SeaLink Travel Group
Annual Report 2019

Plain-text annual report

Annual Report 2018 – 2019 D E L I G H T I N G T R A V E L L E R S Iconic places We help Australian and international travellers discover some of our country’s most iconic locations Unique destinations We provide safe and consistent transport solutions to unique destinations across the country. Brilliant experiences We create brilliant memories with our holidays, accommodation, tours and activities Amazing people Our friendly, energetic and professional people help travellers enjoy the very best experience – every time Cover: Magnetic Island, Queensland This page: Sydney Harbour, New South Wales SeaLink Travel Group Five Year Financial Highlights Chair Report Review of Operations Revenue History Key Results 2 3 4 6 10 12 Directors’ Report Financial Report Auditor’s Report Remuneration Report ASX Additional Information Corporate Governance 13 17 49 53 61 62 At SeaLink we believe travel is about connecting people, sharing experiences and creating brilliant memories.O U R B R A N D S Sydney Western Australia Murray River S E A L I N K T R A V E L G R O U P SeaLink Travel Group is one of Australia’s most dynamic travel companies, bringing our nation’s best tourism and transport experiences to the world. With more than 1,600 passionate team members across the country, we deliver a fantastic service to more than seven million customers annually. Kangaroo Island, South Australia 2 While SeaLink was founded in 1989 in Adelaide, members of our travel family have been connecting the world with some of Australia’s most iconic places, destinations and experiences since 1970. With a vessel fleet of 78 and a coach fleet of 60 vehicles, our Adelaide-based company has continued a remarkable period of growth, emerging as a significant player on the national tourism and transport scene. Our operations currently extend across New South Wales, Queensland, Northern Territory, Western Australia, South Australia and Tasmania, including: • Cruises, ferry and charter services on Sydney Harbour, Swan River and on the Murray River • Resort accommodation, restaurants, touring and ferry services on Fraser Island, Queensland • Day tours, extended touring and charter operations on Kangaroo Island and on the South Australia mainland • Passenger ferry services in Townsville, Darwin and Perth • Lunch and dinner cruises on the Swan River and on Sydney Harbour • Ferry and barging services in south- east Queensland and Gladstone in Queensland • Exclusive 4WD foreign language adventure-based tours • Tour wholesaling to the travel trade • Passenger, vehicle and freight ferry • Accommodation and bistro services from Kangaroo Island to the South Australian mainland, North Stradbroke Island and Southern Moreton Bay Islands to south-east Queensland and from Bruny Island to the Tasmanian mainland at Vivonne Bay, Kangaroo Island. SeaLink listed on the Australian Securities Exchange in October 2013 (ASX:SLK). F I V E Y E A R F I N A N C I A L H I G H L I G H T S SEALINK TRAVEL GROUP 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 $m $m % $m cents cents % $m cents % 2015 111.3 14.8 13.3 9.6 12.6 7.8 64.1 61.3 68.9 13 2016 176.8 35.3 19.9 23.1 24.4 12.0 54.3 137.0 89.0 33 2017 201.4 37.5 18.6 23.6 23.6 14.0 59.5 147.7 100.0 31 2018 209.4 33.6 16.0 22.1 21.8 14.5 74.5 152.2 101.0 46 2019 251.3 31.5 12.5 23.4 23.0 15.0 70.6 157.9 106.0 33 NET PROFIT AFTER TAX UNDERLYING EARNINGS PER SHARE UNDILUTED $25m $20m $15m $10m $5m 25 cents 20 cents 15 cents 10 cents 5 cents FY15 FY16 FY17 FY18 FY19 FY15 FY16 FY17 FY18 FY19 Reported NPAT Underlying NPAT Underlying Earnings per share (ave) – undiluted 3 C H A I R R E P O R T Dear Shareholders, It has been a busy 12 months for the SeaLink Board and management – a year where we have grown profitability and increased the dividend to shareholders despite some challenging trading conditions. The management team under CEO and MD Jeff Ellison has worked hard to draw benefit from a full year of the recently acquired Fraser Island business and more than nine months of operations for the Bruny Island contract. The Board has also been focussed on growing shareholder value through a mix of organic growth, the divestment of under-performing or non-aligned assets and detailed consideration of, and due diligence on various acquisition opportunities that the Company anticipates will give SeaLink the appropriate growth trajectory. An example of such divestment was the sale of two Capricornian class vessels, originally built to service the LNG plants in Gladstone during the construction phase. As we said when acquiring that business in 2015, we have continued to utilise those vessels until such time as it made sense to sell them to realise a profit. Vessel management is a constant focus of the management team in a bid to keep the fleet fresh and fully utilised. While SeaLink has grown underlying profit, we have not been satisfied with the final result. A combination of various weather events, a slowing of the inbound visitor economy and the traditional Federal Election hiatus has meant we fell short of our ambition. This has meant the Board and management have looked even more closely at cost control, giving us a strong basis for improved performance in FY20. An announcement regarding the new Chief Executive is imminent and will be made as soon as possible. As forecast last year, Jeff has continued to serve the business with great professionalism, working hard on our M&A strategy as well as overseeing the operating businesses. Bruny Island, Tasmania 4 I would also like to thank my fellow Board colleagues for their continued commitment and adding value through offering their diversity of skills and experience and active participation into the governance of the Group. Finally, I would like to express my thanks to the SeaLink team of more than 1,600 employees all around Australia for their hard work and contribution during the year, and I look forward to our continuing success together. Andrew McEvoy Chair SeaLink Travel Group Limited The Company has considerable “bench strength” with senior managers who know their roles, manage their budgets and operations with an eye for safety, customer service and the appropriate level of profitability. All the members of the One SeaLink team are constantly on the lookout for service improvements, new product opportunities, new routes and contracts. Customer safety and satisfaction are core to the SeaLink ethos. During the year we undertook considerable work on our marketing platform in a bid to better cross-sell our assets. SeaLink carries in excess of seven million passengers per annum and we now gather better data and information about our customers to help them seamlessly travel on SeaLink vessels, stay in our accommodation facilities and take our trips and tours. With a growing database on a single platform, SeaLink has the ability to demonstrate and promote these other great Australian destinations for our visitors and regular commuters. The Company has declared a fully franked final dividend of 8.5 cents per share, bringing the total dividend for FY19 to 15.0 cents per share. 5 R E V I E W O F O P E R A T I O N S Financial year 2019 has been a solid year benefiting from past acquisitions and business development initiatives. In particular both the Fraser Island business in Queensland and our Bruny Island ferry operations in Tasmania performed ahead of expectations as did many of our Queensland and Northern Territory operations. Our key tourism businesses were challenged by slower international visitor growth, a number of unseasonal weather events and unplanned local disruptions for example a national election when the Australian market slowed. Our focus on growth opportunities continues, particularly in the transport industry. This is providing significant interest for the Company as we seek strong and stable income streams away from the fluctuations and seasonality of the tourism industry. The Company has increased its final dividend by 0.5 cents per share at 8.5 cents per share this financial year. This brings the full year dividend to 15.0 cents per share, up from 14.5 cents per share last year. Result Overview The Company recorded a statutory Net Profit after Tax (NPAT) of $21.5m compared to a NPAT of $19.6m for the year ended June 2018. From a comparative perspective, the Company reported an underlying NPAT of $23.4m compared with $22.1m in the prior year. SeaLink’s achievements in its key business segments for the year were: • Successful integration of the Kingfisher Bay Resort Group on Fraser Island (acquired March 2018) • Successful commencement of the Bruny Island ferry service in Tasmania • Successful divestment of two Capricornian Class vessels for a total of $9.9m • Upgrade of staff accommodation and common areas on Fraser Island • Commencement of construction of two vessels to operate the Bruny Island ferry service • Commencement of whale watching tours in Townsville • Establishment of whale watching on Stradbroke Island with QYAC • New Rottnest Island service operating above break even. Similar to the prior year, the Kangaroo Island, Queensland (Marine and Fraser Island) and Northern Territory operations all performed well during the period. The Tasmanian operations which commenced in September 2018 also performed pleasingly ahead of expectations. Contribution from our Captain Cook Cruises business in both Western Australia and New South Wales continued to be well below our expectations and following a detailed strategic review and evaluation of options resulted in the decision to close the fast passenger ferry operations in NSW. The WA business has shown signs of improvement and we were pleased with the performance and results from the Rottnest Island service that commenced 18 months ago. The Fraser Island business acquired in March 2018 delivered a result ahead of the acquisition business case, and ahead of the prior year. The Company continues to focus on its strategy of growth through acquisition as well as maximising organic revenue growth and profitability from its existing businesses, including the addition of new routes and products. We have an ongoing focus and commitment to margin enhancement initiatives, via pricing strategies as well as cost savings and efficiency gains. Our underlying cash flow profile and the cash position at year end is strong with all financial covenants comfortably met during the year. Gearing (interest bearing debt to total tangible assets) at year end was 33%, which is well within target gearing levels and positions us well for future investment and growth. We continue to develop our technology knowledge base to provide data to better understand and manage capacity, yield growth, variable pricing and the impacts of passenger trends. SeaLink South Australia & Tasmania Kangaroo Island SeaLink Revenue from vehicles and freight to Kangaroo Island was up 0.5% on the prior year both of these being record carry numbers but offset by a similar decrease in passenger revenues. SeaLink day touring passengers were slightly down as a result of the shift to self-drive touring and the introduction of a competing passenger only service. Our charter business benefited from the 28 cruise ships that visited Kangaroo Island between October and March, and 26 are scheduled to visit in FY20. In October 2018, we purchased a new 51 seat Scania bus to further complement and enhance our bus charter and coach touring opportunities. SeaLink continued to drive operational efficiencies and consolidated purchasing opportunities with both these contributing to the reduction in operational costs. Rottnest Island, Western Australia 6 During the period we successfully completed the mandated 15 year major out-of-water survey and maintenance works for one of the Kangaroo Island vessels. The South Australian Government also announced its intention to tender the ferry service between Cape Jervis and Penneshaw. The South Australian Government is yet to outline the timing phases of this tender. Our current licence to operate expires in July 2024. SeaLink has committed to the construction of two new vessels for the Bruny Island route, to be built in Tasmania with the first delivery planned in December 2019 and the second in March 2021. SeaLink also attracted new revenue from the Aquaculture sector in Southern Tasmania and has developed a strong business relationship with the industry. P.S. Murray Princess Captain Cook Cruises The PS Murray Princess has had a challenging year with revenue down 9% from the record high achieved in the prior year. Some of this under performance can be attributed to a decrease in sales from key customers, uncertainty associated with the 2019 Federal Election and the negative sentiments relating to the condition of the Murray and Darling Rivers. During the year a new Enterprise Bargaining Agreement was negotiated and finalised with staff and crew. The PS Murray Princess still made a significant contribution to earnings and achieved Nett Promoter Scores (NPS) for cruises in excess of 90%, an outstanding result which underpins the quality of the product and consistent delivery of our customer experience. Bruny Island – Tasmania After successfully winning the tender for the operation of ferry services to Bruny Island in Southern Tasmania, ferry services commenced on 23 September 2018. Vehicle numbers were up on our original forecast with resident, tourist and freight vehicles all contributing positively. SeaLink introduced a new Light and Standard Ferry fare structure in November 2018 with reduced fares on early morning services and standard fares through the peak. Total vehicle numbers were up 4% on 2017/18. Operationally, the MV Moongalba relocated from our South East Queensland operations to work on the route. SeaLink took over the management of the Tasmanian Government owned MV Mirambeena and has since purchased a third vessel for the route, the MV Bowen. SeaLink is also working with the Tasmanian Government to improve infrastructure at both Kettering and Roberts Point, which should provide opportunities to improve efficiencies on local and tourist travel. Captain Cook Cruises New South Wales The last 12 months have presented a challenging period for the business as both international and domestic demand softened, impacting our Sightseeing and Charter businesses. It was also a year of consolidation of our strategic plan to increase capacity, vessel utilisation and ferry routes to service Sydney Harbour residents and visitors. We remained focused on improving margins through tight cost control in our core tourism and dining businesses particularly in our food and beverage departments and focused on efficiency gains, with close attention to personnel management. During the period we tendered for the Sydney Ferries contract unfortunately finishing behind the incumbent. Whilst disappointing, it represented an opportunity to explore new arrangements in a remodelled contract offering. The Manly to Barangaroo Fast Ferry patronage continued to grow slowly but continued to operate well below expectations. We expect passenger growth to continue over the short to mid- term resulting in profitable operations towards the end of the 2019/2020 financial year. The Company’s new ‘Tubby Class’ vessels were re-deployed to operate Sydney’s first on-demand ferry service between Elizabeth Bay and Circular Quay. Excluding Charters, sales increased 2% over the prior year, before commission paid with growth coming in dining cruises and our new ferry routes. Dining revenue increased by 1%, despite soft international and domestic demand. This was due to improved strategic distribution relationships driving solid results. While the level of inbound tourism growth into Australia has softened over the past year, we are confident in our dining strategy to deliver improvements in yield. Sales continued to increase from sightseeing and ‘Harbour Story’ cruises, maintaining their popularity in our tourism offering. Our strategic focus to develop strong online distribution partnership arrangements was helped with finalisation of partnerships with online consolidator, building our direct to market channels in the Chinese and Asian markets. We believe the business can continue to innovate and deliver Sydney’s best dining sightseeing and cruising experience. 