SG Fleet Group Ltd
Annual Report 2015

Plain-text annual report

SG Fleet Group Limited ABN 40 167 554 574 Annual Report 2015 Contents About SG Fleet Chairman’s Report Chief Executive Officer’s Report Directors’ Report Auditor’s Independence Declaration Financial Report Shareholder Information Corporate Directory 1 6 7 12 27 28 71 73 About SG Fleet SG Fleet Group Limited is one of Australia’s leading specialist providers of fleet management, vehicle leasing and salary packaging services. SG Fleet has a presence across Australia, as well as in the United Kingdom and New Zealand. The company employs over 400 staff and has more than 90,000 vehicles under management. SG Fleet listed on the Australian Securities Exchange in March 2014. The company has a unique position in the marketplace, built on the experience, product expertise and commitment of its team. SG Fleet prides itself on the strength of its relationships with blue chip corporate and government customers. These relationships have been built on a customer-centric approach to service delivery and the development of bespoke but scalable solutions to meet the needs of individual customers. SG Fleet offers an extensive range of fleet management, leasing and salary packaging solutions to corporate and government customers, as well as heavy commercial fleet management and leasing services. Salary packaging solutions provided by the company include novated leases and associated vehicle management services for customers’ employees, as well as a range of other employee benefits. Constant innovation allows SG Fleet to provide its customers with an industry-leading proprietary technology platform that enables highly advanced fleet management capabilities. The company continually upgrades its solutions and introduces additional products and services to its range. 1 SG Fleet Group Limited A Product and Service Leader SG Fleet’s industry leadership and strong business performance is built on the company’s major competitive assets: exceptional relationships with customers through outstanding service quality, the ability to develop our offering through innovation, and the skills and experience of our people. Making a real difference for our customers Constant improvement has been a key component of our success. Customers rely on our ability to add value on an ongoing basis, making a real difference to their organisations now and continuously exploring opportunities for further progress in the future. It is no coincidence that the average length of our largest customer relationships is in excess of a decade and that we are regularly recognised by customers for the quality of our service. Parker Hannifin 2015 Supplier of the Year OVER A$10m OF LEASE RENTAL SAVINGS “The business and SG Fleet reviewed fleet leasing arrangements and looked for potential savings by way of rehiring and/or re-extending lease terms. This resulted in extending the leases of 455 passenger and commercial vehicles, which has to-date realised a lease rental saving of $1.1 million and an expected rental saving of $3.3 million by the end of the 2018 financial year. Fleet management has now extended this to a further 593 commercial and passenger vehicles. This exercise will deliver a further net savings of $6.8 million across the whole of the life of assets.“ Manager Procurement & Property Branch Public sector organisation (Australia) SG Fleet’s whole‑of‑life analysis of the vehicle category options for a customer’s 500‑vehicle fleet identified potential savings of over NZ$1 million over the term of the lease period. Financial institution New Zealand NZ$1m FLEET COST SAVINGS “Thank you for making the experience of obtaining a car through SG Fleet such a smooth experience from start to finish. I really appreciate your willingness to answer all the questions I had at the very start of the process and felt like you had my best interests at heart. Everyone has been amazed by the speed and ease with which everything has happened and I wouldn’t hesitate to recommend SG Fleet to anybody. I couldn’t be happier with the service and haven’t a bad word to say about my experience, so thanks again!“ Novalease driver United Kingdom 2 SG Fleet Group Limited * Testimonials abbreviated. Day-to-day FLEET MANAGEMENT SUPPORT “Wright Health Group has partnered with SG Fleet for the last two years and is in the process of completing the transfer of the company’s entire fleet of vehicles. On making the decision to appoint a provider, our goals were to identify a partner that could provide us with a simple, competitive and cost effective solution for our long and short-term needs, whilst also providing additional support for the day-to-day management of the fleet. SG Fleet ticked all the boxes on this, and our drivers regularly comment on the professionalism extended to them by the SG Fleet team.” Steve Financial Controller, Wright Health Group (UK) “NO RISK” SOLUTIONS “The University launched its salary sacrifice scheme as part of a wider sustainable travel plan. We recognised that some of our 6,000 employees had no alternative to the car and felt a car salary sacrifice scheme could help minimise their environmental impact. The University was looking to use a provider with a “no risk” solution and felt a Novalease type structure was the best fit. After researching the market, we found only one provider that could offer this solution – SG Fleet.“ Monica Transport Manager, University of Birmingham (UK) Annual Report 2015 3 “Thanks for your assistance. The SG Fleet team have been nothing short of brilliant. The process from beginning to end has been so flawless and simply outstanding. I have already recommended to a couple of other staff that they should investigate for themselves. Thanks to all who have contributed and for your great service.“ Novated driver Australia INCREASED WH&S COMPLIANCE “The fleet team, in conjunction with SG Fleet, have reduced our fleet by 14% and achieved $4.7 million in fleet savings in the 3 years to February 2015. Along with these savings, SG Fleet has introduced an on-line logbook through their innovation process, which has increased efficiencies as drivers no longer require a continuous paper-based log book. Reporting dashboards utilise SG Fleet’s driver behaviour information to maximise WH&S compliance.“ Fleet Manager Financial industry (Australia) A Track Record of Innovation Our leadership in technological innovation is creating measurable value for customers and helps us further differentiate our offering. State-of-the-art systems and applications are no longer an optional luxury. They are fast becoming a prerequisite as customer needs become increasingly sophisticated. The expertise we have in-house plays a key role in determining what solutions to develop and our product innovation track record demonstrates our ability to respond to real demand quickly and efficiently. Apple Watch App SG Fleet already offers a mobile app that makes it easy for fleet managers and drivers to accurately record, track and manage information about their vehicles. The easy-to-use interface provides salary package data, a Fringe Benefits Tax planner, a vehicle usage logbook, as well as service provider and car locators. SG Fleet is now also launching this app on the latest Apple Watch. Fringe Benefits Tax Collector In New Zealand, SG Fleet has taken the traditionally manual, e-mail based FBT data collection process to a new level of functionality. Drivers will soon be able to submit vehicle usage data from their smartphone via a secure web-based platform, ensuring greater accuracy of data reporting and reducing time spent on FBT administration. Novalease Calculator SG Fleet’s soon-to-be-launched Novalease Calculator is a highly functional toolkit to help novated drivers in the UK choose the right car. The Calculator makes the vehicle selection process easier by accessing quotes specific to individual circumstances and comparing results. 4 SG Fleet Group Limited Next Leap Forward: The Mobility Concept At SG Fleet, the culture of forward thinking and innovation is well entrenched. We are always monitoring social and technological developments and the role these play in demand changes. The way people use transport and vehicles continues to evolve and, increasingly, we expect an immediate, simple solution to moving from A to B. This creates opportunities for us to build on our existing offering. Efficient fleet management, as we currently provide it, is precisely about managing and allocating assets to optimise transport. Our technology is now opening up the possibility to organise the transport asset into a true mobility solution. Greater efficiency, active telematics, total connectivity and information access allow us to integrate the vehicle into a much broader, shared transport solution. Finding the right vehicle for the right transport requirement will take into account fundamental changes in the cityscape. At SG Fleet, we believe we can play a leading role in developing a more efficient and therefore a more socially responsible solution for mobility needs. Annual Report 2015 5 Chairman’s Report Dear Shareholder I have the pleasure of presenting to you the SG Fleet Group Limited Annual Report for the year ended 30 June 2015. applications on a variety of platforms, including smartphones and so-called wearables, such as the Apple Watch. The Report is the first to span a full 12-month period as last year’s Annual Report only covered the four-month period from the date on which your Company started trading on the Australian Securities Exchange until the end of the 2014 financial year. A constant throughout both periods has been our success in exceeding our net profit forecasts in a muted operating environment, with net profit after tax for the 2015 financial year up more than 14% on the previous year. The pleasing consequence of this has been another increase in dividends paid to you, our shareholders, with the Board confirming a fully franked final dividend of 6.117 cents per share, bringing the total for the 2015 financial year to 10.842 cents per share. Our ability to offer a superior solution to customers has been instrumental in achieving what has been a record year for your Company. We intend to maintain this competitive advantage by further enhancing our understanding of current customer needs as well as planning for our future position in this industry, which continues to be supported by structural growth trends. “Our ability to offer a superior solution to customers has been instrumental in achieving what has been a record year for your Company.” In line with this, we began the roll-out of a Net Promoter Score customer feedback mechanism during the financial year. Through this tool, customers provide us with overall service ratings as well as insights into the value-add of our products and the efficiency of our processes. The response has been very encouraging, but we are not resting on our laurels. It is important for any company to be confident in its offering, yet humble enough to acknowledge opportunities for further enhancements. At SG Fleet, we do indeed go that extra mile to continuously improve. A significant part of this ever-present evolution is your Company’s drive to maintain its leadership in innovation. A common theme of the feedback we receive from customers is that our in-house developed technology is providing them with unparalleled real time support and a wealth of information. Both fleet managers and vehicle drivers can access this information via web-based “A common theme of the feedback we receive from customers is that our in-house developed technology is providing them with unparalleled real time support and a wealth of information.” This technological edge has already created a unique competitive position for your Company and it is our firm intention to enhance this advantage and ensure our long-term status as an industry leader. The way people use transport and vehicles continues to evolve and this creates opportunities for us to build on our current offering in a profitable manner and be ready to respond to new demand trends as they emerge. In the context of this rapid development, it is important to remember that while technology is becoming a commodity, the capability to develop it is not. One of the great strengths of SG Fleet – and ultimately a strong barrier to entry for competitors – is the quality of our people and our ability to drive progress internally. Accordingly, talent management, workforce stability and succession planning are indeed high priorities for your Company. During the past year, SG Fleet has settled into life as a listed company without disruption. In fact, our listed status has been beneficial in terms of our financing and has helped us attract the best talent. With this first full year behind us, we now aim to build on our momentum and maintain our track record of delivering on our objectives for customers and for shareholders. I would like to thank the Directors of the Company’s Board for their invaluable contribution during the year, as well as Super Group, our majority shareholder, for its continued support. I also take the opportunity to thank you, our shareholders, for continuing to share our exciting journey. Andrew Reitzer Chairman 6 SG Fleet Group Limited Chief Executive Officer’s Report Dear Shareholder I am pleased to report on SG Fleet Group Limited’s financial performance for the year ended 30 June 2015. My review of this financial year will refer for comparison to the pro forma financial figures of the preceding year. Detailed financial data can be found in the full annual report. A record year Our first full year as a listed company has been one of marked progress on all fronts. It is particularly pleasing to see that our momentum coming out of the 2014 financial year has been maintained, allowing us to beat our prospectus profit forecasts by some margin. Total revenue for the reported period was $171.4 million, an increase of 9.5% over the previous financial year. This stronger business activity was reflected in an increase in expenses of 6.5%, to $112.6 million. Profit before tax stood at $58.8 million, 15.7% higher than in the 2014 financial year. Our net profit after tax reached $40.5 million, an increase of 14.4% over the prior corresponding period. The net profit result exceeded the $39.2 million prospectus forecast by 3.3%, delivering on our undertaking at the half year to meet or exceed that forecast. This result translates into earnings per share of 16.7 cents, an increase of 14.4% over the prior corresponding period. Return on equity came in at a healthy 29.1%. Revenue growth reflected the increase in total fleet size as a result of further customer wins and deeper penetration within existing customers. Vehicle deliveries were slightly softer than forecast, primarily due to the subdued economic environment throughout the financial year. However, we compensated for this with stronger margins, at 34.3% at the before tax level. Overall, profitability has been supported by scale benefits, with the ‘Fleet per Employee’ ratio improving from 200 to 213. Management and maintenance income grew 7.0% over the prior year, to $64.0 million, in line with the increased fleet size noted above. Growth in vehicle deliveries, together with greater take-up of accessories in our corporate tool-of-trade fleets, supported the significant growth in additional products and services revenue of 17.0%, to $48.8 million. Funding commissions revenue grew by 24.2% to $29.3 million as a result of growth in novated deliveries over the prior corresponding period, as well as stronger finance margins. As anticipated, end of lease income declined, by 11.0% to $11.3 million, as residual values continued to normalise in line with expectations. In our view, the environment is now relatively stable. Lower rental income (at $10.8 million, 11.5% below the previous corresponding period) reflects the lower number of vehicles in inertia as customers replaced them with new orders. The 10.8% growth in other income to $7.2 million was driven by higher interest income on cash balances, higher early termination income, and higher ad hoc income. Mixed operational environment The Company exceeded its prospectus forecasts, which were set 20 months earlier, despite a decline in business sentiment over most of that period. Some improvement was seen in the final months of the 2015 financial year, following a well-received Budget and an interest rate cut, but the impact of recent events in Greece and concerns about the Chinese equity market bubble may yet test this fragile recovery. On a positive note, the regulatory environment has become clearer during the period. No meaningful impact was seen from the abandonment of certain vehicle import tariffs at the start of the calendar year. A pattern of occasional aggressive tactics related to corporate activity, interspersed amongst predominantly rational competitive behaviour, was prevalent throughout the reported period. “The Company exceeded its prospectus forecasts, which were set 20 months earlier, despite a decline in business sentiment over most of that period.” Annual Report 2015 7 Good progress was also made in our salary packaging business, both in the corporate and government segments. New wins in the business include a Federal Government department and the Australian arm of a major international professional services firm. These wins open further growth avenues, with the latter resulting in the signing up of the New Zealand arm of the same firm. Novated relationships also often allow us to introduce our tool-of-trade solutions. United Kingdom and New Zealand On the topic of our international operations, further marked progress was made in both the United Kingdom and New Zealand. In the UK, business confidence is on the up after a decisive election outcome and the operating environment for our local business is improving. Interest in our innovative salary packaging product has been strong, particularly in the not-for-profit segment. We are now working hard to improve driver take-up, and the growth in the order pipeline is very encouraging. The tool-of-trade business also saw a number of sole supply contract wins in the corporate space. The current financial year will be significant for the future of this business. “Interest in our innovative salary packaging product has been strong, particularly in the not-for-profit segment.” In New Zealand, a similar uptick in market activity has occurred during the period. The increased recognition for our market-leading products has allowed us to win some high quality contracts, beating off competition from some of the more established players. These wins include the management of the build and delivery of specialist transport units, a sale and lease back in the IT sector, and a number of fully maintained operating lease contracts in the industrial sector. Chief Executive Officer’s Report Growth continues In this environment, the Company has maintained its strategic discipline and continued to pursue growth through clearly defined channels. Our sales and marketing model has been optimised to ensure we target new opportunities with greater focus and impact. This effort is supported by ongoing product and efficiency enhancements in all parts of the business. During the reported period, the opportunities pipeline remained full and we maintained our strong conversion rate in all areas. We were again successful in demonstrating the merits of appointing a professional external manager to companies that had not previously outsourced their fleet management, utilising our longstanding experience and cost reduction track record as powerful evidence. Overall, the structural trend towards outsourcing is gathering pace as some of the larger States have started to actively solicit input from the industry regarding outsourcing options. At the same time, States that already outsource are looking to increase the range of services we provide. In one such case, an existing Government client opted for a higher value-add funding arrangement. We are also actively moving existing outsourcers from unfunded to funded arrangements. Continued above-market share win rates are evidence of our strongly differentiated offering, which increasingly is allowing us to take customers from competitors. No major account losses occurred, confirming our unique industry position and the strength of our customer relationships. Our ability to identify, develop or source attractive solutions to emerging customer needs is also supporting our effort to offer additional products to these customers. Examples of our success in this regard abound across the business. In the energy sector, a number of customers opted to extend their contracts and include a wider range of products. “We were again successful in demonstrating the merits of appointing a professional external manager to companies that had not previously outsourced their fleet management, utilising our longstanding experience and cost reduction track record as powerful evidence.” 