SeaLink Travel Group
Annual Report 2016

Plain-text annual report

ANNUAL REPORT 2015-16 CONNECTING AUSTRALIAN ICONS AND LANDSCAPES TO THE WORLD BRANDS CONTENTS SEALINK TRAVEL GROUP FOUR YEAR FINANCIAL HIGHLIGHTS CHAIR REPORT CEO REPORT 2 3 4 5 KEY RESULTS DIRECTORS REPORT FINANCIAL REPORT AUDITORS REPORT REVENUE HISTORY 10 REMUNERATION REPORT 12 13 17 51 53 SEALINK TRAVEL GROUP SeaLink Travel Group Limited (“SeaLink”, “The Company” or “The Group”) is an established, geographically diversified transport and tourism company which provides services in two diverse industries being the Transport Industry, moving regular commuters and freight between travel destinations, and also the Tourism Industry, promoting and packaging holiday destinations, providing tours and delivering tourists to travel destinations. The SeaLink business was founded in 1989 with the purchase of a ferry service linking Kangaroo Island with the South Australian mainland. SeaLink now has operations across four states and the Northern Territory, covering 10 islands and 12 destinations, operating under the well-recognised brands of “SeaLink” and “Captain Cook Cruises”. SeaLink owns and operates a fleet of 75 ferries, including 3 under construction, and other maritime craft carrying over 8 million passengers per year. Additionally, SeaLink operates a fleet of 32 coaches, buses and other passenger vehicles. SeaLink’s operations are conducted through five core business units, they are: • SeaLink South Australia including Kangaroo Island SeaLink, coach touring, the Australian Holiday Centre and PW Murray Princess located in Mannum, South Australia • Captain Cook Cruises on Sydney Harbour • SeaLink North Queensland and SeaLink Northern Territory • SeaLink Gladstone and SeaLink South East Queensland, including Stradbroke Ferries • Captain Cook Cruises Western Australia SeaLink Travel Group successfully listed on the Australian Securities Exchange (ASX) on the 16th October 2013 (ASX code, SLK). 2 DIRECTORS REPORTFOUR YEAR FINANCIAL HIGHLIGHTS SEALINK TRAVEL GROUP NET PROFIT AFTER TAX ($M) PERFORMANCE Operating Revenue Underlying EBIT EBIT margin Underlying NPAT* Underlying EPS* (basic) Dividend per share (100% franked) Payout ratio (Reported NPAT) FINANCIAL STRENGTH Net assets NTA per share Gearing 2013 91.4 9.2 10.0 7.0 10.4 7.5 69.9 30.8 41.6 34 2014 2015 2016 103.8 111.3 176.8 12.4 11.9 7.9 11.8 7.4 73.7 53.9 61.7 17 14.8 13.3 9.6 12.6 7.8 64.1 61.3 68.9 13 35.3 19.9 23.1 24.4 12.0 54.3 137.0 89.0 33 $m $m % $m cents cents % $m cents % 25 20 15 10 5 FY12 FY13 FY14 FY15 FY16 Reported NPAT Underlying NPAT UNDERLYING EARNINGS PER SHARE UNDILUTED ($M) 25 20 15 10 5 FY12 FY13 FY14 FY15 FY16 Underlying Earnings per share (ave) – undiluted 3 CHAIR REPORT Dear Shareholder, I am very pleased to report an excellent year’s result for SeaLink Travel Group (“SeaLink”) – a record profit, further expansion of the Australian business base and strengthening of the balance sheet. We continue our evolution from a small commuter ferry business in South Australia into a major Australian based tourism and transport operator. This year saw the acquisition of the Transit Systems Marine businesses in Queensland, and Captain Cook Cruises Western Australia. Those acquisitions have been transformational for the Company, making a significant contribution to our result and supporting our strategy of diversification of geography and business types. The Company remains focused on the integration of these acquisitions and in achieving cost savings and efficiencies where possible. Market conditions for SeaLink have been positive for the year under review – Australia is regarded as a safe travel destination and inbound short term visitor numbers remain positive, as indicated in the graph below. This positive environment is aided by increasing government focus on tourism as a way to help SHORT TERM INTERNATIONAL VISITORS TO AUSTRALIA 10m 8m 6m 4m 2m I am pleased that we are able to declare a fully franked final dividend 7.5 cents per share (an 87.5% increase on our 2015 final dividend), and I thank our shareholders for their continuing support of the Company. I would also like to thank my Board colleagues for their contributions during the year. Finally, I would like to express my thanks to the SeaLink team of more than 1,100 employees all around Australia for their hard work and contributions during the year. It is worth noting that one third of our employees are based in our home state of South Australia and we are one of the largest regional tourism employers in the country. It is the people who maintain and run our ferries and serve our customers who are at the core of our success. We are looking to the remainder of the 2017 financial year to continue this growth. ANDREW McEVOY CHAIR, SEALINK TRAVEL GROUP address the reduced activity in the mining sector, particularly in Western Australia. SeaLink is well positioned to benefit from the consequent growth in tourism. We remain ready to meet the challenges ahead of us – our Capricornian class vessels are scheduled to conclude their operations in Gladstone in March 2017, and we are working on opportunities to redeploy those four vessels. Another key focus is to ensure we successfully conclude negotiations to renew or extend various long term key services contracts and infrastructure agreements we have with governments around Australia. We are a customer centric business with a focus on safety and reliability – meaning strong engagement with Government partners. Expanding opportunities for our existing businesses is also a prime focus including maximising utilisation for our fleet of 73 vessels. We have invested in construction of two new ferries that are targeted for servicing a new market on Sydney Harbour. We are confident we have the right strategies and plans in place together with strong management to deliver the next phase of growth. 15% 10% 5% FY10A FY11A FY12A FY13A FY14A FY15A FY16A FY17E FY18E Total ST Visitors PCP Growth (%) Source: ABS, Overseas Arrivals & Departures (ABS: 3401.0) and Tourism Research Australia, Tourism Forecasts July 2016. 4 CEO REPORT It gives me great pleasure to report on the Company’s performance over the last financial year. The Company achieved both strong growth from its operating businesses, and completed two acquisitions totalling $137 million (less adjustments) in what was a transformational year. The Company was able to successfully integrate the new businesses into the Group, grow sales, retain staff and cement a foundation for future growth. The new acquisitions have delivered a diversified portfolio of assets both geographically and by industries with more balance in our key tourism and transport industries. A $60.6 million capital raising has positioned the company with a strong balance sheet and a conservative debt level. It also has created liquidity in our shares and positioned us well inside the Top 300 companies on the Australian Securities Exchange. The newly acquired marine business of SeaLink Gladstone and South East Queensland had a positive effect on profit for the year with the business units recording a segment profit before interest and tax of $17.6m for the 8 month period since acquisition and after taking into account once off acquisition costs of $0.9m. Revenue from this business was $58.4m for the same period. With record sales, record profit and record earnings per share (up 94%), the Company has also been able to increase its final dividend from 4.5 cents to 7 cents per share. RESULT OVERVIEW The Company recorded a Net Profit after Tax (NPAT) of $22.3m compared to an NPAT of $9.3m for the June 2015 year. From a comparative perspective, the June 2016 year included the after-tax effect of acquisition related expenses of $0.7m whilst the June 2015 year included the after-tax effect of due diligence costs on acquisitions of $0.2m. 5 CEO REPORT CONTINUED In a competitive environment, Group revenue (excluding acquisitions) increased by 5.4% as a result of growth in its core businesses of Captain Cook Cruises Sydney and SeaLink South Australia. On Sydney Harbour, revenue for Captain Cook Cruises increased by 10.8% as a result of higher dining sales and new ferry route services into Watsons Bay and White Bay. Turnover from SeaLink Queensland in Townsville increased marginally from additional passengers on our core Magnetic Island ferry service. SeaLink took delivery of a mobile floating pontoon, “Beatrice Bush”, which has been used since November 2015 to service cruise ship passengers at White Bay in Sydney. A tug and specially designed barge were acquired in early 2016 to meet contractual commitments for the delivery of mineral sands from Stradbroke Island to Brisbane. With these acquisitions and the purchase of the marine business of Transit Systems and Captain Cook Cruises WA, our fleet under management now comprises 73 vessels as well as one vessel under construction. Contribution from Captain Cook Cruises Western Australia was a loss of $0.4m for the 2 months since acquisition. This was expected given the non-peak season but positions us well as we enter the new financial year. Growth in Profit Before Tax reflected a higher contribution from SeaLink South Australia’s operations which saw a combination of higher sales reflecting increased coach tour and ferry passengers, increased vehicle traffic and fuel savings. Captain Cook Cruises Sydney also increased its profit contribution compared to 2015 due to higher sales and improved margins. Lower fuel costs due to lower world oil prices had a positive effect on the result. Fuel costs were $1.3m lower on a year on year basis excluding new acquisitions. 6 SeaLink’s achievements in its key business segments for the year were: • Acquisition of the Transit Systems Marine business (November 2015); • Acquisition of Captain Cook Cruises Western Australia (April 2016); • A net $49.2m capital raise through both a share placement and a Share Purchase Plan; • Increased funding facilities of $59.4m to support business expansion; • Signing of contracts for long term ferry services in Gladstone; • Signing of a contract for cartage of sand in Moreton Bay, Queensland along with the purchase of a tug and barge; • Renewal of the Moggill ferry contract; • New ferry service in Sydney for the White Bay cruise terminal; and • Appointment of Andrew McEvoy as a new Chair and Andrea Staines to the Board. The Company continues to focus on its strategy of growth through acquisition as well as maximising sales growth from its existing businesses. Our underlying cash flow profile and the cash position at year end was strong with all financial covenants met during the year. Gearing (as defined by interest bearing debt to total tangible assets) was 33%, well within prudent gearing levels. SEALINK SOUTH AUSTRALIA Kangaroo Island SeaLink – including Murray Princess The business unit had a very solid year where revenue increased by 2.8% to $65m as a result of increased traffic flow to Kangaroo Island and improved touring sales. Lower margin accommodation package sales held back growth as suppliers reduced stock available to sell. Our Travel Centre sales revenue reduced, reflecting direct online sales trends. Both passenger and vehicle numbers increased by nearly 4% whilst freight was down 6% reflecting lower agricultural output. Murray Princess sales continued their growth increasing by 5.4%. Contribution increased by $0.3m as higher wages associated with a newly agreed Employee Enterprise Agreement partly offset increased margins. New reverse cycling air conditioning was also installed to service cabins on the main deck. Spend on vessel repairs and maintenance for the Kangaroo Island based vessels was $0.4m higher due to an out of water slipping for the Spirit of Kangaroo Island. Lower fuel costs generated positive savings of $0.4m as a result of a drop in world oil prices. Strong sales growth resulted in improved contributions from tour products and Murray Princess. The overall business segment contribution before interest increased by 20% to $13m. There were no major changes to this core business during the year. SeaLink continued to invest in its vehicle fleet with one new 53 seat coach purchased for the Kangaroo Island Tours and one replacement 4 Wheel Drive for its Kangaroo Island Odyssey business. CAPTAIN COOK CRUISES SYDNEY The 2015-16 year continued the business growth in sales and product expansion. Despite higher contribution from the growing dining product, profit was held back with the softening of the charter market, lower sales on contracted ferry routes and start-up costs associated with the new Watsons Bay and White Bay ferry services. Sales increased by $3.6m or 10.7% over last year, with growth coming from dining cruise where sales increased 17%. This continues to reflect increased demand from Asia, especially China where all sales from this source were up 26%. Charter sales were flat which reflects a tough competitive environment and lower demand. Sales increases also came from the Hop-on Hop-off ferry service which continues to increase its market penetration with the additional Manly leg proving to be popular. Lack of access to the Opal card led to lower revenue on ferry services. We are hopeful the NSW Government’s Opal Card will be open for use on our ferries during the latter part of the 2016-17 financial year. 7 CEO REPORT CONTINUED In November, 2015 the Company commenced the new White Bay ferry service taking cruise ship passengers to Darling Harbour and Circular Quay. Patronage has been growing and a recently contract signed with a cruise line company will help secure longer term profitability. In March 2015, SeaLink started a new ferry route from Watsons Bay to Circular Quay to service the commuter market. After building passenger patronage, this service is now generating positive returns. SEALINK TOWNSVILLE AND NORTHERN TERRITORY There was no major change in the Townsville/Northern Territory based business during the year. Assisted by a lower $0.1m expended on vessel repairs and maintenance and lower fuel cost compared to last year ($0.4m), the SeaLink Townsville/ Northern Territory business segment profit contribution before allocations increased by $0.7m. Turnover from SeaLink Townsville increased marginally with 2.4% higher revenue from its core Magnetic Island ferry service reflecting increased traffic. There are positive trends emerging that passenger numbers are steadily increasing as a result of further backpacker demand. There were no price increases during the year. Palm Island revenue was flat with a similar service level to last year. In Townsville, vessel maintenance costs were $0.2m lower than last year. In 2015, substantial works were undertaken on the MV Reef Cat super structure and interior. The Darwin operations performed to expectations during the year. Darwin’s revenue increased by $0.3m with the main influence coming from a new Tiwi Island packaged tours. Net contribution from Darwin operations has been positive and slightly ahead of plan for the year. Higher vessel repairs due to a planned gearbox replacement (up $0.2m) held back growth. Net contribution from Darwin operations has been positive and the Company continues to look for further opportunities to expand ferry services. SEALINK GLADSTONE AND SOUTH EAST QUEENSLAND The business of Transit Systems Marine (“TSM”) was acquired on 6 November, 2015 and has been performing to expectations. Net profit for the segment (before interest) was $17.6m for the eight months to 30 June 2016. The contribution included utilisation fees associated with a Gladstone contract, amortisation of customer contracts of $0.9m and corporate allocations including once off acquisition costs of $1.0m. During the period between signing the contract to acquire the TSM business and settlement on 6 November, 2015, two operational contracts for Gladstone were signed. These contracts are now coming on-stream in addition to the existing contracts to supply vessels for the construction phase of the LNG plants. Various vessels will be demobilised (coming off contract) over the next 12 months as the gas plants’ construction phase is completed. To date, 2 vessels have been demobilised. The MV Mandurama, was transferred to Sydney whilst the MV Capricornian Dancer was relocated to Melbourne on a wet lease basis. In December 2015, the business secured a long term contract to provide a tug and barge service to cart mineral sands from North Stradbroke Island to Brisbane. Previously, this service utilised a sub-contractor. SeaLink purchased a tug, a custom designed barge and an excavator for the contract which commenced on 1 January 2016. Also in December 2015, SeaLink signed a further long term contract for the Moggill Ferry, which operates across the Brisbane River. CAPTAIN COOK CRUISES WESTERN AUSTRALIA (CCCWA) The business was acquired on 29 April 2016 and has been performing to expectations. Net result for the segment (before interest) was a loss of $0.4m for the two months to 30 June 2016. Turnover for these 2 months was 5% higher than last year reflecting the opening in January 2016 of the Elizabeth Quay Marina. The business is operating to plan and is expected to provide a strong contribution to 2016/2017 earnings. BOARD At the October 2015 AGM, former Directors Mr Fred Mann and Ms Lucy Hughes Turnbull did not seek re-appointment due to personal changed circumstances. SeaLink is pleased to report that Ms Andrea Staines commenced as a Director on 15 February, 2016. Ms Staines has extensive experience in the transport sector, previously holding the position of CEO of Australian Airlines (a subsidiary of Qantas) which she co-launched in 2002. Ms Staines currently sits on the Boards of Goodstart Early Learning and the NSW Transport Advisory Board. She was recently appointed to Tourism Australia. I wish to again thank our retiring Directors Mr Fred Mann and Ms Lucy Hughes Turnbull for their years of valuable advice and dedication to the company. FUTURE We are confident in our strategy, which when combined with our great people and assets, will continue to deliver strong shareholder performance next year. There is strong appetite for SeaLink’s tourism products and services. All businesses, except SeaLink Gladstone, are well-positioned to improve upon their FY16 full year result, assuming average seasonal and current business conditions remain. 