7 R E V I E W O F O P E R A T I O N S C O N T I N U E D Captain Cook Cruises Western Australia South-East Queensland Business and trading conditions in Western Australia commenced the year in the same vein as 2017 and 2018 with a depressed local tourism economy that translated to a reduction in local bookings. During the year there has been a heightened focus on developing and growing tourism on North Stradbroke Island by both the Redland City Council and State Government given its proximity to the greater Brisbane region. As the year progressed, Western Australia reported positive growth in the tourism sector across both visitation and spend with Tourism WA securing an additional $12m to support both domestic and international marketing campaigns designed to drive short term growth. In addition to this, it also secured a number of key sporting events to start the financial year, specifically Manchester United v Leeds football in July 2019 and Bledisloe Cup in August 2019. Captain Cook Cruises is well positioned to leverage these events with the exclusive use of the jetty at Optus Stadium. Western Australia also showcased Australia’s biggest tourism tradeshow (Australian Tourism Exchange) in April 2019 and is scheduled to host two further tourism events (Corroboree and Dreamtime) in October 2019 and December 2019 respectively. These events will assist in putting the ‘tourism spotlight’ back on Western Australia and assist in growing inbound numbers. Whilst the Captain Cook Cruises Swan River services continues to be soft, the SeaLink Rottnest Island business has shown double digit growth in passenger numbers despite strong competition. Rottnest Island has set another record for visitation with annual visitor numbers hitting 785,000 – nearly a 7% increase on 17/18 numbers. More broadly, visitation to Rottnest Island has grown 21% in the two years since SeaLink commenced services. With the ‘Quokka Selfie’ phenomenon in full swing and considerable Tourism WA marketing efforts focused on Rottnest Island, we expect the demand to continue to improve. SeaLink Queensland Gladstone In Gladstone, a total of eight vessels remain engaged on operational service contracts for the full year with the business performing to expectations on these contracts. An additional Capricornian vessel has also been re-deployed to Gladstone with a view to attracting additional ad-hoc tourism charter work and additional short-term work for Curtis Island clients. Although tourism charter work to date has not been realised as expected, additional short term work for Curtis Island clients has exceeded expectations. In April 2019 and June 2019, two Capricornian vessels were sold to a New Zealand operator realising proceeds of $9.9 million. The lease arrangements for these vessels had expired and a small profit on sale was achieved confirming our holding book value of these vessels. The 5th Capricornian vessel remains deployed in Perth servicing Rottnest Island business. In September 2018, the MV Quandamooka vehicle ferry returned from charter in Weipa and provided additional capacity on the Cleveland to North Stradbroke Island service during the peak holiday times, and on weekends. The MV Quandamooka carries 50 cars and 400 passengers and has a licenced café on board. In January 2019, we were successful in renewing the TransLink contract to provide passenger ferry transfers from Redland Bay to the Southern Moreton Bay Islands for another 5 years with an additional two by one-year options. We established a partnership with QYAC (Quandamooka Yoolooburrabee Aboriginal Corporation) by providing a wet charter vessel for the first Indigenous owned Whale Watching cruise in Australia. The rocket class vessel was re-deployed from Sydney for this cruise and offers the opportunity to create new products to further enhance our business. Our ongoing and developing working relationship with QYAC reinforces the values of the SeaLink RAP (Reconciliation Action Plan) that embraces and incorporates recognition, acknowledgement and understanding of Aboriginal and Torres Strait Islander peoples and culture into our everyday operations. SeaLink Townsville Overall revenue grew by 1.2% despite the extreme weather event (flooding) in February 2019 causing service cancellations over an extended period and a downturn in the youth adventure market. Despite these challenges, Magnetic Island passenger numbers increased by 2.4%, the highest recorded in a financial year. Revenue from cruise ship charters was slightly down, however revenue from the North Queensland Adventure series grew by 44% as a result of expanding the tour season and the introduction of whale watching tours. A new vessel build was approved to replace the current Palm Island passenger ferry and is expected to commence service towards the end of 2020. SeaLink Northern Territory Overall revenue increased by 15% compared to FY18 despite static passenger numbers on the Mandorah route. Tiwi Islands revenue continued to perform strongly on what was already a solid prior year with a 5.3% increase in passenger numbers and 7.2% increase in sales revenue across ferry and tour services. This was due to increased travel by residents over the wet season and increasing tourism numbers during peak season. The Groote Eylandt Ferry & Bus service revenue increased 63% on the prior year due to a full year contribution of bus operations and expansion of ferry services adding to the community of Numbulwar to the route. Perth, Western Australia 8 The Mandorah and Tiwi Islands contracts have been extended to 30 September 2019 whilst negotiations continue with the Northern Territory Government on renewed contracts for these routes. The Groote Eylandt contract is due to expire in February 2020 and we have commenced discussions to renew of this contract. The Tiwi Islands continue to be the primary tourism market and further growth is expected on this route with the development of new marine infrastructure on Bathurst Island, new tourist accommodation coming online in late 2019, and the Northern Territory Government’s investment into tourism marketing. Fraser Island During the 2019 financial year, we successfully integrated the recently acquired Fraser Island business into SeaLink. The successful integration of our sales and marketing functions were a highlight of this process and the new structure is both effective and efficient. Fraser Island traded well in all areas with a total revenue growth of 3% on the previous year in what many would characterise as a flat tourism market. This growth in overall revenue was reflected by an increase in our total EBITDA and this result is a credit to the very stable and experienced team throughout this business. At an operational level we made some strategic investments in the business which has resulted in positive change, the most significant of which was the upgrading of staff accommodation at both resorts. This investment will position us well to see a reduction in staff turnover and ultimately improved guest satisfaction scores which is a key driver in our ongoing success. The Kingfisher Bay Resort had a strong year with revenue exceeding forecast by 4.2% and the business benefited from unprecedented publicity as a result of the visit in October 2018 by their royal highnesses the Duke and Duchess of Sussex. While this event was fortuitous, we also undertook some innovative and effective sales and marketing strategies throughout the year to ensure that we maximised the occupancy for this property. This included a successful year in the wedding market as well as our continued strategy of targeting direct sales rather than a continuation of the growth in bookings via third parties. The Eurong Beach Resort operations performed well for the period while undertaking some important upgrades to facilities to which our guests responded very positively. Our continued focus on yield management has seen accommodation revenue improve and this is expected to continue to be the case as we move forward. The planned upgrade of the main food and beverage outlet early in the new financial year will underpin the continued improvement in the results from this business. Our touring brand Fraser Explorer Tours had a mixed year with very good performances from all products other than our youth adventure market tour Cool Dingo. Our marine business Fraser Island Barges also traded consistently during the period, however some softness in commercial traffic resulted in revenue being flat while some higher one-off repairs and maintenance expenses for one vessel impacted our operating costs. The SeaLink Fraser Island businesses are well positioned to continue to grow revenue and EBITDA in the future due to planned strategic investment in key areas, excellent management and focused sales and marketing activities which will see us continue to outperform the domestic tourism market. Future The future outlook for SeaLink is very bright with our solid base of diversified business across Australia in the transport, tourism and now accommodation sector. With international visitor growth at 3% and, the improved exchange rate, this will make Australia a more attractive holiday destination for both international visitors and Australian residents. In addition, the transport industry is a proven significant opportunity for SeaLink with its focus on logistics management and the industry’s solid returns and many opportunities. With a year of focus on growth through organic business development, sales, network expansion, additional routes and license extensions and acquisitions, 2019/20 financial year is sure to be another record. In summary, SeaLink’s overall plan for sustainable growth involves: • Developing further revenue and cost saving opportunities and efficiencies from acquisitions; • Maximising Group opportunities from Fraser Island; • Producing sustainable profits for the Rottnest Island route; • Continuing to improve sales, yields and margins on transport and tourism products; • Continue to add and grow additional services within existing locations and routes; • Utilising existing sales and marketing skills to promote and cross-sell existing and new products and services; • Utilising in-house technical skills to improve booking processes and websites to drive increased sales and productivity; • Working with Governments 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 employees, customers, suppliers, Directors and shareholders for their ongoing support and commitment over the past year. The hard-working talented people at SeaLink are central to our ongoing future growth and success. 9 R E V E N U E H I S T O R Y 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 260 ($M) 240 ($M) 220 ($M) 200 ($M) 180 ($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 ($M) 10 10 Adelaide Sightseeing Day Tours and City Centre Travel acquired. 1999 1998 Luxury Kangaroo Island ferry ‘Sealion 2000’ built and launched. Kangaroo Island Booking Centre retail specialist agency acquired. SeaLink selected as Facility Managers for new Adelaide Central Bus Station. SkyLink Adelaide Airport Shuttle Service and fleet of coaches acquired. Vivonne Bay Eco Adventures built Bistro and Function Centre. CJ’s by the Sea café opened at Cape Jervis Ferry Terminal. 2007 Cape Jervis Ferry Terminal built and officially opened. 2005 2006 Kangaroo Island Adventure Tours soft adventure business acquired. 2008 Big B Cartage Limited – NZ freight & trucking company, majority shareholding acquired. Premier Day Tour business acquired. Australian Holiday Centres Melbourne and Sydney acquired. Luxury Kangaroo Island ferry ‘Spirit of KI’ built and launched. 2003 2004 Auckland NZ based ferry company, Subritzky Ferries acquired. The Ski Connection ski packaging and express coach transport company acquired. Vivonne Bay Outdoor Education Centre, Kangaroo Island acquired. 260 ($M) 240 ($M) 220 ($M) 200 ($M) 180 ($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 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2019 Commence Tasmanian operations with Bruny Island contract 2018 Acquisition of Kingfisher Bay Resort Group, Fraser Island. Tiwi Islands, Northern Territory 11 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. 2014 Constructed the Penneshaw Terminal, Kangaroo Island. Kangaroo Island Odysseys 4WD Luxury Touring business acquired. 2010 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. K E Y R E S U L T S RESULTS IN BRIEF Normalised results1 Revenue from ordinary activities EBITDA (excl significant items) One-off costs Acquisition related costs (Fraser Island)2 Tender costs (CCC NSW)3 Impairment of Investment4 Depreciation and Amortisation EBIT Interest Net Profit Before Tax attributable to the members of SeaLink Travel Group Limited Tax Profit After Tax 1 Normalised Results have been adjusted for significant one off items for the period 30 June 2019 2 Costs associated with the acquisition of Fraser Island ($0.2m) 3 Costs associated with the unsuccessful tender bid for Sydney Ferries ($0.2m) 4 Impairment of Investment in UWAI ($1.6m) JUNE 2019 $M JUNE 2018 $M CHANGE % 248.8 47.9 – – – (16.4) 31.5 (4.6) 26.9 (3.5) 23.4 208.2 46.5 – – – (12.9) 33.6 (3.1) 30.5 (8.4) 22.1 19.5 3.0 n/a n/a – 27.5 (6.4) 43.8 (11.6) (58.2) 6.0 DIVIDEND INFORMATION FINAL DIVIDEND DATES AMOUNT PER SHARE (CENTS) FRANKED AMOUNT PER SHARE (CENTS) FRANKED AMOUNT Ex-dividend date Record date Payment date 30 June 2018 Interim Dividend Final Dividend 30 June 2019 Interim Dividend Final Dividend 6.5 8.0 6.5 8.5 6.5 8.0 6.5 8.5 100% 100% 100% 100% NET TANGIBLE ASSETS Net tangible assets per ordinary share 3 September 2019 4 September 2019 17 September 2019 JUNE 2019 $ 1.06 JUNE 2018 $ 1.01 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. Kangaroo Island, South Australia 12 D I R E C T O R S ’ R E P O R T The Board of Directors of SeaLink Travel Group Limited (“SeaLink” or “the Company’) has pleasure in submitting its report for the year ended 30 June 2019. 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. ANDREW J. McEVOY MA INT. COMMS, B. ARTS CHAIR Mr McEvoy was appointed a Director on 1 February 2015 and was appointed Chair 1 July, 2015. 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, and is a previous Managing Director and CEO of both Tourism Australia and the South Australian Tourist Commission. Most recently he was Managing Director, Life Media & Events at Fairfax Media, where he managed the new business portfolio, including events and the key lifestyle titles. Mr McEvoy is Chair of advocacy group Tourism and Transport Forum (TTF) and a Director of the Lux Group Ltd, Ingenia Communities Ltd and Voyages Indigenous Tourism Australia. Mr McEvoy is a member of the Company’s Remuneration and Nomination Committee. JEFFREY R. ELLISON B. 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 was appointed Managing Director in 2008. Mr Ellison is a member on Tourism Australia Board and the South Australian Botanic Gardens and State Herbarium Board. Mr Ellison is a former Board member of the South Australian Tourism Commission, Tourism and Transport Forum Australia and the Adelaide Convention Centre. ANDREA J. STAINES MBA FINANCE, B.EC, OAM NON-EXECUTIVE DIRECTOR FIONA A. HELE B.COM, FCA, FAICD NON-EXECUTIVE DIRECTOR Ms Staines has extensive experience in the transport sector and is a former CEO of Qantas subsidiary, Australian Airlines (mk II), which she co-launched. Ms Staines currently sits on the Board of UnitingCare, NDIA and Freightways (NZ). Ms Staines has been a professional non-executive director for over a decade, and has held previous directorships with a range of entities in the transport, tourism and care sectors, including Tourism Australia, Aurizon, Australian Rail Track Corporation, Gladstone Ports Corporation and North Queensland Airports. Ms Staines joined the Board in 2016 and is Chair of the Company’s Remuneration and Nomination Committee and a member of the Company’s Audit and Risk Committee. Ms Hele is a Chartered Accountant with over 25 years’ experience in both the private and public sectors specialising in strategic business advisory, mergers and acquisition, risk management and corporate governance. Ms Hele is a Fellow of the Institute of Chartered Accountants, Australia and New Zealand, and a Fellow of the Institute of Company Directors. Ms Hele is also a director of Adelaide Venue Management Corporation, Celsus Securitisation Pty Ltd and the South Australian Water Corporation. Past Directorships include the South Australian Tourism Commission and the Adelaide Fringe Festival. Ms Hele joined the Board in 2016 and is Chair of the Company’s Audit and Risk Committee. 