Annual Report 2018 BUILD WELL LIVE WELL S i m o n d s G r o u p A n n u a l R e p o r t 2 0 1 8 Simonds Group Annual Report 2018 FOUNDER’ S MESSAGE Dear Shareholder, We are proud of our heritage, having started Simonds homes 69 years ago from small but humble beginnings. Since 1949, and with the support of many people, we have contributed to helping families achieve the ultimate Australian dream and have built a record of over 35,000 homes. It gives me a great sense of pride and satisfaction to be doing what we do as a volume builder, to remain current but innovative in a fiercely competitive industry. As Founder of Simonds, I have continued my involvement with the Simonds Group as a consultant and advisor to the Board. The Simonds Group is well governed by its Board of Directors and steered by the recently appointed Chief Executive Officer and Managing Director, Mr. Kelvin Ryan. Iain Kirkwood is the Independent Chair. He brings experience as a corporate Chairman with considerable practical and operational expertise gained from a successful business career spanning 38 years across a range of industries. Delphine Cassidy and Neil Kearney are both independent Non-Executive Directors, and Piers O’Brien and Scott Mahony sit on the board as Non-Executive Directors. Both my son, Mark Simonds and grandson, Rhett Simonds, remain on the Board. It has been my pleasure to have grown this business from its humble beginnings in 1949 and witness what it has become today. Yours sincerely, Gary Simonds Simonds Founder and Senior Advisor Build well, Live well We are committed to designing and building homes that are built well and enable families to live well. Contents Founder’s Message Chairman’s Message CEO + Managing Director’s Letter Board of Directors IFC Financial Summary Financial Report Corporate Directory 3 4 6 7 8 IBC 1 Simonds Group Annual Report 2018 2 CHAIRM AN’ S MESSAGE Dear Shareholders, The Board is pleased to report substantial progress in Simonds transformation since last year. The new Board’s immediate strategy was, and remains, to drive strong margin growth and improved profitability. The heavy focus on ‘Back to Basics’ will drive shareholder value and total returns. Kelvin Ryan, our new Managing Director and Chief Executive Officer who joined us at the beginning of March, is driving margin growth and profitability through the ‘Back to Basics’ approach. The Board is delighted with his commitment and aptitude in leading this drive to cement the strength of the Simonds brand in the volume home-building industry. Kelvin and his substantially new, invigorated and experienced executive team are determined to focus on building shareholder value through growing the business, improving its operational and capital-use efficiency, and leveraging the famous Simonds brand, while maintaining our company’s rigorous emphasis on safety. Our results for the year record that overall revenue rose by 3% in 2018, to $605.2 million, net profit after tax (for continuing operations) of $4.8 million was more than double the $2.1 million earned in 2017 and net debt reduced to $1.1 million. These results are an encouraging start but, needless to say, the directors look forward to ongoing, significant improvements which will deliver growth in Simonds shareholder value and sustainable total returns. The Directors have determined that no dividend will be paid in respect of the 2018 financial year. The Simonds brand established almost 70 years ago still resonates. It carries with it the promise of a family home built to a high-quality standard, delivered on-time, backed by a safe and efficient building process. That is the fundamental strength of our business which enjoys a leading market position. The Board looks forward to a strong performance in FY19. Iain Kirkwood Chairman 3 Simonds Group Annual Report 2018 CEO + M ANAGING DIRECTOR’ S LE T TER As our founder Gary Simonds has always said, “at Simonds we have the privilege to be part of the experience for families moving into their own home”. Similarly, in our Education business, we deliver nationally‑accredited Building and Construction qualifications to those looking to enter the industry or advance their careers and take on more senior roles. I have been impressed by the commitment and dedication of our people in delivering quality homes and outcomes for our customers and students. 4 I have been pleased to see the progress made in the business improvement program already underway. This will ensure the Group is well positioned for future growth. During the 2018 financial year we have streamlined our business to operate on a much healthier and more sustainable financial base, and with a structure and organisational culture that supports ongoing improvement in profitability. Since joining the Group in March 2018, our focus has been directed towards: • Actioning the already established ‘back to basics’ program, which is aimed at improving margins, establishing general business disciplines and restoring the health of the balance sheet; • Rebuilding the executive management team to focus on growth and executing the delivery of the strategic plan; • Positioning the business to unlock opportunities across the board, through its product range, sales and marketing initiatives and partnering with key stakeholders; and • Developing a comprehensive strategic plan based on a ‘grow and prosper’ principle to deliver sustainable outcomes and take the business forward over time. We are continuing to build on our strong base by developing new product in the Homes business and establishing better process discipline across the business. Our Education business, Builders Academy Australia (BAA), has continued to deliver high quality nationally-accredited Building and Construction qualifications in high skills needs areas. With a high focus on regulatory compliance in this sector, BAA has continued to ensure strong governance, management systems and processes are in place across its operations whilst aligning all activities with the needs of the Building and Construction industries. BAA has been successful in renewing its existing state government funding contracts and secured a new federal government contract. We have streamlined the overall business, with the sale of our development business, Hub Property Group, in December 2017. Our core purpose is to leverage on the strength of the Simonds brand to become a leader in Australian home building, recognised for high-quality, good-value homes that are built well. Safety The Simonds Group has continued to strengthen our safety systems over the last reporting year. The main objective in our safety program is to recognise safety as a core value across all areas of the business, that results in a positive safety culture and a healthy, engaged workforce. To achieve this, we have refined our safety management system to ensure that it remains highly visible in our Company and continues to meet and reflect current regulatory requirements. We remain committed to safety in the home building sector, and we have a voice in industry through our involvement in the Volume Builders Safety Alliances in each state, and our active participation in industry programs around the country with the regulators. FY18 Results The Group delivered earnings before interest, depreciation and amortisation (EBITDA) for the 2018 financial year of $13.7 million from our continuing operations, an increase of $3.6 million or 35.6% on the prior period comparative. Revenue in the Homes business was $23.2 million up on the prior comparative period on the back of higher site starts (2,500 in FY18 compared with 2,391 in FY17). This more than offset the $2.2 million decrease in revenue generated by the Education business during FY18. Gross profit for the Group increased 5.9% on prior comparative period, reflecting shift in product mix and strengthening of cost control measures. Net operating cash flows for the Group were $8.7 million, an increase of $1.6 million or 23.1% on FY17, driven by improvements in results and working capital management. The Group returned to a positive net asset position at 30 June 2018, with net assets of $1.0 million, a $4.1 million improvement on 30 June 2017. During the financial year our net debt was reduced by $3.9 million, mainly driven by improved operating results and working capital management. Our headroom under the Group’s existing CBA facilities including cash and bank balances was $35.8 million at 30 June 2018. Delivering Shareholder Value The Company is now well positioned to continue to capitalise on strong margin and profitability improvements, as well as introducing new initiatives to underpin continuing improvement in financial results and future growth. We are striving to increase our site starts and improve our operating margins. The business continues to improve its market penetration, sales and ultimately, its site starts, by strengthening relationships with land developers, locating display homes in major growth zones, consolidating its product range and continuing to innovate and release new product. Simonds Homes are abreast of the market and remain innovative in our product delivery. In September 2018, we launched the movement to Wellness both in the workplace and in each home built in Victoria. We have created a significant point of difference in the industry. We look forward to expanding the Wellness initiative across each state. Acknowledgements and thanks I would like to acknowledge and thank my Board colleagues, our loyal and talented staff, trades, suppliers, trainers, industry partners and customers. I also thank you for your loyalty as shareholders. I am confident our strategy will ensure the Simonds Group is well-placed to deliver profitable growth in FY19 and beyond. Kelvin Ryan CEO + Managing Director 5 Simonds Group Annual Report 2018 BOARD OF DIRECTORS From left to right Scott Mahony, Rhett Simonds, Delphine Cassidy, Mark Simonds, Neil Kearney, Kelvin Ryan, Iain Kirkwood and Piers O’Brien. Business Segments Demand for quality homes remained strong in FY18, with revenue and margin improvement in the Simonds Homes business. Margins were improved through changes in the product mix, strengthening of business disciplines to minimise product customisation and strengthening of cost control measures. 6 We remain focused on building and improving our strategic relationships in partnership with land developers, the location of display homes in key growth zones, consolidation of our existing product range and the release of new product. Builders Academy Australia (BAA) recorded strong course enrolments and successfully renewed its existing state government funding contracts and secured a new federal government contract. The extension of course durations, along with the shift in students undertaking dual courses to single courses, has had an impact on both results and the number of students graduating. During FY18 the Group divested its investment in the Hub Group. FINANCIAL SUMM ARY Revenue ($m) 1 2,500 2,391 2,545 2,471 2,500 Site starts Up 109 or 4.6% 2 . 5 0 6 . 4 7 8 5 . 5 8 2 6 . 9 6 7 5 FY18 FY17 FY16 FY15 Site Starts EBITDA ($m) 1 $605.2m Revenue Up $17.8m or 3% $13.7m EBITDA Up $3.6m or 35.6% $3.8m NPAT Up $3.6m or 1,800% $133.3m Gross profit Up $7.4m or 5.9% . 7 3 1 1 . 0 1 4 4 . 4 3 . FY18 FY17 FY16 FY15 1 Revenue and EBITDA for the period FY15 – FY16 have been adjusted to exclude the Madisson business, which has been presented as discontinued operations. • Revenue in the Homes business increased 4.1% on prior period comparative on the back of higher site starts. • Gross Profit improved by 5.9% due to better margins, changes in product mix and stronger cost controls. • Strengthening of business rules has continued to translate into improved margins. • Starts increased as a result of the Group’s strong pipeline and focus on consistent delivery of site starts each week. 7 Simonds Group Annual Report 2018 FINANCIAL REPORT Directors’ report Remuneration report Auditor’s independence declaration Independent auditor’s report Directors’ declaration Consolidated statement of profit or loss and other comprehensive income 9 17 34 35 39 Consolidated statement of financial position Consolidated statement of changes in equity Consolidated statement of cash flows Notes to financial statements Shareholder information 41 42 43 44 83 40 Corporate directory IBC 8 DIREC TORS’ REP ORT The directors of Simonds Group Limited (‘the Company”) submit herewith the annual financial report of the consolidated entity consisting of the Company and the entities it controlled (the “Group”) for the financial year ended 30 June 2018. To comply with the provisions of the Corporations Act 2001, the directors’ report as follows: Information about the directors The names of the directors of the Company during or since the end of the financial year are: Name Current Directors Iain Kirkwood Kelvin Ryan Neil Kearney Delphine Cassidy Rhett Simonds1 Mark Simonds Piers O’Brien Scott Mahony Date appointed Current Position 20 September 2017 5 March 2018 20 September 2017 20 September 2017 20 April 2016 20 September 2017 20 September 2017 20 September 2017 Independent Non-Executive Director and Chairman Chief Executive Officer (CEO) and Managing Director Independent Non-Executive Director Independent Non-Executive Director Non-Executive Director Executive Director Non-Executive Director Non-Executive Director Former Directors Vallence Gary Simonds2 Susan Oliver3 24 May 2010 6 October 2014 Michael Humphris4 Matthew Chun5 29 March 2017 25 September 2014 1 Rhett Simonds was Interim CEO from 7 October 2017 to 4 March 2018. 2 Vallence Gary Simonds retired from the Board on 20 September 2017. 3 Susan Oliver resigned on 20 September 2017. 4 Michael Humphris resigned on 20 September 2017. Former Non-Executive Director and Chairman Former Independent Non-Executive Director and Deputy Chair Former Independent Non-Executive Director Former CEO and Managing Director 5 Matthew Chun stepped down as CEO and Managing Director effective 6 October 2017 by mutual agreement with the Board. Mr Chun remained employed by the Company until 12 January 2018. 9 Simonds Group Annual Report 2018 DIREC TORS’ REP ORT (CO N T IN U ED) The particulars of the directors are as follows: Name Iain Kirkwood Experience and Directorships • Iain was educated at Glenalmond College in Scotland and holds a Master of Arts from Oxford University. Iain is a Fellow of CPA Australia (FCPA). • Iain is an experienced corporate chairman and has worked as a senior executive and Non-Executive Director across a range of industries, including auditing, resources, manufacturing and latterly healthcare in Australia, the USA and Britain. • Iain is Chairman of Bluechiip Ltd, former Chairman of Novita Healthcare Limited and has held Non-Executive Director roles with Medical Developments International Ltd and Vision Eye Institute Ltd. • Iain began his business career with Arthur Andersen & Co in London and went on to hold several senior financial and general management positions in Woodside Petroleum Ltd, Santos Ltd, Pilkington Plc, F.H Faulding & Co Ltd and Clinuvel Pharmaceuticals Ltd. Kelvin Ryan • Kelvin holds a Master of Technology Management Degree from Griffith University and Bachelor of Education from WACAE Nedlands. • Kelvin possesses extensive experience in the volume home building industry as CEO of BGC Residential from 2009 until 2017 and has a strong awareness of the issues facing the industry. • Kelvin has extensive experience in building industries. • Kelvin also has significant experience as a senior executive in mining and manufacturing industries both in Australia and internationally. Neil Kearney • Neil holds a Bachelor of Economics from Monash University, has completed the Advanced Management Program at INSEAD and is a Graduate of the Australian Institute of Company Directors. • Neil chairs the Company’s Audit & Risk Committee. • Neil has held senior executive roles in Australian and international companies, including Goodman Fielder Limited and National Foods Limited (including as Chief Financial Officer & Chief Strategy Officer). • Neil is currently Chairman of Huon Aquaculture Group Ltd, Chairman of Felton, Grimwade & Bosisto’s Pty Ltd and a Non-Executive Director of Brainwave Australia. • Neil’s previous directorships include Warrnambool Cheese and Butter Factory Company Holdings Limited and National Foods Limited. Delphine Cassidy • Delphine is an accountant with over 15 years experience specialising in financial, accounting and treasury roles. • Delphine has become an investor relations expert, working as a senior executive in this field for a number of ASX 200 Companies. • Delphine has been a member of the Australasian Investor Relations Association (AIRA) Issues Committee and the ASX Issuer Services Working Group. • Delphine is currently the Vice President of Investor Relations at Orica and was formerly Non-Executive Director of CreateCare Global. 10 DIREC TORS’ REP ORT (CO N T IN U ED) Name Experience and Directorships Rhett Simonds • Rhett holds a Bachelor of Commerce from Deakin University. • Rhett has been involved with the business since joining the Simonds Group of Companies in 2005. • Rhett has a strong focus on technology-based education and training platforms with job placement outcomes. • Rhett is a director of Latitude Real Estate and a director of a number of technology-based enterprises. Mark Simonds • Mark holds a registered builders licence in Victoria and South Australia. Mark has spent over 40 years immersed in the volume home building industry. • Prior to 2014, when Simonds Group Limited was listed, Mark was fully engaged in the day-to- day executive management of Simonds Homes. From 1973 until the listing of Simonds Group Limited in 2014, Mark worked alongside his father Gary Simonds and understands what is required for a successful volume building business. • Mark has been focussed on Simonds Consolidated with a focus on venture capital and private equity, building and construction, real estate and the vocational education sector. Piers O’Brien • Piers is a qualified lawyer with over 19 years professional experience. • Piers has spent the last 11 years working in in-house legal roles as both General Manager Legal and General Counsel. During this time, he managed the legal function at ASX 200 company Skilled Group Limited for approximately 8 years and for the last 3 years has been the General Counsel of the Simonds Family Office. • Piers started his career in private practice with K&L Gates Lawyers (and its predecessor firms) where he spent 8 years specialising in mergers and acquisitions, corporate transactions and board advisory work. Scott Mahony • Scott is a Chartered Accountant and has held Chief Financial Officer roles at two of Australia’s largest volume builders spanning more than 25 years. • Scott is well regarded for his strong financial knowledge, analytical skills and strategic thinking, as well as his ability to negotiate and deliver successful commercial outcomes in challenging business environments. • Scott joined Simonds Homes (then a private company) in 1999 and was Chief Financial Officer from 2008 to 2014. • Scott has been in various accounting roles with Telstra, P. Sartori & Co Chartered Accountants and Australian Unity before joining the volume housing industry. 11 Simonds Group Annual Report 2018 DIREC TORS’ REP ORT (CO N T IN U ED) Directors’ Shareholding The following table sets out each of the directors’ relevant interest in shares, debentures and rights or options on shares or debentures of the Company or related body corporate as at the date of this report: Directors Rhett Simonds Mark Simonds Iain Kirkwood Fully Paid Ordinary shares (Number) 14,044 56,741 75,000 Share options (Number) – – – Remuneration of key management personnel Information about the remuneration of key management personnel is set out in the remuneration report section of this directors’ report. The term ‘key management personnel’ refers to those persons having authority and responsibility for planning, directing, and controlling the activities of the Group, directly or indirectly, including any director (whether executive or otherwise) of the Group. Company Secretary Ms Donna Abu-Elias was appointed Company Secretary of the Company on 28 May 2018 following the resignation of Ms Elizabeth Hourigan. Donna is the Group’s General Counsel and prior to joining Simonds Group was Legal Counsel at Carlisle Homes Pty Ltd. Donna holds a Diploma in Construction Law from the University of Melbourne as well as a Bachelor of Law (Hons) and Bachelor of Commerce, and is a Committee Member of Housing Industry Association (HIA). Operating and financial review Principal activities The Group’s principal activities during the financial year were the design and construction of residential dwellings, the development of residential land and providing registered training courses. Business overview Building homes since 1949, Simonds Homes is one of Australia’s largest volume homebuilders, with display homes located across the Australian eastern seaboard and South Australia. Simonds Homes’ product range includes single and double storey detached homes, with a target market being first and second home families in the metropolitan areas of state capital and large regional cities. Builders Academy Australia is a Registered Training Organisation with a focus on offering nationally accredited qualifications in building and construction. Embedded within one of Australia’s leading home builders, BAA’s core offering is ‘builders training builders’. Completion of courses offered enables successful students to increase their career and employment opportunities; as well as provide a well-trained network of employees, suppliers and contractors for Simonds Homes. The Group maintains a small development land portfolio via direct land ownership, and participation in other development land projects via indirect holdings. Operations Group revenue from continuing operations for the period was $605.2m compared to the previous corresponding period of $587.4m. The increase is predominantly due to changes in product mix combined with a shift away from highly customised, low margin products. 