Specifically, Mr Kwan focusses on
analysis, project and contract management within the Rex Group of companies, including the Queensland and Western Australia regulated routes
and Pel-Air contracts. He has subsequently obtained a Master of Commerce from UNSW and has been certified as a PRINCE2 Practitioner. Mr
Kwan was appointed Company Secretary on 26 September 2016.
10 PRINCIPAL ACTIVITIES
The Group’s principal activity during the FY was the provision of air services principally for the transportation of passengers and freight.
11
11 ORGANISATION & GROUP STRUCTURES
REGIONAL EXPRESS AIRLINE ORGANISATION STRUCTURE
Executive Chairman
Lim Kim Hai
Internal Audit
Specialist Advisors
Productivity Committee
Board/Company Secretariat
Chairman’s Office
Network Strategy
& Sales
Warrick Lodge
General Manager
Engineering
Png Yeow Tat
General Manager
Mark Burgess
Dy General Manager
Scheduling
Heavy Maintenance
Yield
Sales
Line Maintenance
Logistics
Engineering Quality
Assistance
Operations
Neville Howell
Chief Operating Officer
IT & Communications
Mayooran Thanabalasingam
General Manager
Corporate Services
Irwin Tan
General Manager
IT Department
Call Centre
Finance
Administration
Human Resources
Legal
Corporate
Communications
Engineering
Admin
Continuing Airworthiness
Richard Taylor
Continuing Airworthiness
Manager
Technical Services
12
Flight Operations
Paul Fisher
General Manager /
Chief Pilot
Training & Checking
Simon Vanstone
Manager, Training &
Checking
Flight Crew
Network Operations
Crew Resources
Human Factors
Anthony Gibara
General Manager
Airports
David Brooksby
National Airports Manager
Safety
Compliance &
Quality Assurance
Security
Adelaide
Brisbane
Cairns
Melbourne
Perth
Sydney
Townsville
Outports
REGIONAL EXPRESS GROUP HOLDINGS STRUCTURE
Regional Express
Holdings Limited
ACN: 099 547 270
Regional Express
Pty Limited
ACN: 101 325 642
Rex Investment
Holdings Pty Limited
Rex Freight Charter
Pty Limited
ACN: 101 317 677
ACN: 065 221 356
100%
100%
100%
Australian Airline Pilot
Academy Pty Limited
AAPA Victoria
(Pty Limited)
Pel-Air Aviation
Pty Limited
ACN: 128 392 469
ACN: 118 837 586
ACN: 002 858 013
Holds an Air Operator’s Certificate (AOC)
13
12 REVIEW OF OPERATIONS
SUMMARY
At the commencement of FY20, the Rex regular public transport (RPT) network serviced 60 airports throughout all states of Australia. Also at the
commencement of the reporting period, Rex had rolled-out its highly successful Rex Community Fare (CF) Scheme to the following 15 regional
communities in partnership with the local councils:
1. Albany to Perth $139
2. Esperance to Perth $139
3. Broken Hill to Sydney and Melbourne $199, to Adelaide $139
4. Burnie to Melbourne $129
5. Moruya to Sydney $119
6. Parkes to Sydney $99
7. Mount Isa to Cairns $200
8. Orange to Sydney $109
9. Monkey Mia (Shark Bay) to Perth $157
10. Carnarvon to Perth $198
11. Mt Gambier to Adelaide and Melbourne $129
12. Griffith to Sydney $129
13. Narrandera-Leeton to Sydney $129
14. Mildura to Adelaide $128
15. Kangaroo Island to Adelaide $99
The CF Scheme is an initiative pioneered by Rex as a way to ensure fare affordability and to foster passenger growth. As a result of entering
into new partnership agreements with local councils and airport owners, Rex further expanded the Rex Community Fare Scheme to the following
communities in the 1H FY20:
16. Ceduna to Adelaide $149
17. Albury to Melbourne $99
18. King Island to Melbourne $99
19. Port Lincoln to Adelaide $109
20. Armidale to Sydney $119
21-40. All Queensland regulated route communities including Bedourie, Birdsville, Boulia, Burketown, Charleville, Cunnamulla,
Doomadgee, Hughenden, Julia Creek, Longreach, Mount Isa, Normanton, Quilpie, Richmond, St George, Thargomindah,
Townsville, Wellcamp (Toowoomba), Windorah and Winton.
14
The launch of the CF Scheme across the Queensland regulated route network was undertaken in partnership with the Queensland Government
and most of the local councils and airport operators.
In the 2H FY20, the CF Scheme was withdrawn from Ceduna (SA) and Mt Gambier (SA) due to the termination of partnership agreements
between Rex and the local councils triggered by COVID-19.
The CF Scheme has, however, played an extremely important role in assisting with the recovery of regional passenger numbers due to the
COVID-19 pandemic and as a result, Rex extended the CF on the following routes during 4Q FY20:
• Albury to Sydney $128
• Bathurst to Sydney $99
• Ballina (Byron Bay) to Sydney $99
• Bamaga (NPA) to Cairns $199
• Dubbo to Sydney $128
• Grafton to Sydney $129
• Merimbula to Melbourne and Sydney $129
• Mildura to Melbourne $129
• Wagga Wagga to Melbourne $129 and Sydney $128
• Whyalla to Adelaide $109
This FY20 saw a sharp decline in the pilot attrition rate compared to the previous year due to the sudden drop in demand for domestic and
international operations as a result of COVID-19. Internal training was wound back for 2H FY20 to match demand and the period under review
saw 21 pilots upgraded to the rank of Captain, and 32 pilots checked to line as First Officers. The collapse of airlines locally and abroad has
released a significant number of eligible pilots available for recruitment and Rex will capitalise on this opportunity to bolster pilot establishment
numbers.
The Electronic Flight Bag (EFB) has received further enhancements tailored to match our operational requirements and provide efficiencies. The
EFB and associated applications have allowed us to progressively remove hard copy manuals from the flight deck of our 60 strong Saab 340
fleet, which has translated into a reduction in man-power costs for the amending of technical manuals and a modest weight reduction which has
resulted in fuel savings.
The Department of Home Affairs issued the Rex Group a five-year Labour Agreement in November 2019. The Labour Agreement will allow the Rex
Group to recruit overseas Pilots, Aircraft Maintenance Engineers and Flight Instructors who satisfy prescribed immigration requirements. The Rex
Group will continue to afford priority for skilled workers in Australia that meet the necessary requisites of the position required.
Graduating cohorts Rex022 (L) and Rex023 (R), pictured with Hon John Sharp AM, Rex Deputy Chairman (far left); Guest of Honour, the Hon Michael McCormack
MP, Deputy Prime Minister (centre); and Chris Hine, AAPA Executive Chairman (far right).
Australian Airline Pilot Academy (AAPA) Cadet Graduation
15
MATERIAL RISK AND RISK MANAGEMENT
The Company recognises that it has a responsibility to conduct its activities in an environmentally and socially responsible manner. The Group’s
Environmental Management Program available on the Rex website details the Environmental Management Program (EMP), incorporating the
Group’s environmental policy, targets, prevention of pollution, management strategies to mitigate the risk of environmental impact and continuous
environmental improvement (ASX Recommendation 7.4).
Like all Australian airlines, the Company is subject to economic risks. The Company identifies the following risks that could adversely affect the
entity’s prospects for future FYs (ASX Recommendation 7.1):
• Fuel price – The Group hedged part of its fuel requirements in FY20. The Group continues to closely monitor Brent Crude prices. The FY21
fuel requirement has been hedged.
• Foreign exchange rates – The Group’s main financial risk is its exposure to the US dollar, and hence, its main objective is to minimise the impact
of USD fluctuation on its operations. The Group will monitor the exchange rate closely and will hedge whenever the rates are favourable.
• COVID-19 impact - The Board and Senior Management took measures to reduce their costs to the company in response to the worsening
trading conditions brought about by COVID-19. These measures included voluntary salary reductions, leave without pay and clearing of
annual leave balances. Please refer to Note 4 to the Consolidated Financial Statements for further commentary.
The Company also faces the risk of pilot attrition in the long-term. This has been mitigated by the establishment of Rex’s pilot cadet training
programme which has been operating successfully from its pilot training academy AAPA in Wagga Wagga, NSW. More than half of the active
pilot strength within Rex is made up of graduates from this programme.
ROUTE NETWORK DEVELOPMENTS
On 23 December 2019, Rex announced an increase in the number of Cape York services between Bamaga and Cairns with effect from 10
February 2020, after Skytrans exited the route in early January 2020. Rex increased its services from six to eight return services per week, adding
a Monday afternoon and a Friday morning return services, representing a 33% increase in capacity, and approximately 6,000 additional seats
per year. The increase was implemented in partnership with the Northern Peninsula Area Regional Council (NPARC).
Qantas announced on 17 January 2020 that it would mount services on the Sydney to Ballina route, with a launch date of 29 March 2020. The
schedule of Qantas’ new service directly targeted the only service that Rex operated between Sydney and Ballina (an early morning departure
from Ballina and a late evening departure from Sydney). The Rex service had approximately 10,000 passengers annually, serviced by Rex with
18,000 annual seats. The additional 36,000 annual seats from QantasLink would mean the load factor would plummet to below 20% at these
time slots.
On 31 January 2020, Rex raised an official complaint to the Australian Competition and Consumer Commission (ACCC) about Qantas’ behaviour
of dumping excessive capacity on routes that are already extremely marginal, with the impact of this conduct being to force out the smaller
competitor and substantially lessen competition. As a result of this anti-competitive conduct, Rex announced that it would exit the Adelaide to
Kangaroo Island and Sydney to Ballina routes.
Subsequently, Rex announced on 5 February 2020 that its services between Sydney and Ballina would cease from 29 March 2020, and on 10
February 2020 announced that its services between Kangaroo Island and Adelaide would cease from 1 July 2020.
16
In mid-March 2020 the Rex network was impacted by the COVID-19 outbreak, which came on the heels of the devastating bushfires and
unprecedented and prolonged drought conditions. Following a significant reduction in passenger numbers, on 19 March 2020, Rex announced
that it had finalised the first stage of network capacity reductions with effect from 6 April 2020. Under the first stage of decreased schedule
frequency, Rex reduced capacity by 45% which included the suspension of the Adelaide to Mildura, Adelaide to Port Augusta, Sydney to
Newcastle and Sydney to Armidale routes.
As passenger numbers continued to drastically fall because of the COVID-19 pandemic, Rex made the announcement on 23 March 2020 that
it would be forced to shut down its entire expansive regular public transport (RPT) network in all states except Queensland, (where the services
are regulated and underwritten by the Queensland Government), with effect from 6 April 2020 unless the Federal and State Governments were
willing to underwrite the losses.
On 27 March 2020 the Hon Rita Saffioti MLA, Minister for Transport Western Australia, took the bold step to put in place an assistance package
that would allow Rex to maintain a minimum reduced schedule for three months, until the end of June 2020. Minister Saffioti’s assistance package
was the very first intervention from any level of Government to facilitate the continued provision of minimum essential air services to link Albany,
Esperance, Carnarvon and Monkey Mia (Shark Bay) to Perth. As a result of this critical support, Rex made a commitment to keeping its Western
Australia services going for at least three months, albeit at a reduced schedule to match the significant drop in demand.
On 28 March 2020, the Deputy Prime Minister (DPM) and the Leader of the Nationals, the Hon Michael McCormack MP, announced a
comprehensive regional aviation rescue initiative tailored to ensure that critical and essential regional aviation services continued to be provided
amid the worst operating conditions the aviation industry has ever seen.
The two support programs announced for regional airlines were the Regional Airline Network Support (RANS) Program and the Regional Airline
Funding Assistance (RAFA) program. The RANS Program supports a barebones minimum schedule and the RAFA Program is to assist regional
carriers to overcome the sudden cash crunch brought about by the near drying up of all passenger demand and revenue. RAFA seeks to give
regional carriers the best chance of staving off insolvency and going into administration.
Rex announced on 6 April 2020 that it was working with the Federal Government to develop a minimum barebones schedule which would be
operated under the RANS program; and that it was also working with the Queensland and Western Australia State Governments on ways in which
the states could provide assistance, in parallel to the RANS program, to ensure the best possible community and regional air service outcomes
within Queensland and Western Australia.
On 8 April 2020, an agreement was reached between Rex and the Queensland Government for the provision of a reduced schedule, a variation
on the existing service contract which encompasses the Northern 1 & Northern 2 routes from Townsville, the Western 1 & Western 2 routes from
Brisbane, and the Gulf route linking Cairns to Mount Isa via the Gulf. The reduced schedule resulted in all of the Queensland regulated route
communities receiving at least one return service a week.
On 20 April 2020, Rex signed a Commonwealth Grant Agreement under the COVID-19 RANS Program that had been announced by DPM, the
Hon Michael McCormack, on 28 March 2020. Under the Grant Agreement, Rex receives funding to operate two to three return services a week
to most destinations on the network.
Rex announced a full list of ports and the frequency of Rex’s weekly services that would operate under the RANS program, which in summary was
61 weekly return services on non-regulated routes, seven weekly return services on regulated Western Australia routes, and eight weekly return
services on regulated Queensland routes, for a total of 76 weekly return services across the entire Rex network. Rex also continued to operate
on the Adelaide to Kangaroo Island, and Sydney to Ballina routes, despite the earlier announcement to withdraw from these routes. This decision
was made in the interests of providing a barebones minimum schedule to support the local communities doing it tough during the unprecedented
pandemic.
Three State Governments, being Queensland, Western Australia and South Australia, also committed to funding additional services on top of what
the Federal Government Programs provided. As a result of the continued work with the Federal Government and the three prior mentioned State
Governments, on 29 April 2020, Rex announced that it had increased the number of total weekly return services from 76 to 88 under the various
funding arrangements.
On 5 June 2020, Rex announced that it would increase its flying schedule in response to QantasLink more than doubling its flights on routes which
compete with Rex. From 6 July 2020, Rex began to provide daily weekday return services on these competitive routes, with twice-daily return
services on certain days to facilitate same-day return travel. The additional capacity was reluctantly added however Rex had no choice but to
stand its ground, or risk losing market share which may not be recoverable when the market returns to pre-COVID levels.
17
The graphs below set out the evolution in monthly passenger carriage and monthly passenger revenue over the last eight FYs.
Monthly Passengers - Total Network
Monthly Revenue - Total Network
18
FLEET CHANGES
During 1H FY20, at the time of acquiring its wholly owned subsidiary, the Australian Airline Pilot Academy (Victoria) (AAPA Victoria Pty Ltd), formally
known as ST Aerospace Academy (Australia) Pty Ltd, the Group acquired an aircraft fleet consisting of 14 Cessna 172s, five Piper Seminoles
and one Cessna 152; with an additional two Piper Seminoles and three Cessna 172s on lease. The three Cessna 172 aircraft were subsequently
returned. Further to this, the Group also acquired a King Air C90 in March of 2H FY20 for the purposes of High Performing Aircraft Training (HPAT).
ENTERPRISE AGREEMENTS (EA)
The Rex Flight Attendant, Engineers and Airline Services Enterprise Agreements remain in operation. Rex is in negotiations with the ramp and
catering staff on a new Enterprise Agreement while the Rex Pilot Agreement is under renegotiation due to an unsuccessful vote on the Agreement.
Rex was granted a five -year Labour Agreement by the Department of Home Affairs in November 2019.
OPERATIONAL AND SERVICE STANDARDS
The measure for Operational and Service Standards is extracted from the Bureau of Infrastructure, Transport and Regional Economics (BITRE).
BITRE suspended its on-time performance reports, effective from April 2020. As such, the below results are derived from BITRE reports between
July 2019 and March 2020.
In 1Q-3Q FY20, Rex recorded 83.75% on-time departure performance as reported by BITRE. This placed it first in on-time performance rankings,
in comparison with all carriers (major and regional) in Australia. QantasLink and Virgin Australia Regional Airlines ranked second and third,
respectively.
Over the same period, Rex’s cancellation rate of 2.89%, ranked it third behind Virgin Australia Regional Airlines, and QantasLink, respectively. This
follows six consecutive years of Rex recording the lowest cancellation rate of all Australian airlines.
Airline
QantasLink
Virgin Australia Regional Airlines
Qantas
Virgin Australia
Jetstar
Tigerair
On-Time Departure
Cancellation Rate (%)
Q1-Q3 FY20
FY 2019
Q1-Q3 FY20
FY 2019
1st
2nd
3rd
5th
4th
6th
7th
2nd
1st
5th
4th
3rd
6th
7th
2.89%
2.87%
2.10%
4.33%
4.27%
5.74%
3.04%
0.99%
1.62%
2.13%
2.40%
1.96%
2.52%
4.29%
19
COMMUNITY INVOLVEMENT
During FY20 Rex contributed $290 thousand in sponsorships to
worthy charitable and community causes across the network.
Sponsorships were suspended during 4Q FY20 in consideration
of the deteriorating business conditions arising from COVID-19.
Affirming that the Company’s ethos ‘Our Heart is in the Country’,
remains as true as ever, Rex provided sponsorship to more than
100 worthy applicants - from corporate partnerships, cultural
events and community fundraisers, to natural disaster relief and
cases of personal hardship, including fare assistance for residents
travelling to seek medical treatment.
Rex once again partnered with the Foundation for Rural & Regional
Renewal (FRRR) in FY20. The FRRR is Australia’s only national
philanthropic foundation dedicated to rural and regional Australia.
In light of the devastating bushfire crisis experienced during
the summer, Rex undertook a fundraising campaign, collecting
donations for the FRRR’s Disaster Resilience and Recovery Fund,
both in-flight and on the ground. The campaign raised more than
$20 thousand for the FRRR. The FRRR has a long history of supporting
disaster-affected communities, with funds going towards recovery
efforts identified by the local communities as most pressing.
Some of the organisations, causes and events supported by Rex
during FY20 were:
• Heart of Australia, Queensland
• Break the Drought Luncheon (Care Balonne Assoc Inc),
St George, QLD
• A Woman’s Calling (Empowering Women Empowering
Communities), Doomadgee, QLD
• Can Assist, NSW
• Cooma Show (Cooma Pastoral and Agricultural
Association), Cooma NSW
• 2020 New South Wales Regional Woman of the Year
(WOTY) Award, Department of Family and Community
Services
• Batemans Bay Volunteer Rural Fire Service Fundraiser
(Eurobodalla Renal Support Group and Organ Donor
Awareness), Moruya, NSW
• Therapy Work
in Regional Aboriginal Preschools
(Gunawirra), NSW
Rex Airlines’ Regional Woman of the Year finalists (including winner,
Krystaal Hinds centre left); pictured with Donna Griffith, National Flight
Attendant Manager, Rex Airlines (far left); and NSW Minister for Women,
The Hon. Bronwyn Taylor MLC (centre right).
Passengers and crew from the Hound Dog Express, a special dedicated
service bound for the Parkes Elvis Festival, of which Rex is a proud sponsor.
• Country Hope Annual Golf Day (Country Hope),
Wagga Wagga, NSW
Staff and cadets from the Australian Airline Pilot Academy at Cancer
Council’s Relay for Life in Wagga Wagga.
• New Year’s Eve Carnival (Burnie Athletic Club Inc.),
Burnie, TAS
• Tulip Festival Wynyard (Waratah Wynyard Council),
Burnie, NSW
• Tunarama Festival (Port Lincoln Tunarama INC), Port
Lincoln SA
• RIDBC
Indigenous Outreach Program (The Royal
Institute for Deaf and Blind Children), SA
• MSWA Albany Ride (MSWA), Albany, WA
• Children’s Week Carnarvon (Gascoyne Early Years
Network/ Every Where Travel), Carnarvon WA
20
Rex sponsors the Port Lincoln Tunarama Festival, home of Port Lincoln’s
World Famous Tuna Toss where men and women attempt to throw the
rubberised fish the furthest to win the coveted title.
13 CHANGES IN STATE OF AFFAIRS
In November 2019, the Group acquired wholly owned subsidiary the Australian Airline Pilot Academy (Victoria) (AAPA Victoria Pty Ltd), formally
known as ST Aerospace Academy (Australia) Pty Ltd.
Rex subsidiary Pel-Air Aviation was awarded the contract to provide Fixed Wing Patient Transport Services to New South Wales Ambulance in
February 2020. The contract involves the supply of five fixed-wing aircraft, pilots and engineering support to enable the aerial transport of NSW
Ambulance medical personnel and patients throughout NSW regional communities, with a 10-year operational phase beginning in January 2022.
Signing ceremony for the acquisition of the Australian Airline Pilot Academy Victoria (AAPA Victoria)
Rex Deputy Chairman, The Hon. John Sharp AM (front left) and STAA Executive Vice President, Aviation and Training Services, Goh Yong Kiat (front right) with
Rex and ST Engineering dignitaries in attendance, including guest of honour, The Hon. Andrew Gee MP, Member for Calare and Assistant to the Deputy Prime
Minister (rear, centre left).
14 SUBSEQUENT EVENTS
Subsequent to the year end there were further restrictions on movement as a result of increased cases of COVID-19 in a number of states in which
the Group operates, particularly Victoria. The imposition of these lockdowns and border closures has had an effect on passenger demand of the
Group’s regular public transport (RPT) services, however as the majority of the Group’s RPT services are intra-state the impact is largely limited to
the restrictions within each state.
The key assumptions used in the impairment modelling as set out in Note 13 and the going concern forecast set out in Note 4 are largely in line
with the actual passenger demand, and the impact in the financial year to date has been limited given that the Group’s network in the affected
states is supported by the Regional Airline Network Support (RANS) program.
In July 2020, having contractually committed to the project prior to March 2020, Rex completed modifications to an existing building located next
to its Sydney head office which will house a Saab 340 Full Flight Simulator (FFS) owned by Ansett Aviation Training (AAT). The Sydney Simulator
Flight Training Centre is now in readiness to accept the installation of the FFS. The Simulator Flight Training Centre has been designed to allow for
future expansion and provisioning is in place for the installation of another type- specific aircraft FFS.
On the 21 September 2020, Rex signed a long-form term sheet with PAG Asia Capital for the investment of up to AUD150 million to be used
exclusively to support the launch of Rex’s domestic major city jet operations scheduled to commence on 1 March 2021.
The Funding is proposed to comprise first ranking senior secured convertible notes.
It is proposed that an initial Funding tranche of AUD50 million will be drawn on completion of the Transaction, targeted for the end of December
2020, with the balance of the Funding drawn over the following three years. The Funding is subject to completion of due diligence by PAG; to
agreement and execution of long-form documentation; to customary conditions including Rex shareholder approval for the purposes of section
611 (Item 7) of the Corporations Act 2001 (Cth) and the ASX Listing Rules, which is intended to be sought at Rex’s Annual General Meeting that is
tentatively scheduled for early December 2020; as well as to the Foreign Investment Review Board and any other required regulatory approvals.
The terms of the Funding will also be reviewed by an independent expert.
The Notes will be convertible at AUD1.50 per share, subject to certain adjustments. Based on Rex’s current issued share capital, if the AUD50
million tranche is fully converted into shares, PAG would hold approximately 23% of Rex’s total issued shares and if the full AUD150 million is drawn
down and fully converted, PAG would hold approximately 48% of Rex’s issued shares.
Upon Completion, PAG will be entitled to nominate two directors to the Rex board.
21
On 29 September 2020 the Group signed Letters of Intent (LOIs) with two lessors for the lease of six Boeing 737-800 NG jets. The Group intends
to lease these aircraft for the launch of domestic jet operations and expects to take delivery of the first jet on or around 1 November 2020.
The LOIs are non-binding apart from a refundable security payment and are subject to various conditions including the preparation and execution
of lease agreements. The directors expect these aircraft will be deployed in the first phase of the launch of domestic jet operations which will see
three aircraft deployed on 1 March 2021.
15 FUTURE DEVELOPMENTS
Rex will be expanding its Sydney Hangar over the next year to provide more space to support the Rex fleet including aircraft and personnel for the
New South Wales Ambulance Contract. It will also be big enough to accommodate jets.