13 D I R E C T O R S ’ R E P O R T C O N T I N U E D ANDREW D. MUIR B.EC, MBA COMPANY SECRETARY Mr Muir (Chief Financial Officer) was appointed Company Secretary on 1 June 2018. Mr Muir has held a number of similar positions with other ASX listed and private companies. Mr Muir holds a Bachelor of Economics and a Master of Business Administration from the University of Adelaide. JOANNE H. McDONALD LLB, B.EC, GAICD (APPOINTED 21 AUGUST 2018) LEGAL COUNSEL/COMPANY SECRETARY Prior to joining SeaLink as Legal Counsel and Company Secretary, Ms McDonald was Executive Manager Corporate Governance and Company Secretary for ElectraNet Pty Ltd. Ms McDonald has over 25 years‘ experience in commercial and corporate law including holding senior legal and commercial positions with other listed and statutory corporations. She holds a Bachelor of Laws (Hons) and Bachelor of Economics from the University of Adelaide. CHRISTOPHER D. SMERDON MAICD NON-EXECUTIVE DIRECTOR Mr Smerdon has extensive experience in the Information Technology and Cyber Security field. He is currently Managing Director of Vectra Corporation, a company that provides specialist Cyber Security services to organisations handling sensitive data, financial information and large volumes of credit card transactions. Clients include banks, telcos, utilities and large retailers. Mr Smerdon was previously Managing Director of Protech Australasia Pty Ltd a national Information Technology and systems integrator. Other Directorships currently held by Mr Smerdon are with Tourism & Allied Holdings Pty Ltd and Aquaport Corporation and Environmental Energy Australia. Mr Smerdon joined the Board in 2002 and is a member of the Company’s Audit and Risk Committee. TERRY J. 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 and owner 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 a member of the Company’s Remuneration and Nomination committee. Stradbroke Island, Queensland 14 INTERESTS 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: AJ McEvoy (Chair) CD Smerdon JR Ellison TJ Dodd FA Hele AJ Staines DIRECTORS’ MEETINGS NUMBER OF ORDINARY SHARES 19,579 6,104,500 5,524,769 4,786,578 10,000 – NUMBER OF OPTIONS OVER ORDINARY SHARES 100,000 – – – – – 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 meetings held: AJ McEvoy (Chair) CD Smerdon JR Ellison* TJ Dodd AJ Staines FA Hele NUMBER OF BOARD MEETINGS ATTENDED 11 11 10 11 11 11 11 NUMBER OF AUDIT AND RISK COMMITTEE MEETINGS ATTENDED 4 – 4 4 – 4 4 All current Directors were eligible to attend all meetings held. * Mr Ellison attended the Board Committee meetings by invitation only. NUMBER OF REMUNERATION AND NOMINATIONS COMMITTEE MEETINGS ATTENDED 6 6 – 6 6 6 – 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 FA Hele (Chair) AJ Staines CD Smerdon SHARE OPTIONS Remuneration and Nomination • tourism cruises, charter cruises and accommodated cruising; AJ Staines (Chair) AJ McEvoy TJ Dodd • accommodation and restaurant services at Fraser Island and Vivonne Bay; • coach tours; • tug and barge services; • travel agency services; and • packaged holidays. Unissued shares As at 30 June 2019, there were 100,000 (2018: 300,000) options outstanding to acquire ordinary shares in the Company. No options to acquire 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, no options were exercised by Directors. 200,000 options were exercised by employees at an issue price of $2.50 per ordinary share. 15 D I R E C T O R S ’ R E P O R T C O N T I N U E D DIVIDEND 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 2019 paid 12 April 2019. CENTS PER ORDINARY SHARE 6.5 AMOUNT $6,592,892 Final fully franked dividend for the year ended 30 June 2018 and paid 3 October 2018. 8.0 $8,092,328 SeaLink’s Directors today declared an 8.5 cents per share fully franked final dividend payable on 17 September 2019 to shareholders registered on 4 September 2019. This represents a 70.6% return of net profit after tax to shareholders, which is slightly above the Company’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 2018 was 6.5 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. SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS There have been no significant changes in the state of affairs of the Company during the year. AUDITOR’S INDEPENDENCE DECLARATION A copy of the auditor’s independence declaration as required under Section 307C of the Corporations Act 2001 is included at the end of the financial report. MATTERS SUBSEQUENT TO THE END OF THE FINANCIAL YEAR NON-AUDIT SERVICES A fully franked dividend of 8.5 cents per share was declared by SeaLink’s Directors on 27 August 2019, representing a total payment of $8,621,474 to be paid 17 September 2019 based on the current number of ordinary shares. Apart from the above, there are no significant events after the end of the reporting period which have come to our attention. 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 $Nil OTHER INDEMNIFICATION OF OFFICERS AND DIRECTORS The Company’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. 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. 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. 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 Company. 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 2019 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. 16 CONSOLIDATED STATEMENT OF PROFIT AND LOSS FOR THE YEAR ENDED 30 JUNE 2019 CONTINUING OPERATIONS NOTE 2019 $’000 2018 $’000 Revenue from contracts with customers 1A (a) 248,779 208,246 1A (b) 38 2,504 27 1,163 251,321 209,436 Interest income Other income Total income DIRECT OPERATING EXPENSES Direct wages Repairs and maintenance Fuel Commission Meals and beverage Accommodation Tour costs Depreciation Other direct expenses ADMINISTRATION EXPENSES Indirect wages General and administration Marketing and selling Financing charges Amortisation of customer contracts and permits Impairment on investment Business acquisition expenses Total expenses PROFIT BEFORE TAX FROM OPERATIONS Income tax expense Profit for the year from operations Attributable to equity holders of the parent EARNINGS PER SHARE 76,405 14,336 13,294 12,397 14,530 384 11,965 14,431 12,262 26,477 16,371 4,992 4,582 1,944 1,637 364 226,371 24,950 3,407 21,543 21,543 $0.212 $0.212 59,744 10,367 10,083 8,487 11,507 3,557 9,335 11,300 10,226 22,344 14,162 3,578 3,070 1,560 – 2,569 181,889 27,547 7,982 19,565 19,565 $0.193 $0.193 1B (b) 1B (a) 1B (b) 1B (g) 1B (h) 1C 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 CONSOLIDATED STATEMENT OF OTHER COMPREHENSIVE INCOME (OCI) FOR THE YEAR ENDED 30 JUNE 2019 PROFIT FOR THE YEAR OTHER COMPREHENSIVE INCOME Net (loss) / gain on cash flow hedge (interest rate swap) Deferred tax Net other comprehensive (loss) / gain 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 3C 2019 $’000 2018 $’000 21,543 19,565 (2,588) 776 (1,812) 19,731 19,731 (724) 217 (507) 19,058 19,058 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENT ARE INCLUDED ON PAGES 22-48 17 SEALINK TRAVEL GROUP LIMITED AND ITS CONTROLLED ENTITIESFINANCIAL REPORTCONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2019 CURRENT ASSETS Cash and cash equivalents Trade and other receivables Inventories Current tax asset Prepayments Total Current Assets NON-CURRENT ASSETS Property, plant and equipment Intangible assets Other financial assets Deferred tax assets Total Non-Current Assets Total Assets CURRENT LIABILITIES Trade and other payables Contract and other liabilities Interest bearing loans and borrowings Other financial liabilities Provisions Total Current Liabilities NON-CURRENT LIABILITIES Contract and other liabilities 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 2F 2K 2G 2I 2J 2L 2H 2I 2J 2K 2L 2H 3B 3C 2019 $’000 2018 $’000 11,904 12,355 4,921 5,684 4,263 39,127 201,396 53,383 1,637 5,936 262,352 301,479 13,578 7,684 822 943 11,027 34,054 776 94,957 9,132 2,832 1,813 109,510 143,564 157,915 96,057 (1,700) 63,558 157,915 3,242 11,004 4,738 6,334 2,000 27,318 210,101 55,327 3,274 4,539 273,241 300,559 10,623 6,643 1,350 137 9,600 28,353 805 107,187 9,293 1,050 1,649 119,984 148,337 152,222 95,557 (36) 56,701 152,222 18 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENT ARE INCLUDED ON PAGES 22-48 SEALINK TRAVEL GROUP LIMITED AND ITS CONTROLLED ENTITIESFINANCIAL REPORTCONSOLIDATED STATEMENT OF CHANGES IN EQUITY CONSOLIDATED BALANCE AT 1 JULY 2017 Profit for the period (324) – (507) (507) Other comprehensive income 3C Total comprehensive income for the period TRANSACTIONS WITH OWNERS IN THEIR CAPACITY AS OWNERS Dividends paid or provided for Issue of share capital Share based payments Balance at 30 June 2018 BALANCE AT 1 JULY 2018 Profit for the period Other comprehensive income Total comprehensive income for the period 3D 3B 7D 3C – – – (831) (831) – (1,812) (1,812) TRANSACTIONS WITH OWNERS IN THEIR CAPACITY AS OWNERS CASH FLOW HEDGE RESERVE $’000 NOTE RETAINED EARNINGS $’000 SHARE BASED PAYMENTS $’000 TOTAL $’000 CONTRIBUTED EQUITY $’000 95,557 – – – – – – 51,804 19,565 – 19,565 (14,667) – – 95,557 56,701 95,557 – – – – 500 – 56,701 21,543 – 21,543 (14,685) – – 646 147,683 – – – – – 151 795 795 – – – – – 148 943 19,565 (507) 19,058 (14,667) – 151 152,222 152,222 21,543 (1,812) 19,731 (14,685) 500 148 157,915 Dividends paid or provided for Issue of share capital Issue of share options Balance at 30 June 2019 3D 3B 7D – – – (2,643) 96,057 63,558 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENT ARE INCLUDED ON PAGES 22-48 19 SEALINK TRAVEL GROUP LIMITED AND ITS CONTROLLED ENTITIESFINANCIAL REPORTCONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 30 JUNE 2019 NOTE CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers Payments to suppliers and employees Interest received Interest paid Income tax paid 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 Investment in unlisted entity Acquisition of new businesses 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 2D 7A 2J 2J 3D 2A 2019 $’000 251,606 (202,878) 38 (4,582) (3,539) 40,645 12,605 12,605 (17,645) – – (17,645) (5,040) 500 – (12,758) (14,685) (26,943) 8,662 3,242 11,904 2018 $’000 208,288 (161,567) 27 (3,070) (15,127) 28,551 659 659 (13,654) (3,274) (44,728) (61,656) (60,997) – 49,350 (1,945) (14,667) 32,738 292 2,923 3,215 20 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENT ARE INCLUDED ON PAGES 22-48 SEALINK TRAVEL GROUP LIMITED AND ITS CONTROLLED ENTITIESFINANCIAL REPORTINDEX SECTION 1: KEY NUMBERS – STATEMENTS OF PROFIT & LOSS AND OTHER 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: COMMITMENTS AND CONTINGENCIES 6A 6B 6C SECTION 7: OTHER 7A 7B 7C 7D 7E 7F Revenue and Other Income Expenses Tax expense Operating segment reporting Cash and cash equivalents Trade and other receivables – current Inventories Property, plant and equipment Intangible assets Other financial assets Trade and other payables Provisions Contract Liabilities and other liabilities Interest bearing loans and borrowings Deferred tax Other financial liabilities Capital management Equity Reserves Dividends Earnings per share Financial risk management objectives and policies Financial instruments Basis of preparation Significant accounting policies Changes in accounting policies and disclosures Accounting standards issued but not yet effective 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 22-48 21 SEALINK TRAVEL GROUP LIMITED AND ITS CONTROLLED ENTITIESFINANCIAL REPORT1 STATEMENTS OF PROFIT & LOSS AND OTHER COMPREHENSIVE INCOME REVENUE AND OTHER INCOME A INCOME (a) REVENUE FROM CONTRACTS WITH CUSTOMERS TIMING OF REVENUE RECOGNITION Goods transferred at a point in time Services transferred over time Total (b) OTHER INCOME Profit on the sale of fixed assets Expired bookings and cancellation fees Other Total (c) CONTRACT BALANCES Contract Liabilities Set out below is the amount of revenue recognised from: Amounts included in contract liabilities at the beginning of the year Performance obligations satisfied in previous years The transaction price allocated to the remaining performance obligations (unsatisfied or partially unsatisfied) as at 30 June are, as follows: Within one year More than one year Total B EXPENSES (a) FINANCE COSTS Interest expense Borrowings Leases Finance charges Total (b) DEPRECIATION/AMORTISATION Depreciation Property, plant and equipment Leased assets Total depreciation Amortisation of customer contracts and permits (c) EMPLOYEE BENEFITS EXPENSE Wages and salaries Share based expense Other employee benefits / entitlements Superannuation Workers Compensation costs Total employee benefit expenses (d) LEASE PAYMENTS IN INCOME STATEMENT Lease and rental expenses 22 NOTE 2019 $’000 2018 $’000 248,416 363 248,779 207,872 374 208,246 2I 686 474 1,344 2,504 8,460 6,471 172 28,561 44,569 73,130 3,858 55 669 4,582 14,095 336 14,431 1,944 81,136 148 5,798 8,224 2,386 97,692 97 516 550 1,163 7,448 5,315 172 28,953 36,862 65,815 2,611 180 279 3,070 10,996 304 11,300 1,560 66,082 151 3,584 6,602 1,619 78,038 3,076 2,993 SEALINK TRAVEL GROUP LIMITED AND ITS CONTROLLED ENTITIES – NOTES TO FINANCIAL STATEMENTS FOR YEAR END 30 JUNE 2019FINANCIAL REPORTB MORE THAN ONE YEAR – CONTINUED REVENUE AND OTHER INCOME NOTE (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 Total (f) INVENTORY EXPENSE Costs of inventories recognised as an expense (g) IMPAIRMENT ON INVESTMENT Relates to impairment of other financial assets 2F (h) ACQUISITION EXPENSE Costs involved in relation to business acquisitions (stamp duty, legal) C TAX EXPENSE The major components of income tax expense for the years ended 30 June 2019 and 2018 are: 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 other comprehensive income Deferred tax related to items recognised and charged in OCI during the year: Net loss / (gain) on revaluation of cash flow hedges Tax expense reconciliation Accounting profit before income tax 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) Due to Impairment on Investment Due to business combination acquisition Effect of income that is exempt from taxation Amounts under / (over) provided in prior years Income tax expense reported in the income statement 2019 $’000 215 – 215 2018 $’000 197 – 197 30,134 21,987 1,637 364 4,189 (784) 2 3,407 – 2,569 7,846 102 34 7,982 776 217 24,950 27,547 7,485 17 44 492 – (4,633) 2 3,407 8,264 49 45 – 460 (870) 34 7,982 D OPERATING SEGMENT REPORTING Set out below is the disaggregation of the Group’s revenue from contracts with customers. For management purposes, the Group has four main reporting segments – • Kangaroo Island SeaLink (“SA”), offers ferry services, tours in South Australia, packaged holidays, retail travel services, accommodation facilities at Vivonne Bay and accommodated cruising on the Murray River. It also includes the ferry services to Bruny Island in Tasmania; • Captain Cook Cruises (“CCC”) operates tourist cruises, lunch, dinner and charter cruises and ferry passenger services on Sydney Harbour and in Perth; • SeaLink Queensland (“QLD”) includes ferry and barging operations throughout Queensland and the Northern Territory. This unit provides ferry passenger services as well as offering packaged holidays; 23 SEALINK TRAVEL GROUP LIMITED AND ITS CONTROLLED ENTITIES – NOTES TO FINANCIAL STATEMENTS FOR YEAR END 30 JUNE 2019FINANCIAL REPORTD OPERATING SEGMENT REPORTING CONTINUED • SeaLink Fraser Island (“Fraser Island”) offers ferry services, tours on Fraser Island, retail outlets for fuel, food and alcohol, accommodation facilities at Kingfisher Bay Resort and Eurong Beach