8 SG Fleet Group Limited Strategic discipline Outlook A common element across all our locations and businesses is the constant drive to further improve our offering to customers. This takes the form of technological innovation of products and services, as well as improved efficiency for the processes that support our interaction with customers. In keeping with our objective to offer cutting edge solutions, innovation is continuous at SG Fleet. During the year, we further enhanced our telematics offering and introduced our proprietary app to wearables such as the Apple Watch. We also prepared for the launch of a web-based FBT data collector in New Zealand and a new version of the Novalease calculator in the UK. These are just a few examples of the proprietary and market leading technology we make available to fleet managers and drivers. The strict guideline behind our innovation, as well as our investigation of opportunities in adjacent activity areas, is that we must remain focused on direct business outcomes. We are constantly mindful of the need to develop solutions that will meet a real demand, resulting in real and profitable revenue streams. The same concept of remaining ‘on-strategy’ at all times is the basis on which we investigate inorganic growth opportunities. We adhere to a strict valuation discipline and will not consider acquisitions that do not fully fit into our strategic roadmap or that risk taking us into business areas where our core expertise cannot be deployed profitably. “We are constantly mindful of the need to develop solutions that will meet a real demand, resulting in real and profitable revenue streams.” Over this reporting period, the Company has again been able to exceed the demanding targets set in terms of its financial performance. It is our firm intention to preserve that track record, as well as our growth momentum. In the current financial year, we aim to maintain underlying profit growth levels through a combination of revenue gains and margin expansion. We are confident that the combination of our exceptional customer retention levels, increased penetration and high win rate will allow us to grow revenue streams. In turn, margin improvements will be supported by increased scale benefits, greater internal efficiencies and further cost compression. The ongoing consolidation of our systems infrastructure will be an important driver in that regard in the long term. The disciplined execution of our growth strategy and our constant focus on cost management will allow us to achieve these objectives. Further enhancements to our competitive differentiation, in combination with the well-documented structural trend towards outsourcing, will also ensure we are well-placed to be a beneficiary of any step-change developments in terms of demand, both in the government and corporate sectors. I would like to take this opportunity to thank my executive as well as the broader SG Fleet team for their efforts in this first full year of our listed life. It has been an excellent start in a challenging environment and our goal is to reward the trust and support of our shareholders on an ongoing basis by continuing to deliver attractive and sustainable returns. Robbie Blau Chief Executive Officer Annual Report 2015 9 Chief Executive Officer’s Report Pro forma adjustments to the statutory income statement The table below sets out the adjustment to the Statutory Results for 2015 and 2014 to primarily reflect the acquisitions that SG Fleet Group Limited has made since 1 July 2013 as if they had occurred as at 1 July 2013 and the full year impact of the operating and capital structure that is in place following completion of the Initial Public Offering (’IPO’) (on 6 March 2014) as if it was in place as at 1 July 2013. In addition, certain other adjustments to eliminate non-recurring items have been made. These adjustments are summarised below: Statutory revenue Interest income Exit fees Pro forma revenue Statutory NPAT RPS interest Management fees Listed public company costs Interest income Exit fees Bonus shares and bonus payment Transaction costs Income tax effect Pro forma NPAT Consolidated 30 Jun 2015 $m 30 Jun 2014 $m 171.4 - - 171.4 165.7 (1.1) (8.1) 156.5 40.5 34.9* - - - - - - - - 40.5 2.5 0.6 (1.1) (1.1) (8.1) 4.7 0.5 2.5 35.4 * The prior year statutory NPAT of $34.9 million comprised the statutory NPAT of SG Fleet Holdings Pty Limited and its subsidiaries for the period 1 July 2013 to 5 March 2014 of $19.3 million aggregated with the statutory NPAT of SG Fleet Group Limited and its subsidiaries for the period 6 March 2014 to 30 June 2014 of $15.6 million. 10 SG Fleet Group Limited Pro forma consolidated income statements: Financial year ended 30 June 2015 compared to financial year ended 30 June 2014 The pro forma consolidated income statement for the financial year ended 30 June 2015 and 30 June 2014 has been prepared on the same basis as the pro forma consolidated financial income statement for the year ended 30 June 2015 and 30 June 2014 published in the SG Fleet Group IPO prospectus issued in February 2014. The table below sets out the pro forma consolidated income statement for the financial years ended 30 June 2015 and 30 June 2014. Revenue - Management and maintenance income - Additional products and services - Funding commissions - End of lease income - Rental income - Other income Total revenue Fleet management costs Employee benefits expense Occupancy costs Technology costs Other expenses Depreciation and amortisation Finance costs Profit before tax Income tax expense NPAT Consolidated 30 Jun 2015 $m 30 Jun 2014 $m Change % Prospectus forecast 30 Jun 2015 $m 64.0 48.8 29.3 11.3 10.8 7.2 171.4 (44.5) (43.6) (4.1) (3.2) (6.6) (7.1) (3.5) 58.8 (18.3) 40.5 59.8 41.7 23.6 12.7 12.2 6.5 156.5 (38.6) (42.7) (4.1) (2.9) (6.4) (6.8) (4.2) 50.8 (15.4) 35.4 7.0 17.0 24.2 (11.0) (11.5) 10.8 9.5 15.3 2.1 - 10.3 3.1 4.4 (16.7) 15.7 18.8 14.4 62.6 46.7 29.8 9.7 11.9 7.8 168.5 (44.1) (44.0) (4.2) (3.2) (6.2) (6.6) (4.0) 56.2 (17.0) 39.2 Annual Report 2015 11 Directors’ Report 30 June 2015 The Directors present their report, together with the financial statements, on the consolidated entity (referred to hereafter as the ‘Group’) consisting of SG Fleet Group Limited (referred to hereafter as the ‘Company’ or ‘parent entity’) and the entities it controlled at the end of, or during, the year ended 30 June 2015. Directors The following persons were Directors of the Company during the whole of the financial year and up to the date of this report, unless otherwise stated: Andrew Reitzer (Chairman) Robert (Robbie) Blau Cheryl Bart AO Graham Maloney Peter Mountford Kevin Wundram (alternate for Robbie Blau) Colin Brown (alternate for Peter Mountford) Details of the Directors are set out in the section ‘Information on Directors’ below. Principal activities During the financial year the principal continuing activities of the Group consisted of motor vehicle fleet management and salary packaging services. Dividends Dividends paid during the financial year were as follows: Final dividend for the period ended 30 June 2014 of 4 cents per share paid on 29 October 2014 Interim dividend for the year ended 30 June 2015 of 4.725 cents per share paid on 22 April 2015 Consolidated Year ended 30 Jun 2015 $’000 Period ended 30 Jun 2014 $’000 9,708 11,467 21,175 – – – On 17 August 2015, the Directors declared a fully franked final dividend for the year ended 30 June 2015 of 6.117 cents per ordinary shares, to be paid on 22 October 2015 to eligible shareholders on the register as at 1 October 2015. This equates to a total estimated distribution of $14,846,000 based on the number of ordinary shares on issue as at 30 June 2015. The financial effect of dividends declared after the reporting date are not reflected in the 30 June 2015 financial statements and will be recognised in subsequent financial reports. Review of operations The profit for the Group after providing for income tax amounted to $40,482,000 (30 June 2014: $15,620,000). The current period results are for the financial year ended 30 June 2015. The comparative results are for the period from 6 March 2014, when the Company acquired SG Fleet Holdings Pty Limited and its subsidiaries, to 30 June 2014. The fleet size of the Group as at 30 June 2015 was 90,045 (30 June 2014: 83,837). Refer to Chairman’s report and Chief Executive Officer’s report for further commentary on the review of operations. Significant changes in the state of affairs There were no significant changes in the state of affairs of the Group during the financial year. 12 SG Fleet Group Limited Robert (Robbie) Blau Chief Executive Officer (‘CEO’) Qualifications: Bachelor of Commerce (Accounting and Law), Bachelor of Laws (Cum Laude) from the University of the Witwatersrand, Higher Diploma in Tax Law from Johannesburg University Experience and expertise: Robbie was appointed CEO of SG Fleet in July 2006 and has over 10 years of experience in the fleet management and leasing industry. Robbie has overall responsibility for the strategic development of the Group and manages its relationships with financial services partners. Previously, Robbie was Managing Director of Nucleus Corporate Finance in South Africa, which he founded in 1999. During his time at Nucleus Corporate Finance, Robbie advised South African listed entity Super Group Limited on corporate advisory and strategic projects. He also spent a year working with the Operations Director of South African Breweries Limited and practised as a commercial attorney for five years at Werksmans Attorneys in South Africa. Other current directorships: None Former directorships (last 3 years): None Special responsibilities: None Interests in shares: 6,756,425 ordinary shares in the Company Interests in options: 3,047,619 options over ordinary ordinary shares in the Company Matters subsequent to the end of the financial year Apart from the dividend declared as discussed above, no other matter or circumstance has arisen since 30 June 2015 that has significantly affected, or may significantly affect the Group’s operations, the results of those operations, or the Group’s state of affairs in future financial years. Likely developments and expected results of operations Likely developments in the operations of the Group and the expected results of those operations are contained in the Chairman’s report and Chief Executive Officer’s report. Environmental regulation The Group is not subject to any significant environmental regulation under Australian Commonwealth or State law. Information on Directors Andrew Reitzer Independent Non-Executive Director and Chairman Qualifications: Bachelor of Commerce and a Master of Business Leadership from the University of South Africa Experience and expertise: Andrew has over 35 years of global experience in the retailing and wholesaling industry. He has served as the Chief Executive Officer (‘CEO’) of Metcash Limited between 1998 and 2013, and continues as a consultant. Prior to his appointment as CEO of Metcash, Andrew held various management roles at Metro Cash & Carry Limited and was appointed to lead the establishment of Metro’s operations in Israel and Russia and served as the Group Operations Director. Other current directorships: Non-executive Chairman of Amaysim Australia Limited (ASX: AYS) Former directorships (last 3 years): Metcash Limited (ASX: MTS) (resigned 30 June 2013) Special responsibilities: Chairman of the Nomination and Remuneration Committee Interests in shares: 81,081 ordinary shares in the Company Annual Report 2015 13 Directors’ Report 30 June 2015 Cheryl Bart AO Independent Non-Executive Director Qualifications: Bachelor of Commerce and Bachelor of Laws from the University of New South Wales, Fellow of the Australian Institute of Company Directors Experience and expertise: Cheryl is a qualified lawyer and company director with experience across industries including financial services, utilities, energy, broadcasting, football and film. Cheryl previously worked as a lawyer specialising in Banking and Finance at Mallesons Stephen Jaques (now King & Wood Mallesons). Cheryl is immediate past Chairman of ANZ Trustees Ltd, the Environment Protection Authority of South Australia, the South Australian Film Corporation, Adelaide Film Festival and the Foundation for Alcohol Research and Education (‘FARE’). She is the 31st person in the world to complete The Explorer’s Grand Slam, and is a Patron of SportsConnect. Other current directorships: Australian Broadcasting Corporation (‘ABC’), Spark Infrastructure Ltd, Audio Pixels Holdings Limited (ASX: AKP), Football Federation of Australia (‘FFA’), Local Organising Committee 2015 Australia Asian Cup and the Australian Himalayan Foundation. Former directorships (last 3 years): South Australian Power Networks Special responsibilities: Member of the Audit, Risk and Compliance Committee and member of the Nomination and Remuneration Committee Interests in shares: 27,027 ordinary shares in the Company Graham Maloney Independent Non-Executive Director Qualifications: Bachelor of Arts from the University of Sydney, Associate of the Institute of Actuaries of Australia, Fellow of the Australian Institute of Company Directors Experience and expertise: Graham has over 40 years of experience in financial services, including superannuation, life insurance, commercial banking, investment banking and stock broking. He is the CEO of Stratagm, which he established in 2009 to provide strategic and financial advisory services to both businesses and individuals. Graham’s experience includes roles as Division Director at Macquarie Capital and as Group Treasurer at National Australia Bank. Other current directorships: Chair, Connective Group Australia Former directorships (last 3 years): SFG Australia (ASX: SFW) Special responsibilities: Chairman of the Audit, Risk and Compliance Committee Interests in shares: 27,027 ordinary shares in the Company Peter Mountford Non-Executive Director Qualifications: Bachelor of Commerce and Bachelor of Accountancy from the University of the Witwatersrand, Chartered Accountant, Higher Diploma in Taxation from the University of Witwatersrand and MBA (With Distinction) from Warwick University Experience and expertise: Peter is the nominee for Super Group Limited, has over 20 years of senior management experience and currently serves as the CEO of Super Group Limited since 2009. Prior to becoming the CEO of Super Group, he served as the Managing Director of Super Group’s Logistics and Transport division and later its Supply Chain division. Peter’s experience also includes six years as the CEO of Imperial Holdings’ Consumer Logistics division as Managing Director of South African Breweries Diversified Beverages. He is currently a Director of The Road Freight Association in South Africa. Other current directorships: Super Group Limited (JSE: SPG) Former directorships (last 3 years): None Special responsibilities: Member of the Audit, Risk and Compliance Committee and member of the Nomination and Remuneration Committee Interests in shares: 540,540 ordinary shares in the Company Kevin Wundram Alternate Director for Robbie Blau and Chief Financial Officer (‘CFO’) Qualifications: Bachelor of Commerce from the University of the Witwatersrand, Honours Bachelor of Accounting Science degree from the University of South Africa, Chartered Accountant 14 SG Fleet Group Limited Other current directorships: Super Group Limited (JSE: SPG), Bluefin Investments Limited (Mauritius) Former directorships (last 3 years): None Special responsibilities: None Interests in shares: 108,108 ordinary shares in the Company ‘Other current directorships’ set out above are current directorships for listed entities only and excludes directorships of all other types of entities, unless otherwise stated. ‘Former directorships (last 3 years)’ quoted above are directorships held in the last 3 years for listed entities only and excludes directorships of all other types of entities, unless otherwise stated. Company secretary Sarah Anne Edwards (LLB (Hons), Grad Dip Legal Practice) has been Legal Counsel of the Group since April 2012 and was appointed as Company Secretary on 1 July 2015. In addition to her duties as Company Secretary, Sarah is responsible for providing corporate and commercial legal advice and support as well as managing various regulatory and compliance matters for the Group. Sarah first practised as a lawyer at Blake Dawson Waldron (as it was known then) before joining the company secretariat team at NRMA Motoring & Services. Prior to joining the Group, Sarah’s in-house legal experience has been primarily in the construction industry, having worked for AE&E Australia Pty Ltd and Tenix Group. The previous company secretary was Julianne Lyall- Anderson (appointed on 24 June 2014 and resigned on 23 March 2015). Kevin Wundram fulfilled the role as interim company secretary (appointed on 23 March 2015 and resigned on 1 July 2015). Experience and expertise: Kevin has been CFO of SG Fleet Group since July 2006 and has over 10 years of experience in the fleet management and leasing industry. He is responsible for the effective management of the finance, treasury and corporate governance functions across the Group. Prior to joining the Group, Kevin was responsible for special projects at Super Group Limited, including the execution of acquisitions, disposals and due diligence. Kevin was also a member of the management committees of the Automotive Parts, Commercial Dealerships and Supply Chain Divisions. Prior to joining Super Group, Kevin worked in the audit and corporate finance divisions of KPMG South Africa for six years. Other current directorships: None Former directorships (last 3 years): None Special responsibilities: None Interests in shares: 1,863,840 ordinary shares in the Company Interests in options: 1,250,000 options over ordinary ordinary shares in the Company Colin Brown Alternate Director for Peter Mountford Qualifications: Bachelor of Accounting Science degree from the University of South Africa (‘UNISA’), Honours Bachelor of Accounting Science degree from UNISA, Certificate in the Theory of Accounting from UNISA, Chartered Accountant (South Africa), Master in Business Leadership degree from the UNISA School of Business Leadership Experience and expertise: Colin provided support services to Super Group Limited’s treasury activities in Johannesburg from June 2009 to February 2010, and was appointed to the Super Group Limited’s board as CFO in February 2010. Prior to that, Colin was CFO and a member of the board of Celcom Group Limited, a business in the mobile phone industry and previously listed on the Alternative Exchange (‘AltX’) of the Johannesburg Stock Exchange (‘JSE’). Colin has also held the Financial Director position at Electronic Data Systems (‘EDS’) Africa Limited and Fujitsu Services South Africa, both multi-national companies in the information technology services industry. Annual Report 2015 15 Directors’ Report 30 June 2015 Meetings of Directors The number of meetings of the Company’s Board of Directors (‘the Board’) and of each Board committee held during the year ended 30 June 2015, and the number of meetings attended by each Director were: Andrew Reitzer Robbie Blau Cheryl Bart AO Graham Maloney Peter Mountford Board of Directors Audit, Risk and Compliance Committee Nomination and Remuneration Committee Attended Held Attended Held Attended Held 9 9 8 8 9 9 9 9 9 9 – – 4 4 4 – – 4 4 4 4 – 4 – 4 4 – 4 – 4 Held: represents the number of meetings held during the time the Director held office or was a member of the relevant committee. Kevin Wundram and Colin Brown did not attend any meetings in their capacity as an Alternate Director during the financial year. Remuneration report (audited) The remuneration report, which has been audited, details the Key Management Personnel (‘KMP’) remuneration arrangements for the Group, in accordance with the requirements of the Corporations Act 2001 and its Regulations. KMP are those persons having authority and responsibility for planning, directing and controlling the activities of the Group, directly or indirectly, including all directors. The remuneration report is set out under the following main headings: • principles used to determine the nature and amount of remuneration • details of remuneration • service agreements • share-based compensation • additional information • additional disclosures relating to key management personnel Principles used to determine the nature and amount of remuneration The objective of the Group’s executive reward framework is to ensure reward for performance is competitive and appropriate for the results delivered. The framework aligns executive reward with the achievement of strategic objectives and the creation of value for shareholders, and conforms to market best practice for delivery of reward. The Board ensures that executive reward satisfies the following key criteria for good reward governance practices: • competitiveness and reasonableness; • acceptability to shareholders; • performance linkage / alignment of executive compensation; and • transparency. The main role of the Nomination and Remuneration Committee (‘NRC’) is to assist the Board in fulfilling its corporate governance responsibilities and to review and make recommendations in relation to the remuneration arrangements for its Directors and executives. The NRC comprises two independent Non-Executive Directors and one Non-Executive Director and meets regularly throughout the financial year. The CEO and CFO attend certain committee meetings by invitation, where management input is required. The CEO and CFO are not present during any discussions related to their own remuneration arrangements. 