8 • Developing the new “light ferry” opportunity on Sydney Harbour; • Working with the Northern Territory Government to develop new routes; and • Continuing to seek new business acquisition opportunities that will enhance, leverage and complement our current capabilities and growth strategies I would like to thank our people, customers, suppliers, Directors and shareholders for their support over the past year. We could not achieve our success without all of their support. The hard working talented people at SeaLink are central to our ongoing success and I look forward to leading the Company to future growth and success. JEFF ELLISON MANAGING DIRECTOR AND CEO Full year underlying NPAT is expected to improve over 2016 underlying NPAT, with anticipated and foreshadowed lower Gladstone earnings post LNG plant construction on Curtis Island being offset by organic growth in pre-acquisition businesses and full year impact of SEQ operations and the Captain Cook Cruises Western Australia acquisition. We continue to seek new opportunities in our existing markets with Darwin and Sydney key areas for new routes and services. Future organic tourism growth opportunities in FY17 include development of tourism to North Stradbroke Island, continued growth in premium product contribution in Sydney, and tourism growth in Perth. Organic transport growth opportunities in FY17 include growth in the White Bay service, the introduction of a new “light ferry” service in Sydney and chartering a vessel, the MV Maggie Cat, to the Tongan government. Construction has commenced on two new “light ferries” for Sydney Harbour with a capacity of 60 passengers each. We expect these high speed, low wash catamarans to be excellent providers of high frequency services to locations in the inner harbour. Additionally, we continue to pursue the Company’s strategy of growth by acquisition as we continually assess opportunities both in Australia and overseas. Overall FY17 has started in line with expectations, despite adverse weather conditions for SeaLink South Australia in July. In summary, SeaLink’s overall plan for sustainable growth involves: • Continuing to develop further revenue and cost saving opportunities and efficiencies from acquisitions; • Continuing to improve sales, yields and margins on tourism products; • Utilising existing sales and marketing skills to promote new products and services; • Utilising in-house technology skills to improve booking processes and web sites to drive increased sales and productivity; • Crystallising opportunities to use vessels coming off contract after completion of the construction phase of the LNG plants in Gladstone; 9 REVENUE HISTORY 1998 1999 2000 2001 2002 2003 2004 2005 2006 180 ($M) 170 ($M) 160 ($M) 150 (4M) 140 ($M) 130 ($M) 120 ($M) 110 ($M) 100 ($M) 90 ($M) 80 ($M) 70 ($M) 60 ($M) 50 ($M) 40 ($M) 30 ($M) 20 ($M) 10 10 Adelaide Sightseeing Day Tours and City Centre Travel acquired. 1999 1998 Luxury Kangaroo Island ferry ‘Sealion 2000’ built and launched. Australian Holiday Centres Melbourne and Sydney acquired. Luxury Kangaroo Island ferry ‘Spirit of KI’ built and launched. 2003 Cape Jervis Ferry Terminal built and officially opened. 2005 2006 Kangaroo Island Adventure Tours soft adventure business acquired. 2004 Auckland NZ based ferry company, Subritzky Ferries acquired. The Ski Connection ski packaging and express coach transport company acquired. Vivonne Bay Outdoor Education Centre, Kangaroo Island acquired. 180 ($M) 170 ($M) 160 ($M) 150 (4M) 140 ($M) 130 ($M) 120 ($M) 110 ($M) 100 ($M) 90 ($M) 80 ($M) 70 ($M) 60 ($M) 50 ($M) 40 ($M) 30 ($M) 20 ($M) 10 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Kangaroo Island Booking Centre retail specialist agency acquired. SeaLink selected as Facility Managers for new Adelaide Central Bus Station. SkyLink Adelaide Airport Shuttle Service and fleet of coaches acquired. Vivonne Bay Eco Adventures built Bistro and Function Centre. CJ’s by the Sea café opened at Cape Jervis Ferry Terminal. 2007 2008 Big B Cartage Limited – NZ freight & trucking company, majority shareholding acquired. Premier Day Tour business acquired. Acquisition of Captain Cook Cruises WA. 2016 Establishment of SeaLink Northern Territory and commencement of ferry services from Darwin. Listed on the ASX. 2013 2015 Acquisition of Transit Systems Marine Businesses. Kangaroo Island Odysseys 4WD Luxury Touring business acquired. 2010 2014 Constructed the Penneshaw Terminal, Kangaroo Island. 2011 Sunferries Townsville, ferries to Magnetic and Palm Island acquired. Captain Cook Cruises and Matilda Cruises, Sydney Harbour and Murray River Cruises acquired. Sold SeaLink New Zealand including shareholding in Big B Cartage Limited. SkyLink Adelaide Airport Shuttle Service sold. 11 KEY RESULTS RESULTS IN BRIEF Revenue from ordinary activities Net Profit Before Tax Profit after tax from ordinary activities Note – 2014 includes ASX Listing costs of $0.9m before tax. – 2015 includes due diligence costs of $0.3m before tax. JUNE 2016 $M JUNE 2015 $M CHANGE $M CHANGE % 176.7 32.0 22.3 111.3 13.4 9.3 65.4 18.6 13.0 59 139 140 DIVIDENDS FINAL DIVIDEND DATES AMOUNT PER SHARE CENTS FRANKED AMOUNT PER SHARE CENTS TAX RATE FOR FRANKING CREDIT Ex-dividend date Record Date Payment date 22 September 2016 23 September 2016 14 October 2016 30 JUNE 2015 Interim Dividend Final Dividend 30 JUNE 2016 Interim Dividend Final Dividend 3.80 4.00 4.5 7.5 3.80 4.00 4.5 7.5 30% 30% 30% 30% NET TANGIBLE ASSETS Net tangible assets per ordinary share JUNE 2016 $ 0.89 JUNE 2015 $ 0.69 The report is based on the consolidated financial statements which have been audited by Ernst & Young. Additional Appendix 4E disclosure requirements can be found in the Directors’ Report and the consolidated financial statements. 12 DIRECTORS REPORT The Board of Directors of SeaLink Travel Group Ltd (SeaLink) has pleasure in submitting its report for the year ended 30 June, 2016. DIRECTORS The names and details of the company’s Directors in office during the financial year and until the date of this report are set out below. Directors have been in office for the entire period unless otherwise stated. JEFFREY ELLISON (BA (Acc), FCA, FAICD) MANAGING DIRECTOR AND CHIEF EXECUTIVE OFFICER Mr Ellison holds a Bachelor of Arts Degree in Accounting from the University of South Australia, is a Fellow of the Chartered Accountants Australia and New Zealand and the Institute of Company Directors. He has held the position of Chief Executive Officer since 1997 and appointed Managing Director in 2008. Mr Ellison is a member on the Tourism Australia International Industry Advisory Panel and a Director of Solstice Media Ltd. Mr Ellison has been awarded Life Membership of TTF Australia (Tourism and Transport Forum). ANDREW McEVOY (MA (Comms), BA Arts) CHAIRMAN Mr McEvoy holds a Bachelor of Arts Degree from the University of Melbourne and a Masters in Communications from City University in London. Mr McEvoy has extensive experience in the tourism sector, having held management positions with both Tourism Australia and the South Australian Tourism Commission. He is currently Managing Director, Life Media and Events of Fairfax Media, where he oversees the company’s new business portfolio, including events and content marketing. Mr McEvoy was appointed a Director on 1 February, 2015 and was appointed Chair effective 1 July, 2015 and is a member of the Remuneration and Nomination Committee. TERRY DODD NON-EXECUTIVE DIRECTOR Mr Dodd has extensive experience in business management and the marine industry. After qualifying as a commercial diver in the USA and working as a commercial diver in the onshore and offshore oil and gas industry, he successfully established a recreational diving business and a travel agency in North Queensland. Mr Dodd is Managing Director of Pacific Marine Group Pty Ltd, one of Australia’s largest marine construction and commercial diving companies. Mr Dodd was previously Managing Director of Sunferries, a ferry transport business based in Townsville, prior to its sale to SeaLink in March 2011 when Mr Dodd joined the Board of SeaLink. Mr Dodd is also Vice Chairperson on the Board of the Australian Festival of Chamber Music based in Townsville. CHRISTOPHER SMERDON (MAICD) NON-EXECUTIVE DIRECTOR Mr Smerdon has extensive experience in the Information Technology field. He founded Protech Australasia Pty Ltd in 1984 and was Managing Director until he sold his interests in 1995. Other Directorships currently held by Mr Smerdon are with Tourism & Allied Holdings Pty Ltd. and Aquaport Corporation. He is a former member of the South Australian Government Motorsport Board. Chris is currently Managing Director of Vectra Corporation, an international player in Security Consulting, Solutions and Infrastructure. Mr Smerdon joined the Board in 2002 and is a member of the Company’s Audit and Risk Committee. 13 TREVOR WALLER (BA (Acc), Dip Corp Management) COMPANY SECRETARY Mr Waller is the CFO and Company Secretary of the SeaLink Travel Group, a position he has held since June 2006. He is a former Chartered Accountant and Chartered Secretary who joined SeaLink following a wide range of commercial experience including 17 years in banking and 8 years in private practice. Mr Waller holds a Diploma in Corporate Management and a Bachelor Degree in Arts. PAUL BLEWETT (LLB) COMPANY SECRETARY Appointed 9 March 2016 Prior to joining SeaLink as General Counsel, Mr Blewett was Regional General Counsel and Company Secretary for Boart Longyear Limited (ASX:BLY). Mr Blewett has also held a number of similar positions with other ASX listed companies, following private legal practice for eight years with Lynch Meyer in South Australia. WILLIAM (BILL) SPURR AO (BApp,Science, BEc, Dip T, FAICD) NON-EXECUTIVE DIRECTOR ANDREA STAINES (MBA Finance, BA Economics) NON-EXECUTIVE DIRECTOR Appointed 15 February, 2016 Mr Spurr’s extensive experience in the tourism and hospitality industries dates back to the early 1980’s when he was the Executive Director of the Australian Hotels Association. Mr Spurr held the position as Chief Executive of the South Australian Tourism Commission from 1999 until July, 2007. Mr Spurr is currently Chair of Education Adelaide and Adelaide Venue Management Corporation and is an adjunct Professor of Tourism at Flinders University. Mr Spurr joined the Board of SeaLink in 2007, is Chairperson of the both the Company’s Audit and Risk Committee and the Remuneration and Nomination Committee. Ms Staines has extensive experience in the transport sector and is a former CEO of Australian Airlines which she co-launched in 2002. Ms Staines currently sits on the Boards of QIC, Goodstart Early Learning, Uniting Care Queensland and the Australian Rural Leadership Foundation. She was recently appointed to Tourism Australia. Ms Staines has held previous directorships with Aurizon Holdings Ltd, Australian Rail Track Corporation, Gladstone Ports Corporation, North Queensland Airports, Allconnex Water, Early Learning Services and Royal Children’s Hospital foundation. Ms Staines is a member of the Company’s Remuneration and Nomination Committee and a member of the Company’s Audit and Risk Committee. 14 DIRECTORS REPORTINTEREST IN THE SHARES AND OPTIONS OF THE COMPANY AND RELATED BODIES CORPORATE As at the date of this report, the interests of the directors in the shares and options of the Company were: A McEvoy C D Smerdon J R Ellison T J Dodd W T Spurr A Staines DIRECTOR’S MEETINGS NUMBER OF ORDINARY SHARES – 6,104,500 5,524,769 5,212,000 81,000 – NUMBER OF OPTIONS OVER ORDINARY SHARES – – – – – – The number of meetings of Directors (including meetings of committees of Directors) held during the last financial year and attended by each Director were as follows: NUMBER OF BOARD MEETINGS ATTENDED 10 10 10 10 10 10 4 3 2 Number of meetings held: A McEvoy (Chairperson) C D Smerdon J R Ellison T J Dodd W T Spurr A Staines F A Mann (Former Director) L M F Hughes Turnbull (Former Director) NUMBER OF AUDIT AND RISK COMMITTEE MEETINGS ATTENDED 3 – 2 3** – 3 – 1 – NUMBER OF REMUNERATION AND NOMINATIONS COMMITTEE 2 2 – 2** – 2 2 – 2 All current Directors were eligible to attend all meetings held, except for Ms Andrea Staines who was eligible to attend 5 Director’s meetings. ** Mr Ellison attended the Board sub-committees by invitation only. COMMITTEE MEMBERSHIP PRINCIPAL ACTIVITIES As at the date of this report, the Company had an Audit and Risk Committee and a Remuneration and Nomination Committee. Members acting on the Committees of the Board during the year were: The principal activities of SeaLink during the year were in providing: • Ferry services; Audit and Risk W T Spurr (C) A Staines C D Smerdon (C) Chairperson DIVIDENDS Remuneration and Nomination • Tourism cruises, charter cruises and accommodated cruising; W T Spurr (C) A Staines A McEvoy • Coach tours; • Packaged holidays; • Travel agency services; • Tug and barge service; and • Accommodation and restaurant services at Vivonne Bay. The following dividends of the consolidated entity have been paid, declared or recommended since the end of the preceding financial year: Interim fully franked dividend for 2016 paid 15 April 2016. Final fully franked dividend for the year ended 30 June 2015 and paid 15 October 2015. CENTS PER ORDINARY SHARE AMOUNT 4.5 $4,550,521 4.0 $3,072,597 SeaLink’s directors today declared a 7.5 cents per share fully franked final dividend payable on 14 October 2016 to shareholders registered on 23 September 2016. This represents a 54% return of net profit after tax to shareholders, in line with STG’s policy of returning 50-70% of after-tax profit, subject to business needs and ability to pay. The interim dividend for the half-year ended 31 December 2015 was 4.5 cents per share. The Board will continue to consider SeaLink’s growth requirements, its current cash position, market conditions and the need to maintain a healthy balance sheet, when determining future dividends. 15 DIRECTORS REPORTDIRECTORS REPORT SHARE OPTIONS UNISSUED SHARES As at 30 June 2016, there were 200,000 (2015; 781,250) options outstanding to acquire ordinary shares in the Company. There were no options issued to staff during the period. No options over issued shares or interests in the Company or a controlled entity were granted since the end of the financial year. Option holders do not have any right, by virtue of the option, to participate in any share issue of the Company. SHARES ISSUED AS A RESULT OF THE EXERCISE OF OPTIONS During the year, Directors and employees have exercised options to acquire 781,250 fully paid ordinary shares in SeaLink at an average weighted exercise price of $1.40 per share. SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS The business of Transit Systems Marine was acquired on 6th November, 2015 for a consideration of $115 million net of adjustments. This acquisition was funded through: • A capital placement of 16.9m shares at an issue price of $2.50 per share; • A Share Placement Plan which resulted in 4.33m shares being issued at $2.50; • Issuing 3.2m shares to the vendor at an issue price of $2.50 per share (fair value at settlement was $3.39 per share); and • The balance through Bank debt of $66.3M was drawn down at settlement. On 29th April 2016, the Group acquired the business of Captain Cook Cruises WA for a consideration of $11m net of adjustments. The acquisition involved the purchase of shares in two entities and was funded from existing debt facilities. These acquisitions have further strengthened SeaLink’s position as the leading provider of transport and tourism services in Australia. MATTERS SUBSEQUENT TO THE END OF THE FINANCIAL YEAR NON-AUDIT SERVICES A fully franked dividend of $7,856,558 representing 7.5 cents per share based on the current number of ordinary shares was declared by the Directors on 10 August 2016 to be paid 14 October 2016. The Company has contracted to construct two vessels for use in Sydney Harbour at a cost of $1.7m. Apart from the above, there are no significant events after the end of the reporting period which have come to our attention. OTHER The consolidated entity’s operations are not regulated by any significant environmental regulation under a law of the Commonwealth or of a State or Territory. No person has applied for leave of Court to bring proceedings on behalf of the Company or intervene in any proceedings to which the Company is a party for the purpose of taking responsibility on behalf of the Company for all or part of those proceedings. ROUNDING The amounts contained in this report and in the financial report have been rounded to the nearest $1,000 (unless otherwise stated) under the option available to the Company under ASIC Corporations (Rounding in Financial/ Directors’ Reports) Instrument 2016/191. The Company is an entity to which the legislative instrument applies. AUDITOR’S INDEPENDENCE DECLARATION A copy of the auditor’s independence declaration as required under Section 307C of the Corporations Act 2001 is set out on page 47. The following non-audit services were provided by the Company’s auditor, Ernst & Young. The directors are satisfied that the provision of non- audit services is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001: • Assurance related and acquisition related services – $51,500 INDEMNIFICATION OF OFFICERS AND DIRECTORS During the financial year, the Company renewed a contract insuring the directors of the Company (as named above), and all executive officers of the Company and of any related body corporate against a liability incurred in their capacity as directors, 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 cover and the amount of the premium. The Company is party to Deeds of Indemnity in favour of each of the Directors, referred to in this report who held office during the year and certain officeholders of the consolidated entity. The indemnities operate to the full extent permitted by law and are not subject to a monetary limit. SeaLink is not aware of any liability having arisen, and no claims have been made, during or since the financial year ending 30 June 2016 under the Deeds of Indemnity. INDEMNIFICATION OF AUDITORS To the extent permitted by law, the Company has agreed to indemnify its auditors, Ernst & Young Australia, as part of the terms of its audit engagement agreement against claims by third parties arising from the audit (for an unspecified amount). No payment has been made to indemnify Ernst & Young during or since the financial year. A J McEVOY CHAIRPERSON 10th August 2016 16 FINANCIAL REPORT SEALINK TRAVEL GROUP LTD AND ITS CONTROLLED ENTITIES CONSOLIDATED STATEMENT OF PROFIT AND LOSS FOR THE YEAR ENDED 30 JUNE 2016 CONTINUING OPERATIONS Revenue Interest income Other income Total income DIRECT OPERATING EXPENSES Direct wages Repairs and maintenance Fuel Commission Meals and beverage Accommodation Tour Costs Other direct expenses ADMINISTRATION EXPENSES Indirect wages General and administration Marketing and selling Financing charges Amortisation of customer contracts Business acquisition expenses Total expenses PROFIT BEFORE TAX FROM CONTINUING OPERATIONS Income tax expense