12 DIREC TORS’ REP ORT (CO N T IN U ED) Divestment of Non‑Core Operations Following the review of operations commissioned by the new Board, on 19 December 2017 the Group divested its investment in the Hub Group for $0.188m, resulting in a loss on disposal of $0.285m. Reconciliation of statutory financial statements to pro forma results Pro forma EBITDA (Earnings Before Interest, Tax, Depreciation and Amortisation) is reported to give information to shareholders that provides a greater understanding of the underlying performance of Simonds Group Limited’s operations. In accordance with ASIC Regulatory Guidance 230, a reconciliation of the 2018 statutory to pro forma results is provided below as follows: Year ended 30 June 2018 (FY18) FY18 statutory results from continuing operations Remove activity of divested business Remove impairment of non-core development land Business review and management restructure 2 FY18 pro forma 3 results Revenue ($m) 605.2 Gross Profit ($m) 133.3 (0.6) – – 604.6 (0.5) – – 132.8 EBITDA1 ($m) NPAT ($m) 13.7 0.4 0.4 1.8 16.3 4.8 0.4 0.3 1.3 6.8 1. The Directors’ Report includes references to pro forma results to exclude the impact of one-off costs in the year as detailed above. The Directors believe the presentation of non-IFRS financial measures are useful for the users of this Financial Report as they provide additional and relevant information that reflect the underlying financial performance of the business. Non-IFRS financial measures contained within this report are not subject to audit or review. 2. This includes $1.184m of costs associated with organisational review and management restructure including settlement of share-based payments as disclosed in note 12 of the financial statements, and $0.600m of further management restructuring costs. 3. Pro forma EBITDA of $16.259m is net profit after tax from continuing operations of $4.767m before financing items of $1.278m, tax expense of $2.400m, depreciation and amortisation of $5.247m, activity relating to the divested Hub business of $0.351m, impairment of non-core development land of $0.432m and costs associated with the business review and management restructure of $1.784m. Earnings per share The directors have elected to present results and Earnings per Share (EPS) on both a statutory and pro forma basis. The calculation of “Statutory EPS” is presented in Note 13. The calculation of “Pro forma EPS” is presented below. Statutory EPS has been calculated in accordance with the requirements of Accounting Standards based on: • profit after tax attributable to shareholders (Statutory profit); and • the weighted average number of ordinary shares outstanding during the period ended 30 June 2018. Pro forma EPS is a non-International Financial Reporting Standards (IFRS) measure which has been calculated on the 2018 financial year based on: • statutory profit after tax adjusted on a pro forma basis for: – the impact of significant items on the 2018 financial result, being: › the costs associated with the business review and management restructure; › impairment of non-core development land; and › divestment of the Hub business; and – the related income tax effect of the above adjustments • the weighted average number of ordinary shares outstanding during the period ended 30 June 2018: – Basic: 143,841,655 13 Simonds Group Annual Report 2018 DIREC TORS’ REP ORT (CO N T IN U ED) The directors believe that the presentation of Pro forma EPS provides users with a better understanding of the underlying financial performance of the ongoing business and allows for a more relevant comparison of financial performance between financial periods. Statutory EPS from continuing operations Basic Pro forma EPS from continuing operations Basic 30 June 2018 cents per share 30 June 2017 cents per share Note 13 3.31 1.44 4.72 3.22 Balance sheet During the financial year the Group has delivered a significantly improved operating result and has re-stabilised the business to create a solid working capital basis to ensure sustainable growth for the business in future years. During the period the Group continued to operate within its banking covenants. In August 2018 Simonds signed a revised facility agreement to extend the existing borrowing facilities for 3 years to September 2021. Improved operating results and cash flow management have enabled the Group to reduce its net indebtedness (measured by cash and cash equivalents less borrowings) from $5.020m at 30 June 2017 to $1.088m at 30 June 2018. The net assets of the Group have also improved from a $3.125m deficiency at 30 June 2017 to a net asset position of $1.026m at 30 June 2018. Operating cash flows The Group generated $8.700m in operating cash flows during the financial year ended 30 June 2018, an increase of $1.632m in comparison with the prior corresponding period. Improved operating cash flows were derived from customer billings and tighter cost controls, enabling repayment of a significant portion of the Group’s borrowings during the period. Outlook Simonds Homes Australia (SHA) continues to perform well across all regions, in particular increasing site starts in New South Wales during the 2018 financial year. Challenges remain in some areas with continued delays in registration of land by customers as well as customer financing. With greater focus on strengthening our strategic relationships with land developers, the location of display homes in key growth zones, consolidation of our existing product range and the release of new product. Builders Academy Australia (BAA) continues to focus on delivering high quality trade qualifications that meet the needs of the Australian workforce. Through diversifying funding sources, delivery modes and market segments including expanded delivery in states other than Victoria, Builders Academy Australia and City-Wide Building and Training Services continue to prepare graduates to realise sustainable career outcomes. The business remains focused on meeting the increased demands placed on it from the ever-changing regulatory environment in this sector, and that continues to be a major risk and opportunity for the Group. Summary of key business risks Every business faces risks that may impair its ability to execute its strategy or achieve its objectives. There are some risks over which the Group has no control. These are both specific to the Group’s home building business, provision of training courses, and land and project management services, and external risks, such as the economic environment. The Group’s risk management approach is to identify, evaluate, and mitigate or manage its financial, operational and business risks. Our risk assessment approach includes an estimation of the likelihood of risk occurrence and potential impact on the financial results. Risks are assessed across the business and reported to the Audit and Risk Committee and to the Board where required under the Group’s Risk Management Framework. 14 DIREC TORS’ REP ORT (CO N T IN U ED) Deterioration in economic conditions resulting in a fall in demand: There are a number of general economic conditions, such as interest rate movements, overall levels of demand for housing, economic and political stability, and state and federal government fiscal and regulatory policies that can impact the level of consumer confidence and demand, thereby affecting revenue from sales to customers and/or fees received from students. While general economic conditions are outside the Group’s control, the Group seeks to reduce its exposure to these risks by monitoring closely both internal and external sources of information that provide insights to changes in demand within the markets and regions in which it operates. Information Technology (“IT”) security and data security breaches: The potential failure of IT security measures may result in the loss, inability to access information, destruction or theft of customer, supplier, and financial or other commercially-sensitive information including intellectual property. This has the potential to adversely affect our operating results and potentially damage the reputation of the Simonds or Builders Academy Australia brands, and/or create other liabilities for the Group. There are a number of key controls either planned or already in place aligned to improving the security posture; the implementation, maintenance and supervision of operational policies intended to preserve the integrity of the IT systems and supporting infrastructure; regular independent audit and review of IT security; and the ongoing review, practice and updating of a disaster/crisis management plan relating to IT systems. Non‑IFRS financial information The financial measures included in the Directors’ Report have been calculated to exclude the impact of various costs and adjustments associated with current financial year relating to the Madisson business, divested Hub business, non-recurring impairments and business review and management restructure costs. The directors believe the presentation of non-IFRS financial measures is useful for the users of this financial report as they reflect the underlying financial performance of the business. Subsequent events In August 2018 Simonds signed a revised facility agreement to extend the existing borrowing facilities for 3 years to September 2021. There have been no significant changes to the facility other than an extension of the term. There have been no other events that have occurred subsequent to the reporting date, other than noted in this report, that have significantly affected or may significantly affect the Group’s operations, results or state of affairs in future years. Dividends As announced on 29 August 2018, the directors have declared $nil dividend in relation to the 2018 financial year. Indemnification of officers and auditors During the financial year, the Company paid a premium in respect of a contract insuring the directors of the Company, the Company Secretary, and all executive officers of the Company and of any related body corporate against a liability incurred as such a director, secretary or executive officer to the extent permitted by the Corporations Act 2001. The contract of insurance prohibits disclosure of the nature of the liability and the amount of the premium. The Company has not otherwise, during or since the end of the financial year, except to the extent permitted by law, indemnified or agreed to indemnify an officer or auditor of the Company or of any related body corporate against a liability incurred as such an officer or auditor. 15 Simonds Group Annual Report 2018 DIREC TORS’ REP ORT (CO N T IN U ED) Directors’ meetings The following table sets out the number of directors’ meetings (including meetings of committees of directors) held during the financial year and the number of meetings attended by each director (while they were a director or committee member). During the financial year, 18 Board meetings, two Nomination and Remuneration Committee meetings and four Audit and Risk Management Committee meetings were held. Directors Iain Kirkwood Kevin Ryan Neil Kearney Delphine Cassidy Rhett Simonds Mark Simonds Piers O’Brien Scott Mahony Vallence Gary Simonds Matthew Chun Susan Oliver Michael Humphris Board of Directors Nomination and Remuneration Committee Audit and Risk Management Committee Held* 14 4 14 14 18 14 14 14 14 6 4 4 Attended 14 4 14 13 18 11 14 13 14 6 4 4 Held* 1 1 – 1 2 – 1 – 1 1 1 1 Attended 1 1 – 1 1 – 1 – 1 1 1 1 Held* 3 1 3 – 4 2 1 3 2 2 2 2 Attended 2 1 3 – 3 2 1 3 2 2 2 2 * Meetings held has been adjusted to reflect the number of meetings since the date of appointment, and to exclude meetings where there was conflict of interest for each director. Delphine Cassidy was appointed to the Chair of Nomination and Remuneration Committee on 20 September 2017. Neil Kearney was appointed to the Chair of Audit and Risk Committee on 20 September 2017. Non‑audit services Details of amounts paid or payable to the auditor for non-audit services provided during the year by the auditor are outlined in note 34 to the financial statements. The directors are satisfied that the provision of non-audit services, during the year, by the auditor (or by another person or firm on the auditor’s behalf) is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The directors are of the opinion that the services as disclosed in note 34 to the financial statements do not compromise the external auditors’ independence, based on advice received from the Audit and Risk Management Committee, for the following reasons: • All non-audit services have been reviewed and approved to ensure that they do not impact the integrity and objectivity of the auditor; and • None of the services undermine the general principles relating to auditor independence as set out in APES 110 ‘Code of Ethics for Professional Accountants’ issued by the Accounting Professional & Ethical Standards Board, including reviewing or auditing the auditors 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. 16 DIREC TORS’ REP ORT: REMUNER ATION REP ORT Introduction This remuneration report, which forms part of the Directors’ Report, sets out information about the remuneration of Key Management Personnel (KMP) for the year ended 30 June 2018. The KMP disclosed in this report are listed in the table below: Current Non‑Executive Directors (NED) and Executive Directors Name Iain Kirkwood Neil Kearney Delphine Cassidy Rhett Simonds 1 Piers O’Brien Mark Simonds Scott Mahony Position Independent Non-Executive Director and Chairman Independent Non-Executive Director Independent Non-Executive Director Non-Executive Director Non-Executive Director Executive Director Non-Executive Director Appointment Date 20 September 2017 20 September 2017 20 September 2017 20 April 2016 20 September 2017 20 September 2017 20 September 2017 1. Rhett Simonds was Interim CEO from 7 October 2017 to 4 March 2018. Former 1 Non‑Executive Directors Name Vallence Gary Simonds Susan Oliver Michael Humphris Position Non-Executive Director and Chairman Deputy Chair, Non-Executive Director Non-Executive Director Appointment Date 25 September 2014 Resignation Date 20 September 2017 6 October 2014 20 September 2017 29 March 2017 20 September 2017 1. Former Non-Executive Directors and Senior Executives resigned from their position during the year ended 30 June 2018. Former Non-Executive Director and Chairman Vallence Gary Simonds resigned from his KMP role and has been appointed as an Advisor to the Board of Simonds Group Limited. Current Senior Executives Name Kelvin Ryan Mick Myers John Thorburn Position Chief Executive Officer (CEO) & Managing Director Chief Financial Officer (CFO) Executive General Manager – Housing Appointment Date 5 March 2018 30 May 2016 5 December 2016 Former Senior Executives Name Matthew Chun Rhett Simonds 2 Position Group Chief Executive Officer (CEO) & Managing Director Interim Chief Executive Officer (CEO) Appointment Date 1 April 2016 Cessation Date 6 October 2017 1 6 October 2017 5 March 2018 1. Matthew Chun stepped down as CEO and Managing Director effective 6 October 2017 by mutual agreement with the Board. From this date, Mr Chun was no longer considered a KMP. Mr Chun remained employed by the Company until 12 January 2018. 2. Rhett Simonds was Interim CEO from 7 October 2017 to 4 March 2018. 17 Simonds Group Annual Report 2018 DIREC TORS’ REP ORT: REMUNER ATION REP ORT (CO N T IN U ED) Remuneration Policy Summary The Simonds Group Limited remuneration policy has been designed to ensure its remuneration practices attract, motivate and retain top talent from a diverse range of backgrounds with the experience, knowledge, skills and judgment to drive the Group’s performance and appropriately reward their contribution towards shareholder wealth creation. The key principles that support the remuneration policy are as follows: • employees are rewarded fairly and competitively according to job level, market trends and individual skills, experience and performance; • the reward strategy is in line with the overall business strategy in relation to acquisition, growth and retention of talent; • the reward strategy encompasses elements of salary, benefits, recognition and incentives to support talent management for business and shareholder outcomes; • it is simple, flexible, consistent and scalable across the business allowing for sustainable business growth; • it supports the business strategy whilst reinforcing our culture and values; and • it is regularly reviewed for relevance and reliability. Executive Remuneration Principles and Strategy A key principle of the Group’s approach to executive remuneration is that it should demonstrate strong links with Group performance and shareholder returns. Remuneration is aligned with Group performance by requiring a significant portion of remuneration to vary with short-term and long-term performance. The remuneration of KMP is structured taking into accounts the following factors: • the principles highlighted above; • the level and structure of remuneration paid to executives of other comparable publicly listed Australian companies of a similar size; • the position and responsibilities of each executive; and • other appropriate benchmarks and targets to reward senior executives for the Group and individual performance. Remuneration Governance in Year Ended 30 June 2018 The Board reviews its remuneration policy and practices on a regular basis. The objectives of the Board’s remuneration policy are to: • create a consistent and sustainable system of determining the appropriate level of remuneration of all levels of the Group, including KMP; • encourage KMP to perform to their highest level; and • align the remuneration of KMP with the performance of the business. The policy details the types of remuneration to be offered by the Group and factors to be considered by the Board, Nomination and Remuneration Committee (the Committee) and executives in determining the appropriate remuneration strategy. The Board’s Role in Remuneration The Board approved the Nomination and Remuneration Committee Charter on 17 November 2014. The decisions of the Committee are subject to approval by the Board. The Board also has the authority to directly seek independent, professional and other advisers as required for the Board to carry out its responsibilities. The Board appoints, removes and/or replaces members of the Committee at its discretion. 