16 SG Fleet Group Limited The performance of the Group depends on the quality of its Directors and executives. The remuneration philosophy is to attract, motivate and retain high performing, quality executives. The remuneration framework has been structured to be market competitive and complementary to the reward strategy of the Group. Alignment to shareholders’ interests: • has economic profit as a core component of plan design; • focuses on sustained growth in shareholder wealth, consisting of dividends and growth in share price, and delivering constant or increasing return on assets as well as focusing the executive on key non-financial drivers of value; and • attracts and retains high calibre executives. Alignment to executives’ interests: • rewards capability and experience; • reflects competitive reward for contribution to growth in shareholder wealth; and • provides a clear structure for earning rewards. In accordance with best practice corporate governance, the structure of Non-Executive Directors and executive remunerations are separate. Non-Executive Directors’ remuneration Fees and payments to Non-Executive Directors reflect the demands that are made on, and the responsibilities of, these Directors. Non-Executive Directors’ fees and payments are reviewed annually by the NRC. The NRC may, from time to time, receive advice from independent remuneration consultants to ensure Non-Executive Directors’ fees and payments are appropriate and in line with the market. The Chairman’s fees are determined independently to the fees of other Non-Executive Directors based on comparative roles in the external market. The Chairman is not present at any discussions relating to determination of his own remuneration. Non-Executive Directors do not receive retirement benefits, share options or other cash incentives. The remuneration of Non-Executive Directors consists of Directors’ fees and committee fees. The Chairman of the Board attends all committee meetings but does not receive committee fees in respect of his role as Chairman or member of any committee. Non-Executive Director fees (Directors’ fees and committee fees) (inclusive of superannuation) proposed for the year ending 30 June 2016, amounting to $505,000 is summarised as follows: Name – Position FY 2016 Fees Andrew Reitzer – Independent Non-Executive Chairman Cheryl Bart AO – Independent Non-Executive Director Graham Maloney – Independent Non-Executive Director Peter Mountford – Non-Executive Director $180,000 $107,500 $110,000 $107,500 ASX listing rules require the aggregate Non-Executive Directors remuneration be determined periodically by a general meeting. The most recent determination was at the Annual General Meeting held on 12 February 2014, where the shareholders approved the aggregate remuneration be fixed at a maximum of $1,000,000 per annum. Executive remuneration The Group aims to reward executives with a level and mix of remuneration based on their position and responsibility, which has both fixed and variable components. The executive remuneration and reward framework has four components: • base salary and non-monetary benefits; • short-term performance incentives; • share-based payments; and • other remuneration, such as superannuation and long service leave. The combination of these comprises the executive’s total remuneration. Total Fixed Remuneration (‘TFR’) consisting of base salary, annual leave, superannuation and non-monetary benefits, is reviewed annually by the NRC, based on individual and business unit performance, the overall performance of the Group and comparable market remunerations. Executives may receive their fixed remuneration in the form of cash or other fringe benefits (for example motor vehicle benefits) where it does not create any additional costs to the Group and provides additional value to the executive. Annual Report 2015 17 Directors’ Report 30 June 2015 The short-term incentives (‘STI’) program is designed to align the targets of the business units with the targets of those executives responsible for meeting those targets. STI payments are granted to executives based on specific annual targets. A performance modifier applies in relation to award of the STI. For an executive to receive payment under the STI program, their performance has to be regarded as entirely satisfactory. Where an executive is regarded as below competent, the award under the STI program will be adjusted by the NRC. Long-term incentives (‘LTI’) are set periodically for KMP (‘Participants’) in order to align remuneration with the creation of shareholder value over the long term. LTI include long service leave and share-based payments. LTI to Participants are made under the Equity Incentive Plan (‘EIP’) and are currently delivered in the form of share options. The number of options granted is based on a fixed percentage of the relevant Participant’s TFR and is issued to the Participant at no cost. Options granted to KMP usually vest over three years (the ‘Performance Period’), subject to the satisfaction of performance conditions. For the 2014 LTI offer, the Performance period was from the Group’s listing and concludes on 30 June 2017, a period of 39 months. The performance conditions for the LTI options are currently based on the compound annual growth rate (‘CAGR’) of the Group’s earnings per share (‘EPS’). EPS was selected as the performance condition for the LTI since it is a measure of economic profit and is a key driver of the share price which is a key component in delivering sustained growth in shareholder wealth. The performance period and applicable performance conditions for any future LTI opportunities will be determined by the Board and specified in the relevant offer document. The percentage of options that vest and become exercisable, if any, is determined by reference to the vesting schedule, summarised as follows: CAGR of EPS over the Performance Period % of options that become exercisable Less than 5% 5% (Threshold performance) Between 5% and 15% Nil 30% Straight-line pro-rata vesting between 30% and 100% 15% or above (Stretch performance) 100% If the Participant ceases employment for cause, the unvested options automatically lapse unless the Board determines otherwise. In other circumstances, the options will remain on foot with a broad discretion for the Board to vest or lapse some or all of the options, the latter of which the Board will ordinarily exercise in the case of resignation. Where there may be a change of control event, the Board has the discretion to accelerate vesting of some or all of the options and the Board will notify the Participant of the date on which any vested but unexercised options will expire. Where only some of the options are vested on a change of control event, the remainder of the options will immediately lapse. The EIP also provides flexibility for the Group to grant, subject to the terms of individual offers, performance rights and restricted shares. Any options that remain unvested at the end of the Performance Period will lapse immediately. The Participant must exercise any vested options within 12 months of vesting. After 12 months, any unexercised options will lapse. The Participant is entitled to receive one share for each option that vests and is exercised. The Board may make an equivalent cash payment in lieu of providing shares to the participant. Any cash payment is at the Group’s discretion only. The options do not carry dividends or voting rights prior to vesting and exercise. Participants must not sell, transfer, encumber, hedge or otherwise deal with the options. The EIP provides the Board with broad ‘clawback’ powers if, amongst other things, the Participant has acted fraudulently or dishonestly, engaged in gross misconduct or has acted in a manner that has brought the Group into disrepute, or there is a material financial misstatement, or the Group is required or entitled under law or company policy to reclaim remuneration from the Participant, or the Participant’s entitlements vest as a result of fraud, dishonesty or breach of obligations of any other person and the Board is of the opinion that the incentives would not have otherwise vested. 18 SG Fleet Group Limited Group performance and link to remuneration The financial performance measure driving STI payment outcomes for KMP for the year ended 30 June 2015 and future years is determined on a straight-line basis, based on the Group achieving EPS growth of between 5.0% and 15.0% over the previous financial year. No award is made if the Group’s EPS growth is less than 5.0% over the previous financial year. The proportion of the maximum STI awarded to the KMP is at the discretion of the Board. The performance measure that drives LTI vesting is the CAGR of the Group’s EPS over the relevant performance period. The Group’s EPS for the year ended 30 June 2015 was 16.68 cents per share. Voting and comments made at the Company’s 2014 Annual General Meeting (‘AGM’) At the 2014 AGM, 99.9% of the votes received supported the adoption of the remuneration report for the period ended 30 June 2014. The Company did not receive any specific feedback at the AGM regarding its remuneration practices. Details of remuneration Amounts of remuneration Details of the remuneration of the KMP of the Group are set out in the following tables. The KMP of the Group consisted of the Directors of SG Fleet Group Limited and the following persons: • Andy Mulcaster – Managing Director, Australia • David Fernandes – Managing Director, United Kingdom • Geoff Tipene – Managing Director, New Zealand • Annie Margossian-Kenny – General Manager, Business Quality (maternity leave from 31 October 2014 to end of financial year) Short-term benefits Post- employment benefits Long- term benefits Share- based payments Cash salary and fees $ Bonus $ Non- monetary $ Super- annuation $ Employee benefits $ Equity- settled $ Total $ 150,685 84,475 95,000 92,500 – – – – 621,217 345,563 331,217 151,184 359,600 123,113 – – – – – – – 14,315 8,025 – – – – – – – – – – 165,000 92,500 95,000 92,500 18,783 10,101 114,014 1,109,678 18,783 5,299 46,764 553,247 16,348 5,703 34,115 538,879 281,224 97,117 17,908 13,182 17,037 25,330 451,798 186,862 67,006 23,807 7,669 – 14,055 299,399 Year ended 30 Jun 2015 Non-Executive Directors: Andrew Reitzer (Chairman) Cheryl Bart AO Graham Maloney Peter Mountford Executive Directors: Robbie Blau (CEO) Kevin Wundram (CFO and Alternate Director) Other Key Management Personnel: Andy Mulcaster David Fernandes* Geoff Tipene* Annie Margossian-Kenny 85,888 30,916 – 11,097 1,426 20,176 149,503 2,288,668 814,899 41,715 108,202 39,566 254,454 3,547,504 * Total remuneration in local currency paid to David Fernandes and Geoff Tipene was GBP 239,263 and NZD 321,682 respectively. Colin Brown (Alternate Director) received no remuneration during the year ended 30 June 2015. Annual Report 2015 19 Directors’ Report 30 June 2015 Year ended 30 Jun 2014 Non-Executive Directors: Andrew Reitzer (Chairman) Cheryl Bart AO Graham Maloney Peter Mountford Colin Brown (Alternate Director) Executive Directors: Robbie Blau (CEO) Kevin Wundram (CFO and Alternate Director) Other Key Management Personnel: Andy Mulcaster David Fernandes Geoff Tipene Annie Margossian-Kenny Short-term benefits Post- employment benefits Long- term benefits Share- based payments Cash salary and fees $ Bonus $ Non- monetary $ Super- annuation $ Employee benefits $ Equity- settled $ Total $ 50,329 28,215 31,667 30,833 – – – – – – 205,745 432,000 110,013 192,500 122,863 158,802 107,900 125,812 57,183 127,329 86,044 112,702 – – – – – – – – 5,734 8,252 – 4,671 2,619 – – – – – – – – – 55,000 30,834 31,667 – 1,000,000 1,030,833 – 200,000 200,000 1,475 39,491 59,077 737,788 761 10,596 24,230 338,100 756 522 2,093 1,688 1,879 17,677 301,977 93 13,125 253,186 – 103,483 298,340 1,334 10,454 212,222 830,792 1,149,145 13,986 14,585 53,393 1,428,046 3,489,947 Remuneration above is from 6 March 2014, when SG Fleet Holdings Pty Limited and its subsidiaries were acquired, to 30 June 2014. In 2014 the Non-Executive Directors were also paid the following amounts for services rendered prior to the IPO: Name Andrew Reitzer Cheryl Bart AO Graham Maloney Peter Mountford Amount Fees $18,879 plus superannuation $1,746 Fees $10,584 plus superannuation $979 Fees $11,875 plus superannuation $nil Fees $11,562 plus superannuation $nil 20 SG Fleet Group Limited Non-Executive Directors’ salaries are 100% fixed. The fixed proportion and the proportion of remuneration linked to performance of Executive Directors and KMP are as follows: Name Executive Directors: Robbie Blau Kevin Wundram Other Key Management Personnel: Andy Mulcaster David Fernandes Geoff Tipene Annie Margossian-Kenny Fixed remuneration At risk – STI At risk – LTI Year ended 30 Jun 2015 Period ended 30 Jun 2014 Year ended 30 Jun 2015 Period ended 30 Jun 2014 Year ended 30 Jun 2015 Period ended 30 Jun 2014 59% 65% 71% 73% 73% 66% 33% 36% 41% 45% 55% 42% 31% 27% 23% 21% 22% 21% 59% 57% 53% 50% 43% 53% 10% 8% 6% 6% 5% 13% 8% 7% 6% 5% 2% 5% The increase in the percentage of fixed remuneration for the year ended 30 June 2015 compared to period ended 30 June 2014, is due to the fact that the calculations for the period ended 30 June 2014 represents a full year’s short term incentive divided by 4 months’ worth of fixed remuneration. Service agreements Remuneration and other terms of employment for KMP are formalised in service agreements. Details of these agreements are as follows: Robbie Blau – CEO • Agreement term: Ongoing from 1 July 2006 • TFR with effect from (‘wef’) 1 July 2015: $680,000 per annum, which includes base salary, statutory superannuation contributions and any salary sacrifice arrangements • STI: award of between 22.5% and 75% of TFR, on a straight-line basis based on EPS growth of between 5% and 15% over the previous financial year. The STI is subject to a 12 month payment deferral of 25% for FY 2015 and thereafter 50% • The STI earned for 2015 amounted to $460,750. The payment of 25% of the 2015 STI, amounting to $115,187 has been deferred until 30 June 2016 • LTI Opportunity: 120% of TFR • Termination arrangements: for cause: immediate termination for poor performance: 4 weeks’ notice by the Company after procedural fairness has been afforded redundancy: 4 weeks’ notice by the Company, 1 year’s TFR material change: 4 weeks’ notice by the executive, 1 year’s TFR without cause: 4 weeks’ notice by the Company, 1 year’s TFR resignation: 3 months’ notice by the executive illness/mental disability: 26 weeks’ base salary Kevin Wundram – CFO • Agreement term: Ongoing from 1 June 2006 • TFR wef 1 July 2015: $360,000 per annum, which includes base salary, statutory superannuation contributions and any salary sacrifice arrangements • STI: award of between 18% and 60% of TFR, on a straight-line basis based on EPS growth of between 5% and 15% over the previous financial year. The STI is subject to a 12 month payment deferral of 25% for FY 2015 and thereafter 50% • The STI earned for 2015 amounted to $201,578. The payment of 25% of the 2015 STI, amounting to $50,394 has been deferred until 30 June 2016 • LTI Opportunity: 90% of TFR • Termination arrangements: for cause: immediate termination for poor performance: 4 weeks’ notice by the Company after procedural fairness has been afforded redundancy: 4 weeks’ notice by the Company, 48 weeks’ TFR material change: 4 weeks’ notice by the executive, 48 weeks’ TFR without cause: 4 weeks’ notice by the Company, 48 weeks’ TFR resignation: 3 months’ notice by the executive illness/mental disability: 26 weeks’ base salary Annual Report 2015 21 Directors’ Report 30 June 2015 Andy Mulcaster – Managing Director, Australia • Agreement term: Ongoing from 1 August 2006 • TFR wef 1 July 2015: $383,870 per annum, which includes base salary, statutory superannuation contributions and any salary sacrifice arrangements • STI: award of between 15% and 50% of TFR, on a straight-line basis based on EPS growth of between 5% and 15% over the previous financial year. The STI is subject to a 12 month payment deferral of 25% for FY 2015 and thereafter 50% • The STI earned for 2015 amounted to $164,150. The payment of 25% of the 2015 STI, amounting to $41,037 has been deferred until 30 June 2016 • LTI Opportunity: 60% of TFR • Termination arrangements: for cause: immediate termination for poor performance: 4 weeks’ notice by the Company after procedural fairness has been afforded redundancy: 4 weeks’ notice by the Company, 48 weeks’ TFR material change: 4 weeks’ notice by the executive, 48 weeks’ TFR without cause: 4 weeks’ notice by the Company, 48 weeks’ TFR resignation: 3 months’ notice by the executive illness/mental disability: 26 weeks’ base salary Geoff Tipene – Managing Director, New Zealand • Agreement term: Ongoing from 1 February 2011 • TFR wef 1 July 2015: NZD 211,150 per annum, which includes base salary, statutory superannuation contributions and any salary sacrifice arrangements • STI: award of between 15% and 50% of TFR, on a straight-line basis based on EPS growth of between 5% and 15% over the previous financial year. The STI is subject to a 12 month payment deferral of 25% for FY 2015 and thereafter • 50%. Kiwi Saver of 3% is payable on this STI. • The STI earned for 2015 amounted to NZD 95,990. The payment of 25% of the 2015 STI, amounting to NZD 23,998 has been deferred until 30 June 2016 • LTI Opportunity: 60% of TFR • Termination arrangements: for cause: immediate termination for poor performance: 4 weeks’ notice by the Company after procedural fairness has been afforded redundancy notice: 4 weeks’ notice by the Company redundancy severance <1 year Nil; 1-2 years 5 weeks; 2-3 years 8.75 weeks; 3-4 years 12.5 weeks, 4-5 years 15 weeks; 5-6 years 17.5 weeks and >6 years 20 weeks without cause: 4 months’ notice by the Company resignation: 3 months’ notice by the executive David Fernandes – Managing Director, United Kingdom • Agreement term: Ongoing from 9 October 2006 • TFR wef 1 July 2015: £159,583 per annum, which includes base salary, statutory superannuation contributions and any salary sacrifice arrangements • STI: award of between 15% and 50% of TFR, on a straight-line basis based on EPS growth of between 5% and 15% over the previous financial year. The STI is subject to a 12 month payment deferral of 25% for FY 2015 and thereafter 50% Annie Margossian-Kenny – General Manager, Business Quality • Agreement term: Ongoing from 5 February 2007 • TFR wef 1 July 2015: $265,787 per annum, which includes base salary, statutory superannuation contributions and any salary sacrifice arrangements • STI: award of between 15% and 50% of TFR, on a straight-line basis based on EPS growth of between 5% and 15% over the previous financial year. The STI is subject to a 12 month payment deferral of 25% for FY 2015 and thereafter 50%. • The STI earned for 2015 amounted to £68,575. The payment of 25% of the 2015 STI, amounting to £17,144 has been deferred until 30 June 2016 • The STI earned for 2015 amounted to $41,222. The payment of 25% of the 2015 STI, amounting to $10,306 has been deferred until 30 June 2016 • LTI Opportunity: 60% of TFR • Termination arrangements: • LTI Opportunity: 50% of TFR • Termination arrangements: for cause: immediate termination for poor performance: 4 weeks’ notice by the Company after procedural fairness has been afforded redundancy: 4 weeks’ notice by the Company, 48 weeks’ TFR material change: 4 weeks’ notice by the executive, 48 weeks’ TFR without cause: 4 weeks’ notice by the Company, 48 weeks’ TFR resignation: 3 months’ notice by the executive illness/mental disability: 26 weeks’ base salary for cause: immediate termination for poor performance: 4 weeks’ notice by the Company after procedural fairness has been afforded redundancy: 4 weeks’ notice by the Company, 48 weeks’ TFR material change: 4 weeks’ notice by the executive, 48 weeks’ TFR without cause: 4 weeks’ notice by the Company, 48 week’s TFR resignation: 3 months’ notice by the executive illness/mental disability: 26 weeks’ base salary 22 SG Fleet Group Limited Share-based compensation Share and cash offers There were no shares issued to Directors and other key management personnel as part of compensation during the year ended 30 June 2015. Options The terms and conditions of each grant of options over ordinary shares affecting remuneration of Directors and other KMP in this financial year or future reporting years are as follows: Grant date 4 March 2014 Vesting date and exercisable date Expiry date Exercise price Fair value per option at grant date 30 June 2017 30 June 2018 $1.85 $0.252 Options granted carry no dividend or voting rights and can be exercised only once the vesting conditions have been met until their expiry date. There were no options over ordinary shares granted to or vested by Directors and other KMP as part of compensation during the year ended 30 June 2015. Additional information The earnings of the Group for the two years to 30 June 2015 are summarised below: Revenue Profit after income tax Dividends paid 2015 $’000 171,377 40,482 21,175 The factors that are considered to affect total shareholders return (‘TSR’) are summarised below: Share price at financial year end ($) Basic earnings per share (cents per share) Share price at IPO was $1.85 per share. 