Profit for the year from continuing operations Attributable to equity holders of the parent EARNINGS PER SHARE Basic, profit for the year attributable to ordinary equity holders of the parent Diluted, profit for the year attributable to ordinary equity holders of the parent 1B (a) 1B (g) 1C CONSOLIDATED STATEMENT OF OTHER COMPREHENSIVE INCOME (OCI) FOR THE YEAR ENDED 30 JUNE 2016 NOTE PROFIT FOR THE YEAR OTHER COMPREHENSIVE INCOME Net (loss)/gain on cash flow hedge (interest rate swap) 2I (iii) Deferred tax Net other comprehensive loss to be reclassified to profit and loss in subsequent financial periods Total comprehensive income for the year, net of tax Attributable to equity holders of the parent NOTE 2016 $’000 2015 $’000 1A (a) 176,723 111,282 1A (b) 203 533 86 380 177,459 111,748 47,157 25,848 8,845 5.927 6,647 7,693 4,231 10,465 17,778 19,497 10,596 2,076 2,470 965 1,040 145,487 31,972 9,623 22,349 22,349 $0.236 $0.234 2016 $’000 22,349 (1,070) 321 (749) 21,600 21,600 5,042 4,353 6,022 6,411 4,231 10,711 10,921 14,993 6,132 2,192 1,164 – 332 98,352 13,396 4,047 9,349 9,349 $0.123 $0.120 2015 $’000 9,349 – – – 9,349 9,349 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENT ARE INCLUDED ON PAGES 23-50 17 17 SEALINK TRAVEL GROUP LTD AND ITS CONTROLLED ENTITIES CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2016 CURRENT ASSETS Cash and cash equivalents Trade and other receivables Inventories Prepayments Total Current Assets NON-CURRENT ASSETS Property, plant and equipment Intangible assets Deferred tax assets Total Non-Current Assets Total Assets CURRENT LIABILITIES Trade and other payables Unearned revenue Operating lease liability Interest bearing loans and borrowings Current tax liabilities Other financial liabilities Provisions Total Current Liabilities NON-CURRENT LIABILITIES Unearned revenue Interest bearing loans and borrowings Deferred tax liabilities Other financial liabilities Provisions Total non-current liabilities Total liabilities Net assets EQUITY Contributed equity Reserves Retained earnings Total equity NOTE 2A 2B 2C 2D 2E 2J 2F 2H 2K 2I 2L 2G 2H 2I 2J 2L 2G 3B 3C 2016 $’000 5,208 14,951 3154 1,810 25,123 175,037 47,748 4,693 227,478 252,601 9,759 5,000 1,279 2,864 14,264 230 8,525 41,921 1,149 65,233 5,514 840 989 73,725 115,646 136,955 95,557 (230) 41,628 136,955 2015 $’000 2,261 3,227 1,302 1,244 8,034 72,631 6,629 2,721 81,981 90,015 5,238 3,814 – 3,293 1,578 – 4,453 18,376 1,321 7,027 1,015 – 982 10,345 28,721 61,294 33,904 487 26,903 61,294 18 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENT ARE INCLUDED ON PAGES 23-50 FINANCIAL REPORTSEALINK TRAVEL GROUP LTD AND ITS CONTROLLED ENTITIES CONSOLIDATED STATEMENT OF CHANGES IN EQUITY CONSOLIDATED NOTE BALANCE AT 1ST JULY, 2014 Profit for the period Other comprehensive income Total comprehensive income for the period TRANSACTIONS WITH OWNERS IN THEIR CAPACITY AS OWNERS – Dividends paid or provided for Issue of share capital Issue of share options Balance at 30th June, 2015 BALANCE AT 1ST JULY, 2015 Profit for the period Other comprehensive income Total comprehensive income for the period TRANSACTIONS WITH OWNERS IN THEIR CAPACITY AS OWNERS – Dividends paid or provided for Issue of share capital Issue of share options 3D 3B 3C 3D 3B CASH FLOW HEDGE RESERVE $’000 – – – – – – – – (749) (749) – – – CON- TRIBUTED EQUITY $’000 30,164 – – – – 3,740 – RETAINED EARNINGS $’000 23,315 9,349 – 9,349 (5,761) – – 33,904 26,903 33,904 – – – – 61,653 – 26,903 22,349 – 22,349 (7,624) – – Balance at 30th June, 2016 (749) 95,557 41,628 FINANCIAL REPORT SHARE OPTION RESERVE $’000 464 – – – – – 23 487 487 – – – – – 32 519 TOTAL $’000 53,943 9,349 – 9,349 (5,761) 3,740 23 61,294 61,294 22,349 (749) 21,600 (7,624) 61,653 32 136,955 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENT ARE INCLUDED ON PAGES 23-50 19 SEALINK TRAVEL GROUP LTD AND ITS CONTROLLED ENTITIES CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 30 JUNE 2016 NOTE CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers Payments to suppliers and employees Net GST paid Interest received Interest paid Income tax (paid)/received Net operating cash flows CASH FLOWS FROM INVESTING ACTIVITIES Cash was provided from: Proceeds from sale of property, plant and equipment Cash was disbursed to: Payments for property, plant and equipment Acquisition of new businesses (net of cash acquired) Net investing cash flows CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issue of shares Proceeds from borrowings Repayment of borrowings Dividend paid Net financing cash flows Net increase/(decrease) in cash held Cash and cash equivalents at 1 July Cash and cash equivalents at 30 June 2A 7A 3B 3D 2A 2016 $’000 176,178 (128,771) (4,856) 203 (2,502) (8,158) 32,094 2015 $’000 111,330 (90,458) (3,525) 86 (1,164) (4,080) 12,189 26 2,373 (6,855) (115,273) (122,102) 50,299 57.500 (7,220) (7,624) 92,955 2,947 2,261 5,208 (11,499) – (9,126) 3,733 – (3,222) (5,761) (5,250) (2,187) 4,448 2,261 20 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENT ARE INCLUDED ON PAGES 23-50 FINANCIAL REPORTSEALINK TRAVEL GROUP LTD AND ITS CONTROLLED ENTITIES INDEX SECTION 1: KEY NUMBERS - STATEMENT OF COMPREHENSIVE INCOME 1A 1B 1C 1D SECTION 2: KEY NUMBERS - STATEMENT OF FINANCIAL POSITION 2A 2B 2C 2D 2E 2F 2G 2H 2I 2J 2K 2L SECTION 3: CAPITAL 3A 3B 3C 3D 3E SECTION 4: RISK 4A 4B SECTION 5: ACCOUNTING POLICIES 5A 5B 5C 5D 5E SECTION 6: UNRECOGNISED ITEMS 6A 6B 6C SECTION 7: OTHER 7A 7B 7C 7D 7E 7F ASX ADDITIONAL INFORMATION Income Expenses Tax Expense Operating Segment Reporting Cash and short term deposits Trade and other receivables Inventories Property, plant and equipment Intangible assets Trade and other payables Provisions Unearned revenue Interest bearing loans and borrowings Deferred tax Operating lease Other financial liabilities Capital Management Equity Reserves Dividends Earnings per share Financial risk management objectives and policies Hedging Basis of preparation Summary of other significant accounting policies Changes in accounting policies and disclosures Standards issued but not yet affective Fair value measurement Commitments Contingencies Events after the reporting period Business Combinations Corporate information Parent Disclosure Share Option Plans Related Party Transactions Related Bodies Corporate NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENT ARE INCLUDED ON PAGES 23-50 21 FINANCIAL REPORT22 FINANCIAL REPORTSEALINK TRAVEL GROUP LTD AND ITS CONTROLLED ENTITIES – NOTES TO FINANCIAL STATEMENT FOR YEAR END 30 JUNE 2016 1 STATEMENT OF COMPREHENSIVE INCOME REVENUES FROM CONTINUING OPERATIONS 2016 $’000 2015 $’000 A INCOME (a) REVENUE Sales revenue Rental income (b) OTHER INCOME Profit on the sale of fixed assets Fuel derivative (loss)/income Expired bookings and cancellation fees Other B EXPENSES (a) FINANCE COSTS Interest expense Borrowings Leases Finance charges (b) DEPRECIATION/AMORTISATION Depreciation Property, plant and equipment Leased assets Total depreciation Amortisation of customer contracts (c) EMPLOYEE BENEFITS EXPENSE Wages and salaries Share based expense Other employee benefits/entitlements Superannuation Workers Compensation costs 176,248 475 176,723 5 – 315 213 533 1,773 144 553 2,470 7,770 68 7,838 965 53,769 32 2,175 5,411 1,620 63,008 110,869 413 111,282 155 (200) 325 100 380 552 320 292 1,164 3,753 91 3,844 – 31,807 23 1,440 3,414 1,121 37,782 (d) LEASE PAYMENTS IN INCOME STATEMENT Lease and rental expenses (e) AUDITOR’S REMUNERATION The following total remuneration was received, or is due and receivable, by the auditor Ernst & Young of the parent entity and its affiliates in respect of: – Auditing the accounts – Other services – Assurance and due diligence (f) INVENTORY EXPENSE Costs of inventories recognised as an expense (g) ACQUISITION EXPENSE 2,497 1,723 229 51 280 126 160 286 13,734 10,863 Costs involved in relation to business acquisitions (stamp duty, legal) 1,040 332 23 FINANCIAL REPORTSEALINK TRAVEL GROUP LTD AND ITS CONTROLLED ENTITIES – NOTES TO FINANCIAL STATEMENT FOR YEAR END 30 JUNE 2016 C TAX EXPENSE The major components of income tax expense for the years ended 30 June 2016 and 2015 are: 2016 $’000 2015 $’000 Consolidated statement of profit and loss Current tax Deferred tax Under (over) provision in respect of prior years plus adjustments Income tax expense reported in the income statement Consolidated statement of OCI Deferred tax related to items recognised and charged in OCI during the year: Net loss on revaluation of cash flow hedges Tax expense reconciliation The prima facie income tax expense on pre-tax accounting profit reconciles to the income tax expense as follows: Income tax expense calculated at 30% of operating profit Other (entertainment etc) Non-deductible expenses (goodwill/share option cost) Amounts under/(over) provided in prior years Income tax expense reported in the income statement 16,029 (6,407) 1 9,623 3,966 80 1 4,047 321 – 9,592 21 9 1 9,623 4,019 20 7 1 4,047 D OPERATING SEGMENT REPORTING For management purposes, the Group is organised into business units by reporting lines and has six main reporting segments: • Kanagaroo Island SeaLink (KIS), which offers ferry services, tours in SA, packaged holidays, retail travel services, accommodation facilities at Vivonne Bay and accommodated cruising on the PW Murray Princess; • Captain Cook Cruises (CCC) which runs tourist cruises, charter cruises, ferry passenger services on Sydney Harbour; SeaLink Queensland (SQ) which includes and manages the operations of SeaLink Northern Territory. This unit provides ferry passenger services in Townsville and Darwin as well as offering packaged holidays; • SeaLink Queensland (SQ) which includes and manages the operations of SeaLink Northern Territory. This unit provides ferry passenger services in Townsville and Darwin as well as offerring packaged holidays; • Captain Cook Cruises WA (CCC WA) which includes tourist cruises and ferry operations in Perth; • SeaLink Gladstone and SeaLink SEQ (TSM) which includes ferry and barging operations in Gladstone and South East Queensland; and • Corporate (Head Office), which provides finance, administration and risk management support. The Board and Executive Committee monitors the operating results of each business unit separately for the purpose of making decisions about strategy, resource allocation, cost management and performance assessment. Segment performance is measured consistently with operating profit or loss in the consolidated financial statements. Group income taxes and funding are managed on a Group basis and are not allocated to the segments below. Transfer pricing between operating segments is on an arm’s length basis in a manner similar to transactions with third parties. 24 FINANCIAL REPORTSEALINK TRAVEL GROUP LTD AND ITS CONTROLLED ENTITIES – NOTES TO FINANCIAL STATEMENT FOR YEAR END 30 JUNE 2016 D OPERATING SEGMENT REPORTING – CONTINUED YEAR ENDED 30 JUNE 2016 Internal revenue External Revenue RESULTS KIS $’000 3,550 CCC $’000 SQ $’000 CCC WA $’000 TSM $’000 CORPO- RATE $’000 ELIMINA- TIONS $’000 CONSOLI- DATED $’000 – 980 – – 2,089 (6,619) – 65,114 36,793 15,874 1,169 58,419 (113) – 177,256 Capital expenditure 1,550 2,084 Amortisation of customer contracts – – Depreciation 2,076 1,774 286 – 532 55 26 65 2,880 939 3,385 – – 6 Segment profit before interest and allocations – continuing operations Corporate allocations Segment profit before interest and tax – continuing Interest income Interest cost and finance charges 15,644 (2,698) 2,641 (773) 2,767 (366) (389) (154) 19,754 (6,179) (2,188) 6,179 12,946 1,868 2,401 (543) 17,566 – Segment profit before tax – continuing operations Inter-segment revenues are eliminated on consolidation and reflected in the eliminations column. – – – – – – 6,855 965 7,838 34,238 – 34,238 203 (2,470) 31,972 YEAR ENDED 30 JUNE 2015 Internal revenue External Revenue RESULTS Capital expenditure Depreciation Segment profit before interest and allocations – continuing operations Corporate allocations Segment profit before interest and tax – continuing Interest income Interest cost and finance charges CCC $’000 SQ $’000 CCC WA $’000 TSM $’000 KIS $’000 2,657 – 970 63,321 33,197 1 5,257 8 ,027 1 ,790 2,966 1 ,464 506 568 14,561 (3,263) 2,054 (788) 2,020 (110) 11,298 1 ,266 1,910 – – – – – – – – – – – – – – Segment profit before tax – continuing operations CORPO- RATE $’000 ELIMINA- TIONS $’000 CONSOLI- DATED $’000 3,101 (6,728) – (113) – 111,662 – 22 (4,161) 4 ,161 – – – – – – 11,499 3,844 14,474 – 14,474 86 (1,164) 13,396 25 FINANCIAL REPORTSEALINK TRAVEL GROUP LTD AND ITS CONTROLLED ENTITIES – NOTES TO FINANCIAL STATEMENT FOR YEAR END 30 JUNE 2016 THE FOLLOWING TABLE PRESENTS SEGMENT ASSETS AND LIABILITIES OF THE GROUP’S OPERATING SEGMENTS KIS $’000 38,280 76,790 CCC $’000 SQ $’000 CCC WA $’000 TSM $’000 36,620 15,426 13,221 144,353 5,139 3,376 1,713 8,850 36,159 17,798 36,006 15,118 4,657 3,673 – – – – CORPO- RATE $’000 ELIMINA- TIONS $’000 CONSOLI- DATED $’000 8 – 11 – – – – – 247,908 95,868 87,294 26,128 AT 30 JUNE 2016 Operating assets Operating liabilities AT 30 JUNE 2015 Operating assets Operating liabilities RECONCILIATION OF ASSETS AND LIABILITIES Segment operating assets Deferred tax assets Group total assets Segment operating liabilities Current tax liabilities Deferred tax liabilities Group total liabilities CONSOLIDATED 2016 $’000 CONSOLIDATED 2015 $’000 247,908 4,693 252,601 95,868 14,264 5,514 115,646 87,294 2,721 90,015 26,128 1,578 1,015 28,721 2016 $’000 2015 $’000 2 STATEMENT OF FINANCIAL POSITION A CASH AND CASH EQUIVALENTS (a) RECONCILIATION OF CASH For the purposes of the consolidated statement of cash flows, cash and cash equivalents comprise the following: Cash Cash on deposit Total cash and cash equivalents 1,795 3,412 5,208 1,795 466 2,261 (b) RECONCILIATION OF PROFIT AFTER INCOME TAX TO NET CASH PROVIDED BY OPERATING ACTIVITIES Profit for the year after income tax Non-Cash Items Depreciation and amortisation of non-current assets Deferred income Loss/(Profit) on disposal of non-current assets Share Option cost Share raising costs Changes in net assets and liabilities Tax balances Increase/(Decrease) Current trade receivables Decrease/(Increase) Current inventories (Increase)/Decrease Other current assets Decrease/(Increase) Current trade and other creditors Increase/(Decrease) Employee entitlements Increase/(Decrease) Net cash provided by operating activities 26 22,349 9,349 8,803 (172) (5) 32 – 1,466 (939) (237) (466) (562) 1,825 32,094 3,844 (171) (155) 23 – (33) (195) 106 133 (989) 277 12,189 FINANCIAL REPORTSEALINK TRAVEL GROUP LTD AND ITS CONTROLLED ENTITIES – NOTES TO FINANCIAL STATEMENT FOR YEAR END 30 JUNE 2016 B TRADE AND OTHER RECEIVABLES – CURRENT Trade receivables Other Allowance for doubtful debts Total trade and other receivables 2016 $’000 14,679 324 (52) 14,951 2015 $’000 2,975 258 (6) 3,227 Trade receivables are non-interest bearing and are generally on 30-60 day terms. An allowance for doubtful debts is made when there is objective evidence that a trade receivable is past due and considered impaired. ALLOWANCE FOR DOUBTFUL DEBTS Opening Balance Charge for the Year Utilised Closing Balance As at 30 June, the ageing analysis of trade receivables is as follows: INDIVIDUALLY IMPAIRED $’000 INDIVIDUALLY IMPAIRED $’000 (6) (46) – (52) (13) – 7 (6) NEITHER PAST DUE OR IMPAIRED RECEIVABLES PAST DUE BUT NOT IMPAIRED RECEIVABLES PAST DUE BUT NOT IMPAIRED RECEIVABLES PAST DUE BUT NOT IMPAIRED IMPAIRED TOTAL 0–30 DAYS 31–60 DAYS 61–90 DAYS OVER 90 DAYS 2016 – CONSOLIDATED 2015 – CONSOLIDATED 14,679 12,589 2,975 1,777 1,616 855 250 287 172 50 All other debtors are not past due and not impaired. C INVENTORIES Fuel (at cost) Goods held for resale (at cost) Spare parts Total current inventories 2016 $’000 327 580 2,247 3,154 52 6 2015 $’000 176 375 751 1,302 27 FINANCIAL REPORT SEALINK TRAVEL GROUP LTD AND ITS CONTROLLED ENTITIES – NOTES TO FINANCIAL STATEMENT FOR YEAR END 30 JUNE 2016 NOTE 2016 $’000 2015 $’000 D PROPERTY, PLANT AND EQUIPMENT LAND AND BUILDINGS Cost Opening balance Additions Acquired through business combinations 7A Disposals Closing balance Accumulated depreciation Opening balance Disposals Depreciation for the year Closing balance Total land and buildings, net PLANT AND EQUIPMENT Cost Opening balance Transfers Transfer from capital work 1B (b) Acquired through business combinations 7A Additions Disposals Closing balance Accumulated depreciation Opening balance Transfers Depreciation for the year Disposals Closing balance Total plant and equipment, net PLANT AND EQUIPMENT UNDER LEASE Cost Opening balance Additions Transfers Disposals Closing balance Accumulated depreciation Opening balance Depreciation for the year Transfers Disposals Closing balance Total leased plant and equipment, net 28 1B (b) 1B (b) 16,060 47 4,063 – 20,170 2,039 – 492 2,531 17,639 12,215 540 504 6,222 1,411 (454) 20,438 6,069 387 1,308 (433) 7,331 13,107 884 406 (540) – 750 459 68 (387) – 140 610 16,115 207 – (262) 16,060 1,750 (80) 369 2,039 14,021 11,258 – – – 1,901 (944) 12,215 5,933 – 892 (756) 6,069 6,146 884 – – – 884 368 91 – – 459 425 FINANCIAL REPORTSEALINK TRAVEL GROUP LTD AND ITS CONTROLLED ENTITIES – NOTES TO FINANCIAL STATEMENT FOR YEAR END 30 JUNE 2016 NOTE 2016 $’000 2015 $’000 FERRIES Cost Opening balance Additions Acquired through business combinations 7A Transfers from Capital works-in progress Disposals Closing balance Accumulated depreciation Opening balance Depreciation for the year Disposals Closing balance Total ferries, net CAPITAL WORKS-IN-PROGRESS Opening balance Additions Transfers to ferry/buildings Closing balance – represented by pontoon/ferries Total property, plant and equipment, net 1B (b) 71,553 3,411 93,124 – – 168,089 20,018 5,970 – 25,988 142,101 504 1,580 (504) 1,580 175,037 61,971 8,887 – 3,268 (2,573) 71,553 18,251 2,492 (725) 20,018 51,535 3,268 504 (3,268) 504 72,631 At 30 June 2016, there was 1 new vessel build in progress for use in Darwin. The vessel will replace the James Grant which will be relocated to Gladstone on a long term contract. At 30 June 2015, work in progress relates to a mobile pontoon for use in Sydney Harbour. Refer also to Note 6A for capital commitments. 