Resort. Note this is a new segment from acquisition on 26 March 2018; and • Corporate (Head Office), provides finance, domestic and international sales and marketing, information and technology, fleet management, health and safety and administration and risk management support. The Board and Executive Committee monitors the operating results of each segment 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. Segment profit before tax – continuing operations Inter-segment revenues are eliminated on consolidation and reflected in the eliminations column. QLD $’000 FRASER ISLAND $’000 CORPORATE $’000 ELIMINATIONS $’000 CONSOLIDATED $’000 2,910 (13,707) – SA $’000 4,570 65,970 6,794 – 3,181 CCC $’000 1,275 53,375 5,179 156 2,593 1,310 77,833 3,642 54,106 2,117 1,404 5,437 2,901 385 3,083 37 654 – 137 16,882 (3,028) (1,175) (1,255) 20,160 (2,460) 4,569 (10,942) (2,562) 9,305 13,854 (2,430) 17,700 2,007 (1,637) CCC $’000 – QLD $’000 FRASER ISLAND $’000 CORPORATE $’000 ELIMINATIONS $’000 CONSOLIDATED $’000 980 – 2,871 (10,329) – SA $’000 6,478 64,234 2,714 – 2,551 55,213 78,435 11,527 8,471 156 2,327 1,678 1,404 5,731 791 – 685 – – – 6 18,122 (3,226) 488 (1,086) 22,050 (1,722) (1,020) 3,016 (9,050) 9,050 14,896 (598) 20,328 (4,036) – – – – – – – – 251,321 17,645 1,945 14,431 29,494 – 29,494 38 (4,582) 24,950 – – – – – – – 209,409 13,654 1,560 11,300 30,590 – 30,590 27 (3,070) 27,547 YEAR ENDED 30 JUNE 2019 Internal revenue External revenue RESULTS Capital expenditure Amortisation of customer contracts Depreciation Segment profit before interest and allocations – continuing operations Corporate allocations Segment profit before interest and tax – continuing operations Interest income Interest cost and finance charges YEAR ENDED 30 JUNE 2018 Internal revenue External revenue RESULTS Capital expenditure Amortisation of customer contracts Depreciation Segment profit before interest and allocations – continuing operations Corporate allocations Segment profit before interest and tax – continuing operations Interest income Interest cost and finance charges Segment profit before tax – continuing operations 24 SEALINK TRAVEL GROUP LIMITED AND ITS CONTROLLED ENTITIES – NOTES TO FINANCIAL STATEMENTS FOR YEAR END 30 JUNE 2019FINANCIAL REPORTTHE FOLLOWING TABLE PRESENTS SEGMENT ASSETS AND LIABILITIES OF THE GROUP’S OPERATING SEGMENTS QLD $’000 FRASER ISLAND $’000 CORPORATE $’000 ELIMINATIONS $’000 CONSOLIDATED $’000 SA $’000 52,576 112,167 CCC $’000 51,929 7,933 131,530 7,819 45,501 120,387 49,504 6,781 142,475 7,222 53,130 6,512 52,198 4,654 694 – 8 – – – – – 289,859 134,431 289,686 139,044 CONSOLIDATED 2019 $’000 CONSOLIDATED 2018 $’000 289,859 5,684 5,936 301,479 134,431 – 9,132 143,563 289,686 6,334 4,539 300,559 139,044 – 9,293 148,337 AT 30 JUNE 2019 Operating assets Operating liabilities AT 30 JUNE 2018 Operating assets Operating liabilities RECONCILIATION OF ASSETS AND LIABILITIES Segment operating assets Current tax asset Deferred tax assets Group total assets Segment operating liabilities Current tax liabilities Deferred tax liabilities Group total liabilities 2 STATEMENT OF FINANCIAL POSITION 2019 $’000 2018 $’000 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 6,167 5,737 11,904 3,069 173 3,242 (b) RECONCILIATION OF PROFIT AFTER INCOME TAX TO NET CASH PROVIDED BY OPERATING ACTIVITIES Profit for the year after income tax Non-cash items 21,543 19,565 Depreciation and amortisation of non-current assets 16,375 12,860 Deferred income Loss / (Profit) on disposal of non-current assets Impairment on Investment Share option cost Changes in net assets and liabilities Tax balances increase / (decrease) Current trade receivables (increase) / decrease 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 2,341 (686) 1,637 148 (908) (1,351) (183) (2,263) 2,401 1,591 40,645 (345) (75) – 151 (7,362) (694) (1,335) (42) 3,573 2,282 28,578 25 SEALINK TRAVEL GROUP LIMITED AND ITS CONTROLLED ENTITIES – NOTES TO FINANCIAL STATEMENTS FOR YEAR END 30 JUNE 2019FINANCIAL REPORTB TRADE AND OTHER RECEIVABLES – CURRENT Trade receivables Other Allowance for expected credit loss Total trade and other receivables 2019 $’000 2018 $’000 11,395 10,515 972 (12) 520 (31) 12,355 11,004 Trade receivables are non-interest bearing and are generally on 30-60 day terms. An allowance is made for trade receivables and other assets, as the Group applies a simplified approach in calculating expected credit losses (ECLs). Therefore, the Group does not track changes in credit risk, but instead recognises a loss allowance based on lifetime ECLs at each reporting date. The Group has established a provision matrix that is based on its historical credit loss experience, adjusted for forward-looking factors specific to the debtors and the economic environment. ALLOWANCE FOR CREDIT LOSS 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 (31) – 19 (12) (24) (22) 15 (31) 2019 – CONSOLIDATED Expected loss rate Expected credit loss 2018 – CONSOLIDATED Expected loss rate Expected credit loss TOTAL 11,395 12 7,377 31 C INVENTORIES Fuel (at cost) Goods held for resale (at cost) Spare parts Total current inventories 0–30 DAYS 31–60 DAYS 61–90 DAYS OVER 90 DAYS 9,130 0.03% 2 6,403 0.03% 2 1,679 0.10% 2 463 0.25% 1 449 0.25% 1 250 0.25% 1 2019 $’000 438 1,848 2,635 4,921 137 5.00% 7 230 12% 27 2018 $’000 460 1,508 2,770 4,738 26 SEALINK TRAVEL GROUP LIMITED AND ITS CONTROLLED ENTITIES – NOTES TO FINANCIAL STATEMENTS FOR YEAR END 30 JUNE 2019FINANCIAL REPORT NOTE 2019 $’000 2018 $’000 D PROPERTY, PLANT AND EQUIPMENT LAND AND BUILDINGS Cost Opening balance Additions Transfers Acquired through business combinations 7A Disposals Closing balance Accumulated depreciation Opening balance Disposals Transfers Depreciation for the year Closing balance Total land and buildings, net PLANT AND EQUIPMENT Cost Opening balance Transfers Transfer from capital works-in-progress Acquired through business combinations 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 1B (b) 7A 1B (b) 1B (b) 46,170 284 – – – 46,454 3,744 – – 844 4,588 41,866 30,093 8 877 – 2,902 (795) 33,085 9,662 – 4,068 (692) 13,038 20,047 3,302 – – (64) 3,238 519 336 – (31) 824 2,414 20,255 297 – 25,618 – 46,170 3,105 – – 639 3,744 42,426 20,689 (12) – 8,526 1,652 (762) 30,093 8,151 – 2,099 (588) 9,662 20,431 2,290 1,012 – – 3,302 215 304 – – 519 2,783 27 SEALINK TRAVEL GROUP LIMITED AND ITS CONTROLLED ENTITIES – NOTES TO FINANCIAL STATEMENTS FOR YEAR END 30 JUNE 2019FINANCIAL REPORTFERRIES Cost Opening balance Additions Acquired through business combinations Transfers from capital works-in-progress Disposals Closing balance Accumulated depreciation Opening balance Depreciation for the year Transfers Disposals Closing balance Total ferries, net CAPITAL WORKS-IN-PROGRESS Opening balance Additions Transfers to ferries and other PPE Closing balance – as described below Total property, plant and equipment, net NOTE 7A 1B (b) 2019 $’000 2018 $’000 184,235 5,988 – 3,662 (15,413) 178,472 42,030 9,184 – (3,631) 47,583 130,889 2,256 8,465 (4,541) 6,180 201,396 173,052 4,070 3,400 4,381 (668) 184,235 34,028 8,258 – (256) 42,030 142,205 – 6,623 (4,367) 2,256 210,101 At 30 June 2019, there were three vessels under construction, three bus refurbishments underway and the fitout for the upgrade facilities in Queensland. At 30 June 2018, there were two vessels under construction, three bus re-builds and the fitout for the new corporate office in Adelaide. Refer also to Note 6A for capital commitments. NOTE 2019 $’000 2018 $’000 E INTANGIBLE ASSETS Goodwill – at cost Cost Opening balance Additions thorough business combinations 7A Closing balance Accumulated Impairment Opening and closing balance Total goodwill Customer contracts and permits Opening balance Additions through business combinations Closing balance – at cost Less – amortisation during the period Total customer contracts Total intangible assets, net 28 47,929 – 47,929 (129) 47,800 7,527 – 7,527 (1,944) 5,583 53,383 40,429 7,500 47,929 (129) 47,800 5,888 3,199 9,087 (1,560) 7,527 55,327 SEALINK TRAVEL GROUP LIMITED AND ITS CONTROLLED ENTITIES – NOTES TO FINANCIAL STATEMENTS FOR YEAR END 30 JUNE 2019FINANCIAL REPORTGoodwill acquired through business acquisitions has been allocated to KI Odysseys ($209,000), SeaLink Queensland ($6,420,000), Australian Holiday Centre Sydney ($129,000), Captain Cook Cruises WA ($3,590,000), Transit Systems Marine business ($30,081,000) and Fraser Island ($7,500,000) 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 and Fraser Island Group is not deductible for income tax purposes. The Group performed its annual impairment test at 30 June 2019. 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 growth rates as below for a five-year period as approved by management. For all CGU’s, an EBIT multiple of between 6 and 7 times year five earnings has been used to determine the terminal value based on senior management’s expectations of market price for these types of businesses. A pre-tax discount rate of 10.5% (2018: 11.0%) 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 any of the 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: SeaLink Queensland: • Passenger numbers to Magnetic Island – An increase of 2% 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 (2% assumed) adjusted for significant expected engine rebuilds and refurbishments. KI Odyssey: • 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 online sales expected. Captain Cook Cruises WA: • 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 and 7% growth in the Rottnest Island operation. Transit Systems Marine business: • Revenue for the 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 F OTHER FINANCIAL ASSETS Investment in UWAI Limited (i) Opening balance Movement in fair value Closing balance (i) Represents the investment in UWAI Limited. into fixed contracts and growth in vessel charter rates. • No change to the current level of capital expenditure has been assumed for all CGU’s. Management have assessed the changes to the key assumptions in the model, unless there was a large unforeseeable event, there would not be an impairment in goodwill for any of the CGU’s other than CCC-WA. If annual growth is less than 4% year on year the CGU would be impaired. The current carrying value of the CGU is $19.015m and this exceeds the recoverable amount by $3.2m. If growth was 4% year on year the carrying value of the CGU is $15.8m and this exceeds the recoverable amount by nil. CUSTOMER CONTRACTS AND PERMITS Customer contracts of $7.4m 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 finite life. The amortisation period ranges between 5 and 7 years. As part of the Fraser Island acquisition, touring and access permits were acquired with a fair value of $3,200,000. During the period, the Company recorded an amortisation of $1,944,000 associated with customer contracts and permits with an associated reduction in the Deferred Tax Liability of $584,000. 2019 $’000 3,274 (1,637) 1,637 2018 $’000 – 3,274 3,274 On 19 March 2018, SeaLink entered into a Simple Agreement for Future Equity (“SAFE”) with UWAI Limited for USD$2.5m. The SAFE contains a debt contract with an option to convert to equity. The investment has been impaired based on fair market valuation. The fair value hierarchy is Level 3 for the investment, as there are significant unobservable inputs. G 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. 6,188 7,390 13,578 5,790 4,833 10,623 29 SEALINK TRAVEL GROUP LIMITED AND ITS CONTROLLED ENTITIES – NOTES TO FINANCIAL STATEMENTS FOR YEAR END 30 JUNE 2019FINANCIAL REPORT H PROVISIONS CURRENT Employee entitlements NON-CURRENT Employee entitlements I CONTRACT LIABILITIES AND OTHER LIABILITIES CURRENT Deferred income – Government grant Contract liability – Prepaid travel (a) Total current liabilities NON-CURRENT Deferred income – Government grant Total non-current liabilities 2019 $’000 11,027 1,813 2019 $’000 597 7,087 7,684 776 776 2018 $’000 9,600 1,649 2018 $’000 172 6,471 6,643 805 805 (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 2019 (2018: 1 July 2018). Government Grants A new grant was received during the year to commence operations in Bruny Island Tasmania. All grants are released to income equally over the expected useful life of the asset. Previous grants released to income totalled $454,702 (2018:$171,639). J INTEREST BEARING LOANS AND BORROWINGS CURRENT Secured: Bank and other loans (i) Lease liabilities (ii) Total current interest bearing liabilities NON-CURRENT Secured: Bank and other loans (i) Lease liabilities (ii) Total non-current interest bearing liabilities (i) Security, terms and conditions – Loans and Overdraft NOTE 6A 6A 2019 $’000 – 822 822 92,500 2,457 94,957 2018 $’000 – 1,350 1,350 104,050 3,137 107,187 First registered mortgage over property situated at Penneshaw, Kangaroo Island SA, Neutral Bay Marina NSW and Russell Island QLD. 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. Guarantees provided total $2,355,735 (2018: $1,421,663)Bank loans have been drawn down under an interchangeable bill facility with a limit of $118.0m with ANZ which matures 30 November 2020. The facility is provided on a fixed and floating rate basis. As at year end the balance of $30m had a fixed rate of 3.85% (2018: $30m, 3.93%) and the balance of $62.5m was at a floating rate of 2.2% (2018: $74.05m, 3.5%).The current facility limit will reduce by $5m by June 2020. This limit is reviewed annually. As part of the interchangeable facility with ANZ, $15m has been allocated for lease facilities. Committed financing facilities of $133,653,431 (2018: $134,339,598 ) were available to the consolidated entity at the end of the financial year. As at that date, $109,715,166 (2018: $109,987,903) of these facilities were in use. During the current year, there were no defaults or breaches. (ii) Secured over the assets leased. Leases are fixed rate with a lease term of between 48 and 60 months. Interest bearing loans and borrowings have a fair value of $95,756,000 (2018: $108,545,613) and a carrying value of $94,779,000 (2018: $108,537,239). During the year, interest bearing borrowings of $12,758,000 were repaid from funds raised through cashflow from operations. No drawdowns were made. 30 SEALINK TRAVEL GROUP LIMITED AND ITS CONTROLLED ENTITIES – NOTES TO FINANCIAL STATEMENTS FOR YEAR END 30 JUNE 2019FINANCIAL REPORTJ INTEREST BEARING LOANS AND BORROWINGS (CONT) Reconciliation of debt to financing cashflows Current interest-bearing loans and borrowings Current obligations under lease/hire purchase Non-current Interest-bearing loans and borrowings Non-current obligations under lease/hire purchase Total liabilities from financing activities K DEFERRED TAX Deferred income tax at 30 June relates to the following: 1 JULY 2018 $’000 CASHFLOWS $’000 NEW LEASES $’000 30 JUNE 2019 $’000 – 1,350 104,050 3,137 108,537 – (528) (11,550) (680) (12,758) – – – – – – 822 92,500 2,457 95,779 STATEMENT OF FINANCIAL POSITION 2018 $’000 2019 $’000 STATEMENT OF PROFIT AND LOSS 2018 $’000 2019 $’000 CONSOLIDATED Deferred tax assets Provision for doubtful debts Government grants Prepaid revenue Accruals Capital expense timing differences Revaluation of cash flow hedge (interest rate swap) Property, plant and equipment Employee entitlements Total deferred tax assets Deferred tax liabilities Property, plant and equipment Intangible assets Consumables Prepayments Total deferred tax liabilities Deferred income tax expense 3 – 412 179 357 1,133 – 3,852 5,936 8,111 830 143 48 9,132 9 – 293 41 464 357 – 3,375 4,539 7,774 1,298 166 55 9,293 6 – (119) (138) 106 – – (477) 337 (468) (23) (7) (6) (345) 293 31 47 – (286) 65 (333) 468 (17) (19) (783) (102) L OTHER FINANCIAL LIABILITIES Derivative designated as hedging instrument CURRENT Interest rate swap NON-CURRENT Interest rate swap NOTE 4B 2019 $’000 943 2,832 2018 $’000 137 1,050 31 SEALINK TRAVEL GROUP LIMITED AND ITS CONTROLLED ENTITIES – NOTES TO FINANCIAL STATEMENTS FOR YEAR END 30 JUNE 2019FINANCIAL REPORT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. 