Rex is advancing its plans to commence domestic jet operations and is working both internally and externally with the relevant key stakeholders in
preparation to launch domestic services on 1 March 2021. On the 21 September 2020, Rex signed a long-form term sheet with PAG Asia Capital
for the investment of up to AUD150 million to be used exclusively to support the launch of Rex’s domestic major city jet operations. The Funding is
proposed to comprise first ranking senior secured convertible notes (see further details in Subsequent Events section).
The Funding is subject to the completion of due diligence by PAG; to agreement and execution of long-form documentation; to customary
conditions including Rex shareholder approval for the purposes of section 611 (Item 7) of the Corporations Act 2001 (Cth) and the ASX Listing
Rules, which is intended to be sought at Rex’s Annual General Meeting scheduled for early December 2020; as well as approval from the Foreign
Investment Review Board and any other required regulatory approvals. The terms of the Funding will also be reviewed by an independent expert.
Upon Completion, PAG will be entitled to nominate two directors to the Rex board.
16 ENVIRONMENTAL REGULATIONS
During FY20, Rex continued to be an active participant in programs aimed at maximising energy efficiency and reducing greenhouse gas
emissions in accordance with the National Greenhouse Energy Reporting Act 2007 (NGER).
Rex is due to submit its 11th NGER report to the Clean Energy Regulator in October 2020.
17 DIVIDENDS
No final dividends will be paid out for FY20 due to the impact of COVID-19 on the operational and financial performance of the Group.
18
INDEMNIFICATION OF OFFICERS AND AUDITORS
During the FY, the Company paid a premium in respect of a contract insuring the directors of the Company (as named above), the company
secretaries (as named above), and all executive officers of the Company and of any related body corporate against a liability incurred as such
a director, secretary or executive officer to the extent permitted by the Corporations Act 2001. The contract of insurance prohibits disclosure of the
nature of the liability and the amount of the premium.
The Company has not otherwise, during or since the FY, except to the extent permitted by law, indemnified or agreed to indemnify an officer or
auditor of the Company or any related body corporate against a liability incurred as such an officer or auditor.
19 REMUNERATION REPORT
REMUNERATIONS, NOMINATIONS AND DISCIPLINARY COMMITTEE
Rex’s board of directors has established a Remunerations, Nominations and Disciplinary Committee for the purpose of determining and reviewing
compensation arrangements for the directors and the senior management executives of the Group. This committee has a process for performance
evaluation of the board, its committees and key executives of Rex. The committee’s role is to assess the appropriateness of the nature and amount
of remuneration of directors and senior management executives on a periodic basis.
22
REMUNERATION POLICY
Remuneration levels are set to enable Rex and its subsidiaries to attract and retain appropriately qualified and experienced directors and senior
management executives, who will create sustainable value for shareholders and other stakeholders. They also fairly and responsibly reward
directors and senior management, having regard to the performance of the Group, the performance of the individual and the external compensation
environment.
REMUNERATION STRUCTURE
In accordance with best practice corporate governance, a distinction has been drawn between the remuneration structure of Rex’s non-executive
directors and that of its senior management executives. This enables Rex to maintain the independence of non-executive directors and reward
senior management executives for their performance of duties and their dedication.
Rex has set in place a remuneration model for all staff, which calls for staff accepting a lower fixed annual salary increase in exchange for a profit
share and a share plan.
PROFIT SHARE INCENTIVE PLAN
The profit share incentive scheme, established in FY06, continues to award eligible employees a share of Rex’s profit before tax (PBT) based on
an agreed percentage (excluding contributions from subsidiaries and associates) for the FY immediately preceding the award. The profit share is
allocated on an equal share basis. Permanent part-time employees receive an amount proportional to their employment hours.
SHARE GIFT PLAN
Rex established the share gift plan (effective from FY06) for its executive directors and eligible employees. The plan is offered to EA groups
that opt for the plan and all non-EA employees who are not the subject of an adverse recommendation by the Remunerations, Nominations
and Disciplinary Committee. This plan is not based on any performance measures (other than eligibility for non-EA employees). The plan was
established to show its recognition of employees’ contribution to Rex by providing an opportunity to share in its future growth and profitability and
to align the interests of the employees more closely with the interests of the shareholders. As such, the share gift plan entitles eligible employees to
a fixed value of shares equivalent to a percentage of their base salaries. There are no vesting conditions attached to the share gift.
DIRECTOR AND SENIOR MANAGEMENT DETAILS
The following persons acted as directors of the Company during or since the end of the FY:
Lim Kim Hai (Chairman)
The Hon. John Sharp AM (Deputy Chairman)
Lee Thian Soo
Neville Howell
Chris Hine
James Davis
Prof. Ronald Bartsch
The term ‘senior management’ is used in this remuneration report to refer to the following persons. Except as noted, the named persons held their
current position for the whole of the FY and since the end of the FY:
Neville Howell (Chief Operating Officer)
Warrick Lodge (General Manager, Network Strategy & Sales)
Irwin Tan (General Manager, Corporate Services / Company Secretary)
Mayooran Thanabalasingam (General Manager, Information Technology & Communications)
Png Yeow Tat (General Manager, Engineering)
Mark Burgess (Deputy General Manager, Engineering)
Paul Fisher (General Manager, Flight Operations & Chief Pilot)
David Brooksby (National Airports Manager)
23
REMUNERATION OF DIRECTORS AND SENIOR MANAGEMENT
The directors and other nominated key management personnel received the following amounts as compensation for their services as directors and
executives of the Company and/or the Group during the year:
Short-term benefits
Cash
salary &
fees
$
Cash profit
sharing
& other
bonuses
$
Post
employment
benefits
Long-term
benefits
Share gift
provision
Pension &
super-
annuation
$
Long
service
leave
$
Share gift
issued
$
EXECUTIVE DIRECTORS
LIM KIM HAI
Executive Chairman
CHRIS HINE
Executive Director & Group Flight
Operations Advisor
FY
2020
2019
2020
-
-
-
-
-
-
139,362
14,794
14,645
2019
139,887
1,388
13,421
NEVILLE HOWELL
2020
232,225
Executive Director & Chief Operating Officer
2019
229,419
51,370
51,735
NON-EXECUTIVE DIRECTORS
Total
$
-
-
-
-
2,199
173,785
2,158
159,603
4,300
312,334
4,200
309,376
-
-
-
-
-
-
-
-
125,335
117,501
28,615
30,000
36,556
38,325
41,778
43,800
3,600
257,288
3,500
255,629
3,600
265,705
3,400
270,573
3,600
264,032
3,500
262,242
4,076
287,768
4,000
282,361
3,600
252,645
3,400
253,247
2,846
186,658
2,793
193,180
3,100
238,826
2,800
237,711
-
-
2,785
2,749
3,627
3,581
-
-
-
-
-
-
-
-
3,037
2,998
3,037
2,998
3,037
2,998
5,161
5,095
3,037
2,998
3,603
3,557
2,615
2,581
20,812
20,441
10,874
10,194
-
-
3,171
3,325
3,624
3,800
18,434
18,232
18,864
19,151
18,879
18,692
20,203
19,866
17,901
18,102
14,828
15,521
17,219
19,215
1,825,813
1,823,606
405,198
390,676
179,454
179,960
29,939
29,555
30,921
2,471,325
29,751
2,453,548
114,461
107,307
28,615
30,000
33,385
35,000
38,154
40,000
180,847
179,164
188,834
193,289
187,146
185,317
205,553
203,654
176,737
177,012
135,972
142,177
164,522
161,380
-
-
-
-
-
-
-
-
51,370
51,735
51,370
51,735
51,370
51,735
52,775
49,746
51,370
51,735
29,409
29,132
51,370
51,735
JOHN SHARP
Deputy Chairman
LEE THIAN SOO
Non-Executive Director
RONALD BARTSCH
Non-Executive Director
JAMES DAVIS
Non-Executive Director
SENIOR MANAGEMENT
EXECUTIVES
WARRICK LODGE
GM, Network Strategy & Sales
IRWIN TAN
GM, Corporate Services
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
MAYOORAN THANABALASINGAM 2020
GM, IT and Communications
PAUL DAVID FISHER
GM, Flight Operations & Chief Pilot
PNG YEOW TAT
GM, Engineering
MARK BURGESS
Deputy GM, Engineering
DAVID BROOKSBY
National Airports Manager
TOTAL
2019
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
24
RELATIONSHIP BETWEEN THE REMUNERATION POLICY AND
COMPANY PERFORMANCE
In addition to the profit share and share gift schemes that apply to all non-EA staff, a Key Manager bonus, fixed by the Remunerations, Nominations
and Disciplinary Committee, was given to selected members of executive management based on an assessment of the recipient’s performance
during the year.
The tables below set out summary information about the Group’s results and movements in shareholder wealth for the five years to June 2020:
Revenue
Net profit / (loss) before tax
Net profit / (loss) after tax
Share price at start of year
Share price at end of year
Interim dividend
Final dividend
1, 2
Basic earnings / (loss) per share
Diluted earnings / (loss) per share
30 June 2020
$’000
30 June 2019
$’000
30 June 2018
$’000
30 June 2017
$’000
30 June 2016
$’000
321,820
(27,416)
(19,397)
317,649
25,201
17,517
295,536
280,967
25,075
16,913
17,810
12,620
261,906
(10,703)
(9,557)
30 June 2020
30 June 2019
30 June 2018
30 June 2017
30 June 2016
$1.37
$1.19
-
-
(17.8 cps)
(17.8 cps)
$1.46
$1.42
$0.04
$0.08
16.1 cps
16.1 cps
$1.04
$1.43
$0.04
$0.08
15.7 cps
15.7 cps
$0.77
$1.11
-
-
11.7 cps
11.7 cps
$1.04
$0.77
-
-
(8.8 cps)
(8.8 cps)
1
2
The final dividend is per share fully franked and after corporate tax of 30%.
Declared after the balance date and reflected in the financial statements of the year of payment.
KEY TERMS OF EMPLOYMENT CONTRACTS
Employment contracts between the senior management executives and the Group do not have a specified duration. A notice of four weeks must
be given for senior management executives to terminate their contract. There are no extraordinary termination payments set out in the contracts of
the senior management executives of the Group.
25
KEY MANAGEMENT PERSONNEL EQUITY HOLDINGS
The following table details the shareholdings (total of direct and indirect shareholdings) of directors and key management personnel in the Group:
Balance at
1 July 2019
Increase / (Decrease)
during the year
Balance at
30 June 2020
Directors:
Lim Kim Hai
The Hon. John Sharp
Lee Thian Soo
Neville Howell
Chris Hine
James Davis
Key management personnel:
Warrick Lodge
Irwin Tan
Mayooran Thanabalasingam
Paul Fisher
Png Yeow Tat
Mark Burgess
David Brooksby
24,753,859
325,032
11,449,362
27,936
77,855
200,866
160,848
36,562
89,210
46,240
29,903
23,467
23,519
-
-
-
(1,750)
1,560
-
2,553
2,553
2,553
2,891
2,553
2,018
2,199
24,753,859
325,032
11,449,362
26,186
79,415
200,866
163,401
39,115
91,763
49,131
32,456
25,485
25,718
During the financial year, no options were granted to (2019: nil), nor exercised (2019: nil) by key management personnel for ordinary Rex shares.
No options remained unpaid or to be exercised at the year-end.
Loans have been provided to two key management personnel totalling $91,799 which were issued in prior years. There have been no changes
to the principal amount of the loans and interest paid during the year was $4,776.
26
20 PROCEEDINGS ON BEHALF OF THE COMPANY
No proceedings have been brought on behalf of the Group, nor has any application been made in respect of the Group under s.237 of the
Corporations Act 2001.
21 NON-AUDIT SERVICES
Details of amounts paid or payable to the auditor for non-audit services provided during the year by the auditor are outlined in Note 27 to the
financial statements.
The directors are satisfied that the provision of non-audit services, during the year, by the auditor (or by another person or firm on the auditor’s
behalf) is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001.
The directors are of the opinion that the services as disclosed in Note 27 to the financial statements do not compromise the external auditor’s
independence, based on advice received from the Audit Committee, for the following reasons:
• all non-audit services have been reviewed and approved to ensure that they do not impact the integrity and objectivity of the auditor, and
• none of the services undermine the general principles relating to auditor independence as set out in Code of Conduct APES 110 Code of
Ethics for Professional Accountants issued by the Accounting Professional & Ethical Standards Board, including reviewing or auditing the
auditor’s own work, acting in a management or decision-making capacity for the company, acting as advocate for the company or jointly
sharing economic risks and rewards.
22 ROUNDING OFF AMOUNTS
In accordance with Legislative Instrument 2016/191 issued by the Australian Securities and Investments Commission relating to the rounding off of
amounts in the financial statements, amounts in the financial statements have been rounded to the nearest hundred thousand dollars in accordance
with that Legislative instrument, unless otherwise indicated.
Signed in accordance with a resolution of directors made pursuant to s.298 (2) of the Corporations Act 2001.
On behalf of the Directors,
Neville Howell
Chief Operating Officer
Sydney, 30 September 2020
27
Deloitte Touche Tohmatsu
A.B.N. 74 490 121 060
Grosvenor Place
225 George Street
Sydney NSW 2000
PO Box N250 Grosvenor Place
Sydney NSW 1220 Australia
Deloitte Touche Tohmatsu
A.B.N. 74 490 121 060
Tel: +61 (0) 2 9322 7000
Fax: +61 (0) 2 9322 7001
www.deloitte.com.au
Grosvenor Place
225 George Street
Sydney NSW 2000
PO Box N250 Grosvenor Place
Sydney NSW 1220 Australia
Tel: +61 (0) 2 9322 7000
Fax: +61 (0) 2 9322 7001
www.deloitte.com.au
AUDITOR’S INDEPENDENCE DECLARATION
The Board of Directors
Regional Express Holdings Limited
81 – 83 Baxter Road
MASCOT NSW 2020
The Board of Directors
Regional Express Holdings Limited
81 – 83 Baxter Road
MASCOT NSW 2020
30 September 2020
Dear Board Members
Regional Express Holdings Limited
30 September 2020
In accordance with section 307C of the Corporations Act 2001, I am pleased to provide the
following declaration of independence to the directors of Regional Express Holdings Limited.
Dear Board Members
As lead audit partner for the audit of the financial report of Regional Express Holdings Limited
for the financial year ended 30 June 2020, I declare that to the best of my knowledge and
belief, there have been no contraventions of:
Regional Express Holdings Limited
In accordance with section 307C of the Corporations Act 2001, I am pleased to provide the
(i) the auditor independence requirements of the Corporations Act 2001 in relation to
following declaration of independence to the directors of Regional Express Holdings Limited.
the audit; and
(ii) any applicable code of professional conduct in relation to the audit.
As lead audit partner for the audit of the financial report of Regional Express Holdings Limited
for the financial year ended 30 June 2020, I declare that to the best of my knowledge and
belief, there have been no contraventions of:
Yours sincerely
the audit; and
(i) the auditor independence requirements of the Corporations Act 2001 in relation to
(ii) any applicable code of professional conduct in relation to the audit.
DELOITTE TOUCHE TOHMATSU
Yours sincerely
Damien Cork
Partner
Chartered Accountants
DELOITTE TOUCHE TOHMATSU
Damien Cork
Partner
Chartered Accountants
Member of Deloitte Asia Pacific Limited and the Deloitte organisation.
Liability limited by a scheme approved under Professional Standards Legislation.
28
Member of Deloitte Asia Pacific Limited and the Deloitte organisation.
Liability limited by a scheme approved under Professional Standards Legislation.
THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK
29
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30
CORPORATE
GOVERNANCE
STATEMENT
31
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32
CORPORATE GOVERNANCE STATEMENT
The Board is committed to sound corporate governance to ensure shareholder expectations are met and that Regional Express Holdings (the
Company) is in compliance with the Australian Securities Exchange (ASX) Corporate Governance Council’s Principles of Good Corporate
Governance and Best Practice Recommendations (ASX Recommendations).
As required by the ASX Listing Rules this statement sets out the extent to which the Company has complied with the ASX Recommendations during
the FY to 30 June 2020 and identifies any of the ASX Recommendations not followed and the reason why the Company has not adopted the
ASX Recommendations. This statement adopts the ordering and numbering of the ASX Recommendations. The Board acknowledges the revised
ASX Recommendations set out in the 4th Edition of the Corporate Governance Principles and Recommendations in February 2019, the revised ASX
Recommendations has been partially implemented in FY20 and will be fully effective in FY21.
PRINCIPLE 1: LAY SOLID FOUNDATIONS FOR MANAGEMENT AND OVERSIGHT
The Board has adopted a charter that details the roles and responsibilities of the Board and those of the Management Committee to achieve the
objectives of delivering shareholder value. The Board regularly reviews the division of functions between the Board and management to ensure
that it continues to be appropriate to the needs of the company (ASX Recommendation 1.1). The Remunerations, Nominations and Disciplinary
Committee undertake appropriate checks before appointing a person, or putting forward to security holders a candidate for election, as a
director. The biography of each director standing for election or re-election is expressly mentioned in the Notice of Meeting of the company’s
AGM (ASX Recommendation 1.2). The Directors and Management Committee have a clear understanding of their roles and responsibilities and
of the company’s expectations of them as set out in their employment contracts (ASX Recommendation 1.3). The Company Secretaries are integral
in advising the Board and its committees on governance matters, ensuring that board and committee policy and procedures are followed, and
helping to organise and minuting discussions of board and committee meetings (ASX Recommendation 1.4).
The performance of each Management Committee member is evaluated against goals and objectives with the assistance of the Remunerations,
Nominations and Disciplinary Committee. The performance of the Management Committee was reviewed in FY20 (ASX Recommendation 1.7).
The performance of the Directors and Board Committees are reviewed periodically with the assistance of the Remunerations, Nominations and
Disciplinary Committee. The performance and the composition of the Board Committees were reviewed in FY20 (ASX Recommendation 1.6).
The Board’s Charter, Board Committee Charters, Share Trading Policy, Continuous Disclosure Policy and Code of Conduct are available for
access by shareholders and the general public in the corporate governance section of the Company’s website (ASX Recommendation 3.5).
PRINCIPLE 2: STRUCTURE THE BOARD TO ADD VALUE
The Remunerations, Nominations and Disciplinary Committee has been established by the Board of the Company (ASX recommendation
2.1) and applies to the Company and its subsidiaries to support and advise the Board in fulfilling its responsibilities to shareholders, employees and
other stakeholders of the Company by endeavouring to ensure that:
•
the directors and senior management of the Group are remunerated fairly and appropriately;
•
•
the Group’s remuneration policies and outcomes strike an appropriate balance between the interests of the Company’s shareholders, and
rewarding and motivating the Group’s executives and employees in order to secure the long term benefits of their energy and loyalty;
the human resources policies and practices are consistent with and complementary to the strategic direction and objectives of the Company
as determined by the Board;
•
it reviews and advises the Board on the composition of the Board and its Committees;
•
it reviews the performance of the Board, the chairman of the Board, the executive and non-executive directors, and other individual members
of the Board; and
• proper succession plans are in place for consideration by the Board.
This Committee is chaired by James Davis and has one other member, the Hon. John Sharp AM. The Committee had one meeting during the FY
attended by all members of the Committee. Descriptions of the members’ qualifications, skills and experience are included in the Directors’ Report.
The Board acknowledges the ASX recommendations to have the Committee compose of a majority of independent directors and have at least
three members. The Committee is currently made up of two independent directors. The Board feels at this stage that two members are sufficient for
the Remunerations, Nominations and Disciplinary Committee given the size of the Company and Board.
The Remunerations, Nominations and Disciplinary Committee has a formal charter which is available on the Company’s website.
The skills, experience and expertise relevant to the position of director held by each director in office at the date of the annual report are set out
in the Director’s’ Report.
33
Below is the Rex Board skills matrix outlining the list of skills that the board currently has (ASX Recommendation 2.2):
LIM
KIM HAI
JOHN
SHARP
LEE
THIAN
SOO
RONALD
BARTSCH
JAMES
DAVIS
CHRIS
HINE
NEVILLE
HOWELL
BUSINESS / ENTREPRENEURIAL EXPERIENCE
POLITICAL EXPERIENCE
CORPORATE GOVERNANCE
SAFETY AND RISK MANAGEMENT
FINANCE
LEGAL
REGULATORY KNOWLEDGE & EXPERIENCE
INDUSTRY
PILOT
EXPERI-
ENCE
ENGINEERING KNOWLEDGE
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
The membership of the Board during the year ended 30 June 2020, including independence status, was as follows (ASX Recommendation 2.3):
Director
Status
Date of Appointment
Lim Kim Hai
Executive Chairman
The Hon. John Sharp AM
Deputy Chairman & Independent Director
Lee Thian Soo
Non-Executive Director
Neville Howell
Chief Operating Officer & Executive Director
Chris Hine
Executive Director &
Group Flight Operations Advisor
James Davis
Independent Director
Ronald Bartsch
Independent Director
Appointed 27 June 2003 and re-appointed 16 November 2006, 25
November 2009, 27 November 2012, 27 November 2015 and 21
November 2018.
Appointed 14 April 2005 and re-appointed 19 November 2008, 23
November 2011, 27 November 2013, 29 November 2016 and 21
November 2019
Appointed 27 June 2003 and re-appointed 16 November 2006, 25
November 2009, 27 November 2012, 27 November 2015 and 21
November 2018.
Appointed 1 July 2014 and re-appointed 26 November 2014, and
21 November 2017.
Appointed 1 March 2011 and re-appointed 23 November 2011 as
Executive Director. Appointed 26 November 2014 as Non-Executive
Director. Appointed 18 May 2015 as Executive Director and Group
Flight Operations Advisor, re-appointed 21 November 2017.
Appointed 26 August 2004 as Executive Director and re-appointed
23 November 2011 and re-appointed as Independent Director 26
November 2014 and 21 November 2017.
Appointed 23 November 2010 and re-appointed 23 November
2011.26 November 2014, and 21 November 2017.
The Board acknowledges the ASX Recommendation that a majority of the Board should be independent directors (ASX Recommendation 2.4).
Although the Board has only three directors out of seven that qualify as independent non-executive directors, Lee Thian Soo is only considered
non-independent by virtue of his share ownership and is considered by the Board to be effectively an independent Director. The Board believes
that every director on the current Board will make decisions in the best interests of all shareholders and in accordance with their duties as directors.
The Board also acknowledges that it is desirable that the Chairman be an independent director and for his role to be segregated from that of
the Chief Executive Officer (ASX Recommendations 2.5). However, the Board views the Chairman’s history of leadership of the Company as an
advantage, both at the management level and at the Board level. This has resulted in performance that matches the best airlines in the world. The
Board acknowledges that if the Chair is not an independent director, the Deputy Chairman should be an independent director, which is the case.
The Board is responsible for the management of the affairs of the Company and its subsidiaries (the Group), including:
(A) STRATEGIC AND FINANCIAL PERFORMANCE
• Developing and approving the corporate strategy.
• Evaluating, approving and monitoring the strategic and financial plans and objectives of the Group.
• Evaluating, approving and monitoring the annual budgets and business plans.
34
• Determining the Company’s dividend policy, the operation of the Company’s dividend re-investment plan (if any), and the amount and timing
of all dividends.
• Evaluating, approving and monitoring major capital expenditure, capital management and all major acquisitions, divestitures and other
corporate transactions, including the issue of securities of the Company.
• Approving all accounting policies, financial reports and material reporting and external communications by the Group.
• Appointment of the Chairman of the Company.
(B) EXECUTIVE MANAGEMENT
• Appointing, monitoring and managing the performance of the Chief Operating Officer or Managing Director and other executive directors.
• Managing succession planning for the executive directors and such other key management positions which may be identified from time to
time.
• Appointing the Company Secretary.
• With the advice and assistance of the Remunerations, Nominations and Disciplinary Committee, reviewing and approving the performance
and remuneration of the individual Board members and policies with respect to the remuneration of any employees.