2015 2.47 16.68 2014 $’000 64,083 15,620 – 2014 1.80 9.13 Additional disclosures relating to key management personnel In accordance with Class Order 14/632, issued by the Australian Securities and Investments Commission, relating to ‘Key management personnel equity instrument disclosures’, the following disclosures relate only to equity instruments in the Company or its subsidiaries. Annual Report 2015 23 Directors’ Report 30 June 2015 Shareholding The number of shares in the Company held during the financial year by each Director and other members of key management personnel of the Group, including their personally related parties, is set out below: Ordinary shares Andrew Reitzer Robbie Blau Cheryl Bart AO Graham Maloney Peter Mountford Kevin Wundram Colin Brown Andy Mulcaster David Fernandes Geoff Tipene Annie Margossian-Kenny Balance at the start of the year Received as part of remuneration Additions Disposals/ other 81,081 6,756,425 27,027 27,027 540,540 1,863,840 108,108 1,630,860 1,630,860 52,000 1,164,900 13,882,668 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – Balance at the end of the year 81,081 6,756,425 27,027 27,027 540,540 1,863,840 108,108 1,630,860 1,630,860 52,000 1,164,900 13,882,668 Option holding The number of options over ordinary shares in the Company held during the financial year by each Director and other members of key management personnel of the Group, including their personally related parties, is set out below: Options over ordinary shares Robbie Blau Kevin Wundram Andy Mulcaster David Fernandes Geoff Tipene Annie Margossian-Kenny Balance at the start of the year 3,047,619 1,250,000 911,890 677,063 375,695 539,305 6,801,572 Granted Exercised Expired/ forfeited/ other Balance at the end of the year – – – – – – – – – – – – – – – – – – – – – 3,047,619 1,250,000 911,890 677,063 375,695 539,305 6,801,572 No options were vested or forfeited during the years ending 30 June 2015 and 30 June 2014. 24 SG Fleet Group Limited Use of remuneration consultants During the 30 June 2014 financial period, the NRC engaged Egan Associates (‘Remuneration Consultant’) to provide recommendations on the level of remuneration for the Group’s KMP’s for the June 2015 financial year. The Remuneration Consultant was paid $58,905 for these services. In determining the level of remuneration for the Group’s KMP’s for the June 2016 financial period the Group conducted a remuneration benchmarking exercise internally and did not engage the services of a Remuneration Consultant. This concludes the remuneration report, which has been audited. Shares under option Unissued ordinary shares of SG Fleet Group Limited under option at the date of this report are as follows: Grant date 4 March 2014 Expiry date 30 June 2018 Exercise price Number under option $1.85 8,086,046 Shares issued on the exercise of options There were no ordinary shares of SG Fleet Group Limited issued on the exercise of options during the year ended 30 June 2015 and up to the date of this report. Indemnity and insurance of officers The Company has indemnified the Directors, executives and employees of the Company for costs incurred, in their capacity as a director, executive or employee, for which they may be held personally liable, except where there is a lack of good faith. The Company’s subsidiary, SG Fleet Australia Pty Limited on behalf of the Company paid a premium in respect of a contract to insure the Directors and executives of the Company and of any related bodies corporates defined in the insurance policy, against a liability to the extent permitted by the Corporations Act 2001. Indemnity and insurance of auditor The Company has not, during or since the end of the financial year, indemnified or agreed to indemnify the auditor of the Company or any related entity against a liability incurred by the auditor. The Company has not paid a premium in respect of a contract to insure the auditor of the Company or any related entity. Proceedings on behalf of the Company No person has applied to the Court under section 237 of the Corporations Act 2001 for leave to bring proceedings on behalf of the Company, or to 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. Non-audit services Details of the amounts paid or payable to the auditor for non-audit services provided during the financial year by the auditor are outlined in note 30 to the financial statements. The Directors are satisfied that the provision of non- audit services during the financial year, by the auditor (or by another person or firm on the auditor’s behalf), is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The Directors are of the opinion that the services as disclosed in note 30 to the financial statements do not compromise the external auditor’s independence requirements of the Corporations Act 2001 for the following reasons: • all non-audit services have been reviewed and approved to ensure that they do not impact the integrity and objectivity of the auditor; and • none of the services undermine the general principles relating to auditor independence as set out in APES 110 Code of Ethics for Professional Accountants issued by the Accounting Professional and Ethical Standards Board, including reviewing or auditing the auditor’s own work, acting in a management or decision- making capacity for the Company, acting as advocate for the Company or jointly sharing economic risks and rewards. Annual Report 2015 25 Directors’ Report 30 June 2015 Rounding of amounts The Company is of a kind referred to in Class Order 98/100, issued by the Australian Securities and Investments Commission, relating to ‘rounding- off’. Amounts in this report have been rounded off in accordance with that Class Order to the nearest thousand dollars, or in certain cases, the nearest dollar. Auditor’s independence declaration A copy of the auditor’s independence declaration as required under section 307C of the Corporations Act 2001 immediately follows this Directors’ report. Auditor KPMG were initially appointed auditors by the Directors until the first AGM of the Company. At the 2014 AGM the shareholders approved the reappointment of KPMG as auditors, who continue in office in accordance with section 327 of the Corporations Act 2001. There are no officers of the Company who are former audit partners of KPMG. This report is made in accordance with a resolution of Directors, pursuant to section 298(2)(a) of the Corporations Act 2001. On behalf of the Directors Andrew Reitzer Chairman Robbie Blau Chief Executive Officer 17 August 2015 Sydney 26 SG Fleet Group Limited ABCD ABCD Auditor’s Independence Declaration Lead Auditor’s Independence Declaration under Section 307C of the Corporations Act 2001 Lead Auditor’s Independence Declaration under Section 307C of the Corporations Act 2001 To: the directors of SG Fleet Group Limited To: the directors of SG Fleet Group Limited I declare that, to the best of my knowledge and belief, in relation to the audit for the financial I declare that, to the best of my knowledge and belief, in relation to the audit for the financial year ended 30 June 2015 there have been: year ended 30 June 2015 there have been: (i) (i) no contraventions of the auditor independence requirements as set out in the Corporations no contraventions of the auditor independence requirements as set out in the Corporations Act 2001 in relation to the audit; and Act 2001 in relation to the audit; and no contraventions of any applicable code of professional conduct in relation to the audit. no contraventions of any applicable code of professional conduct in relation to the audit. (ii) (ii) KPMG KPMG Peter Russell Peter Russell Partner Partner Sydney Sydney 17 August 2015 17 August 2015 21 21 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms KPMG, an Australian partnership and a member firm affiliated with KPMG International Cooperative of the KPMG network of independent member firms (“KPMG International”), a Swiss entity. affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. Liability limited by a scheme approved under Professional Liability limited by a scheme Standards Legislation. approved under Professional Standards Legislation. Annual Report 2015 27 Financial Report 30 June 2015 Contents Statement of Profit or Loss and Other Comprehensive Income Statement of Financial Position Statement of Changes in Equity Statement of Cash Flows Notes to the Financial Statements Directors’ Declaration Independent Auditor’s Report Shareholder Information Corporate Directory 29 30 31 32 33 68 69 71 73 28 SG Fleet Group Limited Statement of Profit or Loss and Other Comprehensive Income For the year ended 30 June 2015 Revenue Expenses Fleet management costs Employee benefits expense Occupancy costs Depreciation, amortisation and impairment Technology costs Other expenses Finance costs Profit before income tax expense Income tax expense Consolidated Year ended 30 Jun 2015 $’000 Period ended 30 Jun 2014 $’000 171,377 64,083 (44,471) (43,603) (4,056) (7,155) (3,243) (6,565) (3,518) 58,766 (18,284) (13,971) (18,737) (1,360) (1,757) (899) (2,542) (1,088) 23,729 (8,109) Note 5 6 6 7 Profit after income tax expense for the year attributable to the owners of SG Fleet Group Limited 25 40,482 15,620 Other comprehensive income Items that may be reclassified subsequently to profit or loss Foreign currency translation difference for foreign operations Effective portion of changes in fair value of cash flow hedges Other comprehensive income for the year, net of tax Total comprehensive income for the year attributable to the owners of SG Fleet Group Limited Basic earnings per share Diluted earnings per share 40 40 729 (7) 722 (336) – (336) 41,204 15,284 Cents 16.68 16.67 Cents 9.13 8.83 The above statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes Annual Report 2015 29 Statement of Financial Position As at 30 June 2015 Assets Cash and cash equivalents Finance, trade and other receivables Inventories Leased motor vehicle assets Deferred tax Property, plant and equipment Intangibles Total assets Liabilities Trade and other payables Derivative financial instruments Income tax Employee benefits provision Residual risk provision Borrowings Vehicle maintenance funds Deferred income Total liabilities Net assets Equity Issued capital Reserves Retained profits Total equity Consolidated Note 2015 $’000 2014 $’000 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 89,143 40,072 4,921 17,664 14,483 1,003 142,692 309,978 57,906 41,741 4,643 15,688 15,032 1,199 141,365 277,574 46,933 43,981 7 8,982 4,943 12,368 43,868 17,948 25,547 160,596 149,382 232,768 (118,313) 34,927 149,382 – 2,460 4,588 15,949 43,516 14,947 23,117 148,558 129,016 232,768 (119,372) 15,620 129,016 The above statement of financial position should be read in conjunction with the accompanying notes 30 SG Fleet Group Limited Contributions of equity, net of transaction costs (note 23) 232,768 Statement of Changes in Equity For the year ended 30 June 2015 Consolidated Balance at 15 January 2014 Profit after income tax expense for the period Other comprehensive income for the period, net of tax Total comprehensive income for the period Transactions with owners in their capacity as owners: Share-based payments (note 41) Group reorganisation (note 24) Balance at 30 June 2014 Consolidated Balance at 1 July 2014 Profit after income tax expense for the year Other comprehensive income for the year, net of tax Total comprehensive income for the year Transactions with owners in their capacity as owners: Share-based payments (note 41) Dividends paid (note 26) Balance at 30 June 2015 Issued capital $’000 Reserves $’000 Retained profits $’000 Total equity $’000 – – – – – – – – (336) (336) – 122 (119,158) – – 15,620 15,620 – (336) 15,620 15,284 – – – 232,768 122 (119,158) 232,768 (119,372) 15,620 129,016 Issued capital $’000 Reserves $’000 Retained profits $’000 Total equity $’000 232,768 (119,372) 15,620 129,016 – – – – – – 722 722 337 – 40,482 40,482 – 722 40,482 41,204 – 337 (21,175) (21,175) 232,768 (118,313) 34,927 149,382 The above statement of changes in equity should be read in conjunction with the accompanying notes Annual Report 2015 31 Statement of Cash Flows For the year ended 30 June 2015 Cash flows from operating activities Receipts from customers (inclusive of GST) Payments to suppliers and employees (inclusive of GST) Interest received Interest and other finance costs paid Income taxes paid Net cash from operating activities Cash flows from investing activities Proceeds from disposal of lease portfolio assets Acquisition of lease portfolio assets Payments for property, plant and equipment Payments for intangibles Net cash used in investing activities Cash flows from financing activities Proceeds from issue of shares Share issue transaction costs Proceeds from borrowings Repayment of borrowings Dividends paid Net cash received on acquisition of SG Fleet Holdings Pty Limited Net cash from/(used in) financing activities Net increase in cash and cash equivalents Cash and cash equivalents at the beginning of the financial year Effects of exchange rate changes on cash and cash equivalents Cash and cash equivalents at the end of the financial year Consolidated Year ended 30 Jun 2015 $’000 Period ended 30 Jun 2014 $’000 Note 191,231 (116,919) 1,951 (3,518) (11,213) 61,532 16,895 (24,223) (305) (1,965) (9,598) – – 13,117 (13,349) (21,175) – (21,407) 30,527 57,906 710 89,143 39 11 11 13 14 26 8 65,860 (35,174) 495 (1,518) (4,892) 24,771 5,851 (8,060) (334) (379) (2,922) 1,604 (5,824) 7,364 (6,372) – 39,285 36,057 57,906 – – 57,906 The above statement of cash flows should be read in conjunction with the accompanying notes 32 SG Fleet Group Limited Notes to the Financial Statements 30 June 2015 Note 1. General information The financial statements cover SG Fleet Group Limited as a Group consisting of SG Fleet Group Limited (the ‘Company’ or ‘parent entity’) and the subsidiaries it controlled at the end of, or during, the year (the ‘Group’). The financial statements are presented in Australian Dollars, which is SG Fleet Group Limited’s functional and presentation currency. SG Fleet Group Limited is a listed public company limited by shares, incorporated and domiciled in Australia. Its registered office and principal place of business is: Level 2, Building 3 20 Bridge Street Pymble NSW 2073 During the financial year the principal continuing activities of the Group consisted of motor vehicle fleet management and salary packaging services. The financial statements were authorised for issue, in accordance with a resolution of Directors, on 17 August 2015. The Directors have the power to amend and reissue the financial statements. Note 2. Significant accounting policies The principal accounting policies adopted in the preparation of the financial statements are set out below. These policies have been consistently applied to all the periods presented, unless otherwise stated. Basis of preparation These general purpose financial statements have been prepared in accordance with Australian Accounting Standards and Interpretations issued by the Australian Accounting Standards Board (‘AASB’) and the Corporations Act 2001, as appropriate for for-profit oriented entities. These financial statements also comply with International Financial Reporting Standards as issued by the International Accounting Standards Board (‘IASB’). Historical cost convention The financial statements have been prepared under the historical cost convention, except for derivative financial instruments at fair value. Critical accounting estimates The preparation of the financial statements requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements, are disclosed in note 3. Accounting period The current period results are for the financial year ended 30 June 2015. The comparative results are for the period from 6 March 2014, when the Company acquired SG Fleet Holdings Pty Limited and its subsidiaries, to 30 June 2014. Parent entity information In accordance with the Corporations Act 2001, these financial statements present the results of the Group only. Supplementary information about the parent entity is disclosed in note 35. Principles of consolidation The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of SG Fleet Group Limited as at 30 June 2015 and the results of all subsidiaries for the year then ended. Subsidiaries are all those entities over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct the activities of the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date that control ceases. Intercompany transactions, balances and unrealised gains on transactions between entities in the Group are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of the impairment of the asset transferred. The acquisition of common control subsidiaries is accounted for using the common control method. The acquisition of other subsidiaries is accounted for using the acquisition method of accounting. A change in ownership interest, without the loss of control, is accounted for as an equity transaction, where the difference between the consideration transferred and the book value of the share of the non-controlling interest acquired is recognised directly in equity attributable to the parent. Operating segments Operating segments are presented using the ‘management approach’, where the information presented is on the same basis as the internal reports provided to the Chief Operating Decision Makers (‘CODM’). The CODM is responsible for the allocation of resources to operating segments and assessing their performance. Foreign currency translation The financial statements are presented in Australian Dollars, which is SG Fleet Group Limited’s functional and presentation currency. Annual Report 2015 33 Notes to the Financial Statements 30 June 2015 Note 2. Significant accounting policies continued Foreign currency transactions Foreign currency transactions are translated into Australian Dollars using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at financial period-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in profit or loss. Foreign operations The assets and liabilities of foreign operations are translated into Australian Dollars using the exchange rates at the reporting date. The revenues and expenses of foreign operations are translated into Australian Dollars using the average exchange rates, which approximate the rate at the date of the transaction, for the period. All resulting foreign exchange differences are recognised in other comprehensive income through the foreign currency reserve in equity. The foreign currency reserve is recognised in profit or loss when the foreign operation or net investment is disposed of. Revenue recognition Revenue is recognised when it is probable that the economic benefit will flow to the Group and the revenue can be reliably measured. Revenue is measured at the fair value of the consideration received or receivable. Management and maintenance income Fleet management income and management fees are brought to account on a straight line basis over the term of the lease. Maintenance income is recognised on a stage of completion basis in order that profit is recognised when the services are provided. Maintenance costs are expensed as and when incurred. Additional products and services Revenue from the sale of additional products and services is recognised when it is received or when the right to receive payment is established. Funding commissions Introductory commissions earned are recognised in profit or loss in full in the month in which the finance is introduced to the relevant financier. Trailing commissions earned from financiers are recognised over the life of the lease. End of lease income Income earned after the expiry of the lease is recognised when it is received or when the right to receive payment is established. Rental income Rental income from operating leases is recognised in profit or loss on a straight line basis over the lease term. Other income Other income is recognised when it is received or when the right to receive payment is established. Interest Interest revenue is recognised as interest accrues using the effective interest method. This is a method of calculating the amortised cost of a financial asset and allocating the interest income over the relevant period using the effective interest rate, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to the net carrying amount of the financial asset. Income tax The income tax expense or benefit for the period is the tax payable on that period’s taxable income based on the applicable income tax rate for each jurisdiction, adjusted by the changes in deferred tax assets and liabilities attributable to temporary differences, unused tax losses and the adjustment recognised for prior periods, where applicable. Deferred tax assets and liabilities are recognised for temporary differences at the tax rates expected to be applied when the assets are recovered or liabilities are settled, based on those tax rates that are enacted or substantively enacted, except for: • when the deferred income tax asset or liability arises from the initial recognition of goodwill or an asset or liability in a transaction that is not a business combination and that, at the time of the transaction, affects neither the accounting nor taxable profits; or • when the taxable temporary difference is associated with interests in subsidiaries, associates or joint ventures, and the timing of the reversal can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses. The carrying amount of recognised and unrecognised deferred tax assets are reviewed at each reporting date. Deferred tax assets recognised are reduced to the extent that it is no longer probable that future taxable profits will be available for the carrying amount to be recovered. Previously unrecognised deferred tax assets are recognised to the extent that it is probable that there are future taxable profits available to recover the asset. 