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 a gearing ratio at less than 60%. As at 30 June 2019, the gearing ratio was 33.9% (2018: 45.9%). CONTRIBUTED EQUITY NO. OF SHARES ON ISSUE NOTE 2019 $’000 2018 $’000 2019 ’000 2018 $’000 B EQUITY ISSUED AND FULLY PAID ORDINARY SHARES (ALL ISSUED SHARES FULLY PAID) Opening balance Conversion of options Issue of shares through a Share Placement Issue of shares through a Share Purchase Plan Issue of shares as purchase consideration Deferred tax associated with share issue expenses 7D 7A 95,557 500 – – – – 95,557 101,154 101,154 – – – – – 275 – – – – – – – – – Total 96,057 95,557 101,429 101,154 C RESERVES SHARE OPTION RESERVE Opening balance Share option expense Closing balance NOTE 2019 $’000 795 148 943 2018 $’000 644 151 795 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 Closing balance Total reserves 4B (831) (1,812) (2,643) (1,700) (324) (507) (831) (36) 32 SEALINK TRAVEL GROUP LIMITED AND ITS CONTROLLED ENTITIES – NOTES TO FINANCIAL STATEMENTS FOR YEAR END 30 JUNE 2019FINANCIAL REPORTD DIVIDENDS Dividends on ordinary shares declared and paid during the period: Interim dividend for 2019: 6.5 cents (2018: 6.5 cents) Final dividend for 2018: 8.0 cents (2017: 8.0 cents) Dividends on ordinary shares proposed for approval (not recognised as a liability as at 30 June): Final dividend for 2019: 8.5 cents (2018: 8.0 cents) 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 (be utilised in) the payment of income tax as at the end of the financial year. Total Franking Credit Balance 2019 $’000 2018 $’000 6,593 8,092 6,575 8,092 8,621 8,092 49,999 – 52,752 – 49,999 52,752 2019 $’000 2018 $’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 21,543 19,565 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 2019 $’000 2018 $’000 101,412 101,154 – 200 101,412 101,354 There have been no other transactions involving ordinary shares or potential ordinary shares between the reporting date and date of these financial statements. 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 $0.212 $0.212 $0.193 $0.193 33 SEALINK TRAVEL GROUP LIMITED AND ITS CONTROLLED ENTITIES – NOTES TO FINANCIAL STATEMENTS FOR YEAR END 30 JUNE 2019FINANCIAL REPORT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 for the purposes of hedging interest rate and fuel price risk. The Group is exposed to market risk, credit risk and liquidity risk. The Group’s senior management oversees the management of these risks and is 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 follows: 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 comprises of 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, uses cash advance facilities which are variable interest rate based, uses interest rate hedges or enters into longer term fixed rate loans. At 30 June 2018, 55% of the Group’s interest bearing borrowings are effectively at a fixed rate of interest (2017: 55%). The sensitivity analyses in the following sections relate to the position as at 30 June 2019 and 30 June 2018. 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 2019. The table below sets out the carrying amount, by maturity, of the financial instruments exposed to interest rate risk: WEIGHTED AVERAGE EFFECTIVE INTEREST RATE WITHIN 1 YEAR 1 TO 5 YEARS 2019 % 2018 % 2019 $’000 2018 $’000 2019 $’000 2018 $’000 2019 $’000 TOTAL 2018 $’000 – – – – 11,904 3,242 – – – 1,637 3,274 11,904 1,637 3,242 3,274 – – – – – – – 62,500 74,050 62,500 74,050 30,000 2,457 30,000 3,137 30,000 3,280 30,000 4,487 (93,320) (103,913) (82,239) (102,021) 822 11,082 1,350 1,892 FINANCIAL ASSETS Floating rate Cash assets Financial assets (i) FINANCIAL LIABILITIES Floating rate Overdraft (ii) Bank and other loans Fixed rate Bank and other loans Leases (ii) Net exposure 0.6 1.5 0.3 1.5 2.20 2.20 3.5 3.54 3.85 3.71 3.93 3.69 (i) classified at fair value through Profit and Loss (ii) classified at amortised cost 34 SEALINK TRAVEL GROUP LIMITED AND ITS CONTROLLED ENTITIES – NOTES TO FINANCIAL STATEMENTS FOR YEAR END 30 JUNE 2019FINANCIAL REPORT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 PROFIT AFFECT EQUITY AFFECT EQUITY AFFECT CONSOLIDATED 30 JUNE 2019 $’000 CONSOLIDATED 30 JUNE 2018 $’000 CONSOLIDATED 30 JUNE 2019 $’000 CONSOLIDATED 30 JUNE 2018 $’000 (324) 648 (364) 728 (206) (425) (108) (1,306) 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 2019. A 12 month fuel hedge is in place commencing 1 July 2019. The group is exposed to changes in fuel price on the volumes that are not fixed price. 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 other financial assets) 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 exposures that comprised more than 30% 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. As required by IFRS 9, the Group used the simplified approach in calculating expected credit loss (ECL) for trade receivables and contract assets that did not contain a significant financing component. The Group applied the practical expedient to calculate ECL using a provision matrix. 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. 35 SEALINK TRAVEL GROUP LIMITED AND ITS CONTROLLED ENTITIES – NOTES TO FINANCIAL STATEMENTS FOR YEAR END 30 JUNE 2019FINANCIAL REPORTThe table below sets out the maturity profile of the Group’s financial liabilities based on contracted undiscounted payments. Estimated variable interest expense is based upon the rate applying as at 30 June 2019. ON DEMAND $’000 0–3 MONTHS $’000 3–12 MONTHS $’000 YEAR ENDED 30 JUNE 2019 Interest-bearing loans and borrowings Trade and other payables Other financial liabilities Financial guarantee contracts Leases/hire purchase Total YEAR ENDED 30 JUNE 2018 Interest-bearing loans and borrowings Trade and other payables Other financial liabilities Financial guarantee contracts Leases/hire purchase Total B FINANCIAL INSTRUMENTS CASH FLOW HEDGE FOR INTEREST RATE RISK In the prior period, the Group entered into a 5 year fixed term interest rate swap effective from 1 May 2018 at a rate of 2.74% before interest margin and line fees. The Interest rate swap is designed as a cashflow hedge. – – – 1,550 – 1,550 – – – 1,550 – 1,550 810 13,578 – – 205 14,593 911 11,952 – – 403 13,266 1–5 YEARS $’000 92,500 – 633 – 2,700 95,833 – 338 – 3,522 TOTAL $’000 95,738 13,578 633 1,550 3,521 115,020 107,692 11,952 338 1,550 4,871 107,910 126,403 2,428 – – – 616 3,044 – – – 946 3,677 2,731 104,050 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, the gross difference of $3,775,000 was recorded as a financial liability with the associated tax effect forming part of Deferred Tax Asset. The net difference of $1,812,000 is shown through the statement of other comprehensive income. The interest rate swap is categorised 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. Management mitigates risk by swapping floating rate debt to fixed rate. As at year end $30m bank loans are fixed. 5 ACCOUNTING POLICIES A BASIS OF PREPARATION B SIGNIFICANT ACCOUNTING POLICIES (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) The consolidated financial statements for the year ended 30 June 2019 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. 36 • 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. SEALINK TRAVEL GROUP LIMITED AND ITS CONTROLLED ENTITIES – NOTES TO FINANCIAL STATEMENTS FOR YEAR END 30 JUNE 2019FINANCIAL REPORT (b) FINANCIAL LIABILITIES Financial liabilities are classified, at initial recognition, as financial liabilities at fair value through profit or loss, loans and borrowings, payables, or as derivatives designated as hedging instruments in an effective hedge, as appropriate. All financial liabilities are recognised initially at fair value and, in the case of loans and borrowings and payables, net of directly attributable transaction costs. A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires. Interest rate derivatives which are designated and documented as part of a cash flow hedge relation ship, are measured at fair value with changes in fair value recognised in other comprehensive income if the hedge relationship is 100% effective. The ineffective portion of any fair value adjustment is recognised through Profit and Loss. (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 weighted average cost. (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. 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 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 Where the Group is a lessee: 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 Profit and Loss. Deferred income tax liabilities are Deferred income tax assets and Capitalised leased assets 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 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. 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. 37 SEALINK TRAVEL GROUP LIMITED AND ITS CONTROLLED ENTITIES – NOTES TO FINANCIAL STATEMENTS FOR YEAR END 30 JUNE 2019FINANCIAL REPORT  Operating leases are not capitalised and payments are charged as an expense in the Statement of Profit and Loss on a straight line basis over the lease term. (f) BUSINESS COMBINATIONS AND GOODWILL 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 9 Financial Instruments: Recognition and Measurement, is measured at fair value with changes in fair value recognised in either profit or loss or as a change to other comprehensive income. If the contingent consideration is not within the scope of AASB 9, 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 38 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 NON-FINANCIAL ASSETS At each reporting date, the consolidated entity reviews the carrying value of its tangible and intangible assets of 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 Profit and Loss. 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. 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 Profit and Loss as incurred. 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: Buildings LIFE 14 – 40 years Plant and equipment 3 – 20 years Plant and equipment under lease Ferry 3 – 5 years 5 – 25 years Expenses incurred and capitalised into capital work-in-progress includes all materials used and direct labour incurred on the project. Capital work-in-progress is transferred into property, plant and equipment and begun to be depreciated once the asset is available for use by the group. (j) REVENUE FROM CONTRACTS WITH CUSTOMERS Revenue from transport of passengers, freight and accommodation is recognised at the time of delivery of the service to the customer, which is the time where the control is transferred and when each SEALINK TRAVEL GROUP LIMITED AND ITS CONTROLLED ENTITIES – NOTES TO FINANCIAL STATEMENTS FOR YEAR END 30 JUNE 2019FINANCIAL REPORT separate performance obligation in the customer contract is fulfilled given the short time services are provided (less than a day). This typically occurs on a departure date or booking date basis whereby customers or groups who have paid for services have actually departed on those travel or accommodation services. The revenue is recognised in the month of the said departure date. Some of the ferry and freight transports have a series of performance obligations, but as the duration of these transports are short term the impact from splitting these contract into “distinct services” does not have material impact. Revenue in relation to retailing of travel services is recognised on a gross basis when customers have paid for their travel services. negotiated by the Group with the supplier. Under AASB 15, the Group does not have control over the services provided either before or after they are transferred to customers, and hence is an agent in these contracts. This results in a decrease in revenue from the sale or the goods and services and cost of sales and an increase in revenue from rendering the services by the difference since they are recorded at net. Based on the modified retrospective approach the impact reported is to decrease Revenue from contracts with customers and to decrease Direct operating expenses $4,946,000 (2018: $4,599,000). Interest Revenue is recognised as interest accrues using the effective interest method. Revenue is recognised at the amount Operating leases that reflects the consideration to which the Group expects to be entitled in exchange for transferring goods or services to a customer, excluding GST and after deduction of trade discounts. Trade Receivables typically do not contain a significant financing component. The general credit terms are overall short and are following market terms. Accounting estimates and judgements are made in order to determine time of delivery and account for income accruals when it is deferred. These accounting estimates and judgements are based on experience and continuous follow-up on service delivered. Principal versus agent considerations and transition to AASB 15 From time to time, the Group enters into contracts or arrangements with its customers, on their behalf, to provide travel, accommodation, tours and entrance fees. Under these contracts, the Group provides procurement services and is not primarily responsible for fulfilling the promise to provide the specified service. The Group does not have inventory risk before or after the specified service has been transferred to the customer and the Group has no discretion in establishing the price for the service. However, the Group’s consideration in these contracts is determined as the difference between the maximum purchase price quoted by the customer and the final price 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. Contract liabilities A contract liability is the obligation to transfer goods or services to a customer for which the Group has received consideration (or an amount of consideration is due) from the customer. If a customer pays consideration before the Group transfers goods or services to the customer, a contract liability is recognised when the payment is made or the payment is due (whichever is earlier). Contract liabilities are recognised as revenue when the Group performs under the contract. (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 at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer. Collectability of trade receivables 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 shares or options are 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 39 SEALINK TRAVEL GROUP LIMITED AND ITS CONTROLLED ENTITIES – NOTES TO FINANCIAL STATEMENTS FOR YEAR END 30 JUNE 2019FINANCIAL REPORT 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. Monetary assets and liabilities denominated in foreign currencies are retranslated at the rate of exchange ruling at the reporting date. 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. (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 Profit and Loss 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 40 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 measured at fair value adjusted for directly attributable costs. Initial recognition occur when the Group becomes a party to the contractual provisions of the agreement and derecognised when the obligation under the liability is discharged or cancelled or expires. Subsequent 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 Profit and Loss when the liabilities are derecognised. The loan is derecognised when the obligation under the liability is discharged or cancelled or expires. (t) INTANGIBLE ASSETS Intangible assets acquired separately 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 lives 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 may be 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 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 Useful life of vessels – Estimated useful life of vessels is based on current and forecast utilisation, market experience and knowledge of the types of vessel the company owns. The useful life of a vessel is generally between 5-25 years. Residual value at end of useful life is based on experience and knowledge of the market for used vessels. (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: SEALINK TRAVEL GROUP LIMITED AND ITS CONTROLLED ENTITIES – NOTES TO FINANCIAL STATEMENTS FOR YEAR END 30 JUNE 2019FINANCIAL REPORT • In the principal market for the asset or The Group uses valuation techniques 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. C CHANGES IN ACCOUNTING POLICIES AND DISCLOSURES 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 2018 except for the adoption of new standards AASB 9 and AASB 15, effective 1 July 2018. Several other new amendments and interpretations apply for the first time in 2018, but do not have a material impact on recognition, measurement and disclosure for the year ended 30th June 2019. AASB 15: The Group applies, for the first time, AASB 15 Revenue from Contracts with Customers that requires re- statement of previous financial statements. The impact on the statement of profit or loss (increase/(decrease)) for the twelve months ended 30 June 2019 is as follows: FOR THE YEAR ENDED 2019 $’000 2018 $’000 ADJUSTMENTS Revenue from contracts with customers (a) (4,946) (4,599) Cost of sales (a) (4,946) (4,599) that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs. 