(C) AUDIT
• Upon the recommendation of the Audit and Corporate Governance Committee, appointing the external auditor and determining its
remuneration and terms of appointment.
• Ensuring that effective audit and regulatory compliance programmes are in place to protect the Group’s assets and shareholder value.
• Approving and monitoring the Group’s audit framework. Approving and, with the assistance and advice of the Audit and Governance
Committee, monitoring compliance with the Group’s audit policies and protocol.
• Monitoring the Group’s operations in relation to, and compliance with relevant regulatory and legal requirements.
(D) CORPORATE GOVERNANCE
At least once every two years the Board will, with the assistance and advice of the Audit and Corporate Governance Committee, review the
performance and effectiveness of the Company’s corporate governance policies and procedures and, if appropriate, amend those policies and
procedures as necessary.
The Board will review and approve all disclosures related to any departures from the ASX Principles of Good Corporate Governance.
• The Board will review and approve the public disclosure of any of the Group’s policies and procedures.
• The Board will supervise the public disclosure of all matters that the law and ASX Listing Rules require to be publicly disclosed, consistent with
the Continuous Disclosure Compliance Policy approved by the Board.
• The Board will approve the appointment of directors to committees established by the Board.
• The Board will approve and monitor delegations of authority.
(E) RISK MANAGEMENT
The Company recognises that the management of business and economic risk is an integral part of its operations and has for many years integrated
risk management processes into its operations to ensure continuity of the business and to minimise any impact on its performance. The Board has
established a sound system of risk oversight and management and internal control which involve the Safety and Risk Management Committee and
the Audit and Corporate Governance Committee.
• Ensuring that effective risk management programmes are in place to protect the Group’s assets and shareholder value.
• Approving and monitoring the Group’s risk framework, including (but not limited to) systems of risk management and internal control.
• Approving and, with the assistance and advice of the Risk Management Committee, monitoring compliance with the Group’s risk.
The Charters of both committees are available on the Company’s website.
35
(F) STRATEGIC PLANNING
• The Board will be actively and regularly involved in strategic planning.
• Strategic planning will be based on the identification of opportunities and the full range of business risks that will determine which of those
opportunities are most worth pursuing.
• The Board will, on an ongoing basis, review how the strategic environment is changing, what key business risks and opportunities are
appearing, how they are being managed and what, if any, modifications in strategic direction should be adopted.
(G) PERFORMANCE EVALUATION
• At least once per year the Board will, with the advice and assistance of the Remunerations, Nominations and Disciplinary Committee, review
and evaluate the performance of the Board, each Board Committee, and each individual director against the relevant Charters, corporate
governance policies, and agreed goals and objectives (ASX Recommendation 2.5).
• Following each review and evaluation the Board will consider how to improve its performance.
• The Board will agree and set the goals and objectives for the Board and its Committees each year, and if necessary, amend the relevant
Charters and policies.
• With the advice and assistance of the Remunerations, Nominations and Disciplinary Committee, the Board will review and approve the
remuneration of the Company’s executive and non-executive directors.
The evaluation of the Board, its committees and directors was carried out during the FY as set out above.
A Director of the Company is entitled to seek independent professional advice (including, but not limited to, legal, accounting and financial
advice) at the Company’s expense on any matter connected with the discharge of his or her responsibilities, in accordance with the procedures
and subject to the conditions set out in the Board Charter.
The Board believes that its members have the appropriate skill set and knowledge to effectively perform their roles as directors without requiring
further professional development. Our board members have a vast wealth of experience in the aviation industry and beyond as a majority of them
have aircraft pilot qualifications.
The Company has a program for inducting new Directors.
PRINCIPLE 3: PROMOTE ETHICAL AND RESPONSIBLE DECISION MAKING
Directors and the Management Committee are required to maintain the highest legal, moral and ethical standards of conduct. The Board has
adopted the Code of Conduct which provides guidance to all staff on compliance with legal and other obligations (ASX Recommendation 3.1).
The Company has established a Share Trading Policy (ASX Recommendation 1.3). Under this policy, Directors and Management Committee are
prohibited from trading in securities of the Company without prior approval from the Board.
The Company employs all staff on their merits and is committed to recognising and valuing the contributions of staff from diverse backgrounds. The
Company has established a Diversity Policy (ASX Recommendation 1.5).
The Company does not believe in an affirmative action policy and setting of artificial targets for staff of various backgrounds (gender, religious,
cultural, racial etc.) but rather in ensuring that all staff are able to develop to the full extent of their capabilities and contributions.
In accordance with the requirements of the Workplace Gender Equality Act 2012 (Act), Regional Express Holdings Limited lodged its annual
public report (2019 - 2020) with the Workplace Gender Equality Agency (Agency). The Company was compliant as reported by the Agency.
As at the end of the reporting period, the proportion of female employees in the Company was 32.3%. There were 15 women holding management
positions in the Company. There were no female Board members or Management Committee members.
To access a copy of the report refer to the Rex website under Corporate and Social Responsibilities.
Details on the reporting process can be located at the Workplace Gender Equality Website: www.wgea.gov.au.
The Code of Conduct, Share Trading Policy and Diversity Policy are available on the Company’s website.
PRINCIPLE 4: SAFEGUARD INTEGRITY IN FINANCIAL REPORTING
The Audit and Corporate Governance Committee has been established by the Board of the Company (ASX recommendation 4.1) to assist
the Board in fulfilling its commitment to ensure the integrity of the Company’s financial reports and Corporate Governance policies:
• assisting the Board in fulfilling its oversight responsibilities for the financial reporting process, the system of internal control relating to all
matters affecting the Group’s financial performance, the audit process, and the Company’s process for monitoring compliance with laws and
regulations and the code of conduct;
• advising the Board on good governance standards and appropriate corporate governance policies for the Group; and
36
• critically reviewing the Group’s performance against its corporate governance policies.
In FY20, this Committee was chaired by the Hon. John Sharp AM and has one other member, James Davis. Descriptions of the members’
qualifications, skills and experience are included in the Directors’ Report. The Committee had two meetings during FY20 attended by all then-
current members of the Committee.
The Board acknowledges the ASX recommendations to have the Committee composed of a majority of independent directors, chaired by an
independent director and have at least three members (ASX Recommendation 4.1).
The Committee is currently made up of two non-executive directors of which both are independent. The Board feels that the directors in the audit
committee will make decisions that are in the best interests of the shareholders in their duties as audit committee members and directors of the
company. The Board also feels at this stage that two members are sufficient for the audit committee given the size of the company and Board.
The Audit and Corporate Governance Committee has a formal Charter which is available on the Company’s website (ASX Recommendation 4.1).
The Chief Operating Officer and the General Manager (GM) Corporate Services who oversees the finance department, provide written
assurance to the Board as to the integrity of the financial statements and that they are founded on a sound system of risk management and internal
controls which are operating effectively and efficiently (ASX Recommendation 4.2).
The Board acknowledges the ASX Recommendation to have the Chief Executive Officer and Chief Financial Officer provide this statement to the
Board. The Board believes that it is appropriate for Chief Operating Officer and GM Corporate Services to provide the statement.
The directors have ensured that the Company’s External Auditor attends all Annual General Meetings and is available to answer shareholders’
questions about the conduct of the audit and the preparation and content of the Auditor’s report thereon (ASX Recommendation 4.3).
PRINCIPLE 5: MAKE TIMELY AND BALANCED DISCLOSURE
The Company complies with the continuous disclosure obligations of the ASX Listing Rules and, in doing so, immediately notifies the market
of any material price sensitive information. The Company has adopted and implemented a Continuous Disclosure Policy which sets out the
procedure for the identification of material price sensitive information and reporting of such information to the company secretaries for review (ASX
Recommendation 5.1). The Continuous Disclosure Policy is available on the Company’s website.
PRINCIPLE 6: RESPECT THE RIGHTS OF SHAREHOLDERS
It is the Company’s policy that the principal communication with shareholders apart from the Company website is the provision of the Annual
Report, including the Financial Statements, half-yearly investor briefings and the Annual General Meeting (and any extraordinary meetings held
by the Company). Shareholders are encouraged to participate in half-yearly investor briefings either by attendance or by dialling in through the
Company’s teleconferencing facilities and are invited to put questions to the Chairman of the Board in that forum (ASX Recommendation 6.3). The
Company’s website provides additional information and greater detail about the Company, including ASX and media releases and access to
statements regarding corporate governance related matters (ASX Recommendation 6.1).
The Board acknowledges the ASX recommendation of facilitating effective two-way communication with investors. Shareholders are able to
contact the company through the company secretaries (ASX Recommendation 6.2).
The Company acknowledges that some security holders prefer the speed, convenience and environmental friendliness of electronic communications
over more traditional methods of communication. To this end, the Company provides its security holders with the option of receiving either a hard
or soft copy of its annual report and notice of meeting for its Annual General Meeting (ASX Recommendation 6.4).
PRINCIPLE 7: RECOGNISE AND MANAGE RISK
The Company has integrated risk management processes into its operations to ensure continuity of the business and to minimise any impact on its
performance.
The Board has established policies for a sound system of risk oversight and management and internal control which involve the Safety and Risk
Management Committee (Recommendation 7.1).
The Safety and Risk Management Committee has been established by the Board of the Company and applies to the Company and its subsidiaries
to support and advise the Board in fulfilling its responsibilities to shareholders, employees and other stakeholders of the Company by:
• assisting the Board in fulfilling its development, oversight and review responsibilities for the safety culture and safety management processes
as defined by the separate safety policies published for each Air Operator’s Certificate holder within the Group; and
•
implementing and supervising the Group’s operational risk assessment framework.
The Board acknowledges the ASX recommendation to have the Committee composed of a majority of independent directors and chaired by an
independent director and have at least three members (ASX Recommendation 7.1).
The Committee is currently made up of one independent director and one executive director. The Board feels that the directors in the Safety and
Risk Management Committee will make decisions that are in the best interests of the shareholders in their duties as Safety and Risk Management
Committee members and directors of the company. The Board also feels at this stage that two members are sufficient for the Safety and Risk
Management Committee given the size of the company and Board.
37
The Safety and Risk Management Committee has a formal Charter which sets out the responsibilities of the Committee as well as the Company’s
policies on risk oversight and management. The Charter is available on the Company’s website.
The Board reviews the safety and risk management report prepared by the Group’s Safety Manager at each Board meeting (ASX Recommendation
7.2).
Being an airline, Rex is required by the Civil Aviation Safety Authority to have a safety and compliance department. Staffed by approximately 15
full-time equivalent employees, this department conducts internal audits of all Rex’s operations including flight operations, engineering and airport
operations. The head of this department, the GM Human Factors, has a direct reporting line to the Board and Chairman (ASX Recommendation
7.3).
The Company has outlined its main material risk sources that could adversely affect the entity’s prospects for future FYs and has explained how these
risks are managed in the Directors’ Report (ASX Recommendations 7.1 and 7.4).
PRINCIPLE 8: REMUNERATE FAIRLY AND RESPONSIBLY
The Board has established a Remunerations, Nominations and Disciplinary Committee. The membership, responsibilities and number of meetings
held have been set out under Principle 2. Also set out under Principle 2 is the explanation as to why the membership of the Committee differs from
the ASX Recommendations.
Details of the Board and Management Committee remuneration structures are contained in the Remuneration Report (ASX Recommendation 8.2
and 8.3).
38
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39
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40
FINANCIAL
STATEMENTS
41
CONSOLIDATED STATEMENT OF PROFIT OR LOSS
FOR THE FINANCIAL YEAR ENDED JUNE 2020
2020
$’000
213,156
1,326
29,721
1,188
14,334
259,725
62,095
321,820
556
(824)
(49,373)
(35,801)
(103,938)
(6,686)
(56,233)
(8,684)
(850)
(21,932)
(62,084)
(3,387)
(348,968)
(27,416)
8,019
(19,397)
(19,397)
(19,397)
2019
$’000
278,433
1,505
28,515
1,279
7,917
317,649
-
317,649
895
1,111
(57,829)
(42,508)
(112,238)
(8,797)
(46,110)
(7,838)
(1,956)
(17,178)
-
-
(294,454)
25,201
(7,684)
17,517
17,517
17,517
cents per share
cents per share
(17.8)
(17.8)
16.1
16.1
Passenger revenue
Freight revenue
Charter revenue
Other passenger services and amenities
Other revenue
Revenue from contracts with customers
Government grants and subsidies
Total revenue
Finance income
Other (losses) / gains
Flight and port operation costs (excluding fuel)
Fuel costs
Salaries and employee-related costs
Selling and marketing costs
Engineering and maintenance costs
Office and general administration costs
Finance costs
Depreciation and amortisation
Asset impairment
Fair value on fuel swaps
Total costs and expenses
(Loss) / profit before tax
Tax benefit / (expense)
(Loss) / profit after tax
(Loss) / profit attributable to
Members of the parent
(Loss) / earnings per share
Basic
Diluted
Note
5
4
5
5
5
5
5
5
24 (D)
6
17
17
Notes to the financial statements are included on pages 47 to 90.
42
CONSOLIDATED STATEMENT
OF OTHER COMPREHENSIVE INCOME OR LOSS
FOR THE FINANCIAL YEAR ENDED JUNE 2020
Note
16
16
(Loss) / profit after tax
Other comprehensive (loss) / income
Hedge reserve
Revaluation of cash flow hedges
Income tax effect
Other comprehensive (loss) / income, net of tax
Total comprehensive (loss) / income
Notes to the financial statements are included on pages 47 to 90.
2020
$’000
(19,397)
(5,176)
1,553
(3,623)
(23,020)
2019
$’000
17,517
360
(108)
252
17,769
43
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 30 JUNE 2020
Current assets
Cash and bank balances
Trade and other receivables
Inventories
Other financial assets
Total current assets
Non-current assets
Other receivables
Inventories
Investments - fair value through equity
Deferred tax assets
Property, plant and equipment
Aircraft
Other property, plant and equipment
Right-of-use assets
Goodwill and other intangible assets
Total non-current assets
Total assets
Current liabilities
Trade and other payables
Unearned revenue
Interest bearing liabilities
Lease liabilities
Provisions
Current tax payable
Other financial liabilities
Total current liabilities
Non-current liabilities
Interest bearing liabilities
Lease liabilities
Provisions
Other financial liabilities
Total non-current liabilities
Total liabilities
Net assets
Equity
Issued capital
Reserved shares
Retained earnings
Share-based payments reserve
Other reserves
Total equity
Note
23 (A)
7
8
24
7
8
6
9
9
10
11
12
13
13
14
6
24
13
13
14
24
15
16
16
16
Notes to the financial statements are included on pages 47 to 90.
44
2020
$’000
11,198
18,353
8,410
40
38,001
7,114
11,303
9
22,537
92,272
80,145
1,283
181
214,844
252,845
19,483
16,027
14,220
130
8,117
7,689
6,255
71,921
-
2,329
2,949
1,988
7,266
79,187
173,658
72,024
(628)
102,660
1,383
(1,781)
173,658
2019
$’000
21,727
16,674
13,439
360
52,200
6,679
8,055
9
1,897
89,178
114,100
-
731
220,649
272,849
20,939
24,502
3,852
-
9,217
2,452
-
60,962
4,220
-
2,248
-
6,468
67,430
205,419
72,024
(1,163)
131,165
1,551
1,842
205,419
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE FINANCIAL YEAR ENDED JUNE 2020
Note
Receipts from customers
Proceeds from government grants and subsidies
Payments to suppliers, employees and others
Interest paid
Income tax paid
Net cash flows from operating activities
23 (B)
Interest received
Proceeds from disposal of property, plant and equipment
(Payments for acquisition) / proceeds from disposal of business
22
Payments for aircraft for tendered contract
Payments for property, plant and equipment - aircraft and other
Payments for other intangible assets - software
Net cash flows used in investing activities
Dividends paid
Shares purchased as reserve shares
Lease liabilities paid
Repayment of interest bearing liabilities – non-related parties
Proceeds from interest bearing liabilities – non-related parties
Net cash flows used in financing activities
Net decrease in cash held
Cash at the beginning of the financial year
Cash at the end of the financial year
23 (A)
Notes to the financial statements are included on pages 47 to 90.
2020
$’000
275,594
64,318
(292,909)
(850)
(5,311)
40,842
556
27
(8,650)
(21,845)
(17,747)
(127)
(47,786)
(8,725)
(623)
(385)
(20,375)
26,523
(3,585)
(10,529)
21,727
11,198
2019
$’000
344,970
-
(299,417)
(1,056)
(11,456)
33,041
895
2,403
908
-
(18,002)
(28)
(13,824)
(13,027)
-
-
(8,482)
-
(21,509)
(2,292)
24,019
21,727
45
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE FINANCIAL YEAR ENDED JUNE 2020
Attributable to equity holders of the Company
Issued
capital
$’000
Reserved
shares
$’000
Retained
earnings
$’000
Share-based
payments
reserve
$’000
Cash flow
hedge
reserve
$’000
General
reserve
$’000
Total
equity
$’000
At 1 July 2018
72,024
(2,256)
126,521
1,605
Adjustment on adoption of AASB 15
Revenue
-
-
154
Restated balance at 1 July 2018
72,024
(2,256)
Profit for the year
Other comprehensive income, net of tax
Total comprehensive income
Dividends paid
Share gift issued - gift
Share gift plan provision transfer
Share gift plan provision
At 30 June 2019
At 1 July 2019
Adjustment on adoption of
AASB 16 Leases (Note 2)
Loss for the year
Other comprehensive loss, net of tax
Total comprehensive loss
Dividends paid
Shares purchased as reserve shares
Share gift issued - gift
Share gift plan provision
At 30 June 2020
72,024
(1,163)
131,165
72,024
(1,163)
131,165
1,551
-
-
(383)
-
-
-
-
-
-
-
-
-
-
-
1,093
-
-
-
-
-
-
-
-
-
-
-
-
-
(623)
1,158
-
126,675
17,517
-
17,517
(13,027)
-
-
-
130,782
(19,397)
-
(19,397)
(8,725)
-
-
-
72,024
(628)
102,660
-
1,605
-
-
-
-
(1,093)
(277)
1,316
1,551
-
1,551
-
-
-
-
-
(1,158)
990
1,383
-
-
-
-
252
252
-
-
-
-
252
252
-
252
-
(3,623)
(3,623)
-
-
-
-
1,590
199,484
-
154
1,590
-
-
-
-
-
-
-
199,638
17,517
252
17,769
(13,027)
-
(277)
1,316
1,590
205,419
1,590
205,419
-
(383)
1,590
-
-
-
-
-
-
-
205,036
(19,397)
(3,623)
(23,020)
(8,725)
(623)
-
990
(3,371)
1,590
173,658
Restated balance at 1 July 2019
72,024
(1,163)
Notes to the financial statements are included on pages 47 to 90.
46
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED JUNE 2020
Note
Content
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
General Information
Application of New and Revised Accounting Standards
Critical Accounting Judgements and Key Sources of Estimation Uncertainty
Impact of COVID-19
Revenues and Expenses
Income Tax
Trade and Other Receivables
Inventories
Property, Plant and Equipment
Goodwill and Other Intangible Assets
Trade and Other Payables
Unearned Revenue
Interest Bearing Liabilities
Provisions
Issued Capital
Reserved Shares and Other Reserves
(Loss) / Earnings Per Share
Dividends
Commitments for Expenditure
Contingent Liabilities and Contingent Assets
Subsidiaries
Acquisition of Business
Notes to the Consolidated Statement of Cash Flows
Financial Instruments
Key Management Personnel Compensation
Related Party Transactions
Remuneration of Auditors
Events After the Reporting Period
Segment Information
Parent Entity Disclosures
Significant Accounting Policies
47
01 GENERAL INFORMATION
Regional Express Holdings Limited (the Company) is listed on the Australian Securities Exchange (Trading under symbol ‘REX’), incorporated
and operating in Australia. The Company’s registered office and its principal place of business is at 81– 83 Baxter Road, Mascot, NSW 2020,
Australia. Principal activities of the Group are the provision of air services including the transportation of passengers and freight along with
aeromedical services and pilot training.
02 APPLICATION OF NEW AND REVISED ACCOUNTING
STANDARDS
In the current year, the Group has applied all amendments to AASBs issued by the Australian Accounting Standards Board (AASB) that are
mandatorily effective for an accounting period that begins on or after 1 January 2019 and adopted by the Group on 1 July 2019, and therefore
relevant for the current year end. The impact of the application of these amendments is detailed below.
APPLICATION OF NEW AND REVISED ACCOUNTING STANDARDS EFFECTIVE FOR
THE CURRENT YEAR
One new accounting standard has been implemented in the current year. The impact of adoption is summarised as follows.
AASB 16 LEASES (“AASB 16”)
AASB 16 provides a comprehensive model for the identification of lease arrangements and their treatment in the financial statements for both
lessors and lessees. AASB 16 supersedes AASB 117 Leases and the related Interpretations effective for accounting periods beginning on or after 1
January 2019. From 1 July 2019, the Group applied AASB 16 on a modified retrospective basis and consequently has not restated the comparative
information.
IMPACT OF THE NEW DEFINITION OF A LEASE
The change in definition of a lease mainly relates to the concept of control. AASB 16 distinguishes between leases and service contracts on
the basis of whether the use of an identified asset is controlled by the lessee. Control is considered to exist if the lessee has the right to obtain
substantially all of the economic benefits from the use of an identified asset and the right to direct the use of that asset. The Group assessed the new
definition in AASB 16 and determined which of its contracts meet meets the definition of a lease.
IMPACT OF ACCOUNTING FOR LEASES
AASB 16 changes how the Group accounts for leases previously classified as operating leases under AASB 117, which were off-balance sheet.
In accordance with the modified retrospective basis of adoption, on initial application of AASB 16, for all leases (except as noted below), the
Group has:
a)
b)
c)
Recognised right-of-use assets and lease liabilities in the consolidated statement of financial position, initially measured at the present
value of the future lease payments on a prospective basis at the date of initial application (i.e. 1 July 2019);
Recognised depreciation of right-of-use assets and interest on lease liabilities in the consolidated statement of profit or loss;
Separated the total amount of cash paid into a principal portion (presented within financing activities) and interest (presented within
operating activities) in the consolidated cash flow statement.
Under AASB 16, right-of-use assets are tested for impairment in accordance with AASB 136 Impairment of Assets. This replaces the previous
requirement to recognise a provision for onerous lease contracts. For short-term leases (lease term of 12 months or less) and leases of low-value
assets (such as personal computers and office furniture), the Group recognises such lease expense on a straight-line basis as permitted by AASB
16.
48
IMPACT OF ADOPTION
The reconciliation of non-cancellable operating lease commitments to the lease liability recognised on adoption is as follows:
Operating lease commitments at 30 June 2019
Discounted using the incremental borrowing rate at 1 July 2019
Lease obligations recognised at 1 July 2019
$’000
6,027
(2,073)
3,954
On adoption, right-of-use assets of $3,327 thousand were recognised. A net deferred tax asset of $132 thousand was recognised on acquisition
with an adjustment to retained earnings of $383 thousand. The impact of adopting AASB 16 resulted in an increase in earnings before interest, tax
depreciation and amortisation (EBITDA) of $525 thousand in Financial Year (FY) 2020. The decrease in impact on EBITDA from that reported at
30 June 2019 of $1.1 million is due to the acquisition of two aircraft previously classified as operating leases during the first half. Under AASB 117,
all lease payments on operating leases were presented as part of cash flows from operating activities. Under AASB 16, the lease payments are
presented as part of cash flows in financing activities and cash flows from operating activities.
APPLICATION OF NEW AND REVISED ACCOUNTING STANDARDS ISSUED BUT
NOT YET EFFECTIVE
At the date of authorisation of the financial statements, the Standards and Interpretations that were issued but not yet effective are listed below.
The potential impact of these Standards and Interpretations has not yet been fully determined. The Group does not intend to adopt any of these
announcements before their effective dates.