18 DIREC TORS’ REP ORT: REMUNER ATION REP ORT (CO N T IN U ED) The Nomination and Remuneration Committee (the Committee) The role of the Committee is to assist the Board by providing advice in relation to the remuneration packages for KMP, which includes non-executive directors. It also oversees management succession planning, performance targets and the remuneration of employees generally. The Committee also reviews and makes recommendations to the Board on the Group’s overall remuneration strategy, policies and practices, and monitors the effectiveness of the Group’s overall remuneration framework in achieving the Group’s remuneration strategy. The Committee reviews the remuneration strategy and policy at least once a year and has the authority to engage external professional advisers with the approval of the Board. Any remuneration recommendations have been made free from undue influence by members of the Group’s KMP. The Committee met two times during the year. The CEO, CFO and any remaining directors are also regularly invited to attend meetings. No individuals are present during any discussions related to their own remuneration arrangements. During the year ended 30 June 2018, the Committee was at all times comprised of two non-executive directors. Further details of the Committee’s responsibilities are outlined in the Corporate Governance Statement, available from the Group’s website at www.simondsgroup.com.au. Non‑Executive Director Remuneration Non-executive directors are remunerated by way of fixed fees in the form of cash and superannuation in accordance with Recommendation 8.3 of the ASX Corporate Governance Council’s Principles and Recommendations. During the year ended 30 June 2018, fees paid to non-executive directors totalled $600,719 (exclusive of superannuation and cash salary and fees). Shareholdings of non-executive directors are set out on page 30 of the Directors’ Report. The Company and each of the non-executive directors have agreed terms of appointment (as permitted under the ASX Listing Rules). Non-executive directors are not appointed for a specific term and their appointment may be terminated by notice from the individual director or otherwise pursuant to section 203B or 203D of the Corporations Act 2001. The maximum annual aggregate directors’ fee pool limit is $750,000 and was approved at the Annual General Meeting of Simonds Group Limited held on 2 October 2014. Remuneration tables for non-executive directors for the year ended 30 June 2018 are set out commencing on page 24 of this remuneration report. KMP Remuneration Framework The KMP remuneration framework comprises three principal elements: • a total employment cost (TEC) comprising a fixed component, consisting of a base salary, superannuation contributions and other related allowances; • a performance based, variable ‘at risk’ component, comprising cash and/or equity settled short-term incentives (STI); and • a performance and service based, variable ‘at risk’ component, comprising of options and/or performance rights and/or cash equivalents referred to as long-term incentives (LTI). Executive Remuneration Components TEC overview TEC is benchmarked against the market median, also known as the 50th percentile, referencing market practice and comparable and similar sized organisations. While comparative levels of remuneration are monitored on a periodic basis, there is no contractual requirement or expectation that any adjustments will be made. 19 Simonds Group Annual Report 2018 DIREC TORS’ REP ORT: REMUNER ATION REP ORT (CO N T IN U ED) STI overview The Group STI Plan ensures that a proportion of remuneration is tied to Group performance measured annually in line with the financial year. Executives can only realise their STI at-risk component if challenging pre-determined objectives are achieved. The achievement of budgeted Group EBITDA is an initial gateway to realise a STI amount. All STI’s are subject to the achievement of relevant key performance measures which are determined with reference to the Balanced Scorecard approach. The Balance Scorecard Approach encompasses the following areas of focus: Financial, Operational, Customer and People, Safety and Values. This aligns executive interests with shareholder interests and focuses executive performance on those areas aligned to the achievement of the Group’s operational strategy. The STI payment is made in cash or in shares at the Board’s discretion as part of the annual remuneration review after finalisation of the Group’s audited results. LTI overview The Group’s LTI Plan ensures that a proportion of remuneration is tied to Group performance over the long term and measured annually in line with the financial year. Executives can only realise their LTI at-risk component if challenging pre-determined objectives are achieved. This aligns executive interests with shareholder interests and focuses executive performance on sound business decisions resulting in sustainable shareholder wealth. LTI consists of the granting of Performance Rights and/or options and/or cash equivalents that vest after a defined period, subject to Group and individual financial and non-financial performance hurdles. Vesting conditions may be waived at the absolute discretion of the Board. Long term Incentive Key Features Award Structure FY2018 Cash Rights The Cash Rights will be granted for nil consideration Consideration for the Cash Rights Each tranche has a vesting period of approximately three years. Vesting Period Performance Measure Vesting of Cash Rights is dependent on two discrete performance measures (hurdles): Grant Date Tranche 1 Total Share Holder Return (TSR) representing 50% of the Cash Rights Granted Tranche 2 CAGR EPS representing 50% of the Cash Rights Granted 24 November 2017 Up to 50% of the Cash Rights granted will vest if the Group’s (TSR) achieves a percentile ranking against the constituent companies within the S&P ASX Small Ordinaries Index (ASX Code XSI), excluding resource companies, over the Measurement Period. Percentile Ranking and percentage vesting rights are outlined below. The Measurement Period for the Compound Annual Growth Rate (CAGR) EPS Hurdle is across the three financial years across the period 1 July 2017 to 30 June 2020. Simonds Group Limited Percentile Ranking Percentage of Cash Rights to vest Less than the 50th percentile Between the 50th and 75th percentile None 50% (straight-line interpolation between the 50th and 75th percentile) 100% At or above the 75th percentile TSR Vesting Schedule (Tranche 1) 20 DIREC TORS’ REP ORT: REMUNER ATION REP ORT (CO N T IN U ED) Award Structure FY2018 Cash Rights CAGR EPS Vesting Schedule (Tranche 2) Service Vesting Condition Award Structure CAGR in EPS Less than 7.5% per annum Between 7.5% and 10% per annum At or above 10.0% per annum The Service Vesting Condition is continuous employment with the Company from Grant date to vesting date. Percentage of Cash Rights to vest: None Straight line interpolation applies 100% FY2017 Performance Rights The Performance Rights will be granted for nil consideration Consideration for the Performance Rights Each tranche has a vesting period of approximately three years. Vesting Period Performance Measure Vesting of Cash Rights is dependent on two discrete performance measures (hurdles): Grant Date Tranche 1 Total Share Holder Return (TSR) representing 50% of the Performance Rights Granted Tranche 2 CAGR EPS representing 50% of the Performance Rights Granted 31 January 2017 Up to 50% of the Performance Rights granted will vest if the Group’s (TSR) achieves a percentile ranking against the constituent companies within the S&P ASX Small Ordinaries Index (ASX Code XSI), excluding resource companies, over the Measurement Period. Percentile Ranking and percentage vesting rights are outlined below. The Measurement Period for the Compound Annual Growth Rate (CAGR) EPS Hurdle is across the three financial years across the period 1 July 2016 to 30 June 2019. Simonds Group Limited Percentile Ranking Percentage of Performance Rights to vest Less than the 50th percentile Between the 50th and 75th percentile None 50% (straight-line interpolation between the 50th and 75th percentile) 100% At or above the 75th percentile TSR Vesting Schedule (Tranche 1) CAGR EPS Vesting Schedule (Tranche 2) & CEO Options Service Vesting Condition CAGR in EPS Less than 7.5% per annum Between 7.5% and 10% per annum At or above 10.0% per annum The Service Vesting Condition is continuous employment with the Company from Grant date to 30 September 2019. Percentage of Performance Rights to vest: None Straight line interpolation applies 100% 21 Simonds Group Annual Report 2018 DIREC TORS’ REP ORT: REMUNER ATION REP ORT (CO N T IN U ED) Award Structure FY2017 CEO Options Options carry an exercise price of $0.40 Consideration for Options Vesting Period Performance Measure Vesting of options is dependent on one discrete performance measure (hurdle): Vesting Schedule Vesting period of approximately three years. Grant Date: 31 January 2017 CAGR in EPS Less than 7.5% per annum Between 7.5% and 10% per annum At or above 10.0% per annum The Service Vesting Condition is continuous employment with the Company from Grant date to 30 September 2019 1. Percentage of Options to vest: None Straight line interpolation applies 100% Service Vesting Condition 1. At the discretion of the Board it has been agreed that a quantity of these options will continue vesting after the cessation date of the employee. The quantity of options that will continue to vest is based on a pro-rata basis, dependant on time employed during the plan, to the date of cessation of employment. The TSR and EPS hurdles will remain in place and be tested at the applicable testing date. Award Structure FY2016 Performance Rights The Performance Rights will be granted for nil consideration. Consideration for the Performance Rights Vesting Period Performance Measure Vesting of Performance Rights is dependent on two discrete performance measures (hurdles): Each tranche has a vesting period of approximately three years. Grant Date Tranche 1 Total Share Holder Return (TSR) representing 50% of the Performance Rights Granted. Tranche 2 CAGR EPS representing 50% of the Performance Rights Granted. 30 November 2015 Up to 50% of the Performance Rights granted will vest if the Group’s (TSR) achieves a percentile ranking against the constituent companies within the S&P ASX Small Ordinaries Index (ASX Code XSI), excluding resource companies, over the Measurement Period. Percentile Ranking and percentage vesting rights are outlined below. The Measurement Period for the Compound Annual Growth Rate (CAGR) EPS Hurdle is across the three financial years across the period 1 July 2015 to 30 June 2018. Simonds Group Limited Percentile Ranking Percentage of Performance Rights to vest Less than the 50th percentile Between the 50th and 75th percentile None 50% (straight-line interpolation between the 50th and 75th percentile) 100% At or above the 75th percentile CAGR in EPS Less than 7.5% per annum Between 7.5% and 10% per annum At or above 10.0% per annum The Service Vesting Condition is continuous employment with the Company from Grant date to 31 August 2018. Percentage of Performance Rights to vest: None Straight line interpolation applies 100% TSR Vesting Schedule (Tranche 1) CAGR EPS Vesting Schedule (Tranche 2) Service Vesting Condition 22 DIREC TORS’ REP ORT: REMUNER ATION REP ORT (CO N T IN U ED) Remuneration Structure and Performance/Shareholder Wealth Creation The Group’s annual financial performance and indicators of shareholder wealth are summarised below. FY2018 Statutory Actual (Continuing Operations) FY2017 Statutory Actual (Continuing Operations) FY2016 Statutory Actual (Continuing Operations) FY2015 FY2014 Pro Forma Actual Statutory Actual $m 605.2 13.7 1 4.8 0.31 0.36 – 3.31 $m 587.4 10.1 2.1 0.28 0.31 – 1.44 $m 628.5 4.4 (2.2) 1.40 0.28 – (1.53) $m 634.4 34.8 21.1 – 1.40 5.30 15.64 $m 543.8 15.7 7.5 – – – – Financial Performance Revenue EBITDA NPAT Share Price at beginning of period ($) Share Price at end of period ($) Dividends (cents per share) EPS (cents per share) 1. Statutory EBITDA is net profit after tax from continuing operations $4.767m before financing items $1.278m, tax expenses $2.400m, and depreciation and amortisation $5.247m. 23 Simonds Group Annual Report 2018 DIREC TORS’ REP ORT: REMUNER ATION REP ORT (CO N T IN U ED) Remuneration Tables – Details of KMP Remuneration Details of the remuneration of KMP, including directors (as defined in AASB 124 Related Party Disclosures) of the Group are set out in the following tables. Comparative information is also included below. Short Term Employee Benefits Directors Fees $ Cash Salary and Fees $ Short Term Incentive $ Non-monetary benefits $ Termination Benefits Termination Payments $ Post- employment benefits Long-term benefits Share-based Payments (SBP) Super Annual Leave Leave Rights/Options Long Service Performance Percentage of remuneration fixed and at risk Total $ Fixed % At Risk 121,215 85,563 85,563 52,300 67,737 34,428 67,737 45,662 44,954 29,988 635,147 – – – – 635,147 – – – 133,729 – 69,732 – – – – 203,461 189,598 290,961 404,951 310,167 1,195,677 1,399,138 – – – – – – – – – – – 193,973 125,000 125,000 144,986 588,959 588,959 – – – – – – – 1,763 – – 1,763 2,569 8,246 7,946 2,133 20,894 22,657 – – – – – – – – – – – – – – 464,891 464,891 464,891 $ 11,515 8,129 8,129 14,221 6,435 9,895 6,435 4,338 4,271 2,849 76,217 9,250 20,049 20,049 12,198 61,546 137,763 $ – – – – – – – – – 1,667 1,667 14,584 10,952 22,219 15,491 63,246 64,913 $ – – – – – 52 – – – – 52 141 1,380 864 – 2,385 2,437 $ – – – – – – – – – – – – 69,066 69,066 57,619 195,751 195,751 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 53% 63% 70% 80% 132,730 93,692 93,692 200,250 74,172 115,774 74,172 51,763 49,225 32,837 918,307 410,115 525,654 650,095 1,007,485 2,593,349 3,511,656 % – – – – – – – – – – 47% 37% 30% 20% FY2018 Current Non‑Executive and Executive Directors I Kirkwood N Kearney D Cassidy R Simonds 1 P O’Brien M Simonds S Mahony Former Non‑Executive Directors V G Simonds S Oliver M Humphris Total Current Senior Executives K Ryan 2 M Myers J Thorburn Former Senior Executives M Chun 3 Total Total KMP 1. Rhett Simonds was Interim CEO from 7 October 2017 to 4 March 2018, and in that capacity received a salary. 2. Kelvin Ryan was appointed as CEO and Managing Director on 5 March 2018. 3. Matthew Chun stepped down as CEO and Managing Director effective 6 October 2017 by mutual agreement with the Board. From this date, Mr Chun was no longer considered a KMP. Mr Chun remained employed by the Company until 12 January 2018. 24 Remuneration Tables – Details of KMP Remuneration Details of the remuneration of KMP, including directors (as defined in AASB 124 Related Party Disclosures) of the Group are set out in the following tables. Comparative information is also included below. FY2018 Current Non‑Executive and Executive Directors Directors Fees $ I Kirkwood N Kearney D Cassidy R Simonds 1 P O’Brien M Simonds S Mahony Directors V G Simonds S Oliver M Humphris Total K Ryan 2 M Myers J Thorburn M Chun 3 Total Total KMP Former Non‑Executive Current Senior Executives Former Senior Executives Short Term Employee Benefits Cash Salary and Fees Short Term Non-monetary Incentive benefits Termination Benefits Termination Payments $ – – – – – – – – 133,729 69,732 203,461 189,598 290,961 404,951 310,167 1,195,677 1,399,138 $ – – – – – – – – – – – 193,973 125,000 125,000 144,986 588,959 588,959 121,215 85,563 85,563 52,300 67,737 34,428 67,737 45,662 44,954 29,988 635,147 – – – – 635,147 $ – – – – – – – – – 1,763 1,763 2,569 8,246 7,946 2,133 20,894 22,657 $ – – – – – – – – – – – – – – 464,891 464,891 464,891 1. Rhett Simonds was Interim CEO from 7 October 2017 to 4 March 2018, and in that capacity received a salary. 2. Kelvin Ryan was appointed as CEO and Managing Director on 5 March 2018. 3. Matthew Chun stepped down as CEO and Managing Director effective 6 October 2017 by mutual agreement with the Board. From this date, Mr Chun was no longer considered a KMP. Mr Chun remained employed by the Company until 12 January 2018. DIREC TORS’ REP ORT: REMUNER ATION REP ORT (CO N T IN U ED) Post- employment benefits Long-term benefits Share-based Payments (SBP) Super $ Annual Leave $ Long Service Leave $ Performance Rights/Options $ Percentage of remuneration fixed and at risk Total $ Fixed % At Risk % 11,515 8,129 8,129 14,221 6,435 9,895 6,435 4,338 4,271 2,849 76,217 9,250 20,049 20,049 12,198 61,546 137,763 – – – – – 1,667 – – – – 1,667 14,584 10,952 22,219 15,491 63,246 64,913 – – – – – 52 – – – – 52 141 1,380 864 – 2,385 2,437 – – – – – – – – – – – – 69,066 69,066 57,619 195,751 195,751 132,730 93,692 93,692 200,250 74,172 115,774 74,172 51,763 49,225 32,837 918,307 410,115 525,654 650,095 1,007,485 2,593,349 3,511,656 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 53% 63% 70% 80% – – – – – – – – – – 47% 37% 30% 20% 25 Simonds Group Annual Report 2018 DIREC TORS’ REP ORT: REMUNER ATION REP ORT (CO N T IN U ED) Remuneration Tables – Details of KMP Remuneration (continued) Short Term Employee Benefits Directors Fees $ Cash Salary and Fees $ Short Term Incentive $ Non-monetary benefits $ Termination Benefits Termination Payments $ 182,648 186,638 75,516 44,977 31,373 521,152 – – – – 521,152 – 30,000 – – – 30,000 595,385 300,000 194,630 1,090,015 1,120,015 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – FY2017 Current and Former Non‑Executive Directors V G Simonds S Oliver L Gorr R Simonds M Humphris Total Non‑Executive Directors Current and Former Senior Executives M Chun M Myers J Thorburn Total Senior Executives Total KMP Post- employment benefits Long-term benefits Share-based Payments (SBP) Super Annual Leave Leave Rights/Options Long Service Performance Percentage of remunera- tion fixed and at risk Total $ Fixed % At Risk $ 17,352 17,730 7,174 4,273 2,980 49,509 19,616 19,616 12,503 51,735 101,244 $ – – – – – – $ – – – – – – $ – – – – – – 10,567 16,626 8,209 35,402 35,402 1,325 582 169 2,076 2,076 88,192 14,091 14,091 116,374 116,374 100% 100% 100% 100% 100% 88% 96% 94% 200,000 234,368 82,690 49,250 34,353 600,661 715,085 350,915 229,602 1,295,602 1,896,263 % – – – – – 12% 4% 6% 26 Remuneration Tables – Details of KMP Remuneration (continued) Short Term Employee Benefits Cash Salary and Fees Short Term Non-monetary Incentive benefits Termination Benefits Termination Payments FY2017 Current and Former Non‑Executive Directors Directors Fees $ Total Non‑Executive Directors Current and Former Senior V G Simonds S Oliver L Gorr R Simonds M Humphris Executives M Chun M Myers J Thorburn Total KMP Total Senior Executives 182,648 186,638 75,516 44,977 31,373 521,152 – – – – 521,152 $ – – – – 30,000 30,000 595,385 300,000 194,630 1,090,015 1,120,015 $ – – – – – – – – – – – $ – – – – – – – – – – – $ – – – – – – – – – – – DIREC TORS’ REP ORT: REMUNER ATION REP ORT (CO N T IN U ED) Post- employment benefits Long-term benefits Share-based Payments (SBP) Super $ Annual Leave $ Long Service Leave $ Performance Rights/Options $ Percentage of remunera- tion fixed and at risk Total $ Fixed % At Risk % 17,352 17,730 7,174 4,273 2,980 49,509 19,616 19,616 12,503 51,735 101,244 – – – – – – 10,567 16,626 8,209 35,402 35,402 – – – – – – 1,325 582 169 2,076 2,076 – – – – – – 88,192 14,091 14,091 116,374 116,374 200,000 234,368 82,690 49,250 34,353 600,661 715,085 350,915 229,602 1,295,602 1,896,263 100% 100% 100% 100% 100% 88% 96% 94% – – – – – 12% 4% 6% 27 Simonds Group Annual Report 2018 DIREC TORS’ REP ORT: REMUNER ATION REP ORT (CO N T IN U ED) Key terms of the Executive Services Agreement Group Chief Executive Officer (CEO) & Managing Director The material terms of the Executive Services Agreement between Kelvin Ryan and the Company for the role of Group Chief Executive Officer (CEO) & Managing Director are as follows: Term: Total Employment Cost (TEC): Short Term Incentive (STI) for FY18: Long Term Incentive (LTI) for FY18: Notice Period/Termination Entitlements: Post‑Employment Restraint: STI Payments to KMP No fixed term. Ongoing until terminated by either party in accordance with the Agreement. $600,000 per annum including superannuation, reviewed annually. Maximum opportunity of $600,000 per annum, subject to performance. If performance is achieved in FY2018 the STI will be pro-rata from commencement date to 30 June 2018. LTI eligibility will commence in FY19 and will be allocated pursuant to the Simonds Group Employee Share Plan. 12 months by either party. Employment may be ended immediately in certain circumstances including misconduct, incapacity, and mutual agreement or in the event of a fundamental change in the CEO’s role or responsibilities. The Company may elect to make a payment in lieu of any unserved notice period. A 6 month post-employment restraint provision applies. All STIs are subject to the achievement of relevant key performance measures which are determined with reference to the Balanced Scorecard approach. The Balance Scorecard approach encompasses the following areas of focus: Financial, Operational, Customer and People, Safety and Values. KMP LTI The following tables provide the details of performance rights allocated to the KMP pursuant to the LTI Plan. Number of equity instruments granted, vested and expired/forfeited – performance rights Performance Rights 1 July 2018 453,401 314,861 314,861 Performance Rights Granted – 403,226 403,226 Performance Rights Vested – – – Performance Rights Expired/ Forfeited (337,718) – – FY2018 Balance 30 June 2018 115,683 718,087 718,087 1,083,123 806,452 – (337,718) 1,551,857 Performance Rights 1 July 2016 – – – Performance Rights Granted 453,401 314,861 314,861 Performance Rights Vested – – – Performance Rights Expired/ Forfeited – – – FY2017 Balance 30 June 2017 453,401 314,861 314,861 – 1,083,123 – – 1,083,123 Name M Chun M Myers J Thorburn Total Name M Chun M Myers J Thorburn Total 28 DIREC TORS’ REP ORT: REMUNER ATION REP ORT (CO N T IN U ED) Number of equity instruments granted, vested and expired/forfeited – options Name M Chun M Chun Options 1 July 2017 4,000,000 Options Granted – Options Vested – Name Options 1 July 2016 – Options Granted Options Vested – 4,000,000 Options Expired/ Forfeited (2,979,424) Options Expired/ Forfeited – FY2018 Balance 30 June 2018 1,020,576 FY2017 Balance 30 June 2017 4,000,000 Value of performance rights granted, exercised and expired/forfeited – performance rights Rights issue Tranche Fair value at grant date $ per share No. of Perfor- mance Rights Accounting Fair Value at grant date $ Exercised/ Vested $ Expired/ Forfeited $ Accrued Fair Value at 30 June $ FY2018 M Myers FY2018 J Thorburn FY2018 M Chun FY2017 M Myers FY2017 J Thorburn FY2017 FY2017 M Chun FY2017 M Myers FY2017 J Thorburn FY2017 TSR EPS TSR EPS TSR EPS TSR EPS TSR EPS TSR EPS TSR EPS TSR EPS 0.19 0.30 0.19 0.30 0.23 0.35 0.23 0.35 0.23 0.35 0.23 0.35 0.23 0.35 0.23 0.35 201,613 201,613 201,613 201,613 226,701 226,700 157,431 157,430 157,431 157,430 226,701 226,700 157,431 157,430 157,431 157,430 38,306 60,484 38,306 60,484 52,141 79,345 36,209 55,100 36,209 55,100 52,141 79,345 36,209 55,100 36,209 55,100 – – – – – – – – – – – – – – – – – – – – 38,837 59,101 – – – – – – – – – – 12,478 22,300 12,478 22,300 13,304 20,244 19,185 29,194 19,185 29,194 8,046 12,245 5,588 8,503 5,588 8,503 29 Simonds Group Annual Report 2018 DIREC TORS’ REP ORT: REMUNER ATION REP ORT (CO N T IN U ED) Value of performance options granted, exercised and expired/forfeited – performance options FY2018 M Chun FY2017 M Chun Options issue Tranche FY2017 EPS (Options) FY2017 EPS (Options) Fair value at grant date $ per share No. of Perfor- mance Options Accounting Fair Value at grant date $ Exercised/ Vested $ Expired/ Forfeited $ Accrued Fair Value at 30 June $ 0.11 4,000,000 440,000 – 327,737 112,263 0.11 4,000,000 440,000 – – 440,000 Non‑Executive Directors and KMP Shareholdings Shareholdings of non-executive directors and KMP are set out below: FY2018 Name Non‑Executive and Executive Directors (Current and Former) R Simonds M Simonds V.G Simonds S Oliver I Kirkwood Total Non‑Executive Directors Senior Executives Total Senior Executive Total KMP Opening balance 14,044 – 56,138,895 44,000 – 56,196,939 – – 56,196,939 Number of shares Acquired Other 1 Closing balance – – – – 75,000 75,000 – – 75,000 – 56,741 (56,138,895) (44,000) – (56,126,154) – – (56,126,154) 14,044 56,741 – – 75,000 145,785 – – 145,785 1. Other relates to when KMP took up their position or ceased their position with the Company. 