34 SG Fleet Group Limited Deferred tax assets and liabilities are offset only where there is a legally enforceable right to offset current tax assets against current tax liabilities and deferred tax assets against deferred tax liabilities, and they relate to the same taxable authority on either the same taxable entity or different taxable entities which intend to settle simultaneously. SG Fleet Group Limited (the ‘head entity’) and its wholly-owned Australian subsidiaries have formed an income tax consolidated group under the tax consolidation regime. The head entity and each subsidiary in the tax consolidated group continue to account for their own current and deferred tax amounts. The tax consolidated group has applied the ‘separate taxpayer within group’ approach in determining the appropriate amount of taxes to allocate to members of the tax consolidated group. In addition to its own current and deferred tax amounts, the head entity also recognises the current tax liabilities (or assets) and the deferred tax assets arising from unused tax losses and unused tax credits assumed from each subsidiary in the tax consolidated group. Assets or liabilities arising under tax funding agreements with the tax consolidated entities are recognised as amounts receivable from or payable to other entities in the tax consolidated group. The tax funding arrangement ensures that the intercompany charge equals the current tax liability or benefit of each tax consolidated group member, resulting in neither a contribution by the head entity to the subsidiaries nor a distribution by the subsidiaries to the head entity. Cash and cash equivalents Cash and cash equivalents includes cash on hand, deposits held at call with financial institutions, other short-term, highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. Finance, trade and other receivables Trade receivables are initially recognised at fair value and subsequently measured at amortised cost using the effective interest method, less any provision for impairment. For finance lease and contract purchase agreements see ‘Leases – Group as lessor’ accounting policy. Other receivables are recognised at amortised cost, less any provision for impairment. Inventories End-of-term operating lease assets are stated at the lower of cost and net realisable value. Cost comprises purchase and delivery costs, net of rebates and discounts received or receivable. Net realisable value is the lower of (i) estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale and (ii) cost less residual value provision. Derivative financial instruments Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently remeasured to their fair value at each reporting date. The accounting for subsequent changes in fair value depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged. Cash flow hedges Cash flow hedges are used to cover the Group’s exposure to variability in cash flows that is attributable to particular risks associated with a recognised asset or liability or a firm commitment which could affect profit or loss. The effective portion of the gain or loss on the hedging instrument is recognised in other comprehensive income through the hedging reserve in equity, whilst the ineffective portion is recognised in profit or loss. Amounts taken to equity are transferred out of equity and included in the measurement of the hedged transaction when the forecast transaction occurs. Cash flow hedges are tested for effectiveness on a regular basis both retrospectively and prospectively to ensure that each hedge is highly effective and continues to be designated as a cash flow hedge. If the forecast transaction is no longer expected to occur, the amounts recognised in equity are transferred to profit or loss. If the hedging instrument is sold, terminated, expires, exercised without replacement or rollover, or if the hedge becomes ineffective and is no longer a designated hedge, amounts previously recognised in equity remain in equity until the forecast transaction occurs. Annual Report 2015 35 Note 2. Significant accounting policies continued Property, plant and equipment Plant and equipment is stated at historical cost less accumulated depreciation and impairment. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Depreciation is calculated on a straight-line basis to write off the net cost of each item of property, plant and equipment over their expected useful lives as follows: Leasehold improvements Fixtures and fittings Motor vehicles five years three to eight years four years The residual values, useful lives and depreciation methods are reviewed, and adjusted if appropriate, at each reporting date. Leasehold improvements are depreciated over the unexpired period of the lease or the estimated useful life of the assets, whichever is shorter. An item of property, plant and equipment is derecognised upon disposal or when there is no future economic benefit to the Group. Gains and losses between the carrying amount and the disposal proceeds are taken to profit or loss. For leased motor vehicles see ‘Leases – Group as lessor – leased motor vehicles assets’ accounting policy. Leases Group as lessee The determination of whether an arrangement is or contains a lease is based on the substance of the arrangement and requires an assessment of whether the fulfilment of the arrangement is dependent on the use of a specific asset or assets and the arrangement conveys a right to use the asset. A distinction is made between finance leases, which effectively transfer from the lessor to the lessee substantially all the risks and benefits incidental to ownership of leased assets, and operating leases, under which the lessor effectively retains substantially all such risks and benefits. Finance leases are capitalised. A lease asset and liability are established at the fair value of the leased assets, or if lower, the present value of minimum lease payments. Lease payments are allocated between the principal component of the lease liability and the finance costs, so as to achieve a constant rate of interest on the remaining balance of the liability. Leased assets acquired under a finance lease are depreciated over the asset’s useful life or over the shorter of the asset’s useful life and the lease term if there is no reasonable certainty that the Group will obtain ownership at the end of the lease term. Operating lease payments, net of any incentives received from the lessor, are charged to profit or loss on a straight-line basis over the term of the lease. Group as lessor Amounts due from customers under finance leases and contract purchase agreements are recorded as receivables. Finance and contract purchase receivables are initially recognised at an amount equal to the present value of the minimum instalment payment receivable plus the present value of any unguaranteed residual value expected to accrue at the end of the contract term. Interest income is allocated to accounting periods so as to reflect a constant periodic rate of return on the Group’s net investment outstanding in respect of the contracts. Group as lessor – leased motor vehicles assets Full maintenance lease assets are stated at historical cost less accumulated depreciation. The cost of full maintenance lease assets includes the purchase cost including non-refundable purchase taxes and other expenditure that is directly attributable to the acquisition of the assets to bring the assets held-for-use in the lease asset portfolio to working condition for the intended use. The depreciable amount of the asset is depreciated over its estimated useful life of seven years on a straight-line basis. Lease rentals receivable and payable on operating leases are recognised in profit or loss in periodic amounts over the effective lease term on a straight line basis. Intangible assets Intangible assets acquired as part of a business combination, other than goodwill, are initially measured at their fair value at the date of the acquisition. Intangible assets acquired separately are initially recognised at cost. Indefinite life intangible assets are not amortised and are subsequently measured at cost less any impairment. Finite life intangible assets are subsequently measured at cost less amortisation and any impairment. The gains or losses recognised in profit or loss arising from the derecognition of intangible assets are measured as the difference between net disposal proceeds and the carrying amount of the intangible asset. The method and useful lives of finite life intangible assets are reviewed annually. Changes in the expected pattern of consumption or useful life are accounted for prospectively by changing the amortisation method or period. 36 SG Fleet Group Limited Notes to the Financial Statements30 June 2015 Goodwill Where an entity or operation is acquired in a business combination, that is not a common control transaction, the identifiable net assets acquired are measured at fair value. The excess of the fair value of the cost of the acquisition over the fair value of the identifiable net assets acquired is brought to account as goodwill. Goodwill is not amortised. Instead, goodwill is tested annually for impairment, or more frequently if events or changes in circumstances indicate that it might be impaired, and is carried at cost less accumulated impairment losses. Impairment losses on goodwill are taken to profit or loss and are not subsequently reversed. Customer contracts Customer contracts are assessed as having an indefinite life. Indefinite life customer contracts are not amortised. Instead they are tested annually for impairment, or more frequently if events or changes in circumstances indicate that they might be impaired, and are carried at cost less accumulated impairment losses. Software Significant costs associated with software are deferred and amortised on a straight-line basis over the period of their expected benefit, being their finite useful lives of between two and eight years. Impairment of non-financial assets Goodwill and other intangible assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment, or more frequently if events or changes in circumstances indicate that they might be impaired. Other non-financial assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. Recoverable amount is the higher of an asset’s fair value less costs of disposal and value-in-use. The value-in-use is the present value of the estimated future cash flows relating to the asset using a pre-tax discount rate specific to the asset or cash-generating unit to which the asset belongs. Assets that do not have independent cash flows are grouped together to form a cash-generating unit. Trade and other payables These amounts represent liabilities for goods and services provided to the Group prior to the end of the financial year and which are unpaid. Due to their short-term nature they are measured at amortised cost and are not discounted. The amounts are unsecured and are usually paid within 30 days of recognition. Borrowings Loans and borrowings are initially recognised at the fair value of the consideration received, net of transaction costs. They are subsequently measured at amortised cost using the effective interest method. Maintenance deferred income liability Income is measured by reference to the stage of completion based on the proportion that the maintenance costs incurred to date bear to the estimated costs of completion of the contract lease. Deferred income is recognised based on the differences in maintenance fee derived in accordance with the contract billing cycle and income based on stage of completion by reference to costs incurred. Finance costs Finance costs attributable to qualifying assets are capitalised as part of the asset. All other finance costs are expensed in the period in which they are incurred. Provisions Provisions are recognised when the Group has a present (legal or constructive) obligation as a result of a past event, it is probable the Group will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the reporting date, taking into account the risks and uncertainties surrounding the obligation. If the time value of money is material, provisions are discounted using a current pre-tax rate specific to the liability. The increase in the provision resulting from the passage of time is recognised as a finance cost. Residual values The Group has entered into various agreements with its financiers that govern the transfer of the residual value risk inherent in operating lease assets from the financier to the Group at the end of the underlying lease agreement. These agreements include put/call options, sale direction deeds and guaranteed buyback arrangements. The residual value provision is created on an onerous pool basis to cover future shortfalls on the disposal of these vehicles. Assets are grouped into homogenous groups which are then analysed further into maturity pools. A provision is raised for a maturity pool if the forecast loss on disposal of the assets in the pool exceeds the future fee income that the pool will generate between the reporting date and the maturity date. Maturity pools in a net profit position are not offset against maturity pools in a net loss position. Annual Report 2015 37 Note 2. Significant accounting policies continued Employee benefits Short-term employee benefits Employee benefits expected to be settled within 12 months of the reporting date are measured at the amounts expected to be paid when the liabilities are settled. Other long-term employee benefits The liability for employee benefits not expected to be settled within 12 months of the reporting date is measured as the present value of expected future payments to be made in respect of services provided by employees up to the reporting date using the projected unit credit method. Consideration is given to expected future wage and salary levels, experience of employee departures and periods of service. Expected future payments are discounted using market yields at the reporting date based on high quality corporate bonds with terms to maturity and currency that match, as closely as possible, the estimated future cash outflows. Defined contribution superannuation expense Contributions to defined contribution superannuation plans are expensed in the period in which they are incurred. Share-based payments Equity-settled share-based compensation benefits are provided to employees. Equity-settled transactions are awards of shares, or options over shares, that are provided to employees in exchange for the rendering of services. The cost of equity-settled transactions are measured at fair value on grant date. Fair value is independently determined using either the Binomial or Black-Scholes option pricing model that takes into account the exercise price, the term of the option, the impact of dilution, the share price at grant date and expected price volatility of the underlying share, the expected dividend yield and the risk free interest rate for the term of the option, together with non-vesting conditions that do not determine whether the Group receives the services that entitle the employees to receive payment. No account is taken of any other vesting conditions. The cost of equity-settled transactions are recognised as an expense with a corresponding increase in equity over the vesting period. The cumulative charge to profit or loss is calculated based on the grant date fair value of the award, the best estimate of the number of awards that are likely to vest and the expired portion of the vesting period. The amount recognised in profit or loss for the period is the cumulative amount calculated at each reporting date less amounts already recognised in previous periods. 38 SG Fleet Group Limited Market conditions are taken into consideration in determining fair value. Therefore any awards subject to market conditions are considered to vest irrespective of whether or not that market condition has been met, provided all other conditions are satisfied. If equity-settled awards are modified, as a minimum an expense is recognised as if the modification has not been made. An additional expense is recognised, over the remaining vesting period, for any modification that increases the total fair value of the share-based compensation benefit as at the date of modification. If the non-vesting condition is within the control of the Group or employee, the failure to satisfy the condition is treated as a cancellation. If the condition is not within the control of the Group or employee and is not satisfied during the vesting period, any remaining expense for the award is recognised over the remaining vesting period, unless the award is forfeited. If equity-settled awards are cancelled, it is treated as if it has vested on the date of cancellation, and any remaining expense is recognised immediately. If a new replacement award is substituted for the cancelled award, the cancelled and new award are treated as if they were a modification. Fair value measurement When an asset or liability, financial or non-financial, is measured at fair value for recognition or disclosure purposes, the fair value is based on 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; and assumes that the transaction will take place either: in the principal market; or in the absence of a principal market, in the most advantageous market. Fair value is measured using the assumptions that market participants would use when pricing the asset or liability, assuming they act in their economic best interest. For non-financial assets, the fair value measurement is based on its highest and best use. Valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, are used, maximising the use of relevant observable inputs and minimising the use of unobservable inputs. Assets and liabilities measured at fair value are classified, into three levels, using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. Classifications are reviewed each reporting date and transfers between levels are determined based on a reassessment of the lowest level input that is significant to the fair value measurement. Notes to the Financial Statements30 June 2015For recurring and non-recurring fair value measurements, external valuers may be used when internal expertise is either not available or when the valuation is deemed to be significant. External valuers are selected based on market knowledge and reputation. Where there is a significant change in fair value of an asset or liability from one period to another, an analysis is undertaken, which includes a verification of the major inputs applied in the latest valuation and a comparison, where applicable, with external sources of data. Issued capital 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. Dividends Dividends are recognised when declared during the financial year and are no longer at the discretion of the Company. Earnings per share Basic earnings per share Basic earnings per share is calculated by dividing the profit attributable to the owners of SG Fleet Group Limited, excluding any costs of servicing equity other than ordinary shares, by the weighted average number of ordinary shares outstanding during the financial year, adjusted for bonus elements in ordinary shares issued during the financial year. Diluted earnings per share Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account the after income tax effect of interest and other financing costs