STANDARD/INTERPRETATION AND NATURE OF THE CHANGE AND IMPACT
Standard/Amendment
AASB 2018-6 Amendments to Australian Accounting Standards - Definition of a Business
AASB 2018-7 Amendments to Australian Accounting Standards – Definition of Material
AASB 2019-1 Amendments to Australian Accounting Standards – References to the
Conceptual Framework
AASB 2019-3 Amendments to Australian Accounting Standards – Interest Rate Benchmark Reform
AASB 2019-5 Amendments to Australian Accounting Standards – Disclosure of the Effect of New IFRS
Standards Not Yet Issued in Australia
Effective for annual reporting
periods beginning on or after
1 January 2020
1 January 2020
1 January 2020
1 January 2020
1 January 2020
At the date of report, there are no pronouncements approved by the IASB/IFRIC that have yet to be issued by the AASB.
The reported results and financial position of the Group are not expected to change materially on adoption of any of the amendments to the current
standards listed above that will be adopted on 1 July 2020.
For those standards that will be adopted on 1 July 2020 the impact has not been fully determined and is not expected to be material.
03 CRITICAL ACCOUNTING JUDGEMENTS AND KEY
SOURCES OF ESTIMATION UNCERTAINTY
In the application of the Group’s accounting policies, which are described in Note 31, the directors are required to make judgments, estimates and
assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated
assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in
which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both
current and future periods.
49
KEY SOURCES OF JUDGEMENT AND ESTIMATION UNCERTAINTY
The following are the key assumptions concerning the future, and other key sources of estimation uncertainty at the balance date, that have a
significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year:
IMPAIRMENT OF ASSETS
Determining whether goodwill and property, plant and equipment and right-of-use assets are impaired requires an estimation of the value in use
and fair value less cost to sell of the cash-generating units to which the these assets relate. The value in use calculation requires the entity to estimate
the future cash flows expected to arise from the cash-generating unit and a suitable discount rate in order to calculate present value. The fair value
less cost to sell calculation requires the entity to determine the amount obtainable from the sale of an asset or cash-generating unit in an arm’s
length transaction, less the costs of disposal. Further information relating to these estimates and the impact of COVID-19 on the estimates made is
set out in Note 10.
Impairment losses were recognised with respect to goodwill, property, plant and equipment, right-of-use assets, other intangible assets and
consumable inventories during the year of $62,084 thousand (2019: nil) as set out in Note 5.
RECOVERABILITY OF DEFERRED TAXES
Deferred tax assets are recognised only if it is probable that future taxable amounts will be available to enable the Group to utilise those temporary
differences and losses. As a result of the impairment of assets in the current year, the Group has recognised deferred tax assets relating to temporary
differences in respect of this impairment. The recoverability of these deferred tax assets is dependent on assumptions relating to future taxable
profits over the remaining useful life of the assets which have been impaired. These assumptions are consistent with those used in the value in use
calculations. Further information relating to these estimates and the impact of COVID-19 on the estimates made as set out in Note 5.
FAIR VALUE OF DERIVATIVES AND OTHER FINANCIAL INSTRUMENTS
As described in Note 24, management uses their judgment in selecting an appropriate valuation technique for financial instruments not quoted in
an active market. Valuation techniques commonly used by market practitioners are applied. For derivative financial instruments, assumptions are
made based on quoted market rates adjusted for specific features of the instrument.
USEFUL LIVES OF PROPERTY, PLANT AND EQUIPMENT
As described in Note 31 (S), the Group regularly assesses the estimated useful lives of property, plant and equipment at the end of each reporting
period to determine if the useful lives correctly reflect the rate at which the assets are consumed.
EMPLOYEE ENTITLEMENTS
Management judgement is applied in determining the following key assumptions used in the calculation of long service leave at balance date:
•
future increases in wages and salaries;
•
future on-cost rates; and
• experience of employee departures and period of service.
04 IMPACT OF COVID-19
The outbreak of COVID-19 and the subsequent quarantine measures imposed by the Australian and other governments as well as the travel and
trade restrictions imposed by Australia and other countries in early 2020 have caused disruption to businesses and economic activity. The Group
provides regular public transport (RPT) services between cities and regional centres in Australia and so this has had a negative impact on the
operations of the Group, with network passenger numbers (pax) declining from mid-March by over 90%. Travel and social distancing restrictions
have and continue to impact demand for RPT services. However, REX has been able to secure grants from the Federal and State Governments to
continue operations albeit at a lower frequency to pre-COVID-19 periods.
IMPACTS OF COVID-19 ON THE GROUP’S OPERATIONS
REX was forced to reduce capacity on its RPT network by over 80% by April 2020 following the sharp decline in passenger numbers brought
about by COVID-19, economic conditions and significantly reduced demand for air passenger services. REX also stood down the majority of its
50
operational staff and the remaining non-operational staff had reduced work hours. Due to travel restrictions and the reduction in demand for the
Group’s RPT services, passenger revenues declined by $65,277 thousand from the prior year.
REX maintained a minimum network with the assistance of a number of grants, subsidies and other benefits provided by local, state and federal
government authorities and as at the date of this report continues to do so. These grants additionally provided funding for the Group to provide
refunds to passengers whose flights were cancelled as a result of the travel restrictions and to pay creditors.
GRANTS RECEIVED FROM GOVERNMENT AUTHORITIES
The most significant grants received from government authorities are as follows:
Funding
Regional Airline Funding Assistance (RAFA)
Regional Airline Network Support Program (RANS)
Australian Airline Financial Relief Package (AAFRP)
JobKeeper
Western Australian (WA) State Government
Queensland (QLD) State Government
Total
Recognised in profit or loss
for the year ended 30 June 2020
$’000
37,805
15,309
274
7,940
568
199
62,095
The entity will continue to claim grants in FY21 where it meets the requirements of the grant agreements. Grant revenue will be recognised in
accordance with the Group’s accounting policy as set out in Note 31 (M) and the terms of the grant agreements. The Federal Government has
announced extensions to the RAFA grant program to December 2020, RANS program to March 2021 and JobKeeper to March 2021, albeit at
lower rates.
IMPACT ON THE VALUATION OF ASSETS
The reduction in demand for RPT services to date has resulted in a significant decline in revenues from the Group’s REX cash-generating unit (CGU).
The directors are optimistic that this disruption will start to recover gradually over FY21-22. However, given global uncertainty they have planned
for a more conservative recovery throughout FY21-23.
Management have prepared a value-in-use (VIU) model to measure the recoverable amount of the REX CGU. The assumptions used in the VIU
valuation model are described further in Note 10. Based on the results of the VIU valuation model, the Group recognised an impairment relating
to goodwill, property, plant and equipment, right-of-use assets, other intangible assets and consumable inventories totalling $62,084 thousand.
DE-DESIGNATION OF HEDGE CONTRACTS
The Group enters into jet fuel swap contracts to hedge exposure to movements in the price of aviation fuel. These are typically cash flow hedges.
Jet fuel swaps are taken out from time to time to hedge exposures to a maximum of 12 months in accordance with the Group’s risk management
policies. The Group uses fuel swaps linked to the Platts Singapore Kerosene benchmark to hedge exposures to jet fuel. At 30 June 2020 the Group
has in place fuel swap contracts to hedge notional fuel purchases of 3.5 million litres of fuel per month to June 2021.
The directors have considered the forecast fuel purchases based on the current and forecast activity levels, and in line with these activity levels have
de-designated the portion of the fuel swap hedges which are in excess of the forecasted activity and therefore ineffective. The ineffective portion
of the fair value movement of the fuel swaps of $3,387 thousand has been recognised in profit or loss. Further information is set out in Note 24.
BORROWING FACILITIES
The Group’s bank borrowing facilities relating to the Victorian Air Ambulance and New South Wales (NSW) Air Ambulance contracts contain
review event clauses, whereby a review event is triggered where the Group’s EBITDA falls below 75% of the previous year for the Victorian Air
Ambulance facility and 50% of the previous year for the NSW Air Ambulance facility.
Subsequent to the year end the Group has received a waiver from the financier in relation to the FY20 review event due to the reduction in EBITDA
from the previous year. All outstanding borrowings relating to the Victorian Air Ambulance debt facility are repayable within 12 months and are
therefore current, and there are no drawn borrowings relating to the NSW Air Ambulance facility. Therefore, there is no impact on classification of
amounts recognised at 30 June 2020.
51
GOING CONCERN
The consolidated financial statements have been prepared on a going concern basis, which contemplates continuity of normal business activities
and the realisation of assets and the discharge of liabilities in the normal course of business. In preparing the consolidated financial statements
the directors note that the Group and Company are in a net current asset deficiency position of $33,920 thousand (2019: $8,762 thousand). The
Group has reported a loss after tax of $19,397 thousand for the year (2019: profit after tax of $17,517 thousand) and cash inflows from operating
activities and government grants of $40,842 thousand (2019: inflows of operating activities $33,041 thousand).
As described above, the outbreak of COVID-19 and the subsequent quarantine measures imposed by the Australian and other governments as
well as the travel and trade restrictions imposed by Australia and other countries in early 2020 have caused disruption to businesses and economic
activity. The Group provides regular public transport (RPT) services between cities and regional centres in Australia and so this has had a negative
impact on the operations of the Group, with network pax declining from mid-March by over 90%.
Travel and social distancing restrictions have and continue to impact demand for RPT services. However, REX has been able to secure grants from
the Federal and State Governments to continue operations albeit at a lower frequency to pre-COVID-19 periods. REX was forced to reduce
capacity on its RPT network by over 80% by April 2020 following the sharp decline in passenger numbers brought about by COVID-19. REX also
stood down the majority of its operational staff and the remaining non-operational staff had reduced work hours.
REX maintained a minimum network with the assistance of a number of grants, subsidies and other benefits provided by local, state and federal
government authorities and as at the date of this report continues to do so. Refer to Grants received from government authorities above for further
details.
REX also received covenant waivers for funding facilities provided by the financier in relation to Victorian and NSW Air Ambulance contracts at
30 June 2020 as described in Borrowing Facilities above. The next testing date in relation to this covenant is 30 June 2021.
In addition, the Health Administration Corporation as represented by NSW Ambulance has provided the Group with a COVID-19 Emergency
Cash Flow Advance. As set out in Note 13, $10,000 thousand was received under the advance on 26 June 2020, $10,523 thousand on 23 July
2020 and $345 thousand on 4 September 2020. A further $345 thousand will be received on 1 November 2020.
This advance includes repayment dates as follows:
Repayment date
1 December 2020
28 February 2021
31 March 2021
31 May 2021
30 June 2021
31 December 2021
Amount
$’000
3,116
2,920
2,920
2,920
2,920
6,419
21,215
Management have prepared financial forecasts which are consistent with those used in the valuation models for the REX and Pel-Air CGUs,
adjusted for cash flows which are excluded from value-in-use valuation models. Based on these forecasts, the Group is expected to have sufficient
cash to meet its obligations and continue as a going concern.
In addition, management have considered various scenarios with respect to passenger demand and government support. In the event that the
Group is unable to economically service its routes, the Group will restrict routes to only those which have sufficient passenger demand to support
profitable operations and will continue to operate charter, air ambulance services and pilot training. Based on this forecast, the Group expects that
it will have sufficient cash to meet its obligations and continue as a going concern.
However, due to the expected decline in EBITDA for the year ending 30 June 2021 the Group expects to trigger the review event covenant
included in the NSW Air Ambulance loan facility for which the next testing date is 30 June 2021.. Capital commitments in FY2021 will be required
in relation to the NSW Air Ambulance contract, funded by this facility.
Under the terms of the facility agreement, on commencement of the NSW Air Ambulance operations in January 2022 this construction loan will
be converted into an amortising facility which is repayable over the life of the NSW Air Ambulance contract. The loan balance at the end of the
construction phase at 31 December 2021 is expected to be $77,670 thousand.
52
The directors do not consider this forecasted review event to result in a material uncertainty in relation to going concern. In making this judgement
the directors have considered the following factors:
• The purpose of the loan is to finance the acquisition of aircraft which are to be used in the NSW Air Ambulance contract, which is largely
unaffected by the impact of a reduction of EBITDA in the REX CGU;
• The Group has obtained a waiver to the review events for the year ended 30 June 2020 and has no reason to believe the waiver will not
be provided in future;
• Should the review event progress to an event of default, there are certain step-in rights available to NSW Ambulance. These step-in rights
reduce the likelihood of exposure of the Group to repayment of the facility; and
• The directors consider it likely that the step-in rights would be exercised by NSW Ambulance in order to preserve continuity of operations.
Based on the above, whilst the directors consider it probable that there will be a review event triggered for the year ending 30 June 2021 this does
not result in a material uncertainty relating to the ability of the Group to continue as a going concern.
53
05 REVENUES AND EXPENSES
Other revenue
Training income
Sales of engineering parts
Rental income
Insurance claim
Training subsidy
Engineering services
Other income
Finance income
Interest
Other (losses) / gains
Net foreign currency (loss) / gain
Gain on acquisition / disposal of business
Gain / (loss) on disposal of property, plant and equipment
Salaries and employee-related costs
Wages and salaries (including bonus – profit share scheme)
Superannuation costs - defined contribution plan
Expense of share-based payments
Workers’ compensation costs
Finance costs
Interest expense on bank borrowings and lease liabilities
Depreciation and amortisation
2020
$’000
12,032
1,402
264
-
38
-
598
14,334
556
556
(1,057)
231
2
(824)
(94,710)
(6,764)
(990)
(1,474)
2019
$’000
4,621
1,599
254
727
30
104
582
7,917
895
895
372
808
(69)
1,111
(102,881)
(7,051)
(1,316)
(990)
(103,938)
(112,238)
(850)
(850)
(1,956)
(1,956)
Depreciation and amortisation of property, plant and equipment
(21,453)
(17,057)
Depreciation of right-of-use assets
Amortisation of development costs and software
Impairment
Asset impairment
- Property, plant and equipment – aircraft
- Property, plant and equipment – other
- Right-of-use assets
- Other intangible assets
- Consumable inventories
Goodwill impairment
54
(358)
(121)
-
(121)
(21,932)
(17,178)
(22,504)
(29,852)
(603)
(87)
(8,520)
(518)
(62,084)
-
-
-
-
-
-
-
06 INCOME TAX
INCOME TAX RECOGNISED IN PROFIT OR LOSS
Tax (benefit) / expense comprises:
Current tax expense
Deferred tax (benefit) relating to the origination and reversal of temporary differences
Total tax (benefit) / expense
2020
$’000
10,732
(18,751)
(8,019)
2019
$’000
8,180
(496)
7,684
The prima facie income tax (benefit) / expense on pretax accounting profit from operations
reconciles to the income tax (benefit) / expense in the financial statements as follows:
(Loss) / profit before tax from operations
(27,416)
25,201
Tax (benefit) / expense calculated at 30%
Tax on non-deductible expenses
Tax (benefit) / expense
Effective tax rate
(8,225)
206
(8,019)
7,560
124
7,684
(29.2%)
30.5%
The tax rate used in the above reconciliation is the corporate tax rate of 30% payable by Australian corporate entities on taxable profits under
Australian tax law. There has been no change in the corporate tax rate when compared with the previous reporting period.
The following current and deferred tax amounts have been recognised in the statement of financial position:
Current tax liabilities
Current tax payable
Income tax attributable:
Parent entity
Deferred tax balances
Deferred tax assets comprise:
Temporary differences and tax losses
(i)
Deferred tax liabilities comprise:
Temporary differences
Net deferred tax assets
2020
$’000
7,689
7,689
23,713
23,713
(1,176)
(1,176)
22,537
2019
$’000
2,452
2,452
7,511
7,511
(5,614)
(5,614)
1,897
(i)
Deferred tax assets include $176 thousand of tax losses recognised on acquisition of Aviation Training Academy Australia Pty Ltd that remain
unutilised at 30 June 2020.
55
IMPACT OF ACCOUNTING FOR LEASES
Taxable and deductible temporary difference and tax losses arise from the following:
Opening
balance
$’000
Charged to
income
$’000
Charged to equity
$’000
Other
(i)
movements
$’000
Closing
balance
$’000
30 June 2020
Gross deferred tax liabilities
Inventories
Prepayments
Subsidy receivable
Property, plant & equipment
Other items
Gross deferred tax assets
Employee-related provisions
Property, plant & equipment
Payables
Other liabilities
Other items
Net deferred tax
30 June 2019
Gross deferred tax liabilities
Inventories
Prepayments
Subsidy receivable
Property, plant & equipment
Other items
Gross deferred tax assets
Employee-related provisions
Property, plant & equipment
Payables
Other liabilities
Other items
Net deferred tax
(3,762)
(792)
(350)
(689)
(21)
(5,614)
3,931
1,747
822
1,011
-
7,511
1,897
(3,533)
(1,043)
(266)
(743)
(106)
(5,691)
3,486
2,111
763
810
106
7,276
1,585
3,495
730
23
251
(61)
4,438
(118)
14,737
(154)
(912)
608
14,161
18,599
(229)
251
(84)
54
193
185
445
(364)
59
201
(106)
235
420
-
-
-
-
-
-
-
-
-
-
1,553
1,553
1,553
-
-
-
-
(108)
(108)
-
-
-
-
-
-
(108)
-
-
-
-
-
-
-
-
-
-
488
488
488
-
-
-
-
-
-
-
-
-
-
-
-
-
(267)
(62)
(327)
(438)
(82)
(1,176)
3,813
16,484
668
99
2,649
23,713
22,537
(3,762)
(792)
(350)
(689)
(21)
(5,614)
3,931
1,747
822
1,011
-
7,511
1,897
(i)
(i)
Other movements include the deferred tax assets added through the business acquired of $356 thousand per Note 22 and the deferred tax
asset recognized on adoption of AASB 16 of $132 thousand per Note 2. $176 thousand of the tax losses acquired remain unutilised at 30
June 2020.
56
Net deferred tax assets of $22,537 thousand (2019: $1,897 thousand) have been recognised to the extent that the Group considers it is probable
that future taxable amounts will be available to utilise those tax assets. The increase in deferred tax assets in the current year is largely the result
of the impairment of assets, excluding goodwill, recognised in the year of $61,566 thousand. In assessing whether the deferred tax assets are
recoverable, the directors note that the estimates and assumptions relating to future taxable profits are consistent with the assumptions used in the
estimation of future cash flows in the value-in-use valuation model for the Group’s cash-generating units. The directors expect that the Group will
generate sufficient taxable profits to utilise the deferred tax assets in the next 6-7 years, however actual utilisation will be dependent on the timing
of tax deductions.
07 TRADE AND OTHER RECEIVABLES
Current
Trade receivables
Loss allowance
Term deposits
Sundry debtors and other debtors
Prepayments
Non-current
Other receivables – at amortised cost
2020
$’000
5,890
(31)
5,859
2,048
5,263
5,183
18,353
7,114
7,114
2019
$’000
8,579
(31)
8,548
1,968
3,521
2,637
16,674
6,679
6,679
Trade receivables are non-interest bearing and are generally on 30 day terms. The Group measures the loss allowance for trade receivables at
an amount equal to lifetime expected credit losses (ECL). The expected credit losses on trade receivables are estimated using a provision matrix by
reference to past default experience of the debtor and an analysis of the debtor’s current financial position, adjusted for factors that are specific to
the debtors, general economic conditions of the industry in which the debtors operate and an assessment of both the current as well as the forecast
direction of conditions at the reporting date.
The Group writes off a trade receivable when there is information indicating that the debtor is in severe financial difficulty and there is no realistic
prospect of recovery, e.g. when the debtor has been placed under liquidation or has entered into bankruptcy proceedings, or when the trade
receivables are over two years past due, whichever occurs earlier. None of the trade receivables that have been written off is subject to enforcement
activities.
Before accepting new customers, the Group assesses the potential customer’s credit quality and defines credit limits by customer. Limits attributed
to customers are reviewed regularly. Majority of the Group’s revenue is derived from sales made through credit cards where counterparties are
either banks or credit card companies.
Term deposits are interest-bearing deposits held under the Group’s workers compensation obligations. The amounts are restricted under these
obligations.
57
Ageing of past due but not impaired
60 - 90 days
91 - 120 days or more
Total
Average age (days)
Movement in loss allowance
Balance at the beginning of the year
Movement during the year
Balance at the end of the year
Ageing of impaired trade receivables
120+ days
Total
08 INVENTORIES
Consumable spares
Current
Non-current
2020
$’000
2019
$’000
265
211
476
33
(31)
-
(31)
(31)
(31)
2020
$’000
8,410
11,303
-
-
-
30
(31)
-
(31)
(31)
(31)
2019
$’000
13,439
8,055
As set out in Note 5, an impairment of $8,520 thousand relating to consumable spares has been recognised during the year (2019: $nil).
58
09 PROPERTY, PLANT AND EQUIPMENT
Opening gross
carrying amount
$’000
Additions
$’000
Transfers from
business acquired
$’000
Disposals /
Reclassification
$’000
Closing gross
carrying amount
$’000
At 30 June 2020
Aircraft
Aircraft under construction
Total aircraft
Other property, plant and equipment
Rotable assets
Engines
Plant and equipment
Land and buildings
Leasehold improvements
Motor vehicles
Furniture and fittings
Computer equipment
Other property, plant and equipment
Total property, plant and equipment
Right-of-use assets
Leased premises
(ii)
Aircraft
Total-of-use assets
(i)
At 30 June 2019
Aircraft
Other property, plant and equipment
Rotable assets
Engines
Plant and equipment
Land and buildings
Leasehold improvements
Motor vehicles
Furniture and fittings
Computer equipment
Other property, plant and equipment
Total property, plant and equipment
190,622
-
190,622
84,166
13,736
11,373
37,507
1,394
2,674
750
2,090
153,690
344,312
2,022
1,305
3,327
7,831
21,845
29,676
2,173
689
270
5,361
30
69
81
1,243
9,916
39,592
9
-
9
187,421
5,912
83,311
10,908
12,020
37,166
1,357
2,696
1,021
1,891
150,370
337,791
3,869
6,628
750
366
37
62
34
344
12,090
18,002
Total Right-of-use assets
-
-
7,734
-
7,734
-
-
605
1,500
-
6
46
84
2,241
9,975
965
-
965
-
-
-
-
-
-
-
-
-
-
-
-
(9,042)
-
(9,042)
(7,877)
(130)
(583)
-
-
(53)
(75)
(157)
(8,875)
(17,917)
(990)
(1,305)
(2,270)
197,145
21,845
218,990
78,462
14,295
11,665
44,368
1,424
2,696
802
3,260
156,972
375,962
2,031
-
2,031
(2,711)
190,622
(3,014)
(3,800)
(1,397)
(25)
-
(84)
(305)
(145)
(8,770)
(11,481)
84,166
13,736
11,373
37,507
1,394
2,674
750
2,090
153,690
344,312
-
-
59
Opening
accumulated
depreciation and
impairment
$’000
Disposals /
Reclassification
$’000
Depreciation
charge for the
year
$’000
Closing
accumulated
depreciation and
impairment
$’000
Impairment
$’000
(101,444)
9,028
(11,798)
(22,504)
(126,718)
(17,328)
(2,774)
(6,843)
(7,779)
(1,297)
(1,799)
(593)
(1,177)
(39,590)
(141,034)
-
-
-
1,235
130
583
-
55
49
61
157
2,270
11,298
69
144
213
(5,551)
(1,210)
(987)
(1,048)
(106)
(192)
(77)
(484)
(9,655)
(21,453)
(214)
(144)
(358)
(94,330)
2,711
(9,825)
(16,465)
(3,422)
(7,227)
(6,815)
(1,219)
(1,695)
(853)
(960)
(38,656)
(132,986)
-
2,947
1,414
1,383
24
-
84
301
145
6,298
9,009
-
(3,810)
(766)
(999)
(988)
(78)
(188)
(41)
(362)
(7,232)
(17,057)
-
(22,803)
(4,190)
(1,773)
-
-
(303)
(78)
(705)
(29,852)
(52,356)
(603)
-
(603)
-
-
-
-
-
-
-
-
-
-
-
-
(44,447)
(8,044)
(9,020)
(8,827)
(1,348)
(2,245)
(687)
(2,209)
(76,827)
(203,545)
(748)
-
(748)
(101,444)
(17,328)
(2,774)
(6,843)
(7,779)
(1,297)
(1,799)
(593)
(1,177)
(39,590)
(141,034)
-
At 30 June 2020
Aircraft
Other property, plant and equipment
Rotable assets
Engines
Plant and equipment
Land and buildings
Leasehold improvements
Motor vehicles
Furniture and fittings
Computer equipment
Other property, plant and equipment
Total property, plant and equipment
Right-of-use assets
Leased premises
Aircraft
Total Right-of-use assets
At 30 June 2019
Aircraft
Other property, plant and equipment
Rotable assets
Engines
Plant and equipment
Land and buildings
Leasehold improvements
Motor vehicles
Furniture and fittings
Computer equipment
Other property, plant and equipment
Total property, plant and equipment
Total Right-of-use assets
60
At 30 June 2020
Aircraft
Aircraft under construction
Total aircraft
Other property, plant and equipment
Rotable assets
Engines
Plant and equipment
Land and buildings
Leasehold improvements
Motor vehicles
Furniture and fittings
Computer equipment
Other property, plant and equipment
Total property, plant and equipment
Right-of-use assets
Leased premises
Aircraft
Total Right-of-use assets
(i)
At 30 June 2019
Aircraft
Other property, plant and equipment
Rotable assets
Engines
Plant and equipment
Land and buildings
Leasehold improvements
Motor vehicles
Furniture and fittings
Computer equipment
Other property, plant and equipment
Total property, plant and equipment
Right-of-use assets
Opening net
carrying amount
$’000
Closing net
carrying amount
$’000
89,178
-
89,178
66,838
10,962
4,530
29,728
97
875
157
913
114,100
203,278
2,022
1,305
3,327
70,427
21,845
92,272
34,015
6,251
2,645
35,541
76
451
115
1,051
80,145
172,417
1,283
-
1,283
93,091
89,178
66,846
7,486
4,793
30,351
138
1,001
168
931
111,714
204,805
-
66,838
10,962
4,530
29,728
97
875
157
913
114,100
203,278
-
$’000
358
143
341
61
(i)
(ii)
(iii)
The opening carrying amount for the right-of-use assets relates to amounts recognised on adoption of AASB 16 on 1 July 2019.