2016 $’000 2015 $’000 E INTANGIBLE ASSETS Goodwill – at cost Cost Opening balance Additions thorough business combination Closing balance Accumulated Impairment Opening and Closing balance Total goodwill Customer contracts Additions through business combination Closing balance – at cost Less – amortisation during the period Total customer contracts Total intangible assets, net 6,758 33,671 40,429 (129) 40,300 8,413 8,413 (965) 7,448 47,748 6,758 – 6,758 (129) 6,629 – – – – 6,629 29 FINANCIAL REPORTSEALINK TRAVEL GROUP LTD AND ITS CONTROLLED ENTITIES – NOTES TO FINANCIAL STATEMENT FOR YEAR END 30 JUNE 2016 Goodwill acquired through business acquisitions has been allocated to KI Odysseys ($209,000), SeaLink Queensland ($6,420,392), Australian Holiday Centre Sydney ($128,520), Captain Cook Cruises WA ($3,590,174) and the Transit Systems Marine business ($30,081,028) being cash generating units (CGU’s). The Group’s impairment testing compares the carrying value of each CGU with its recoverable amount as determined using a value in use calculation. Australian Holiday Centre has been fully provided for in previous financial years. The majority of goodwill associated with the Transit Systems Marine business relates to the North Stradbroke Island ferry service, none of which is deductible for income tax purposes. The Group performed its annual impairment test at 30 June 2016. The assumptions for determining the recoverable amount are based on past experience and Senior Management’s expectations for the future. The cash flow projections are based on annual financial budgets approved by senior management extrapolated using a 3% growth rates for a five-year period. For all CGU’s, an EBIT ratio of between 6 and 7 times year 5 earnings has been used to determine the terminal value based on senior management’s expectations of market price for these style of businesses. A pre-tax discount rate of 11.9% (2015:12.1%) was applied to cash flow projections and terminal value to arrive at the recoverable amount. As a result of the updated analysis, management did not identify an impairment for either of these CGU’s. KEY ASSUMPTIONS USED IN THE VALUE IN USE CALCULATIONS The calculation of value in use for both cash generating units is most sensitive to the following key material assumptions: – Passenger numbers to Magnetic Island – An increase of 1% in traffic has been inbuilt into forecast sales based on increased tourism flow into Australia as well as a growing population base in Townsville. – Vessel repairs – These are estimated to increase at CPI (3% assumed) adjusted for significant expected engine rebuilds. – Passengers for KIO – An increase of 1-2% in traffic has been inbuilt to the forecast based on increased tourism flow into Australia, increased marketing focus and higher on-line sales expected. – Passenger revenue for CCC WA – an increase of 2% in traffic as well as a 2% pricing increase based on increased tourism flow and growth from Elizabeth Quay. – Revenue for ex Transit Marine business – an increase in revenue of 3% to reflect small traffic growth as well as a 2% pricing increase based on increased tourism flow to Stradbroke Island, CPI increases built into fixed contracts and growth in vessel charter rates. – No change to the current level of depreciation has been assumed for all business units. Management have assessed that changes to the key assumptions in the model, unless there was a large unforeseeable event, would not result in an impairment in goodwill for any of the business units. CUSTOMER CONTRACTS Customer contracts of $8.4m are associated with several government contracts for ferry services in Southern Moreton Bay, a ferry contract for sand transport and contracts associated with ferry transport in Gladstone and Perth. Contracts are amortised over their estimated life based on a combination of the length of customer contract and the likelihood of renewal. The amortisation period ranges between 5 and 7 years. During the period, the Company recorded an amortisation of $965,000 associated with customer contracts with an associated reduction in the Deferred Tax Liability of $289,500. F TRADE AND OTHER PAYABLES CURRENT (ALL UNSECURED) Trade creditors (i) Sundry payables and accruals Total current trade and other payables (i) Trade creditors are non-interest bearing and are normally settled on 14–60 day terms. G PROVISIONS CURRENT Employee entitlements NON-CURRENT Employee entitlements 30 2016 $’000 4,940 4,819 9,759 2016 $’000 8,525 989 2015 $’000 3,231 2,007 5,238 2015 $’000 4,453 982 FINANCIAL REPORTSEALINK TRAVEL GROUP LTD AND ITS CONTROLLED ENTITIES – NOTES TO FINANCIAL STATEMENT FOR YEAR END 30 JUNE 2016 H UNEARNED REVENUE CURRENT Deferred income – Government grant Prepaid travel (a) Total unearned revenue NON-CURRENT Deferred income – Government grant Total non-current payables 2016 $’000 172 4,828 5,000 1,149 1,149 2015 $’000 172 3,642 3,814 1,321 1,321 (a) As part of providing ferry services to passengers, vehicles and freight, and cruises, customers pay a portion or all of the balance owing in advance of travel date. Under revenue recognition principles, the payment for travel is not recognised as revenue until the travel paid for has departed. The balance above therefore relates to bookings with departure dates on or after 1 July 2016 (2015: 1 July 2015). Government Grants There were no grants received during the year. All grants are released to income equally over the expected useful life of the asset. Previous grants released to income totalled $171,639 (2015:$171,639). NOTE 2016 $’000 I INTEREST BEARING LOANS AND BORROWINGS CURRENT Secured: Bank and other loans (i) Lease liabilities (ii) Total current interest bearing liabilities NON-CURRENT Secured: Bank loans (i) Lease liabilities (ii) Total non-current interest bearing liabilities (i) Security, terms and conditions – Loans and Overdraft 6A 6A 974 1,890 2,864 62,500 2,733 65,233 2015 $’000 – 3,293 3,293 5,000 2,027 7,027 First registered mortgage over property situated at Penneshaw, Kangaroo Island, Neutral Bay Marina and Russell Island. First ranking registered company charge over all the assets and undertakings of all asset holding and trading subsidiaries. Registered ship mortgages over all vessels in the fleet that are not leased, except for the CCC WA vessels. Various guarantee facilities have been provided as surety on a range of lease contracts. Bank loans have been drawn down under an interchangeable bill facility with a limit of $80.5m with ANZ which matures 6 November 2018. The current facility limit will reduce by $5m by June 2017 and a further $5m by June 2018. This limit is reviewed annually. As part of the interchangeable facility with ANZ, $7m has been allocated for hire purchase and lease facilities. During the current year, there were no defaults or breaches. (ii) Effectively secured over the assets leased. Leases are fixed rate with a lease term of between 48 and 60 months. Committed financing facilities of $101,461,326 (2015: $26,537,873) were available to the consolidated entity at the end of the financial year. As at that date, $83,131,409 (2015: $11,042,151) of these facilities were in use. Interest bearing loans and borrowings have a fair value of $68,075,000 (2015: $10,283,000) and a carrying value of $68,097,000 (2015:$10,320,000). During the year, interest bearing borrowings of $12,809,000 were repaid from capital raised through cashflow from operations. Drawdowns of $70,309,000 were made to fund the acquisition of the Transit Systems Marine and Captain Cook Cruises WA businesses. 31 FINANCIAL REPORT SEALINK TRAVEL GROUP LTD AND ITS CONTROLLED ENTITIES – NOTES TO FINANCIAL STATEMENT FOR YEAR END 30 JUNE 2016 STATEMENT OF FINANCIAL POSITION 2015 $’000 2016 $’000 STATEMENT OF PROFIT AND LOSS 2015 $’000 2016 $’000 J DEFERRED INCOME TAX Deferred income tax at 30 June relates to the following: DEFERRED TAX ASSETS Provision for doubtful debts Government grants Accruals Capital expense timing differences Revaluation of cash flow hedge (interest rate swap) Asset timing depreciation differences Employee entitlements Total deferred tax assets DEFERRED TAX LIABILITIES Accelerated depreciation for tax purposes Receivables Customer contracts Consumables Total deferred tax liabilities Deferred Income tax expense 16 396 41 611 321 454 2,854 4,693 1,214 1,953 2,234 113 5,514 2 448 54 301 – 286 1,630 2,721 950 – – 65 1,015 K OPERATING LEASE The Group has entered an arrangement in Gladstone where certain vessels have been funded by a third party. During the vessels contractual period, certain principal payments are made to reduce the net exposure to an agreed residual, which, at maturity, is offset against utilisation fees. Utilisation fees are brought to account progressively over the term of the contract. There are currently two vessels under this arrangement. All contracts finalise by June 2017. 14 (51) (93) (195) – 168 547 (230) 6,000 290 (43) 6,407 2 448 (34) (6) – (1) (82) 183 – – (33) 80 L DEFERRED INCOME TAX Derivative designated as hedging instrument CURRENT Interest rate swap NON-CURRENT Interest rate swap NOTE 4B 4B 2016 $’000 2015 $’000 230 840 – – 32 FINANCIAL REPORT SEALINK TRAVEL GROUP LTD AND ITS CONTROLLED ENTITIES – NOTES TO FINANCIAL STATEMENT FOR YEAR END 30 JUNE 2016 3 CAPITAL A CAPITAL MANAGEMENT The primary objective of the Group’s capital management is to ensure that it maintains healthy capital ratios to support its business and maximise shareholder value. The Group manages its capital structure and makes adjustments to it in light of changes in economic conditions. To maintain or adjust the capital structure, the Group may adjust the dividend payment to shareholders, return capital to shareholders or issue new shares. Apart from the conversion of share options to ordinary shares, no changes were made in the objectives, policies or processes for managing capital during the year. The Group monitors capital using a gearing ratio, which is measured as net interest bearing debt divided by total tangible assets. This ratio aligns with one of the key financier’s covenants. The Group’s policy is to maintain gearing ratio at less than 60%. As at 30 June 2016, the gearing ratio was 33% (2015: 13%). B EQUITY ISSUED AND FULLY PAID ORDINARY SHARES (ALL ISSUED SHARES FULLY PAID) Opening balance Conversion of Options (refer Note 7D) Issue of shares through a Share Placement in September 2015 Issue of shares through a Share Purchase Plan in October 2015 Issue of shares as purchase consideration in November 2015 (refer Note 7A) Deferred tax associated with share issue expenses Total CONTRIBUTED EQUITY NO. OF SHARES ON ISSUE 2016 $’000 2015 $’000 2016 ‘000 2015 ‘000 33,904 1,084 38,380 10,835 10,848 506 95,557 30,164 3,740 – – – – 76,815 781 16,004 4,354 3,200 – 73,815 3,000 – – – – 33,904 101,154 76,815 During the year, 781,250 share options were converted to ordinary shares at an average price of $1.40 raising gross proceeds of $1,090,625. To fund the Transit Systems Marine business, 20,357,930 ordinary shares were issued at a price of $2.50 raising gross proceeds of $50,894,825. These shares were raised through a Share Placement and through a Share Purchase Plan to existing shareholders. Additionally, the Company issued 3,200,000 shares at a fair value of $3.39 as part of the consideration for the Transit Systems Marine business. The Company expended a gross $1,686,100 less $505,830 of associated deferred tax asset to raise these funds which was allocated to contributed equity. C RESERVES SHARE OPTION RESERVE Opening Balance Share option expense Closing balance 2016 $’000 2015 $’000 487 32 519 464 23 487 The Share Option reserve is used to record the value of options and performance rights issued to directors and senior employees as part of their remuneration (refer Note 7D). CASH FLOW HEDGE RESERVE Opening Balance Revaluation of interest rate hedge (refer Note 4B) Closing balance Total reserves – (749) (749) (230) – – – 487 33 FINANCIAL REPORTSEALINK TRAVEL GROUP LTD AND ITS CONTROLLED ENTITIES – NOTES TO FINANCIAL STATEMENT FOR YEAR END 30 JUNE 2016 D DIVIDENDS Dividends on ordinary shares declared and paid during the period: Interim dividend for 2016: 4.5 cents (2015: 3.8 cents) Final dividend for 2015: 4.0 cents (2014: 3.7 cents) 2016 $’000 2015 $’000 4,551 3,073 2,919 2,842 Dividends on ordinary shares proposed for approval (not recognised as a liability as at 30 June): Final dividend for 2016: 7.5 cents (2015: 4.0 cents) 7,587 3,073 FRANKING CREDIT BALANCE The amount of franking credits available for the subsequent financial year are: Franking account balance as at the end of the financial year Franking credits that will arise from the payment of income tax as at the end of the financial year. 10,745 14,264 25,009 2016 $’000 7,549 1,578 9,127 2015 $’000 E EARNINGS PER SHARE Basic earnings per share are calculated by dividing net profit for the year attributable to ordinary equity holders by the weighted average number of ordinary shares outstanding during the year. Diluted earnings per share are calculated by dividing net profit for the year attributable to ordinary equity holders by the weighted average number of ordinary shares outstanding during the year plus the weighted average number of ordinary shares that would be issued on conversion of all the dilutive potential ordinary shares into ordinary shares. The following reflects the income and share data used in the basic and diluted share computations: Net profit attributable to ordinary equity holders of the parent and for basic earnings and adjusted for the effect of dilution 22,349 9,349 Weighted average number of ordinary shares for basic earnings per share Effect of dilution from share options and performance rights Weighted average number of ordinary shares adjusted for dilution ’000 94,524 839 95,363 ’000 76,169 1,558 77,727 There have been no other transactions involving ordinary shares or potential ordinary shares between the reporting date and date of these financial statements. 34 FINANCIAL REPORTSEALINK TRAVEL GROUP LTD AND ITS CONTROLLED ENTITIES – NOTES TO FINANCIAL STATEMENT FOR YEAR END 30 JUNE 2016 4 RISK A FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES The Group’s principal financial liabilities comprise of loans and borrowings and trade and other payables. The main purpose of these financial liabilities is to finance the Group’s operations and to provide guarantees to support its operations. The Group’s principal financial assets include trade and other receivables, cash and short- term deposits that derive directly from its operations. The Group also enters into derivative transactions. The Group is exposed to market risk, credit risk and liquidity risk. The Group’s senior management oversees the management of these risks andis supported by Audit and Risk Committee that oversees the appropriate financial risk governance framework for the Group. It is the Group’s policy that no trading in derivatives for speculative purposes may be undertaken. The Board reviews and agrees policies for managing each of these risks, which are summarised below. MARKET RISK Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk comprise three types of risk: interest rate risk, currency risk and other price risk, such as equity price risk and commodity risk. Financial instruments affected by market risk include loans and borrowings, deposits and derivative financial instruments. The Group is not exposed directly to any material foreign currency risk. INTEREST RATE RISK Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Group’s exposure to the risk of changes in market interest rates relates primarily to the Group’s long-term debt obligations with floating rates. The Group manages its interest rate risk by having a balanced portfolio of fixed and variable rate loans and borrowings. The Group’s policy is to keep between 40% and 60% of its borrowings at fixed rates of interest. To manage this, the Group enters into either fixed rate leases for larger assets, use cash advance facilities which are variable interest rate based, uses interest rate hedges or enters into longer term fixed rate loans. At 30 June 2016, 52% of the Group’s interest bearing borrowings are effectively at a fixed rate of interest (2015: 51%). The sensitivity analyses in the following sections relate to the position as at 30 June 2016 and 30 June 2015. It has been prepared on the basis that the amount of net debt, the ratio of fixed to floating interest rates of the debt and derivatives are all constant and on the basis of the hedge designations in place at 30 June 2016. The table below sets out the carrying amount, by maturity, of the financial instruments exposed to interest rate risk: WEIGHTED AVE. EFFECTIVE INTEREST RATE WITHIN 1 YEAR 1 TO 5 YEARS 2016 % 2015 % 2016 $’000 2015 $’000 2016 $’000 2015 $’000 2016 $’000 TOTAL 2015 $’000 1.0 0.6 5,208 2,261 5,208 2,261 FINANCIAL ASSETS Floating Rate Cash Assets FINANCIAL LIABILITIES Floating Rate Overdraft 3.50 5.20 Bills of exchange 3.54 3.54 Fixed Rate Cash advance Leases Net Exposure 3.93 n/a 4.60 5.99 – – – – – – – – – – 1,890 3,318 3,293 (1,032) – 32,500 5,000 32,500 30,000 2,733 (65,233) – 2,027 (7,027) 30,000 4,623 (61,915) – 5,000 – 5,320 (8,059) 35 FINANCIAL REPORT SEALINK TRAVEL GROUP LTD AND ITS CONTROLLED ENTITIES – NOTES TO FINANCIAL STATEMENT FOR YEAR END 30 JUNE 2016 INTEREST RATE SENSITIVITY At 30 June, if interest rates had moved as illustrated in the table below, with all other variables held constant, post tax profit and equity would have been affected as follows: JUDGEMENT OF REASONABLY POSSIBLE MOVEMENTS Movement of 0.5% increase in rates Movement of a 1% decrease in rates PROFIT AFFECT EQUITY AFFECT CONSOLIDATED 30 JUNE 2016 $’000 CONSOLIDATED 30 JUNE 2015 $’000 CONSOLIDATED 30 JUNE 2016 $’000 CONSOLIDATED 30 JUNE 2015 $’000 (114) 228 (8) 16 609 (1,239) – – The movements in post tax profit are due to higher/lower interest income from variable rate cash balances and cash advances. COMMODITY RISK – FUEL PRICE The Group did not have any fuel forward derivatives to hedge changes in the underlying prices of fuel at 30 June 2016. CREDIT RISK Credit risk is the risk that a counterparty will not meet its obligations under a financial instrument or customer contract, leading to a financial loss. The Group is exposed to credit risk from its operating activities (primarily trade receivables) and from its financing activities, including deposits with banks, foreign exchange transactions and other financial instruments. There are no major concentrations of credit risk. There were no expsoures that comprised more than 12% of trade receivables. Collection of this debt is not considered doubtful. TRADE RECEIVABLES Customer credit risk is managed by each business unit subject to the Group’s established policy, procedures and control relating to customer credit risk management. Credit quality of a customer is assessed based on references, industry knowledge, ability to pay and individual credit limits are defined in accordance with this assessment. Outstanding customer receivables are regularly monitored with an analysis reported to the Board monthly. An impairment analysis is performed at each reporting date on an individual basis for major clients. The maximum exposure to credit risk at the reporting date is the carrying value of each class of financial assets disclosed in Note 2B. The Group does not hold collateral as security. FINANCIAL INSTRUMENTS AND CASH DEPOSITS Credit risk from balances with banks and financial institutions is managed by the Audit and Risk Committee in accordance with the Group’s policy. Investments of surplus funds are only placed with the Group’s major bank. LIQUIDITY RISK The Group monitors its risk to a shortage of funds using a liquidity planning tool. The Group’s objective is to maintain a balance between continuity of funding and flexibility through the use of bank overdrafts, bank loans, interchangeable limits, finance leases and hire purchase contracts. The Group’s policy is to ensure that the core funding limits have no less than a 12 month maturity date. The Group assessed the concentration of risk with respect to refinancing its debt and concluded it to be low. Access to sources of funding is sufficiently available and debt maturing within 12 months can be rolled over with existing or alternative lenders. 