30 DIREC TORS’ REP ORT: REMUNER ATION REP ORT (CO N T IN U ED) FY2017 Number of shares Name Non‑executive and Executive Directors (Current and Former) V.G Simonds S Oliver L Gorr R Simonds M Humphris Total Non‑Executive Directors Senior Executives M Chun M Myers J Thorburn Total Senior Executive Total KMP Executive Service Agreements Name K Ryan M Myers J Thorburn Loans to Director Opening balance 56,138,895 44,000 461,180 14,044 – 56,658,119 – – – – 56,658,119 Acquired Other Closing balance – – – – – – – – – – – – – (461,180) – – 56,138,895 44,000 – 14,044 – (461,180) 56,196,939 – – – – – – – (461,180) – 56,196,939 Minimum Notice Period Contract Length No fixed term No fixed term No fixed term Termination by Executive 12 months 6 months 3 months Termination by Company 12 months 6 months 3 months The Group has not provided any loans to directors or their related parties during the year ended 30 June 2018 (2017: Nil). 31 Simonds Group Annual Report 2018 DIREC TORS’ REP ORT: REMUNER ATION REP ORT (CO N T IN U ED) Other KMP Transactions During the financial year, the Group entered into a number of transactions with related parties of KMP. Profit for the year includes the following items of revenue and expense that resulted from transactions, other than compensation, loans or equity holdings, with KMP or their related entities: Sale of goods Leases and services rendered Non-cash remuneration 30 June 2018 $ 30 June 2017 $ 30 June 2018 $ 30 June 2017 $ 30 June 2018 $ 30 June 2017 $ Vallence Gary Simonds and related entities: Properties leased on an arms-length basis Services received from OZSoft Solutions Pty Ltd (VETrack) and RTOMS Pty Ltd 1 Consulting expense incurred during the year Remuneration for employee services Car Park provided Leon Gorr and related entities: Legal services provided by HWL Ebsworth Lawyers Matthew Chun and related entities: Construction of a residential home provided on an arms-length basis John Thorburn and related entities: Lease of display home on an arms-length basis Total – – – – – – – – – – – – – – – – – 683,400 – 683,400 267,192 522,485 – 286,198 71,303 – 130,644 96,480 – – – – – 469,139 – 905,163 6,183 6,183 – – – – 83,285 83,285 – – – – – – – 261,000 152,250 261,000 152,250 683,400 730,139 1,140,698 6,183 – – – – – – – – – – – – – – – – – – – 1. Related entities of Vallence Gary Simonds sold OZSoft Solutions Pty Ltd (VETrack) and RTOMS Pty Ltd in May 2017. From this date these companies are no longer considered related parties. 32 DIREC TORS’ REP ORT (CO N T IN U ED) Auditor’s independence declaration The auditor’s independence declaration is included after this report on page 34. Rounding of amounts The Company is a company of the kind referred to in ASIC Corporations (Rounding in Financial/Directors’ Reports) Instrument 2016/191, dated 24 March 2016, and in accordance with that Class Order amounts in the financial report are rounded off to the nearest thousand dollars, unless otherwise indicated. This directors’ report is signed in accordance with a resolution of directors made to pursuant to s.298 (2) of the Corporations Act 2001. On behalf of the directors Iain Kirkwood Chairman Kelvin Ryan Chief Executive Officer and Managing Director Melbourne, 29 August 2018 33 Simonds Group Annual Report 2018 AUDITOR ’ S INDEPENDENCE DECL AR ATION Deloitte Touche Tohmatsu ABN 74 490 121 060 550 Bourke Street Melbourne VIC 3000 GPO Box 78 Melbourne VIC 3001 Australia DX 111 Tel: +61 3 9671 7000 Fax: +61 3 9671 7001 www.deloitte.com.au 29 August 2018 The Board of Directors Simonds Group Limited Level 4, 570 St Kilda Road MELBOURNE VIC 3000 Simonds Group Limited In accordance with section 307C of the Corporations Act 2001, I am pleased to provide the following declaration of independence to the directors of Simonds Group Limited. As lead audit partner for the audit of the financial report of Simonds Group Limited for the financial year ended 30 June 2018, I declare that to the best of my knowledge and belief, there have been no contraventions of: (i) the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and (ii) any applicable code of professional conduct in relation to the audit. Yours faithfully, DELOITTE TOUCHE TOHMATSU Genevra Cavallo Partner Chartered Accountants Member of Deloitte Touche Tohmatsu Limited Liability limited by a scheme approved under Professional Standards Legislation 34 34 INDEPENDENT AUDITOR ’ S REP ORT Deloitte Touche Tohmatsu ABN 74 490 121 060 550 Bourke Street Melbourne VIC 3000 GPO Box 78 Melbourne VIC 3001 Australia DX 111 Tel: +61 3 9671 7000 Fax: +61 3 9671 7001 www.deloitte.com.au Independent Auditor’s Report to the Members of Simonds Group Limited Report on the Audit of the Financial Report Opinion We have audited the financial report of Simonds Group Limited (the “Company”) and its subsidiaries (the “Group”) which comprises the consolidated statement of financial position as at 30 June 2018, the consolidated statement of profit or loss and other comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies and other explanatory information, and the directors’ declaration. In our opinion, the accompanying 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 2018 and of its financial performance for the year then ended; and (ii) complying with Australian Accounting Standards and the Corporations Regulations 2001. Basis for Opinion We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report. We are independent of the Group in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. We confirm that the independence declaration required by the Corporations Act 2001, which has been given to the directors of the Company, would be in the same terms if given to the directors as at the time of this auditor’s report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key Audit Matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report for the current period. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Member of Deloitte Touche Tohmatsu Limited Liability limited by a scheme approved under Professional Standards Legislation 35 Simonds Group Annual Report 2018 INDEPENDENT AUDITOR ’ S REP ORT (CO N T IN U ED) Key Audit Matter How the scope of our audit responded to the Key Audit Matter Recognition of revenue and work progress on construction contracts in Revenue For the year ended 30 June 2018, the Group’s revenue from construction contracts totalled $593.067m. construction contracts is recognised with reference to the stage of completion of the contract activity at the end of the reporting period, measured based on the proportion of contract costs incurred for work performed to date relative to the estimated total contract costs as disclosed in Note 3.7.1. from As disclosed in Note 4, significant management estimation is required in assessing the following: Estimation of total contract revenue and - costs; and - Determination of stage of completion. Our audit procedures included, but were not limited to: Obtaining an understanding of the process undertaken by management to account for the recognition of revenue and work in progress; Testing key controls in respect of the revenue process, Assessing management’s determination of the percentage of completion allocated to each stage of the build process against historical cost profiles; Testing a sample of inputs into the model used to establish management’s percentage of completion allocated to each stage; Assessing management’s estimation of costs to complete, including comparing historical actual performance against forecast; Recalculating, on a sample basis, revenue recognised based on the stage of completion of selected jobs; Challenging contracts which exhibited heightened risk characteristics; and Agreeing, on a sample basis, job data back to source including customer contracts, documentation, approved variations and job costs. We also assessed the appropriateness of the disclosures in Notes 3.7.1 and 4 to the financial statements. Other Information The directors are responsible for the other information. The other information comprises the Directors’ Report, ASX announcement and full year results presentation which we obtained prior to the date of the auditor’s report, and also includes the following information which will be included in the Group’s annual report (but does not include the financial report and our auditor’s report thereon): the Chairman’s Welcome Letter, Letter from the Group CEO and Managing Director, Financial Highlights and additional securities exchange information, which is expected to be made available to us after that date. Our opinion on the financial report does not cover the other information and we do not and will not express any form of assurance conclusion thereon. In connection with our audit of the financial report, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed on the other information that we obtained prior to the date of this auditor’s report, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. When we read the Chairman’s Welcome Letter, Letter from the Group CEO and Managing Director and Financial Highlights, if we conclude that there is a material misstatement therein, we are required to communicate the matter to the directors and use our professional judgment to determine the appropriate action. 36 INDEPENDENT AUDITOR ’ S REP ORT (CO N T IN U ED) Responsibilities of the Directors for the Financial Report The directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. In preparing the financial report, the directors are responsible for assessing the ability of the Group to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or has no realistic alternative but to do so. Auditor’s Responsibilities for the Audit of the Financial Report Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this financial report. As part of an audit in accordance with the Australian Auditing Standards, we exercise professional judgement and maintain professional scepticism throughout the audit. We also: Identify and assess the risks of material misstatement of the financial report, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors. Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial report or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern. Evaluate the overall presentation, structure and content of the financial report, including the disclosures, and whether the financial report represents the underlying transactions and events in a manner that achieves fair presentation. Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the financial report. We are responsible for the direction, supervision and performance of the Group’s audit. We remain solely responsible for our audit opinion. 37 Simonds Group Annual Report 2018 INDEPENDENT AUDITOR ’ S REP ORT (CO N T IN U ED) We communicate with the directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide the directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with the directors, we determine those matters that were of most significance in the audit of the financial report of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. Report on the Remuneration Report Opinion on the Remuneration Report We have audited the Remuneration Report included in pages 17 to 32 of the Directors’ Report for the year ended 30 June 2018. In our opinion, the Remuneration Report of Simonds Group Limited, for the year ended 30 June 2018, complies with section 300A of the Corporations Act 2001. Responsibilities The directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. DELOITTE TOUCHE TOHMATSU Genevra Cavallo Partner Chartered Accountants Melbourne, 29 August 2018 38 DIREC TORS’ DECL AR ATION The directors declare that: a) b) c) in the directors’ opinion, there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable; in the directors’ opinion, the attached financial statements are in compliance with International Financial Reporting Standards, as stated in note 3.1 to the financial statements; and in the directors’ opinion, the attached financial statements and notes thereto are in accordance with the Corporations Act 2001, including compliance with accounting standards and giving a true and fair view of the financial position and performance of the consolidated entity d) the directors have been given the declarations required by s.295A of the Corporations Act 2001. At the date of this declaration, the Company is within the class of companies affected by ASIC Class Order 98/1418. The nature of the deed of cross guarantee is such that each company which is party to the deed guarantees to each creditor payment in full of any debt in accordance with the deed of cross guarantee. In the directors’ opinion, there are reasonable grounds to believe that the Company and the companies to which the ASIC Class Order applies, as detailed in note 3.4 to the financial statements will, as a group, be able to meet any obligations or liabilities to which they are, or may become, subject by virtue of the deed of cross guarantee. Signed in accordance with a resolution of the directors made pursuant to s.295 (5) of the Corporations Act 2001. On behalf of the Directors Iain Kirkwood Chairman Kelvin Ryan Chief Executive Officer and Managing Director Melbourne, 29 August 2018 39 Simonds Group Annual Report 2018 CONSOLIDATED S TATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YE AR ENDED 30 J UNE 2018 Notes 30 June 2018 $’000 30 June 2017 $’000 5 11 12 17,18 7 8 9 10 13 13 13 13 605,164 (471,838) 133,326 (118,018) 15,308 (1,616) 13,692 (5,247) 8,445 2 (1,280) (1,278) 7,167 (2,400) 4,767 (993) 3,774 236 4,010 3.31 3.31 2.62 2.62 587,369 (461,436) 125,933 (112,096) 13,837 (3,703) 10,134 (5,020) 5,114 1 (1,728) (1,727) 3,387 (1,309) 2,078 (1,873) 205 – 205 1.44 1.44 0.14 0.14 Continuing operations Revenue Cost of sales Gross profit Expenses Profit before significant items, financing items, depreciation and amortisation Significant items Profit before financing items, depreciation and amortisation Depreciation and amortisation charges Profit before financing items and tax Financing items Interest income Interest expense Net financing cost Profit before tax Income tax expense Profit from continuing operations after tax Discontinued operations Loss from discontinued operations after tax Profit after tax for the year Other comprehensive income, net of income tax Items that may be reclassified subsequently to profit or loss Net fair value gain on available for sale financial asset Total comprehensive income for the year Earnings per share From continuing operations Basic (cents per share) Diluted (cents per share) From continuing and discontinued operations Basic (cents per share) Diluted (cents per share) The accompanying notes form part of these financial statements. 40 CONSOLIDATED S TATEMENT OF FINANCIAL P OSITION A S AT 30 J UNE 2018 Notes 30 June 2018 $’000 30 June 2017 $’000 Assets Current Assets Cash and bank balances Trade and other receivables Inventories Other financial assets Tax receivable Other assets Total current assets Non-Current Assets Property, plant and equipment Intangible assets Total non-current assets Total assets Liabilities Current Liabilities Trade and other payables Tax payable Borrowings Provisions Deposits and income in advance Total current liabilities Non-Current Liabilities Borrowings Provisions Deferred tax liabilities Total non-current Liabilities Total liabilities Net assets/(liabilities) Equity Issued capital Reserves Accumulated losses Total equity The accompanying notes form part of these financial statements. 35 14 15 20 9 19 17 18 21 9 22 23 24 22 23 9 25 26 27 7,010 34,947 67,907 1,197 – 2,363 113,424 7,177 5,667 12,844 126,268 71,739 3,432 2,362 12,497 20,020 110,050 5,736 8,205 1,251 15,192 125,242 1,026 10,204 32,690 48,185 1,260 1,441 3,174 96,954 7,878 5,676 13,554 110,508 61,168 – 3,875 12,989 13,774 91,806 11,349 7,878 2,600 21,827 113,633 (3,125) 12,904 23,423 (35,301) 12,911 23,039 (39,075) 1,026 (3,125) 41 Simonds Group Annual Report 2018 CONSOLIDATED S TATEMENT OF CHANGES IN EQUIT Y FOR THE YE AR ENDED 30 J UNE 2018 Notes 32 32 Consolidated Balance at 1 July 2016 Employee share plan expense Performance and service rights vested/forfeited Total comprehensive income for the year Balance at 30 June 2017 Share based payments reserve $’000 30,248 229 (234) Share buy-back reserve $’000 (7,204) – – Issued capital $’000 12,911 – – – – – 12,911 30,243 (7,204) Balance at 1 July 2017 12,911 30,243 (7,204) Profit after tax for the year Other comprehensive income for the year, net income tax Total comprehensive income for the year Treasury shares Employee share plan expense Performance and service rights vested/forfeited 25 32 32 – – – (7) – – – – – – 832 (684) – – – – – – Investment revaluation reserve $’000 – – – – – – 236 236 – – – Accumu- lated losses $’000 (39,280) – – Total $’000 (3,325) 229 (234) 205 205 (39,075) (3,125) (39,075) (3,125) 3,774 – 3,774 236 3,774 4,010 – – – (7) 832 (684) Balance at 30 June 2018 12,904 30,391 (7,204) 236 (35,301) 1,026 The accompanying notes form part of these financial statements. 42 CONSOLIDATED S TATEMENT OF C A SH FLOWS FOR THE YE AR ENDED 30 J UNE 2018 Cash flows from operating activities Receipts from customers Payments to suppliers and employees Cash generated from operations Transaction costs associated with proposed Scheme of Arrangement Interest paid Income taxes refunded Net cash generated from operating activities Cash flows from/(used in) investing activities Interest received Proceeds from disposal of property, plant and equipment Net cash inflow on disposal of subsidiary Payments for property, plant and equipment Payments for intangibles assets Net cash (used in) investing activities Cash flows from/(used in) financing activities Proceeds from borrowings Repayment of borrowings Payment for finance leases Net cash generated from/(used in) financing activities Notes 30 June 2018 $’000 30 June 2017 $’000 8 35 7 38.4 603,200 (594,661) 8,539 – (1,280) 1,441 8,700 604,503 (596,599) 7,904 (1,757) (1,728) 2,649 7,068 2 263 140 (2,089) (2,576) (4,260) 1,059 (6,939) (1,754) (7,634) 1 355 – (554) (2,400) (2,598) 6,612 (1,886) (2,168) 2,558 Net increase/(decrease) in cash and cash equivalents (3,194) 7,028 Cash and cash equivalents at the beginning of the year Cash and cash equivalents at the end of the year 35 10,204 7,010 3,176 10,204 The accompanying notes form part of these financial statements. 43 Simonds Group Annual Report 2018 NOTES TO FINANCIAL S TATEMENTS 1. General information The Company is incorporated in Australia and is a for-profit entity. The Company’s registered office and principal place of business is as follows: Level 4, 570 St Kilda Road Melbourne VIC 3004 These financial statements comprise the consolidated financial statements of the Company and the entities it controls (the “Group”). The entities controlled by the Company are detailed in note 16 to the financial report. The principal activities of the Group are the design and construction of residential dwellings, the development of residential land and providing registered training courses. 2. Application of new and revised accounting standards 2.1 Amendments to accounting standards and new interpretations that are mandatorily effective for the current financial year The Group has adopted all of the new and revised Standards and Interpretations issued by the Australian Accounting Standards Board (the AASB) that are relevant to their operations and effective for the current year. The application of these amendments does not have any material impact on the disclosures or the amounts recognised in the Group’s consolidated financial statements. 2.2 Standards and interpretations in issue not yet adopted At the date of authorisation of the financial statements, the Directors have reviewed all standards and interpretations on issue but not yet effective and with the exception of the following standards, do not expect these standards and interpretations to have a material effect on the financial statements of the Group. AASB 16 ‘Leases’ (effective 1 January 2019) AASB 16 introduces a comprehensive model for the identification of lease arrangements and accounting treatments for both lessors and lessees. AASB 16 will supersede the current lease guidance including AASB 117 ‘Leases’ and the related interpretations. AASB 16 eliminates the distinction between operating and finance leases for lessees and will result in lessees bringing most leases onto their statements of financial position. The Group is in the process of implementing changes to our systems, but the actual impact at the time of adoption will depend on future economic conditions, including: • the Group’s borrowing rate at 1 July 2019, • the composition of the Group’s lease portfolio at that date, • the Group’s latest assessment of whether it will exercise any lease renewal options and the extent to which the Group chooses to use recognition exemptions for low value leases and/or short term leases (under 12 months). The most significant impact identified is that the Group will recognise new assets and liabilities for its operating leases of display homes and office space. As at 30 June 2018, the Group’s future minimum lease payments under non-cancellable operating leases amounted to $21.899m (refer note 33). AASB 9 ‘Financial Instruments’ (effective 1 January 2018) AASB 9 addresses the classification, measurement and derecognition of financial assets and financial liabilities. It sets out new rules for hedge accounting. The Group does not expect any material impact on the Group’s accounting for financial instruments. See note 29 for details regarding financial instruments. 