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 1 — Quoted (unadjusted) market prices in active markets for identical assets or liabilities From time to time, the Group enters into contracts or arrangements with its customers, on their behalf, to provide travel, accommodation, tours and entrance fees. Under these contracts, the Group provides procurement services and is not primarily responsible for fulfilling the promise to provide the specified service. The Group does not have inventory risk before or after the specified service has been transferred to the customer and the Group has no discretion in establishing the price for the service. However, the Group’s consideration in these contracts is determined as the difference between the maximum purchase price quoted by the customer and the final price negotiated by the Group with the supplier. Upon the adoption of AASB 15, the Group determined that it does not control the goods or services before they are transferred to customers, and hence is an agent in these contracts. This change resulted in a decrease in revenue from the sale or the goods and services and cost of sales and an increase in revenue from rendering the services by the difference. The Group adopted AASB 15 using the modified retrospective method of adoption and there is no material impact on the statement of financial position, statement of cash flows or basic and diluted EPS. Profit for the period – – AASB 9 (a) Principal versus agent considerations AASB 9 Financial Instruments replaces AASB 139 Financial Instruments: Recognition and Measurement for annual periods beginning on or • 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. after 1 July 2018, bringing together all 3 aspects of the accounting for financial instruments: classification and measurement; impairment; and hedge accounting. The group applied AASB 9 prospectively and has not restated the comparative information, which continues to be reported under AASB 39. On transition to AASB 9 the investment in Uwai was classified at FVTPL consistent with the treatment under AASB 139. Trade and other receivables continue to be accounted for at amortised costs. Management utilise the general approach to calculate the ECL provision on the investment in UWAI. The adoption of AASB 9 has fundamentally changed the Group’s accounting for impairment losses for financial assets by replacing IAS 39’s incurred loss approach with a forward-looking expected credit loss (ECL) approach. AASB 9 requires the Group to recognise an allowance for ECLs for all debt instruments not held at fair value through the profit or loss and contract assets. The new methodology for impairment did not result in an impact on transition to AASB 9. The Group adopted AASB 9 using the modified retrospective method of adoption and there is no material impact on the statement of profit and loss, financial position, statement of cash flows or basic and diluted EPS. The Group has not early adopted any standard, interpretation or amendment that has been issued but is not yet effective. 41 SEALINK TRAVEL GROUP LIMITED AND ITS CONTROLLED ENTITIES – NOTES TO FINANCIAL STATEMENTS FOR YEAR END 30 JUNE 2019FINANCIAL REPORT D ACCOUNTING STANDARDS ISSUED BUT NOT YET EFFECTIVE For the year ended 30 June 2020, the Group applies, for the first time AASB 16 Leases. The impact on the Group’s Financial Statements as at 1 July 2019 would be recognise the right of use asset (ROU asset) $14,495,000 and corresponding lease liability $14,495,000. 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 2019 are outlined in the table as follows: REFERENCE TITLE SUMMARY AASB 16 Leases IFRIC 23 Income Taxes The key features of AASB 16 are as follows: AASB 16 provides a new lease accounting model which requires a lessee to recognise a right of use asset representing its right to use the underlying asset and lease liabilities, for leases with a term of more than 12 months, unless the underlying asset is of a low value. The depreciation of the right of use asset and interest on the lease liability will be recognised in the consolidated income statement. Impact on the Group: SeaLink operates predominantly as a lessee and the impact will affect primarily the accounting for operating leases and to a lessor extent financial leases. All operating leases have been reviewed and assessed as if they were a finance lease to determine the value of the right of use asset, after considering the term and current monthly payments. The Group expects to apply the modified transitional approach, with election of the option to retrospectively measure the right-of-use asset using a transition discount rate. The cumulative effect of adopting AASB 16 will be recognised as an adjustment to the opening balance of retained earnings as at 1 July 2019, with no restatement of comparative information Uncertainty over Income Tax Treatments IFRIC 23 provides clarification for the application of the recognition and measurement requirements in IAS 12 Income Taxes when there is uncertainty over income tax treatments. The Changes will not have a material impact on the Group APPLICATION DATE OF STANDARD APPLICATION DATE FOR GROUP 1 January 2019 1 July 2019 1 January 2019 1 July 2019 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: 2019 CARRYING AMOUNT $’000 2019 NET FAIR VALUE $‘000 2018 CARRYING AMOUNT $’000 2018 NET FAIR VALUE $‘000 11,904 1,637 12,355 92,500 – 3,775 3,279 13,578 11,904 1,637 12,355 92,500 – 3,775 3,256 13,578 3,242 3,274 11,004 104,050 – 1,187 4,487 11,952 3,242 3,274 11,004 104,050 – 1,187 4,496 11,952 ECONOMIC ENTITY FINANCIAL ASSETS Cash Other financial assets Trade and other receivables FINANCIAL LIABILITIES Bill facilities Other loans Interest rate swap Lease and hire purchase Trade and sundry creditors 42 SEALINK TRAVEL GROUP LIMITED AND ITS CONTROLLED ENTITIES – NOTES TO FINANCIAL STATEMENTS FOR YEAR END 30 JUNE 2019FINANCIAL REPORT 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 COMMITMENTS AND CONTINGENCIES A COMMITMENTS NOTE 30 JUNE 2019 $’000 30 JUNE 2018 $’000 1,542 712 2,254 20,879 170 21,049 (a) CAPITAL COMMITMENTS Vessels and buses (i) Other Total (i) Vessels and buses include 3 new vessels and 2 buses. (b) COMMITMENTS UNDER NON-CANCELLABLE OPERATING LEASES (NOT INCLUDING ANY OPTIONS TO EXTEND): Not later than one year Later than one year but not later than five years Later than five years Total (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 as: Current liability Non-current liability Total (d) OPERATING LEASE COMMITMENTS — SEALINK AS LESSOR The Group has a number of vessels on lease arrangements with several marine operators and a property lease for a portion of its tenancy at the Townsville terminal. 822 2,700 3,522 (243) 3,279 3,507 9,223 3,355 16,085 822 2,457 3,279 2J 3,436 9,258 2,866 15,560 1,350 3,522 4,872 (385) 4,487 1,350 3,137 4,487 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 Total B CONTINGENCIES There were no contingencies of material note as at 30 June 2019 (2018: Nil). C EVENTS REPORTED AFTER BALANCE DATE – – – 1,546 – 1,546 A fully franked dividend of $8,621,474 representing 8.5 cents per share based on the current number of ordinary shares was declared by the Directors on 27 August 2019 to be paid 20 September 2019. 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. 43 SEALINK TRAVEL GROUP LIMITED AND ITS CONTROLLED ENTITIES – NOTES TO FINANCIAL STATEMENTS FOR YEAR END 30 JUNE 2019FINANCIAL REPORT 7 OTHER A BUSINESS COMBINATIONS Acquisitions in the year ended 30 June 2018: Acquisition of Kingfisher Bay Resort Group – Fraser Island On 26th March, 2018, the Group acquired 100% of the Queensland based resort, tourism and marine business formerly owned by Cosmos. The acquisition involved the purchase of shares in various entities as well as the acquisition of properties on Fraser Island, Queensland. Kingfisher Bay resort Group business (“Fraser Island”) consists of the following: • Ferry operations operating to Fraser Island from Hervey Bay, • Resort accommodation and related facilities located at Kingfisher Bay on Fraser Island, • Resort accommodation and related facilities located at Eurong Beach on Fraser Island, • Day touring and coach operations; • Freehold residential land and development land located on Fraser 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 Fraser Island for the period from 26 March 2018 until 30 June, 2018. NOTE FAIR VALUE RECOGNISED ON ACQUISITION $’000 ASSETS Cash and cash equivalents Trade and other receivables Inventories Prepayments Property, plant and equipment Permits Deferred tax asset Total Assets LIABILITIES Trade and other payables Unearned revenue Interest bearing loans and borrowings Operating lease liability Current tax liabilities Provisions Deferred tax liabilities Total Liabilities Total identifiable assets at fair value Goodwill arising on acquisition Purchase consideration transferred This consisted of: Shares issued at fair consideration Cash paid Total purchase consideration There was no contingent consideration. 44 2E 2E 2,995 2,600 1,298 421 37,544 3,199 788 48,845 3,755 383 – – – 2,069 5,410 11,617 37,228 7,500 44,728 – 44,728 44,728 SEALINK TRAVEL GROUP LIMITED AND ITS CONTROLLED ENTITIES – NOTES TO FINANCIAL STATEMENTS FOR YEAR END 30 JUNE 2019FINANCIAL REPORT The fair value of vessels included in Property, Plant and Equipment is $34.9m. These are based on external valuations and internal assessment. The Deferred Tax Asset mainly comprises the tax effect on employee provisions. The Deferred Tax Liability mainly arises as resort land and buildings have been recognised as being “held for use”, and as such do not have an amortisable tax base for reporting purposes. Were the asset ever sold by the Group the capital gains tax cost base would be recognised at that point in determining any tax implications. The amounts disclosed above for Property Plant and Equipment, Deferred Tax Liabilities and Goodwill are final and unchanged from the 2018 report. Goodwill The majority of goodwill relates to the Kingfisher Bay Resort and associated tourism activities, none of which is expected to be deductible for income tax purposes. Goodwill represents the expected future return over and above the fair value of net assets acquired. From the date of acquisition, Fraser Island has contributed $11.5m to revenue and $1.0m loss 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 $58.2m and EBITDA from continuing operations for the Group would have been $7.9m. The profit before tax achieved in the first 9 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. The vendor’s unaudited accounts were reviewed in detail as part of management’s due dilligence process. 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 (364) – (364) B CORPORATE INFORMATION The consolidated financial statements of the SeaLink Travel Group Limited for the year ended 30 June 2019 were authorised for issue in accordance with a resolution of Directors on 27 August 2019. 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 / (Asset) Non-current Liabilities Total Liabilities / (Asset) Net Assets Contributed equity Reserves Retained profits Total Parent Equity Profit or loss of the parent entity Total comprehensive income of the parent entity 2019 $’000 2018 $’000 – 81,608 81,608 (15,919) 2,206 (13,713) 95,321 96,057 943 (1,679) 95,321 14,685 14,685 – 82,687 82,687 (14,344) 2,206 (12,138) 94,825 95,557 795 (1,527) 94,825 14,667 14,667 The parent has entered into various cross-guarantees with its subsidiaries to support borrowings across the Group. Pursuant to ASIC Corporations (Wholly-owned Companies) Instrument 2016/785, SeaLink Travel Group Limited and subsidiaries have entered into a new deed of cross guarantee on 3 June 2019 to incorporate the newly acquired Kingfisher Bay Resort Group – Fraser Island. The effect of the deed is that SeaLink Travel Group Limited has guaranteed to pay any deficiency in the event of winding up any controlled entity or if they do not meet their obligations under the terms of overdrafts, loans, leases or other liabilities subject to the guarantee. The controlled entities have also given a similar guarantee in the event SeaLink Travel Group Limited is wound up or it does not meet its obligations under the terms of the overdrafts, loans, leases or other liabilities subject to the guarantee. 45 SEALINK TRAVEL GROUP LIMITED AND ITS CONTROLLED ENTITIES – NOTES TO FINANCIAL STATEMENTS FOR YEAR END 30 JUNE 2019FINANCIAL REPORTD SHARE OPTION PLANS (a) RECOGNISED SHARE-BASED PAYMENT EXPENSES Expense arising from options issued in 2015 Expense arising from performance rights issued in 2016 Expense arising from options issued in 2017 Expense arising from performance rights issued in 2017 Total expense (b) TYPES OF SHARE OPTION PLANS Employee Share Option Plan The fair value of the share option “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. granted was valued at $0.176 per share being $35,200, the cost being expensed over the vesting period. In October 2016, 100,000 share options were granted to the Chair under the SeaLink Employee Option Plan. There were no performance related conditions attaching to the options. The options vest after a period of 3 years as long as the Chair remains in the role as Non-Executive Director. The fair value of the share option granted was valued at $4.11 per share being $411,000, the cost being expensed over the vesting period. 2019 $’000 – 11 137 – 148 2018 $’000 – 14 137 – 151 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 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. 