36 FINANCIAL REPORTSEALINK TRAVEL GROUP LTD AND ITS CONTROLLED ENTITIES – NOTES TO FINANCIAL STATEMENT FOR YEAR END 30 JUNE 2016 The table below sets out the maturity profile of the Group’s financial liabilities based on contracted undiscounted payments including interest. Estimated variable interest expense is based upon the rate applying as at 30 June 2016. YEAR ENDED 30 JUNE 2016 Interest-bearing loans and borrowings Trade and other payables Other financial liabilities Financial guarantee contracts Leases/hire purchase Total YEAR ENDED 30 JUNE 2015 Interest-bearing loans and borrowings Trade and other payables Financial guarantee contracts Leases/hire purchase Total B HEDGING ON DEMAND $’000 0–3 MONTHS $’000 3–12 MONTHS $’000 – – – 15,978 – – 9,757 59 – 544 15,978 10,360 – – 692 – 692 – 5,238 – 473 5,711 – – 176 – 1,376 1,552 – – – 2,961 2,961 1–5 YEARS $’000 74,244 – 780 – 2,954 77,978 5,251 – – 2,293 7,544 TOTAL $’000 74,244 9,757 1,014 15,978 4,874 105,867 5,251 5,238 692 5,727 16,908 During the period, the Group entered into a 5 year fixed term interest rate swap effective from 1 December 2015 at a rate of 2.53% before interest margin and line fees. The terms of the interest rate swap have a close match to the variable interest rate liability arising from bill facilities. Consequently, the hedges were assessed to be highly effective. The fair value adjustment required was assessed as material and as such, the gross difference of $1,070,006 was recorded as a financial liability with the associated tax effect forming part of Deferred Tax Asset. The net difference of $749,004 is shown through the statement of other comprehensive income. The interest rate swap is categorsied as a Level 2 within the fair value hierarchy with the carrying value based on market interest rates which are actively traded and quoted through the Australian banking system. 5 ACCOUNTING POLICIES A BASIS OF PREPARATION The consolidated financial statements for the year ended 30 June 2016 have been prepared in accordance with the requirements of the Corporations Act 2001, Australian Accounting Standards and other authoritative pronouncements of the Australian Accounting Standards Board. The financial report is a general purpose financial report, has also been prepared on a historical cost basis except for derivatives which use fair value, and presented in Australian dollars.The Group is a for-profit entity for the purposes of preparing the financial report. The consolidated financial statements also comply with International Financial reporting Standards (IFRS) as issued by the International Accounting Standards Board. B SIGNIFICANT ACCOUNTING POLICIES IN THE PREPARATION AND PRESENTATION OF ACCOUNTS (a) PRINCIPLES OF CONSOLIDATION The consolidated financial statements comprise the financial statements of the Group and its subsidiaries as at 30 June. Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Specifically, the Group controls an investee if and only if the Group has: • Power over the investee (i.e. existing rights that give it the current ability to direct the relevant activities of the investee • Exposure, or rights, to variable returns from its involvement with the investee, and • The ability to use its power over the investee to affect its returns. The financial statements of the subsidiaries are prepared for the same reporting period as the Parent, using consistent accounting policies. In preparing the consolidated financial statements, all intercompany balances, transactions, unrealised gains and losses resulting from intra-group transactions and dividends have been eliminated in full. Subsidiaries are fully consolidated from the date on which control is obtained by the Group and cease to be consolidated from the date on which control is transferred out of the Group. (b) FINANCIAL LIABILITIES Interest rate derivatives are measured at fair value with changes in fair value recognised in other comprehensive income. 37 FINANCIAL REPORTSEALINK TRAVEL GROUP LTD AND ITS CONTROLLED ENTITIES – NOTES TO FINANCIAL STATEMENT FOR YEAR END 30 JUNE 2016 (c) INVENTORIES Inventories, which includes spare parts, are valued at the lower of cost and net realisable value. Spare parts are expensed as consumed or when they become obsolete as a result of a change to vessel strategy. Costs are assigned to inventory on hand by the method most appropriate to each particular class of inventory, with the majority being valued on either a first in first out or average cost basis. (d) TAXES Income taxes Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the balance date. Deferred income tax is provided on all temporary differences at the balance date between the tax bases of the assets and liabilities and their carrying amounts for financial reporting purposes. Deferred income tax liabilities are recognised for all taxable temporary differences except: • when the deferred income tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination and that, at the time of the transaction, affects neither the accounting profit nor the taxable profit or loss; or • when the taxable temporary difference is associated with investments in subsidiaries, associates or interests in joint arrangements, the timing of the reversal of the temporary differences can be controlled and it is probable that temporary difference will not reverse in the foreseeable future. Deferred income tax assets are recognised for all deductible temporary differences, carry-forward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences and the carry-forward of unused tax credits and unused tax losses can be utilised, except: • when the deferred income tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; or • when the deductible temporary difference is associated with investments in subsidiaries, associates or interests in joint arrangements, in which case a deferred tax asset is only recognised to the extent that it is probable that the temporary difference will reverse in the foreseeable future and the taxable profit will be available against which the temporary difference can be utilised. The carrying amount of deferred tax assets is reviewed at each balance date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised. Unrecognised deferred income tax assets are reassessed at each balance date and recognised to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered. Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability settled, based on the tax rates (and tax laws) that have been enacted or substantially enacted at balance date. Deferred tax asset and deferred tax liabilities are offset only if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred tax assets and liabilities relate to the same taxable entity and the same taxation authority. Goods and Services Tax (GST) Revenues, expenses and assets are recognised net of the amount of GST except: • where the GST incurred on a purchase of goods and services is not recoverable from the taxation authority, in which case the GST is recognised as part of the cost of acquisition of the asset or as part of the expense item as applicable; and • receivables and payables are stated with the amount of GST included. The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the Statement of Financial Position. Cash flows are included in the Statement of Cash Flows on a gross basis and the GST component of cash flows arising from investing and financing activities, which is recoverable from, or payable to, the taxation authority are classified as operating cash flows. Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the taxation authority. (e) LEASES Finance leases, which transfer substantially all the risks and benefits incidental to ownership of the leased item, are capitalised at the inception of the lease at the fair value of the leased property or, if lower, at the present value of the minimum lease payments. Lease payments are apportioned between the finance charges and reduction of the leased liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are recognised as an expense in the Statement of Comprehensive Income. Capitalised leased assets are depreciated over the shorter of the estimated useful life of the asset and the lease term if there is no reasonable certainty that the company will obtain ownership by the end of the lease term. Operating leases are not capitalised and payments are charged as an expense in the Statement of Comprehensive Income on a straight line basis over the lease term. 38 FINANCIAL REPORTSEALINK TRAVEL GROUP LTD AND ITS CONTROLLED ENTITIES – NOTES TO FINANCIAL STATEMENT FOR YEAR END 30 JUNE 2016 (f) BUSINESS COMBINATIONS AND GOODWILL Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred, measured at acquisition date fair value and the amount of any non-controlling interest in the acquiree. For each business combination, the Group elects whether to measure the non-controlling interest in the acquiree at fair value or at the proportionate share of the acquiree’s identifiable net assets. Acquisition related costs are expensed as incurred and included in administrative expenses. When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date. This includes the separation of embedded derivatives in host contracts by the acquiree. If the business combination is achieved in stages, the previously held equity interest is remeasured at its acquisition date fair value and any resulting gain or loss is recognised in profit or loss. Any contingent consideration to be transferred by the acquirer will be recognised at fair value at the acquisition date. Contingent consideration classified as an asset or liability that is a financial instrument and within the scope of AASB 139 Financial Instruments: Recognition and Measurement, is measured at fair value with changes in fair value recognised either in either profit or loss or as a change to other comprehensive income. If the contingent consideration is not within the scope of AASB 139, it is measured in accordance with the appropriate AASB. Contingent consideration that is classified as equity is not remeasured and subsequent settlement is accounted for within equity. Goodwill is initially measured at cost, being the excess of the aggregate of the consideration transferred and the amount recognised for non-controlling interest over the net identifiable assets acquired and liabilities assumed. If the fair value of the net assets acquired is in excess of the aggregate consideration transferred, the gain is recognised in profit or loss. After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group’s cash-generating units that are expected to benefit from the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units. Where goodwill has been allocated to a cash-generating unit and part of the operation within that unit is disposed of, the goodwill associated with the disposed operation is included in the carrying amount of the operation when determining the gain or loss on disposal. Goodwill disposed in these circumstance is measured based on the relative values of the disposed operation and the portion of the cash- generating unit retained. (g) EMPLOYEE BENEFITS Provision is made for employee benefits accumulated as a result of employees rendering services up to the reporting date. These benefits include wages and salaries, annual leave and long service leave. Liabilities arising in respect of wages and salaries, annual leave and any other employee benefits expected to be settled within twelve months of the reporting date are measured at their nominal amounts based on remuneration rates which are expected to be paid when the liability is settled. All other employee benefit liabilities are measured at the present value of the estimated future cash outflow to be made in respect of services provided by employees up to the reporting date. In determining the present value of future cash outflows, the market yield as at the reporting date on high quality corporate bonds, which have terms to maturity approximating the terms of the related liability, are used. (h) IMPAIRMENT OF ASSETS At each reporting date, the consolidated entity reviews the carrying value of its tangible and intangible assets and cash generating units to determine whether there is any indication that those assets have been impaired. If such an indication exists, the recoverable amount of the asset, being the higher of the asset’s fair value less costs of disposal and value in use, is compared to the assets carrying value. Any excess of the assets carrying value over its recoverable amount is expensed to the Statement of Comprehensive Income. 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 an asset that does not generate largely independent cash inflows, recoverable amount is determined for the cash generating unit to which the asset belongs, unless the asset’s value in use can be estimated to be close to its fair value. Goodwill is tested for impairment annually (as at June 30) and when circumstances indicate the carrying value may be impaired. The Group’s impairment test for goodwill and intangible assets with indefinite lives is based on value-in-use calculations that use a discounted cash flow model. Apart from goodwil associated with the acquisition of the Transit Systems Marine business and Captain Cook Cruises WA, there were no changes in the carrying value of goodwill allocated to the cash generating units nor any impairment of goodwill during the year. (i) PROPERTY, PLANT AND EQUIPMENT Plant and equipment is stated at historical cost less accumulated depreciation and any accumulated impairment losses. Such cost includes the cost of replacing parts that are eligible for capitalisation when the cost of replacing the parts is incurred. Similarly, when each major inspection is performed, its cost is recognised in the carrying amount of the plant and equipment as a replacement only if it is eligible for capitalisation. All other repairs and maintenance are recognised in the Statement of Comprehensive Income as incurred. 39 FINANCIAL REPORTSEALINK TRAVEL GROUP LTD AND ITS CONTROLLED ENTITIES – NOTES TO FINANCIAL STATEMENT FOR YEAR END 30 JUNE 2016 Depreciation is calculated on a straight-line basis over the estimated useful life of the specific assets until an asset’s residual is reached. Vessel depreciation is reviewed annually to take into account further capitalisation of costs, vessel usage or changed market conditions. Estimated useful life is as follows: (j) REVENUE Revenue is recognised to the extent that it is probable that the economic benefits will flow to the economic entity and the revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognised: Sale of Goods Revenue is recognised when the significant risks and rewards of ownership of the goods have been passed to the buyer and the costs incurred or to be incurred in respect of the transaction can be measured reliably. Risks and rewards of ownership are considered passed to the buyer at the time of delivery of the goods to the customer. Rendering of Services For ferry services, revenue is recognised on a departure date basis whereby customers or groups who have paid for travel related services have actually departed on those travel services. The revenue is recognised in the month of the said departure date. Revenue in relation to retailing of travel services is recognised on a gross basis when customers have paid for their travel services. Interest Revenue is recognised as interest accrues using the effective interest method. Operating leases Rental income arising from operating leases on occupied properties is accounted for on a straight-line basis over the lease terms and is included in revenue in the statement of profit or loss due to its operating nature. Income arising from operating leases of vessels is accounted for on a straight-line basis over the lease terms and is included in revenue in the statement of profit or loss due to its operating nature. Buildings Plant and equipment Plant and equipment under lease Ferry – at cost LIFE 14 – 40 years 3 – 20 years Term of the lease 5 – 25 years shares or optionsare shown in equity as a deduction, net of tax, from the proceeds. (n) TRADE AND OTHER PAYABLES Trade payables and other payables are carried at amortised costs and represent liabilities for goods and services provided to the consolidated entity prior to the end of the financial year that are unpaid and arise when the consolidated entity becomes obliged to make future payments in respect of the purchase of these goods and services. (o) FOREIGN CURRENCY TRANSACTIONS AND BALANCES Functional and presentation currency The functional currency of each of the group’s entities is measured using the currency of the primary economic environment in which that entity operates. The consolidated financial statements are presented in Australian dollars which is the parent entity’s functional and presentation currency. Transaction and balances Transactions in foreign currencies are initially recorded in the functional currency by applying the exchange rates ruling at the date of the transaction. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate as at the date of the initial transaction. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. (k) CASH AND CASH EQUIVALENTS Cash and cash equivalents in the statement of financial position comprise cash at bank, on hand and short term deposits with an original maturity of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. For the purpose of the statement of cash flows, cash and cash equivalents consist of cash and cash equivalents as defined above, net of outstanding bank overdrafts. Bank overdrafts are included within interest-bearing loans and borrowing in current liabilities on the statement of financial position. (l) TRADE AND OTHER RECEIVABLES Trade receivables, which generally have 14 - 60 day terms, are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less an allowance for impairment. Collectability of trade receivable is reviewed on an ongoing basis at an operating unit level. Individual debts that are known to be uncollectible are written off when identified. An impairment provision is recognised when there is objective evidence that the Group will not be able to collect the receivable. Financial difficulties of the debtor, default payments or debts more than 60 days overdue are considered objective evidence of impairment. The amount of the impairment loss is the receivable carrying amount compared to the present value of estimated future cash flows, discounted at the original effective interest rate. (m) CONTRIBUTED EQUITY Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new 40 FINANCIAL REPORT SEALINK TRAVEL GROUP LTD AND ITS CONTROLLED ENTITIES – NOTES TO FINANCIAL STATEMENT FOR YEAR END 30 JUNE 2016 (p) GOVERNMENT GRANTS Government grants are recognised when there is reasonable assurance that the grant will be received and all attaching conditions will be complied with. When the grant relates to an asset, the fair value is credited to a deferred income account and is released to the Statement of Comprehensive Income over the expected useful life of the relevant asset by equal annual instalments. When the grant relates to an expense item, it is recognised as income over the periods necessary to match the grant on a systematic basis to the costs that it is intended to compensate. (q) TAX CONSOLIDATION AND TAX SHARING SeaLink Travel Group’s wholly owned Australian subsidiaries have formed an income tax consolidated group under the tax consolidation regime effective 1/1/05. SeaLink Travel Group Ltd is the head entity of the tax consolidated group. Each of the controlled entities in the tax consolidated group continue to account for their own current and deferred tax amounts. The Group has applied the Group allocation approach in determining the appropriate amount of current taxes and deferred taxes to allocate to members of the tax consolidated group. Allocations under the tax funding agreement are made at the end of each reporting period. The allocation of taxes under the tax funding arrangement is recognised as an increase/decrease in the subsidiaries’ intercompany accounts with the tax consolidated group head company. (r) BORROWING COSTS Borrowing costs directly attributable to the acquisition, construction or production of an asset that necessarily takes a substantial period of time to get ready for its intended use or sale are capitalised as part of the cost of the asset. All other borrowing costs are expensed in the period in which they occur. Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds. (s) INTEREST BEARING LOANS AND BORROWINGS All loans and borrowings are initially recognised at the fair value of the consideration received less directly attributable transaction costs. After initial recognition, interest bearing loans and borrowings are subsequently measured at amortised cost using the effective interest method. Gains and losses are recognised in the Statement of Comprehensive Income when the liabilities are derecognised. (t) INTANGIBLE ASSETS Intangible assets acquired seperately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is their fair value at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and accumulated impairment losses. The useful lifes on intangible assets are assessed as either finite or indefinite. Intangible assets with finite lives are amortised over the useful life and assessed for impairment whenever there is an indication that the intangible asset maybe impaired. The amortisation period and the amortisation method for an intangible asset with a finite life are reviewed at least at the end of each reporting period. The amortisation expense on intangible assets with finite lives is recognised in the statement of profit and loss as the expense category that is consistent with the function of the intangible assets. Intangible assets with indefinite lives are are not amortised, but are tested for impairment annually, either individually or at the cash generating level. The assessment of indefinite life is reviewed annually to determine whether the indefinite life continues to be supportable. (u) CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS The Directors evaluate estimates and judgements incorporated into the financial report based on historical knowledge and best available current information. Estimates assume a reasonable expectation of future events and are based on current trends and economic data, obtained both externally and within the consolidated entity. Key Estimates – Impairment The consolidated entity assesses impairment at each reporting date by evaluating conditions specific to the consolidated entity that may lead to impairment of assets. Where an impairment trigger exists, the recoverable amount of the asset is determined. Value-in-use calculations performed in assessing recoverable amounts incorporate a number of key estimates, such as passenger numbers, growth rates and terminal value. Key Estimates – Doubtful debts provision The consolidated entity assesses the level of doubtful debts at each reporting date by evaluating past performance of bad debts, the level of receivables that are overdue and specific collection responses. These assessments incorporate a number of key estimates around credit assessment and security position. (v) FAIR VALUES The Group measures the interest rate swap derivative at fair value at each balance sheet date. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either: • In the principal market for the asset or liability, or • In the absence of a principal market, in the most advantageous market for the asset or liability The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest. A fair value measurement of a non- financial asset takes into account a market participant’s ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use. The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair 41 FINANCIAL REPORTSEALINK TRAVEL GROUP LTD AND ITS CONTROLLED ENTITIES – NOTES TO FINANCIAL STATEMENT FOR YEAR END 30 JUNE 2016 value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs. • Level 1 – Quoted (unadjusted) market prices in active markets for identical assets or liabilities All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole: • Level 2 – Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable • Level 3 – Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable For assets and liabilities that are recognised in the financial statements on a recurring basis, the Group determines whether transfers have occurred between Levels in the hierarchy by re-assessing categorisation (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period. C CHANGES IN ACCOUNTING POLICIES AND DISCLOSURES D ACCOUNTING STANDARDS ISSUED BUT NOT YET EFFECTIVE The accounting policies adopted in the preparation of the consolidated financial statements are consistent with those followed in the preparation of the Group’s annual financial statements for the year ended 30 June 2015. There were no new standards or interpretations adoptedion as of 1 July 2015. The Group has not early adopted any other standard, interpretation or amendment that has been issued but is not yet effective. Accounting standards and interpretations issued but not yet effective Australian Accounting Standards and Interpretations that have recently been issued or amended but are not yet effective and have not been adopted by the Group for the annual reporting period ending 30 June 2016, are outlined in the table as follows: Although a detailed assessment of AASB 15 and AASB 16 has yet to be undertaken, none of the amendments are expected to have a material impact on the Group. The Company is currently evaluating the impact of these new standards. APPLICATION DATE OF STANDARD APPLICATION DATE FOR GROUP 1 January 2018 1 July 2018 1 January 2018 1 July 2018 REFERENCE TITLE SUMMARY AASB 15 Revenue from contracts AASB 9 Financial Instruments The core principle of AASB 15 is that an entity recognises revenue to depict the 1 January 2018 1 July 2018 contracts transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. An entity recognises revenue in accordance with that principle by applying various steps set out in AASB 15. AASB 9 includes a logical model for classification and measurement, a single forward looking “expected loss” impairment model and a substantially-reformed approach to hedge accounting. The new standard requires entities to account for expected credit losses from when the financial instruments are first recognised and to recognise full lifetime losses on a more timely basis. AASB 9 includes requirements for a simplified approach for classification and measurement of financial assets compared with the requirements of AASB 139. The changes will not have a material impact on the Group. 42 FINANCIAL REPORT SEALINK TRAVEL GROUP LTD AND ITS CONTROLLED ENTITIES – NOTES TO FINANCIAL STATEMENT FOR YEAR END 30 JUNE 2016 REFERENCE TITLE SUMMARY AASB 2015-2 Financial statements The Standard makes amendments to AASB 101 Presentation of Financial Statements. The amendments are designed to further encourage companies to apply professional judgement in determining what information to disclose in financial statements. The changes will not have a material impact on the Group. APPLICATION DATE OF STANDARD APPLICATION DATE FOR GROUP 1 January 2016 1 July 2016 AASB 16 Leases The key features of AASB 16 are as follows: 1 January 2019 1 July 2019 Lessee accounting • Lessees are required to recognise assets and liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value. • A lessee measures right-of-use assets similarly to other non-financial assets and lease liabilities similarly to other financial liabilities. • Assets and liabilities arising from a lease are initially measured on a present value basis. The measurement includes non-cancellable lease payments (including inflation-linked payments), and also includes payments to be made in optional periods if the lessee is reasonably certain to exercise an option to extend the lease, or not to exercise an option to terminate the lease. • AASB 16 contains disclosure requirements for lessees. Lessor accounting • AASB 16 substantially carries forward the lessor accounting requirements in AASB 117. Accordingly, a lessor continues to classify its leases as operating leases or finance leases, and to account for those two types of leases differently. • AASB 16 also requires enhanced disclosures to be provided by lessors that will improve information disclosed about a lessor’s risk exposure, particularly to residual value risk. E FAIR VALUE MEASUREMENT Set out below is a comparison by category of carrying amounts and fair values of the Group’s financial assets and financial liabilities at balance date: ECONOMIC ENTITY FINANCIAL ASSETS Cash Trade and other receivables FINANCIAL LIABILITIES Bill facilities Other loans Interest rate swap Lease and hire purchase Trade and sundry creditors 2016 CARRYING AMOUNT $’000 2016 NET FAIR VALUE $‘000 2015 CARRYING AMOUNT $’000 2015 NET FAIR VALUE $’000 5,208 14,951 62,500 974 1,070 4,623 9,759 5,208 14,951 62,500 974 1,070 4,601 9,759 2,261 3,227 2,261 3,227 5,000 5,000 – – 5,320 5,238 – – 5,283 5,238 43 FINANCIAL REPORTSEALINK TRAVEL GROUP LTD AND ITS CONTROLLED ENTITIES – NOTES TO FINANCIAL STATEMENT FOR YEAR END 30 JUNE 2016 The fair value of the financial assets and liabilities is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Management assessed that cash and short-term deposits, trade receivables, trade payables, bank overdrafts and other current liabilities approximate their carrying amounts largely due to the short-term maturities of these instruments. Although bill facilities held have a maturity longer than 12 months, from a re-pricing perspective, all facilities re-price within 12 months. Fair values of the Group’s bill facilities and lease and hire purchase liabilities is estimated by discounting future cash flows using rates currently available for debt on similar terms, credit risk and remaining maturities. These have been determined under a Level 2 fair value hierarchy. 6 UNRECOGNISED ITEMS A COMMITMENTS (a) CAPITAL COMMITMENTS Vessels and buses (b) COMMITMENTS UNDER NON-CANCELLABLE OPERATING LEASES Not later than one year Later than one year but not later than five years Later than five years (c) FINANCE LEASE COMMITMENTS: Not later than one year Later than one year but not later than five years Minimum lease payments Future finance charges Net finance lease liability Included in Interest Bearing Loans and borrowings (Note 2I) as: Current liability Non-current liability 30 JUNE 2016 $’000 30 JUNE 2015 $’000 1,146 2,644 6,266 3,901 12,811 1,890 2,984 4,874 (251) 4,623 1,890 2,733 4,623 90 2,096 5,134 2,081 9,311 3,434 2,293 5,727 (407) 5,320 3,293 2,027 5,320 (d) OPERATING LEASE COMMITMENTS — SEALINK AS LESSOR The Group has entered into a property sub-lease for a portion of its tenancy at the Townsville terminal. The sub-lease was for a term of 2 years and contains a clause to enable upward revision of the rental charge on an annual basis based on CPI movement. Future minimum rentals receivable under non-cancellable operating leases as at 30 June are as follows: Within one year After one year but not more than five years 87 152 239 21 – 21 B CONTINGENCIES There were no contingencies of material note as at 30 June 2016 (2015: Nil). C EVENTS REPORTED AFTER BALANCE DATE A fully franked dividend of $7,586,558 representing 7.5 cents per share based on the current number of ordinary shares was declared by the Directors on 10 August 2016 to be paid 14 October 2016. Apart from this matter, no events have occurred subsequent to year end which would, in the absence of disclosure, cause the financial report to be misleading. 44 FINANCIAL REPORTSEALINK TRAVEL GROUP LTD AND ITS CONTROLLED ENTITIES – NOTES TO FINANCIAL STATEMENT FOR YEAR END 30 JUNE 2016 7 OTHER A BUSINESS COMBINATIONS Acquisition of Transit Systems Marine On 6th November, 2015, the Group acquired 100% of the Queensland based marine business formerly owned by Transit Systems. The acquisition involved the purchase of shares in various entities as well as the acquisition of properties on Russell Island in Moreton Bay, Queensland. Transit System Marine business (“TSM”) consists of the following: • Ferry operations in Gladstone to service the Curtis Island gas plants, • Ferry services to North Stradbroke Island • Ferry and barge operations for the Bay Islands in Southern Moreton Bay; • Moggill cable ferry across the Brisbane River; and • Barge service for a sand contract from North Stradbroke Island. The acquisition has expanded SeaLink’s geographic base as well as creating opportunities for expansion. It has been accounted for using the acquisition method. The consolidated financial statements include the results of TSM for the period from 7th November 2015 until 30th June, 2016. The fair values of the identifiable assets and liabilities of TSM as at the date of acquisition were: FAIR VALUE RECOGNISED ON ACQUISITION $’000 ASSETS Cash and cash equivalents Trade and other receivables Inventories Prepayments Property, plant and equipment Customer contracts (Refer Note 2E) Deferred tax asset LIABILITIES Trade and other payables Unearned revenue Interest bearing loans and borrowings Operating lease liability Current tax liabilities Provisions Deferred tax liabilities Total identifiable assets at fair value Goodwill arising on acquisition Purchase Consideration transferred This consisted of - Shares issued at fair consideration Net Cash paid after vendor refund Total purchase consideration 200 9,801 1,439 21 95,569 7,619 657 115,306 3,651 1,102 4,906 3,870 4,619 1,928 10,221 30,297 85,009 30,081 115,090 10,848 104,242 115,090 45 FINANCIAL REPORTSEALINK TRAVEL GROUP LTD AND ITS CONTROLLED ENTITIES – NOTES TO FINANCIAL STATEMENT FOR YEAR END 30 JUNE 2016 There was no contingent consideration. The fair value of vessels included in Property, Plant and Equipment is $85.4m. These are based on external valuations and internal assessment. The Deferred Tax Liability mainly comprises the tax effect on contracted utilisation fees in relation to a Gladstone contract. Goodwill The majority of goodwill relates to the North Stradbroke Island ferry service, none of which is expected to be deductible for income tax purposes. From the date of acquisition, Transit Systems Marine has contributed $58.4m to revenue and $19.5m to the earnings before tax from continuing operations. If the combination had taken place at the start of the financial year, revenue from continuing operations for the Group would have been $93.0m and profit before tax from continuing operations for the Group would have been $30.2m. The profit before tax achieved in the first 4 months of the financial year has been extracted from the vendor’s accounting systems using unaudited accounts and using the vendor’s accounting policies as it is impractical to revise accounts on a consistent policy basis. ADDITIONAL CASH FLOWS ON ACQUISITION: Transaction costs of the acquisition (included in cash flows from Operations) Transaction costs associated with issuance of shares Total additional cash flows on acquisition $’000 (976) (1,679) (2,655) The Group issued 3,200,000 ordinary shares as consideration for the 100% interest in the Transit Systems Marine Group. The fair value of the shares is calculated with reference to the quoted price of the shares of the Company at the acquisition which was $3.39 each. The fair value of the consideration was $10,848,000. Transaction costs of $976,000 have been expensed and are disclosed as a separate line item in the profit and loss. The attirbutable costs of the issue of shares of $1,679,000 less an associated tax beneifit of $503,820 have been charged directly as a reduction to issued capital. Acquisition of Captain Cook Cruises WA On 29th April 2016, the Group acquired 100% of the Captain Cook Cruises WA business formerly privately owned. The acquisition involved the purchase of shares in two entities and was funded from existing debt facilities. The business (“CCC WA”) consists of the following: • Tourism cruises on the Swan River, • Ferry services to South Perth under a government contract, and • Bells Function Centre The acquisition has expanded SeaLink’s geographic base and provided further exposure to an expected growing tourism market. It has been accounted for using the acquisition method. The consolidated