44 NOTES TO FINANCIAL S TATEMENTS (CO N T IN U ED) AASB 15 ‘Revenue from Contracts with Customers’ (effective 1 January 2018) AASB 15 establishes a comprehensive framework for determining whether, how much and when revenue is recognised. It replaces existing revenue recognition guidance, including AASB 118 Revenue and AASB 111 Construction Contracts. Based on an assessment of the Group’s revenue streams, its contracts with its customers and a comparison of the requirements of AASB 15 with existing accounting policies and revenue recognition, the new standard is unlikely to have a material impact on the Group’s revenue recognition. 3. Significant accounting policies 3.1 Statement of compliance These financial statements are general purpose financial statements which have been prepared in accordance with the Corporations Act 2001, Australian Accounting Standards and other authoritative pronouncements issued by the Australian Accounting Standards Board (AASB) and comply with other requirements of the law. The financial statements comprise the consolidated financial statements of the Group. Compliance with Australian Accounting Standards ensures that the financial statements and notes of the Company and the Group comply with International Financial Reporting Standards (‘IFRS’) as issued by the International Accounting Standards Board (IASB). Consequently, this financial report has been prepared in accordance with and complies with IFRS as issued by the IASB. The financial statements were authorised for issue by the directors on 29 August 2018. 3.2 Basis of preparation The consolidated financial statements have been prepared on the basis of historical cost, except for certain financial instruments that are measured at revalued amounts or fair values at the end of each reporting period, as explained in the accounting policies below. Historical cost is generally based on the fair values of the consideration given in exchange for goods and services. All amounts are presented in Australian dollars, unless otherwise noted. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, regardless of whether that price is directly observable or estimated using another valuation technique. In estimating the fair value of an asset or a liability, the Group takes into account the characteristics of the asset or liability if market participants would take those characteristics into account when pricing the asset or liability at the measurement date. Fair value for measurement and/or disclosure purposes in these consolidated financial statements is determined on such a basis, except for share-based payment transactions that are within the scope of AASB 2, leasing transactions that are within the scope of AASB 117, and measurements that have some similarities to fair value but are not fair value, such as net realisable value in AASB 102 or value in use in AASB 136. 3.3 Rounding of amounts The Company is a company of the kind referred to in ASIC Corporations (Rounding in Financial/Directors’ Reports) Instrument 2016/191, dated 24 March 2016, and in accordance with that Class Order amounts in the financial report are rounded off to the nearest thousand dollars, unless otherwise indicated. 3.4 Going concern The financial report has been prepared on the going concern basis, which assumes continuity of normal business activities and the realisation of assets and settlement of liabilities in the ordinary course of business. 45 Simonds Group Annual Report 2018 NOTES TO FINANCIAL S TATEMENTS (CO N T IN U ED) 3. Significant accounting policies (continued) 3.5 Basis of consolidation Consolidation of a subsidiary begins when the Company obtains control over the subsidiary and ceases when the Company loses control of the subsidiary. Specifically, income and expenses of a subsidiary acquired or disposed of during the year are included in the consolidated statement of profit or loss and other comprehensive income from the date the Company gains control until the date when the Company ceases to control the subsidiary. Profit or loss and each component of other comprehensive income are attributed to the owners of the Company. When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with the Group’s accounting policies. All intragroup assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation. Shares in subsidiary companies are measured at cost less any impairment in the parent entity only financial statements (refer Note 36). 3.6 Business combinations Acquisitions of businesses are accounted for using the acquisition method. The consideration transferred in a business combination is measured at fair value which is calculated as the sum of the acquisition-date fair values of assets transferred by the Group, liabilities incurred by the Group to the former owners of the acquiree and the equity instruments issued by the Group in exchange for control of the acquiree. Acquisition-related costs are recognised in profit or loss as incurred. At the acquisition date, the identifiable assets acquired and the liabilities assumed are recognised at their fair value, except that: • deferred tax assets or liabilities and assets or liabilities related to employee benefit arrangements are recognised and measured in accordance with AASB 112 ‘Income Taxes’ and AASB 119 ‘Employee Benefits’ respectively; • liabilities or equity instruments related to share-based payment arrangements of the acquiree or share-based payment arrangements of the Group entered into to replace share-based payment arrangements of the acquiree are measured in accordance with AASB 2 ‘Share-based Payment’ at the acquisition date; and • assets (or disposal groups) that are classified as held for sale in accordance with AASB 5 ‘Non-current Assets Held for Sale and Discontinued Operations’ are measured in accordance with that Standard. Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree, and the fair value of the acquirer’s previously held equity interest in the acquiree (if any) over the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed. 3.7 Goodwill Goodwill arising on an acquisition of a business is carried at cost as established at the date of the acquisition of the business less accumulated impairment losses, if any. For the purposes of impairment testing, goodwill is allocated to each of the Group’s cash generating units (or groups of cash-generating units) that is expected to benefit from the synergies of the combination. A cash-generating unit to which goodwill has been allocated is tested for impairment annually, or more frequently when there is an indication that the unit may be impaired. If the recoverable amount of the cash-generating unit is less than its carrying amount, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro rata based on the carrying amount of each asset in the unit. Any impairment loss for goodwill is recognised directly in profit or loss. An impairment loss recognised for goodwill is not reversed in subsequent periods. On disposal of the relevant cash-generating unit, the attributable amount of goodwill is included in the determination of the profit or loss on disposal. 46 NOTES TO FINANCIAL S TATEMENTS (CO N T IN U ED) 3.8 Revenue recognition Revenue is measured at the fair value of the consideration received or receivable. Revenue is reduced for rebates and other similar allowances. 3.8.1 Construction contracts When the outcome of a construction contract can be estimated reliably, revenue and costs are recognised by reference to the stage of completion of the contract activity at the end of the reporting period, measured based on the proportion of contract costs incurred for work performed to date relative to the estimated total contract costs, except where this would not be representative of the stage of completion. Variations in contract work, claims and incentive payments are included to the extent that the amount can be measured reliably, and its receipt is considered probable. When the outcome of a construction contract cannot be estimated reliably, contract revenue is recognised to the extent of contract costs incurred and that it is probable that it will be recovered. Contract costs are recognised as expenses in the period in which they are incurred. When it is probable that total contract costs will exceed total contract revenue, the expected loss is recognised as an expense immediately. When contract costs incurred to date plus recognised profits less recognised losses exceed progress billings, the surplus is shown as amounts due from customers for contract work. Amounts received before the related work is performed are included in the consolidated statement of financial position as a liability, as income in advance. Amounts billed for work performed but not yet paid by the customer are included in the consolidated statement of financial position under trade and other receivables. 3.8.2 Sale of speculative homes, display homes and land Revenue from the sale of speculative homes, display homes and land is recognised when the goods are delivered, and titles have passed at which time all the following conditions are satisfied: • the Group has transferred to the buyer the significant risks and rewards of ownership of the goods; • the Group retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold; • the amount of revenue can be measured reliably; • it is probable that the economic benefits associated with the transaction will flow to the Group; and • the costs incurred or to be incurred in respect of the transaction can be measured reliably. 3.8.3 Rendering of registered training services Revenue from registered training services is recognised over the duration of the course by reference to the percentage of services provided and when the Group is entitled to claim the funding from the government. 3.8.4 Interest income Interest income from a financial asset is recognised when it is probable that the economic benefits will flow to the Group and the amount of revenue can be measured reliably. Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that asset’s net carrying amount on initial recognition. 3.9 Leasing Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases. 47 Simonds Group Annual Report 2018 NOTES TO FINANCIAL S TATEMENTS (CO N T IN U ED) 3. Significant accounting policies (continued) 3.9 Leasing (continued) Assets held under finance leases are initially recognised as assets of the Group at their fair value at the inception of the lease or, if lower, at the present value of the minimum lease payments. The corresponding liability to the lessor is included in the statement of financial position as a finance lease obligation. Lease payments are apportioned between finance expenses and reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Finance expenses are recognised immediately in profit or loss, unless they are directly attributable to qualifying assets, in which case they are capitalised in accordance with the Group’s general policy on borrowing costs. In the event that lease incentives are received to enter into operating leases, such incentives are recognised as a liability. The aggregate benefit of incentives is recognised as a reduction of rental expense on a straight-line basis. Leases are classified as operating leases in which a significant portion of the risks and rewards of ownership are not transferred to the Group as lessee. Payments made under operating leases (net of any incentives received from the lessor) are recognised as an expense on a straight-line basis over the period of the lease. 3.10 Employee benefits 3.10.1 Short‑term and Long‑term employee benefits Short term employee benefits A liability is recognised for benefits accruing to employees in respect of wages and salaries, annual leave, long service leave, and sick leave when it is probable that settlement will be required and they are capable of being measured reliably. Liabilities recognised in respect of short-term employee benefits, are measured at their nominal values using the remuneration rate expected to apply at the time of settlement. Other Long-term employee benefits Liabilities for annual leave and long service leave that are not expected to be settled wholly within 12 months after the end of the period in which the employees render the related service, are recognised in the provision for employee entitlements and are measured at the present value of the estimated future cash outflows to be made by the Group in respect of services provided by employees up to reporting date. Consideration is given to expected future wage and salary levels, departures and periods of service. These employee benefits entitlements are presented as current liabilities in the balance sheet if the Group does not have an unconditional right to defer settlement for at least 12 months after the reporting date, regardless of when the actual settlement is expected to occur. 3.10.2 Superannuation contributions Contributions to defined contribution superannuation plans are expensed when employees have rendered services entitling them to the contributions. 3.10.3 Termination benefit A liability for a termination benefit is recognised at the earlier of when the entity can no longer withdraw the offer of the termination benefit and when the entity recognises any related restructuring costs. 3.10.4 Bonus entitlements A liability is recognised for bonus entitlements where contractually obliged or where there is a past practice that has created a constructive obligation. 3.11 Taxation Income tax expense represents the sum of the tax currently payable and deferred tax. 48 NOTES TO FINANCIAL S TATEMENTS (CO N T IN U ED) 3.11.1 Current tax The tax currently payable is based on the financial result for the year. Taxable profit differs from profit as reported in the statement of profit or loss and other comprehensive income because of items of income or expense that are taxable or deductible in other years and items that are never taxable or deductible. The Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the end of the reporting period. Adjustments are made for transactions and events occurring within the tax-consolidated group that do not give rise to a tax consequence for the Group or that have a different tax consequence at the level of the Group. 3.11.2 Deferred tax Deferred tax is recognised on temporary differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit. Deferred tax liabilities are generally recognised for all taxable temporary differences. Adjustments are made for transactions and events occurring within the tax-consolidated group that do not give rise to a tax consequence for the Group or that have a different tax consequence at the level of the Group. Deferred tax assets are generally recognised for all deductible temporary differences to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilised. Such deferred tax assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit. The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset realised, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Group expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities. Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis. 3.11.3 Current and deferred tax for the year Current and deferred tax are recognised in profit or loss, except when they relate to items that are recognised in other comprehensive income or directly in equity, in which case the current and deferred tax are also recognised in other comprehensive income or directly in equity, respectively. 3.11.4 Tax consolidation The entities, except the trusts within the Group, have formed a tax-consolidated group with effect from 1 July 2010 and are therefore taxed as a single entity from that date. The head entity within the tax-consolidated group is Simonds Group Limited. Current tax expense/(income), deferred tax liabilities and deferred tax assets arising from temporary differences of the members of the tax-consolidated group are recognised in those entities using the ‘separate taxpayer within group’ approach by reference to the carrying amounts of assets and liabilities in the separate financial statements of each entity and the tax values applying under tax consolidation. The head entity, in conjunction with other members of the tax-consolidated group, has entered into a tax funding arrangement which sets out the funding obligations of members of the tax-consolidated group in respect of tax amounts. The tax funding arrangements require payments to/(from) the head entity equal to the current tax liability/(asset) assumed by the head entity and any tax-loss deferred tax asset assumed by the head entity, resulting in the head entity recognising an inter-entity receivable/(payable) equal in amount to the tax liability/(asset) assumed. The inter-entity receivable/(payable) are at call. Contributions to fund the tax liabilities are payable as per the tax funding arrangement and reflect the timing of the head entity’s obligation to make payments for tax liabilities to the relevant tax authorities. 49 Simonds Group Annual Report 2018 NOTES TO FINANCIAL S TATEMENTS (CO N T IN U ED) 3. Significant accounting policies (continued) 3.11 Taxation (continued) 3.11.4 Tax consolidation (continued) The head entity in conjunction with other members of the tax-consolidated group has also entered into a tax sharing agreement. The tax sharing agreement provides for the determination of the allocation of income tax liabilities between the entities should the head entity default on its tax payment obligations. No amounts have been recognised in the financial statements in respect of this agreement as payment of any amounts under the tax sharing agreement is considered remote. 3.12 Property, plant and equipment The carrying amount of property, plant and equipment which is valued on the cost basis, is subject to impairment testing and is reviewed to determine whether they are in excess of their recoverable amount at balance date. If the carrying amount of property, plant and equipment exceeds its recoverable amount, the asset is written down to the lower amount. The write-down is expensed in the reporting period in which it occurs. Depreciation is calculated on a straight line basis so as to write off the net cost of each asset over its expected useful life to its estimated residual value. Leasehold improvements are depreciated over the period of the lease or estimated useful life, whichever is the shorter, using the straight line method. The estimated useful lives, residual values and depreciation method are reviewed at the end of each annual reporting period. The following estimated useful lives are used in the calculation of depreciation: Leasehold improvements Computer equipment Office furniture and fittings Display home furniture, fixtures and fittings Motor vehicles Plant and equipment 5 years or the period of the lease 3 years 5 years 5 years 5 years 5 years Intangible assets Intangible assets acquired separately 3.13 3.13.1 Intangible assets with finite lives that are acquired separately are carried at cost less accumulated amortisation and accumulated impairment losses. Amortisation is recognised on a straight-line basis over their estimated useful lives. The estimated useful life and amortisation method are reviewed at the end of each reporting period, with the effect of any changes in estimate being accounted for on a prospective basis. Intangible assets with indefinite useful lives that are acquired separately are carried at cost less accumulated impairment losses. The following estimated useful lives are used in the calculation of depreciation: Computer software Capitalised courses RTO Licence Capitalised product designs Useful Life 3 years 2–3 years Over the life of the licence 3 years Source External External/Internal External External/Internal 50 NOTES TO FINANCIAL S TATEMENTS (CO N T IN U ED) 3.13.2 Internally‑generated intangible assets – research and development expenditure Expenditure on research activities is recognised as an expense in the period in which it is incurred. An internally-generated intangible asset arising from development (or from the development phase of an internal project) is recognised if, and only if, all of the following have been demonstrated: • the technical feasibility of completing the intangible asset so that it will be available for use or sale; • the intention to complete the intangible asset and use or sell it; • the ability to use or sell the intangible asset; • how the intangible asset will generate probable future economic benefits; • the availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset; and • the ability to measure reliably the expenditure attributable to the intangible asset during its development. The amount initially recognised for internally-generated intangible assets is the sum of the expenditure incurred from the date when the intangible asset first meets the recognition criteria listed above. Where no internally-generated intangible asset can be recognised, development expenditure is recognised in profit or loss in the period in which it is incurred. Subsequent to initial recognition, internally-generated intangible assets are reported at cost less accumulated amortisation and accumulated impairment losses, on the same basis as intangible assets that are acquired separately. 3.14 Impairment of tangible and intangible assets other than goodwill At the end of each reporting period, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Intangible assets with indefinite useful lives and intangible assets not yet available for use are tested for impairment at least annually, and whenever there is an indication that the asset may be impaired. Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted. If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised immediately in profit or loss. 3.15 Inventories Inventories are stated at the lower of cost and net realisable value. Costs of inventories are determined on a first-in-first-out basis. Net realisable value represents the estimated selling price for inventories less all estimated costs of completion and costs necessary to make the sale. 3.15.1 Construction contracts Construction work-in-progress is stated at the aggregate of contract costs incurred to date plus recognised profits less recognised losses and progress billings. Contract costs include all costs directly related to specific contracts, and costs that are specifically chargeable to the customer under the terms of the contract. The stage of completion is measured using the percentage of completion method. 3.15.2 Land at cost Cost includes the costs of acquisition, development, borrowings and all other costs directly related to specific projects. 3.15.3 Speculative homes and displays Cost includes the costs of building the speculative and display homes. 51 Simonds Group Annual Report 2018 NOTES TO FINANCIAL S TATEMENTS (CO N T IN U ED) 3. Significant accounting policies (continued) 3.16 Provisions Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that the Group will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the end of the reporting period, taking into account the risks and uncertainties surrounding the obligation. When a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows (where the effect of the time value of money is material). When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, a receivable is recognised as an asset if it is virtually certain that reimbursement will be received and the amount of the receivable can be measured reliably. 3.16.1 Maintenance and warranty Provisions for the cost of maintenance and warranty is the directors’ best estimate of the expenditure required to settle the Group’s obligations are under legislative requirements. 3.16.2 Make good Provisions based on the directors’ best estimates of the costs required to reinstate the display homes under legislation; or requirement to be at a saleable standard. 3.17 Financial instruments 3.17.1 Loans and receivables Trade receivables, loans and other receivables are recorded at amortised cost using the effective interest method less impairment. 3.17.2 Investment in land fund The Group has investments which are units held in a land fund that are stated at fair value because the directors consider that fair value can be reliably measured. Gains and losses arising from changes in fair value are recognised in other comprehensive income and accumulated in the investments revaluation reserve with the exception of impairment losses, interest calculated using the effective interest method and foreign exchange gains and losses on monetary assets which are recognised in profit or loss. Where the investment is disposed of or is determined to be impaired, the cumulative gain or loss previously accumulated in the investment revaluation reserve is reclassified to profit or loss. 3.18 Goods and services tax Revenues, expenses and assets are recognised net of the amount of goods and services tax (GST), except: a) where the amount of GST incurred is not recoverable from the taxation authority, it is recognised as part of the cost of acquisition of an asset or as part of an item of expense; or b) for receivables and payables which are recognised inclusive of GST. The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables. Cash flows are included in the cash flow statement on a gross basis. The GST component of cash flows arising from investing and financing activities which is recoverable from, or payable to, the taxation authority is classified within operating cash flows. 52 NOTES TO FINANCIAL S TATEMENTS (CO N T IN U ED) 3.19 Share‑based payment transactions Equity-settled share-based payments to employees are measured at the fair value of the equity instruments at the grant date. The expected life used in the model has been adjusted, based on management’s best estimate, for the effects of non-transferability, exercise restrictions and behavioural considerations. The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the Group’s estimate of shares that will eventually vest, with a corresponding increase in equity. At the end of each reporting period, the Group revises its estimate of the number of equity instruments expected to vest. The impact of the revision of the original estimates, if any, is recognised in profit or loss such that the cumulative expense reflects the revised estimate, with a corresponding adjustment to the equity-settled employee benefits reserve. 4. Critical accounting judgements and key sources of estimation uncertainty In the application of the Company’s accounting policies, which are described in note 3, the directors are required to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates. 4.1 Percentage of completion on the construction contracts Estimate of construction contracts on a percentage completion basis, in particular with regard to accounting for variations, the timing of profit recognition and the amount of profit recognised can often result in an adjustment to the reported revenues and expenses and/or the carrying amount of assets and liabilities. 4.2 Provision for maintenance and warranties At each year end the Group considers its legal and constructive obligations for warranties and maintenance on properties constructed. Typically, the Group makes provision for warranties for a period of up to ten years following the completion of a construction contract. The directors take into account the annual build program, history of defects relating to materials used or in services provided and the historical liabilities the Group has assumed in respect of warranties in estimating the provision for warranties. The directors use a present value methodology to recognise the best estimate of the expenditure required to settle the Group’s obligation. In April 2017, an independent actuary was engaged by Simonds Group Ltd to analyse historical maintenance and warranty spend and provide an estimate for the maintenance and warranty provision as at 30 June 2017. Consistent with the prior year, the Group has adopted the key assumptions provided by the independent actuary while retaining the model used historically for calculating the maintenance and warranty provision as at 30 June 2018. 4.3 Provision for impairment losses on land development The Group holds land stock for development, which is recorded as inventory in the financial statements. At 30 June 2018, the directors assessed the value of the land stock inventory, referencing contracts, other documentary evidence and comparative sales data to determine valuations of certain land titles. 4.4 Impairment of goodwill At 30 June 2018 goodwill of $2.603m is allocated to the registered training segment (2017: $2.603m registered training segment and $0.373m to the land development segment). The recoverable amount of a cash-generating unit (CGU) is determined based on value-in-use calculations which require the use of assumptions. The calculations use cash flow projections covering a five-year period based on financial budgets approved by management for the subsequent financial year. These growth rates do not exceed the long-term average growth rates for the industry in which each CGU operates. Cash flow projections for CGUs are based on budgeted EBITDA during the projection period, increasing by underlying cash flow growth rates of 4.2% per annum. The cash flows beyond the five-year projection period have been extrapolated using a steady growth rate of 2.0%. The underlying growth rates have been determined by management based on most recent financial budgets and forecasts and expected industry growth rates. In performing the value-in-use calculations for each CGU, the Group has applied post-tax discount rate to discount the forecast future attributable post-tax cash flows. The equivalent pre-tax discount rate applied is 17.0%. 53 Simonds Group Annual Report 2018 NOTES TO FINANCIAL S TATEMENTS (CO N T IN U ED) 5. Revenue The following is an analysis of the Group’s revenue for the year (excluding interest income, refer note 7). Continuing operations Revenue from residential construction contracts Revenue from rendering of registered training services Revenue from developments Discontinued operations 6. Segment information 30 June 2018 $’000 30 June 2017 $’000 593,067 11,190 907 605,164 – 605,164 569,864 13,434 4,071 587,369 6,194 593,563 6.1 Products and services from which reportable segments derive their revenue Information on segment performance focusing on the types of products and services the Group provides. No operating segments have been aggregated in arriving at the reportable segments of the Group. Specifically, the Group’s reportable segments under AASB 8 Operating Segments are as follows: • Residential construction – this includes activities relating to contracts for residential home construction, speculative home building and the building of display home inventory. • Registered training – this includes activities relating to registered training provided by House of Learning Pty Ltd trading as Builders Academy Australia and City-Wide Building and Training Services Pty Ltd. • Development – this includes activities relating to land development and sales. Madisson Homes is a subsidiary of the Group and in the prior years formed part of the residential construction segment. Madisson Homes operated in the medium density market, building apartments and townhouses for commercial developers using the concepts, designs and specifications provided by the developers. Consistent with the prior reporting period, this business unit has been presented as a discontinued operation in note 10 as at 30 June 2018. 6.2 Segment revenues and results The following is an analysis of the Group’s revenue and results by reportable segment. Segment revenue Segment Profit before tax 30 June 2018 $’000 593,067 11,190 907 30 June 2017 $’000 569,864 13,434 4,071 30 June 2018 $’000 8,896 (446) (1,283) 30 June 2017 $’000 3,085 433 (131) 605,164 – 605,164 587,369 6,194 593,563 7,167 (1,419) 5,748 3,387 (2,714) 673 Continuing operations Residential construction Registered training Land development Discontinued operations Consolidated segment revenue and profit/(loss) before tax for the period 54 NOTES TO FINANCIAL S TATEMENTS (CO N T IN U ED) 6.3 Segment assets and liabilities Segment assets Residential construction Registered training Land development Discontinued operations Total segment assets Total assets Segment liabilities Residential construction Registered training Land development Discontinued operations Total segment liabilities Total liabilities 30 June 2018 $’000 30 June 2017 $’000 118,957 3,681 2,948 125,586 682 126,268 126,268 122,099 1,735 97 123,931 1,311 125,242 125,242 100,859 4,573 4,968 110,400 108 110,508 110,508 110,526 1,150 12 111,688 1,945 113,633 113,633 For the purposes of monitoring segment performance and allocating resources between segments, all assets and liabilities are allocated to reportable segments. 6.4 Other segment information Residential construction Registered training Land development Total Residential construction Registered training Land development Interest expense Depreciation and amortisation 30 June 2018 $’000 1,280 – – 30 June 2017 $’000 1,728 – – 30 June 2018 $’000 3,975 1,269 3 30 June 2017 $’000 4,150 870 – 1,280 1,728 5,247 5,020 Additions to non-current assets 30 June 2018 $’000 4,686 487 – 30 June 2017 $’000 3,446 879 10 5,173 4,335 In addition to the interest expense, depreciation and amortisation reported above, impairment losses of $0.432m (2017: $1.413m) were recognised in respect of land stock held on hand and other current assets as at 30 June 2018. These impairment losses were attributable to the following reporting segments: 55 Simonds Group Annual Report 2018 NOTES TO FINANCIAL S TATEMENTS (CO N T IN U ED) 6. Segment information (continued) 6.4 Other segment information (continued) Residential construction Registered training Land development Total impairment Impairment losses 30 June 2018 $’000 – – 432 30 June 2017 $’000 768 – 645 432 1,413 6.5 Revenue by geographical region The Group operates in one geographical area – Australia. The Group’s revenue and profits are all generated from this region. 6.6 Information about major customers No single customer contributed 10% or more to the Group’s revenue for the year ended 30 June 2018 and the year ended 30 June 2017. 7. Interest income Bank deposits 8. Finance costs Interest on bank overdrafts, finance leases and loans 30 June 2018 $’000 2 30 June 2017 $’000 1 2 1 30 June 2018 $’000 1,280 30 June 2017 $’000 1,728 1,280 1,728 56 NOTES TO FINANCIAL S TATEMENTS (CO N T IN U ED) 9. Income taxes 9.1 Income tax recognised Current tax (Benefit)/expense in respect of the current year (Benefit)/expense in respect of prior years Deferred tax (Benefit)/expense in respect of the current year (Benefit)/expense in respect of prior years Consolidated income tax expense recognised in the current year Income tax expense from continuing operations Income tax (benefit) from discontinued operations The income tax expense can be reconciled to the accounting profit as follows: Profit before tax from continuing operations Loss before tax from discontinued operations Profit before tax Income tax expense calculated at 30% (2017: 30%) Effect of executive share based payments non-deductible Effect of expenses that are not deductible in determining taxable profit Adjustments recognised in the current year in relation to deferred and current tax of prior years Income tax expense recognised in profit or loss Income tax expense from continuing operations Income tax (benefit) from discontinued operations 30 June 2018 $’000 30 June 2017 $’000 3,431 (7) 3,424 (1,423) (27) (1,450) 1,974 2,400 (426) 1,974 7,167 (1,419) 5,748 1,725 99 184 2,008 (34) 1,974 2,400 (426) 1,974 – (55) (55) 299 224 523 468 1,309 (841) 468 3,387 (2,714) 673 202 37 60 299 169 468 1,309 (841) 468 The tax rate used for the 2018 and 2017 reconciliations above is the corporate tax rate of 30% payable by Australian corporate entities on taxable profits under Australian tax law. 9.2 Current tax assets and liabilities Income tax (payable)/refundable (3,432) (3,432) 1,441 1,441 57 Simonds Group Annual Report 2018 NOTES TO FINANCIAL S TATEMENTS (CO N T IN U ED) 9. Income taxes (continued) 9.3 Deferred tax balances Amounts recognised in profit or loss Deferred tax assets Deferred tax liabilities Amounts recognised in other comprehensive income Deferred tax liabilities Net deferred tax 2018 Construction contracts income Capitalised courses and product design Property, plant, equipment & intangibles Provision for warranty and contract maintenance Employee entitlements Other DTA on Losses & Carry Forward Non-Refundable R&D offset 2017 Construction Contracts income Capitalised Courses and Product Design Property, Plant, Equipment & Intangibles Provision for warranty and contract maintenance Employee Entitlements Other DTA on Losses & Carry Forward Non-Refundable R&D offset 58 30 June 2018 $’000 30 June 2017 $’000 3,957 (5,107) (1,150) 5,839 (8,439) (2,600) (101) – (1,251) (2,600) Opening balance $’000 (7,810) (630) 845 1,195 1,308 1,082 1,410 Under/over $’000 412 35 (39) – 1 (29) (353) Recognised in profit or loss $’000 2,929 (43) 212 (164) (241) (213) (1,057) Recognised in Other compre- hensive Income $’000 – – – – – (101) – Closing balance $’000 (4,469) (638) 1,018 1,031 1,068 739 – (2,600) 27 1,423 (101) (1,251) Opening balance $’000 (5,844) (253) 444 1,256 1,364 882 – Under/over $’000 (319) 25 2 – 24 44 10 Recognised in profit or loss $’000 (1,647) (402) 399 (61) (80) 144 1,346 Other $’000 – – – – – 12 54 Closing balance $’000 (7,810) (630) 845 1,195 1,308 1,082 1,410 (2,151) (214) (301) 66 (2,600) NOTES TO FINANCIAL S TATEMENTS (CO N T IN U ED) 10. Discontinued operations Following a comprehensive review instigated by the Directors on 16 November 2015, the Group announced a plan for the orderly closure of the Madisson business unit of the Group on 21 January 2016 upon completion of the remaining projects. All projects were completed in the previous financial year. Loss for the year from the Madisson business Revenue Expenses Loss before tax Attributable income tax benefit Loss for the year Statement of Cash Flows from the Madisson business Cash flows from operating activities Cash flows from/(used in) investing activities Cash flows from financing activities Net increase in cash and cash equivalents Cash and cash equivalents at the beginning of the year Cash and cash equivalents at the end of the year 11. Expenses for the year Loss on disposal of property, plant and equipment and intangible assets Marketing and selling expenses Corporate and administrative expenses Employee benefits expense Divestment of Hub Property Advisory Pty Ltd 38 Notes 30 June 2018 $’000 – (1,419) (1,419) 426 30 June 2017 $’000 6,194 (8,908) (2,714) 841 (993) (1,873) 7 – – 7 6 13 (84) (19,280) (29,912) (68,457) (285) (118,018) (2,870) – 2,875 5 1 6 (48) (19,480) (29,608) (62,960) – (112,096) 59 Simonds Group Annual Report 2018 NOTES TO FINANCIAL S TATEMENTS (CO N T IN U ED) 12. Significant items for the year Costs associated with organisational review and management restructure including settlement of share-based payments Transaction costs associated with proposed Scheme of Arrangement (i) Impairment of non-core development land and other current assets Total significant items 30 June 2018 $’000 (1,184) 30 June 2017 $’000 (473) – (432) (1,616) (1,817) (1,413) (3,703) (i) On 31 August 2016, the Group announced a Scheme Implementation Agreement with SR Residential Pty Ltd (SR Residential) (which is jointly owned by entities associated with Roche Holdings Pty Ltd and Simonds Family Office Pty Ltd (SFO)) under which it was proposed that SR Residential would acquire all shares in the Company not already owned by associates of the Consortium by way of the Scheme. On 28 November 2016, the Group announced that the Scheme Implementation Agreement has been terminated by mutual agreement of the Group and SR Residential. During this process, the Group has incurred transaction costs of $1.817m for year ended 30 June 2017. 13. Earnings per share From continuing operations Total basic profit per share Total diluted profit per share From continuing and discontinued operations Total basic profit per share Total diluted profit per share 30 June 2018 Cents per share 30 June 2017 Cents per share 3.31 3.31 2.62 2.62 1.44 1.44 0.14 0.14 13.1 Basic earnings per share The earnings and weighted average number of ordinary shares used in the calculation of basic earnings are as follows: From continuing operations Profit for the year attributable to owners of the Company From continuing and discontinued operations Profit for the year attributable to owners of the Company Weighted average number of ordinary shares for the purposes of the basic earnings per share 30 June 2018 $’000 30 June 2017 $’000 4,767 3,774 2,078 205 Number 143,841,655 Number 143,841,655 60 NOTES TO FINANCIAL S TATEMENTS (CO N T IN U ED) 13.2 Diluted earnings per share From continuing operations Profit for the year attributable to owners of the Company From continuing and discontinued operations Profit for the year attributable to owners of the Company Weighted average number of ordinary shares for the purposes of the basic earnings per share Shares deemed to be issued for no consideration in respect of: • Performance rights/options/service rights Weighted average number of ordinary shares for the purposes of the diluted earnings per share 30 June 2018 $’000 30 June 2017 $’000 4,767 3,774 2,078 205 Number 143,841,655 Number 143,841,655 – 143,841,655 31,204 143,872,859 The following potential ordinary shares are excluded from the weighted average number of ordinary shares for the purpose of diluted earnings per share. Options Performance rights Number 1,020,576 1,579,623 Number 4,000,000 3,660,683 These shares have been excluded from the diluted earnings per share (EPS) calculation on the basis that the exercise price of the options is higher than the average share price or the performance conditions are yet to be met at the end of the reporting period. 14. Trade and other receivables Current Trade receivables (i) Other receivables (i) The amounts pertaining to related party receivables are disclosed within note 31. 30 June 2018 $’000 30 June 2017 $’000 34,585 34,585 362 34,947 32,191 32,191 499 32,690 61 Simonds Group Annual Report 2018 NOTES TO FINANCIAL S TATEMENTS (CO N T IN U ED) 14. Trade and other receivables (continued) 14.1 Trade receivables The average settlement terms for progress invoices in relation to residential contracts are between 7 and 45 days. The Group has provided fully or written off all receivables that are known to be uncollectable or there is objective evidence that the Group will not be able to collect the outstanding amount. Prior to accepting a new customer for the construction of a dwelling, the Group ensures that appropriate contractual terms are in place with the customer and that the customer has secured financing in advance of the commencement of construction. In determining the recoverability of a trade receivable, the Group considers any change in the credit quality of the trade receivable from the date the credit was initially granted up to the reporting date. The concentration of credit risk is limited due to the customer base being large and unrelated and dwellings constructed for customers serving as a security against the receivable. 