associated with dilutive potential ordinary shares and the weighted average number of shares assumed to have been issued for no consideration in relation to dilutive potential ordinary shares. Rounding of amounts The Company is of a kind referred to in Class Order 98/100, issued by the Australian Securities and Investments Commission, relating to ‘rounding- off’. Amounts in this report have been rounded off in accordance with that Class Order to the nearest thousand dollars, or in certain cases, the nearest dollar. New Accounting Standards and Interpretations not yet mandatory or early adopted Australian Accounting Standards and Interpretations that have recently been issued or amended but are not yet mandatory, have not been early adopted by the Group for the annual reporting period ended 30 June 2015. The Group’s assessment of the impact of these new or amended Accounting Standards and Interpretations, most relevant to the Group, are set out below. AASB 9 Financial Instruments This standard is applicable to annual reporting periods beginning on or after 1 January 2018. The standard replaces all previous versions of AASB 9 and completes the project to replace IAS 39 ‘Financial Instruments: Recognition and Measurement’. AASB 9 introduces new classification and measurement models for financial assets. New hedge accounting requirements are intended to more closely align the accounting treatment with the risk management activities of the entity. New impairment requirements will use an ‘expected credit loss’ (‘ECL’) model to recognise an allowance. The Group will adopt this standard from 1 July 2018 but the impact of its adoption is not likely to be material. AASB 15 Revenue from Contracts with Customers This standard is currently applicable to annual reporting periods beginning on or after 1 January 2017. Exposure Draft (ED 263) ‘Effective Date of AASB 15’ proposes to defer the application date by one year (1 January 2018). The standard provides a single standard for revenue recognition. The core principle of the standard is that an entity will recognise revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services). The Group expects to adopt this standard from 1 July 2018 but the impact of its adoption is yet to be assessed by the Group. Note 3. Critical accounting judgements, estimates and assumptions The preparation of the financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts in the financial statements. Management continually evaluates its judgements and estimates in relation to assets, liabilities, contingent liabilities, revenue and expenses. Management bases its judgements, estimates and assumptions on historical experience and on other various factors, including expectations of future events, management believes to be reasonable under the circumstances. The resulting accounting judgements and estimates will seldom equal the related actual results. The judgements, estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities (refer to the respective notes) within the next financial year are discussed below. Annual Report 2015 39 Note 3. Critical accounting judgements, estimates and assumptions continued Revenue from maintenance income As discussed in note 2, the Group estimates the maintenance income on a stage of completion approach. These calculations require the use of assumptions, including an estimation of the stage of completion and the profit margin to be achieved over the life of the contract. or expense when a contingency is released could have resulted in the Exit Fee and the employee expenses being recognised before the formation of the SG Fleet Group (i.e. by anticipating the consummation of the transaction). If the Exit Fee and employee expenses had been recognised as transactions of the pre-formation period, the impact would have been to reduce net profit for the period ended 30 June 2014 by $1,424,000. Goodwill and other indefinite life intangible assets The Group tests annually, or more frequently if events or changes in circumstances indicate impairment, whether goodwill and other indefinite life intangible assets have suffered any impairment, in accordance with the accounting policy stated in note 2. The recoverable amounts of cash-generating units, to which these assets belong, have been determined based on valu-in-use calculations. These calculations require the use of assumptions, including estimated discount rates based on the current cost of capital and growth rates of the estimated future cash flows. Residual values As discussed in note 2, the Group has entered into various agreements with its financiers relating to residual value risk inherent in operating lease assets being transferred to the Group at the end of the underlying lease agreement. A provision is raised where the forecast loss on disposal of the assets in the pool exceeds the expected future fee income that the pool will generate. The expected future income is estimated based on past experience and likely market conditions at the time of disposal of the assets. IPO Exit Fee and Bonus Shares and Bonus Payments expense (comparative period) As part of the Initial Public Offering (‘IPO’) that occurred in comparative period ended 30 June 2014, the Group received an Exit Fee from the Exiting Shareholders in compensation for the services performed by management in pursuing the IPO. The services to the Exiting Shareholders were mainly performed in the period preceding the IPO, but the Exit Fee was conditional upon the completion of the transactions that resulted in the formation of SG Fleet Group Limited and its subsidiaries (‘SG Fleet Group’). Therefore the Exit Fee and associated bonus shares and bonus payments (‘the employee expenses’) that were conditional upon the IPO were recognised in profit or loss of the newly formed SG Fleet Group in the period from 6 March 2014 to 30 June 2014. The Directors believe that the recognition of the above transactions in the prior period was appropriate. However, the Directors note that an alternative interpretation of when to recognise items of income The Directors note that the alternative interpretation would have no impact on the pro forma net profit for the period ended 30 June 2014 (as presented in the Chief Executive Officer’s Report in the 2014 Annual Report), the net profit for the year ended 30 June 2015 or the retained earnings as at 30 June 2015 or 30 June 2014. Transaction costs on the issue of shares (comparative period) In the period ended 30 June 2014, $5,824,000 of transaction costs, net of tax, associated with the issue of new shares were deducted from equity in accordance with the Group’s accounting policies. An alternative interpretation of AASB 132 ‘Financial Instruments: Presentation’ would be that transaction costs associated with the issue of new shares that replace existing shares should be expensed in profit or loss and not treated as a deduction in equity. Under this alternative interpretation, transaction costs should be apportioned between equity and expense where they cover both the issue of new shares and the replacement of existing shares. If the Group had adopted the alternative interpretation, $3,635,000 of post-tax transaction costs would have been expensed in profit or loss for the period 6 March 2014 to 30 June 2014 reducing profit after income tax from $15,620,000 to $11,985,000. The balance of $2,189,000 in post-tax transaction costs would have been recognised as a pre-acquisition expense in the profit or loss prior to 6 March 2014 and would thus have resulted in a reduction in retained earnings and an increase in issued capital of $2,189,000. The alternative interpretation would have no impact on the net assets of the Group as at 30 June 2014 as the issued capital would have increased by an amount equal to the reduction in retained earnings resulting in total equity remaining unchanged at $129,016,000. The Directors note that the alternative interpretation would have no impact on the pro forma net profit for the period ended 30 June 2014 (as presented in the Chief Executive Officer’s Report in the 2014 Annual Report) or the net profit for the year ended 30 June 2015. 40 SG Fleet Group Limited Notes to the Financial Statements30 June 2015Note 4. Operating segments Identification of reportable operating segments The Group is organised into geographic operating segments: Australia, New Zealand, United Kingdom and Corporate. These operating segments are based on the internal reports that are reviewed and used by the Board of Directors (who are identified as the Chief Operating Decision Makers (‘CODM’)) in assessing performance and in determining the allocation of resources. There is no aggregation of operating segments. The CODM reviews EBITDA (earnings before interest, tax, depreciation and amortisation). The accounting policies adopted for internal reporting to the CODM are consistent with those adopted in the financial statements. Prior year balances have been reclassified from Corporate segment into Australia segment to reflect how the balances are monitored by the CODM. Intersegment receivables, payables and loans Intersegment loans are initially recognised at the consideration received. Intersegment loans receivable and loans payable that earn or incur non-market interest are not adjusted to fair value based on market interest rates. Intersegment loans are eliminated on consolidation. Major customers There are no major customers that contributed more than 10% of revenue to the Group. Operating segment information Australia $’000 New Zealand $’000 United Kingdom $’000 Corporate $’000 Intersegment eliminations/ unallocated $’000 Total $’000 Consolidated – Year ended 30 Jun 2015 Revenue Sales to external customers 162,078 2,596 5,106 Interest Total revenue EBITDA Depreciation and amortisation Finance costs Profit/(loss) before income tax expense Income tax expense Profit after income tax expense Assets Segment assets Total assets Liabilities Segment liabilities Total liabilities 1,916 24 163,994 2,620 69,033 (3,978) (580) 263 (643) (3) 9 5,115 1,140 (2,477) (273) – 2 2 (1,012) (57) (2,647) (354) 169,426 – 1,951 (354) 171,377 15 – (15) 69,439 (7,155) (3,518) 64,475 (383) (1,610) (3,716) – 58,766 287,558 6,261 16,159 148,573 3,293 8,730 – – – – (18,284) 40,482 309,978 309,978 160,596 160,596 Annual Report 2015 41 Note 4. Operating segments continued Australia $’000 New Zealand $’000 United Kingdom $’000 Corporate $’000 Intersegment eliminations/ unallocated $’000 Consolidated – Period ended 30 Jun 2014 Total $’000 63,588 495 64,083 26,574 (1,757) (1,088) 23,729 (8,109) 15,620 52,961 480 53,441 18,442 (809) (374) 746 12 758 89 (189) – 1,838 8,043 3 1,841 626 (759) (67) – 8,043 7,407 – (637) 17,259 (100) (200) 6,770 – – – 10 – (10) – 258,638 4,510 14,426 141,292 987 6,279 – – – 277,574 277,574 – 148,558 148,558 Consolidated Year ended 30 Jun 2015 $’000 Period ended 30 Jun 2014 $’000 63,970 48,771 29,305 11,275 10,819 5,286 – 20,156 16,938 8,556 4,285 3,489 2,024 8,140 169,426 63,588 1,951 495 171,377 64,083 Revenue Sales to external customers Interest Total revenue EBITDA Depreciation and amortisation Finance costs Profit/(loss) before income tax expense Income tax expense Profit after income tax expense Assets Segment assets Total assets Liabilities Segment liabilities Total liabilities Note 5. Revenue Sales revenue Management and maintenance income Additional products and services Funding commissions End of lease income Rental income Other income Initial public offering – exit fee Other revenue Interest Revenue 42 SG Fleet Group Limited Notes to the Financial Statements30 June 2015Note 6. Expenses Profit before income tax includes the following specific expenses: Depreciation Leasehold improvements Fixtures and fittings Motor vehicles Leased motor vehicle assets Total depreciation Amortisation Software Total depreciation and amortisation Impairment Intangibles – customer contracts Finance costs External borrowing costs for corporate debt External borrowing costs for lease portfolio Net foreign exchange losses Total finance costs Rental expense relating to operating leases Minimum lease payments Superannuation expense Consolidated Year ended 30 Jun 2015 $’000 Period ended 30 Jun 2014 $’000 7 431 59 6,020 6,517 581 7,098 57 2,664 765 89 3,518 3 149 19 1,407 1,578 179 1,757 – 637 262 189 1,088 4,648 1,526 Defined contribution superannuation expense 3,136 982 Annual Report 2015 43 Note 7. Income tax expense Income tax expense Current tax Deferred tax – origination and reversal of temporary differences Aggregate income tax expense Deferred tax included in income tax expense comprises: Decrease in deferred tax assets (note 12) Numerical reconciliation of income tax expense and tax at the statutory rate Profit before income tax expense Tax at the statutory tax rate of 30% Tax effect amounts which are not deductible/(taxable) in calculating taxable income: Entertainment expenses Non-deductible expenses Assessed loss Preference share dividends Bonus shares Current year tax losses not recognised Difference in overseas tax rates Income tax expense Amounts credited directly to equity Deferred tax assets (note 12) Tax losses not recognised Unused tax losses for which no deferred tax asset has been recognised Potential tax benefit at the statutory tax rate of 30% Consolidated Year ended 30 Jun 2015 $’000 Period ended 30 Jun 2014 $’000 17,735 549 18,284 7,032 1,077 8,109 549 1,077 58,766 17,630 23,729 7,119 43 18 – – – 17,691 437 156 – 11 84 (129) 1,019 8,104 – 5 18,284 8,109 – (2,417) 11,911 3,573 9,603 2,881 The above potential tax benefit for tax losses, relating to United Kingdom and New Zealand, has not been recognised in the statement of financial position. 44 SG Fleet Group Limited Notes to the Financial Statements30 June 2015Note 8. Cash and cash equivalents Cash at bank Secured deposits Amount expected to be recovered within 12 months Consolidated 2015 $’000 79,210 9,933 89,143 89,143 2014 $’000 45,352 12,554 57,906 57,906 Secured deposits represents cash held by the Group as required under the funding arrangement between the Group and the financiers under its lease portfolio facilities and are not available as free cash for the purpose of operations of the Group. Note 9. Finance, trade and other receivables Trade receivables Less: Provision for impairment of receivables Prepayments Finance lease receivables Amount expected to be recovered within 12 months Amount expected to be recovered after more than 12 months Impairment of receivables The ageing of the impaired receivables provided for above are within one year overdue. Movements in the provision for impairment of receivables are as follows: Opening balance Additions through group reorganisation Unused amounts reversed Closing balance Impairment of receivables are charged (or credited) to other expenses in profit or loss. Consolidated 2014 $’000 34,776 (56) 34,720 6,866 155 41,741 41,711 30 41,741 Consolidated 2014 $’000 – 74 (18) 56 2015 $’000 33,102 (40) 33,062 6,954 56 40,072 40,062 10 40,072 2015 $’000 56 – (16) 40 Annual Report 2015 45 Note 9. Finance, trade and other receivables continued Past due but not impaired Customers with balances past due but without provision for impairment of receivables amount to $257,000 as at 30 June 2015 ($nil as at 30 June 2014). The ageing of the past due but not impaired receivables are as follows: Within one year overdue Finance lessor commitments Committed at the reporting date and recognised as assets, receivable: Within one year One to five years Total commitment Less: Future finance charges Net commitment recognised as assets Note 10. Inventories End-of-term operating lease assets held for disposal Amount expected to be recovered within 12 months Consolidated 2015 $’000 257 2014 $’000 – Consolidated 2015 $’000 2014 $’000 53 10 63 (7) 56 130 31 161 (6) 155 Consolidated 2015 $’000 4,921 4,921 2014 $’000 4,643 4,643 46 SG Fleet Group Limited Notes to the Financial Statements30 June 2015Note 11. Leased motor vehicle assets Lease portfolio assets – at cost Less: Accumulated depreciation Less: Impairment Amount expected to be recovered within 12 months Amount expected to be recovered after more than 12 months Consolidated 2015 $’000 26,929 (8,813) (452) 17,664 6,064 11,600 17,664 2014 $’000 25,974 (9,814) (472) 15,688 8,465 7,223 15,688 Reconciliations Reconciliations of the written down values at the beginning and end of the current and previous financial year are set out below: Consolidated Balance at 15 January 2014 Additions Additions through group reorganisation Disposals Exchange differences Depreciation expense Balance at 30 June 2014 Additions Disposals Revaluation increments Exchange differences Depreciation expense Balance at 30 June 2015 Leased assets $’000 – 8,060 15,102 (5,851) (216) (1,407) 15,688 24,223 (16,895) 61 607 (6,020) 17,664 Total $’000 – 8,060 15,102 (5,851) (216) (1,407) 15,688 24,223 (16,895) 61 607 (6,020) 17,664 Annual Report 2015 47 Note 12. Deferred tax Deferred tax asset comprises temporary differences attributable to: Amounts recognised in profit or loss: Property, plant and equipment Employee benefits Deferred expenses Provisions Doubtful debts Deferred income Prepayments Accrued expenses Amounts recognised in equity: Transaction costs on share issue Deferred tax asset Amount expected to be recovered after more than 12 months Movements: Opening balance Charged to profit or loss (note 7) Credited to equity (note 7) Additions through group reorganisation Closing balance Consolidated 2015 $’000 2014 $’000 85 1,451 1,608 3,741 240 6,429 (1,824) 2,753 405 1,348 (154) 4,816 235 5,417 (1,793) 2,341 14,483 12,615 – 14,483 14,483 15,032 (549) – – 14,483 2,417 15,032 15,032 – (1,077) 2,417 13,692 15,032 48 SG Fleet Group Limited Notes to the Financial Statements30 June 2015Note 13. Property, plant and equipment Leasehold improvements – at cost Less: Accumulated depreciation Fixtures and fittings – at cost Less: Accumulated depreciation Motor vehicles – at cost Less: Accumulated depreciation Amount expected to be recovered after more than 12 months Consolidated 2015 $’000 679 (660) 19 2,851 (1,960) 891 220 (127) 93 1,003 1,003 2014 $’000 679 (653) 26 2,535 (1,519) 1,016 233 (76) 157 1,199 1,199 Reconciliations Reconciliations of the written down values at the beginning and end of the current and previous financial year are set out below: Consolidated Balance at 15 January 2014 Additions Additions through group reorganisation Exchange differences Depreciation expense Balance at 30 June 2014 Additions Exchange differences Depreciation expense Balance at 30 June 2015 Leasehold improvements $’000 Fixtures and fittings $’000 Motor vehicles $’000 – – 29 – (3) 26 – – (7) 19 – 334 831 – (149) 1,016 305 1 (431) 891 – – 178 (2) (19) 157 – (5) (59) 93 Total $’000 – 334 1,038 (2) (171) 1,199 305 (4) (497) 1,003 Annual Report 2015 49 Note 14. Intangibles Goodwill – at cost Customer contracts – at cost Less: Impairment Software – at cost Less: Accumulated amortisation Amount expected to be recovered after more than 12 months Consolidated 2015 $’000 2014 $’000 136,460 136,460 706 (57) 649 6,690 (1,107) 5,583 706 – 706 4,725 (526) 4,199 142,692 142,692 141,365 141,365 Reconciliations Reconciliations of the written down values at the beginning and end of the current and previous financial year are set out below: Consolidated Balance at 15 January 2014 Additions Additions through group reorganisation Amortisation expense Balance at 30 June 2014 Additions Impairment of assets Amortisation expense Balance at 30 June 2015 Goodwill $’000 – – 136,460 – 136,460 – – – 136,460 Customer contracts $’000 Software $’000 – – 706 – 706 – (57) – 649 – 379 3,999 (179) 4,199 1,965 – (581) 5,583 Total $’000 – 379 141,165 (179) 141,365 1,965 (57) (581) 142,692 Goodwill acquired through business combinations have been allocated to the following cash-generating segment: Consolidated 2015 $’000 2014 $’000 136,460 136,460 Australia 50 SG Fleet Group Limited Notes to the Financial Statements30 June 2015Impairment testing for goodwill The impairment test was based on a value-in-use approach. The recoverable amount was determined to be higher than the carrying amount and therefore no impairment loss was recognised. Value-in-use was determined by discounting the future cash flows based on the following key assumptions: • cash flows were projected based on actual operating results and the four-year business plan. Cash flow beyond Year 4 was projected at a growth rate of 0% (2014: 0%); • 7.5% (2014: 7.6%) per annum projected revenue growth rate; • direct costs were forecast based on the margins historically achieved by the business; • overheads were forecast based on current levels adjusted for inflationary increases; and • the Company’s pre-tax weighted average cost of capital was applied in determining the recoverable amount. The discount rate of 11.70% (2014: 11.87%) was estimated using the Capital Asset Pricing model. The values assigned to the key assumptions represent management’s assessment of future trends in the industry and are based on both external and internal data sources. Sensitivity analysis