financial statements include the results of CCC WA for the period from acquisition date until 30th June, 2016. The fair values of the identifiable assets and liabilities of CCC WA as at the date of acquisition were: ASSETS Cash and cash equivalents Trade and other receivables Inventories Prepayments Property, plant and equipment Customer contracts (Refer Note 2E) Deferred tax asset 46 FAIR VALUE RECOGNISED ON ACQUISITION $’000 26 584 176 79 7,841 794 98 9,598 FINANCIAL REPORTSEALINK TRAVEL GROUP LTD AND ITS CONTROLLED ENTITIES – NOTES TO FINANCIAL STATEMENT FOR YEAR END 30 JUNE 2016 LIABILITIES Trade and other payables Current tax liabilities Provisions Deferred tax liabilities Total identifiable assets at fair value Goodwill arising on acquisition Purchase Consideration transferred The purchase consideration consisted entirely of a net cash outlay. There was no contingent consideration. ANALYSIS OF CASH FLOWS ON ACQUISITION: Purchase Consideration transferred Cash and cash equivalents Net cash outflow 1,117 231 326 258 1,932 7,666 3,590 11,256 11,256 (26) 11,230 The fair value of vessels included in Property, Plant and Equipment is $7.75m. These are based on internal valuations for ferries and adopting tax written down values of plant and equipment. The Deferred Tax Asset mainly comprises the tax effect on employee provisions whilst the Deferred Tax Liability relates to Customer Contracts. Transaction costs of $64,000 have been expensed and are disclosed as a separate line item in the profit and loss. Goodwill The majority of goodwill on acquisition relates to the tourism cruising part of the business, none of which is expected to be deductible for income tax purposes. From the date of acquisition, Captain Cook Cruises WA has contributed $1.2m to revenue and incured a loss before tax of $0.3m from continuing operations. If the combination had taken place at the start of the financial year, revenue from continuing operations for the Group would have been $10.3m and profit before tax from continuing operations for the Group would have been $1.1m. The profit before tax achieved in the first 10 months of the financial year has been extracted from the vendor’s accounting systems using unaudited accounts and using the vendor’s accounting policies which are consistent with those adopted by the Group. B CORPORATE INFORMATION The consolidated financial statements of the Group for the year ended 30 June 2016 were authorised for issue in accordance with a resolution of Directors on 10 August 2016. SeaLink Travel Group Limited is a limited company incorporated and domiciled in Australia whose shares are publicly traded. The Company listed on the Australian Stock Exchange on 16 October, 2013. The principal business units of the Company and its subsidiaries (the Group) are described in Note 1D. C INFORMATION RELATING TO SEALINK TRAVEL GROUP LIMITED (‘THE PARENT ENTITY’) Current Assets Non-current Assets Total Assets Current Liabilities Non-current Liabilities Total Liabilities Net Assets Contributed equity Reserves Retained profits Total Parent Equity Profit or loss of the parent entity Total comprehensive income of the parent entity 2016 $’000 2015 $’000 – 97,284 97,284 (480) 2,207 1,727 95,558 95,557 520 (520) 95,557 7,591 7,591 – 37,688 37,688 1,578 2,207 3,784 33,904 33,904 487 (487) 33,904 5,738 5,738 The parent has entered into various cross-guarantees with its subsidiaries to support borrowings across the Group. 47 FINANCIAL REPORTSEALINK TRAVEL GROUP LTD AND ITS CONTROLLED ENTITIES – NOTES TO FINANCIAL STATEMENT FOR YEAR END 30 JUNE 2016 D SHARE OPTION PLANS (a) RECOGNISED SHARE-BASED PAYMENT EXPENSES; Expense arising from options issued in 2015 Expense arising from options issued in 2012 Total expense 2016 $’000 2015 $’000 18 14 32 23 – 23 (b) TYPES OF SHARE OPTION PLANS Employee Share Option Plan “ESOP” Share options are generally granted to senior executives with more than 12 months service. The ESOP is designed to align participants interests with those of shareholders. When a participant ceases employment prior to the vesting of their share options, the share options are forfeited. In November 2014, 200,000 share options were granted to an employee under the SeaLink Employee Option Plan. The exercise price of the options was $2.50 and the contractual life 5 years. The options vest after a period of 1 year as long as the senior employee is still employed on such date. The fair value of the share option granted was valued at $0.176 per share Effective date issued Number of Performance Rights issued Minimum hurdle share price Dividend yield Expected volatility (as per valuation) Risk free interest rate Expected life (years) Valuation per performance right Expense allocated over vesting period ASX price at issue date being $35,200, the cost being expensed over the vesting period. No options were granted during the 2016 financial year. Employee Performance Rights Performance rights are generally granted to senior executives with more than 12 months service. The ESOP is designed to align participants interests with those of shareholders. When a participant ceases employment prior to the vesting of their performance rights or where the performance hurdle is not met, the performance rights lapse. Should all conditions be met, one ordinary share is issued for each performance right at no consideration. The performance hurdle is measured against a minimum share price quoted on the ASX. This future price hurdle usually targets a 10% compound growth rate from the share price at the date of issue of the performance rights. The amount recognised as an expense is only adjusted when performance rights do not vest due to non-market-related conditions. The amount recognised as an expense is only adjusted when performance rights do not vest due to non-market-related conditions. The fair value of the performance rights granted is estimated at the date of grant using a custom binomial lattice pricing model, taking into account terms and conditions upon which the performance rights were granted using the following assumptions: $ $ $ $ 31 August 2015 85,000 3.20 3.35% 27.6% 3.35% 3.0 0.618 52,530 2.41 The following tables illustrate the number and weighted average exercise price (“WAEP”) of and movements in all share options and performance rights during the year: OPTIONS Outstanding at the beginning of the year Granted (under the Employee Share Option Plan) Forfeited Exercised Outstanding at year end 48 NUMBER ’000 981 – – (781) 200 2016 WAEP $ 1 .62 n/a n/a 1.40 2.50 NUMBER ’000 3,781 200 – (3,000) 981 2015 WAEP $ 1.31 2.50 1.20 1.25 1.62 FINANCIAL REPORTSEALINK TRAVEL GROUP LTD AND ITS CONTROLLED ENTITIES – NOTES TO FINANCIAL STATEMENT FOR YEAR END 30 JUNE 2016 THE OUTSTANDING BALANCE IS REPRESENTED BY TYPE ESOP Directors OPTION CLASS C PERFORMANCE RIGHTS Outstanding at the beginning of the year Granted (under the Employee Share Option Plan) Exercised Outstanding at year end 2016 200 – 200 NUMBER ’000 – 85 – 85 2015 231 750 981 2016 WAEP $ n/a $Nil n/a $Nil NUMBER ’000 – – – – 2015 WAEP $ n/a n/a n/a n/a E RELATED PARTY TRANSACTIONS (a) NAMES AND POSITIONS HELD OF KEY MANAGEMENT PERSONNEL IN OFFICE AT ANY TIME DURING THE FINANCIAL YEAR ARE Directors A McEvoy C Smerdon W T Spurr T Dodd A Staines J R Ellison Chairman – (non-executive) Appointed Chairman 1 July, 2015 Director – (non-executive) Director – (non-executive) Director – (non-executive) Director – (non-executive) - Appointed 15 February, 2016 Managing Director and Chief Executive Officer L Hughes Turnbull Director – (non-executive) J R Ellison Managing Director and Chief Executive Officer L Hughes Turnbull Director – (non-executive) - Retired 27 October, 2015 F A Mann Director – (non-executive) - Retired 27 October, 2015 Other Key Management Personnel D Gauci T Waller A Haworth P Victory General Manager, SeaLink South Australia Chief Financial Officer, Company Secretary General Manager, Captain Cook Cruises General Manager, SeaLink Queensland (b) TRANSACTIONS WITH RELATED PARTIES During the year, the following purchases/services were made with entities associated with directors at normal market prices Purchases and services totalling $60,331 from Vectra Corporation Ltd, a company associated with Mr C Smerdon (2015: $23,099); Purchases and services totalling $43,393 from Tourism and Allied, a company associated with Mr C Smerdon (2015: $103,428); Purchases and services totalling $7,090 from Pacific Marine, a company associated with Mr T Dodd (2015: $119,475); Purchases and services totalling $22,571 from Fairfax Media, a company associated with Mr A McEvoy (2015: n/a); 49 FINANCIAL REPORT SEALINK TRAVEL GROUP LTD AND ITS CONTROLLED ENTITIES – NOTES TO FINANCIAL STATEMENT FOR YEAR END 30 JUNE 2016 In addition to the above, the Company purchased a barge from Pacific Marine in February 2016 for $1.3m to be used for a longer term contract carting mineral sand from Stradbroke Island. Pacific Marine was chosen as the most appropriate supplier after an extensive tender process was undertaken. They were selected due to lowest price, availability and ability to provide a tailored solution. Mr Dodd played no role in the process which was negotiated and undertaken by management from both parties involved. Services related to Toursim and Allied, which previously involved a premise rental, ceased in November 2015 when the Company shifted its coach maintenance facilities to Regency Park in Adelaide. KEY MANAGEMENT PERSONNEL REMUNERATION Short-term Post employment Other long-term benefits - LSL Termination Benefits Share-based payment Outstanding at year end 2016 $’000 2,275 161 105 – 8 2,549 2015 $’000 2,022 138 25 – 2,185 The amounts disclosed in the table are the amounts recognised as an expense during the reporting period related to key management personnel. There are no loans to directors or key management personnel. F RELATED BODIES CORPORATE The following subsidiaries and trusts are incorporate in Australia and all 100% owned Kangaroo Island SeaLink Pty Ltd Magnetic Island Cruisae Corporation Pty Ltd SeaLink KI Ferries Pty Ltd TravelLink Pty Ltd Kangaroo Island Adventure Tours Pty Ltd SeaLink Queensland Pty Ltd SeaLink Northern Territory Pty Ltd STG Properties Pty Ltd Australia Inbound Pty Ltd PDW Pty Ltd Sunferries Travel Pty Ltd SeaLink Ferries Pty Ltd BITS Assets Pty Ltd Stradbroke Assets Pty Ltd Stradbroke Ferries Pty Ltd Big Red Cat Pty Ltd The South Australian Travel Company Pty Ltd Curtis Island Assets Pty Ltd Kangaroo Island Odysseys Pty Ltd Captain Cook Cruises Pty Ltd SeaLink Vessels Pty Ltd SeaLink Marina Pty Ltd TravelLink Technology Pty Ltd Vivonne Bay Outdoor Education Centre Pty Ltd The Living Classroom Pty Ltd Vyscot Pty Ltd Avonward Pty Ltd TSA Ferry GroupPty Ltd Curtis Island Services Pty Ltd BITS Ferry Services Pty Ltd Sea Stradbroke Services Pty Ltd Mineral Sand Trust Curtis Transit Trust Bits Trust Sea Stradbroke Trust 50 FINANCIAL REPORTErnst & Young 121 King William Street Adelaide SA 5000 Australia GPO Box 1271 Adelaide SA 5001 Tel: +61 8 8417 1600 Fax: +61 8 8417 1775 ey.com REPORT ON THE FINANCIAL REPORT We have audited the accompanying financial report of SeaLink Travel Group Limited, which comprises the consolidated statement of financial position as at 30 June 2016, the consolidated statement of statement of profit and loss, the consolidated statement of other comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, notes comprising a summary of significant accounting policies and other explanatory information, and the directors’ declaration of the consolidated entity comprising the company and the entities it controlled at the year’s end or from time to time during the financial year. Directors’ responsibility for the financial report The directors of the company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal controls as the directors determine are necessary to enable the preparation of the financial report that is free from material misstatement, whether due to fraud or error. In Note 5a, the directors also state, in accordance with Accounting Standard AASB 101 Presentation of Financial Statements, that the financial statements comply with International Financial Reporting Standards. Auditor’s responsibility Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with Australian Auditing Standards. Those standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance about whether the financial report is free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. In making those risk assessments, the auditor considers internal controls relevant to the entity’s preparation and fair presentation of the financial report 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 entity’s internal controls. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Independence In conducting our audit we have complied with the independence requirements of the Corporations Act 2001. We have given to the directors of the company a written Auditor’s Independence Declaration, a copy of which is included in the directors’ report. We confirm that the Auditor’s Independence Declaration would be in the same terms if given to the directors as at the time of this auditor’s report. Opinion In our opinion: a. the financial report of SeaLink Travel Group Ltd is in accordance with the Corporations Act 2001, including: i giving a true and fair view of the consolidated entity’s financial position as at 30 June 2016 and of its performance for the year ended on that date; and ii complying with Australian Accounting Standards and the Corporations Regulations 2001; and b. the financial report also complies with International Financial Reporting Standards as disclosed In Note 5A. Report on the remuneration report We have audited the Remuneration Report included in pages 11 to 18 of the directors’ report for the year ended 30 June 2016. The directors of the company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. Opinion In our opinion, the Remuneration Report of SeaLink Travel Group Ltd for the year ended 30 June 2016, complies with section 300A of the Corporations Act 2001. Ernst & Young Nigel Stevenson Partner Adelaide 10 August 2016 51 AUDITORS REPORT SEALINK TRAVEL GROUP LTD AND ITS CONTROLLED ENTITIES Ernst & Young 121 King William Street Adelaide SA 5000 Australia GPO Box 1271 Adelaide SA 5001 Tel: +61 8 8417 1600 Fax: +61 8 8417 1775 ey.com AUDITOR’S INDEPENDENCE DECLARATION TO THE DIRECTORS OF SEALINK TRAVEL GROUP LIMITED As lead auditor for the audit of SeaLink Travel Group Limited for the financial year ended 30 June 2016, I declare to the best of my knowledge and belief, there have been: a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and b) no contraventions of any applicable code of professional conduct in relation to the audit. This declaration is in respect of SeaLink Travel Group Limited and the entities it controlled during the financial year. Ernst & Young Nigel Stevenson Partner Adelaide 10 August 2016 52 A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation AUDITORS PORTREMUNERATION REPORT This remuneration report, which forms part of the Director’s Report, sets out the remuneration arrangements of the Group for Directors and its Senior Management for the financial year ended 30 June 2016. It also details remuneration policies and results and outlines the links between remuneration and results, both financial and non-financial. The term ‘Key Management Personnel’ (KMP) refers to those having authority and responsibility for planning, directing and controlling the major activities of the Group, directly or indirectly, including any Director (whether Executive or otherwise) of the Group. The term ‘Executive’ includes the Chief Executive Officer (CEO) and other Senior Executives of the Parent and the Group. This information has been audited as required by section 308 (3C) of the Act. Details for each person covered by this report are set out under the following headings: 1. Key Management Personal; 2. Remuneration philosophy; 3. Remuneration of KMP; 4. Executive contracts; 5. Option and shareholding of KMP; and 6. Remuneration governance. A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation 53 AUDITORS REPORT1 KEY MANAGEMENT PERSONNEL (KMP) The Directors and other KMP of the Group during or since the end of the financial year were: NON-EXECUTIVE DIRECTORS (NED) A McEvoy – Chairperson – Appointed Chairperson 1 July 2015 EXECUTIVE DIRECTORS J Ellison – CEO and Managing Director W Spurr – Director (non-executive) T Dodd – Director (non-executive) OTHER EXECUTIVE KMP T Waller – Chief Financial Officer and Company Secretary C Smerdon – Director (non-executive) D Gauci – General Manager – SeaLink South Australia A Staines – Director (non-executive) – Appointed 15 February,2016 L Hughes Turnbull – Director (non-executive) – Retired 27 October 2015 F Mann – Director (non-executive) – Retired 27 October 2015 2 REMUNERATION PHILOSOPHY A Haworth – General Manager – Captain Cook Cruises P Victory – General Manager – SeaLink Queensland / Northern Territory There were no changes to KMP after the reporting date and before the financial report was authorised for issue. The performance of SeaLink depends upon the quality of its Directors and Executives. To succeed, the Company must attract, motivate and retain highly skilled KMP. To achieve this goal, remuneration policy seeks to ensure that: • Remuneration levels are set to attract and retain good performers and motivate and reward them to continually improve business performance; • Remuneration is competitive with incentives for continued employment and for increasing shareholder value; • Rewards are linked to the achievement of business LINK BETWEEN REMUNERATION POLICY AND COMPANY PERFORMANCE Performance of SeaLink, especially in relation to overall earnings of the Group compared to its budgets and prior years, is a material factor in the determination of the nature and amount of the remuneration of KMP. However, whilst the Board does have regard for, and is extremely cognisant of the need to drive shareholder wealth and value through improved year on year performance and payment of dividends, there are many varied factors that can affect (positively or negatively): targets; and • SeaLink’s ASX share price; and • A remuneration structure supports SeaLink’s values • The ability to pay dividends or make returns of capital. and culture. However, the Company, as it expands, recognises the importance of retaining key personnel and the Nomination and Remuneration Committee is considering implementing long term incentives for the 2016-17 year and foreseeable future. As such, financial results, combined with individual performance, are the key factors in determining overall remuneration of KMP in any financial year. The table below shows the performance of the Company as measured by the NPAT (net profit after tax) from continuing operations and dividends paid. 30 JUNE 2012 $’000 30 JUNE 2013 $’000 30 JUNE 2014 $’000 30 JUNE 2015 $’000 30 JUNE 2016 $’000 Revenue NPAT Dividends paid 79,684 3,834 7,782 91,978 7,023 4,026 104,422 7,233 5,499 111,748 9,349 5,761 177,459 22,349 7,624 54 REMUNERATION REPORT The below table highlights the performance of the share price since Sealink was listed: SEALINK SHARE PRICE 5 4.5 4 3.5 3 2.5 2 1.5 1 0.5 0 Prior to listing in October 2013, the share price was determined through an off- market transaction on the basis of willing buyer and seller run by an independent share registry. 