The Group leases several assets and the lease terms vary from 3 to 41 years.
Amounts recognised in profit and loss relating to right-of-use assets during the year are as follows:
Depreciation expense on right-of -use assets
Interest expense on lease liabilities
Expenses relating to short term leases
10 GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill
$’000
Software and
development costs
$’000
At 30 June 2020
Cost
Accumulated amortisation and impairment
Net carrying amount
Total other intangible assets
Reconciliation
At 1 July 2019, net of accumulated amortisation
Additions
Impairment
Amortisation at 30 June 2020
At 30 June 2020, net of accumulated amortisation and impairment
Total other intangible assets
At 30 June 2019
Cost
Accumulated amortisation
Net carrying amount
Total goodwill and other intangible assets
Reconciliation
At 1 July 2018, net of accumulated amortisation
Additions
Amortisation at 30 June 2019
At 30 June 2019, net of accumulated amortisation
Total goodwill and other intangible assets
IMPAIRMENT OF ASSETS
518
(518)
-
518
-
(518)
-
-
518
-
518
518
-
-
518
2,052
(1,871)
181
181
213
176
(87)
(121)
181
181
2,648
(2,435)
213
731
306
28
(121)
213
731
The Group has identified the following Cash Generating Units (CGUs) for assessing the carrying value of the Group’s assets:
• Regional Express Holdings Limited (Rex)
• Pel-Air Aviation Pty Limited (Pel-Air)
The outbreak of COVID-19 and the subsequent quarantine measures imposed by the Australian and other governments as well as the travel and
trade restrictions imposed by Australia and other countries in early 2020 have caused disruption to businesses and economic activity which is
expected to continue into FY21.
The Group provides regular public transport (RPT) services between cities and regional centres in Australia and so this has had a negative impact
on the operations of the Rex CGU, with network pax declining from mid-March by over 90%. Travel and social distancing restrictions have
impacted demand for RPT services and are expected to continue to have an impact on passenger demand for FY21-FY23. The Pel-Air CGU was
not significantly impacted by the pandemic due to the nature of the business as a charter and air ambulance operation.
62
As the Group’s CGUs have been impacted differently by the COVID-19 pandemic, the details of impairment testing performed have been set out
separately below.
(A)
REX CGU
The recoverable amount of the Rex CGU has been determined based on a value-in-use valuation model.
The value in use calculation of the Rex CGU uses cash flow projections which are based on a COVID-19 recovery period over which Available
Seat Kilometres (ASKs) and passenger numbers are forecast to return to historical levels as seen in FY19 by 2023. Key assumptions used in the
valuation model are noted below:
DURING COVID-19 RECOVERY PERIOD (FY21 – FY23)
Recovery in ASKs and
passengers
Government grants
Fixed & variable costs
Fuel costs
Based on expected activity levels over the FY21-23 period. These forecasts are based on the current run
rate of passenger numbers and ASKs to December 2020, after which passenger and ASK growth is forecast
to gradually return to FY19 historical levels. The forecasts consider the recoveries by state where there are
differences in recovery rates.
Government grants are included in the forecast to the extent that they have been granted to Rex or have been
publicly announced by the relevant State or Federal Government.
Costs which vary with activity are allocated on a per-ASK basis. Fixed costs are forecast based on FY19
actuals adjusted for 4Q FY20 run rates as appropriate.
Fuel costs are based on the prevailing fuel swap rates, after which they projected using the long term brent
crude curve.
SUBSEQUENT TO COVID-19 RECOVERY PERIOD
Key assumptions
Revenue growth
Fuel cost escalation
Operating cost escalation
Fleet life
Rex CGU
1.50%
Based on forward brent crude curve
1.50%
17.5 years
Cash flows in the valuation model are projected for 17.5 years. Rex operates the RPT network with a fleet of 60 Saab 340B aircraft. Whilst these
aircraft are no longer manufactured by Saab (the OEM) they remain common in regional airline fleets around the world and the directors do not
expect OEM support for the aircraft to be withdrawn for at least the next 15-20 years.
In addition to industry issues, and having regard to the effect of the COVID-19 pandemic, the directors revised expectations for the life of the Saab
340B fleet and consider that the expected useful life of the Saab 340B fleet to be approximately 15-20 years. The value in use model has included
cash flows of 17.5 years, representing the midpoint of this 15-20 year expected remaining economic life of the fleet.
No terminal value has been included in the value-in-use valuation model.
Revenue and cost growth have been projected based on growth expectations of the existing network and assume no changes to the size and scale
of operations after the recovery period. Capital expenditure is based on maintenance capex over the forecast period excluding any expansionary
capital expenditure.
Cash flows are discounted by a post-tax discount rate of 11.25% (2019: 10.25%).
Based on the results of the value-in-use model, the carrying value of the assets of the CGU exceeded their recoverable amount by $62,084
thousand. This was allocated to goodwill ($518 thousand) and other assets ($61,566 thousand). Refer to Note 5 for the allocation by asset class.
SENSITIVITY ANALYSIS
The value-in-use calculation is sensitive to reasonable changes in key assumptions which would, in isolation, lead to an increase or decrease in
the recoverable amount and a resulting change to impairment recognised. Changes in one assumption could be accompanied by a change in
another assumption, which may increase or decrease the recoverable amount of the CGU.
63
ASK & Passenger recovery (as percentage of FY19
base)
Post tax discount rate %
Revenue growth %
Operating cost escalation %
Fuel cost escalation %
Fleet life
(B)
PEL-AIR CGU
Rex recoverable amount
Increase/
Decrease by
Increase / (Decrease)
$’000
(Decrease) / Increase
$’000
10.0%
1.0%
1.0%
1.0%
5.0%
2.5 years
7,749
(8,004)
12,239
(4,871)
(7,076)
8,084
(10,674)
8,798
(12,208)
4,856
7,050
(6,090)
The recoverable amount of the Pel-Air CGU has been determined based on a value-in-use valuation model. The Pel-Air CGU includes charter and
air ambulance services which are largely unaffected by COVID-19.
The value in use calculation of Pel-Air uses cash flow projections based on financial budgets approved by the Board covering a 5 year forecast
period, and a terminal value based upon an extrapolation of cash flows beyond the 5 year period using a constant growth rate which does
not exceed the long term inflation rate. The cash flows are based on management’s expectations regarding the market, fleet plans including the
purchase of aircraft and operating costs. The discount rate applied reflects the weighted average cost of capital based on the risk-free rate for
ten-year Australia government bonds adjusted for a risk premium to reflect the risk of the CGU.
KEY ASSUMPTIONS
The following key assumptions were used in determining the value-in-use valuation model for the Pel-Air CGU:
Key assumptions
Discount rate
Revenue growth
Operating cost escalation
Pel-Air CGU
11.00%
1.50-2.00%
2.00%
Reasonable changes in these assumptions are not expected to result in an impairment of the Pel-Air CGU.
11 TRADE AND OTHER PAYABLES
Current
Trade payables
Other payables
Total
2020
$’000
8,088
11,395
19,483
2019
$’000
10,095
10,844
20,939
Trade payables are non-interest bearing and are normally settled on 7 to 30-day terms. Other payables are non-interest bearing and have an
average term of 7 to 30 days.
64
12 UNEARNED REVENUE
Current
Unearned passenger and charter revenue
Unearned training revenue
Total
2020
$’000
13,237
2,790
16,027
Unearned revenue balances recognised at 30 June 2019 have been recognised as revenue in the current year.
13
INTEREST BEARING LIABILITIES
Current
(i)
Loan facility
(ii)
Advance
Lease liabilities
(iv)
Non-current
Loan facility
(i)
Lease liabilities
(iv)
Effective
interest rate %
9.10%
0.15%
9.10%
2020
$’000
4,220
10,000
14,220
130
14,350
-
2,329
2,329
The Group’s debt facilities include the following:
Victorian Air Ambulance
(i)
NSW Air Ambulance
(iii)
2020
Used
$’000
4,220
-
Limit
$’000
5,545
15,555
2019
Used
$’000
8,072
-
2019
$’000
23,412
1,090
24,502
2019
$’000
3,852
-
3,852
-
3,852
4,220
-
4,220
Limit
$’000
8,381
-
(i)
(ii)
(iii)
This facility relates to the acquisition of a number of aircraft which are utilised for the Victorian Air Ambulance operations. The loan was fully
repaid on 25 August 2020.
The advance is a short-term emergency cash flow advance provided to the Group from NSW Air Ambulance to assist the Group in meeting
the capital expenditure of a number of aircraft assets in preparation for the NSW medical evacuation contract due to commence in FY2022.
The advance is repayable from December 2020 to June 2021 as set out in Note 4. Subsequent to the year end, a further $10,523 thousand
was received on 1 July 2020 and $345 thousand on 1 August 2020. A further $345 thousand will be received on 1 November 2020. These
amounts are repayable between December 2020 and December 2021.
This facility relates to the acquisition of a number of aircraft which will be utilised for the NSW Air Ambulance operations. As the aircraft are
constructed and delivered this facility will be drawn down with total drawings of $77,670 thousand. Under the terms of the facility agreement,
on commencement of the NSW Air Ambulance operations in January 2022 this construction loan will be converted into an amortising facility
which is repayable over the life of the NSW Air Ambulance contract which is 10 years. The facility is secured by the aircraft and a guarantee
by the Group.
(iv)
The lease liabilities were recorded in accordance with AASB 16 Leases for a number of property leases used for operations.
65
2020
Used
$’000
-
-
-
3,799
3,000
55
6,854
Limit
$’000
2,700
559
1,000
4,537
3,000
615
12,411
2019
Used
$’000
-
-
-
3,799
-
85
3,884
2020
$’000
810
7,307
8,117
1,409
1,540
2,949
11,066
4,194
111
(2,086)
2,219
7,271
9,545
(7,969)
8,847
Limit
$’000
2,700
559
1,000
4,537
-
595
9,391
2019
$’000
2,605
6,612
9,217
1,589
659
2,248
11,465
4,080
2,662
(2,548)
4,194
5,859
8,128
(6,716)
7,271
OTHER FACILITIES
Transaction negotiation authority
Letter of credit
Set off
Guarantee
Guarantee performance
Credit card
The facilities are secured by the assets of the Group.
14 PROVISIONS
Current
Employee benefits
Profit share, pilot retention bonus
Annual leave and long service leave
Non-current
Employee benefits
Pilot retention bonus
Long service leave
Total employee benefits provisions
Profit share, pilot retention bonus
Balance at the beginning of the year
Arising during the year
Utilised
Balance at the end of the year
Annual leave and long service leave
Balance at the beginning of the year
Arising during the year
Utilised
Balance at the end of the year
66
15
ISSUED CAPITAL
Fully paid ordinary shares
At the beginning of the year
Movement during the year
At the end of the year
2020
2019
No. ’000
$’000
No.’000
110,155
-
110,155
72,024
-
72,024
110,155
-
110,155
Share units held as reserved shares by subsidiary company was 914 thousand (2019: 1,093 thousand).
16 RESERVED SHARES AND OTHER RESERVES
Reserved shares
Balance at the beginning of the year
Shares purchased as reserved shares
Share gift issued
Balance at the end of the year
Share-based payments reserve
Balance at the beginning of the year
Share gift issued
Share gift plan provision transfer
Share gift plan provision
Balance at the end of the year
Cash flow hedge reserve
Balance at the beginning of the year
Revaluation of cash flow hedges, net of tax
Balance at the end of the year
General reserve
Balance at the beginning of the year
Movement during the year
Balance at the end of the year
2020
$’000
(1,163)
(623)
1,158
(628)
1,551
(1,158)
-
990
1,383
252
(3,623)
(3,371)
1,590
-
1,590
$’000
72,024
-
72,024
2019
$’000
(2,256)
-
1,093
(1,163)
1,605
(1,093)
(277)
1,316
1,551
-
252
252
1,590
-
1,590
Reserved share account represents on market purchase of shares by the Group which is eventually granted to executives and employees as part
of their remuneration.
The share-based payments reserve arises on the grant of shares to executives and employees under the employee share gift plan. Amounts are
transferred out of the reserve and into issued capital when the shares are issued. Rex has established the share gift plan for its executive directors
and eligible employees since FY2006.
The board decided that this plan will be offered to EA groups that opt for the plan, and all non-EA employees who are not the subject of an adverse
recommendation by the Remunerations, Nominations and Disciplinary Committee. This plan is not based on any performance measures as it was
established to show its recognition of employees’ contribution to Rex by providing an opportunity to share in its future growth and profitability and
to align the interests of the employees more closely with the interests of the shareholders.
67
Eligible employees who accept an offer of shares under the share plan will be entitled to receive the equivalent of 2% of their base salary in
shares each financial year. Such shares will be issued to eligible employees on the relevant award dates. Non eligible employees are given the
opportunity to salary sacrifice amounts to acquire Rex shares, with allocation of shares equal to 2% of their base salary.
The cash flow hedge reserve represents hedging gains and losses recognised on the effective portion of cash flow hedges. The cumulative
deferred gain or loss on the hedge is recognised in profit or loss when the hedged transaction impacts the profit or loss, or is included as a basis
adjustment to the non-financial hedged item, consistent with the applicable accounting policy.
The general reserve is used from time to time to transfer profits from retained profits. There is no policy of regular transfer.
17
(LOSS) / EARNINGS PER SHARE
2020
Cents per share
2019
Cents per share
Basic (loss) / earnings per share
Diluted (loss) / earnings per share
(17.8)
(17.8)
The (loss) / earnings used in the calculation of basic and diluted (loss) / earnings per share are as follows:
Net (loss) / profit
(Loss) / earnings used in the calculation of basic (loss) / earnings per share
(Loss) / earnings used in the calculation of diluted (loss) / earnings per share
2020
$’000
(19,397)
(19,397)
(19,397)
16.1
16.1
2019
$’000
17,517
17,517
17,517
The weighted average number of ordinary shares used in the calculation of basic and diluted (loss) / earnings per share are as follows:
Weighted average number of ordinary shares for the purpose of basic (loss) / earnings
per share
Weighted average number of ordinary shares for the purpose of diluted (loss) /
earnings per share
18 DIVIDENDS
2020
No. ’000
109,240
109,240
2019
No. ’000
109,061
109,061
In respect of results for FY2019, the Group paid 8 cents per share of fully franked dividend to holders of fully paid ordinary shares, amounting to
$8,812 thousand, on 16 October 2019. $87 thousand of these dividends related to reserve shares held by the Group (2019: $192 thousand).
In respect of results for FY2020, the directors have recommended no dividends to be paid out given the uncertain and challenging conditions
arising from the COVID-19 crisis.
The movement in the franking account balance is noted below:
Adjusted franking account balance
Franking credit recognised that will arise from income tax payable as at the end of
financial year
Impact on franking account balance of dividends not recognised
2020
$’000
45,658
7,689
-
2019
$’000
44,086
2,452
(3,777)
68
19 COMMITMENTS FOR EXPENDITURE
(A) CAPITAL EXPENDITURE COMMITMENTS
Not later than one year
Later than one year and not later than five years
2020
$’000
44,053
13,364
57,417
Capital commitments relate to aircraft under construction which will be acquired for use in the NSW Air Ambulance contract.
(B) OPERATING LEASE COMMITMENTS
Not later than one year
Later than one year and not later than five years
Later than five years
(C)
LEASE LIABILITIES
Lease liabilities were recognised in accordance with AASB 16 Leases for a number of property leases used for operations.
Not later than one year
Later than one year and not later than five years
Later than five years
Less future finance charges
Lease liabilities
Minimum lease payments
2020
$’000
242
686
3,434
4,362
(1,903)
2,459
20 CONTINGENT LIABILITIES AND CONTINGENT ASSETS
There are no contingent liabilities nor contingent assets as at 30 June 2020 (2019: nil).
2019
$’000
-
-
-
2019
$’000
1,111
1,349
3,567
6,027
2019
$’000
-
-
-
-
-
69
21 SUBSIDIARIES
Name of entity
Parent entity
Regional Express Holdings Limited
Subsidiaries
Regional Express Holdings Limited
Rex Freight & Charter Pty Limited
Rex Investment Holdings Pty Limited
Pel-Air Aviation Pty Limited
Australian Airline Pilot Academy Pty Limited
VAA Pty Ltd
Aviation Training Academy Australia Pty Ltd
AAPA Victoria Pty Ltd
NAA Pty Ltd
Country of
incorporation
Ownership Interest
2020
%
2019
%
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
-
-
-
Regional Express Holdings Limited is the head entity within the tax-consolidated group. These subsidiary companies are members of the tax-
consolidated group.
22 ACQUISITION OF BUSINESS
In November 2019, the Group acquired Aviation Training Academy Australia Pty Ltd (“ATAA”) business through the purchase of shares in ATAA
and related aircraft for a total consideration of $9,425 thousand. ATAA through its wholly owned subsidiary AAPA Victoria Pty Ltd operates a pilot
training academy.
Provisional fair value
$’000
Adjustments
$’000
Final fair value
$’000
Assets and liabilities acquired:
Aircraft
Other property, plant and equipment
Right-of-use assets
Other intangible assets
Trade and other receivables
Trade and other payables
Lease liabilities
Deferred tax (liabilities)/assets
Provisions
Net assets acquired
Consideration on acquisition
Less: cash acquired
Net cash paid on acquisition
Gain on acquisition
(413)
(600)
1,244
231
7,734
2,654
965
49
485
(989)
(965)
(888)
(395)
8,650
9,425
(775)
8,650
7,734
2,241
365
49
485
(989)
(965)
356
(395)
8,881
9,425
(775)
8,650
231
The gain on acquisition was largely driven by tax losses which have been recognised on entry to the Group’s tax consolidated group.
70
Adjustments to the provisional fair value set out in the interim financial report as at 31 December 2019 relate to the fair value of property, plant and
equipment and right-of-use assets as well as tax losses recognised on entry into the tax consolidated group. The revenue and loss of the acquired
entities since the acquisition date was $6,116 thousand and $406 thousand respectively.
23 NOTES TO THE CONSOLIDATED STATEMENT OF CASH FLOWS
(A)
RECONCILIATION OF CASH AND CASH EQUIVALENTS
For the purposes of the statement of cash flows, cash and cash equivalents include cash on hand and in banks and investments in money market
instruments, net of outstanding bank overdrafts. Cash and cash equivalents at the end of the financial year as shown in the statement of cash flows
is reconciled to the related items in the statement of financial position as follows:
Cash and bank balances
Short term deposits
2020
$’000
11,198
-
11,198
2019
$’000
16,727
5,000
21,727
(B)
RECONCILIATION OF (LOSS)/PROFIT FOR THE YEAR TO NET CASH FLOWS
FROM OPERATING ACTIVITIES
(Loss) / profit for the year
Depreciation and amortisation
Asset impairment
Fair value on fuel swaps
Share-based payment
Unrealised foreign exchange loss / (gain)
Gain on acquisition / disposal of business
Loss on disposal of non-current assets
Interest received
Increase in receivables
Decrease in inventories
Increase in other assets
Increase in deferred tax
Increase / (decrease) in current tax payable
(Decrease) / increase in trade payables
(Decrease) / increase in provisions
Increase in other liabilities
Net cash flows from operating activities
2020
$’000
(19,397)
21,932
62,084
3,387
990
522
(231)
-
(556)
(1,629)
1,781
-
(20,284)
5,237
(12,595)
(399)
-
40,842
2019
$’000
17,517
17,178
-
-
1,316
(33)
(808)
69
(895)
(3,522)
2,440
(360)
(323)
(3,276)
2,237
1,249
252
33,041
The following table details changes in the Group’s liabilities arising from financing activities, including both cash and non-cash changes. Liabilities
arising from financing activities are those for which cash flows were, or future cash flows will be, classified in the Group’s statement of cash flows
as cash flows from financing activities.
71
30 June 2020
Movements in financing activities:
Loan facility (Note 13)
Advance (Note 13)
Lease liabilities (Note 13)
30 June 2019
Movements in financing activities:
Loan facility (Note 13)
Lease liabilities (Note 13)
Opening
balance
$’000
Financing
cash flows
$’000
Adoption of
AASB 16
$’000
Acquisition of
business
$’000
Disposal of
leases
$’000
Closing
balance
$’000
Non-cash changes
8,072
-
-
8,072
11,591
4,963
16,554
(3,852)
10,000
(385)
5,763
(3,519)
(4,963)
(8,482)
-
-
3,954
3,954
-
-
-
-
-
965
965
-
-
-
-
-
(2,075)
(2,075)
-
-
-
4,220
10,000
2,459
16,679
8,072
-
8,072
24 FINANCIAL INSTRUMENTS
(A) CAPITAL RISK MANAGEMENT
The Group manages its capital to ensure that the entities in the Group will be able to continue as a going concern while maximising the return to
stakeholders.
The Group’s overall strategy remains unchanged from 2019.
The capital structure of the Group consists of debt as disclosed in Note 13 and attributable to equity holders of the parent comprising issued
capital, reserves as disclosed in Notes 15, 16 respectively, and retained earnings.
Operating cash flows are used to acquire assets required for the Group’s operations, tax, dividends, share buy-backs and repayment of maturing
debt. The Group’s policy is to borrow centrally only if required.
GEARING RATIO
The Group’s Board reviews the capital structure on a semi-annual basis. As a part of this review the Board considers the cost of capital and the risks
associated with each class of capital. The Board will balance its overall capital structure through the payment of dividends, new share issue and
share buy-backs as well as the issue of new debt or the redemption of existing debt.
The Group’s interest-bearing liabilities and other facilities are set out in Note 13.
The net cash position at the end of the financial year was as follows:
(i)
Debt
Cash and cash equivalents
(Net debt) / excess cash and cash equivalents over debt
2020
$’000
(16,679)
11,198
(5,481)
2019
$’000
(8,072)
21,727
13,655
(ii)
Equity
173,658
205,419
(Debt) / excess cash to equity ratio
(3.2%)
6.6%
(i)
Debt is defined as long- and short-term interest-bearing liabilities, as detailed in Note 13.