14.1.1 Age of receivables from continuing operations that are past due but not impaired 46–60 days 61–90 days 91–120 days Over 120 days Total Average age (days) 30 June 2018 $’000 917 1,085 424 1,167 3,593 105 30 June 2017 $’000 1,459 624 396 2,053 4,532 110 Average credit terms for customers are 7 to 45 days. Receivables past due but not impaired primarily relate to final settlement payments upon completion of construction and supplier rebates, where terms vary. 15. Inventories Work in progress on residential construction contracts Speculative and display homes, land stock (i) Provision for impairment of inventories 38,363 31,573 69,936 (2,029) 67,907 28,226 21,319 49,545 (1,360) 48,185 (i) The Group’s obligations under the Simonds Homes Display Funds (Note 22) are secured by mortgages over 12 displays homes with a carrying value of $6.648m. 62 NOTES TO FINANCIAL S TATEMENTS (CO N T IN U ED) 16. Subsidiaries Details of the Group’s subsidiaries at the end of the reporting period are as follows. Name Simonds Homes Victoria Pty Ltd Simonds Homes NSW Pty Ltd Simonds Queensland Constructions Pty Ltd Simonds SA Pty Ltd Simonds WA Pty Ltd Madisson Homes Australia Pty Ltd Simonds Personnel Pty Ltd Simonds Assets Pty Ltd Simonds IP Pty Ltd Simonds Corporate Pty Ltd House of Learning Pty Ltd Principle activity Residential – Victoria Residential – NSW Residential – Queensland Residential – South Australia Residential – Western Australia Residential – Victoria Payroll service entity Asset service entity Intellectual property service entity Asset service entity Registered training organisation Place of incorporation and operation Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Proportion of ownership interest and voting power held by the Group 2018 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 2017 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% City-Wide Building and Training Services Pty Ltd Registered training Australia 100% 100% Jackass Flats Developments Pty Ltd Simonds Land Development Pty Ltd Bridgeman Downs Land Project Pty Ltd Discover Developments Pty Ltd Discover Gisborne Pty Ltd Hub Property Advisory Pty Ltd ATF Hub Property Advisory Unit Trust organisation Land development and sales Land development and sales Land development and sales Land development and sales Land development and sales Land development and sales Australia Australia Australia Australia Australia Australia 100% 100% 100% 100% 100% 0% 100% 100% 100% 100% 100% 100% • Simonds Group Limited is the head entity within the tax consolidated group. • All Group subsidiaries are members of the tax consolidated group. • Simonds Group Limited and its subsidiaries have entered into a deed of cross guarantee with Simonds Group Limited pursuant to ASIC Class Order 98/1418 and are relieved from the requirement to prepare and lodge an audited financial report. • No subsidiaries have been acquired or incorporated in the year ended 30 June 2018. Refer to note 38 for information on disposal of subsidiary during the financial year. The above companies represent a “Closed Group” for the Class Order. The closed Group’s Statement of Profit or Loss and Other Comprehensive Income for the year and closed group’s Financial Position as at 30 June 2018 are the same as Consolidated Statement of Profit or Loss and Other Comprehensive Income for the year and Consolidated Statement of Financial Position as at 30 June 2018 disclosed on pages 40–41. 63 Simonds Group Annual Report 2018 NOTES TO FINANCIAL S TATEMENTS (CO N T IN U ED) 17. Property, plant and equipment Leasehold improve- ments $’000 Computer equipment $’000 Office furniture & fittings $’000 Display home furniture, fixtures & fittings $’000 Motor vehicles $’000 Plant and equipment $’000 Cost Balance at 1 July 2016 Additions Disposals Balance at 30 June 2017 Cost Balance at 1 July 2017 Additions Reclass Disposals Balance at 30 June 2018 Accumulated depreciation Balance at 1 July 2016 Depreciation expense Disposals/transfers 3,105 563 (120) 3,548 3,548 920 479 – 4,947 (520) (775) 102 1,930 258 – 2,188 2,188 491 (32) (141) 2,506 (795) (603) – Balance at 30 June 2017 (1,193) (1,398) Accumulated depreciation Balance at 1 July 2017 Depreciation expense Reclass Disposals (1,193) (866) (478) – Balance at 30 June 2018 (2,537) (1,398) (541) 29 141 (1,769) 2,527 78 (706) 1,899 1,899 179 (295) – 1,783 (968) (457) 616 (809) (809) (343) 78 – (1,074) 783 39 (134) 688 688 28 344 (35) 6,665 975 (1,383) 6,257 6,257 682 (382) (263) 1,025 6,294 (178) (445) 111 (512) (512) (291) (125) 35 (893) (2,786) (1,208) 1,155 (2,839) (2,839) (1,157) 382 187 (3,427) Net book value As at 30 June 2017 As at 30 June 2018 2,355 2,410 790 737 1,090 709 176 132 3,418 2,867 159 22 – 181 181 297 (114) – 364 (122) (10) – (132) (132) (24) 114 – (42) 49 322 Total $’000 15,169 1,935 (2,343) 14,761 14,761 2,597 – (439) 16,919 (5,369) (3,498) 1,984 (6,883) (6,883) (3,222) – 363 (9,742) 7,878 7,177 64 NOTES TO FINANCIAL S TATEMENTS (CO N T IN U ED) Computer software $’000 Capitalised courses $’000 Goodwill from acquisitions $’000 Capitalised product designs $’000 RTO licence $’000 6,248 366 6,614 6,614 781 (4,713) 2,682 (5,270) (627) (5,897) (5,897) (525) 4,681 (1,741) 1,048 842 1,890 1,890 487 (1) 2,376 (380) (694) (1,074) (1,074) (1,238) – (2,312) 2,976 – 2,976 2,976 – (373) 2,603 – – – – – – – 1,245 – 1,245 1,245 – – 1,245 (1,069) (176) (1,245) (1,245) – – (1,245) – 1,192 1,192 1,192 1,308 (154) 2,346 – (25) (25) (25) (262) – (287) Total $’000 11,517 2,400 13,917 13,917 2,576 (5,241) 11,252 (6,719) (1,522) (8,241) (8,241) (2,025) 4,681 (5,585) 717 941 816 64 2,976 2,603 – – 1,167 2,059 5,676 5,667 18. Intangible Assets Cost Balance at 1 July 2016 Additions Balance at 30 June 2017 Cost Balance at 1 July 2017 Additions Disposals Balance at 30 June 2018 Accumulated amortisation Balance at 1 July 2016 Amortisation expense Balance 30 June 2017 Accumulated amortisation Balance at 1 July 2017 Amortisation expense Disposal/transfers/impairment Balance 30 June 2018 Net book Value As at 30 June 2017 As at 30 June 2018 19. Other assets Prepayments Other assets 20. Other financial assets Current Units held in Simonds Land Development Fund 30 June 2018 $’000 2,176 187 30 June 2017 $’000 2,977 197 2,363 3,174 1,197 1,197 1,260 1,260 65 Simonds Group Annual Report 2018 NOTES TO FINANCIAL S TATEMENTS (CO N T IN U ED) 30 June 2018 $’000 54,767 8,991 1,671 6,310 30 June 2017 $’000 41,716 12,553 2,212 4,687 71,739 61,168 675 – 1,687 2,362 – 736 5,000 5,736 401 1,995 1,479 3,875 4,330 2,019 5,000 11,349 Maturity Date 25 February 2019 Description The group’s facilities are secured by all Simonds Group Limited corporate entities. Refer to note 40 for extension of the facilities subsequent to 30 June 2018. Asset under finance leases are secured by the assets leased with repayments periods not exceeding 5 years. 21. Trade and other payables Trade payables Construction accruals Goods and services tax payable Other payables and accruals 22. Borrowings Current Other borrowings Commercial bills Finance lease liability Non‑current Commercial bills Finance lease liability Display fund facility 22.1 Summary of borrowing arrangements Details of the Group’s borrowing facility are as follows: Facility Market Rate Loan Business Corporate Credit Card Facility Bank Guarantees Multi Option Facility Utilised $’000 – 600 Unutilised $’000 Interest Charge 4,330 Variable Market Rate – Corporate Charge Card Facility Interest Rate Fixed Market Rate Variable Market Rate 1,652 348 – 22,500 Finance Lease 2,369 1,631 Fixed Market Rate Total 4,621 28,809 66 NOTES TO FINANCIAL S TATEMENTS (CO N T IN U ED) In addition to the debt facility outlined above, the Group has additional facilities as below: Facility Finance Leases Utilised $’000 53 Unutilised $’000 Interest Charge Description – Fixed Market Rate Simonds Homes Display Fund 5,000 – Fixed Interest Rate Insurance Premium Funding 675 – Fixed Interest Rate Total 5,728 – 23. Provisions Provision for employee benefits (i) Provision for warranty and contract maintenance (ii) Provision for make good (iii) Current Non-current Maturity Date Repayment periods are not exceeding 5 years. 30 September 2019 30 April 2019 Asset under finance leases are secured by the assets leased. These facilities are held with Westpac Banking Corporation and Global Rental & Leasing Pty Ltd. The Group entered in to a mortgage facility with Simonds Homes Display Fund with an initial expiry of 15 September 2016. The facility has been extended to 30 September 2019. Facility is secured by first mortgages over a number of display homes of the Group. The Group entered in to a premium funding contract with BMW Financial Services, which covers various corporate insurances for the period from 30 April 2018 to 30 April 2019. 30 June 2018 $’000 6,696 12,433 1,573 30 June 2017 $’000 6,278 13,648 941 20,702 12,497 8,205 20,702 20,867 12,989 7,878 20,867 (i) The provision for employee benefits represents annual leave and long service leave entitlements accrued and compensation claims made by employees. The measurement and recognition criteria for employee benefits have been included in note 3 of the financial statements. The current portion of the provision for employee benefits includes the total amount accrued for annual leave entitlements and the amounts accrued for long service leave entitlements that have vested due to employees having completed the required period of service. Based on past experience, the Group does not expect the full amount of annual leave classified as current liabilities to be settled wholly within the next 12 months. However, these amounts must be classified as current liabilities since the Group does not have an unconditional right to defer the settlement of these amounts in the event employees wish to use their leave entitlement. The non-current portion for this provision includes amounts accrued for long service leave entitlements that have not yet vested in relation to those employees who have not yet completed the required period of service. The following amounts reflect annual leave that is not expected to be taken or paid within the next 12 months: Leave obligations expected to be settled after 12 months 858 1,124 (ii) The provision for warranty claims represents the present value of the directors’ best estimate of the future outflow of economic benefits that will be required under the Group’s obligations for warranties related to residential construction. The estimate has been made on the basis of historical warranty trends and may vary as a result of the annual build program, the history of defects relating to materials used or in the nature of services provided. (iii) Provisions based on the directors’ best estimates of the costs required to reinstate the display homes under legislation; or requirement to be at a saleable standard. 67 Simonds Group Annual Report 2018 NOTES TO FINANCIAL S TATEMENTS (CO N T IN U ED) 24. Deposits and income received in advance Arising from construction contracts 25. Issued capital 143,841,655 fully paid ordinary shares Less: Treasury shares (i) 30 June 2018 $’000 30 June 2017 $’000 20,020 13,774 12,911 (7) 12,904 12,911 – 12,911 (i) Treasury shares are shares in the Company that are held by the Employee Share Trust for the purpose of further allocation to employees for Performance Rights and Options Plan and shares held by the Employee Share Trust that have been allocated to employees under the Performance Rights and Options Plan but are subject to a disposal restriction. Changes to the then Corporations Law abolished the authorised capital and par value concept in relation to share capital from 1 July 1998. Therefore, the Company does not have a limited amount of authorised capital and issued shares do not have a par value. Balance at beginning of the period Less: Treasury shares Balance at end of the period 26. Reserves Share Buy-back Reserve Share Based Payment Reserve Investment Revaluation Reserve Number of shares Share capital ($’000) 30 June 2018 143,841,655 (24,729) 30 June 2017 143,841,655 – 30 June 2018 12,911 (7) 30 June 2017 12,911 – 143,816,926 143,841,655 12,904 12,911 30 June 2018 $’000 (7,204) 30,391 236 30 June 2017 $’000 (7,204) 30,243 – 23,423 23,039 Share Buy‑back Reserve On 20 August 2015, the Group announced its intention to undertake an on-market share buy-back (“buy-back”) to enable the Group to acquire up to a maximum of 7.570m shares within a 12-month period. The buy-back was part of the Group’s ongoing capital management strategy and determined by the Directors to be an appropriate use of Group capital resources given current market conditions at the time. The Group bought back 7,570,613 of its issued shares for a total amount of $7.883m. As a result, a reduction in capital of $0.679m was recognised based on an implied value per share of 8.97c and the remaining balance was recorded in the share buy-back reserve. Share Based Payment Reserve This reserve is used to recognise the value of equity settled benefits provided to employees and directors as part of their remuneration, and other parties as part of their compensation for services. Investment Revaluation Reserve The investment revaluation reserve represents any unrealised gains/(losses) arising on the revaluation of available for sale assets that have been recognised in other comprehensive income. 68 NOTES TO FINANCIAL S TATEMENTS (CO N T IN U ED) 27. Accumulated losses Balance at the beginning of the year Profits attributable to owners of the Group (net of tax) Balance at the end of the year 30 June 2018 $’000 (39,075) 3,774 30 June 2017 $’000 (39,280) 205 (35,301) (39,075) 28. Dividends paid or payable During the year, Simonds Group Limited made the following dividend payments: Final dividend Year ended 30 June 2018 Year ended 30 June 2017 Cents per share – Total $’000 Cents per share – – Total $’000 – The company’s adjusted franking account balance as at 30 June 2018 is $6.522m (2017: $8.061m). 29. Financial Instruments 29.1 Capital risk management Directors review the capital structure on an ongoing basis. As a part of this review the directors consider the cost of capital and the risks associated with each class of capital. The Group will balance its overall capital structure through the payment of dividends, new share issues, and the issue or repayment of debt. The capital structure of the Group consists of debt, which includes the borrowings disclosed in note 22, cash, and equity attributable to equity holders of the parent, comprising issued capital, accumulated losses and dividends, as disclosed in notes 25, 27 and 28. 29.2 Financial risk management The Group does not enter into or trade financial instruments, including derivative financial instruments, for speculative purposes. The use of financial instruments is governed by the Group’s policies which are approved by the directors. The Chief Financial Officer is responsible for managing the Group’s treasury requirements in accordance with this policy. The Group hold the following financial instruments: Financial Assets Cash and Cash equivalents Trade and other receivables Available for sale financial assets Financial Liabilities Trade and other payables Borrowings 30 June 2018 $’000 30 June 2017 $’000 7,010 34,947 1,197 43,154 71,739 8,098 79,837 10,204 32,690 1,260 44,154 61,168 15,224 76,392 69 Simonds Group Annual Report 2018 NOTES TO FINANCIAL S TATEMENTS (CO N T IN U ED) 29. Financial Instruments (continued) 29.2 Financial risk management (continued) 29.2.1 Market risk i) Interest rate risk management As at 30 June 2018, the Group had $8.098m debt facilities that have been utilised. The Group is exposed to interest rate risk as the entities in the Group borrow funds at both fixed and variable interest rates. There is an interest rate exposure for these utilised facilities when they are used during each financial year. (Refer to note 22 for details of these facilities). A sensitivity analysis has been determined based on the exposure to interest rates at the end of the reporting period. A 50 basis point increase or decrease is used when reporting interest rate risk internally to key management personnel and represents management’s assessment of the reasonably possible change in interest rates. If interest rates had been 50 basis points higher/lower and all other variables were held constant, the Group’s profit for the year ended 30 June 2018 would decrease/increase by $27,743 (2017: $31,625). This is mainly attributable to the Group’s exposure to interest rates on its variable rate borrowings. ii) Price risk The Group has no foreign exchange exposure or price risk on equity securities. 29.2.2 Credit risk Credit risk arises from financial assets which comprise cash and cash equivalents, trade and other receivables and the granting of financial guarantees. Exposure to credit risk arises from potential default of the counterparty, with a maximum exposure equal to the carrying amount of the financial assets as well as in relation to financial guarantees granted. Construction contracts require the customer to obtain finance prior to starting the build. Contracts for Speculative Housing, Displays and Land require payment in full prior to passing of title to customers. The Group has no significant concentrations of credit risk and does not hold any credit derivatives to offset its credit exposure. Registered training is delivered under the terms provided by the Department of Education and Early Childhood Development (the Department) in accordance with the Victorian Training Guarantee Program. At the reporting date there are no significant concentrations of credit risk relating to loans and receivables at fair value through profit or loss. The carrying amount reflected in the statement of financial position represents the Group’s maximum exposure to credit risk for such loans and receivables. 29.2.3 Liquidity risk The Group manages liquidity risk by maintaining adequate reserves, banking facilities and reserve borrowing facilities by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities. i) Financial arrangements The Group had access to the following debt facilities at the end of the reporting period: Utilised Unutilised Total 2018 $’000 2,362 5,736 8,098 2017 $’000 3,875 11,349 15,224 2018 $’000 29,178 – 29,178 2017 $’000 – 23,844 23,844 2018 $’000 31,540 5,736 37,276 2017 $’000 3,875 35,193 39,068 Expiring within 1 year Expiring beyond 1 year 70 NOTES TO FINANCIAL S TATEMENTS (CO N T IN U ED) ii) Maturities of financial liabilities The table below analyses the Group’s financial liabilities into relevant maturity groupings based on their contractual maturities. The amounts disclosed in the table are the contractual undiscounted cash flows. Balance due within 12 months equal their carrying balances as the impact of discounting is not significant. Year ended 30 June 2018 Financial Liabilities Finance lease liability Simonds Homes Display Fund Insurance premium funding Year ended 30 June 2017 Financial Liabilities Finance lease liability Borrowings Simonds Homes Display Fund Other borrowings <6 months $’000 6–12 months $’000 >1–5 years $’000 927 – – 927 809 985 90 401 2,285 759 – 676 1,435 670 1,010 – – 1,680 736 5,000 – 5,736 2,019 4,330 5,000 – 11,349 Total $’000 2,422 5,000 676 8,098 3,498 6,325 5,090 401 15,314 iii) Fair value of financial instruments The Group’s investment in the land fund and other financial instruments were measured at fair value at the end of each reporting period. The following table gives information about how the fair value of this financial asset is determined: Financial assets Investment in units in Simonds Land Development Fund (i) Fair value as at 30 June 2018 $’000 1,197 30 June 2017 $’000 1,260 Fair value hierarchy Level 3 Valuation technique(s) Key input Income Approach Present value of expected revenue and cashflow derived from the ownership of the holding units (i) Part of this asset was sold during the current financial year. 71 Simonds Group Annual Report 2018 NOTES TO FINANCIAL S TATEMENTS (CO N T IN U ED) 30. Key management personnel compensation The aggregate compensation made to directors and other members of key management personnel of the Company and the Group is set out below: Short-term employee benefits Post-employment benefits Other long-term benefits Termination benefits Share-based payments 31. Related party transactions 30 June 2018 $ 2,646,201 137,763 67,350 464,891 195,751 30 June 2017 $ 1,641,167 101,244 37,478 – 116,374 3,511,956 1,896,263 31.1 Trading Transactions During the year, group entities entered into the following transactions with related parties which are not members of the Group. Sale of goods Leases and services rendered Non-cash remuneration 30 June 2018 $ 30 June 2017 $ 30 June 2018 $ 30 June 2017 $ 30 June 2018 $ 30 June 2017 $ – – – – – – – – – – – – – – – – – 683,400 – 683,400 267,192 522,485 – 286,198 71,303 – – – – 130,644 – 469,139 96,480 – 905,163 – 6,183 6,183 – – – – 83,285 83,285 – – – – – – – – – – – – – – – – Vallence Gary Simonds and related entities: Properties leased on an arms-length basis Services received from OZSoft Solutions Pty Ltd (VETrack) and RTOMS Pty Ltd 1 Consulting expense incurred during the year Remuneration for employee services Car Park provided Leon Gorr and related entities: Legal services provided by HWL Ebsworth Lawyers Matthew Chun and related entities: Construction of a residential home provided on an arms-length basis 72 NOTES TO FINANCIAL S TATEMENTS (CO N T IN U ED) Sale of goods Leases and services rendered Non-cash remuneration 30 June 2018 $ 30 June 2017 $ 30 June 2018 $ 30 June 2017 $ 30 June 2018 $ 30 June 2017 $ – – – – – 261,000 152,250 261,000 152,250 – – 683,400 730,139 1,140,698 6,183 – – – John Thorburn and related entities: Lease of display home on an arms- length basis Total 1. Related entities of Vallence Gary Simonds sold OZSoft Solutions Pty Ltd (VETrack) and RTOMS Pty Ltd in May 2017. From this date these companies are no longer considered related parties. At 30 June 2018 there were no balances outstanding from related parties (2017: nil). 