Management estimates that any reasonable changes in the key assumptions would not have a significant impact on the value-in-use of intangible assets and goodwill that would require the assets to be impaired. Note 15. Trade and other payables Trade payables Accrued expenses Residual values payable to financiers Amount expected to be settled within 12 months Consolidated 2015 $’000 33,626 7,785 5,522 46,933 46,933 2014 $’000 33,812 6,628 3,541 43,981 43,981 Refer to note 27 for further information on financial instruments. The residual values payable to financiers are secured by the underlying operating lease asset as well as by bank guarantees and a cash lock-up of $9,933,000 (2014: $8,554,000). Note 16. Derivative financial instruments Interest rate swap contracts – cash flow hedges Amount expected to be settled after more than 12 months Refer to note 27 for further information on financial instruments. Refer to note 28 for further information on fair value measurement. Consolidated 2015 $’000 7 7 2014 $’000 – – Annual Report 2015 51 Note 17. Income tax Provision for income tax Amount expected to be settled within 12 months Note 18. Employee benefits provision Annual leave Long service leave Amount expected to be settled within 12 months Amount expected to be settled after more than 12 months Note 19. Residual risk provision Residual risk Amount expected to be settled within 12 months Amount expected to be settled after more than 12 months Consolidated 2014 $’000 2,460 2,460 Consolidated 2014 $’000 2,453 2,135 4,588 2,453 2,135 4,588 Consolidated 2014 $’000 15,949 3,555 12,394 15,949 2015 $’000 8,982 8,982 2015 $’000 2,457 2,486 4,943 2,457 2,486 4,943 2015 $’000 12,368 4,159 8,209 12,368 Residual risk provision The provision is to recognise the future liability relating to residual value exposures as described in notes 2 and 3. Movements in provisions Movements in the provision during the current financial period is set out below: Consolidated – 2015 Carrying amount at the start of the year Residual value losses debited to the provision Exchange differences Carrying amount at the end of the year 52 SG Fleet Group Limited Residual risk $’000 15,949 (3,588) 7 12,368 Notes to the Financial Statements30 June 2015Note 20. Borrowings Bank loans Lease portfolio liabilities Amount expected to be settled within 12 months Amount expected to be settled after more than 12 months Refer to note 27 for further information on financial instruments. Total secured liabilities The total secured liabilities are as follows: Bank loans Lease portfolio liabilities Assets pledged as security Assets pledged as security for borrowings are: Consolidated 2014 $’000 32,250 11,266 43,516 7,877 35,639 43,516 Consolidated 2014 $’000 32,250 11,266 43,516 2015 $’000 32,250 11,618 43,868 6,162 37,706 43,868 2015 $’000 32,250 11,618 43,868 Banking facilities The banking facility is secured by guarantees and indemnities as well as fixed and floating charges or composite guarantees and debentures issued by the Group. The facility is repayable by way of a bullet payment of $32,250,000 in November 2018. Lease portfolio liabilities The lease portfolio liabilities are secured by the underlying funded assets and lease agreements, together with irrevocable letter of credit, cash lock-ups and guarantees. These facilities are interest bearing and are repaid on a transactional basis as and when the underlying assets are disposed of. Residual values payable to financiers Refer to note 15 for security to financiers of residual value payables. Annual Report 2015 53 Note 20. Borrowings continued Financing arrangements Unrestricted access was available at the reporting date to the following lines of credit: Total facilities Banking facilities Lease portfolio facilities Used at the reporting date Banking facilities Lease portfolio facilities Unused at the reporting date Banking facilities Lease portfolio facilities Note 21. Vehicle maintenance funds Vehicle maintenance funds Amount expected to be settled within 12 months Amount expected to be settled after more than 12 months Note 22. Deferred income Deferred income Amount expected to be settled within 12 months Amount expected to be settled after more than 12 months 54 SG Fleet Group Limited Consolidated 2015 $’000 2014 $’000 56,742 40,714 97,456 49,157 11,617 60,774 7,585 29,097 36,682 2015 $’000 17,948 5,946 12,002 17,948 2015 $’000 25,547 4,117 21,430 25,547 40,314 33,561 73,875 34,061 11,266 45,327 6,253 22,295 28,548 Consolidated 2014 $’000 14,947 5,015 9,932 14,947 Consolidated 2014 $’000 23,117 3,504 19,613 23,117 Notes to the Financial Statements30 June 2015Note 23. Equity – issued capital Ordinary shares – fully paid 242,691,826 242,691,826 232,768 232,768 Consolidated 2015 Shares 2014 Shares 2015 $’000 2014 $’000 Movements in ordinary share capital Details Balance Date Shares $’000 15 January 2014 2 Shares issued on acquisition of SG Fleet Holdings Pty Limited 6 March 2014 139,102,135 Issue of shares on Initial Public Offering Bonus shares issued to employees Transaction costs Balance Balance 6 March 2014 101,943,359 6 March 2014 1,646,330 – 30 June 2014 242,691,826 30 June 2015 242,691,826 – 46,951 188,595 3,046 (5,824) 232,768 232,768 Ordinary shares Ordinary shares entitle the holder to participate in dividends and the proceeds on the winding up of the Company in proportion to the number of and amounts paid on the shares held. The fully paid ordinary shares have no par value and the Company does not have a limited amount of authorised capital. On a show of hands every member present at a meeting in person or by proxy shall have one vote and upon a poll each share shall have one vote. Share buy-back There is no current on-market share buy-back. Capital risk management The Group’s objectives when managing capital are to safeguard its ability to continue as a going concern, so that it can provide returns for shareholders and benefits for other stakeholders and to maintain an optimum capital structure to reduce the cost of capital. The Group monitors capital on the basis of its gearing ratio. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debts. The Group is subject to certain financing arrangements covenants and meeting these are given priority in all capital risk management decisions. There have been no events of default on the financing arrangements during the financial period. The capital risk management policy remains unchanged from the 30 June 2014 Annual Report. Annual Report 2015 55 Note 24. Equity – reserves Foreign currency reserve Hedging reserve – cash flow hedges Share-based payments reserve Capital reserve Consolidated 2015 $’000 393 (7) 459 2014 $’000 (336) – 122 (119,158) (118,313) (119,158) (119,372) Foreign currency reserve The reserve is used to recognise exchange differences arising from translation of the financial statements of foreign operations to Australian Dollars. Hedging reserve – cash flow hedges The reserve is used to recognise the effective portion of the gain or loss of cash flow hedge instruments that is determined to be an effective hedge. Share-based payments reserve The reserve is used to recognise the value of equity benefits provided to employees and Directors as part of their remuneration, and other parties as part of their compensation for services. Capital reserve The reserve is used to recognise contributions from or to SG Fleet Group Limited and its controlled subsidiaries by shareholders. Group reorganisation – SG Fleet Group Limited and SG Fleet Holdings Pty Limited (comparative period) When SG Fleet Solutions Pty Limited, a subsidiary of SG Fleet Group Limited (the legal parent and legal acquirer), acquired SG Fleet Holdings Pty Limited and its subsidiaries (the legal subsidiary), effective 6 March 2014, the acquisition did not meet the definition of a business combination in accordance with AASB 3 ‘Business Combinations’. Instead, the combination was treated as a group reorganisation, through an accounting policy choice using the common control method, as follows: • The assets and liabilities of the combining entities were reflected at their carrying amounts. No adjustments was made to reflect fair values, or recognise any new assets or liabilities, that would otherwise be required under AASB 3; • No ‘new’ goodwill was recognised as a result of the combination. The only goodwill that was recognised was the existing goodwill of SG Holdings Pty Limited. The difference between the consideration paid of $232,768,000 and the equity ‘acquired’ of $113,610,000 was reflected in equity as a ‘capital reserve’ of $119,158,000; and • The statement of profit or loss and other comprehensive income for the comparative period reflects the results of the combined entities from 6 March 2014 to 30 June 2014. 56 SG Fleet Group Limited Notes to the Financial Statements30 June 2015Movements in reserves Movements in each class of reserve during the current and previous financial year are set out below: Consolidated Balance at 15 January 2014 Foreign currency translation Share-based payments Group reorganisation Balance at 30 June 2014 Foreign currency translation Movement in hedge Share-based payments Balance at 30 June 2015 Note 25. Equity – retained profits Foreign currency $’000 Cash flow hedge $’000 Share-based payments $’000 – (336) – – (336) 729 – – 393 – – – – – – (7) – (7) – – 122 – 122 – – 337 459 Retained profits at the beginning of the financial year Profit after income tax expense for the year Dividends paid (note 26) Retained profits at the end of the financial year Note 26. Equity – dividends Dividends Dividends paid during the financial year were as follows: Final dividend for the period ended 30 June 2014 of 4 cents per share paid on 29 October 2014 Interim dividend for the year ended 30 June 2015 of 4.725 cents per share paid on 22 April 2015 Capital $’000 – – – Total $’000 – (336) 122 (119,158) (119,158) (119,158) (119,372) – – – 729 (7) 337 (119,158) (118,313) Consolidated 2015 $’000 15,620 40,482 (21,175) 34,927 2014 $’000 – 15,620 – 15,620 Consolidated Year ended 30 Jun 2015 $’000 Period ended 30 Jun 2014 $’000 9,708 11,467 21,175 – – – On 17 August 2015, the Directors declared a fully franked final dividend for the year ended 30 June 2015 of 6.117 cents per ordinary shares, to be paid on 22 October 2015 to eligible shareholders on the register as at 1 October 2015. This equates to a total estimated distribution of $14,846,000, based on the number of ordinary shares on issue as at 30 June 2015. The financial effect of dividends declared after the reporting date are not reflected in the 30 June 2015 financial statements and will be recognised in subsequent financial reports. Annual Report 2015 57 Note 26. Equity – dividends continued Franking credits Consolidated 2015 $’000 2014 $’000 Franking credits available for subsequent financial years based on a tax rate of 30% 17,749 13,622 The above amounts represent the balance of the franking account as at the end of the financial year, adjusted for: • franking credits that will arise from the payment of the amount of the provision for income tax at the reporting date • franking debits that will arise from the payment of dividends recognised as a liability at the reporting date • franking credits that will arise from the receipt of dividends recognised as receivables at the reporting date The franking credits above excludes exempting credits. Note 27. Financial instruments Financial risk management objectives The Group’s activities expose it to a variety of financial risks: market risk (including foreign currency risk and interest rate risk), credit risk and liquidity risk. The Group’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the financial performance of the Group. The Board has overall responsibility for the establishment and oversight of the risk management framework. The Audit, Risk and Compliance Committee, a sub-committee of the Board, has responsible for managing risk. The Committee reports to the Board on its activities. Risk management policies are established to identify and analyse the risks faced by the Group, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Group’s activities. The Group through its training and management standards and procedures, aims to develop a disciplined and constructive control environment in which all employees understand their roles and obligations. Market risk Foreign currency risk The Group is not exposed to any significant foreign currency risk, except for translation of financial assets and liabilities of foreign subsidiaries into presentation currency. Price risk The Group is not exposed to any significant price risk. Interest rate risk The Group’s main interest rate risk arises from its borrowings and cash at bank. Borrowings and cash at bank issued at variable rates expose the Group to interest rate risk. Borrowings issued at fixed rates expose the Group to fair value risk. The policy is to ensure that at least 60% of its exposure to changes in interest rates on general borrowings, other than lease portfolio borrowings, is on a fixed rate basis. Lease portfolio borrowings are entered into on a fixed interest rate basis, except for lease portfolio borrowings utilised to fund lease portfolio assets in inertia which are entered into on a variable rate basis. 58 SG Fleet Group Limited Notes to the Financial Statements30 June 2015As at the reporting date, the Group had the following variable rate bank accounts and other facilities: Consolidated Lease portfolio facilities Residual value payables to financiers Cash at bank Secured deposits Net exposure to cash flow interest rate risk 2015 Balance $’000 (3,149) (5,522) 79,210 9,933 80,472 2014 Balance $’000 (6,558) (3,541) 45,352 12,554 47,807 An official increase / decrease in interest rates of 50 (2014: 50) basis points would have a favourable / adverse effect on profit before tax and equity of $402,000 (2014: $239,000) per annum. The percentage change is based on the expected volatility of interest rates using market data and analyst’s forecasts. Credit risk Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group. The Group has a strict code of credit, including obtaining agency credit information, confirming references and setting appropriate credit limits. The maximum exposure to credit risk at the reporting date to recognised financial assets is the carrying amount, net of any provisions for impairment of those assets, as disclosed in the statement of financial position and notes to the financial statements. The Group does not hold any collateral. Liquidity risk Vigilant liquidity risk management requires the Group to maintain sufficient liquid assets (mainly cash and cash equivalents) and available borrowing facilities to be able to pay debts as and when they become due and payable. Typically the Group ensures that it has sufficient cash or facilities on demand to meet expected operational expenses for a period of 90 days, including the servicing of financial obligations. This excludes the potential impact of extreme circumstances that cannot reasonably be predicted, such as natural disasters. The Group manages liquidity risk by maintaining adequate cash reserves and available borrowing facilities by continuously monitoring actual and forecast cash flows and matching the maturity profiles of financial assets and liabilities. Financing arrangements Unused borrowing facilities at the reporting date: Banking facilities Lease portfolio facilities Consolidated 2015 $’000 7,585 29,097 36,682 2014 $’000 6,253 22,295 28,548 Remaining contractual maturities The following tables detail the Group’s remaining contractual maturity for its financial instrument liabilities. The tables have been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the financial liabilities are required to be paid. The tables include both interest and principal cash flows disclosed as remaining contractual maturities and therefore these totals may differ from their carrying amount in the statement of financial position. Annual Report 2015 59 Note 27. Financial instruments continued Consolidated – 2015 Non-derivatives Non-interest bearing Trade payables Interest-bearing – variable Lease portfolio liabilities Residual value payable to financiers Interest-bearing – fixed rate Bank loans Lease portfolio facilities Total non-derivatives Derivatives Interest rate swaps net settled Total derivatives Consolidated – 2014 Non-derivatives Non-interest bearing Trade payables Interest-bearing – variable Lease portfolio liabilities Residual value payable to financiers Interest-bearing – fixed rate Bank loans Lease portfolio facilities Total non-derivatives 1 year or less $’000 Between 1 and 2 years $’000 Between 2 and 5 years $’000 Over 5 years $’000 33,626 3,203 5,553 2,099 3,337 47,818 – – – – – 2,099 2,975 5,074 – – – – – 35,399 2,781 38,180 7 7 – – – – – – – – 1 year or less $’000 Between 1 and 2 years $’000 Between 2 and 5 years $’000 Over 5 years $’000 33,812 6,626 3,565 2,922 1,650 48,575 – 144 – 33,711 1,905 35,760 – – – – 1,492 1,492 – – – – – – Remaining contractual maturities $’000 33,626 3,203 5,553 39,597 9,093 91,072 7 7 Remaining contractual maturities $’000 33,812 6,770 3,565 36,633 5,047 85,827 The cash flows in the maturity analysis above are not expected to occur significantly earlier than contractually disclosed above. 60 SG Fleet Group Limited Notes to the Financial Statements30 June 2015Note 28. Fair value measurement Fair value hierarchy The following tables detail the Group’s assets and liabilities, measured or disclosed at fair value, using a three level hierarchy, based on the lowest level of input that is significant to the entire fair value measurement, being: Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly Level 3: Unobservable inputs for the asset or liability Consolidated – 2015 Liabilities Level 1 $’000 Level 2 $’000 Level 3 $’000 Total $’000 Derivative financial instruments – Interest rate swap contracts Total liabilities – – 7 7 – – 7 7 There were no transfers between levels during the financial year. Unless otherwise stated, the carrying amounts of financial instruments reflect their fair value. The carrying amounts of trade receivables and trade payables are assumed to approximate their fair values due to their short-term nature. The fair value of financial liabilities is estimated by discounting the remaining contractual maturities at the current market interest rate that is available for similar financial instruments. Valuation techniques for fair value measurements categorised within Level 2 and Level 3 Derivative financial instruments have been valued using quoted market rates. This valuation technique maximises the use of observable market data where it is available and relies as little as possible on entity specific estimates. Note 29. Key management personnel disclosures Compensation The aggregate compensation made to Directors and other members of key management personnel of the Group is set out below: Short-term employee benefits Post-employment benefits Long-term benefits Share-based payments Consolidated Year ended 30 Jun 2015 $ Period ended 30 Jun 2014 $ 3,145,282 1,993,923 108,202 39,566 14,585 53,393 254,454 1,428,046 3,547,504 3,489,947 In 2014 the Non-Executive Directors were also paid $52,900 plus superannuation of $2,725 for services rendered prior to the IPO. Annual Report 2015 61 Note 30. Remuneration of auditors During the financial year the following fees were paid or payable for services provided by KPMG, the auditor of the Company: Audit services – KPMG Audit or review of the financial statements Other services – KPMG Tax services Corporate advisory including IPO Note 31. Commitments – operating lease receivable Committed at the reporting date, receivable: Within one year One to five years Consolidated Year ended 30 Jun 2015 $ Period ended 30 Jun 2014 $ 340,787 390,066 51,882 130,242 182,124 – 905,095 905,095 522,911 1,295,161 Consolidated Year ended 30 Jun 2015 $’000 Period ended 30 Jun 2014 $’000 4,091 3,780 7,871 4,004 2,394 6,398 Future minimum rentals receivable includes contracted amounts for motor vehicles under non-cancellable operating leases between one and five years. Note 32. Contingent liabilities The Group has entered into agreements with its lease portfolio financiers under which the residual value risk inherent in operating leases is transferred from the financier of the asset to the Group at the end of the lease. Under these agreements, at the end of the contractual lease term for each vehicle, the Group is obliged to pay the guaranteed residual value amount to the financier. The company then sells the vehicles and realises a profit or loss on sale. Bank guarantees and letters of credit have been issued to lease portfolio financiers as security for these obligations. An amount of $12,368,000 (2014: $15,949,000) has been recognised as a residual value provision, calculated on an onerous pool basis, to cover potential shortfalls on the disposal of these vehicles. The Group has executed certain guarantees and indemnities, as well as fixed and floating charges over the assets of the Group in favour of funders as security for banking and lease portfolio facilities provided to the Group. 