(ii)
Equity includes all capital and reserves of the Group that are managed as capital.
72
(B)
FINANCIAL RISK MANAGEMENT OBJECTIVES
The Group is exposed to foreign exchange, fuel price, interest rate and liquidity risk. Management of these risks is governed by the Group’s
policy approved by the Board of Directors, which provides written principles on the management of financial risks. Compliance with policies and
exposure limits is reviewed by the Audit and Corporate Governance Committee and the Board on an ongoing basis. The Group does not enter
into trade financial instruments, including derivative financial instruments, for speculative purposes. The Treasury function, which co-ordinates the
hedging of financial risks from time to time, is managed by the Group’s Corporate Services Department and reports regularly to the Board and
Audit and Corporate Governance Committee.
(C)
FOREIGN CURRENCY RISK MANAGEMENT
The Group undertakes certain transactions denominated in United States Dollars (USD) and Chinese Yuan (CNY), hence exposures to exchange
rate fluctuations arise. Exchange rate exposures are managed using forward foreign exchange contracts.
The carrying amount of the Group’s foreign currency denominated monetary assets and monetary liabilities at the end of the financial year is as follows:
Liabilities
Assets
USD
2020
USD$’000
1,212
1,447
2019
USD$’000
1,306
-
CNY
2020
CNY$’000
-
2,448
2019
CNY$’000
-
-
FOREIGN CURRENCY SENSITIVITY ANALYSIS
The Group is mainly exposed to foreign currencies for the following main purchases, approximate amounts per annum are:
• USD 24 million for engineering purchases
• USD 15 million for engine care and maintenance
• USD 3 million for airline reservation systems usage
• USD 3 million for aircraft insurance policies
• CNY 27 million for training income revenue
Details of USD exposure with respect to the NSW Air Ambulance aircraft purchases is set out further below.
The following table details the Group’s sensitivity to a 10% increase and 10% decrease in the Australian Dollar against the USD and CNY. The
sensitivity analysis includes only outstanding non-derivative foreign currency denominated monetary items and adjusts their translation at the period
end for a 10% change in foreign currency rates. For a weakening of the Australian Dollar against the respective currency there would be an equal
and opposite impact on the profit and other equity, and the balances below would be negative.
Change in USD impact on profit or loss
Change in CNY impact on profit or loss
2020
$’000
30
50
2019
$’000
190
-
The Group’s sensitivity to foreign currency has remained constant, with the exception of the forward foreign exchange contracts which are set out
separately below.
FORWARD FOREIGN EXCHANGE CONTRACTS
The Group enters into forward FECs to manage the risk associated with anticipated sales and purchase transactions up to twelve months and up
to 100% of the exposure generated. Basis adjustments are made to the carrying amounts of nonfinancial hedged items when the anticipated sale
or purchase transaction takes place.
During the current year, the Group entered into a contract for the purchase of aircraft which will be used to operate the NSW Air Ambulance
aeromedical service. The purchase of these aircraft is denominated in USD. A total of $21,845 thousand has been spent at 30 June 2020, with
further spending in FY21-FY22 required, resulting in total aircraft purchases of approximately $77,670 thousand which will be paid by December
2021.
The Group has entered into a number of FECs as part of the debt facility agreement with the financier to hedge against the movement in USD. The
Group has also entered into FECs to hedge against the movement in CNY for training income from foreign customers. These contracts are classified
as cash flow hedges.
73
The undiscounted cash flows required to discharge the Group’s FECs in place at 30 June 2020 are presented below:
Less than 12 months
$’000
1-5 years
$’000
5+ years
$’000
2020
FECs - USD
FECs - CNY
(829)
40
(789)
-
-
-
The sensitivity of the value of these FECs to a change in the respective currencies compared to AUD are set out below:
2020
FECs - USD
FECs - CNY
Carrying amount
$’000
Profit/(loss)
$’000
Equity
$’000
Profit/(loss)
$’000
20% increase
20% decrease
(829)
40
(789)
-
-
-
5,692
(816)
4,876
-
-
-
-
-
-
Equity
$’000
(8,539)
1,225
(7,314)
There were no FECs on issue at 30 June 2019.
(D)
FUEL PRICE RISK MANAGEMENT
The Group may use jet fuel swap contracts to hedge exposure to movements in the price of aviation fuel. Jet fuel swaps are taken out from time to
time to hedge exposures to a maximum of 12 months in accordance with the Group’s risk management policies. The Group uses fuel swaps linked
to the Platts Singapore Kerosene benchmark to hedge exposures to jet fuel.
At 30 June 2020 the Group has in place fuel swap contracts to hedge notional fuel purchases of 3.5m litres of fuel per month to June 2021.
Due to the impact of COVID-19 and reduction of expected flying, the notional fuel purchases exceed the highly probable fuel purchases over the
period of the fuel swaps. As a result, the directors have considered the forecast fuel purchases based on the current and forecast activity levels,
and in line with these activity levels have de-designated the portion of the fuel swap hedges which are in excess of the forecasted activity and
therefore ineffective.
The ineffective portion of the fair value movement of the fuel swaps of $3,387 thousand has been recognised in profit or loss. The effective portion,
representing the fair value movement for fuel swaps for which the notional fuel purchases remain highly probable, is $1,947 thousand and has
been recognised in the cash flow hedge reserve.
The following table sets out the timing of the notional amount and the jet fuel price of the Group’s fuel swap instruments:
AUD fuel costs
2020
2019
Swap price
$ per L
Notional amount
L’000
Less than 1 year
L’000
1 to 2 years
L’000
2 to 5 years
L’000
0.54
0.70
45,500
13,692
45,500
13,692
-
-
-
-
The following table details the sensitivity of the Group’s financial assets and liabilities to a 20% increase and 20% decrease in the jet fuel price. A
positive number indicates an increase in profit or loss and other equity where the jet fuel price weakens. For an increase in the jet fuel price there
would be an equal and opposite impact on the profit and other equity, and the balances below would be negative. This analysis assumes that all
other variables remain constant and based on the designated hedge relationship at the reporting date.
74
2020
FECs - USD
FECs - CNY
Carrying amount
$’000
Profit/(loss)
$’000
Equity
$’000
Profit/(loss)
$’000
20% increase
20% decrease
(829)
40
(789)
-
-
-
5,692
(816)
4,876
-
-
-
Equity
$’000
(8,539)
1,225
(7,314)
20% increase
20% decrease
Carrying amount
$’000
Profit/(loss)
$’000
Equity
$’000
Profit/(loss)
$’000
2020
Derivative asset – jet fuel swap
Derivative (liability) – jet fuel swap
2019
Derivative asset – jet fuel swap
Derivative (liability) – jet fuel swap
-
(5,334)
(5,334)
360
-
360
-
1,552
1,552
-
-
-
-
1,107
1,107
1,917
-
1,917
-
(1,294)
(1,294)
-
-
-
Equity
$’000
-
(922)
(922)
(1,917)
-
(1,917)
(E)
INTEREST RATE RISK MANAGEMENT
The Group’s exposures to interest rates on financial assets and financial liabilities at 30 June 2020 are detailed in the liquidity risk management
section of this note. The Group has very little exposure to interest rate risk at 30 June 2020 on borrowings detailed in Note 13 as these borrowings
are at a fixed interest rate.
The Group has entered into a facility agreement to acquire aircraft to operate the NSW Air Ambulance contract. This facility was undrawn at 30
June 2020. To hedge against exposures to interest rate risk, the Group has entered into interest rate swap contracts with the financier to fix interest
rates over the facility term.
The interest rate swaps comprise two contracts which align with the construction and operational phases of the NSW Air Ambulance contract.
Under the swap contracts the BBSY rate is swapped to fixed rates set out below:
Construction phase
Operational phase
Notional amount
$’000
12,617
77,670
Start date
2 Nov 2020
4 Jan 2022
End date
1 Jan 2022
31 Dec 2031
Swap rate
%
0.7921
1.2588
The notional amount for the service period swap reduces as repayments are made under the amortising facility. The undiscounted cash flows
required to discharge the Group’s interest rate swap contracts in place at 30 June 2020 are presented below:
Less than 12 months
$’000
1-5 years
$’000
5+ years
$’000
2020
Construction phase
Operational phase
(134)
-
(134)
(190)
(1,788)
(1,978)
The sensitivity of the value of these interest rate swaps to a change in interest rates are set out below:
50bps increase
50bps decrease
Carrying amount
$’000
Profit/(loss)
$’000
Equity
$’000
Profit/(loss)
$’000
2020
Construction phase
Operational phase
303
1,777
2,080
-
-
-
(273)
(1,932)
(2,205)
-
-
-
There were no interest rate swaps on issue at 30 June 2019.
-
6
6
Equity
$’000
273
1,932
2,205
75
(F)
CREDIT RISK MANAGEMENT
The Group has limited exposure to credit risk as the majority of its revenue is derived from sales made through credit cards where counterparties
are either banks or the credit card companies. The disputes to the credit card charges amount to less than $50,000 a year.
The Group does not have any significant credit risk exposure to any single counterparty or any group of counterparties having similar characteristics.
The credit risk on liquid funds and derivative financial instruments is limited because the counterparties are banks with high credit-ratings assigned
by international credit-rating agencies.
(G)
LIQUIDITY RISK MANAGEMENT
Ultimate responsibility for liquidity risk management rests with the Board of Directors, who has built an appropriate liquidity risk management
framework for the management of the Group’s short, medium and long-term funding and liquidity management requirements. The Group’s operating
activities generate positive annual cash flow. The Group tries to maintain a $10 million cash balance by the end of each financial year. As and
when required, the Group uses financing facilities as detailed in Note 13.
LIQUIDITY AND INTEREST RISK TABLES
The following tables detail the Group’s remaining contractual maturity for its non-derivative financial liabilities. The amounts disclosed are based on
the contractual undiscounted principal and interest cash flows of financial liabilities based on the earliest date on which the Group can be required
to pay. The table includes both interest and principal cash flows.
2020
Non-interest bearing
Interest bearing
2019
Non-interest bearing
Interest bearing
1 month
$’000
1-3 months
$’000
3 months to a year
$’000
1-5 years
$’000
5+ years
$’000
19,483
369
19,852
20,939
369
21,308
-
739
739
-
739
739
-
13,324
13,324
-
3,324
3,324
-
-
-
-
4,431
4,431
-
-
-
-
-
-
The interest-bearing liabilities have a weighted average effective interest rate of 9.1% per annum for the 10-year bank loan (FY2012 to FY2021)
which was fully repaid on 25 August 2020, and 0.15% per annum for the NSW Ambulance advance.
(H)
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Directors consider that the carrying amounts of the financial assets and financial liabilities recorded at the amortised cost in the financial
statements approximate their fair values.
(I)
FAIR VALUE HIERARCHY
The following table analyses financial instruments carried at fair value. The different levels have been defined as follows:
•
Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities;
•
Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or
indirectly (i.e. derived from prices); and
•
Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).
There were no transfers between levels during the year.
76
30 June 2020
Financial assets carried at fair value
Derivative asset – jet fuel swap
Derivative asset – FECs
Financial liabilities carried at fair value
Derivative liability – jet fuel swap
Derivative liability – interest rate swap
Derivative liability – FECs
30 June 2019
Financial assets carried at fair value
Derivative asset – jet fuel swap
Financial liabilities carried at fair value
Derivative liability – jet fuel swap
Level 1
$’000
Level 2
$’000
Level 3
$’000
-
-
-
-
-
-
-
-
40
5,334
2,080
829
360
-
-
-
-
-
-
-
-
Total
$’000
-
40
5,334
2,080
829
360
-
For financial instruments not quoted in active markets, the Group uses valuation techniques such as present value, comparison to similar instruments
for which market observable prices exist and other relevant models used by market participants. These valuation techniques use both observable
and unobservable market inputs.
Fuel swap hedging contracts, interest rate swaps and foreign exchange derivative contracts are financial instruments that use valuation techniques
with only observable market inputs and are included in Level 2 above. Future cash flows are estimated based on forward rates (from observable
forward rates at the end of the reporting period) and contract forward rates, discounted at a rate that reflects the credit risk of various counterparties.
The Group does not have any Level 1 or Level 3 financial instruments.
25 KEY MANAGEMENT PERSONNEL COMPENSATION
The aggregate compensation made to directors and other members of key management personnel of the Group is set out below:
Short-term benefits
Post-employment benefits
Other long-term benefits
Share-based payment
2020
$
2,231,011
179,454
29,939
30,921
2,471,325
2019
$
2,214,282
179,960
29,555
29,751
2,453,548
26 RELATED PARTY TRANSACTIONS
(A)
EQUITY INTERESTS IN SUBSIDIARIES
Details of interests in subsidiaries are disclosed in Note 21 to the consolidated financial statements.
(B)
TRANSACTIONS WITH KEY MANAGEMENT PERSONNEL
(I) KEY MANAGEMENT PERSONNEL COMPENSATION
Details of key management personnel compensation are disclosed in Note 25 to the consolidated financial statements.
77
(II) LOANS TO KEY MANAGEMENT PERSONNEL
Loans have been provided to two key management personnel totalling $91,799 which were issued in prior years. There have been no changes to
the principal amount of the loans and interest paid during the year was $4,776.
(C) OTHER RELATED PARTY TRANSACTIONS
The Branksome Residences Pty Ltd (“Branksome”), a related entity of the Chairman, provides hotel, conference and venue hire services to the
Group. Total purchases from Branksome, mainly room hire for aircrew, were $329 thousand during the year (2019: $339 thousand). In addition,
the Group provides administrative services to Branksome and Greatland Development Pty Ltd, a related entity of the Chairman. The total income
earned by the Group from these entities was $63 thousand (2019: $60 thousand).
27 REMUNERATION OF AUDITORS
Audit and review of the consolidated financial statements
Other assurance and agreed-upon procedures under other legislation or
contractual arrangements
Other non-audit services - tax compliance, tax advice
The auditor of the Group is Deloitte Touche Tohmatsu.
2020
$
363,300
6,825
21,000
391,125
2019
$
357,725
6,678
12,600
376,803
28 EVENTS AFTER THE REPORTING PERIOD
Subsequent to the year end there were further restrictions on movement as a result of increased cases of COVID-19 in a number of states in which
the Group operates, particularly Victoria. The imposition of these lockdowns and border closures has had an effect on passenger demand of the
Group’s regular public transport (RPT) services, however as the majority of the Group’s RPT services are intra-state the impact is largely limited to
the restrictions within each state.
The key assumptions used in the impairment modelling as set out in Note 13 and the going concern forecast set out in Note 4 are largely in line with
the actual passenger demand, and the impact in the financial year to date has been limited given that the Group’s network in the affected states is
supported by the Regional Airline Network Support (RANS) program.
In July 2020, having contractually committed to the project prior to March 2020, Rex completed modifications to an existing building located next
to its Sydney head office which will house a Saab 340 Full Flight Simulator (FFS) owned by Ansett Aviation Training (AAT). The Sydney Simulator
Flight Training Centre is now in readiness to accept the installation of the FFS. The Simulator Flight Training Centre has been designed to allow for
future expansion and provisioning is in place for the installation of another type- specific aircraft FFS.
On the 21 September 2020, Rex signed a long-form term sheet with PAG Asia Capital for the investment of up to AUD150M to be used exclusively
to support the launch of Rex’s domestic major city jet operations scheduled to commence on 1 March 2021.
The Funding is proposed to comprise first ranking senior secured convertible notes.
It is proposed that an initial Funding tranche of AUD50 million will be drawn on completion of the Transaction, targeted for the end of December
2020, with the balance of the Funding drawn over the following three years. The Funding is subject to completion of due diligence by PAG; to
agreement and execution of long-form documentation; to customary conditions including Rex shareholder approval for the purposes of section
611 (Item 7) of the Corporations Act 2001 (Cth) and the ASX Listing Rules, which is intended to be sought at Rex’s Annual General Meeting that is
tentatively scheduled for early December 2020; as well as to the Foreign Investment Review Board and any other required regulatory approvals.
The terms of the Funding will also be reviewed by an independent expert.
The Notes will be convertible at AUD1.50 per share, subject to certain adjustments. Based on Rex’s current issued share capital, if the AUD50
million tranche is fully converted into shares, PAG would hold approximately 23% of Rex’s total issued shares and if the full AUD150 million is drawn
down and fully converted, PAG would hold approximately 48% of Rex’s issued shares.
Upon Completion, PAG will be entitled to nominate two directors to the Rex board.
On 29 September 2020 the Group signed Letters of Intent (LOIs) with two lessors for the lease of six Boeing 737-800 NG jets. The Group intends
to lease these aircraft for the launch of domestic jet operations and expects to take delivery of the first jet on or around 1 November 2020.
The LOIs are non-binding apart from a refundable security payment and are subject to various conditions including the preparation and execution
of lease agreements. The directors expect these aircraft will be deployed in the first phase of the launch of domestic jet operations which will see
three aircraft deployed on 1 March 2021.
78
29 SEGMENT INFORMATION
AASB 8 requires operating segments to be identified on the basis of internal reports about components of the Group that are regularly reviewed
by the chief operating decision maker in order to allocate resources to the segment and to assess its performance.
Information reported to the Group’s Chief Executive Officer for the purposes of resource allocation and assessment of performance is more
specifically focused on the category of customer for each type of service.
The Group’s reportable segments under AASB 8 are as follows:
• Regular public transport
• Charter
The accounting policies of the reportable segments are the same as the Group’s accounting policies.
The following is an analysis of the Group’s revenue and results by reportable operating segment for the year:
Continuing operations
Regular public transport
Charter
Finance income
Other (losses) / gains
Central administration costs and directors’ salaries
Finance costs
(Loss) / profit before tax
Tax benefit / (expense)
Consolidated segment revenue and (loss) / profit
Revenue
2020
$’000
292,099
29,721
321,820
2019
$’000
289,134
28,515
317,649
Segment result
2020
$’000
(16,928)
(686)
(17,614)
556
(824)
(8,684)
(850)
(27,416)
8,019
(19,397)
2019
$’000
27,945
5,044
32,989
895
1,111
(7,838)
(1,956)
25,201
(7,684)
17,517
The revenue reported above represents revenue generated from external customers and government grants and subsidies of $62,095 thousand.
There were no intersegment sales.
Segment result represents the profit earned by each segment without allocation of central administration costs and directors’ salaries. This is the
measure reported to the chief operating decision maker for the purposes of resource allocation and assessment of segment performance.
The following is an analysis of the Group’s assets and liabilities by reportable operating segment as at the end of the year:
Continuing operations
Regular public transport
Charter
Total assets / liabilities
Other segment information for the year is as follows:
Continuing operations
Regular public transport
Charter
Assets
2020
$’000
215,682
37,163
252,845
2019
$’000
220,967
51,882
272,849
Liabilities
2020
$’000
51,041
28,146
79,187
2019
$’000
46,034
21,396
67,430
Depreciation and amortisation
Additions to non-current assets
2020
$’000
16,575
5,357
21,932
2019
$’000
12,708
4,470
17,178
2020
$’000
28,864
21,853
50,717
2019
$’000
17,920
110
18,030
79
30 PARENT ENTITY DISCLOSURES
(A) FINANCIAL POSITION
Assets
Current assets
Non-current assets
Total assets
Liabilities
Current liabilities
Non-current liabilities
Total liabilities
Equity
Issued capital
Retained earnings
Share-based payments reserve
Cash flow hedge reserve
General reserve
Total equity
(B) FINANCIAL PERFORMANCE
(Loss) / profit for the year
Other comprehensive (loss) / income
Total comprehensive (loss) / income
2020
$’000
25,451
165,936
191,387
49,350
4,143
53,493
72,024
65,689
1,200
(3,371)
2,352
137,894
(16,369)
(3,623)
(19,992)
2019
$’000
43,941
176,056
219,997
53,911
1,816
55,727
72,024
90,274
1,404
252
316
164,270
11,070
252
11,322
(C) GUARANTEES ENTERED INTO BY THE PARENT ENTITY IN RELATION TO THE
DEBTS OF ITS SUBSIDIARIES
During FY2011, the parent entity entered into a deed of cross guarantee in relation to the debts of Pel-Air Aviation Pty Ltd, Rex Freight and Charter
Pty Ltd, Rex Investment Holdings Pty Ltd and Australian Airline Pilot Academy Pty Ltd.
In FY2020, AAPA Victoria Pty Ltd, Aviation Training Academy Australia Pty Ltd, VAA Pty Ltd and NAA Pty Ltd joined into the same deed of cross
guarantee.
By entering into the deed, the wholly owned entities have been relieved from the requirements to prepare a financial report and directors’ report
under Class Order 98/1418 (as amended) and Instrument 2016/785 issued by the Australian Securities and Investments Commission (‘ASIC’).
The above companies represent a ‘Closed Group’ for the purposes of the Instrument, and as there are no other parties to the Deed of Cross
Guarantee that are controlled by Regional Express Holdings Limited, they also represent the ‘Extended Closed Group’, therefore the Group’s
financial statements represent the financial statements of the ‘Extended Closed Group’.
(D) CONTINGENT LIABILITIES OF THE PARENT ENTITY
As at 30 June 2020, no contingent liabilities or assets existed (2019: nil).
(E) COMMITMENTS FOR THE ACQUISITION OF PROPERTY, PLANT AND
EQUIPMENT BY THE PARENT ENTITY
As at 30 June 2020, the parent entity has no commitment for the acquisition of property, plant and equipment.
80
31 SIGNIFICANT ACCOUNTING POLICIES
(A)
STATEMENT OF COMPLIANCE
These financial statements are general purpose financial statements which have been prepared in accordance with the Corporations Act 2001,
Accounting Standards and Interpretations, and comply with other requirements of the law. The financial statements include the consolidated
financial statements of the Group. For the purpose of preparing the consolidated statements, the Company is a for-profit entity.
Accounting Standards include Australian Accounting Standards. Compliance with Australian Accounting Standards ensures that the financial
statements and notes of the Group comply with International Financial Reporting Standards (‘IFRS’).
The financial statements were authorised for issue by the directors on 30 September 2020.
(B)
BASIS OF PREPARATION
The consolidated financial statements have been prepared on the basis of historical cost, except for the revaluation of certain financial instruments
that are measured at revalued amounts or fair values, as explained in the accounting policies below. Historical cost is based on the fair values of
the consideration given in exchange for assets. All amounts are presented in Australian dollars, unless otherwise noted.
The consolidated financial statements have been prepared on a going concern basis. In preparing the consolidated financial statements the
directors note that the Group and Company are in a net current asset deficiency position, due to the nature of the operations whereby customers
make payment for booked flights prior to the flights being taken and the impact of COVID-19 which is set out in Note 4. The directors have prepared
a cash flow forecast which indicates that the Group will have sufficient cash flows to meet all commitments and working capital requirements for the
12 month period from the date of signing this financial report. Based on the cash flow forecasts and other factors referred to above, the directors
are satisfied that the going concern basis of preparation is appropriate. Further details with respect to going concern are set out at Note 4.
In accordance with Legislative Instrument 2016/191 issued by the Australian Securities and Investments Commission relating to the rounding off of
amounts in the financial statements amounts in the financial statements have been rounded to the nearest hundred thousand dollars in accordance
with that Legislative Instrument, unless otherwise indicated.
(C)
BASIS OF CONSOLIDATION
The consolidated financial statements incorporate the financial statements of the Company and entities (including structured entities) controlled by
the Company and its subsidiaries. Control is achieved when the Company:
• has power over the investee;
•
is exposed, or has rights, to variable returns from its involvement with the investee; and
• has the ability to use its power to affect its returns.