31.2 Loans to related parties During the year ended 30 June 2018 there were no loans to related parties outside the Group (2017: nil). Balances between the Company and its subsidiaries, which are related parties of the Company, have been eliminated upon consolidation and disclosed in this note. 31.3 Other related party transactions Other related party transactions include the salaries and other benefits paid to directors and other key management personnel. These are in the ordinary course of business. On 31 August 2016, The Group announced the Scheme Implementation Agreement with SR Residential Pty Ltd (SR Residential) (which is jointly owned by entities associated with Roche Holdings Pty Ltd and Simonds Family Office Pty Ltd (SFO)) under which it was proposed that SR Residential would acquire all shares in the Company not already owned by associates of the Consortium by way of the Scheme. On 28 November 2016, the Group announced that the Scheme Implementation Agreement had been terminated by mutual agreement of the Group and SR Residential. During this process, the Group has incurred transaction costs of $1.817m (refer to note 12) disclosed as a significant item in the expenses for the year ended 30 June 2017. 32. Share based payments 32.1 Share based payments Employee share plan A range of different employee share scheme (ESS) interests were created as part of the Simonds Group Employee Share Plan. The share plan has been created to promote employee share ownership amongst staff members and to encourage retention and appropriate reward for executives and employees. Share based payments made to key management personnel and other employees amounted to $0.196m (2017: $0.116m). 2,338,710 cash rights (2017: nil) were granted to 6 senior executives, as at 30 June 2018, 2,016,129 cash rights remain. No performance rights (2017: 3,406,800 performance rights) were granted in 2018 (2017: 10 senior executives). As at 30 June 2018, performance rights remaining on issue are: FY17: 1,438,100 and FY16: 141,523. No options were granted (2017: 4,000,000) during the period. As at 30 June 2018, 1,020,576 options remain. 73 Simonds Group Annual Report 2018 NOTES TO FINANCIAL S TATEMENTS (CO N T IN U ED) 32. Share based payments (continued) 32.1 Share based payments (continued) Employee share plan (continued) Incentives Cash settled Financial Year FY18 FY18 Performance rights FY17 FY17 FY16 FY16 FY17 Options Tranche Tranche 1 Tranche 2 Tranche 1 Tranche 2 Tranche 1 Tranche 2 Options Fair Value at Grant Date Vesting Date Other Vesting Condition Grant Date 30 Sep ’20 Market (1),(4) $0.19 4 Dec ’17 30 Sep ’20 $0.30 4 Dec ’17 30 Sep ’19 $0.23 31 Jan ’17 30 Sep ’19 $0.35 31 Jan ’17 31 Aug ’18 30 Nov ’15 $0.31 31 Aug ’18 30 Nov ’15 $0.75 30 Sep ’19 $0.11 31 Jan ’17 Non-market (1),(5) Market (2), (4) Non-market (2), (5) Market (3), (4) Non-market (3), (5) Non-market vesting only (5) Notes: (1) Gateway Hurdle Condition exists whereby FY18 Cash Rights may not vest unless the individual remains employed up to and including 30 September 2020. (2) Gateway Hurdle Condition exists whereby FY17 Performance Rights may not vest unless the individual remains employed up to and including 30 September 2019. (3) Gateway Hurdle Condition exists whereby FY16 Performance Rights may not vest unless the individual remains employed up to and including 31 August 2018. (4) Vesting condition linked to the Group’s Total Shareholder Return (TSR) and the percentile ranking against the constituent companies within the S&P/ASX Small Ordinaries Index. (5) Vesting condition linked to compound annual growth rate in Earnings Per Share (EPS) where EPS is calculated based on Net Profit Before Tax for the relevant period with the specific EPS methodology to be determined by the board. The following table outlines the share-based expense (excluding forfeitures and lapses) under the management incentive and employee share plan for the year ended 30 June 2018: Employee share plan Share based expense (excluding forfeitures) 30 June 2018 $’000 30 June 2017 $’000 832 832 229 229 32.2 Fair value of performance rights, service rights and options granted in the year Cash rights subject to market based vesting conditions are valued using a Monte Carlo based simulation model (applying a Black-Scholes framework). For performance rights subject to non-market vesting conditions the FY17 and FY16 performance rights (Tranche 2) the Black Scholes Pricing Model was used to value the rights at grant date, while FY15 (Tranche 2 and Tranche 3) Binominal Approximation Option Valuation Model was used to value the rights at grant date. FY17 EPS Options has been valued at grant date using the Black Scholes Model. Expected volatility is estimated using the daily rolling three-year standard deviation of a relevant Peer Group. The risk free rate is derived from the average of the 3 and 4-year Commonwealth Treasury Bond Rate. This yield was converted to a continuously-compounded rate for the purposes of the rights valuation. 74 NOTES TO FINANCIAL S TATEMENTS (CO N T IN U ED) Fair value model inputs and assumptions Expected life of instruments (days) Expected volatility Expected dividend yield Risk – free rate Fair value at grant date Exercise Price $0.19 $0.30 $0.23 $0.35 $0.00 $0.00 $0.00 $0.00 1,097 1,096 972 972 74% 74% 50% 50% 0.0% 0.0% 5.5% 5.5% 2.03% 2.01% 1.91% 1.91% $0.11 $0.40 972 50% 5.5% 2.06% $0.31 $0.75 $1.03 $1.55 $1.55 $0.00 $0.00 $0.00 $0.00 $0.00 1,004 1,004 1,018 1,018 1,018 45% 45% 40% 40% 40% 6.0% 6.0% 4.92% 4.92% 4.92% 2.11% 2.11% 2.57% 2.57% 2.57% FY18 Cash rights: Tranche 1 1 Tranche 2 2 FY17 Performance rights: Tranche 1 Tranche 2 CEO Options: EPS FY16 Performance rights: Tranche 1 Tranche 2 FY15 Performance rights: Tranche 1 Tranche 2 Tranche 3 1. The fair value at 30 June 2018 is $0.23. 2. The fair value at 30 June 2018 is $0.36. 75 Simonds Group Annual Report 2018 NOTES TO FINANCIAL S TATEMENTS (CO N T IN U ED) 32.3 Movements in performance rights, service rights and options during the year The following reconciles the cash rights, performance rights and option rights outstanding at the beginning and end of the financial year: Financial Year Issued 2018 Cash rights Tranche 1 FY2018 Tranche 2 FY2018 Performance rights Tranche 1 FY2017 Tranche 2 FY2017 Tranche 1 FY2016 Tranche 2 FY2016 Tranche 1 FY2015 Tranche 2 FY2015 Tranche 3 FY2015 1,703,403 1,703,397 70,762 70,761 37,453 37,453 37,454 CEO Options EPS FY2017 4,000,000 Opening balance Granted during the year Vested during the year Forfeited during the year Number of rights Number of rights Weighted average fair value Number of rights Weighted average fair value Number of rights Weighted average fair value Closing balance Total number of rights 1,169,357 – – 1,169,353 $0.23 $0.36 – – – – 161,291 161,290 $0.23 1,008,066 $0.36 1,008,063 – – – – – – – – – – – – – – – – – – – – – – 37,454 – – – – – – $1.55 984,352 984,349 – – 37,453 37,453 – $0.23 $0.35 – – $1.03 $1.55 – 719,051 719,048 70,762 70,761 – – – – – 2,979,424 $0.11 1,020,576 7,660,683 2,338,710 $0.29 37,454 $1.55 5,345,612 $0.20 4,616,327 – 1,703,403 – 1,703,397 – – – – – 283,048 283,044 112,359 112,359 112,362 $0.23 $0.35 – – – – – – – 141,524 141,522 37,453 37,453 37,454 – – $0.31 $0.75 $1.03 $1.55 $1.55 – – 70,762 70,761 37,453 37,453 37,454 – 1,703,403 – 1,703,397 70,762 70,761 37,453 37,453 37,454 $0.31 $0.75 $1.03 $1.55 $1.55 84,261 – – 67,409 $1.61 16,852 $1.61 – – 4,000,000 987,433 7,406,800 $0.11 $0.19 – – – – 4,000,000 462,815 $0.89 270,735 $0.95 7,660,683 Total 2017 Performance rights Tranche 1 FY2017 Tranche 2 FY2017 Tranche 1 FY2016 Tranche 2 FY2016 Tranche 1 FY2015 Tranche 2 FY2015 Tranche 3 FY2015 Service rights Tranche 2 FY2015 CEO Options EPS FY2017 Total 76 NOTES TO FINANCIAL S TATEMENTS (CO N T IN U ED) Cash rights outstanding at the end of the current financial year had an exercise price of $nil (2017: nil). Performance rights outstanding at the end of the current financial year had an exercise price of $nil (2017: $nil), and the CEO options outstanding at the end of the current financial year had an exercise price of $0.40 (2017: $0.40). The weighted average contractual life of cash rights was 1,097 days (2017: nil). The weighted average contractual life of performance rights was 975 days (2017: 973 days) and the weighted average contractual life of CEO options was 972 days (2017: 973 days). 32.4 Performance and service rights vested during the year Performance rights of 37,454 vested during the year ended 30 June 2018 (2017: 395,406) as a result of the organisational review and management restructure. 32.5 Performance and service rights forfeited during the year There were 322,581 (2017: nil) cash rights, 2,043,607 (2017: 16,852) performance rights and 2,979,424 (2017: nil) options forfeited during the year. 32.6 Share based payments reserve Balance at the beginning of the year Amounts expensed Performance rights vested Performance rights forfeited Performance options forfeited Service rights vested Service rights forfeited Balance at the end of the year 33. Commitments for expenditure Lease commitments Non – cancellable operating lease payments No longer than 1 year Longer than 1 year and not longer than 5 years 30 June 2018 $’000 30,243 832 (11) (346) (328) – – 30 June 2017 $’000 30,248 229 (110) (80) – (19) (25) 30,390 30,243 10,004 11,895 21,899 9,543 10,904 20,447 The Group has no capital expenditure commitments. Lease commitments relate primarily to office leases, display home leases and information technology leases. The operating lease expense for the year ended 30 June 2018 is $8.145m (2017: $8.315m). 77 Simonds Group Annual Report 2018 NOTES TO FINANCIAL S TATEMENTS (CO N T IN U ED) 34. Auditor’s remuneration Audit or review of financial statements Non – audit services – corporate advisory services Tax services The Group’s auditors are Deloitte Touché Tohmatsu. 35. Cash and cash equivalents 30 June 2018 $ 264,500 – 136,691 30 June 2017 $ 345,600 113,874 249,647 401,191 709,121 For the purposes of the consolidated statement of cash flows, cash and cash equivalents include cash on hand and in banks, net of outstanding bank overdrafts. Cash and cash equivalents at the end of the reporting period as shown in the consolidated statement of cash flows can be reconciled to the related items in the consolidated statement of financial position as follows: Cash and bank balances Notes 30 June 2018 $’000 7,010 30 June 2017 $’000 10,204 7,010 10,204 78 NOTES TO FINANCIAL S TATEMENTS (CO N T IN U ED) 35.1. Reconciliation of profit for the year to net cash flows from operating activities Cash flows from operating activities Net profit after tax for the year Add/(deduct): Income tax expense recognised in profit or loss Finance costs recognised in profit or loss Interest received Loss on disposal of Hub Impairment of non-core development land and other current assets Management incentive and share based payments Depreciation and amortisation of non-current assets Movements in working capital (Increase)/decrease in trade and other receivables (Increase)/decrease in inventories Decrease in other assets Increase/(decrease) in trade and other payables Increase/(decrease) in provisions Cash generated by operating activities Interest paid Income taxes refunded Notes 30 June 2018 $’000 30 June 2017 $’000 3,774 205 38 12 1,974 1,280 (2) 285 432 (147) 5,247 12,843 (2,258) (19,722) 1,211 16,628 (165) 8,537 (1,278) 1,441 468 1,728 (1) – 645 (5) 5,020 8,060 10,941 780 208 (13,172) (669) 6,148 (1,728) 2,648 Net cash generated from operating activities 8,700 7,068 35.2. Non‑cash transactions The Group acquired $2.230m of equipment under finance leases in 2018 (2017: $2.168m). The additions are non-cash and not included within investing activities in the consolidated statement of cash flows. 79 Simonds Group Annual Report 2018 NOTES TO FINANCIAL S TATEMENTS (CO N T IN U ED) 36. Parent entity information The parent entity is Simonds Group Limited. The accounting policies of the parent entity, which have been applied in determining the financial information shown below, are the same as those applied in the consolidated financial statements. Statement of financial position Cash at bank Other financial assets Income tax receivables Total assets Intercompany loan payable Trade and other payables Total liabilities Net assets/(liabilities) Issued capital Reserves Accumulated losses Total equity/(deficit) Income statement Subsidiary receivable recovery Operating expense Loss for the year Other comprehensive income, net of income tax Items that will not be reclassified subsequently to profit or loss: Items that may be reclassified subsequently to profit or loss: 30 Jun 2018 $’000 30 Jun 2017 $’000 1 2,294 1,038 3,333 1,618 689 2,307 1,026 12,904 (5,730) (6,148) 1,026 3,638 (295) 3,343 – – – 840 – 840 2,722 575 3,297 (2,457) 12,911 (5,877) (9,491) (2,457) – (2,452) (2,452) – – Total comprehensive loss for the year 3,343 (2,452) 37. Business combinations The Group has made no acquisitions during the financial year ended 30 June 2018. 80 NOTES TO FINANCIAL S TATEMENTS (CO N T IN U ED) 38. Disposal of subsidiary On 19 December 2017, the Group disposed of Hub Property Advisory Pty Ltd, which carried out the project management service business. 38.1 Consideration received Consideration received in cash and cash equivalents Deferred consideration Total Consideration 38.2 Net assets of Hub Property Advisory Pty Ltd at the date of disposal 30 June 2018 $’000 147 41 188 Current Assets Cash and cash equivalents Trade receivables Other assets Deferred tax assets Non‑Current Assets Goodwill Current Liability Trade and payables Provisions Net assets disposed 38.3 Loss on disposal of Hub Property Advisory Pty Ltd Consideration Net assets disposed Loss on disposal 38.4 Net cash inflow on disposal of Hub Property Advisory Pty Ltd Consideration received in cash and cash equivalents Less cash and cash equivalent balance disposed 7 148 18 7 373 (7) (73) 473 188 (473) (285) 147 (7) 140 81 Simonds Group Annual Report 2018 NOTES TO FINANCIAL S TATEMENTS (CO N T IN U ED) 39. Contingent liabilities and contingent assets Contingent liabilities Other guarantees (i) 30 June 2018 $’000 1,652 30 June 2017 $’000 1,465 (i) Represents guarantees for property rentals, project contracts, crossing deposits and merchant facility. The Group has in place a guarantee with a Significant Investor Fund for the acquisition and leaseback of displays. Litigation There are a small number of legal matters relating to the construction of residential dwellings and personal injury claims from employees, contractors or the public that are the subject of litigation or potential litigation. A provision is raised in respect of claims where an estimate may be reliably established, and legal or other advice indicates that it is probable that the Group will incur costs either in progressing its investigation of the claim or ultimately in settlement. Other contracts The Group has entered into contracts to acquire properties. In the normal course of business, third parties will be assigned to purchase the property, however if no third party can be reassigned, then the Group faces an exposure of $2.076m (2017: $0.906m). 40. Subsequent events In August 2018 Simonds signed a revised facility agreement to extend the existing borrowing facilities for 3 years to September 2021. There have been no significant changes to the facility other than an extension of the term. Other than noted above, there have been no events that have occurred subsequent to the reporting date that have significantly affected or may significantly affect the Group’s operations, results or state of affairs in future years. 82 SHAREHOLDER INFORM ATION In accordance with ASX Listing Rule 4.10, the Company provides the following information to shareholders not elsewhere disclosed in this Annual Report. The information provided is current as at 10 September 2018 (Reporting Date). Corporate governance statement The Company has prepared a Corporate Governance Statement which sets out the corporate governance practices that were in operation throughout the financial year for the Company. In accordance with ASX Listing Rule 4.10.3, the Corporate Governance Statement will be available on Simonds website www.simondsgroup.com.au and will be lodged with the ASX at the same time that this Annual Report is lodged with the ASX. Distribution of equity securities The distribution and number of holders of equity securities on issue in the Company as at the Reporting Date, and the number of holders holding less than a marketable parcel of the Company’s ordinary shares, based on the closing market price as at the Reporting Date, is as follows: Ordinary shares Performance rights Performance options Class of equity security Holders 515 87 88 185 63 No. of shares 210,845 278,612 674,434 6,893,372 135,784,392 No. of performance rights – – – – 1,579,623 Holders – – – – 5 No. of performance options – – – – 1,020,576 Holders – – – – 1 938 143,841,655 5 1,579,623 1 1,020,576 Holding 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 and over Total There were 283 holders of less than a marketable parcel of ordinary shares ($500). 83 Simonds Group Annual Report 2018 SHAREHOLDER INFORM ATION (CO N T IN U ED) Twenty largest quoted equity security holders The Company only has one class of quoted securities, being ordinary shares. The names of the twenty largest holders of ordinary shares, the number of ordinary shares and the percentage of capital held by each holder is as follows: Number held 32,800,020 28,480,647 22,370,660 21,485,018 6,425,527 2,089,560 1,967,600 1,962,614 1,626,971 1,572,678 1,164,414 1,000,000 1,000,000 880,000 756,384 600,000 600,000 547,212 500,000 425,000 128,254,305 15,587,350 143,841,655 Percentage of issued shares 22.80% 19.80% 15.55% 14.94% 4.47% 1.45% 1.37% 1.36% 1.13% 1.09% 0.81% 0.70% 0.70% 0.61% 0.53% 0.42% 0.42% 0.38% 0.35% 0.30% 89.16% 10.84% 100.00% Name Simonds Custodians Pty Ltd McDonald Jones Homes FJP Pty Ltd Simonds Constructions Pty Ltd National Nominees Limited Moat Investments Pty Ltd J P Morgan Nominees Australia UBS Nominees Pty Ltd Citicorp Nominees Pty Limited Madisson Constructions Pty Ltd Brispot Nominees Pty Ltd Poal Pty Ltd Mast Financial Pty Ltd Mr Mark Vujovich Mr Robert Stubbs Mr Hoang Huy Huynh Luton Pty Ltd Jet Invest Pty Ltd Mr Philip Williams Intergrala Pty Ltd Other shareholders Total shareholders 84 SHAREHOLDER INFORM ATION (CO N T IN U ED) Substantial Shareholders As at the Reporting Date, the names of the substantial holders of Simonds and the number of equity securities in which those substantial holders and their associates have a relevant interest, as disclosed in substantial holding notices given to Simonds, are as follows: Name Vallence Gary Simonds McDonald Jones Homes Pty Ltd F.J.P. Pty Ltd Total Voting Rights Number held 56,138,895 28,480,647 22,370,660 106,990,202 Percentage of issued shares 39.03% 19.80% 15.55% 74.38% The voting rights attaching to each class of equity security are set out as follows: Ordinary Shares At a general meeting of Simonds, every holder of ordinary shares present in person or by proxy, attorney or representative has one vote on a show of hands and on a poll, one vote for each ordinary share held. Performance Rights Performance rights do not carry any voting rights. Unquoted equity securities 1,579,623 unlisted performance rights have been granted to 5 people and 1,020,576 unlisted performance options have been granted to 1 person. There are no people who hold 20% or more performance rights that were not issued or acquired under an employee incentive scheme. On‑market buy‑back The Company is not currently conducting an on-market buy-back. 85 Simonds Group Annual Report 2018 this page has been left blank intentionally 86 this page has been left blank intentionally 87 Simonds Group Annual Report 2018 this page has been left blank intentionally 88 CORP OR ATE DIREC TORY Directors Iain Kirkwood (Independent, Non-Executive Director and Chairman) Kelvin Ryan (Chief Executive Officer and Managing Director) Neil Kearney (Independent, Non-Executive Director and Chair of Audit and Risk Committee) Delphine Cassidy (Independent, Non-Executive Director and Chair of Nomination and Remuneration Committee) Rhett Simonds (Non-Executive Director) Scott Mahony (Non-Executive Director) Piers O’Brien (Non-Executive Director) Mark Simonds (Executive Director) Company Secretary Donna Abu-Elias Notice of annual general meeting The details of the annual general meeting of Simonds Group Limited are: Date: Time: Address: The Pullman Melbourne Albert Park, 65 Queens Road, St Kilda, Melbourne, VIC 3004 21 November 2018 11:00am (Melbourne time) Registered office Level 4, 570 St Kilda Road, Melbourne, VIC 3004 Postal Address: Locked Bag 4002, South Melbourne, VIC 3205 Telephone: +61 3 9682 0700 ABN 54 143 841 801 Email: company.secretary@simonds.com.au Share register Boardroom Pty Ltd Level 12, 255 George Street, Sydney, NSW 2000 Postal Address: GPO Box 3993, Sydney, NSW 2001 Telephone: 1300 737 760 International: +61 2 9290 9600 Email: simonds@boardroomlimited.com.au Auditor Deloitte Touche Tohmatsu 550 Bourke Street, Melbourne, VIC 3000 Stock exchange listing Simonds Group Limited shares are listed on the Australian Securities Exchange (ASX code: SIO) Corporate website simondsgroup.com.au www.colliercreative.com.au #SGL0005 S i m o n d s G r o u p A n n u a l R e p o r t 2 0 1 8