62 SG Fleet Group Limited Notes to the Financial Statements30 June 2015Note 33. Commitments for expenditure Lease commitments – operating Committed at the reporting date but not recognised as liabilities: Within one year One to five years More than five years Capital commitments Consolidated 2015 $’000 2014 $’000 2,657 3,441 25 6,123 2,657 4,266 – 6,923 Committed at the reporting date but not recognised as liabilities: Intangible assets 3,057 4,383 Operating lease commitments includes contracted amounts for office accommodation and office equipment under non-cancellable operating leases expiring within one to five years with, in some cases, options to extend. The leases do not have escalation clauses. On renewal, the terms of the leases are renegotiated. Capital commitments includes contracted amounts for the acquisition and development of Enterprise Resource Planning (‘ERP’) systems. Note 34. Related party transactions Parent entities SG Fleet Group Limited is the parent entity. The ultimate parent entity is Super Group Limited, incorporated in South Africa and listed on the Johannesburg Stock Exchange. Subsidiaries Interests in subsidiaries are set out in note 36. Key management personnel Disclosures relating to key management personnel are set out in note 29 and the remuneration report in the Directors’ report. Transactions with related parties There were no transactions with related parties during the current and previous financial year. Receivable from and payable to related parties There were no trade receivables from or trade payables to related parties at the current and previous reporting date. Loans to/from related parties There were no loans to or from related parties at the current and previous reporting date. Annual Report 2015 63 Note 35. Parent entity information Set out below is the supplementary information about the parent entity. Statement of profit or loss and other comprehensive income Loss after income tax Total comprehensive income Statement of financial position Total current assets Total assets Total current liabilities Total liabilities Equity Issued capital Accumulated losses Total equity Parent Year ended 30 Jun 2015 $’000 Period ended 30 Jun 2014 $’000 (709) (709) 2015 $’000 – (517) (517) 2014 $’000 – Parent 446,712 448,580 8,991 25,957 443,156 (22,401) 420,755 5,621 5,941 443,156 (517) 442,639 Guarantees entered into by the parent entity in relation to the debts of its subsidiaries The parent entity and its subsidiaries are party to a deed of cross guarantee under which each company guarantees the debts of the others. No deficiencies of assets exist in any of these subsidiaries. Refer to note 37 for further details. The parent entity has also provided guarantees and indemnities for bank facilities. Refer to note 20 for further details. Contingent liabilities The parent entity had no contingent liabilities as at 30 June 2015 and 30 June 2014. Capital commitments – Property, plant and equipment The parent entity had no capital commitments for property, plant and equipment at as 30 June 2015 and 30 June 2014. Significant accounting policies The accounting policies of the parent entity are consistent with those of the Group, as disclosed in note 2, except for the following: • investments in subsidiaries are accounted for at cost, less any impairment, in the parent entity; and • dividends received from subsidiaries are recognised as other income by the parent entity. 64 SG Fleet Group Limited Notes to the Financial Statements30 June 2015 Note 36. Interests in subsidiaries The consolidated financial statements incorporate the assets, liabilities and results of the following subsidiaries in accordance with the accounting policy described in note 2: Name SG Fleet Solutions Pty Limited SG Fleet Holdings Pty Limited SG Fleet Finance Pty Limited SG Fleet Investments Pty Ltd SG Fleet Management Pty Limited SG Fleet Australia Pty Limited SG Fleet NZ Limited SG Fleet UK Limited Fleet Care Services Pty Limited SG Fleet Salary Packaging Pty Limited Beta Dimensions Pty Limited SMB Car Sales Pty Limited Principal place of business / Country of incorporation Australia Australia Australia Australia Australia Australia New Zealand United Kingdom Australia Australia Australia Australia Ownership interest 2015 % 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 2014 % 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 Note 37. Deed of cross guarantee The following entities are party to a deed of cross guarantee under which each company guarantees the debts of the others: SG Fleet Group Limited (holding entity) SG Fleet Solutions Pty Limited* SG Fleet Holdings Pty Limited* SG Fleet Finance Pty Limited* SG Fleet Investments Pty Ltd* SG Fleet Management Pty Limited* SG Fleet Australia Pty Limited* Fleet Care Services Pty Limited* SG Fleet Salary Packaging Pty Limited* Beta Dimensions Pty Limited* SMB Car Sales Pty Limited* SG Fleet NZ Limited SG Fleet UK Limited By entering into the deed, the Australian wholly-owned entities (denoted above by an asterisk (*)) have been relieved from the requirement to prepare financial statements and Directors’ report under Class Order 98/1418 (as amended) issued by the Australian Securities and Investments Commission (‘ASIC’). The above companies represent a ‘Closed Group’ for the purposes of the Class Order, and as there are no other parties to the deed of cross guarantee that are controlled by SG Fleet Group Limited, they also represent the ‘Extended Closed Group’. The statement of profit or loss and other comprehensive income and statement of financial position for the Closed Group are the same as the Group and therefore have not been separately disclosed. Annual Report 2015 65 Note 38. Events after the reporting period Apart from the dividend declared as disclosed in note 26, no other matter or circumstance has arisen since 30 June 2015 that has significantly affected, or may significantly affect the Group’s operations, the results of those operations, or the Group’s state of affairs in future financial years. Note 39. Reconciliation of profit after income tax to net cash from operating activities Consolidated Year ended 30 Jun 2015 $’000 Period ended 30 Jun 2014 $’000 40,482 15,620 7,098 57 – 337 – (61) 1,669 (278) 549 – 5,953 6,522 355 (3,581) 2,430 1,757 – (430) 122 3,046 – (5,044) 1,091 1,076 192 5,070 2,141 471 (1,131) 790 61,532 24,771 Profit after income tax expense for the year Adjustments for: Depreciation and amortisation Impairment of intangibles Finance costs – non-cash Share-based payments Bonus share issue Leased motor vehicles – fair value increments Change in operating assets and liabilities: Decrease/(increase) in trade and other receivables Decrease/(increase) in inventories Decrease in deferred tax assets Decrease in other operating assets Increase in trade and other payables Increase in provision for income tax Increase in employee benefits provision Decrease in other provisions Increase in deferred income Net cash from operating activities 66 SG Fleet Group Limited Notes to the Financial Statements30 June 2015 Note 40. Earnings per share Profit after income tax attributable to the owners of SG Fleet Group Limited 40,482 15,620 Consolidated Year ended 30 Jun 2015 $’000 Period ended 30 Jun 2014 $’000 Weighted average number of ordinary shares used in calculating basic earnings per share Adjustments for calculation of diluted earnings per share: Options over ordinary shares Weighted average number of ordinary shares used in calculating diluted earnings per share Basic earnings per share Diluted earnings per share Number Number 242,691,826 171,053,878 113,454 5,796,623 242,805,280 176,850,501 Cents 16.68 16.67 Cents 9.13 8.83 Note 41. Share-based payments The Group has a share option plan to incentivise certain employees and Key Management Personnel. The share- based payment expense for the year was $337,000 (2014: $122,000). The share option plan is subject to a service condition and a performance condition. The performance condition is based on the compound annual growth rate (‘CAGR’) of the Group’s earnings per share. Set out below are summaries of options granted under the plan: 2015 Grant date Expiry date Exercise price Balance at the start of the year Granted Exercised Expired/ forfeited/ other Balance at the end of the year 04/03/2014 30/06/2018 $1.85 8,086,046 8,086,046 – – – – – – 8,086,046 8,086,046 2014 Grant date Expiry date Exercise price Balance at the start of the period Granted Exercised Expired/ forfeited/ other Balance at the end of the period 04/03/2014 30/06/2018 $1.85 – – 8,086,046 8,086,046 – – – – 8,086,046 8,086,046 The weighted average remaining contractual life of options outstanding at the end of the financial period was two years (2014: three years). Annual Report 2015 67 Directors’ Declaration In the Directors’ opinion: • the attached financial statements and notes comply with the Corporations Act 2001, the Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements; • the attached financial statements and notes comply with International Financial Reporting Standards as issued by the International Accounting Standards Board as described in note 2 to the financial statements; • the attached financial statements and notes give a true and fair view of the Group’s financial position as at 30 June 2015 and of its performance for the financial year ended on that date; • there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable; and • at the date of this declaration, there are reasonable grounds to believe that the members of the Extended Closed Group will be able to meet any obligations or liabilities to which they are, or may become, subject by virtue of the deed of cross guarantee described in note 37 to the financial statements. The Directors have been given the declarations required by section 295A of the Corporations Act 2001 from the Chief Executive Officer and Chief Financial Officer. Signed in accordance with a resolution of Directors made pursuant to section 295(5)(a) of the Corporations Act 2001. On behalf of the Directors Andrew Reitzer Chairman Robbie Blau Chief Executive Officer 17 August 2015 Sydney 68 SG Fleet Group Limited ABCD ABCD Independent Auditor’s Report Independent auditor’s report to the members of SG Fleet Group Limited Independent auditor’s report to the members of SG Fleet Group Limited Report on the financial report Report on the financial report We have audited the accompanying financial report of SG Fleet Group Limited (the Company), which We have audited the accompanying financial report of SG Fleet Group Limited (the Company), which comprises the consolidated statement of financial position as at 30 June 2015, and consolidated comprises the consolidated statement of financial position as at 30 June 2015, and consolidated statement of profit or loss and comprehensive income, consolidated statement of changes in equity statement of profit or loss and comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year ended on that date, notes 1 to 41 comprising a and consolidated statement of cash flows for the year ended on that date, notes 1 to 41 comprising a summary of significant accounting policies and other explanatory information and the directors’ summary of significant accounting policies and other explanatory information and the directors’ declaration of the Group comprising the Company and the entities it controlled at the year’s end or declaration of the Group comprising the Company and the entities it controlled at the year’s end or from time to time during the financial year. from time to time during the financial year. Directors’ responsibility for the financial report Directors’ responsibility for the financial report The directors of the Company are responsible for the preparation of the financial report that gives a 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 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 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that is free from material misstatement, whether due to fraud or error. In note 2, the financial report that is free from material misstatement, whether due to fraud or error. In note 2, the directors also state, in accordance with Australian Accounting Standard AASB 101 Presentation the directors also state, in accordance with Australian Accounting Standard AASB 101 Presentation of Financial Statements, that the financial statements of the Group comply with International of Financial Statements, that the financial statements of the Group comply with International Financial Reporting Standards. Financial Reporting Standards. Auditor’s responsibility Auditor’s responsibility Our responsibility is to express an opinion on the financial report based on our audit. We conducted Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with Australian Auditing Standards. These Auditing Standards require that our audit in accordance with Australian Auditing Standards. These Auditing Standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance whether the financial report is free from material misstatement. audit to obtain reasonable assurance whether the financial report is free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on the auditor’s judgement, including the in the financial report. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. assessment of the risks of material misstatement of the financial report, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation of the financial report that gives a true and fair view in order to design audit procedures preparation of the financial report that gives a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial report. well as evaluating the overall presentation of the financial report. We performed the procedures to assess whether in all material respects the financial report presents We performed the procedures to assess whether in all material respects the financial report presents fairly, in accordance with the Corporations Act 2001 and Australian Accounting Standards, a true fairly, in accordance with the Corporations Act 2001 and Australian Accounting Standards, a true and fair view which is consistent with our understanding of the Group’s financial position and of its and fair view which is consistent with our understanding of the Group’s financial position and of its performance. performance. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. for our audit opinion. 63 63 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms KPMG, an Australian partnership and a member firm affiliated with KPMG International Cooperative of the KPMG network of independent member firms (“KPMG International”), a Swiss entity. affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. Liability limited by a scheme approved under Professional Liability limited by a scheme Standards Legislation. approved under Professional Standards Legislation. Annual Report 2015 69 ABCD Independent Auditor’s Report Independence In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001. Auditor’s opinion In our opinion: (a) the financial report of the Group is in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the Group’s financial position as at 30 June 2015 and of its performance for the year ended on that date; and (ii) complying with Australian Accounting Standards and the Corporations Regulations 2001. (b) the financial report also complies with International Financial Reporting Standards as disclosed in note 2. Report on the remuneration report We have audited the Remuneration Report included in pages 9 to 19 of the directors’ report for the year ended 30 June 2015. 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 auditing standards. Auditor’s opinion In our opinion, the remuneration report of SG Fleet Group Limited for the year ended 30 June 2015, compiles with Section 300A of the Corporations Act 2001. KPMG Peter Russell Partner Sydney 17 August 2015 64 70 SG Fleet Group Limited Shareholder Information The shareholder information set out below was applicable as at 31 July 2015. Distribution of equitable securities Analysis of number of equitable security holders by size of holding: 1 to 1,000 1,001 to 5,000 5,001 to 10,000 10,001 to 100,000 100,001 and over Holding less than a marketable parcel Equity security holders Twenty largest quoted equity security holders Number of holders of ordinary shares Number of holders of options over ordinary shares 182 231 179 413 69 1,074 11 – – – – 9 9 – The names of the twenty largest security holders of quoted equity securities are listed below: Bluefin Investments Limited National Nominees Limited Citicorp Nominees Pty Limited BNP Paribas Noms Pty Ltd (DRP) HSBC Custody Nominees (Australia) Limited J P Morgan Nominees Australia Limited Robert Pinkas Blau RBC Investor Services Australia Nominees P/L (WAM Account) RBC Investor Services Australia Nominees Pty Limited (PI Pooled A/C) Kevin Victor Wundram Pacific Custodians Pty Limited (Equity Plans Tst A/C) Mr David John Fernandes Invia Custodian Pty Limited (Best Superannuation P/L A/C) Yogan Nagaratnam + Sheila Shanthy Nagaratnam (Cobragem Superfund A/C) Andrew Brian Mulcaster + Helen Jane Mulcaster (Mulcaster Superfund A/C) Australian Executor Trustees Limited (No 1 Account) Ron Polkinghorne Super Fund Pty Ltd (Ron Polkinghorne S/Fund A/C) Aust Executor Trustees Ltd (DS Capital Growth Fund) HSBC Custody Nominees (Australia) Limited (NT-Comnwlth Super Corp A/C) RBC Investor Services Australia Nominees Pty Limited (PISelect) Ordinary shares Number held % of total shares issued 131,044,373 54.00 14,425,047 13,968,050 11,046,241 8,705,329 8,130,513 6,756,425 4,937,995 3,508,422 1,863,840 1,646,330 1,630,860 1,450,383 1,197,925 1,006,255 980,664 931,920 794,262 765,667 631,823 5.94 5.76 4.55 3.59 3.35 2.78 2.03 1.45 0.77 0.68 0.67 0.60 0.49 0.41 0.40 0.38 0.33 0.32 0.26 215,422,324 88.76 Annual Report 2015 71 Shareholder Information Unquoted equity securities Options over ordinary shares issued Substantial holders Substantial holders in the Company are set out below: Bluefin Investments Limited Voting rights The voting rights attached to ordinary shares are set out below: Number on issue Number of holders 8,086,046 9 Ordinary shares Number held % of total shares issued 131,044,373 54.00 Ordinary shares On a show of hands every member present at a meeting in person or by proxy, attorney or corporate representative shall have one vote and upon a poll each share shall have one vote. There are no other classes of equity securities. Restricted securities Class Expiry date Fully Paid Ordinary Shares Earlier of the date on which the audited financial statements of the Company for the financial year ending 30 June 2015 are released and the date on which the escrowed shareholder ceases to be an employee of the Company or its subsidiaries if his/her employment is terminated under specified conditions Fully Paid Ordinary Shares Date on which the audited financial statements of the Company for the financial year ending 30 June 2015 are released Fully Paid Ordinary Shares 28 February 2017 Number of shares 16,308,605 823,165 823,165 17,954,935 72 SG Fleet Group Limited Auditor KPMG 10 Shelley Street Sydney NSW 2000 Stock exchange listing SG Fleet Group Limited shares are listed on the Australian Securities Exchange (ASX code: SGF) Website www.sgfleet.com Corporate Governance Statement The Corporate Governance Statement which was approved on 17 August 2015 can be found at http:// investors.sgfleet.com/Investors/?page=Corporate- Governance-Statement Enquiries investorenquiries@sgfleet.com Business objectives and cash use SG Fleet Group Limited has used cash and cash equivalents held at the timing of listing, in a way consistent with its stated business objectives. Corporate Directory Directors Andrew Reitzer – Independent Non-Executive Chairman Robbie Blau – Chief Executive Officer Cheryl Bart AO – Independent Non-Executive Director Graham Maloney – Independent Non-Executive Director Peter Mountford – Non-Executive Director Kevin Wundram – Alternate Director for Robbie Blau and Chief Financial Officer Colin Brown – Alternate Director for Peter Mountford Company secretary Sarah Anne Edwards Notice of annual general meeting The details of the annual general meeting of SG Fleet Group Limited are: Bridge Room, Level 1 Intercontinental Hotel 117 Macquarie Street Sydney NSW 2000 3:00 PM on Wednesday 14 October 2015 Registered office Level 2, Building 3 20 Bridge Street Pymble NSW 2073 Telephone: +61 2 9494 1000 Facsimile: +61 2 9899 9233 Principal place of business Level 2, Building 3 20 Bridge Street Pymble NSW 2073 Telephone: +61 2 9494 1000 Facsimile: +61 2 9899 9233 E-mail: globalenquiries@sgfleet.com Share register The Registrar Computershare Investor Services Pty Ltd GPO Box 2975, Melbourne Victoria 3001 Telephone: +61 3 9415 4000 or 1300 850 505 Facsimile: +61 3 9473 2500 or 1800 783 447 E-mail: web.queries@computershare.com.au Website: www.investorcentre.com Annual Report 2015 73 

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