The Company reassesses 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 listed above. When the Company has less than a majority of the voting rights of an investee, it has power over the investee
when the voting rights are sufficient to give it the practical ability to direct the relevant activities of the investee unilaterally. The Company considers
all relevant facts and circumstances in assessing whether or not the Company’s voting rights in an investee are sufficient to give it power, including:
•
the size of the Company’s holding of voting rights relative to the size and dispersion of holdings of the other vote holders;
• potential voting rights held by the Company, other vote holders or other parties;
•
rights arising from other contractual arrangements; and any additional facts and circumstances that indicate that the Company has, or does
not have, the current ability to direct the relevant activities at the time that decisions need to be made, including voting patterns at previous
shareholders’ meetings.
Consolidation of a subsidiary begins when the Company obtains control over the subsidiary and ceases when the Company loses control of the
subsidiary. Specifically, income and expenses of a subsidiary acquired or disposed of during the year are included in the consolidated statement
of profit or loss and other comprehensive income from the date the Company gains control until the date when the Company ceases to control
the subsidiary. Profit or loss and each component of other comprehensive income are attributed to the owners of the Company and to the non-
controlling interests. Total comprehensive income of subsidiaries is attributed to the owners of the Company and to the noncontrolling interests even
if this results in the non-controlling interests having a deficit balance.
When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with the Group’s
accounting policies. All intragroup assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the
Group are eliminated in full on consolidation.
Changes in the Group’s ownership interests in subsidiaries that do not result in the Group losing control over the subsidiaries are accounted for
as equity transactions. The carrying amounts of the Group’s interests and the noncontrolling interests are adjusted to reflect the changes in their
81
relative interests in the subsidiaries. Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the
consideration paid or received is recognised directly in equity and attributed to owners of the Company.
When the Group loses control of a subsidiary, a gain or loss is recognised in profit or loss and is calculated as the difference between (i) the
aggregate of the fair value of the consideration received and the fair value of any retained interest and (ii) the previous carrying amount of
the assets (including goodwill), and liabilities of the subsidiary and any non-controlling interests. All amounts previously recognised in other
comprehensive income in relation to that subsidiary are accounted for as if the Group had directly disposed of the related assets or liabilities of the
subsidiary (i.e. reclassified to profit or loss or transferred to another category of equity as specified/permitted by applicable AASBs). The fair value
of any investment retained in the former subsidiary at the date when control is lost is regarded as the fair value on initial recognition for subsequent
accounting under AASB 9 when applicable, or the cost on initial recognition of an investment in an associate or a joint venture.
(D)
REVENUE
REGULAR PUBLIC TRANSPORT, CHARTER AND FREIGHT REVENUE
The Group operates a number of air transport services:
• Regular public transport
• Charter services
• Freight services
Revenue from these services is recognised as revenue when the transportation service is provided.
The value of passenger revenue which has been booked and paid for but not yet flown is recorded as unearned revenue in the statement of
financial position. The Group does not adjust the consideration for any effects of a significant financing component as it is expected at contract
inception that the period between the transfer of goods and services and customer payments will be one year or less. Ancillary revenues which are
not considered distinct from the travel component because they are not capable of being separable are recognised as part of passenger revenue.
Breakage on passenger revenue is recognised in proportion to the pattern of rights exercised by the customer as reflected by the point of flown to
match the timing of revenue recognition with the underlying ticket performance obligations. This is based on historical experience. This estimation
is made such that the revenue recognised from passenger ticket breakage is not expected to result in a significant reversal of cumulative revenue
in the future.
Incremental costs of obtaining a contract are those costs that the Group incurs to obtain a contract with a customer that it would not have incurred
if the contract had not been obtained, such as sales commissions. The Group recognises the incremental costs of obtaining contracts in line with
the timing of the revenue to which they relate.
TRAINING REVENUE
The Group operates a pilot academy, Australian Airline Pilot Academy (“AAPA”) which provides training services to the Group’s cadets as well as
for external customers. Training revenue from external customers is recognised over time in relation to the training services being provided.
Cadet loans are offered to the Group’s cadets which defer payment of a portion of the training service fees over a period of seven years from the
date of the completion of the pilot training. These loans are interest bearing and are repaid over the service period. The interest on the cadet loans
is recognised as finance income in the statement of profit or loss.
(E)
BORROWING COSTS
Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take
a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are
substantially ready for their intended use or sale.
Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the
borrowing costs eligible for capitalisation.
82
(F)
CASH AND CASH EQUIVALENTS
Cash comprises cash on hand and demand deposits. Cash equivalents are short-term, highly liquid investments that are readily convertible to
known amounts of cash and which are subject to an insignificant risk of changes in value.
Bank overdrafts are shown within borrowings in current liabilities in the consolidated statement of financial position.
REX holds term deposits for the purposes of meeting financial obligations for workers compensation insurance. In prior periods, these were treated
as cash equivalents and reported as part of cash on the statement of financial position. The term deposits are interest bearing and have a maturity
date of greater than 90 days at inception. Accordingly, these term deposits do not meet the definition of cash equivalents and have been classified
as part of other receivables. Comparatives have been restated to reflect the change.
(G)
FOREIGN CURRENCIES
The individual financial statements of each Group entity are presented in its functional currency being the currency of the primary economic
environment in which the entity operates. For the purpose of the consolidated financial statements, the results and financial position of each entity
are expressed in Australian dollars (‘$’), which is the functional currency of the Group and the presentation currency for the consolidated financial
statements.
In preparing the financial statements of the individual entities, transactions in currencies other than the entity’s functional currency are recorded at
the rates of exchange prevailing on the dates of the transactions. At each balance date, monetary items denominated in foreign currencies are
retranslated at the rates prevailing at the balance date. Nonmonetary items carried at fair value that are denominated in foreign currencies are
retranslated at the rates prevailing on the date when the fair value was determined. Non-monetary items that are measured in terms of historical
cost in a foreign currency are not retranslated.
Exchange differences are recognised in profit or loss in the period in which they arise except for exchange differences on transactions entered into
in order to hedge certain foreign currency risks (refer to Note 24).
(H) DERIVATIVE FINANCIAL INSTRUMENTS
The Group enters into jet fuel swap and foreign exchange derivatives to hedge exposures to jet fuel prices and foreign exchange respectively. In the
current year, the Group also entered into interest rate swap derivatives to hedge exposures to interest rates with respect to the NSW Air Ambulance
facility. It is the Group’s policy not to enter into or hold derivative financial instruments for speculative trading purposes. Derivative financial
instruments are recognised at fair value both initially and on an ongoing basis. Transaction costs attributable to the derivative are recognised in
profit or loss when incurred.
HEDGE ACCOUNTING
The Group designates certain derivatives as hedges of highly probable forecast transactions (cash flow hedges). At the inception of the hedge
relationship, the Group documents the relationship between the hedging instrument and the hedged item, along with its risk management objectives
and its strategy for undertaking various hedge transactions. Furthermore, at the inception of the hedge and on an ongoing basis, the Group
documents whether the hedging instrument is effective in offsetting changes in fair values or cash flows of the hedged item attributable to the hedged
risk, which is when the hedging relationships meet all of the following hedge effectiveness requirements:
•
there is an economic relationship between the hedged item and the hedging instrument;
•
the effect of credit risk does not dominate the value changes that result from that economic relationship; and
•
the hedge ratio of the hedging relationship is the same as that resulting from the quantity of the hedged item that the Group actually hedges
and the quantity of the hedging instrument that the Group actually uses to hedge that quantity of hedged item.
If a hedging relationship ceases to meet the hedge effectiveness requirement relating to the hedge ratio but the risk management objective for that
designated hedging relationship remains the same, the Group adjusts the hedge ratio of the hedging relationship (i.e. rebalances the hedge) so
that it meets the qualifying criteria again.
The effective portion of changes in the fair value of derivatives and other qualifying hedging instruments that are designated and qualify as cash
flow hedges is recognised in other comprehensive income and accumulated under the heading of cash flow hedging reserve, limited to the
cumulative change in fair value of the hedged item from inception of the hedge. The gain or loss relating to the ineffective portion is recognised
immediately in profit or loss..
Amounts previously recognised in other comprehensive income and accumulated in equity are reclassified to profit or loss in the periods when
the hedged item affects profit or loss, in the same line as the recognised hedged item. However, when the hedged forecast transaction results in
the recognition of a non-financial asset or a non-financial liability, the gains and losses previously recognised in other comprehensive income
and accumulated in equity are removed from equity and included in the initial measurement of the cost of the non-financial asset or non-financial
liability. This transfer does not affect other comprehensive income. Furthermore, if the Group expects that some or all of the loss accumulated in
the cash flow hedging reserve will not be recovered in the future, that amount is immediately reclassified to profit or loss. The Group discontinues
hedge accounting only when the hedging relationship (or a part thereof) ceases to meet the qualifying criteria (after rebalancing, if applicable).
83
This includes instances when the hedging instrument expires or is sold, terminated or exercised. The discontinuation is accounted for prospectively.
Any gain or loss recognised in other comprehensive income and accumulated in cash flow hedge reserve at that time remains in equity and is
reclassified to profit or loss when the forecast transaction occurs. When a forecast transaction is no longer expected to occur, the gain or loss
accumulated in cash flow hedge reserve is reclassified immediately to profit or loss.
(I)
EMPLOYEE BENEFITS
A liability is recognised for benefits accruing to employees in respect of wages and salaries, annual leave, long service leave, and sick leave when
it is probable that settlement will be required and they are capable of being measured reliably.
Liabilities recognised in respect of short term employee benefits are measured at their nominal values using the remuneration rate expected to
apply at the time of settlement.
Liabilities recognised in respect of long term employee benefits are measured as the present value of the estimated future cash outflows to be made
by the Group in respect of services provided by employees up to reporting date.
(J)
FINANCIAL INSTRUMENTS
Financial assets and financial liabilities are recognised when a group entity becomes a party to the contractual provisions of the instrument.
Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue
of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or
deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable
to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognised immediately in profit or loss.
Investments are recognised and derecognised on trade date where the purchase or sale of an investment is under a contract whose terms require
delivery of the investment within the timeframe established by the market concerned, and are initially measured at fair value, net of transaction costs
except for those financial assets classified as at fair value through profit or loss which are initially measured at fair value.
The Group classifies its financial assets in the following measurement categories:
•
those to be measured subsequently at fair value through other comprehensive income
•
those to be measured subsequently at fair value through profit or loss; and
•
those to be measured at amortised cost.
The classification depends on the Group’s business model for managing financial assets and the contractual terms of the cash flows. For assets
measured at fair value, gains and losses will either be recorded in profit or loss or other comprehensive income. For investments in equity instruments
that are not held for trading, this will depend on whether the Group has made an irrevocable election at the time of initial recognition to account
for the equity investment at fair value through other comprehensive income.
EFFECTIVE INTEREST METHOD
The effective interest method is a method of calculating the amortised cost of a financial asset and of allocating interest income over the relevant
period. The effective interest rate is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset, or,
where appropriate, a shorter period, to the net carrying amount on initial recognition.
Income is recognised on an effective interest rate basis for debt instruments other than those financial assets ‘at fair value through profit or loss’.
FINANCIAL ASSETS AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME
The Group holds equity investments at fair value through other comprehensive income where an irrevocable election has been made by the Group
to present subsequent changes in fair value after initial recognition in other comprehensive income. On derecognition of the investment, there is no
subsequent reclassification of fair value gains and losses to profit or loss.
Dividends on available-for-sale equity instruments are recognised in profit and loss when the Group’s right to receive payments is established.
LOANS AND RECEIVABLES
Trade receivables, loans, and other receivables that have fixed or determinable payments that are not quoted in an active market are classified as
‘financial assets at amortised cost’. The Group holds loans and receivables with the objective to collect contractual cash flows and therefore they
are measured at amortised cost using the effective interest method less impairment.
Interest is recognised by applying the effective interest rate.
84
FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS
Financial assets which do not meet the criteria for amortised cost or fair value through other comprehensive income are recognised at fair value
through profit or loss.
Financial assets at fair value through profit or loss are stated at fair value, with any resultant gain or loss recognised in profit or loss. The net gain or
loss recognised in profit or loss incorporates any dividend or interest earned on the financial asset.
Fair value is determined in the manner described in Note 24.
IMPAIRMENT OF FINANCIAL ASSETS
The Company applies the AASB 9 simplified approach to measuring expected credit losses which uses a lifetime expected loss allowance for all
trade and other receivables.
The expected loss rates are based on the payment profiles of sales over a period of 36 month and the corresponding historical credit losses
experienced within this period. The historical loss rates are adjusted to reflect current and prospective information on macroeconomic factors
affecting the ability of the counterparty to settle the receivables.
Trade and other receivables are written off when there is information indicating that the debtor is in severe financial difficulty and there is no realistic
prospect of recovery, e.g. when the debtor has been placed under liquidation or has entered into bankruptcy proceedings, or when the trade
receivables are over two years past due, whichever occurs earlier. Indicators that there is no reasonable expectation of recovery include, amongst
others, the entry of the debtor into administration or liquidation.
Impairment losses on trade and other receivables are presented as impairment losses within profit or loss. Subsequent recoveries of amounts
previously written off are credited against the same line item.
DERECOGNITION OF FINANCIAL ASSETS
The Group derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset
and substantially all the risks and rewards of ownership of the asset to another party. If the Group neither transfers nor retains substantially all the risks
and rewards of ownership and continues to control the transferred asset, the Group recognises its retained interest in the asset and an associated
liability for amounts it may have to pay. If the Group retains substantially all the risks and rewards of ownership of a transferred financial asset, the
Group continues to recognise the financial asset and also recognises a collateralised borrowing for the proceeds received.
On derecognition of a financial asset measured at amortised cost, the difference between the asset’s carrying amount and the sum of the
consideration received and receivable is recognised in profit or loss. On derecognition of an investment in equity instrument which the Group has
elected on initial recognition to measure at fair value through other comprehensive income, the cumulative gain or loss previously accumulated in
the investments revaluation reserve is not reclassified to profit or loss, but is transferred to retained earnings.
(K)
FINANCIAL LIABILITIES AND EQUITY INSTRUMENTS
CLASSIFICATION OF DEBT OR EQUITY
Debt and equity instruments are classified as either liabilities or as equity in accordance with the substance of the contractual arrangement. An
equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity Instruments issued
by the Group are recorded at the proceeds received, net of direct issue costs.
FINANCIAL LIABILITIES
Financial liabilities are classified as either financial liabilities ‘at fair value through profit or loss’ or other financial liabilities at amortised cost.
FINANCIAL LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS
Financial liabilities at fair value through profit or loss are stated at fair value, with any resultant gain or loss recognised in profit or loss. The net gain
or loss recognised in profit or loss incorporates any interest paid on the financial liability. Fair value is determined in the manner described in Note
24.
OTHER FINANCIAL LIABILITIES AT AMORTISED COST
Other financial liabilities, including borrowings, are initially measured at fair value, net of transaction costs.
Other financial liabilities are subsequently measured at amortised cost using the effective interest method, with interest expense recognised on an
effective yield basis.
The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant
period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability,
or, where appropriate, a shorter period, to the net carrying amount on initial recognition.
85
(L) GOODWILL
Goodwill acquired in a business combination is carried at cost established at date of the acquisition of the business less accumulated impairment
losses if any.
For the purpose of impairment testing, goodwill is allocated to each of the Group’s cash-generating units (CGUs), or groups of CGUs, expected to
benefit from the synergies of the business combination. CGUs (or groups of CGUs) to which goodwill has been allocated are tested for impairment
annually, or more frequently if events or changes in circumstances indicate that goodwill might be impaired.
If the recoverable amount of the CGU (or group of CGUs) is less than the carrying amount of the CGU (or groups of CGUs), the impairment loss is
allocated first to reduce the carrying amount of any goodwill allocated to the CGU (or groups of CGUs) and then to the other assets of the CGU
(or groups of CGUs) pro-rata on the basis of the carrying amount of each asset in the CGU (or groups of CGUs). An impairment loss recognised
for goodwill is recognised immediately in profit or loss and is not reversed in a subsequent period.
On disposal of an operation within a CGU, the attributable amount of goodwill is included in the determination of the profit or loss on disposal
of the operation.
(M) GOVERNMENT GRANTS
Government grants are assistance by the government in the form of transfers of resources to the Group in return for past or future compliance with
certain conditions relating to the operating activities of the entity. Government grants include government assistance where there are no conditions
specifically relating to the operating activities of the Group other than the requirement to operate in certain regions or industry sectors.
Government grants are not recognised until there is reasonable assurance that the Group will comply with the conditions attaching to them and
that the grants will be received. Government grants are recognised in profit or loss on a systematic basis over the periods in which the Group
recognises as expenses the related costs for which the grants are intended to compensate. Specifically, government grants whose primary
condition is that the Group should purchase, construct or otherwise acquire non-current assets are recognised as deferred revenue in the statement
of financial position and transferred to profit or loss on a systematic and rational basis over the useful lives of the related assets.
Government grants that are receivable as compensation for expenses or losses already incurred or for the purpose of giving immediate financial
support to the Group with no future related costs are recognised in profit or loss in the period in which they become receivable. The grant
income has been recognised in the consolidated statement of profit and loss on a gross basis with any related expenses being recognised in the
applicable expense category.
The benefit of a government loan at a below-market rate of interest is treated as a government grant, measured as the difference between
proceeds received and the fair value of the loan based on prevailing market interest rates.
Government assistance which does not have conditions attached specifically relating to the operating activities of the entity is recognised in
accordance with the accounting policies above.
(N)
IMPAIRMENT OF OTHER TANGIBLE AND INTANGIBLE ASSETS OTHER THAN
GOODWILL
At each reporting date, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication
that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to
determine the extent of the impairment loss (if any). Where the asset does not generate cash flows that are independent from other assets, the
Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. Where a reasonable and consistent basis of
allocation can be identified, corporate assets are also allocated to individual cash-generating units, or otherwise they are allocated to the smallest
group of cash-generating units for which a reasonable and consistent allocation basis can be identified.
Intangible assets with indefinite useful lives and intangible assets not yet available for use are tested for impairment annually and whenever there
is an indication that the asset may be impaired.
Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are
discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks
specific to the asset for which the estimates of future cash flows have not been adjusted.
If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset
(cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised in profit or loss immediately, unless the relevant asset
is carried at fair value, in which case the impairment loss is treated as a revaluation decrease.
Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased to the revised estimate
of its recoverable amount, but only to the extent that the increased carrying amount does not exceed the carrying amount that would have
been determined had no impairment loss been recognised for the asset (cash-generating unit) in prior years. A reversal of an impairment loss is
recognised in profit or loss immediately, unless the relevant asset is carried at fair value, in which case the reversal of the impairment loss is treated
as a revaluation increase.
86
(O)
TAXATION
Income tax (benefit) / expense represents the sum of the tax currently payable and deferred tax
CURRENT TAX
The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit before tax as reported in the consolidated
statement of profit or loss and other comprehensive income/statement of profit or loss because of items of income or expense that are taxable or
deductible in other years and items that are never taxable or deductible. The Group’s liability for current tax is calculated using tax rates that have
been enacted or substantively enacted by the end of the reporting period.
DEFERRED TAX
Deferred tax is recognised on temporary differences between the carrying amounts of assets and liabilities in the consolidated financial statements
and the corresponding tax bases used in the computation of taxable profit. Deferred tax liabilities are generally recognised for all taxable
temporary differences. Deferred tax assets are generally recognised for all deductible temporary differences to the extent that it is probable that
taxable profits will be available against which those deductible temporary differences can be utilised. Such deferred tax assets and liabilities are
not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets
and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.
Deferred tax liabilities are recognised for taxable temporary differences associated with investments in subsidiaries and associates, and interests
in joint ventures, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference
will not reverse in the foreseeable future. Deferred tax assets arising from deductible temporary differences associated with such investments and
interests are only recognised to the extent that it is probable that there will be sufficient taxable profits against which to utilise the benefits of the
temporary differences and they are expected to reverse in the foreseeable future.
The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable
that sufficient taxable profits will be available to allow all or part of the asset to be recovered.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset
realised, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. The measurement
of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Group expects, at the end of the
reporting period, to recover or settle the carrying amount of its assets and liabilities.
Deferred tax liabilities and assets are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and
when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net
basis.
CURRENT AND DEFERRED TAX FOR THE PERIOD
Current and deferred tax are recognised in profit or loss, except when they relate to items that are recognised in other comprehensive income or
directly in equity, in which case the current and deferred tax are also recognised in other comprehensive income or directly in equity, respectively.
Where current tax or deferred tax arises from the initial accounting for a business combination, the tax effect is included in the accounting for the
business combination.
(P)
INTANGIBLE ASSETS
INTANGIBLE ASSETS ACQUIRED SEPARATELY
Intangible assets with finite lives that are acquired separately are recorded at cost less accumulated amortisation and impairment losses.
Amortisation is charged on a straight-line basis over their estimated useful lives. The estimated useful life and amortisation method is reviewed at
the end of each annual reporting period, with any changes in these accounting estimates being accounted for on a prospective basis. Intangible
assets with indefinite lives that are acquired separately are carried at cost less accumulated impairment losses.
The policies applied to finite intangible assets are as follows:
Intangible asset:
Amortisation method used:
Impairment test / recoverable amount testing:
computer software
4 years straight line
where an indicator of impairment exists
87
(Q)
INVENTORIES
Inventories are valued at the lower of cost and net realisable value. Cost of inventories is determined on a first in first out basis. Net realisable
value represents the estimated selling price less all estimated costs of completion and costs necessary to make the sale, or replacement cost price
in relation to the consumables.
Consumables expected to be consumed within 12 months are classified as current, or non-current where consumption are expected in a period
beyond 12 months.
(R)
LEASING
The Group predominantly leases properties and aircraft and equipment.
GROUP AS LESSOR
Leases for which the Group is a lessor are classified as finance or operating leases. Whenever the terms of the lease transfer substantially all the
risks and rewards of ownership to the lessee, the contract is classified as a finance lease.
All other leases are classified as operating leases.
Rental income from operating leases is recognised on a straight-line basis over the term of the relevant lease. Initial direct costs incurred in
negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognised on a straight-line basis over
the lease term.
Amounts due from lessees under finance leases are recognised as receivables at the amount of the Group’s net investment in the leases. Finance
lease income is allocated to accounting periods so as to reflect a constant periodic rate of return on the Group’s net investment outstanding in
respect of the leases.
When a contract includes both lease and non-lease components, the Group applies IFRS 15 to allocate the consideration under the contract to
each component.
GROUP AS LESSEE
The Group assesses whether a contract is or contains a lease, at inception of the contract. The Group recognises a right-of-use asset and a
corresponding lease liability with respect to all lease arrangements in which it is the lessee, except for short-term leases (defined as leases with a
lease term of 12 months or less) and leases of low value assets (such as computers, small items of office furniture and telephones). For these leases,
the Group recognises the lease payments as an operating expense on a straight-line basis over the term of the lease unless another systematic
basis is more representative of the time pattern in which economic benefits from the leased assets are consumed.
The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted by using
the rate implicit in the lease. If this rate cannot be readily determined, the Group uses its incremental borrowing rate.
Lease payments included in the measurement of the lease liability comprise:
a.
Fixed lease payments (including in-substance fixed payments), less any lease incentives receivable;
• Variable lease payments that depend on an index or rate, initially measured using the index or rate at the commencement date;
b.
c.
d.
The amount expected to be payable by the lessee under residual value guarantees;
The exercise price of purchase options, if the lessee is reasonably certain to exercise the options; and
Payments of penalties for terminating the lease, if the lease term reflects the exercise of an option to terminate the lease.
The lease liability is presented as a separate line in the consolidated statement of financial position. The lease liability is subsequently measured
by increasing the carrying amount to reflect interest on the lease liability (using the effective interest method) and by reducing the carrying amount
to reflect the lease payments made.
88
The Group remeasures the lease liability (and makes a corresponding adjustment to the related right-of-use asset) whenever:
e .
f
.
g.
The lease term has changed or there is a significant event or change in circumstances resulting in a change in the assessment of
exercise of a purchase option, in which case the lease liability is remeasured by discounting the revised lease payments using a revised
discount rate.