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 * Performance Rights issued to Mr J Ellison 2016 Issue 2017 Issue* 2017 Issue 85,000 $ 3.20 3.35% 27.6% 3.35% 3.0 $ 0.618 160,000 n/a 2.69% 29.4% 1.61% 3.0 $ 4.11 45,000 $ 5.94 2.69% 29.4% 1.61% 3.0 $1.72 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 46 2019 NUMBER ’000 300 – – (200) 100 2019 WAEP $ 1.67 nil n/a n/a 1.67 2018 NUMBER ’000 200 100 – – 300 2018 WAEP $ 1.67 nil n/a n/a 1.67 SEALINK TRAVEL GROUP LIMITED AND ITS CONTROLLED ENTITIES – NOTES TO FINANCIAL STATEMENTS FOR YEAR END 30 JUNE 2019FINANCIAL REPORT THE OUTSTANDING BALANCE IS REPRESENTED BY TYPE ESOP Directors 2019 – 100 100 No ordinary shares were issued during the year as a result of conversion of share options (2018: Nil). PERFORMANCE RIGHTS Outstanding at the beginning of the year Granted (under the Employee Share Option Plan) Forfeited Exercised Outstanding at year end 2019 NUMBER ’000 265 (75) – – 190 2019 WAEP $ n/a nil nil n/a nil 2018 NUMBER ’000 280 – (15) – 265 2018 200 100 300 2018 WAEP $ n/a nil nil n/a nil E RELATED PARTY TRANSACTIONS (a) NAMES AND POSITIONS HELD OF KEY MANAGEMENT PERSONNEL IN OFFICE AT ANY TIME DURING THE FINANCIAL YEAR ARE Directors Mr A McEvoy Mr J Ellison Mr C Smerdon Mr T Dodd Mrs A Staines Mrs F Hele Other Key Management Personnel Ms D Gauci Mr A Muir Ms J McDonald Mr C Benson Mr P Victory Mr M Niemann Ms B Martlew Chairman – (non-executive) Managing Director and Chief Executive Officer Director – (non-executive) Director – (non-executive) Director – (non-executive) Director – (non-executive) Chief Operating Officer Chief Financial Officer and Company Secretary General Counsel and Company Secretary Chief Information Officer General Manager, Growth and Innovation Group Fleet Manager Group HR Manager (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 $101,106 from Vectra Corporation Ltd, a company associated with Mr C Smerdon (2018: $33,308); • Purchases and services totalling $13,662 from Pacific Marine, a company associated with Mr T Dodd (2018: $Nil); 47 SEALINK TRAVEL GROUP LIMITED AND ITS CONTROLLED ENTITIES – NOTES TO FINANCIAL STATEMENTS FOR YEAR END 30 JUNE 2019FINANCIAL REPORT(c) KEY MANAGEMENT PERSONNEL REMUNERATION Short-term Post employment Other long-term benefits – LSL Termination Benefits Share-based payment Total 2019 $’000 2,438 180 67 – 1 2,686 2018 $’000 2,472 176 50 – 105 2,803 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 are incorporated in Australia and are all 100% owned Australia Inbound Pty Ltd Avonward Pty Ltd Big Red Cat Pty Ltd BITS Assets Pty Ltd BITS Ferry Services Pty Ltd Captain Cook Cruises Pty Ltd Curtis Island Assets Pty Ltd Curtis Island Services Pty Ltd Kangaroo Island Adventure Tours Pty Ltd Kangaroo Island Odysseys Pty Ltd Kangaroo Island SeaLink Pty Ltd KBRV Resort Operations Pty Ltd KBRV Services Pty Ltd Magnetic Island Cruise Corporation Pty Ltd PDW Pty Ltd Sea Stradbroke Services Pty Ltd SeaLink Ferries Pty Ltd SeaLink Fraser Island Pty Ltd SeaLink KI Ferries Pty Ltd SeaLink Marina Pty Ltd SeaLink Northern Territory Pty Ltd SeaLink Queensland Pty Ltd SeaLink Tasmania Pty Ltd SeaLink Vessels Pty Ltd STG Properties Pty Ltd Stradbroke Assets Pty Ltd Stradbroke Ferries Pty Ltd Sunferries Travel Pty Ltd The Living Classroom Pty Ltd The South Australian Travel Company Pty Ltd TravelLink Pty Ltd TravelLink Technology Pty Ltd TSA Ferry Group Pty Ltd Vivonne Bay Outdoor Education Centre Pty Ltd Vyscot Pty Ltd 48 SEALINK TRAVEL GROUP LIMITED AND ITS CONTROLLED ENTITIES – NOTES TO FINANCIAL STATEMENTS FOR YEAR END 30 JUNE 2019FINANCIAL 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 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF SEALINK TRAVEL GROUP REPORT ON THE AUDIT OF THE FINANCIAL REPORT Opinion We have audited the financial report of SeaLink Travel Group Limited (the Company) and its subsidiaries (collectively the Group), which comprises the consolidated statement of financial position as at 30 June 2019, the consolidated 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 to the financial statements, including a summary of significant accounting policies, and the directors’ declaration. In our opinion, the accompanying financial report of the Group is in accordance with the Corporations Act 2001, including: a) giving a true and fair view of the consolidated financial position of the Group as at 30 June 2019 and of its consolidated financial performance for the year ended on that date; and b) complying with Australian Accounting Standards and the Corporations Regulations 2001. Basis for Opinion We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report. We are independent of the Group in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key Audit Matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial report of the current year. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, but we do not provide a separate opinion on these matters. For each matter below, our description of how our audit addressed the matter is provided in that context. We have fulfilled the responsibilities described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report, including in relation to these matters. Accordingly, our audit included the performance of procedures designed to respond to our assessment of the risks of material misstatement of the financial report. The results of our audit procedures, including the procedures performed to address the matters below, provide the basis for our audit opinion on the accompanying financial report. Goodwill impairment assessment Why significant The Group annually assesses the carrying value of goodwill as required by Australian Accounting Standards. The Group determined the recoverable amount of its individual cash generating units (CGUs) to which the goodwill was allocated on a value in use basis. This was considered a key audit matter due to the judgment exercised by the Group in this calculation which involved consideration of the following: • estimation of future cash flows expected to be derived from the respective assets; • expectations about possible variations in the amount or timing of cash flows; • appropriate discount rates, to discount the calculated future cash flows to their present value; and • uncertainty associated with the achievement of forecast cash flows specific to the respective assets. In particular the Captain Cook WA CGU has underperformed against budget expectations predominantly in light of the start-up nature of the Rottnest Island services, requiring more focus on the cash flows and assumptions for this CGU. Refer to note 2E to the financial report for related disclosure. A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation 49 AUDITOR’S 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 How our audit addressed the key audit matter Our audit procedures included the following: • Agreed the projected cash flows for 2020 to Board approved budgets. • Tested the mathematical accuracy of the cash flow models. • Assessed the value in use calculations and the growth assumptions for budgets included within each of the impairment models. In doing so, we considered the historical accuracy of the Group’s 5 year cash flow forecasts; • Involved our valuation specialists to assess the discount rate, growth rates and terminal values used in the model for the identified higher risk CWA CGU. • Compared the recoverable amount calculated within the value in use models to the carrying value recorded at 30 June 2019. • Considered the relationship between market capitalisation and net assets of the Group. • Considered multiple sensitivities over the forecasts and key estimates for the higher risk CGU, including possible changes in growth rates, discount rates and budget accuracy. • Considered the adequacy of the related financial report disclosures. Carrying value of ferries Why significant The Group carries owned ferries at cost less accumulated depreciation and any accumulated impairment losses. This was considered a key audit matter due to the value of ferries relative to total assets together with the judgment involved in assessing the residual values of the ferries. Refer to note 2D to the financial report for related disclosure. How our audit addressed the key audit matter Our audit procedures included the following: • Analysed the performance of each ferry to determine whether any indications of impairment were present in accordance with Australian Accounting Standards. • Assessed recorded depreciation for each ferry taking into account remaining useful life and the expected residual value determined by the Group and the external experts involved in these assessments. • Assessed the residual values of ferries through consideration of the Group’s evaluation of market information for similar assets. • Involved our valuation specialists to assess the carrying value of the ferries and to review the valuation methodology used by the Group. • Analysed the planned and actual utilisation of each ferry. We also assessed the impact of customer contracts associated with the planned usage and the Group’s plan for each ferry. • Where carrying values of ferries were supported by third party valuations of ferries, we assessed the competence, capability and objectivity of the third party valuers used by the Group and evaluated the appropriateness of their work to support the recorded valuations. Information Other than the Financial Report and Auditor’s Report Thereon The directors are responsible for the other information. The other information comprises the information included in the Company’s 2019 Annual Report other than the financial report and our auditor’s report thereon. We obtained the Directors’ Report that is to be included in the Annual Report, prior to the date of this auditor’s report, and we expect to obtain the remaining sections of the Annual Report after the date of this auditor’s report. Our opinion on the financial report does not cover the other information and accordingly we do not express any form of assurance conclusion thereon, with the exception of the Remuneration Report and our related assurance opinion. In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed on the other information obtained prior to the date of this auditor’s report, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. 50 A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation AUDITOR’S 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 Responsibilities of the Directors for the Financial Report The directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. In preparing the financial report, the directors are responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters relating to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so. Auditor’s Responsibilities for the Audit of the Financial Report Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this financial report. As part of an audit in accordance with the Australian Auditing Standards, we exercise professional judgment and maintain professional scepticism throughout the audit. We also: • Identify and assess the risks of material misstatement of the financial report, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. • Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors. • Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial report or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Company to cease to continue as a going concern. • Evaluate the overall presentation, structure and content of the financial report, including the disclosures, and whether the financial report represents the underlying transactions and events in a manner that achieves fair presentation. We communicate with the directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide the directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated to the directors, we determine those matters that were of most significance in the audit of the financial report of the current year and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation 51 AUDITOR’S 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 AUDIT OF THE REMUNERATION REPORT Opinion on the Remuneration Report We have audited the Remuneration Report included in the Directors’ Report for the year ended 30 June 2019. In our opinion, the Remuneration Report of SeaLink Travel Group Limited for the year ended 30 June 2019, complies with section 300A of the Corporations Act 2001. Responsibilities The directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. Ernst & Young David Sanders Partner Adelaide 27 August 2019 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 2019, 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 David Sanders Partner Adelaide 27 August 2019 52 A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation AUDITOR’S REPORTThis Remuneration Report forms part of the Directors’ Report and sets out the remuneration arrangements of SeaLink Travel Group Limited (Company) Directors and Executives for the financial year ended 30 June 2019. It also details the remuneration strategy and financial results. This information has been audited as required by Section 308 (3C) of the Corporations Act 2001. Contents: 1. Remuneration Strategy 2. Remuneration Framework 3. Key Management Personnel (KMP) 4. Remuneration of KMP 5. Executive Contracts 6. Overview of Company Performance 7. Options, Shareholdings and Performance Rights of KMP 8. Remuneration Governance 1. REMUNERATION STRATEGY SeaLink’s remuneration strategy for remunerating and rewarding Executives ensures that: • Remuneration is consistent with competitive market rates to attract and retain high calibre candidates; • Parity exists for similar roles to maintain stability within the Executive group; and • Executives are incentivised to drive and sustain long term growth and increase shareholder value. 2. REMUNERATION FRAMEWORK The Remuneration and Nominations Committee annually reviews and recommends to the Board for approval any adjustments to the remuneration framework and levels necessary to ensure: 1) Fixed Remuneration is market competitive; 2) Short Term Incentives (STI) are performance-based and reward achieving or exceeding strategic and operational goals of the Company and the Business Unit in the relevant financial year. The STI were chosen as they reflect the core drivers of short term performance and also provide a framework for delivering sustainable value to the Company, its shareholders and customers; and 3) Long Term Incentives are performance-based and drive performance and behaviours that address long term sustainability and growth of the Company, and optimise shareholder returns. TABLE 2.1 FIXED REMUNERATION SHORT TERM INCENTIVES (STI) LONG TERM INCENTIVES (LTI) Fixed remuneration is comprised of a base salary and 9.5% superannuation. Base salary is determined by market rates for roles comparable in scope, responsibility and geography, combined with individual capability and performance. LTI are “at-risk” components offered to KMPs. LTI are approved by the Board on an annual basis. LTI are in the form of options or performance rights. LTI are discretionary and do not form part of the employment contract. LTI are forfeited if a KMP resigns before the option or performance right has vested. STI are “at-risk” cash components paid to KMPs when agreed stretch targets have been met. STI are approved by the Board on an annual basis. STI are a percentage of base salary, usually between 10% and 60%. STI are discretionary and do not form part of the employment contract. To receive payment, an eligible employee must fulfil criteria such as remaining an employee at the time of payment. At least 50% of each KMP STI is tied to financial performance of the Company and the relevant Business Unit in the relevant financial year. 53 REMUNERATION REPORT3. KEY MANAGEMENT PERSONNEL (KMP) KMP are those Executives having the authority and responsibility for planning, directing and controlling major activities of the Company, directly or indirectly, including any Director (whether Executive or otherwise) of the Company. The term Executive includes the Managing Director and other Senior Executives of the Company. From 1 July 2018 to 30 June 2019 the KMP (unless otherwise stated) were: TABLE 3.1 NON-EXECUTIVE DIRECTORS (NED’S) A McEvoy T Dodd C Smerdon A Staines F Hele Chair Non-Executive Director Non-Executive Director Non-Executive Director Non-Executive Director EXECUTIVE DIRECTOR J Ellison CEO and Managing Director OTHER KMP A Muir A Hayes D Gauci A Haworth P Victory C Benson J McDonald B Martlew M Niemann Chief Financial Officer & Company Secretary Chief Operating Officer Chief Operating Officer General Manager – Captain Cook - NSW General Manager – Growth and Innovation Chief Information Officer Legal Counsel & Company Secretary General Manager - People & Culture National Fleet Manager Resigned 4 December 2018 Ceased 30 June 2018 Appointed 12 June 2018 Appointed 11 July 2018 4. REMUNERATION OF KMP DIRECTORS The Board seeks to set aggregate and individual remuneration at levels that provide the Company with the ability to attract and retain Directors of the highest calibre, whilst incurring an expense that is acceptable to shareholders. Aggregate and individual fee levels and structure are reviewed annually against those paid to Non-Executive Director (NED) of listed companies with a similar market capitalisation. The Company’s constitution and the ASX Listing Rules specify that the NED fee pool shall be determined from time to time by shareholder vote at a General Meeting. At the Annual General Meeting (AGM) in October 2016, shareholders approved an increase in the NED aggregate fee pool to $750,000. A two percent increase is planned for the 2019/2020 Financial Year. The remuneration of NED consists of Director fees which are currently set as follows: • The Chair receives an annual fee of $136,577 p.a. plus statutory superannuation; and • All other NED’s receive $68,288 p.a. plus statutory superannuation. There are no additional fees for chairing or serving on a sub-committee of the Board. NED do not receive retirement benefits. There is no requirement for Directors to hold shares in the Company. Other than the Chair, who received a Long-Term Incentive retention grant of Options approved by shareholders at the October 2016 AGM, no other NED participated in incentive programs. 