7000 6000 5000 4000 3000 2000 1000 0 3 1 0 2 / 0 1 / 6 1 3 1 0 2 / 2 1 / 6 1 4 1 0 2 / 2 0 / 6 1 4 1 0 2 / 4 0 / 6 1 4 1 0 2 / 6 0 / 6 1 4 1 0 2 / 8 0 / 6 1 4 1 0 2 / 0 1 / 6 1 4 1 0 2 / 2 1 / 6 1 5 1 0 2 / 2 0 / 6 1 5 1 0 2 / 4 0 / 6 1 5 1 0 2 / 6 0 / 6 1 5 1 0 2 / 8 0 / 6 1 5 1 0 2 / 0 1 / 6 1 5 1 0 2 / 2 1 / 6 1 6 1 0 2 / 2 0 / 6 1 6 1 0 2 / 4 0 / 6 1 6 1 0 2 / 6 0 / 6 1 SeaLink All Ords 3 REMUNERATION OF KMP DIRECTORS Remuneration Policy The Board seeks to set aggregate remuneration at a level that provides the Company with the ability to attract and retain directors of the highest calibre, whilst incurring a cost that is acceptable to shareholders. The aggregate remuneration amount sought to be approved by shareholders and the fee structure is reviewed annually against fees paid to Non-Executive Directors (“NED”s) of similar sized listed companies from a market capitalisation perspective. The Company’s constitution and the ASX listing rules specify that the NED fee pool shall be determined from time to time by general meeting. The latest determination was on 18 August 2008 when shareholders approved the Constitution which contained the aggregate fee pool of $580,000 per annum. The Board will seek an increase to $750,000 for the NED pool at the 2016 AGM to allow flexibility in the appointment of an additional Director. The remuneration of NED’s consists of directors fees which currently are as follows: • The Chair receives an annual fee of $134,000 plus statutory superannuation; and • All other NED’s receive $67,000 pa plus statutory superannuation. These fees include increases of 2.5% on 1 July 2015 and a further 3.6% in February, 2016. There are no increases for the 2016-17 financial year. There are no further additional fees for serving on a sub-committee of the Board. NED’s do not receive retirement benefits, nor do they participate in any incentive programs. The Board, however, is currently considering implementation of a Long Term Incentive plan for NED’s which will be presented at the 2016 Annual General Meeting for approval. 55 REMUNERATION REPORTRemuneration Outcome The remuneration of NEDs for the years ended 30 June 2015 and 30 June 2016 is detailed in the tables below: NED’S A McEvoy A Staines C Smerdon W Spurr T Dodd F Mann L Hughes Turnbull G Ursini FINANCIAL YEAR DIRECTOR FEES SHORT TERM BENEFITS OTHER SUPERANNUATION 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 131,272 28,750 25,124 – 66,616 69,000 66,104 69,000 66,104 69,000 23,575 69,000 22,041 69,000 – 139,000 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 12,462 – 2,386 – 5,720 – 6,231 – 6,231 – – – – – – – TOTAL 143,735 28,750 27,511 – 72,336 69,000 72,336 69,000 72,336 69,000 23,575 69,000 24,086 69,000 – 139,000 EXECUTIVES • Ensure remuneration is competitive Remuneration Policy The Group rewards executives with a level and mix of remuneration commensurate with their position and responsibilities so as to: • Reward executives for company, business unit and individual performance against targets set by reference to agreed benchmarks; • Align the interests of executives with those of shareholders and of other Company business units; • Link reward to annual and longer term strategic business goals; and Remuneration Outcome to market. The Company does not provide discretionary bonuses unless there are exceptional circumstances. The Company does not subscribe, at senior level, to the philosophy of excessive ‘at risk components’ at a cash salary level but seeks to reward employees with a market competitive base rate. It considers that employment should be ‘at risk’ if performance does not deliver results or is at an unacceptable level. Remuneration comprises of several key elements: • Fixed remuneration; • Annual performance incentives; and • Where a specific business need arises, retention incentives are offered through options, performance rights or retention bonuses. There is no requirement for either the CEO or KMP to hold shares in the Company. Remuneration of KMP is prepared on an accruals basis for bonuses except where noted and were as follows: FY 2016 J Ellison D Gauci T Waller SALARY 469,702 217,241 247,711 A Haworth 267,085 P Victory 174,628 SHORT TERM INCENTIVE NON- MONETARY BENEFITS 234,000 43,385 137,250 34,769 23,652 1,025 5,000 – 5,517 7,245 OTHER SHORT TERM SUPER 5,797 21,920 – – – – 20,638 32,172 25,373 26,352 LONG TERM BENEFIT LSL PERFORMANCE RIGHTS TOTAL 61,609 7,016 23,151 7,936 5,362 – 794,053 2,575 295,856 – 440,284 2,575 2,575 343,255 239,814 5656 REMUNERATION REPORTFY 2015 J Ellison D Gauci T Waller SALARY 414,861 211,032 194,402 A Haworth 239,769 P Victory 177,897 SHORT TERM INCENTIVE NON- MONETARY BENEFITS 104,625 38,007 32,600 30,931 31,950 2,915 6,328 – 11,186 7,358 LEAVE LOADING SHORT TERM SUPER 5,453 31,275 – – – – 20,048 34,289 25,628 26,900 The proportion of remuneration that is performance based is as follows: J Ellison D Gauci T Waller A Haworth P Victory LONG TERM BENEFIT LSL PERFORMANCE RIGHTS – – – – – 6,046 5,976 5,989 871 6,500 2016 29% 16% 31% 8% 9% TOTAL 565,175 281,391 267,280 308,385 250,605 2015 19% 14% 12% 10% 13% The remuneration amounts disclosed above have been calculated based on the expense to the Company for the year. Therefore, such items such as performance rights, annual leave taken and long service leave taken and accrued for, have been included in the calculations. As a result, the remuneration disclosed may not equal the salary package as agreed with the executive in any one year. Short term incentives For KMP, bonuses vary by Executive depending on the influence on the Company and the business unit, achievement of defined business goals, achievement of specific business unit EBIT budgets as well as whether the Company achieved the Board approved budget for the year. The table below outlines the bonuses payable to KMP for the reporting period. 100% of the achievement bonus will vest with the employee. CASH BONUS AT RISK (MAXIMUM) ACHIEVEMENT OF GOALS DISCRETIONARY PERFORMANCE TOTAL BONUS J Ellison D Gauci $260,000 $44,497 Profit and share price targets met. 90% of KPI’s met. Group and Business Unit Budget targets met. 90% of KPI’s met T Waller $150,000 Group stretch profit target met and 83% of KPI’s met A Haworth $48,676 P Victory $36,388 Group Budget EBIT target met. Business Unit Budget EBIT target not met. 93% of KPI’s met Group Budget EBIT target met. Business Unit Budget EBIT target not met. 80% of KPI’s met – – – – – $234,000 $43,385 $137,250 $34,769 $23,652 57 REMUNERATION REPORT 4 EXECUTIVE CONTRACTS CEO The Company and Mr Jeffrey Ellison entered into a Managing Director Service Agreement which commenced on 16 October 2013 being the listing date on the ASX. The Agreement expires five years from that date. The agreement also allows the Company to extend the term of the employment. Under the Managing Director’s Service Agreement, Mr Ellison receives a total fixed gross remuneration package of $520,000 per annum (including wages, superannuation and motor vehicle) for his position as Managing Director of the Company. Mr Ellison is also entitled to a travel allowance of up to $10,000 per annum for family to travel with him on business related travel. Mr Ellison is entitled to a maximum performance bonus for the reporting period of up to 50% of annual salary. Criteria for achievement, of which a bonus attaches to each component, are: • The Company exceeding budgeted net profit after tax; • Growth of 10% in share price based on the movement between the average share price in July 2015 and June 2016; and • Reaching specifically defined Key Performance Indicators. Mr Ellison is employed under an ongoing contract which can be terminated with notice by either side. Mr Ellison may terminate the Managing Director Service Agreement and his employment with the Company at any time by giving the Company 90 days written notice. The Company may also terminate the Managing Director Service Agreement and Mr Ellison’s employment with the Company without cause at any time after the expiration of the Initial Term by giving Mr Ellison 90 days written notice or by making a payment in lieu of notice. In the event of serious misconduct or where other specific circumstances warrant summary dismissal, the Company may terminate the Management Director Service Agreement and Mr Ellison’s employment immediately without notice. Upon termination of Mr Ellison’s employment, he will be subject to a restraint of trade for a period of six months. OTHER KMP Remuneration arrangements for all other KMP are formalised in employment agreements. Standard KMP termination provisions are as follows: NOTICE PERIOD PAYMENT IN LIEU OF NOTICE TREATMENT OF STI ON TERMINATION TREATMENT OF LTI ON TERMINATION Resignation 4 weeks Termination for cause None 4 weeks Termination in cases of death, disablement, redundancy or notice without cause 4 weeks None 4 weeks Unvested awards forfeited Unvested awards forfeited Unvested awards forfeited Unvested awards forfeited Subject to Remuneration and Nomination Committee discretion. If not exercised, unvested awards forfeited Subject to Board discretion. If not exercised, unvested awards forfeited In addition to the above terms and conditions, Ms D Gauci is entitled to receive a travel allowance of up to $10,000 per annum for family travel. 5 OPTIONS AND SHAREHOLDINGS OF KMP OPTION HOLDINGS OF KEY MANAGEMENT PERSONNEL YEAR END 30 JUNE 2016 DIRECTORS J Ellison KEY MANAGEMENT PERSONNEL A Haworth Total BALANCE 1/7/15 SOLD/ FORFEITED EXERCISED BALANCE 30/6/16 750,000 31,250 781,250 – – – (750,000) (31,250) (781,250) – – – INTRINSIC VALUE OF OPTIONS EXERCISED/SOLD $2,100,000 $86,875 58 REMUNERATION REPORTYEAR END 30 JUNE 2015 BALANCE 1/7/14 SOLD/ FORFEITED EXERCISED BALANCE 30/6/15 VALUE OF OPTIONS EXERCISED DIRECTORS G Ursini F Mann C Smerdon J Ellison KEY MANAGEMENT PERSONNEL D Gauci T Waller A Haworth Total 500,000 375,000 375,000 1,435,000 – (77) – – (500,000) (374,923) (375,000) (685,000) 65,000 250,000 31,250 (65,000) (100,000) – – (150,000) – – – – 750,000 – – 31,250 3,031,250 (165,077) (2,084,923) 781,250 $600,000 $449,908 $450,000 $897,000 $84,500 $300,000 – As at 30 June 2016 and 30 June 2015, all options to KMP had vested. In addition to the above, 200,000 (2015: 200,000) share options, which vested in October, 2015 are held by senior staff. There were no share options issued to KMP during the year. SHAREHOLDINGS OF KEY MANAGEMENT PERSONNEL YEAR END 30 JUNE 2016 BALANCE 1/7/15 EXERCISE OF OPTIONS ACQUIRED/ (SOLD) BALANCE 30/6/16 AMOUNT PAID PER SHARE ON OPTION EXERCISE ($) DIRECTORS C Smerdon W Spurr T Dodd J Ellison 6,350,000 150,000 5,400,000 5,512,769 KEY MANAGEMENT PERSONNEL D Gauci T Waller P Victory A Haworth 5,000 150,000 62,835 14,400 – – – 750,000 – – – 31,250 (245,500) (69,000) (188,000) (738,000) 5,000 (10,000) 20,525 6,000 6,104,500 81,000 5,212,000 5,524,769 10,000 140,000 83,360 51,650 1.40 1.30 Total 17,645,004 781,250 (1,218,975) 17,207,279 YEAR END 30 JUNE 2015 BALANCE 1/7/14 EXERCISE OF OPTIONS ACQUIRED/ (SOLD) BALANCE 30/6/15 AMOUNT PAID PER SHARE ON OPTION EXERCISE ($) DIRECTORS G Ursini F Mann C Smerdon W Spurr T Dodd J Ellison 5,000,000 3,173,077 6,250,000 150,000 5,207,769 KEY MANAGEMENT PERSONNEL D Gauci T Waller P Victory A Haworth 5,000 10,000 51,000 14,400 500,000 374,923 375,000 – 685,000 – 150,000 – – (500,000) – (275,000) – (380,000) – (10,000) 11,835 – 5,000,000 3,548,000 6,350,000 150,000 5,512,769 5,000 150,000 62,835 14,400 Total 25,261,246 2,084,923 (1,153,165) 26,193,004 All equity transactions with KMP have been entered into under terms and conditions no more favourable than those the Company would have adopted if dealing at arm’s length. 1.20 1.20 1.20 – 1.31 – 1.20 – – 59 REMUNERATION REPORTPERFORMANCE RIGHTS OF KEY MANAGEMENT PERSONNEL Performance rights are generally granted to senior executives with more than 12 month’s service. The ESOP is designed to align participant’s interests with those of shareholders. When a participant ceases employment prior to the vesting of their performance rights or where the performance hurdle is not met, the performance rights are forfeited. Should all conditions be met, one ordinary share is issued for each performance right at no consideration. The hurdle price is usually set using a 10% compound rate applied to the share market price at date of issue. The following Performance Rights were issued during the year to Key Management Personnel: KEY MANAGEMENT PERSONNEL D Gauci P Victory A Haworth NUMBER 15,000 15,000 15,000 HURDLE PRICE $3.20 $3.20 $3.20 ISSUE DATE 1 September 2015 1 September 2015 1 September 2015 VESTING PERIOD 3 years 3 years 3 years The share price was chosen as an appropriate hurdle as it creates a strong link with the creation of long term shareholder value and to encourage the achievement of growth in the Company’s business. 6 REMUNERATION GOVERNANCE REMUNERATION AND NOMINATION COMMITTEE The Remuneration and Nomination Committee comprises three independent NEDs. This committee has delegated authority for matters related to remuneration arrangements for executives, and is required to make recommendations to the Board on other matters. Specifically, the Board approves the remuneration arrangements of the CEO made under any long term incentives, following recommendations from the Remuneration and Nomination Committee. The Board also sets the aggregate remuneration of all NEDs, which is then subject to shareholder approval. The Remuneration and Nomination Committee approves, having regard to the recommendations made by the CEO, the level of the short-term annual performance incentives for KMP or any discretionary bonuses. The Remuneration and Nomination Committee meets regularly throughout the year. The CEO attends certain Remuneration and Nomination Committee meetings by invitation, where management input is required. However, the CEO is not present during discussions related to his own remuneration arrangements. REMUNERATION CONSULTANTS To ensure the Remuneration and Nomination Committee is fully informed when making remuneration decisions, it seeks external remuneration advice where required. Remuneration consultants are engaged by, and report directly to, the Committee. In selecting remuneration consultants, the Committee considers potential conflicts of interest and requires independence from the Group’s key management personnel and other executives as part of their terms of engagement. During the year, Ashby Magro were paid $2,333 for their Remuneration and Consulting services which also included providing advice on additional Board members. No Remuneration Consultants were utilised during the 2014-15 financial year. Signed in accordance with a resolution of the directors. On behalf of the directors A J McEVOY CHAIRPERSON Adelaide Date: 10 August 2016 60 REMUNERATION REPORTADDITIONAL INFORMATION ASX ADDITIONAL INFORMATION Additional information required by the Australian Securities Exchange and not shown elsewhere in this report is as follows. The information is current as of 18 August 2016. A DISTRIBUTION OF EQUITABLE SECURITIES (i) Ordinary share capital, entitled to vote and entitled to dividends 101,154,103 fully paid ordinary shares are held by 2,798 individual shareholders. Of the total ordinary shares, there are 3,200,000 shares held in escrow by 4 shareholdings until 15 September, 2016. (ii) Options 200,000 options are held by 1 individual option holder. Options do not carry a right to vote or to participate in dividends. Options do not carry a right to vote or to participate in dividends. The number of shareholders, by size of holding, in each class are: FULLY PAID ORDINARY SHARES OPTIONS 1–1,000 1,001–5,000 5,001–10,000 10,001–100,000 100,001 and over Totals Holdings less than a marketable parcel (based on a closing price of $4.80 on 18 August 2016) B SUBSTANTIAL SHAREHOLDERS ORDINARY SHAREHOLDERS MR C SMERDON MR J R ELLISON MR T J DODD C TWENTY LARGEST HOLDERS OF QUOTED EQUITY SECURITIES ORDINARY SHAREHOLDERS NATIONAL NOMINEES LIMITED PRESCOTT NO 22 PTY LTD CITICORP NOMINEES PTY LIMITED SARTO PTY LTD BNP PARIBAS NOMS PTY LTD SUNROP PTY LTD RBC INVESTOR SERVICES HEBDEN PTY LTD J P MORGAN NOMINEES AUSTRALIA LTD ARISTOS NOMINEES PTY LTD EQUILINK PTY LTD FLAVON NOMINEES PTY LTD HSBC CUSTODY NOMINEES BELAHVILLE PTY LTD WITRON PTY LTD LASHMAR NOMINEES PTY LTD MR J. R. ELLISON & MRS T. A. ELLISON GLADYS WILLSON MR KEVIN WILLSON ATORCH NOMINEES PTY LTD 359,090 3,048,094 3,503,694 10,009,313 84,233,912 101,154,103 327 NUMBER (‘000s) 6,100 5,525 5,418 NUMBER (‘000s) 6,215 5,844 5,824 5,031 4,523 4,398 4,117 3,774 3,674 3,564 3,548 2,842 2,842 2,625 1,849 1,752 1,751 1,173 1,103 956 0 0 0 0 1 1 – % 6.08 5.68 5.58 % 6.14 5.78 5.76 4.97 4.47 4.35 4.07 3.73 3.63 3.52 3.51 2.81 2.81 2.60 1.83 1.73 1.73 1.16 1.09 0.94 61 CORPORATE GOVERNANCE The underlying principles are as follows: The Board of Directors of SeaLink Travel Group Limited (“SeaLink”) are responsible for the corporate governance of the Company and its controlled entities (the Group), monitoring the operational and financial performance of the Group, overseeing its business strategy and approving its strategic direction. The ASX Listing Rules require listed entities to disclose the extent to which they have followed the best practice recommendations set by the ASX Corporate Governance Council during a reporting period. 1. Lay solid foundations for management and oversight; 2. Structure the Board to add value; 3. Act ethically and responsibly; 4. Safeguard integrity in corporate reporting; 5. Make timely and balanced disclosure; 6. Respect the rights of shareholders; 7. Recognise and manage risk; and 8. Remunerate fairly and responsibly. Each of these principles are dealt with in detail on our website, in our Corporate Governance Statement available at sealinktravelgroup.com.au/corporate-governance Head Office Level 2, 431-439 King William Street Adelaide, SA 5000 Web www.sealinktravelgroup.com.au Email info@sealinktravelgroup.com.au Phone +61 8 8202 8688 ABN 69 007 122 367 ACN 109 078 257 ASX Code SLK 

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