The lease payments change due to changes in an index or rate or a change in expected payment under a guaranteed residual value,
in which cases the lease liability is remeasured by discounting the revised lease payments using an unchanged discount rate (unless
the lease payments change is due to a change in a floating interest rate, in which case a revised discount rate is used).
A lease contract is modified and the lease modification is not accounted for as a separate lease, in which case the lease liability is
remeasured based on the lease term of the modified lease by discounting the revised lease payments using a revised discount rate at
the effective date of the modification.
The right-of-use assets comprise the initial measurement of the corresponding lease liability, lease payments made at or before the commencement
day, less any lease incentives received and any initial direct costs. They are subsequently measured at cost less accumulated depreciation and
impairment losses.
Whenever the Group incurs an obligation for costs to dismantle and remove a leased asset, restore the site on which it is located or restore the
underlying asset to the condition required by the terms and conditions of the lease, a provision is recognised and measured under AASB 137. To
the extent that the costs relate to a right-of-use asset, the costs are included in the related right-of-use asset.
Right-of-use assets are depreciated over the shorter period of lease term and useful life of the underlying asset. If a lease transfers ownership of the
underlying asset or the cost of the right-of-use asset reflects that the Group expects to exercise a purchase option, the related right-of-use asset is
depreciated over the useful life of the underlying asset. The depreciation starts at the commencement date of the lease.
The right-of-use assets are presented as a separate line in the consolidated statement of financial position.
The Group applies AASB 136 to determine whether a right-of-use asset is impaired and accounts for any identified impairment loss as described
in the ‘Property, Plant and Equipment’ policy.
(S)
PROPERTY, PLANT AND EQUIPMENT
Land and buildings, plant and equipment, leasehold improvements and equipment under finance lease are stated at cost less accumulated
depreciation and impairment. Cost includes expenditure that is directly attributable to the acquisition of the item. In the event that settlement of all
or part of the purchase consideration is deferred, cost is determined by discounting the amounts payable in the future to their present value as at
the date of acquisition.
Depreciation is provided on property, plant and equipment, including freehold buildings but excluding land. Depreciation is calculated on a
straight line basis so as to write off the net cost of each asset over its expected useful life to its estimated residual value. Leasehold improvements
are depreciated over the period of the lease or estimated useful life, whichever is the shorter, using the straight line method. The estimated useful
lives, residual values and depreciation method are reviewed at the end of each annual reporting period, with the effect of any changes recognised
on a prospective basis.
The rates applied are as follows:
Aircraft
Building
Computer Equipment
Engines
Furniture & Fittings
Leasehold Improvements
Motor Vehicles
Plant & Equipment
Rotable Assets
15,000 to 60,000 hours
20 to 40 years
4 to 5 years
10 to 20 years
8 to 10 years
over the unexpired lease period
7 years
8 years
5 to 20 years
An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected to arise from the
continued use of the asset. Any gain or loss arising in the disposal or retirement of an item of property, plant and equipment is determined as the
difference between the sales proceeds and the carrying amount of the asset and is recognised in profit or loss.
89
(T)
PROVISIONS
Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that the Group
will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation.
The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at reporting date, taking into
account the risks and uncertainties surrounding the obligation. When a provision is measured using the cash flows estimated to settle the present
obligation, its carrying amount is the present value of those cash flows (where the effect of the time value of money is material).
When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, the receivable is
recognised as an asset if it is virtually certain that reimbursement will be received and the amount of the receivable can be measured reliably.
(U)
SHARE-BASED PAYMENTS
Equity-settled share-based payments with employees and others providing similar services are measured at the fair value of the equity instrument
at the grant date. Details regarding the determination of the fair value of the equity-settled share-based transactions are set out in Note 16.
The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period,
based on the Group’s estimate of shares that will eventually vest with and corresponding to increase in equity.
Equity-settled share-based payment transactions with other parties other than employees are measured at the fair value of the goods and services
received, except where the fair value cannot be estimated reliably, in which case they are measured at the fair value of the equity instruments
granted, measured at the date the entity obtains the goods or the counterparty renders the service.
For cash-settled share-based payments, a liability is recognised for the goods or services acquired, measured initially at the fair value of the liability.
At the end of each reporting period until the liability is settled, and the date of settlement, the fair value of the liability is measured, with any changes
in fair value recognised in profit or loss for the year.
Reserved share account represents on market purchase of shares by the Group which are eventually granted to executives and employees as part
of their remuneration.
(V) GOODS AND SERVICES TAX
Revenues, expenses and assets are recognised net of the amount of goods and services tax (GST), except:
i.
ii.
where the amount of GST incurred is not recoverable from the taxation authority, it is recognised as part of the cost of acquisition of
an asset or as part of an item of expense; or
for receivables and payables which are recognised inclusive of GST
The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables.
Cash flows are included in the statement of cash flows on a gross basis. The GST component of cash flows arising from investing and financing
activities which is recoverable from, or payable to, the taxation authority is classified as operating cash flows.
(W) DIVIDEND AND INTEREST INCOME
Dividend from investments is recognised when the shareholder’s right to receive payment has been established provided that it is probable that the
economic benefits will flow to the Group and the amount of income can be measured reliably.
Interest income from or financial assets is recognised when it is probable that the economic benefits will flow to the Group and the amount of
revenue can be measured reliably.
Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate
that exactly discounts estimated future cash receipts through the expected life of the financial asset to that asset’s net carrying amount on initial
recognition.
90
DIRECTORS’ DECLARATION
The directors declare that:
(a)
(b)
(c)
in the directors’ opinion, there are reasonable grounds to believe that the Company will be able to pay its debts as and when they
become due and payable;
the attached financial statements are in compliance with International Financial Reporting Standards, as stated in Note 31(A) to the
consolidated financial statements;
in the directors’ opinion, the attached financial statements and notes thereto are in accordance with the Corporations Act 2001,
including compliance with accounting standards and giving a true and fair view of the financial position as at 30 June 2020 and
performance of the consolidated entity for the financial year ended on that date; and
(d)
the directors have been given the declarations required by s.295A of the Corporations Act 2001.
At the date of this declaration, there are reasonable grounds to believe that the members of the closed group identified in Note 30(C) will be able to meet and
obligations or liabilities to which they are, or may become, subject by virtue of the deed of cross guarantee described in Note 30(C).
Signed in accordance with a resolution of the directors made pursuant to s.295 (5) of the Corporations Act 2001.
On behalf of the Directors
Neville Howell
Chief Operating Officer
Sydney, 30 September 2020
91
INDEPENDENT AUDITOR’S REPORT
Deloitte Touche Tohmatsu
A.B.N. 74 490 121 060
Grosvenor Place
225 George Street
Sydney NSW 2000
PO Box N250 Grosvenor Place
Sydney NSW 1220 Australia
Deloitte Touche Tohmatsu
Tel: +61 (0) 2 9322 7000
A.B.N. 74 490 121 060
Fax: +61 (0) 2 9322 7001
www.deloitte.com.au
Grosvenor Place
225 George Street
Sydney NSW 2000
PO Box N250 Grosvenor Place
Sydney NSW 1220 Australia
Tel: +61 (0) 2 9322 7000
Fax: +61 (0) 2 9322 7001
www.deloitte.com.au
Independent Auditor’s Report to the Members of
Regional Express Holdings Limited
Report on the Audit of the Financial Report
Independent Auditor’s Report to the Members of
Regional Express Holdings Limited
Opinion
We have audited the financial report of Regional Express Holdings Limited (the “Company”) and
its subsidiaries (the “Group”), which comprises the consolidated statement of financial position
Report on the Audit of the Financial Report
as at 30 June 2020, consolidated statement of profit or loss, consolidated statement of other
comprehensive income or loss, consolidated statement of changes in equity and consolidated
statement of cash flows for the year then ended, and notes to the financial statements, including
Opinion
a summary of significant accounting policies and other explanatory information, and the
directors’ declaration.
We have audited the financial report of Regional Express Holdings Limited (the “Company”) and
its subsidiaries (the “Group”), which comprises the consolidated statement of financial position
In our opinion the accompanying financial report of the Group, is in accordance with the
as at 30 June 2020, consolidated statement of profit or loss, consolidated statement of other
Corporations Act 2001, including:
comprehensive income or loss, consolidated statement of changes in equity and consolidated
statement of cash flows for the year then ended, and notes to the financial statements, including
(i)
a summary of significant accounting policies and other explanatory information, and the
directors’ declaration.
(ii)
In our opinion the accompanying financial report of the Group, is in accordance with the
Corporations Act 2001, including:
Basis for Opinion
giving a true and fair view of the Group’s financial position as at 30 June 2020 and of its
financial performance for the year then ended; and
complying with Australian Accounting Standards and the Corporations Regulations 2001.
complying with Australian Accounting Standards and the Corporations Regulations 2001.
giving a true and fair view of the Group’s financial position as at 30 June 2020 and of its
financial performance for the year then ended; and
(i)
We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities
under those standards are further described in the Auditor’s Responsibilities for the Audit of the
Financial Report section of our report. We are independent of the Group in accordance with the
(ii)
auditor independence requirements of the Corporations Act 2001 and the ethical requirements
of the Accounting Professional & Ethical Standards Board’s APES 110 Code of Ethics for
Basis for Opinion
Professional Accountants (including Independence Standards) (the Code) that are relevant to
our audit of the financial report in Australia. We have also fulfilled our other ethical
responsibilities in accordance with the Code.
We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities
under those standards are further described in the Auditor’s Responsibilities for the Audit of the
We confirm that the independence declaration required by the Corporations Act 2001, which has
Financial Report section of our report. We are independent of the Group in accordance with the
been given to the directors of the Company, would be in the same terms if given to the directors
auditor independence requirements of the Corporations Act 2001 and the ethical requirements
as at the time of this auditor’s report.
of the Accounting Professional & Ethical Standards Board’s APES 110 Code of Ethics for
Professional Accountants (including Independence Standards) (the Code) that are relevant to
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a
our audit of the financial report in Australia. We have also fulfilled our other ethical
basis for our opinion.
responsibilities in accordance with the Code.
We confirm that the independence declaration required by the Corporations Act 2001, which has
been given to the directors of the Company, would be in the same terms if given to the directors
as at the time of this auditor’s report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a
basis for our opinion.
Member of Deloitte Asia Pacific Limited and the Deloitte organisation.
Liability limited by a scheme approved under Professional Standards Legislation.
92
Member of Deloitte Asia Pacific Limited and the Deloitte organisation.
Liability limited by a scheme approved under Professional Standards Legislation.
Key Audit Matters
Key audit matters are those matters that, in our professional judgement, were of most
significance in our audit of the financial report for the current period. These matters were
addressed in the context of our audit of the financial report as a whole, and in forming our
opinion thereon, and we do not provide a separate opinion on these matters.
Key Audit Matter
How the Key Audit Matter was addressed
in the audit
Carrying value of assets
As set out in Note 9, at 30 June 2020 the Group
has recognised aircraft and other property plant &
equipment of $92.27 million and $80.15 million
respectively in the consolidated statement of
financial position.
The Group’s operations have been significantly
disrupted since the beginning of the COVID-19
pandemic and continue to be negatively impacted,
the severity and duration of which is dependent on
factors beyond the Group’s control.
Long term cash flow forecasts are required to
support the value of the assets recognised. As
disclosed in Note 10 to the financial statements,
key estimates made which require significant
judgement in determining the inputs into these
forecasts which include:
• Recovery of passengers and network
capacity;
• Growth rates for revenue, operating costs and
fuel costs;
• Capital expenditure; and
• Discount rate.
There is a high degree of uncertainty in the
estimations and assumptions used in the cash flow
forecasts which form the basis of the recoverable
amounts attributable to the Group’s CGUs.
In conjunction with our valuation specialists, our
procedures included, but were not limited to:
• Evaluating management’s identification of
CGUs;
• Assessing key assumptions made by
management in relation to estimated
useful lives and residual values of assets
using valuation reports published by third
party specialists, industry data and the
Group’s historical experience and future
operating plans;
• Challenging the assumptions used
management’s impairment analysis by:
in
o Evaluating the historical accuracy of
management’s past estimates and
taking into account each CGU’s future
operating plans;
o Assessing management’s estimates
relating to the recovery of passenger
demand and activity with reference to
the pre-COVID-19 activity levels and
other available internal and external
information;
o Assessing the reasonableness of the
key
assumptions
and
underlying the calculations in the
models; and
inputs
o Performing sensitivity analysis on the
key model inputs and assumptions.
We also assessed the appropriateness of the
disclosures
financial
statements.
in Note 10
the
to
93
Key Audit Matter
Assumptions in liquidity forecasts
As at 30 June 2020, the Group has net assets of
$173.66 million and net current liabilities of $33.92
million. As described in Note 4 to the financial
statements, the financial statements have been
prepared on the going concern basis.
The Group has further set out its consideration of
the liquidity position and risks to the Group arising
from the impact of COVID-19 as well as mitigating
factors in relation to these risks in Note 4.
The Group’s operations are
forecast to be
significantly disrupted due to the impacts of the
COVID-19 pandemic, the severity and duration of
which is dependent on factors beyond the Group’s
control.
How the Key Audit Matter was addressed
in the audit
to evaluate
Our audit procedures
the
appropriateness of the Group’s assessment of
the assumptions used in its forecasts to meet
liquidity obligations for a period not less than 12
months from the date of our auditor’s report
included, but were not limited to:
• Evaluating and
challenging
the key
assumptions underlying cash flow forecasts
prepared for the period covered by the
assessment;
• Evaluating the historical accuracy of
management’s past forecasts and taking
into account the Group’s strategy and
operating plans;
Management have prepared cash flow forecasts to
demonstrate the Group’s ability to be able to pay
its debts as and when they become due and
payable and to support the preparation of the
financial statements on the going concern basis.
This requires the achievement of cash flow
forecasts, which include assumptions about those
future cash flows and the forecast results.
• Assessing the quantum and timing of
forecast cash flows;
•
Performing sensitivity analysis on the
forecast cash flows, with reference to
available cash balances and forecast cash
flows from operating activities;
The assumptions used in the liquidity forecasts are
considered to be a key audit matter due to the high
degree of estimation uncertainty and judgement
required in the cash flow forecasts.
• Evaluating financial performance in the
period from year end to the audit opinion
date against the cash flow forecast for the
same period; and
• Assessing the terms of any loan facilities
and timing of repayments.
We also assessed the appropriateness of the
disclosures included in Note 4 to the financial
statements.
94
Key Audit Matter
Valuation of unearned revenue
As at 30 June 2020, the Group recognised
unearned revenue of $16.03 million in the
consolidated statement of financial position.
The Group’s calculation of unearned revenue in
respect of flights purchased but not yet flown
requires significant judgment, requiring significant
volumes of data from flight booking systems and
passenger reports to be analysed and matched,
along with estimated adjustments to unearned
revenue such as the level of no-shows.
The COVID-19 pandemic has caused
flight
cancellations and a decline in forward bookings
which has increased the complexity of the
calculation of unearned revenue.
Grant revenue
As set out in Note 4, the Group has received a
number of grants under various state and federal
government programs. These include:
• Regional Airline
Funding Assistance
(RAFA);
• Regional Airline Network Support (RANS);
•
• Australian Airline Financial Relief Package
Jobkeeper;
(AAFRP); and
• Other state-based grants.
Grant revenue of $62.10 million was recognised
during the year. Government grants awarded to
REX require the Group to meet certain conditions
including eligibility of related expenditure, and
reporting requirements for claimed amounts.
Judgement is required in the recognition of grant
revenue in accordance with the relevant grant
agreements and/or legislation.
How the Key Audit Matter was addressed
in the audit
Our procedures included, but were not limited
to:
• Assessing the accounting policies adopted
by the Group in relation to revenue
recognition;
•
•
Testing a sample of controls over the
determination of unearned revenue;
Testing the integrity of the flight booking
systems and passenger
reports by
comparing a sample of flight information
to the cash receipt and flight data;
• Agreeing the inputs in the reconciliation of
flight
to external
unearned revenue
booking systems; and
• Challenging the assumptions used by
management in relation to the rate of no-
shows to assess the no-show revenue to
be recognised in profit or loss.
We also assessed the appropriateness of the
disclosures in Note 5, Note 12 and Note 31 to
the financial statements.
Our procedures included, but were not limited
to:
• Assessing
the appropriateness of
accounting policies adopted by the
Group in relation to government grants;
• Obtaining
the
grant
agreements to which the Group is
entitled;
relevant
• Selecting a sample of grants recognised
in the year and agreeing the claims to
supporting documentation;
• Evaluating the recognition of the grants
with respect to the Group’s accounting
policies.
We also assessed the appropriateness of the
disclosures in Note 4 and Note 31 to the
financial statements.
95
Other Information
The directors are responsible for the other information. The other information comprises the
information included in the annual report for the year ended 30 June 2020, but does not include
the financial report and our auditor’s report thereon.
Our opinion on the financial report does not cover the other information and we do not express
any form of assurance conclusion thereon.
In connection with our audit of the financial report, our responsibility is to read the other
information and, in doing so, consider whether the other information is materially inconsistent
with the financial report or our knowledge obtained in the audit or otherwise appears to be
materially misstated. If, based on the work we have performed, we conclude that there is a
material misstatement of this other information; we are required to report that fact. We have
nothing to report in this regard.
Responsibilities of the Directors for the Financial Report
The directors are responsible for the preparation of the financial report that gives a true and fair
view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for
such internal control as the directors determine is necessary to enable the preparation of the
financial report that gives a true and fair view and is free from material misstatement, whether
due to fraud or error.
In preparing the financial report, the directors are responsible for assessing the Group’s ability
to continue as a going concern, disclosing, as applicable, matters related to going concern and
using the going concern basis of accounting unless the directors either intend to liquidate the
Group or to cease operations, or have no realistic alternative but to do so.
Auditor’s Responsibilities for the Audit of the Financial Report
Our objectives are to obtain reasonable assurance about whether the financial report as a whole
is free from material misstatement, whether due to fraud or error, and to issue an auditor’s
report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a
guarantee that an audit conducted in accordance with the Australian Auditing Standards will
always detect a material misstatement when it exists. Misstatements can arise from fraud or
error and are considered material if, individually or in the aggregate, they could reasonably be
expected to influence the economic decisions of users taken on the basis of this financial report.
As part of an audit in accordance with the Australian Auditing Standards, we exercise
professional judgement and maintain professional scepticism throughout the audit. We also:
•
Identify and assess the risks of material misstatement of the financial report, whether
due to fraud or error, design and perform audit procedures responsive to those risks,
and obtain audit evidence that is sufficient and appropriate to provide a basis for our
opinion. The risk of not detecting a material misstatement resulting from fraud is higher
than for one resulting from error, as fraud may involve collusion, forgery, intentional
omissions, misrepresentations, or the override of internal control.
• Obtain an understanding of internal control relevant to the audit in order to design audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Group’s internal control.
• Evaluate the appropriateness of accounting policies used and the reasonableness of
accounting estimates and related disclosures made by the directors.
• Conclude on the appropriateness of the directors’ use of the going concern basis of
accounting and, based on the audit evidence obtained, whether a material uncertainty
exists related to events or conditions that may cast significant doubt on the Group’s
ability to continue as a going concern. If we conclude that a material uncertainty exists,
we are required to draw attention in our auditor’s report to the related disclosures in the
96
financial report or, if such disclosures are inadequate, to modify our opinion. Our
conclusions are based on the audit evidence obtained up to the date of our auditor’s
report. However, future events or conditions may cause the Group to cease to continue
as a going concern.
• Evaluate the overall presentation, structure and content of the financial report, including
the disclosures, and whether the financial report represents the underlying transactions
and events in a manner that achieves a fair presentation.
• Obtain sufficient appropriate audit evidence regarding the financial information of the
entities or business activities within the Group to express an opinion on the financial
report. We are responsible for the direction, supervision and performance of the Group’s
audit. We remain solely responsible for our audit opinion.
We communicate with the directors regarding, among other matters, the planned scope and
timing of the audit and significant audit findings, including any significant deficiencies in internal
control that we identify during our audit.
We also provide the directors with a statement that we have complied with relevant ethical
requirements regarding independence, and to communicate with them all relationships and
other matters that may reasonably be thought to bear on our independence, and where
applicable, actions taken to eliminate threats or safeguards applied.
From the matters communicated with the directors, we determine those matters that were of
most significance in the audit of the financial report of the current period and are therefore the
key audit matters. We describe these matters in our auditor’s report unless law or regulation
precludes public disclosure about the matter or when, in extremely rare circumstances, we
determine that a matter should not be communicated in our report because the adverse
consequences of doing so would reasonably be expected to outweigh the public interest benefits
of such communication.
Report on the Remuneration Report
Opinion on the Remuneration Report
We have audited the Remuneration Report included in pages 22 to 26 of the Directors’ Report
for the year ended 30 June 2020.
In our opinion, the Remuneration Report of Regional Express Holdings Limited, for the year
ended 30 June 2020, complies with section 300A of the Corporations Act 2001.
Responsibilities
The Directors of Regional Express Holdings Limited 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.
DELOITTE TOUCHE TOHMATSU
Damien Cork
Partner
Chartered Accountants
Sydney, 30 September 2020
97
ASX ADDITIONAL INFORMATION AS AT 04 DECEMBER 2020
This is required by the ASX, but falls outside of the audit opinion and therefore has no impact on the audit report issued.
NUMBER OF HOLDERS OF EQUITY SECURITIES
Ordinary share capital
110,154,375 fully paid ordinary shares are held by 3,944 individual shareholders.
All issued ordinary shares carry one vote per share and carry the rights to dividends.
DISTRIBUTION OF HOLDERS OF EQUITY SECURITIES
Fully Paid Ordinary Shares
Investors
Securities
Issued Capital (%)
1,656
1,597
330
313
48
3,944
217
1 – 1,000
1,001 – 5,000
5,001 – 10,000
10,001 – 100,000
100,001 and over
Total
Unmarketable Parcels
SUBSTANTIAL SHAREHOLDERS
Ordinary Shareholders
MR KIM HAI LIM
BNP PARIBAS NOMINEES PTY LTD
THIAN SOO LEE
JOO CHYE CHUA
MING YEW SEE TOH & HUI ING TJOA
MS HUI LING TJOA
TWENTY LARGEST HOLDERS OF QUOTED EQUITY SECURITIES
Ordinary Shareholders
MR KIM HAI LIM
BNP PARIBAS NOMINEES PTY LTD
THIAN SOO LEE
JOO CHYE CHUA
MING YEW SEE TOH & HUI ING TJOA
MS HUI LING TJOA
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED (Account 1)
LAY KHIM NG
REX INVESTMENT HOLDINGS PTY LIMITED (Account for Shares Gifted to Employees)
PACIFIC CUSTODIANS PTY LIMITED
CITICORP NOMINEES PTY LIMITED
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED (Account 2)
ANACACIA PTY LTD
MR THIAN SONG TJOA
MR MICHAEL KARL KORBER
STRATEGIC VALUE PTY LTD
NEWECONOMY COM AU NOMINEES PTY LIMITED
MR CARMELO COSTA
BNP PARIBAS NOMINEES PTY LTD
98
980,216
4,184,684
2,626,862
8,159,105
94,203,508
110,154,375
16,465
Fully Paid
Number
18,998,346
16,234,094
7,722,181
7,454,362
7,454,362
5,755,513
Fully Paid
Number
18,998,346
16,234,094
7,722,181
7,454,362
7,454,362
5,755,513
3,815,907
3,727,181
3,386,140
3,181,767
2,859,142
1,564,308
1,290,441
978,679
880,000
843,124
583,073
555,000
524,128
41.99
40.49
8.37
7.94
1.22
100.00
5.50
Percentage
17.25
14.74
7.01
6.77
6.77
5.22
Percentage
17.25
14.74
7.01
6.77
6.77
5.22
3.46
3.38
3.07
2.89
2.60
1.42
1.17
0.89
0.80
0.77
0.53
0.50
0.48
INDEPENDENT AUDITOR’S REPORT 99
REX GROUP OF COMPANIES
VICTORIA
100