54 REMUNERATION REPORT NED remuneration for the years ended 30 June 2018 and 30 June 2019 is detailed in Table 4.1 below: TABLE 4.1 NON-EXECUTIVE DIRECTOR A McEvoy A Staines C Smerdon T Dodd F Hele DIRECTOR FEE 136,577 134,000 68,288 67,000 68,288 67,000 68,288 67,000 68,288 67,000 YEAR 2019 2018 2019 2018 2019 2018 2019 2018 2019 2018 SHORT TERM INCENTIVE – NON- MONETARY BENEFITS – OTHER – – – – – – – – – – – – – – – – – – – – – – – – – – – – SUPER 12,975 12,730 6,487 6,365 6,487 6,365 6,487 6,365 6,487 6,365 LONG TERM BENEFIT LSL – PERFORM. RIGHTS/ OPTIONS 137,000 TOTAL 286,552 – – – – – – – – – 137,000 283,730 – – – – – – – – 74,776 73,365 74,776 73,365 74,776 73,365 74,776 73,365 EXECUTIVES The Company does not adopt a philosophy of excessive “at risk components” for Executive remuneration. There is no requirement for KMP to hold shares in the Company. KMP remuneration for the years ended 30 June 2018 and 30 June 2019 is detailed in Table 4.2 below: TABLE 4.2 EXECUTIVE J Ellison D Gauci* A Muir A Haworth# P Victory C Benson** J McDonald*** B Martlew M Niemann A Hayes## YEAR 2019 SALARY 526,547 2018 520,599 2019 297,057 2018 254,438 2019 300,269 2018 250,000 2019 – 2018 276,055 2019 202,827 2018 198,773 2019 2018 2019 2018 2019 2018 195,000 3,750 168,269 – 129,808 101,594 2019 192,782 2018 189,002 2019 263,191 2018 293,224 SHORT TERM INCENTIVE 68,629 NON- MONETARY BENEFITS 66,963 31,933 23,442 22,500 12,500 – 6,250 12,179 21,890 4,875 – 8,750 – 5,200 – 6,270 3,783 – – – – – – – – – – OTHER 1,770 SUPER 23,000 7,690 23,000 25,000 24,540 25,017 23,750 – 25,569 19,568 21,480 18,525 356 15,986 – 12,332 9,536 18,527 19,001 22,442 19,988 – – – – – – – LONG TERM BENEFIT LSL 19,735 PERFORM. RIGHTS – TOTAL 639,682 24,410 21,956 6,175 2,802 686 – – 642,662 515 376,461 3,090 311,685 – – – 350,588 286,936 – 12,122 3,090 323,086 8,112 5,945 497 – 211 – 3,348 3,433 10,188 6,816 (318) 318 515 243,200 3,090 251,178 – – – – – – 218,897 4,106 193,215 – 150,687 114,563 343 228,110 2,060 220,662 – – 285,314 313,530 # Ceased to be a KMP 1 July 2018 ## Resigned 4 December 2018 * Appointed COO 29 April 2019 – previously Chief Marketing Officer ** Appointed CIO 12 June 2018 *** Appointed Legal Counsel and Company Secretary 11 July 2018 55 REMUNERATION REPORTSHORT TERM INCENTIVES The Company measures key performance indicators (KPIs) covering financial and non-financial, Group and business unit measures of performance. For each KPI, a target and stretch objective is set. Group Net Profit After Tax (NPAT) and business unit Earnings Before Interest and Tax (EBIT) are the measures against which management and the Board assess the short term financial performance of the Group. The non-financial measures in the STI include: • Implementation of growth initiatives • Customer satisfaction • Safety • Leadership / contribution. For KMP, bonuses varied 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 the extent to which the Company achieved the Board approved budget for the year. These are in line with prior year. Table 4.3 outlines the bonuses payable to KMP for the reporting period. TABLE 4.3 EXECUTIVE J Ellison D Gauci A Muir P Victory C Benson J McDonald B Martlew M Niemann CASH BONUS AT RISK (MAXIMUM) $274,517 ACHIEVEMENT OF GOALS • Group exceeds budgeted NPAT by 5% not met. • Growth in shareholder value of 10% (measured by EPS) DISCRETIONARY PERFORMANCE – TOTAL BONUS $68,629 $58,061 $60,000 $40,596 $19,500 $17,500 $13,000 $19,293 not met • 25% of KPI’s met • 55% of KPI’s met • Group exceeds budgeted NPAT by 5% not met • 38% of KPI’s met • 30% of KPI’s met • 25% of KPI’s met • 50% of KPI’s met • 40% of KPI’s met • 33% of KPI’s met – – - – – – – $31,933 $22,500 $12,179 $4,875 $8,750 $5,200 $6,270 As a result of the above, the proportion of remuneration that was performance based as follows: TABLE 4.4 YEAR 2019 2018 J Ellison D Gauci A Muir C Benson J MacDonald B Martlew M Niemann P Victory 11% 73% 8% 79% 6% 34% 2% – 5% – 3% – 3% 2% 5% 9% 5. EXECUTIVE CONTRACTS MANAGING DIRECTOR The Company and Mr Ellison entered into a Managing Director Service Agreement which commenced on 16 October 2013 for an initial term of 5 years. This agreement was subsequently extended by 12 months to 16 October 2019, and provides the ability to further extend the term of employment by mutual consent. Either party can terminate the agreement by notice – Mr Ellison may terminate his employment with the Company at any time by giving the Company 90 days written notice, and the Company may terminate his employment without cause at any time after the expiration of the Initial Term by 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 conclusion of Mr Ellison’s employment, he will be subject to a restraint of trade for a period of six months. Under the Managing Director Service Agreement, Mr Ellison receives a total fixed remuneration package of $549,547 per annum (including salary and superannuation) for his position as Managing Director of the Company. Mr Ellison is also entitled to a travel allowance of up to $10,000 per annum for family to travel with him on business related travel. 56 REMUNERATION REPORTMr Ellison is entitled to a performance bonus for the reporting period of up to 50% of annual salary, based on the following criteria, with an individual bonus attached to each criterion: • SeaLink Travel Group achieving Group budget NPAT; • SeaLink Travel Group exceeding Group budgeted NPAT by 10%; and • Reaching specifically defined Key Performance indicators. OTHER KMP Remuneration arrangements for all other KMP are formalised in employment agreements. Standard KMP termination conditions are as follows: TABLE 5.1 Resignation NOTICE PERIOD 4 weeks or 8 weeks Termination for cause None Termination in cases of death, disablement, redundancy or notice without cause 4 weeks or 8 weeks PAYMENT IN LIEU OF NOTICE 4 weeks or 8 weeks None 4 weeks or 8 weeks TREATMENT OF STI ON TERMINATION Unvested awards forfeited TREATMENT OF LTI ON TERMINATION Unvested awards forfeited Unvested awards forfeited Unvested awards forfeited Subject to Remuneration Committee discretion Subject to Board discretion 6. OVERVIEW OF COMPANY PERFORMANCE Table 6.1 shows the performance of the Company as measured by Net Profit After Tax (NPAT) from continuing operations, earnings per share, gross dividends paid, dividend paid per share and share price at year end: TABLE 6.1 Revenue NPAT Gross Dividend paid Earnings per share (cents) Dividend paid per share (cents) Share Price ($) 30 JUNE 2014 $’000 104,422 30 JUNE 2015 $’000 111,748 30 JUNE 2016 $’000 177,459 30 JUNE 2017 $’000 201,407 30 JUNE 2018 $’000 209,436 30 JUNE 2019 $’000 251,321 7,233 5,499 11.8 7.4 1.89 9,349 5,761 12.6 7.8 2.19 22,349 7,624 23.6 12.0 4.08 23,832 13,654 23.6 14.0 4.07 19,565 14,667 19.3 14.5 4.43 21,543 15,214 21.3 15.0 3.81 Table 6.2 highlights the performance of the SeaLink share price since it was listed relative to S&P ASX300:. The Compound Annual Growth Rate (CAGR) of SeaLink’s share price during the period was 17.57% compared with the CAGR of the S&P ASX 300 which was 4.08%. TABLE 6.2 57 REMUNERATION REPORT7. OPTIONS, SHAREHOLDINGS AND PERFORMANCE RIGHTS OF KMP Options held by KMP TABLE 7.1 YEAR END 30 JUNE 2018 BALANCE 01/07/2017 GRANT DATE AWARDED/ (FORFEITED) EXERCISED BALANCE 30/06/2018 FAIR VALUE PER OPTION AT AWARD DATE* INTRINSIC VALUE OF OPTIONS EXERCISED/ SOLD EXPIRY DATE DIRECTORS A McEvoy Total TABLE 7.2 100,000 25/10/2016 100,000 – – – – 100,000 100,000 $4.11 26/10/2019 – – – YEAR END 30 JUNE 2019 BALANCE 01/07/2018 GRANT DATE AWARDED/ (FORFEITED) EXERCISED BALANCE 30/06/2019 FAIR VALUE PER OPTION AT AWARD DATE* INTRINSIC VALUE OF OPTIONS EXERCISED/ SOLD EXPIRY DATE DIRECTORS A McEvoy Total 100,000 25/10/2016 100,000 – – – – – 100,000 100,000 $ 4.11 26/10/2019 – – – – *No options awarded for the period, therefore no Fair Value applicable. As at 30 June 2019, 100,000 options to KMP remained outstanding. In addition to the above, Nil share options (2018: 200,000) share options, which vested in October 2015 were held by senior staff. SHAREHOLDINGS HELD BY KMP TABLE 7.3 YEAR END 30 JUNE 2018 BALANCE 01/07/2017 EXERCISE OF OPTIONS ACQUIRED/ (SOLD) BALANCE 30/06/2018 AMOUNT PAID PER SHARE ON OPTION EXERCISE DIRECTORS A McEvoy J Ellison T Dodd F Hele A Staines C Smerdon 14,350 5,524,769 5,212,000 10,000 – 6,104,500 OTHER KEY MANAGEMENT PERSONNEL D Gauci A Haworth A Muir P Victory C Benson J McDonald B Martlew M Niemann A Hayes 10,000 51,650 – 88,125 – – 4,500 – – Total 58 17,019,894 – – – – – – – – – – – – – – – – 5,229 – (176,010) – – – – (7,205) – (28,236) – – – – – 19,579 5,524,769 5,035,990 10,000 – 6,104,500 10,000 44,445 – 59,889 – – 4,500 – – (206,222) 16,809,172 – – – – – – – – – – – – – – – – REMUNERATION REPORT TABLE 7.4 YEAR END 30 JUNE 2019 BALANCE 01/07/2018 EXERCISE OF OPTIONS ACQUIRED/ (SOLD) BALANCE 30/06/2019 AMOUNT PAID PER SHARE ON OPTION EXERCISE DIRECTORS A McEvoy J Ellison T Dodd F Hele A Staines C Smerdon 19,579 5,524,769 5,035,990 10,000 – 6,104,500 OTHER KEY MANAGEMENT PERSONNEL D Gauci A Muir P Victory C Benson J McDonald B Martlew M Niemann A Hayes* 10,000 – 59,889 – – 4,500 – – Total 16,769,227 *Resigned 4 December 2018. – – – – – – – – – – – – – – – – – (249,412) – – – 8,000 – 17,236 9,324 – – 10,000 – 19,579 5,524,769 4,786,578 10,000 – 6,104,500 18,000 – 77,125 9,324 – 4,500 10,000 – (204,852) 16,564,375 – – – – – – – – – – – – – – 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. PERFORMANCE RIGHTS OF KEY MANAGEMENT PERSONNEL Performance rights are generally granted to Senior Executives as part of a long-term incentive. 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 annual growth rate applied to the share market price at date of issue. There were no performance rights issued in the 12-month period to 30 June 2019. The following Performance Rights have been issued to KMP in prior periods: TABLE 7.5 KEY MANAGEMENT PERSONNEL BALANCE 01/07/2017 AWARDED/ (FORFEITED) BALANCE 30/06/2018 HURDLE PRICE FAIR VALUE PER PERF. RIGHT AT AWARD DATE ISSUE DATE VESTING DATE DIRECTORS J Ellison A Muir 160,000 15,000 – – 160,000 15,000 * $6.08 25/10/2016 09/01/2017 $4.11 $1.72 25/10/2019 07/01/2020 * The conditions attached to the Performance Rights issued to Mr Ellison were approved at the AGM in 2016 and are as follows: 1) Mr Ellison must remain in continuous employment with the Company as Managing Director until the third anniversary of the date of grant of the Performance Rights; and 2) For the Performance Rights to vest in total, the Company must achieve a target compounding annual growth rate (CAGR) of earnings per share (EPS) of 12% for the three-year measurement period, applied to the base period being 2016 financial year. A threshold CAGR over that three-year period of 10% will result in 25% of the Performance Rights vesting, with pro rata vesting for achievement for between 10% and 12% of CAGR for the three-year measurement period. 59 REMUNERATION REPORT8. REMUNERATION GOVERNANCE The Remuneration Committee is comprised of three NEDs. Mr Dodd, who is a member of the Committee, is not regarded as independent, for the reasons set out in the Company’s Corporate Governance Statement. Those factors do not impact Mr Dodd’s ability to carry out his duties on the Committee. This Committee has delegated authority for some 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 Managing Director, following recommendations from the Remuneration Committee. The Board also sets the aggregate remuneration of all NEDs, which is then subject to shareholder approval. The Remuneration Committee approves, having regard to the recommendations made by the Managing Director, the level of the short-term annual performance incentives for KMP or any discretionary bonuses. The Remuneration Committee meets regularly throughout the year. The Managing Director attends certain Remuneration Committee meetings by invitation, where Management input is required. However, the Managing Director is not present during discussions related to his own remuneration arrangements. Signed in accordance with a resolution of the Directors. On behalf of the Directors A Staines Chair, Remuneration Committee SeaLink Travel Group Limited Sydney 27 August 2019 DIRECTORS’ DECLARATION In accordance with a resolution of the directors of SeaLink Travel Group Limited, I state that: 1. In the opinion of the directors: (a) the financial statements and notes of the Company are in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the Company’s financial position as at 30 June 2019 and of its performance for the year ended on that date; and (ii) complying with Australian Accounting Standards and the Corporations Regulations 2001; (b) there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable. 2. This declaration has been made after receiving the declarations required to be made to the Directors from the Chief Executive Officer and Chief Financial Officer in accordance with section 295A of the Corporations Act 2001 for the year ended 30 June 2019. On behalf of the Board SeaLink Travel Group Limited Andrew McEvoy Chair 27 August, 2019 60 REMUNERATION REPORT 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 27 August 2019. A DISTRIBUTION OF EQUITABLE SECURITIES (i) Ordinary share capital, entitled to vote and entitled to dividends: 101,429,103 fully paid ordinary shares are held by 2,835 individual shareholders. (ii) Options 100,000 options are held by one individual option holders. 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: 1–1,000 1,001–5,000 5,001–10,000 10,001–100,000 100,001 and over Total Holdings less than a marketable parcel (based on a closing price of $3.51 on 27 August 2019) B SUBSTANTIAL SHAREHOLDERS ORDINARY SHAREHOLDERS MR C SMERDON MR J R ELLISON SARTO PTY LTD (ZAPPIA) C TWENTY LARGEST HOLDERS OF QUOTED EQUITY SECURITIES ORDINARY SHAREHOLDERS J P MORGAN NOMINEES AUSTRALIA PTY LIMITED CITICORP NOMINEES PTY LIMITED HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED NATIONAL NOMINEES LIMITED PRESCOTT NO 22 PTY LTD – THE PRESCOTT NO 22 A/C SARTO PTY LTD – R ZAPPIA & SONS P/FUND A/C BNP PARIBAS NOMS PTY LTD SUNROP PTY LTD – SUNROP UNIT A/C ARISTOS NOMINEES PTY LTD – BJ MAYFIELD FAMILY A/C EQUILINK PTY LTD – F A MANN FAMILY A/C HEBDEN PTY LTD – J R ELLISON FAMILY A/C BNP PARIBAS NOMINEES PTY LTD – AGENCY LENDING DRP A/C BELAHVILLE PTY LTD FLAVON NOMINEES PTY LTD – THE DACRO A/C WITRON PTY LTD – WITTMANN RETIRE FUND A/C LASHMAR NOMINEES PTY LTD HATUMA LODGE MR JEFFREY ROY ELLISON & MRS TONI ALICE ELLISON GLADYS WILLSON MR KEVIN WILLSON MS LYNN WRIGHT Total Securities of Top 20 Holdings Total of Securities FULLY PAID ORDINARY SHARES 315,651 3,280,593 3,589,657 10,036,613 84,206,589 101,429,103 209 OPTIONS – – – 2 – – – NUMBER 6,104,500 5,524,769 5,329,812 % 6.03 5.46 5.25 BALANCE AS AT 27/08/2019 11,513,787 6,204,664 6,031,042 5,758,127 5,594,000 5,031,000 3,770,099 3,717,753 3,563,692 3,548,000 3,524,769 2,223,028 2,125,000 1,901,362 1,877,077 1,752,488 1,751,000 1,172,500 1,102,500 818,500 72,980,388 101,429,103 % 11.352% 6.117% 5.946% 5.677% 5.515% 4.960% 3.717% 3.665% 3.513% 3.498% 3.475% 2.192% 2.095% 1.875% 1.851% 1.728% 1.726% 1.156% 1.087% 0.807% 71.952% 61 Head Office Level 3, 26 Flinders Street Adelaide Web www.sealinktravelgroup.com.au Email info@sealinktravelgroup.com.au Phone +61 8 8202 8688 ABN 49 109 078 257 ACN 109 078 257 ASX Code SLK CORPORATE GOVERNANCE The Board of Directors of SeaLink Travel Group Limited (“SeaLink”) is 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. The underlying principles are as follows: 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 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 

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